Pennon Group (PNN) Investor Update (Q&A) summary

Regulatory approval and investment plans

• Ofwat's PR24 Final Determinations confirm nearly all requested revenue and 97% of totex for 2025-2030, supporting a record £3.2bn capital investment and 34% RCV growth, with no referral to the CMA.

• South West Water's plan received 'Outstanding' status, SES rated 'good/standard', with equity uplifts of 30bps and 5bps respectively.

• Investment targets resilient water supply, environmental improvements, net zero, and customer affordability, with £200m allocated for customer support.

• Over £800 million to be invested in storm overflow improvements, aiming to reduce spill numbers and achieve EPA four-star status by 2028.

• Record investment program expected to create over 2,000 jobs and drive regional economic growth.

Financing and capital structure

• Launched a fully underwritten £490 million rights issue as part of a comprehensive financing package to fund increased investment.

• Gearing policy for water businesses remains at 55%-65%, with expectations to stay between 60%-65% through 2030; Pennon Group leverage to remain a few percentage points higher but not to exceed ~5%.

• Regulatory Capital Value projected to grow by about 34% over the K8 period.

• Rights issue and financing plan designed to maintain a strong investment-grade credit rating (Baa1).

• Financing plan includes headroom for various scenarios, with asset disposals considered as a lever if needed.

Dividend policy and returns

• Dividend policy to 2030 will maintain the total dividend from 2023-2024, rebased per share due to the rights issue, and grow in line with CPIH inflation.

• Total dividend for year to 31 March 2024 set at £129.3m, to be rebased per share after the rights issue.

• Targeting a 7% real return on regulated equity (RORE), with a base allowance of 5.1% and potential for additional outperformance.

• RORE range: 0.5%-10.1% for SWW, 0.1%-10.4% for SES; targeting c.7% RORE for K8.

• Combination of 34% RCV growth and inflation-linked dividends aims to deliver attractive returns to shareholders.