Pennon signals strong return to profitability as South West Water bills rise

Pennon Group, the owner of South West Water, said it is on track for a strong return to profitability in 2025, despite reporting losses tied to restructuring costs and a parasite outbreak in Brixham, South Devon. The Exeter-based company, which also owns Bristol Water, reported losses of more than £70 million last year, driven by restructuring costs and the outbreak. Ofwat subsequently hit South West Water with a £24 million enforcement package for a range of failures in its wastewater treatment works and sewer networks.

Outgoing chief executive Susan Davy told investors that Pennon is targeting a return to profitability in 2025 and has set out an ambitious investment program. Customers saw household bills rise by an average of 28% in April to fund essential infrastructure upgrades. The group is targeting £3.2 billion of investment by 2030, covering work to build new reservoirs, fix storm overflows, advance its net-zero commitments, and improve services for customers.

Pennon also forecasts earnings to soar by around 60% year on year, with some revenues deferred into the next financial year. The results come despite the hottest summer on record, which pushed costs higher while the group maintained resilient water supplies for customers. Pollution incidents have halved in the eight months to August, and storm overflow spills are down by nearly 50% year on year, the company said, thanks to interventions and investments in the wastewater network and due to lower rainfall in the South West.

Davy stressed progress for customers and communities while acknowledging ongoing work to reduce pollution. The company highlighted that it had maintained reliable water supplies despite the heat and continued to push forward its pollution reduction plans, which have delivered tangible benefits and reduced the number of pollutions and spills from storm overflows.

Shares in Pennon were broadly flat at 453.4 pence in early trading. They are down about 2.8% over the past 12 months and more than 60% over five years. AJ Bell investment director Russ Mould said that cleaning up the water utility sector would require significant effort, but Pennon’s results show signs of progress, particularly in reducing pollution and storm overflows. He noted that the company still faces legacy issues tied to wastewater incidents and last year’s parasite outbreak.

The group remains under regulatory scrutiny as Ofwat’s enforcement action underscores ongoing risk. The investment plan calls for £3.2 billion in capital spending through 2030, including new reservoirs and improvements to wastewater networks to better meet net-zero targets and deliver improved service to customers.

Pennon’s update places it at a pivotal point as it navigates regulatory pressures, climate-related demand, and a long-term program to modernize its water networks. While the path to sustained profitability hinges on execution and regulatory stability, the company says it is committed to delivering improved service and environmental outcomes for communities in the South West.