Half Year Results 2025/26

27 November 2025

Pennon Group plc

Half Year Results 2025/26

Pennon Group plc ('Pennon' or the 'Group') today announces its results for the half year ended 30 September 2025.

Susan Davy, Group Chief Executive Officer, commented:

"We have made a robust start to the first half of 2025/26 and the new K8 regulatory period. With a strong return to profitability and disciplined cost control, we are on track financially and growing sustainably. 

Focused on our customers' priorities, we are delivering step change improvements in our wastewater business, with pollution incidents halved compared to last year. This reflects our operational focus and continued momentum of record capital investment over the last two years, thanks to the early mobilisation of our supply chain.

Our strong balance sheet and funding approach position us well to deliver our largest ever capital programme through K8, focused on the four priorities that matter most to our customers - ensuring the availability of safe, clean drinking water as summers become hotter and drier, tackling pollutions and storm overflows, protecting the environment and supporting customers to use less and save more.

As the only water company to have received three successive outstanding business plan ratings, we understand what we do each day really matters. That's why my brilliant colleagues are firmly focused on ensuring we deliver on our five-year plan for the communities we serve, the places they call home, recognising there is always more to do."

FINANCIAL PERFORMANCE

Financial highlights for H1 2025/26

· Strong return to profitability for H1 2025/26, with statutory profit before tax of £65.9 million (H1 2024/25: loss of £38.8 million)

· Step change in underlying EBITDA as a result of disciplined cost management, with savings being released from the restructuring and efficiency programmes

· Regulated water revenue up c.26% year on year, driven by tariff increases and higher demand over the hot summer months, net of reprofiled Final Determination revenue into 2026/27 customer bills

· Continued efficient financing, with £300 million new bond issuances in South West Water demonstrating strong outperformance against the allowed cost of debt

· On track for Return on Regulated Equity^ (RORE) of 7%4, underpinned in 2025/26 by efficient financing, with efficiencies in capital programme offsetting other cost pressures

· Strong start to our K8 capital investment programme, with £304.8 million of capital investment across the Group in H1 - in line with expectations, as programmes continue momentum from K7 run rate

· Interim dividend of £43.7 million (2024/25: interim dividend £42.0 million), resulting in a dividend per share basis of 9.26p.

Operational highlights

· Pollutions Incident Reduction Plan (PIRP) driving results with pollution incidents in 2025 reducing by c.50%5, and our proactive approach has reduced repeat pollutions by c.75%

· Storm overflow spills cut by c.45%5, supported by interventions that avoided c.6,000 spills, bringing a total of c.20,0006 spills avoided over 18 months

· Spill duration down by a quarter over the bathing season and 100% bathing water quality for the fifth consecutive year7

· Water resources position has remained strong through the hot summer, thanks to strategic planning and investment following the 2022 drought, although changing weather fronts have tested the networks

· SES remains top performer for water quality, South West Water upper quartile, Bristol remains above average

· Our award-winning Upstream Thinking programme continues to expand and deliver impact and was recognised with two major industry awards this half year:

o  Biodiversity Challenge Award for Water Management (CIRIA)

o  Natural Capital Initiative of the Year (Water Industry Awards)

· Investment in Pennon Power has continued with two of our four sites, Fife and Aberdeenshire, fully constructed with Aberdeenshire now energised

· Continuing to support our customers with bill affordability, with a c.20% increase in customers on one or more of our support tariffs8. Cash collections remain robust, with debt charges as a percentage of revenue broadly stable

· Launched our £5 million Better Futures Fund.

Outlook

· We are fully supportive of the Government's regulatory reform agenda, and we are actively engaged in Defra's Transition Planning process. We look forward to the publication of the forthcoming White Paper

· In FY 2025/26, we are returning to profitability, with Group underlying EBIDTA expected to increase by c.60%9 year on year

· First year investment underpinning growth in RCV^ of c.8% this year rising by over a third by 2030

· Targeting K8 7% Return on Regulated Equity, underpinned by efficient financing for FY 2025/26

Notes

^ Measures with this symbol are defined in the Alternative Performance Measures (APM) section of this document, underlying measures are presented before non-underlying items

1 Non-underlying items are adjusted for by virtue of their size, nature or incidence to enable a full understanding of financial performance (note 5)

2 Restated to reflect the bonus element of the rights issue commenced in January 2025 in accordance with IAS 33

3 Dividend policy of CPIH. The proposed interim dividend for 2025/26 is increased by 4.1% reflecting an increase in line with CPIH. Dividend per share reflects the share issuance post rights issue with H1 2024/25 restated on this basis.

4 7% RORE - 5.1% base returns, 0.3% enhanced uplift to cost of equity, 1.6% outperformance

5 Reduction over 10 months to October 2025 compared with October 2024

6 Cumulative spills avoided, reflecting impact of wetter weather in 2024

7 On a like for like basis excluding those beaches designated in 2024

8 Since H1 2024/25

9 Assuming normalised demand in the second half of the year

Results presentation

A presentation of the Half Year 2025/26 results hosted by Susan Davy, Group Chief Executive Officer and Laura Flowerdew, Group Chief Financial Officer, will be available at 08:00am (GMT) today, 27 November 2025. This will be followed by a live Q&A session at 08:45am (GMT). The presentation and Q&A session can be accessed here: www.pennon-group.co.uk/investor-information

For further information, please contact:

GROUP CHIEF EXECUTIVE OFFICER'S REVIEW

The first half of 2025/26 marked a strong return to profitability and progress in delivering for our customers, communities and the environment.

