Pennon Group (LSE:PNN) has launched a fully underwritten rights issue of approximately £550m and rebased its dividend, as the South West water utility moves to fund a c.£1bn increase in its regulated investment programme.
Capital investment in the regulated water businesses over the current five-year regulatory period, AMP8, is now expected to reach approximately £3.6bn, up from Pennon's original plan under the AMP8 Final Determination.
The increase follows a strategic review by new chief executive Keith Haslett, who set out a detailed operational reset built around five pillars: people and culture, operational excellence, asset management and reliability, the environmental programme and customer transformation.
Pennon reported a return to statutory profit for the year ended 31 March, with pre-tax profit of £114.4m against a £72.7m loss the prior year, and underlying EBITDA up 55% to £519.2m, as it mobilised a c.£3.2bn AMP8 investment programme alongside a separate c.£250m submission to Ofwat for additional asset-health funding; the rights issue effectively lifts that investment ambition further.
Actions already under way include the appointment of a new Chief Asset Officer and Chief People Officer, centralised asset management and the insourcing of leakage technicians.
"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," Haslett said.
The total dividend for the 2026/2027 financial year will be rebased to approximately £125m, down from £138m in 2025/2026, with the reduction applying to both the interim and final dividend.
Accounting for the rights issue and bonus factor, the implied underlying cut in dividend per share is approximately 30%, with dividend per share expected at around 18p; Pennon's policy remains to grow dividend per share in line with CPIH from the rebased level.
The funding plan also includes the proposed sale of Pennon Power, with approximately £25m of proceeds to be reinvested in "behind the meter" renewable generation at Pennon's operational sites and the remainder used to cut Group debt.
Pennon is targeting gearing in the regulated water businesses of no more than 65% of regulatory capital value (RCV) throughout AMP8, within its long-term 55-65% policy range, with Group gearing expected to run a few percentage points higher but unlikely to exceed approximately 70%.
On the regulatory side, Ofwat's draft determination on the 2026 cost change process provisionally allowed £230m (£190m in 2022/23 prices), 76% of the amount Pennon requested; Pennon submitted its representations on 24 September, with a final determination expected by 15 December.
Pennon estimates a further £170m of investment through the 2027 and 2028 cost change processes, subject to Ofwat approval, targeting total additional RCV from cost change of £400m and RCV growth of over 40% across AMP8, up from the 34% set out at the start of the period.