7th Oct 2026 09:14
(Alliance News) - Pennon Group PLC on Wednesday announced a heavily discounted rights issue and said it was cutting its dividend as it outlined increased investment plans aimed at improving performance.
In response, shares in the Exeter, England-based water utility slumped 16% to 378.60 pence each in London on Wednesday morning.
Outlining the results of a strategic review, Chief Executive Keith Haslett said it's clear that Pennon has "real strengths, but there are areas where we need to improve and deliver better outcomes".
Pennon said capital investment in the regulated water businesses over AMP8 is now expected to be GBP3.6 billion, around GBP1 billion more than its original plan.
Asset Management Period 8 is the 5-year regulatory and investment cycle for the UK water and sewerage industry in England and Wales, running from April 2025 to 2030.
Pennon said it continues to expect to achieve efficiencies on the AMP8 programme and will reinvest these, whilst making incremental investments to improve "asset health and outcomes".
Pennon estimates that it will make around GBP170 million of further investment through the 2027 and 2028 cost change processes, subject to Ofwat approvals, and is targeting total additional regulatory capital value from cost change of GBP400 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 7%, it said.
Reflecting the increased investment Pennon revised its funding plans. It expects gearing in the regulated water businesses of no more than 65% of RCV throughout AMP8, within the long-term gearing policy of 55% to 65%, with group gearing expected to be a few percentage points higher but unlikely to exceed 70%.
It will reinvest identified efficiencies, and sell Pennon Power, with GBP25 million of proceeds to be reinvested in 'behind the meter' renewable generation and to reduce debt.
More significantly, Pennon plans to cut the total dividend for the financial year ended March 2027 to GBP125 million compared with GBP138 million the year prior. Taking into account the rights issue, the total dividend is expected to be 18p per share compared to 29.29p the year before.
Pennon said its dividend policy will continue to be to grow dividend per share in line with CPIH from this rebased level. CPIH is the consumer prices index including owner occupiers' housing costs.
In addition, Pennon plans to raise GBP550 million via a fully underwritten 7 for 15 rights issue at 250 pence per share. The rights issue price is a 36% discount to a theoretical ex-rights price, based on its 452p closing price on Tuesday.
Pennon said: "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."
By Jeremy Cutler, Alliance News reporter
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