Water companies continue to face high expectations from the public, regulators and government. Pennon is meeting these expectations head-on across all the geographies we serve, the Isles of Scilly, Devon and Cornwall, Bournemouth, Bristol and Sutton and East Surrey. We are delivering improved services today, while investing in the long-term resilience and performance our regions need for the future. Whilst there is always more to do, our performance in the first half demonstrates Pennon's ability to lead through regulatory change and deliver sustainable growth.

Our Pennon retail businesses continue to deliver for business customers and are profitable. Pennon Power is continuing its build out of four sites, with Aberdeenshire recently energised and Fife in final commissioning.

A strong start to K8, focused on delivery and efficiency

Our performance this half year reflects the work we have done to reset the business over the last 18 months, reshaping our organisation, strengthening governance, and putting more resources on the frontline than ever before.

These actions, together with the benefits of our operational efficiency programme, are driving a material improvement in financial performance. We are on track to deliver a c.60%[10] increase in underlying EBITDA year on year and we are progressing well with our record capital programme. We are already securing strong efficiencies, helping to offset inflationary and operational pressures. This positions us well to meet our 7% underlying RORE target for K8, supported by our efficient financing strategy and continued strong liquidity, bolstered by our £300 million bond issuance in September.

We have made a strong start on our five-year capital delivery programme with more than 1,000 schemes underway. Our 'amplify' strategic delivery alliance is fully mobilised, and efficiencies are being realised as major projects move from design to construction. Having ramped up expenditure during K7, we have made a fast start with over 60% of the K8 Price Control Delivery programme in progress.

Resilient water supplies through a hot summer

This summer brought unusually hot and dry conditions, increasing demand for water across our five geographical regions. Thanks to the investments we made following the 2022 drought, including new treatment capacity, repurposing former quarries and mines as resilient resource hubs, and targeted network upgrades, we have been able to maintain robust water supplies without restrictions.

While higher demand has put pressure on parts of the network, contributing to increases in leakage and interruptions, we have responded quickly with targeted interventions, enhancing monitoring and network re-zoning. Safe, clean drinking water remains our customers' top priority. We have strengthened our quality assurance framework across all areas, expanding our "Quality First" culture and training programme, and investing in additional monitoring capabilities. Our teams continue to work closely with the Drinking Water Inspectorate (DWI) to embed learning and ensure resilience for the future.

Pollutions halved and storm overflow spills reduced by 45%

We know customers expect to see visible progress on the environment. Pollution incidents in our wastewater network have halved year on year and storm overflow spills have significantly reduced by c.45%. These improvements reflect the early impact of our long-term pollution reduction plan, strengthening pumping station resilience, increasing storm storage, separating surface water from the sewer system, and optimising flows across the network.

This progress also means we are targeting to achieve a net neutral Outcome Delivery Incentive (ODI)^ position in Wastewater Services this year, a first for South West Water since ODIs were introduced.

Supporting customers and keeping bills affordable

We continue to support more customers than ever before through our affordability schemes. As bills rise to fund record investment, we remain absolutely focused on ensuring those who need help receive it, and on helping all customers use less water and save more through metering, efficiency campaigns and targeted tariff designs.

The introduction of profiling tariffs this year has helped smooth customer bills and manage affordability, while regulatory mechanisms ensure reprofiled revenue is recovered in 2026/27[11].

Our people and culture

Everything we deliver is built on the commitment of our colleagues. Our teams have responded with professionalism and resilience throughout a period of intense operational pressure, particularly during the hot summer months. I would like to thank each of them. Their dedication to serving our communities continues to inspire me every day.

As we embed our new operating model, with clear business lines for Water Services, Wastewater Services, Pennon Power and Retail Services, we are building a culture of accountability, technical excellence and customer focus across the Group.

Well positioned for the future

We enter the second half of the year with strong momentum:

· Tangible environmental improvements

· A return to profitability underway

· A stable and efficient financing position to deliver on the K8 growth period

· A major capital programme delivering at pace

· Clear progress on customer priorities

· A clear and resilient regulatory platform for K8.

While there is always more to do, the progress we have made demonstrates the impact of our reshaping and the commitment of our people. We remain absolutely focused on delivering for the customers and communities we serve, today and for the long term.

Making progress on what matters most to customers, delivering on our four priorities

We remain resolutely focused on our customer's key priorities. With record levels of investment to come across K8, we are focused on tackling the use of storm overflows at our beaches and reducing pollutions, protecting water quality and enhancing resilience, driving environmental gains and supporting our customers in making sure their bills are as affordable as they can be, whilst delivering improved services.

Reducing pollutions and tackling the use of storm overflows

We are delivering a step change in our wastewater performance. In 2024, South West Water was confirmed as the only company to reduce pollution incidents, and we have made significant improvements since. In 2025 incidents have reduced by half[12], as a result of our Pollution Incident Reduction Plan delivering benefits across our five pillars. Our proactive approach has reduced repeat pollutions by c.75% in 2025. Using the EA's EPA metric of total pollution incidents per kilometre of main, we are on track to have improved our position for 2025 by two thirds.

In the South West, internal sewer flooding incidents have reduced by over 70% since 2020 and c.12,000 smart network sensors using AI are now helping us detect developing issues earlier and shift from reactive to preventative intervention, supported by CREWW, our partnership with the University of Exeter.

We are also resolutely focused on delivering against our 15-year programme to 2040 to reduce the use of storm overflows. Whilst rainfall has returned to more 'normal levels', our interventions have avoided an estimated 6,000 spills this year (c.20,000[13] over 18 months) with total storm overflow spills reducing by c.45% over the year to date - and we have been targeting our highest spilling sites, making gains across the region.

