Pennon’s 55% EBITDA surge: strong rebound, but weather bites
Pennon Group’s trading update packs a punch: EBITDA is up by around 55% year on year for the period to 9 March 2026. That’s earnings before interest, tax, depreciation and amortisation – a clean measure of operating performance. Management flags higher costs from extreme weather and the first year of the new regulatory cycle, but even so, underlying profitability is expected to land within market expectations for 2025/26, albeit at the lower end.
In plain English: operations are running hotter than last year, but storms have kept a lid on how much of that falls through to the bottom line. The company still expects a “robust return to profitability” for the full year.
Wastewater progress despite extreme rainfall
The wastewater story is the standout operational improvement. Pennon reports:
- Pollutions down by around 40% year on year.
- “Normalised” pollutions down by around 55% using the Environment Agency’s EPA metric, which adjusts for sewer length.
- Storm overflow use down 17% year on year, with spill duration cut by around 25%.
These gains come despite South West England taking roughly 150% of average rainfall in November and December. That’s a tough backdrop. The company attributes progress to substantial infrastructure investment and a Pollution Incident Reduction Plan that is “delivering tangible improvements”.
Water services stay resilient through storms
On the clean water side, water quality performance is described as “upper quartile” for South West Water and SES Water, and water resources exceed target levels – helped by both resilience measures and high rainfall.
Storm Goretti and Storm Chandra caused power outages that hit operations, prompting a rapid response. Customer disruption was minimised, but the reactive work increased mains burst repairs and leakage remediation. The impact shows up in costs and in performance incentives.
ODIs and RORE: why incentives and returns matter
Two bits of jargon to decode:
- ODIs (Outcome Delivery Incentives) are the regulator’s carrots and sticks for service performance. Good performance earns rewards, poor performance triggers penalties.
- RORE (Return on Regulated Equity) is a key measure of profitability in the water business, reflecting returns earned against the equity portion of the regulated asset base.
Pennon is targeting a 7% RORE over K8 (the current price control period). For this year (FY26), financing and capex (capital expenditure) efficiencies help, but they are “partially offset by net ODI penalties” due to weather-driven operational pressures. The company also expects a net ODI penalty across water and wastewater for the full year 2025/26.
Translation: Pennon is squeezing more value from funding and project delivery, but storm-related service hits will cost money via the incentive framework. The 7% RORE target remains, yet near-term penalties nibble at returns.
AMP 8 delivery: Year 1 on track with efficiency wins
Pennon says it mobilised early for AMP 8 – the eighth asset management period’s capital programme. Year 1 price control deliverables are on track, and cost efficiencies are “being successfully realised” as projects move through design. Increased investment in base maintenance aims to support outcomes as the programme scales.
Crucially, management highlights a “robust liquidity and balance sheet,” supporting the biggest capital programme in Pennon’s history. No new funding numbers are disclosed in this update, but the tone is confident on execution and financing.
Pennon Power: two sites live, 40% self-generation by FY27
Energy costs and resilience matter, particularly in a stormy winter. Pennon Power now has two renewable sites energised – Dunfermline (Fife) and Cullerlie (Aberdeenshire). The remaining two are progressing towards connection. When all four are operational by the end of FY27, the portfolio is expected to generate the equivalent of 40% of the Group’s total energy consumption (excluding SES, and including battery storage).
The company says the portfolio remains on track to deliver returns in line with its investment case. That should help dampen energy price volatility over time and support decarbonisation goals.
Regulatory investigations and leadership change
On legacy issues, Pennon says it is progressing towards closure of regulatory investigations:
- Environment Agency prosecutions for wastewater incidents from 2015-2021 are moving through court processes, with conclusion expected during 2026.
- The Drinking Water Inspectorate court process for the 2024 water quality incident is also progressing, with a conclusion expected in Summer 2026.
The group continues to support the authorities. Separately, as announced on 10 February 2026, Keith Haslett will join as Chief Executive Officer on 1 April 2026. Fresh leadership aligns neatly with the early stages of AMP 8 delivery.
Investor take: solid operational momentum, weather drag on incentives
There is a clear split-screen here. On one side, wastewater performance is improving sharply, storm overflow use is falling, water quality remains strong, and the capex programme is moving efficiently. On the other, exceptional rainfall is pushing up operational costs and dragging on ODIs, nudging full-year profitability to the lower end of expectations.
My read: the operational trajectory is encouraging, and the 55% uplift in EBITDA underlines that management is extracting efficiencies even in a difficult winter. The net ODI penalty is a negative – it reduces near-term value creation – but it is weather-driven and sits alongside meaningful service improvements that should support medium-term incentive potential. The 7% RORE target over K8 is a useful anchor, though investors will want to see the scale of penalties at the full-year stage.
Energy self-generation via Pennon Power is a quiet positive. As more sites connect by FY27, it should buffer energy costs and bolster sustainability credentials. The upcoming CEO change and expected resolution of legacy regulatory cases in 2026 could also help reset the narrative, provided operational delivery stays on track.
Watchlist for the full-year results on 2 June 2026
- Size of net ODI penalty and any guidance for FY27 incentive exposure.
- Further colour on financing and capex efficiencies in FY26.
- Cash flow, liquidity headroom and capex phasing for AMP 8.
- Any updates on wastewater improvement trajectory into spring/summer conditions.
- Pennon Power delivery milestones and expected contribution profile.
Key figures and milestones at a glance
| Metric | Update |
|---|---|
| EBITDA | Up by c.55% year on year |
| Underlying profitability | Within market expectations for 2025/26, at the lower end |
| RORE target (K8) | 7%, with FY26 financing and capex efficiencies partially offset by net ODI penalties |
| Pollutions (y/y) | Down by c.40%; normalised down by c.55% |
| Storm overflows | Use down 17%; spill duration down c.25% |
| Rainfall impact | South West England at around 150% of average in Nov-Dec |
| AMP 8 Year 1 | Price control deliverables on track; programme efficiencies being realised |
| Pennon Power | Two sites energised; four-site portfolio expected to generate c.40% of Group consumption by end FY27 |
| Regulatory cases | EA and DWI court processes expected to conclude during 2026 (DWI in Summer 2026) |
| Leadership | Keith Haslett to become CEO on 1 April 2026 |
| Results date | 2 June 2026 |
Bottom line
Pennon’s update shows a business delivering operational improvements and cost efficiencies, while navigating a spiky winter that is compressing performance incentives. The direction of travel looks positive, but the scale of ODI penalties is the swing factor to watch at the June results. If the wastewater gains hold and AMP 8 efficiencies continue, the 7% RORE target over K8 feels achievable – storms permitting.
