In a strategic update released this morning, Pennon Group PLC has announced the launch of a fully underwritten £550 million rights issue and rebased dividend to support c.£1 billion of additional investment.

The update also sets out a detailed operational reset from new CEO Keith Haslett to improve operational performance across the Group.

Keith Haslett, Chief Executive Officer, said:

"It's clear from my comprehensive review that Pennon has real strengths, but there are areas where we need to improve and deliver better outcomes for our customers and communities. I have looked hard at how we operate, maintain and invest in our assets, and today we are setting out in detail what we are doing.

“The operational plan, which is already underway, is practical and focuses on clearer accountability with key skills brought back in-house, and more investment where our assets need it most.

“Our Funding Plan, including today's fully underwritten rights issue raising c.£550m from shareholders to invest in the business, means we can deliver these improvements and drive growth supported by a strong balance sheet.

“I am confident this plan will deliver a better service for customers, improve our environmental performance and generate sustainable, growing value for our shareholders."

Strategic update and operational reset - sustained improvement requires fundamental change

Pennon is today setting out its strategic update and a detailed plan to improve operational performance across the Group and generate improved outcomes for its customers and the environment. Sustained improvement requires a fundamental change in how the Group plans, delivers and maintains its assets, together with a step-up in investment to maximise asset health and resilience.

The operational reset is focused on five pillars: people and culture, operational excellence, asset management and reliability, the environmental programme and customer transformation. Actions are already under way including the appointments of a new Chief Asset Officer and Chief People Officer, centralised asset management and the insourcing of leakage technicians.

Increased investment driving improved asset health

Capital investment in the regulated water businesses over AMP8 is now expected to be approximately £3.6 billion, around £1 billion more than Pennon's original plan based on the AMP8 Final Determination.

Pennon continues to expect to achieve efficiencies on the AMP8 totex programme and will reinvest these whilst making incremental investments to improve asset health and outcomes.

Ofwat's cost change process provides the mechanism to recognise certain elements of this investment through RCV2 growth. In its draft determination on the 2026 cost change process, Ofwat provisionally allowed £230 million1 (£190 million in 2022/23 prices), 76% of the amount requested by Pennon. Pennon's representations, which recognised the benefit of the additional investment supported by Ofwat and focused on the need for in-period revenues to ensure near-term cash returns, were submitted on 24 September 2026 and the final determination is expected by not later than 15 December 2026.

Pennon estimates that it will make around £170 million of further investment through the 2027 and 2028 cost change processes, subject to Ofwat approvals, and is targeting total additional RCV from cost change of £400 million.

The total investment programme is expected to deliver RCV growth of over 40% across AMP8, a step up from the 34% set out at the start of the AMP, and equivalent to a compound annual growth rate of approximately 7%.

Funding Plan includes rights issue of approximately £550 million

Pennon has revised its funding plan to reflect the increased investment programme. This includes:

• Continued use of ordinary course debt funding, whilst retaining gearing policy: gearing in the regulated water businesses is targeted at no more than 65% of RCV throughout AMP8, within the long-term gearing policy of 55-65%, with Group gearing expected to be a few percentage points higher but unlikely to exceed approximately 70%;
• Reinvestment of previously identified efficiencies;
• The proposed sale of Pennon Power, with approximately £25 million of proceeds to be reinvested in 'behind the meter' renewable generation at the Group's operational sites and the remainder applied to reduce Group debt;
• A rebased dividend; and
• A fully underwritten rights issue of approximately £550 million launched today to fund the increased investment in the regulated water businesses.

FY2026/2027 rebased dividend to approximately £125 million

The Board recognises the importance of dividend income to shareholders and the need for dividend payments to remain sustainable through AMP8 and beyond.

The total dividend for FY2026/2027 will be rebased to approximately £125 million compared with £138 million for FY2025/2026. The rebased dividend will apply to both the interim and final dividend for FY2026/2027. Taking into account both the reduction in the total dividend and the effect of the Rights Issue, and adjusting for the bonus factor, the implied underlying reduction in dividend per share is approximately 30%, with an expected dividend per share of around 18 pence.

Pennon's dividend policy will continue to be to grow dividend per share in line with CPIH from the rebased level.