Over the bathing water season spills have remained consistent, maintaining a c.20% reduction over the regulatory period, and we have seen a c.25% reduction in the duration of these spills. Our long-term storm overflow target of fewer than 10 spills per overflow per year by 2040 remains on track a decade early. Our existing bathing waters have also achieved 100%[14] compliance this year.

Overall, 2025/26 ODIs in wastewater are tracking to be net neutral - a first for South West Water since these were introduced and a demonstration of the growing momentum and capabilities we have built.

Protecting water quality and enhancing water resilience

The top priority for our customers is safe, clean drinking water across all of our regions and we have been investing to enhance resilience and protect water quality.

For Water Services across our geographical regions, H1 2025/26 has been dominated by the record hot, dry spring and summer seasons.

The resultant increased demand put our water resources under increased pressure this year. Despite this, we ended the peak season in a better position than many other areas with all of our operating areas having avoided imposing usage restrictions on our customers despite higher household consumption for the first half of the year.

The changing weather fronts have tested our networks, increasing the number of bursts. Whilst the customer impacts have been mitigated on 70% of these, it has been challenging for the operational teams with water supply interruptions performance in South West Water dominated by a one-off, unforeseen incident at Dousland. Despite the 15% increase in activity, we have held leakage at 2024/25 levels and are targeting improvements in the second half of the year.

Our leakage delivery plans include actions to address not just reported leakage, but also upstream losses (water lost before reaching end user) including a greater numbers of mains repairs. We remain on target for year end mains replacement performance across all operating areas.

We are never complacent about water quality. SES remains the top performer in the industry with South West Water upper quartile across the water and sewerage companies. Whilst Bristol is above average, we are confident that we can do even more as we share best practice. We continue to roll out our successful Quality First culture and training programme in Bristol, with plans to replicate in SES.

Driving environmental gains

A healthy environment is important for our region, and in the face of climate change, ecological decline and greater recreational use of rivers and seas, customers and stakeholders rightly tell us that they expect environmental leadership from us as a priority.

During this half year, our Peatland Programme has been delivering impactful restoration and engagement, including over 350 volunteer hours contributed to vegetation and invertebrate monitoring, 50 stakeholder events engaging regulators and partners, and planned restoration of over 300 hectares involving over 15 stakeholders.

Our award-winning catchment management programme, which has worked in c.95% of our catchments with over 2,000 farms across 144,610 hectares of land, restoring c.5,000 hectares of peatland, is leading the way for biodiversity gains as well as continuing to help the way others manage their land, improve water quality, biodiversity and climate resilience.

Our Upstream Thinking Programme, which has just celebrated its 15th year, has been recognised with two major industry awards during this half year:

· Biodiversity Challenge Award for Water Management (CIRIA)

· Natural Capital Initiative of the Year (Water Industry Awards)

Since we completed our baseline in 2020/21, we have achieved a c.45% reduction in emissions[15]. With our commitment to Net Zero, our investment in Pennon Power has continued with two of our four sites, Fife and Aberdeenshire, fully constructed with Aberdeenshire recently energised and the Fife site (including the co-located 60 MWh battery storage unit) is in final commissioning. The remaining two sites are scheduled to be operational by Q2 2026/27. Pennon Power has contractual protections against the delays incurred at Fife. By 2030, these sites will be generating the equivalent of c.40%[16] of current energy consumption. Equity returns are expected to be in the range of 11% to 15%[17].

Our £20 million investment in CREWW, continues to lead the way with our state-of-the-art microplastics lab, researching some of the most important challenges facing the sector and society, from micro-plastics in sewage sludge, to future fibres and plastics in clothes. And as we look to support the removal of 40,000 lead pipes, supporting the commitment to be lead free by 2050.

Supporting affordability, delivering for customers

This half year has been defined by both increased customer contact and heightened sensitivity to affordability, following bill price rises introduced for our customers and across the wider industry. Understandably, many customers have reached out to discuss their bills and, for some, to seek support in managing payments.

In response to this, we have bolstered our front-line capacity with additional resources to ensure customers can reach us more quickly and receive the right support. This has helped us reduce call waiting times and improve speed to answer. We continue to invest in our new billing system and customer platforms, using AI to improve the customer and contact experience.

We continue to provide tailored help to those who need it most, with over 164,000 customers supported through affordability and payment-assistance schemes - a c.20% increase from H1 2024/25. This number that continues to grow as we extend our reach and partnerships with local authorities and community organisations. This is also coupled with our largest ever package of support of over £200 million to 2030, to help those who are struggling to pay, including providing proactive transfers onto support tariffs where needed. Additionally, our Priority Services Register now has 266,000 customers registered to receive tailored support meaning one in seven households across our Group are now listed. Cash collections remain robust, with debt charges as a percentage of revenue broadly stable.

Over this half year, South West Water hosted 290 drop-in sessions, engaging with over 5,000 customers, with other regions contributing additional sessions and footfall. Customer engagement events were another major success, with South West Water reaching customers through 12 major events, and many smaller ones across our regions.

To provide further support to our communities, Pennon has launched the £5 million Better Futures Fund which has benefitted over 55,000 people to date. £2.5 million of the fund will go towards alleviating hardship, with the remaining £2.5 million for community groups involved with physical activity, education, health and wellbeing, and positive environmental impacts.

