Pennon Group has launched a fully underwritten rights issue to raise £550 million and rebased its dividend after new chief executive Keith Haslett concluded the water company needs a fundamental overhaul of how it manages and invests in its assets.
The fundraise will support around £1 billion of additional capital investment in Pennon's regulated water businesses over the current AMP8 regulatory period, taking total planned spending to approximately £3.6 billion.
The dividend has been cut to approximately £125 million for the 2026/27 financial year, down from £138 million the previous year, with the reduction applied to both the interim and final payments.
Taking into account the dilutive effect of the rights issue and adjusting for the bonus factor, the implied underlying reduction in dividend per share is approximately 30%, with an expected payout of around 18 pence per share.
Pennon said it will continue to grow the dividend per share in line with CPIH (the Consumer Prices Index including owner occupiers' housing costs) from the rebased level.
Haslett, who was appointed chief executive earlier this year, said his review had identified both genuine strengths and areas requiring significant improvement.
"I have looked hard at how we operate, maintain and invest in our assets, and today we are setting out in detail what we are doing," he said.
"Our Funding Plan, including today's fully underwritten rights issue raising approximately £550 million from shareholders to invest in the business, means we can deliver these improvements and drive growth supported by a strong balance sheet."
The operational reset is built around five pillars: people and culture, operational excellence, asset management and reliability, environmental performance, and customer transformation.
Steps already under way include the appointment of a new Chief Asset Officer and Chief People Officer, the centralisation of asset management, and the insourcing of leakage technicians.
Pennon said the expanded investment programme is expected to deliver regulatory capital value (RCV) growth of more than 40% across AMP8, up from the 34% target set at the start of the period, equivalent to a compound annual growth rate of approximately 7%.
The company is also targeting approximately £400 million of additional RCV through Ofwat's cost change process, with a draft determination having provisionally allowed £230 million of the £302 million requested.
Pennon plans to sell its Pennon Power business, with around £25 million of proceeds reinvested in on-site renewable generation and the remainder used to reduce group debt.
