Pennon Group (LSE:PNN) shares rose 1.5% in London trading on Thursday, recovering part of the previous session’s decline of more than 20%, after the UK water utility announced a fully underwritten rights issue of approximately £550 million and a reduction in its dividend.
The fundraising forms part of a revised investment programme under the company’s new chief executive, with Pennon planning approximately £1 billion in additional capital expenditure across its regulated water businesses.
Total investment during the AMP8 regulatory period is now expected to reach approximately £3.6 billion, around £1 billion above the company’s original spending plan.
Pennon said it intends to identify operational efficiencies during the investment programme and reinvest the resulting savings into its regulated businesses. Full details of the rights issue are provided in a separate announcement and offering circular.
Alongside the fundraising, the company announced plans to reduce its total dividend for the 2026/27 financial year to approximately £125 million, compared with £138 million previously.
The reduction will apply to both interim and final dividend payments. After accounting for the lower total distribution and the additional shares issued through the rights issue, Pennon estimates an underlying reduction in dividend per share of approximately 30%.
The company expects the revised dividend to amount to around 18 pence per share and intends to increase future payments in line with the Consumer Prices Index including owner occupiers’ housing costs (CPIH), using the reduced dividend as the starting point.
Part of the additional capital expenditure could be reflected in an increase in Pennon’s regulatory capital value through Ofwat’s cost change assessment process.
In its draft decision for the 2026 assessment round, the water regulator provisionally approved £230 million of additional expenditure, equivalent to 76% of the amount requested by Pennon.
Ofwat is expected to publish its final decision by 15 December 2026.
Pennon also anticipates seeking approval for approximately £170 million of further investment through the 2027 and 2028 regulatory assessment rounds. These amounts remain subject to regulatory approval.
The company is targeting a total increase of £400 million in regulatory capital value through the cost change process.
Separately, Pennon plans to dispose of its Pennon Power business as part of its capital management programme.
The group intends to allocate approximately £25 million of the disposal proceeds towards renewable electricity generation at its operational sites, using behind-the-meter installations designed to supply power directly to those facilities.
The remaining proceeds are expected to be used to reduce group debt.
Pennon has also outlined its leverage objectives for the AMP8 period, targeting debt within its regulated water businesses at no more than 65% of regulatory capital value.
This remains within the company’s long-term policy range of 55% to 65%.
At group level, debt measured against regulatory capital value is expected to remain several percentage points higher than the regulated business measure, although Pennon considers it unlikely to exceed approximately 70%.
The revised investment programme, dividend policy and asset disposal plans form part of Pennon’s operational and financial restructuring as it increases spending on its regulated water infrastructure.
Pennon Group is a UK-listed water utility company operating regulated water businesses. Its activities include water supply, wastewater services and infrastructure investment, with capital expenditure and financial performance subject to regulatory oversight.
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