We also continue to be fully committed to listening to and engaging with our customers through our WaterShare+ programme, which gives customers both a voice and a stake in how our business is run. Regular customer panels, chaired by independent members and attended by executive leaders, and engagement sessions are held across all our regions including our customer AGM in Bournemouth. These sessions give customers the opportunity to share their views on our performance and record investment plans. With nearly 100,000 shares now issued, and an ambition to reach one in ten customers as shareholders by 2030, WaterShare+ remains a unique way of deepening trust, transparency and accountability across Pennon.

Record investment and growth for K8

By accepting our Final Determination early, we secured funding certainty, raised equity from our investors and moved straight into K8 mobilisation. We have delivered a strong start to investment in K8, with £304.8 million in the first half of 2025/26 which is on track and in-line with our expected early phase of investment. This is being supported by our capital delivery supply chain partnership 'amplify' through which we have over 1,000 deliverables mobilised, representing around one-third of K8 investment, focused on resilience, environmental outcomes and customer experience.

By partnering with amplify, we have secured some of the best talent and organisations across a range of suppliers and local partners to help deliver our largest ever capital programme efficiently. 23 frameworks have been up and running since 2024, delivering a combination of hundreds of transformative and targeted interventions shaped by our customers' priorities. Our £760 million Turning the Tide initiative, a transformative environmental programme, is already underway focused on tackling storm overflows at our region's bathing beaches - with the major project in Dawlish soon to complete.

100% of our Year-1 WINEP[18] schemes are also underway with our delivery partners, and all water and wastewater schemes remain on track. Strong efficiencies are being secured as projects progress from design into delivery, with c.£100 million of totex^ outperformance identified.

Our investment in Pennon Power of £25.2 million during this half year reflects the accelerated progress across the sites and the ongoing commitment to deliver the Group's Net Zero targets, as well as offsetting energy price volatility across the Group once sites reach operation.

Shaping and supporting regulatory reform

This is a year of significant change for our sector, with the Independent Water Commission's Final Report in the Summer setting a clearer and more coherent long-term direction for how the water system should be planned, regulated and governed. The Commission's recommendations aim to deliver a more transparent, accountable, and outcomes-focused framework that can support the scale of environmental and resilience investment the country now requires.

Pennon has been closely engaged throughout the review process, shaping proposals that support long-term system planning, stronger alignment across sectors and a regulatory environment that is both rigorous and investable. We welcome the ambition to create a framework that provides clarity over the long term while maintaining high standards of performance and accountability.

The process of moving from recommendation to implementation is now underway. Government has already outlined early commitments, including steps towards establishing a new single regulator bringing together Ofwat and the Drinking Water Inspectorate, with water functions from the Environment Agency and Natural England, the creation of a statutory water ombudsman, greater transparency through enhanced monitoring, a regional element in the new regulator and a commitment to investability. These initial developments signal positive momentum and provide early clarity for companies and investors as the new arrangements take shape.

We also support the direction towards a more streamlined, outcomes-focused performance framework. A smaller number of clearer incentives, aligned to the priorities that matter most for customers and the environment, will help strengthen transparency and provide a more stable basis for long-term investment.

A core theme of the Commission's work is the need to restore confidence in the sector's investment framework. Achieving national goals on water quality, resilience and asset health will require sustained, long-term capital investment, underpinned by a regulatory regime that recognises risk and enables a fair and stable return. We strongly support this direction. Through Water UK, and directly with Government and regulators, we are working constructively to support transition planning and ensure that the emerging arrangements deliver a system that is investable, aligned with long-term priorities and able to support delivery at pace.

We expect the reforms to deliver:

· Clear long-term direction for UK water

· New single regulator and supervisory regime

· Customer focused

· Clear plans for improving water quality

· Securing water resilience

· A fair deal for investors, balancing risk and reward.

Pennon remains well positioned to play a leading role as the sector enters this next phase of reform, while continuing to invest for customers, communities and the environment.

K8 reporting frameworks - a more holistic view of performance

Under the EA's recently announced EPA guidance for 2026-2030, the sector will see a significant increase in reportable pollution incidents due to the changes made. In particular, South West Water's underlying operational performance will be better reflected under the new and balanced methodology.

The newly refreshed Water Company Performance Report (WCPR), which categorises companies as leading/average/lagging, also provides a clearer comparison across companies, and reflects a broader range of performance measures - not just ODIs. SES Water is expected to return to 'average' after last year's one-off event, demonstrating the framework recognises credible recovery and sustained improvement.

Our people

With a history and heritage built up over many years, we continue to learn, innovate and grow. Everyone who works at Pennon is fiercely proud of our heritage in the water sector, with generations of fathers, sons, mothers and daughters, who have dedicated their lives to water, and I am extremely proud of our brilliant teams. It's not always been easy for them with a sector in the spotlight. As President of the Institute of Water, I was therefore delighted to host our 80th anniversary celebration in Plymouth in September, showcasing the best of what we do across Pennon, and marking eight decades of developing our people and the sector.

Our c.3,600 talented colleagues don't just bring water to life every day; we drive economic growth, and break down barriers to opportunity, supporting livelihoods in the areas we serve. As one of the largest private employers in the South West, and across the Group, leadership is all about making this a great place to work, and a safe place to work. Our Glassdoor external assessments are now tracking towards best-in-class levels. Our health and safety track record has improved for the past five years, as we focus on making sure everyone who works for us and with us, goes home safe every single day, through our Home Safe culture programme, and with our lowest ever LTIFR[19] rate, which has halved over the last five years.

