Pennon Group to spend £100m more than planned on infrastructure

Pennon Group intends to invest an extra £100million in infrastructure as water firms continue to face pressure to combat pollution and leakage issues.

The Exeter-based firm initially planned to spend more than £750million in the two financial years ending 2025 on improving water infrastructure but is now set to invest over £850million.

Pennon’s pledge of more investment comes despite post-tax profits plummeting by 90.3 per cent to £1.8million in the first half on the back of higher costs. 

When the group announced its capital investment plan in June, Pennon said the money would go on new water resources and reservoirs, boosting renewable energy usage and cutting storm overflows across the South West region.

On Wednesday, Pennon said the extra spending would mean it is ‘well-positioned to deliver’ on the measures outlined in its draft business plan for the 2025 to 2030 period.

Over that timeline, Pennon proposes investing £2.8billion of capital expenditure.

It claims the investment will help it become a net zero business, eradicate water poverty and boast the lowest pollution levels across the sector by the start of the next decade.

Funding for investment will partly come from a 22 per cent real-terms hike in bills for South West Water and Bournemouth Water customers.

Higher consumer tariffs helped the company’s underlying revenue increase by 5.4 per cent to £448.6million in the six months ending September.

However, its post-tax profits plummeted by 90.3 per cent to £1.8million because of higher electricity, chemical and salary costs. 

Nonetheless, the firm announced an 8.3 per cent bump in its dividend to 14.04 pence per share.

Susan Davy, its chief executive, said: ‘Pennon has continued to make progress in the last six months on delivering for customers and shareholders.

‘We are executing on our twin-track strategy of organic and acquisitive growth in UK water, creating long-term value and making progress on what matters most to those across our regions.’

Pennon’s results follow Severn Trent revealing a significant drop in half-year profits last week due to growing energy, contractor, and chemical costs.

The firm also hiked its interim dividend, from 42.73p to 46.74p per share, despite reporting larger net debt and recently raising £1billion from an equity placing.

Water companies have received extensive criticism for paying bumper shareholder payouts and executive compensation packages, while increasing bills for customers to clean up Britain’s waterways and fix leakage issues. 

Early last month, the water industry warned that household bills could rise by £156 per year in order to fund the necessary infrastructure upgrades to reduce the UK’s considerable volume of water leaks and sewage discharges.

Pennon Group shares were 2.55 per cent lower at 727.5p on early Wednesday afternoon, meaning they have shrunk by approximately a fifth this year.