Pennon Group Reports Robust Start to K8 with 60% EBITDA Growth

Pennon’s robust start to K8: strong profitability, cleaner rivers, and funding locked in

Pennon Group’s latest trading update covers 1 April to 25 September 2025 and the tone is notably upbeat. Management says the business is on track for 2025/26 with a “strong return to profitability” and expects EBITDA to be up by around 60% year on year, even after deferring some revenue into 2026/27 to smooth customer bills.

Operationally, there’s clear progress on pollution and storm overflow performance, a long-standing flashpoint for the sector. Financially, a £300 million bond issue shores up liquidity, while efficient financing supports a 7% RORE target for FY26. There are still bumps – a burst main hit Water Services ODIs and regulatory cases are ongoing – but the overall direction is positive.

Key takeaways from Pennon’s trading update

• EBITDA expected to rise by c.60% year on year in 2025/26, net of revenue deferred into 2026/27.
• Target RORE of 7% for FY26, underpinned by efficient financing costs.
• Price control deliverables for 2025/26 on track, with programme efficiencies emerging.
• £300 million new issuance under the EMTN programme in September strengthens liquidity.
• Wastewater ODIs tracking net neutral – a first for South West Water since ODIs began.
• Pollution incidents halved to August 2025; storm overflow spills down nearly 50% year on year.
• Water Services ODIs impacted by a burst main at Dousland Water Treatment Works; dry ground increased incidents and leakage.
• Pennon Power: two renewable sites constructed and due to connect and generate in October, with 40% of Group energy needs targeted by end FY27 when all four are live.
• Regulatory investigations are progressing through the courts; CEO succession process underway.

Financial performance: profitability back despite hot-weather headwinds

Pennon expects a strong return to profitability in FY26, with EBITDA up by c.60%. EBITDA is a cash profit proxy before interest, tax, depreciation and amortisation, so this is a clean signal that operations have recovered despite cost pressure from a hot summer.

Two dynamics shaped revenue. High water demand boosted volumes, but this was more than offset by more customers choosing meters (“meter optants”) and “tariff profiling” to smooth bills, which defers some revenue into 2026/27. The company still expects to meet its 7% RORE target – Return on Regulated Equity – helped by efficient financing and delivery efficiencies in the capital programme.

ODIs and operations: wastewater improving, water hit by burst main

Wastewater: ODIs net neutral and pollution sharply lower

Pennon says Wastewater Services’ Outcome Delivery Incentives (ODIs – rewards/penalties linked to service outcomes) are tracking to be net neutral in 2025/26. That’s a clear improvement and a first for South West Water since ODIs were introduced.

On the environment, pollution incidents halved in the eight months to August 2025. Storm overflow spills are down nearly 50% year on year, reflecting targeted interventions and network investment, alongside lower rainfall in the South West. It’s hard to overstate how important these trends are for regulatory credibility and public trust.

Water Services: interruptions and leakage pressure

Water Services ODIs were dented by supply interruptions from a burst main at Dousland Water Treatment Works. Despite hot weather and elevated demand, water resources benefitted from investments made after the 2022 drought. However, dry ground conditions across Pennon’s regions led to more network incidents and higher leakage.

Net-net: wastewater is moving in the right direction; water had a one-off operational setback plus weather-driven challenges.

Capital programme and funding: delivery momentum and liquidity

Pennon’s five-year capital programme is on track to deliver Year 1 Price Control Deliverables. As projects move from design into delivery, the group is securing efficiencies that more than offset other cost pressures. That should help protect returns while meeting regulatory and environmental commitments.

On funding, the group enhanced its liquidity with £300 million of new issuance in September under its EMTN programme (Euro Medium Term Note – a bond issuance platform). This supports the investment pipeline and reduces near-term refinancing risk. The commentary on efficient in-year financing reinforces the 7% RORE guidance.

Pennon Power: two sites energising in October, 40% by end FY27

Construction is underway on all four of Pennon Power’s major renewable projects. Dunfermline (Fife) and Cullerlie (Aberdeenshire) are fully built and scheduled to connect to the Grid and start generating in October. Notably, liquidated damages are contractually payable for lost generation due to delays at Dunfermline, while Cullerlie is on its original timeline.

When all four sites are operational by the end of FY27, the renewable portfolio is expected to generate the equivalent of 40% of the Group’s total consumption (excluding SES and including battery storage). That reduces exposure to energy price volatility and strengthens Pennon’s sustainability credentials.

Regulatory investigations and leadership change: risks being managed

Legacy regulatory matters continue to move through the courts. The Environment Agency prosecutions relating to wastewater incidents from 2015-2021 are progressing, and the Drinking Water Inspectorate advanced the court process in September for the 2024 water quality incident. Pennon says actions to resolve the issues have been taken and it continues to support the authorities.

On governance, the Board is running a rigorous process to appoint a new CEO following Susan Davy’s intention to retire. Stability through the handover will matter, but the operational trajectory set out today helps.

Key numbers at a glance

EBITDA growth (FY26 vs FY25)	c.60% (net of revenue deferred into 2026/27)
Target RORE (FY26)	7%
EMTN issuance (September 2025)	£300 million
Wastewater ODIs (2025/26)	Tracking net neutral
Pollution incidents	Halved (to August 2025)
Storm overflow spills	Down nearly 50% year on year
Pennon Power renewable output target	Equivalent to 40% of Group consumption by end FY27
Half-year results date	27 November

What this means for investors

Overall, this is a constructive update. Profitability is rebounding strongly, funding is secure, and operational delivery – especially in wastewater – is moving in the right direction. The shift to net neutral ODIs in Wastewater is a notable milestone, suggesting fewer regulatory penalties and a better platform for stable returns.

There are still watch-outs. Water Services ODIs took a hit from a burst main, and leakage rose on dry ground – not unusual in hot spells, but it can weigh on ODI outcomes. Regulatory cases remain a headline risk until resolved, even if legacy in nature.

Near-term catalysts include October grid connections for Dunfermline and Cullerlie, and the half-year results on 27 November, which should firm up the c.60% EBITDA view and progress on ODIs and capital delivery. For now, Pennon looks better placed heading into the heart of K8: stronger earnings, improving environmental performance, and a clearer funding runway.

Jargon buster

• EBITDA: Earnings before interest, tax, depreciation and amortisation – a proxy for operating cash profit.
• RORE: Return on Regulated Equity – a key UK water sector return metric set against the regulated equity base.
• ODIs: Outcome Delivery Incentives – rewards/penalties tied to service and environmental performance.
• EMTN: Euro Medium Term Note – a programme used to issue bonds.
• Meter optants: Customers choosing to switch to a water meter.
• Tariff profiling: Adjusting tariffs to smooth customer bills over time, which can defer revenue recognition.