Our partnerships with the wider supply chain and our 'amplify' alliance more than doubles our workforce and plays a critical role in the regions too. As a living wage employer, we continue to invest in skills and jobs, with our earn and learn approach and have just been awarded platinum status member of the 5% club for the second year running. With our 680 apprenticeship and graduate placements we are well on with our own target of 1,000 by 2030. We are focused on making sure we have the talent and trained colleagues we need across the sector for our record investment and delivery. 

GROUP CHIEF FINANCIAL OFFICER'S REVIEW

The Group has delivered a strong return to profitability in the first half of the 2025/26 financial year, consistent with the expectations outlined in our September Trading Statement. This performance reflects the strength of our core operations, the impact of regulatory outcomes, and the disciplined execution of our integration and operational efficiency agenda despite ongoing inflationary and cost pressures.

Group revenue increased by 24.8% to £658.1 million (H1 2024/25: £527.2 million), primarily driven by the benefit of increased regulatory revenue allowances (net of c.£20 million of revenue reprofiled into 2026/27 customer bills) and higher consumption. This uplift reflects revised tariff structures and enhanced service obligations under the regulatory framework, supporting our long-term investment and service delivery plans.

Group operating costs rose by 11.0% year on year to £403.7 million (H1 2024/25: £363.7 million), principally reflecting wholesale water costs in the retailers (across their national customer base) increasing by c.22%, with operating costs for the Water Group rising broadly in line with inflation.

Underlying EBITDA increased by 55.6% to £254.4 million (H1 2024/25: £163.5 million), demonstrating the operational leverage achieved through revenue growth and cost discipline.

Depreciation and amortisation rose modestly to £95.8 million (H1 2024/25: £94.0 million), reflecting the Group's expanding asset base from the ongoing capital investment programme.

Net financing costs increased to £93.4 million (H1 2024/25: £88.6 million), reflecting higher levels of borrowing to support the K8 capital programme and strategic investment in Pennon Power.

As a result, the Group reported a statutory profit before tax of £65.9 million, a step change from the £38.8 million statutory loss before tax reported in H1 2024/25.

Our integration and operational efficiency programmes continue to deliver material benefits. As of 30 September 2025, we have fully delivered our target efficiencies and operational benefits, supported by efficiencies achieved through the integration of both Bristol Water and SES Water, and the reshaping of the Group to right size and right source the skills and delivery capability we need to meet our ambitious plans to 2030.

Capital expenditure during the period totalled £304.8 million, reflecting our commitment to delivering improved services, network resilience, and environmental outcomes across our regions. This includes £25.2 million invested in Pennon Power, supporting our renewable energy and decarbonisation strategy. Our Water Group investments are aligned with our K8 delivery roadmap and underpin our ability to meet our stretching performance commitments.

Pennon Group gearing, based on net debt (excluding other non-cash indebtedness) at 30 September 2025 and expected shadow RCV at 31 March 2026, was 63.2%, comfortably within our policy parameters whilst our Water Group gearing remained strong at 59.8%, and South West Water at 60.1%.

Both South West Water and SES Water continue to maintain strong investment-grade credit ratings, enabling access to competitive financing. In September, South West Water successfully executed a 6-year £300 million bond issuance in the public sterling market, providing 109 basis points of outperformance against the iBoxx, further strengthening our liquidity position and funding capacity. Total new borrowings to September 2025 across the Group totalled £515 million.

In line with Pennon's 2025-2030 dividend policy of CPIH, the Board has declared an interim dividend of 9.26 pence per share for the half year ended 30 September 2025 (H1 2024/25: 12.14 pence per share, restated[20]). This reflects our continued confidence in the Group's financial strength and long-term value creation strategy.

Group performance - summary

*includes water segment wholesale elimination

The Group's revenue for H1 2025/26 was £658.1 million (H1 2024/25: £527.2 million) an increase of 24.8% year on year. Water Group revenue increased by £105.6 million or 25.6%, driven by the positive impact of the Final Determination, which was accepted at the start of the calendar year for both South West Water and SES Water, net of c.£20 million allowed revenues reprofiled into 2026/27. These regulatory changes have provided a stable platform for growth and a reset for the K8 regulatory period. Non-household retail revenue increased by £25.8 million to £135.8 million.

Overall, the Group's underlying EBITDA has increased 55.6% from £163.5 million to £254.4 million. This has been supported by the increase in Water Group revenue and continued focus on operational efficiency, underscoring the resilience of our business model and the benefits of strategic investment in transformation initiatives.

Cash collections across the Group have remained robust during the financial year. Expected credit loss charges for H1 2025/26 of £9.0 million (H1 2024/25: £6.5 million) for the Group (1.4% of revenue) are broadly in line with previous levels (H1 2024/25: 1.2%), reflecting effective management of customer debt, despite the increase in tariffs, and our ongoing commitment to affordability and support schemes for those in need.

The Group reported a statutory profit before tax of £65.9 million (H1 2024/25: loss of £38.8 million) with £nil non-underlying items (H1 2024/25: £20.2 million). The Group recognised an underlying profit before tax of £65.9 million (H1 2024/25: underlying loss of £18.6 million).

Segmental performance - Water businesses

The Water Group has seen revenue increase by 25.6% in H1 2025/26 from £412.9 million to £518.5 million. This growth reflects tariff increases resultant from the commencement of the K8 regulatory period, coupled with higher year on year customer usage, offset by customers choosing to move to metered supply and tariff impacts being managed across the five year regulatory cycle.

