Pennon Group Returns to Profitability in 2025/26 as New CEO Takes Helm

South West Water did most of the heavy lifting. Its revenue rose to £937.8 million from £737.7 million, and underlying EBITDA climbed to £481.7 million from £308.6 million.

So financially, this is a clear rebound. It also helps that non-underlying costs dropped to £20.7 million from £37.6 million, although that is still a notable drag.

Pennon operational performance: real progress on pollution and storm overflows, but penalties still hurt

This is where the story gets more mixed. Pennon reported a roughly 34% reduction in year-on-year pollutions, with normalised pollutions down around 53%, while storm overflow use fell 17% and spill duration dropped around 25%.

Those are meaningful improvements and exactly the kind of measures investors want to see in a water company under intense public and political scrutiny. Water quality also sounds encouraging, with storage levels at around 98% and SES Water maintaining what Pennon called an industry-leading position.

But the bad news is still pretty chunky. Pennon took a net operational ODI penalty of around £42.0 million. ODI stands for Outcome Delivery Incentive – essentially the regulator’s system of rewards and penalties based on performance targets.

That tells you the business is still losing money for missing important service and environmental goals, even if some measures are improving. The company also said its provisional 2025 Environment Performance Assessment rating is 1 star, which is poor and shows there is still a lot to fix.

There were other operational misses too. Leakage targets were not met at South West Water and SES Water, and sewer flooding incidents increased year-on-year to 1.20 per 10,000 connections, although Pennon says this still beat its target of 1.34.

New Pennon CEO Keith Haslett inherits a better profit line and a messy in-tray

Keith Haslett only started as chief executive on 1 April 2026, so these are not really “his” numbers yet. Still, the tone of this statement matters because he is not pretending everything is sorted.

He has been quite direct about the priorities: improve operational discipline, strengthen capital delivery and build a stronger performance culture. That reads like a polite way of saying Pennon needs to get better at doing the basics consistently while spending billions.

That feels like the right message. Investors should probably welcome the honesty, because the worst thing a water company can do right now is act like penalties, incidents and regulatory heat are just background noise.

Pennon debt, dividends and AMP8 investment: the balancing act is getting harder

Pennon invested £643.6 million in the year, including £588.5 million in its water businesses, and says its current run-rate supports a £3.2 billion investment programme to 2030. It also says this should deliver 34% growth in regulatory capital value, or RCV, which is the regulated asset base used to set returns.

That growth is attractive on paper because bigger RCV can support higher future earnings. But it comes with more borrowing.

Net debt rose to £4,508.9 million from £4,078.2 million. Water Group gearing – debt relative to RCV – was 61.8%, which Pennon says is within its 55-65% policy range, so it is not flashing a balance sheet emergency. Still, it is a heavily indebted business, and interest costs are moving the wrong way.

The group raised £640 million of new debt during the year and expects to raise a similar amount each year across AMP8. That is manageable if operations improve and Ofwat stays broadly supportive, but it leaves less room for mistakes.

The dividend story is a little awkward too. Total dividend cash rose 3.4% to £138.2 million, but dividend per share fell to 29.29p from 31.57p. That lower per-share number sits alongside the enlarged share count after the February 2025 rights issue.

Pennon regulatory and legal issues: still a live risk for shareholders

There are some unresolved points here that investors should not brush aside. South West Water was fined £1.9 million following the 2024 Brixham cryptosporidium incident, and Pennon included £6.7 million of non-underlying costs linked to the DWI prosecution, Ofwat enforcement undertakings and associated legal fees.

There is also an Environment Agency case relating to illegal water discharge activity, with sentencing judgement due on 30 July 2026. Separately, Ofwat’s investigation into 2021/22 leakage and per capita consumption data remains unresolved, and Pennon says the outcome is unknown.

That uncertainty matters because Ofwat has a range of options, including potentially no further action or a fine of up to 10% of revenue in relation to the regulated drinking water business. Pennon has not disclosed any estimate because it says the outcome cannot be measured with certainty.

Pennon outlook for 2026/27: more earnings growth expected, but more ODI pain too

The guidance is decent on the financial side. Pennon expects Water Group revenue to rise by around £50 million to £70 million next year, with underlying EBITDA up by 5% to 10%.

Capital expenditure is expected to stay high at £620 million to £700 million, and net interest costs are expected to rise by 10% to 15%. That is the trade-off in plain English: more revenue and profit, but also more debt servicing.

The key line, though, is that Pennon expects to remain in net ODI penalty in 2026/27. So management is explicitly telling the market that operational recovery will take time.

What Pennon shareholders should make of these full year results

My take is that these results are financially strong enough to reassure, but operationally weak enough to keep investors cautious. The return to profit is real, cash generation has improved, and the AMP8 growth story has started properly.

But this is still a company under pressure to prove it can deliver better environmental and service outcomes, not just bigger revenues. In the current UK water sector climate, that distinction matters a lot.

If Pennon can turn investment into cleaner execution, fewer penalties and steadier operational performance, there is a decent recovery case here. If it cannot, higher bills, higher debt and regulatory scrutiny will keep the shares on a tight leash.

For now, this looks like progress – but not peace of mind.