Pennon Group PLC, owners of South West Water (SWW) and Sutton and East Surrey (SES), has accepted Ofwat’s Final Determination announced in December, following their respective outstanding and good/standard AMP8 business plan assessments.

A statement issued by the Group said:

“Following Ofwat's PR24 Final Determinations in December 2024 in respect of the K8 period (2025-2030) for the water businesses within the Pennon Group (SWW and SES), Pennon Group is announcing today that after careful consideration, SWW and SES will be accepting their respective Determinations and will not be seeking a reference to the Competition and Markets Authority (CMA).”

The Final Determinations support a significant uplift in investment over the AMP8 period to 2030, with capital expenditure increasing from an expected 2020-2025 outturn of c.£1.9 bIllion for AMP7, to a record c.£3.2 billion for AMP8.

The investment will be across a range of transformational projects, including:

• tackling the use of storm overflows
• bolstering water resources through a new reservoir in the South West
• expanding the programme of nature recovery.

"With challenging performance commitments, the clarity and visibility of the Final Determinations, coupled with our advanced preparation for delivery mean we can confidently move forward, targeting c.7% Return on Regulated Equity (RORE), within Ofwat's expected RORE ranges", the statement says..

For the third consecutive price review, Ofwat recognised the outstanding nature of SWW's business plan with a 30 bps uplift to the cost of equity (subject to meeting certain targets over the forthcoming period), whilst SES benefits from a 5 bps uplift for a good/standard plan.

Launch of c.£490m rights issue as part of a comprehensive financing package

The step change in investment delivers growth in Regulatory Capital Value (RCV of c.34% over the AMP8 period. To maintain robust balance sheet resilience, Pennon Group is today launching a fully underwritten c.£490 million rights issue, used to fund increased investment in the water businesses.

SWW is consistently named in the top category for financial resilience by Ofwat, and since acquisition in 2024, Pennon Group has supported SES to improve its financial resilience which has been noted in Ofwat's most recent financial resilience report.

Pennon Group anticipates gearing in the water businesses to be 60-65% consistent with its long-term gearing policy for the water businesses of 55%-65%. The Group is targeting retaining a strong investment grade credit rating of Baa1 for the water companies over the AMP8 period, with Pennon Group leverage expected to be a few percentage points higher than the water businesses but unlikely to exceed c.5%.

Revised Pennon Group dividend policy

Following the SWW and SES Final Determinations and overall comprehensive financing package for AMP8, the Group is also today announcing a revised dividend policy.

The total dividend amount for the year to 31 March 2024 of £129.3million will be rebased on a dividend per share basis (taking into account the effect of the Rights Issue).

The rebased dividend per share will grow in absolute terms, by CPIH inflation from and in respect of the current financial year ending 31 March 2025 and each financial year to 31 March 2030.

Coupled with the c.34% organic RCV growth projections to 2030, Pennon Group said this represents an attractive combination of underlying asset growth and income to shareholders.

Susan Davy, Group Chief Executive Officer commented;

" We have listened to customers, communities, and stakeholders. With these record levels of investment, we will be transforming what we do, fixing storm overflows, building new reservoirs and creating natural habitats for wildlife. This is so much more than just about water. It's about much needed regional investment, creating jobs and building homes. At the same time, we will be supporting customers when they need it most, keeping bill increases low, with innovative tariffs and our £200m support package. We're doing this."

The Group plans to hold an in-region Capital Markets Day on 13 March 2025.