Underlying operating costs for the Water Group amounted to £262.0 million in H1 2025/26 (H1 2024/25: £246.9 million) an increase year on year 6.1%. This increase reflected inflationary cost pressures of c.4% (in-line with inflation), and additional one-off costs of c.£9 million including c.£4.0 million in customer compensation from the Dousland water supply incident. Our efficiency programme has delivered benefits, helping to mitigate these pressures whilst hedging of power prices has resulted in lower year on year power prices.

The Water Group's underlying EBITDA increased by 54.5% year on year to £256.5 million.

Underlying operating profit for the Water Group has more than doubled, up 115.5% to £162.5 million (H1 2024/25: £75.4 million) reflecting the improved EBITDA performance, offset by an increase in the depreciation charges of £3.4 million compared to last year, in line with our ongoing capital investment programme.

Net finance costs of the Water Group in H1 2025/26 of £94.6 million (H1 2024/25: £89.9 million), reflect an effective interest rate^ of 5.6% (H1 2024/25: 5.4%) The year on year increase of £4.7 million was as a result of higher debt, funding the ongoing capital programme, partially offset by lower interest rates.

The Water Group's statutory profit before tax was £67.9 million (H1 2024/25: loss of £34.0 million) after non-underlying items of £nil (H1 2024/25: £19.5 million), marking a significant improvement in financial performance.

The Water Group's capital expenditure in H1 2025/26 was £279.2 million (H1 2024/25: £315.8 million), a continuation of the high levels of investment required during K8.

Segmental performance - Non-household retail

Our non-household retailers, Pennon Water Services[21] and SES Business Water, have seen a total revenue increase of 23.5% to £135.8 million[22] (H1 2024/25: £110.0 million) in line with underlying tariff increases across wholesale water charges. This has resulted in increased market engagement by customers, with our retailers focusing on providing strong customer service and continuing to target high quality, sustainable customers to retain existing and new customers.

Operating costs have increased during the half year due to the underlying wholesale increases; other operating costs remain under control despite cost pressures from rising employee and supplier costs.

During the half year, Pennon Water Services incurred additional spend regarding IT system enhancement work, which will drive efficiencies and improved customer service once in place. As a result, non-household retail EBITDA has decreased this half year period to £3.4 million (H1 2024/25: £4.6 million).

The businesses continue to maintain focus on targeting high quality, sustainable customers who will benefit from the value-added services, with new annualised contract wins of c.£9.1 million secured during the first half of the year.

Segmental performance - Other

The Other segment comprises the result of Pennon Group plc company and other Group businesses, including the ancillary businesses of SES. The Other segment contributed an underlying loss before tax of £3.5 million in H1 2025/26 (H1 2024/25: loss before tax of £6.7 million) with non-underlying items of £nil (H1 2024/25: £0.7 million).

Group finance costs (net)

Net financing costs of £93.4 million (H1 2024/25: £88.6 million) reflect an increase of £4.8 million year on year, this is primarily due to a £21.4 million increase relating to new debt facilities, offset by lower inflation and interest rates (£12.6 million), increased interest receivable as a result of higher cash levels (£5.2 million) and capitalised interest has remained stable as we continue to invest at the same run rate for our capital programme (£12.6 million) (H1 2024/25: £12.1 million).

Net financing costs for the Water Group (£94.6 million) reflect the decreasing inflation rates offset by increased levels of borrowing in South West Water. If the indices on index-linked borrowings had been on average 1.0% higher/lower, with all other variables held constant, this would equate to a c.£7.0 million increase/reduction in the interest charge.

South West Water continues to secure funding through its Sustainable Financing Framework and to ensure at least 85% of its interest rate risk is mitigated in line with the Group Treasury Policy, which is achieved both through issuing fixed rate debt and effective interest rate hedging, with a further element being index-linked.

Share of post-tax profit from associated companies

The Group has a 30% interest in Water2Business Limited (W2B), a water retailer joint venture with Wessex Water. This investment is accounted for under the equity method and as the financial performance improves as it has gained scale, we have recognised £0.7 million of profit after tax in our H1 2025/26 results (H1 2024/25: £0.5 million), an increase of 40.0%.

Responsible approach to tax

We are proud of our responsible approach to tax and continue to be fully committed to paying our fair share of tax and acting in an open and transparent manner in relation to our tax affairs.

The Group is pleased to confirm it has once again maintained the Fair Tax Mark accreditation, having been the first water company to achieve this status in the UK. This is the eighth year in succession that the Group has been awarded the accreditation. Achieving the Mark demonstrates that we are paying the right amount of Corporation Tax at the right time and applying the gold standard of transparency.

The overall H1 2025/26 tax charge for the Group was £8.6 million (H1 2024/25: credit of £8.8 million). On an underlying basis, the tax charge for H1 2025/26 for the Group of £8.6 million (H1 2024/25: credit of £3.9 million) consisted of:

· Deferred tax charge of £8.7 million (H1 2024/25: credit of £4.0 million). This charge primarily arises in relation to capital allowances in excess of depreciation charged across the Group, largely due to full expensing. This is partially offset by a current year deferred tax credit in relation to tax losses carried forward for utilisation in later periods

· Current tax credit of £0.1 million (H1 2024/25: charge of £0.1 million) relating solely to prior year items.

There was a non-underlying deferred tax charge in the year of £nil (H1 2024/25: credit of £4.9 million) relating to the non-underlying items.

The Group continues to generate tax losses, all of which are carried forward for future relief. These tax losses arise as a result of the enhanced capital allowances available because of full expensing and first year allowances, pension payments made during recent years where tax relief is now due, and capitalised interest, which for tax purposes is deductible in the year incurred.

