Pennon expects to outperform its regulatory settlement

Pennon has held a capital markets day setting out its investment proposition for 2025 to 2030. With a geographical spread that includes the South West, Bristol, Bournemouth and the SES Water area, management said it expected Regulatory Capital Value growth of 34% over the period.

It is expecting to invest £3.2bn on building water resources and improving water quality, tackling storm overflows and pollutions, delivering net zero and environmental gains, and supporting affordability and improved customer service. It will need to update one-third of its treatment works, replace 440km of water mains, install 800,000 smart meters and begin work on a new reservoir and interconnectors.

Pollutions have been a significant problem in the south west. Pennon needs to reduce external sewer flooding by 25% and sewer collapses by 30%. This will mean upgrading 200km of sewer network.

It is targeting 7% Return On Regulated Equity to 2030, based on outperformance in financing, totex and Outcome Delivery Incentives (ODIs). It is re-shaping the business and integrating SES Water, aiming for £86m of run rate annualised savings to 2030. The final determination provided additional cost protections, mitigating downside risks for the group. Management is optimistic that ODIs can be delivered in river water quality, business demand and greenhouse gas reduction. 

Pennon has issued £490m of new equity, maintaining the dividend in absolute terms and then growing it in line with CPI to 2030. It is aiming for a water business gearing of 60 to 65% and has already indicated £0.3bn of regulatory outperformance.