This article first appeared on GuruFocus.

Revenue: Increased by 25% year on year to 658 million.

Operating Profit: More than doubled year on year, resulting in a profit before tax of 65.9 million.

Earnings Per Share (EPS): Adjusted EPS increased to 14p from a loss of 5.5p in the prior year.

Dividend Per Share: 9.26p, increasing in line with 4% CPIH.

Capital Expenditure (CapEx): 305 million in the first half, with 279 million in Water Group CapEx.

Gearing: At 60% following the rights issue.

EBITDA: Increased by around 55% to 254 million from 164 million on an underlying basis in the prior year.

Financing Costs: Effective interest rate of 5.6% for the water group, providing over 160 basis points of outperformance.

Pollution Reduction: Achieved a 50% reduction in Category 13 pollutions year-to-date.

Storm Overflow Spills: Reduced by 45% so far this calendar year.

Funding Raised: Over 500 million in new debt during the first 6 months of the year.

Warning! GuruFocus has detected 11 Warning Signs with PEGRF.

Is PEGRF fairly valued? Test your thesis with our free DCF calculator.

Release Date: November 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Pennon Group PLC (PEGRF) reported a strong return to profitability with both underlying and statutory operating profit more than doubling year on year.

The company has made significant progress in wastewater performance, achieving a 50% reduction in Category 13 pollutions year-to-date.

Pennon Group PLC (PEGRF) has maintained a strong balance sheet with gearing at 60% and raised $500 million in the first half of the year to support its investment program.

The company is on track to deliver its targeted return on regulated equity for the Water Group at 7% on a real notional watershed basis.

Operational successes include avoiding around 6,000 storm overflow spills in the first half of the year, contributing to improved environmental performance.

The wastewater network in Dawlish is under pressure due to increased housing and visitor numbers, requiring significant investment and community engagement.

Despite operational improvements, the company faces challenges with increased activity and maintaining leakage levels.

Pennon Group PLC (PEGRF) incurred one-off costs related to the hot summer and customer compensation for a supply interruption.

The company is still in discussions with the Environment Agency regarding fines related to the full flow treatment investigation, with no clear timeline for resolution.

There is uncertainty regarding the transition to a new CEO, with no specific start date announced for Keith Haslett, which may impact strategic decisions such as the potential sale of Pennon Power.

Q: How does Pennon plan to leverage reopener opportunities, and could this lead to significant RCV growth beyond current guidance? A: Susan Davy, CEO, explained that Pennon is prepared to capitalize on reopener opportunities, particularly with new mechanisms for cyber, PA, and planning changes. With a projected 40% increase in new homes in their regions, there is potential to accelerate investment. Pennon has experience with similar processes and is ready to support community needs through these opportunities.

Q: Can you clarify the guidance on net interest and the EPA rating? A: Susan Davy noted that the guidance on net interest is slightly lower than previously stated, but the company maintains a strong financing position. Regarding the EPA rating, Pennon is confident in achieving a 4-star rating under the new framework, which aligns with their outstanding business plan.

Q: What are Pennon's gearing thresholds, and how do you plan to finance additional spending? A: Laura Flowerdew, CFO, stated that Pennon's gearing policy is between 55% to 65%, with an expectation of being 50% to 55% during the period. Any additional spending from reopeners will be managed within this framework, ensuring the balance sheet supports necessary investments.

Q: What advice would you give to the incoming CEO, Keith Haslett? A: Susan Davy emphasized focusing on customer priorities and supporting Pennon's talented team. She highlighted the importance of addressing storm overflows and pollution, ensuring the company continues to meet customer needs and maintain operational excellence.

Q: Can you provide an update on the Environment Agency fines and the upcoming government white paper? A: Susan Davy mentioned that discussions with the Environment Agency are ongoing, with no specific timeline for resolution. Regarding the government white paper, Pennon is actively engaged in the process and supports the sector reform agenda, hoping for a fair deal for investors and clarity on regulatory frameworks.

Q: How does Pennon plan to achieve the 4-star EA rating under the new 5-star system? A: Susan Davy acknowledged the change in methodology but expressed confidence in achieving a 4-star rating, which aligns with their QAA commitments. Discussions with Ofwat will ensure alignment on expectations and metrics.

Q: What is the status of Pennon Power's potential sale, and will Keith Haslett be involved in the decision? A: Susan Davy stated that Pennon Power's assets are being built out, with the final site expected to be completed by 2026-2027. Keith Haslett will assess the strategy for Pennon Power upon his arrival, with no immediate plans for individual asset sales.

Q: What are Pennon's main focus points for the upcoming government white paper? A: Sarah Heald, Chief Strategy Officer, highlighted the importance of the white paper reflecting the Cunliffe review's recommendations. Pennon is keen on establishing a single regulator, regional elements, and separate water and wastewater plans, ensuring a fair and transparent regulatory framework.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.