Given the Group's continued capital investment programme and full expensing deductions together with 50% first year allowances on long life assets and integral features, the Group does not expect to generate taxable profits for the foreseeable future and therefore does not expect to make any corporation tax payments in the immediate future.

Earnings per share

The Group has recorded a statutory earnings per share of 12.1 pence per share for the half year ended 30 September 2025 (H1 2024/25: loss of 8.8 pence per share, restated[23]), reflecting the improved financial performance of the Group year on year.

Our adjusted earnings per share excludes the impact of deferred tax charges and non-underlying items. For the Group, we have generated adjusted earnings per share for H1 2025/26 of 14.0 pence (H1 2024/25: loss of 5.5 pence per share, restated23).

Movement in Net debt

The Group's cash flow from operating activities for H1 2025/26 was £261.5 million (H1 2024/25: £125.4 million). 

Net interest payments in H1 2025/26 were £95.4 million (H1 2024/25: £60.5 million) with the higher payment in 2025/26 driven by increased debt consequent on our ongoing record levels of capital investment.

Capital investment has resulted in capital expenditure cash outflows in H1 2025/26 of £285.4 million (H1 2024/25: £355.9 million).

Other significant movements in net debt in H1 2024/25 include payment of our interim and final dividends for 2024/25 totalling £133.7 million (interim and final dividends for 2023/24: £126.9 million) and £6.6 million (H1 2024/25: £7.1 million) of non-cash indexation on our loan instruments.

Net debt

The Group's net debt on a statutory basis at 30 September 2025 was £4,339.3 million (31 March 2025: £4,078.2 million). This includes acquisition-related fair value adjustments of £106.6 million (31 March 2025: £109.8 million) which are released over the life of the related debt instruments and other non-cash accounting adjustments of £31.1 million (31 March 2025: £32.2 million). The Group's net debt position excluding these adjustments is £4,201.6 million (31 March 2025: £3,936.2 million).

Robust liquidity and flexible funding strategy

As at 30 September 2025, the Group had £1,107.2 million of cash and committed facilities (31 March 2025: £1,036.1 million). This consists of cash and cash deposits of £547.2 million (31 March 2025: £476.1 million), including £58.4 million (31 March 2025: £58.2 million) of restricted funds representing deposits against future obligations, and £560.0 million (31 March 2025: £560.0 million) of undrawn committed facilities.

Since 31 March 2025, the Group has secured £515 million of new debt, through its diverse portfolio of debt, consisting of:

· £150 million in private placements with an average maturity of c.5 years

· £300 million in public bond issuances under our EMTN[27] programme

· £65 million of new term loans and leasing with an average maturity of 6 years (currently undrawn).

An additional £85 million of new and renewed revolving credit facilities have been signed to support the prefunding position - these remain undrawn.

The bond issuance continues to utilise our £2.5 billion EMTN programme, which allows us to issue funding across the forthcoming regulatory period to fund the growth in the business and improvement in services reflected in our Business Plan.

Pennon Group company raised a further £150 million to support the Group and refinance a loan facility, whilst the market remains challenging for non-operating company financing, the financing reflects the support available to the business and the level of understanding of the sector by debt investors.

Resulting from the changes above coupled with drawdowns of new debt during the year, South West Water gross debt at 30 September 2025 was £4,076.0 million (31 March 2025: £3,815.9 million). The debt has a maturity of up to 32 years with a weighted average maturity of 12 years.

South West Water net debt at 30 September 2025 is a mix of fixed/swapped (£2,641.2 million, 72.3%), floating (£234.3 million, 6.4%) and index-linked borrowings (£777.4 million, 21.3%), which reflects our diverse debt portfolio. Where appropriate, derivatives are used to fix the rate on floating rate debt.

At 30 September 2025, the Water Group net debt to RCV stood at 59.8% with an average cost of debt of 5.6%.

South West Water's net debt to RCV ratio[28] stood at 60.1% (31 March 2025: 62.0%). This is due to the increase in RCV in the current year, consequent on capital investment, whilst net debt has benefitted from stronger operating cashflows, offset by ongoing capital investment. South West Water's cost of finance, with an effective interest rate in 2025/26 of 5.5% (31 March 2025: 5.4%), continues to benefit from the diverse portfolio of debt, providing over 160 basis points of outperformance in H1 2025/26. 

SES Water's net debt portfolio predominantly reflects index linked and fixed rate debt, based on the legacy portfolio acquired at the date of acquisition. Subsequent to the equity injections in 2024/25, SES Water's gearing levels relative to RCV have reduced to 55.9%, with recognition from Ofwat of their improving financial resilience as a result of Pennon's ownership. The effective interest rate on the SES debt book is 8.2%. As a material component of this debt book is index linked, it is anticipated this rate will decrease as UK inflation rates reduce. In addition, over time, as the legacy debt matures, we anticipate it will also benefit from being part of the diverse debt portfolio and hedging strategy employed by the wider Group.

Return on Regulated Equity (RORE)

We continue to target a return on regulated equity of 7% over the five year period, and are on track to deliver in the current year through efficient financing costs[29], with totex benefits offsetting potential ODI penalties.

Dividends

In January 2025, the Board announced our dividend policy to 2030 of growing the base dividend in line with CPIH. As a result, a final dividend of 19.43 pence per share was declared for the year ended 31 March 2025. For H1 2025/26, the Board are recommending an interim dividend of 9.26 pence per share.

The proposed interim dividend for 2025/26 is increased by 4.1% year on year to £43.7 million (2024/25: £42.0 million). This reflects an increase in line with CPIH. The comparison on a per share basis reflects the new shares issued under our rights issue commenced in January 2025. Current year interim dividends are covered 5.8 times by underlying EBITDA (2024/25: 3.9 times). Pennon Group plc has substantial retained earnings and a sustainable balance sheet to support its stated dividend policy. The strong fundamentals of its principal operating subsidiary, South West Water Limited, underpin this policy with its strong RORE and growing RCV. Dividends are charged against retained earnings in the year in which they are declared.

 TECHNICAL GUIDANCE FOR FY 2025/26

*Underlying basis

PRINCIPAL RISKS AND UNCERTAINTIES

Principal Risks

During the year, there have been continued sector specific and broader geopolitical developments that have created an environment of continued heightened risk and uncertainty. Notwithstanding that from a regulatory perspective there is certainty as a result of the PR24 Final Determination, there remains continued focus on the financeability of the broader sector as well as ongoing government-commissioned reviews of the sector, the impact of global trade wars and of the continued war in Ukraine impacting operational costs and energy prices.

The Board has carried out a detailed review of the Group's principal risks in the context of the Group's strategic objectives and priorities as well as the external environment within which it operates. This has included:

· Confirming that the Group's risk appetite statements remain appropriate.

· Receiving and reviewing updates on the Group's principal risks, including movements in the risk exposure.

· Undertaking horizon scanning of emerging risks and trends.

· Performing deep dive reviews into key risk areas.

· Through the Audit Committee, confirming the effectiveness of the risk management and internal control framework.

The Group's principal risks are:

Law, Regulation and Finance

1. Changes in Government policy

2. Changes in regulatory frameworks and requirements

3. Non-compliance with laws and regulations

4. Inability to secure sufficient finance and funding, within our debt covenants, to meet ongoing commitments

5. Non-compliance or occurrence of an avoidable health and safety incident

6. Failure to pay all pension obligations as they fall due and increased costs to the Group should the defined benefit pension scheme deficit increase

Market and Economic Conditions

7. Macro-economic near-term risks impacting on inflation, interest rates and power prices

Operating Performance

8. Failure to secure, treat and supply clean drinking water

9. Failure to improve wastewater performance resulting in environmental commitments not being delivered

10. Failure to provide excellent service or meet the needs and expectations of our customers and communities

11. Inability to attract and retain staff with the skills to deliver the Group's strategy

Business Systems and Capital Investment

12. Insufficient capacity and resilience of the supply chain to support the delivery of the Group's operational and capital programmes in K8

13. Inadequate technological control or cyber-attack results in a breach of the Group's assets, systems and data

Financial Timetable

* Subject to obtaining shareholder approval at the 2026 Annual General Meeting

CAUTIONARY STATEMENT IN RESPECT OF FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements relating to the Pennon Group's operations, performance and financial position based on current expectations of, and assumptions and forecasts made by, Pennon Group management which may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified in this Report by words such as "anticipate", "aim", "believe", "continue", "could", "due", "estimate", "expect", "forecast", "goal", "intend", "may", "outlook", "plan", "probably", "project", "remain", "seek", "should", "target", "will", "would" and related and similar expressions, as well as statements in the future tense. All statements other than of historical fact may be forward-looking statements and represent the Group's belief regarding future events, many of which, by their nature, are inherently uncertain and outside the Group's control. Various known and unknown risks, uncertainties and other factors could lead to substantial differences between the actual future results, financial situation, development or performance of the Group and the estimates and historical results given herein. Important risks, uncertainties and other factors that could cause actual results, performance or achievements of Pennon Group to differ materially from any outcomes or results expressed or implied by such forward-looking statements include, among other things, changes in Government policy; regulatory and legal reform; compliance with laws and regulations; maintaining sufficient finance and funding to meet ongoing commitments; non-compliance or occurrence of avoidable health and safety incidents; tax compliance and contribution; failure to pay all pension obligations as they fall due and increased costs to the Group should the defined benefit pension scheme deficit increase; non-recovery of customer debt; poor operating performance due to extreme weather or climate change; macro-economic risks impacting commodity and power prices and other matters; poor customer service and/or increased competition leading to loss of customer base; business interruption or significant operational failure/incidents; difficulty in recruitment, retention and development of skills; non-delivery of regulatory outcomes and performance commitments; failure or increased cost of capital projects/exposure to contract failures; failure of information technology systems, management and protection, including cyber risks; and all other risks in the Pennon Group Annual Report published in June 2025. Such forward looking statements should therefore be construed in light of all risks, uncertainties, and other factors, including without limitation those identified above, and undue reliance should not be placed on them. Nothing in this report should be construed as a profit forecast.

Any forward-looking statements are made only as of the date of this document and no representation, assurance, guarantee or warranty is given in relation to them including as to their accuracy, completeness, or the basis on which they are made. The Group accepts no obligation to revise or update publicly these forward-looking statements or adjust them as a result of new information or for future events or developments, except to the extent legally required.

UNSOLICITED COMMUNICATIONS WITH SHAREHOLDERS

A number of companies, including Pennon Group plc, continue to be aware that their shareholders have received unsolicited telephone calls or correspondence concerning investment matters which imply a connection to the company concerned. If shareholders have any concerns about any contact they have received, then please refer to the Financial Conduct Authority's website www.fca.org.uk/scamsmart. Details of any share dealing facilities that the Company endorses will be included in Company mailings.