Annual Report and Accounts

2024

Bringing

Water to

Life

Supporting the

livesof people and

the places they

lovefor generations

to come

Annual Report and Accounts 2024

Contents

Strategic Report

Year at a glance - Our fundamentals are strong 1

Pennon at a glance 2

Chair’s letter 4

Our CEO’s review 5

Pennon, a business that listens and acts

How we listen 8

How we act 13

The markets in which we operate 17

The water sector regulatory framework 18

Our future plans: 2025 to 2030 19

Our Ambitions to 2050 21

Our business model 22

How we deliver 23

Our operational review 32

Our KPIs - non-financial metrics 42

Our KPIs - financial metrics 45

Our CFO’s review 47

Our risk management 55

Viability statement 65

Our integrated approach to ESG 67

ESG performance and targets 68

Net Zero - our promise to the planet 69

Sustainability reporting

Streamlined Energy and Carbon Report (SECR) 71

SASB Pennon 2023/24 disclosure 74

Task Force on Climate-related Disclosures (TCFD)

andTaskForce on Nature-related Disclosures (TNFD)

Non-financial and sustainability information sheet 110

Governance

Our governance at a glance 112

Our Chair’s introduction to governance 114

Our Board of Directors

The Board 116

Pennon Executive Board 118

Monitoring purpose and culture 119

Board leadership and Company purpose 120

Division of responsibilities 121

An effective Board 122

Key activities of the Board 124

How the Board engages with stakeholders 126

Our s172(1) statement 128

Composition, succession and evaluation 130

Nomination Committee report 131

Audit Committee report 136

Audit risk and internal control 142

ESG Committee report 144

Health and Safety Committee report 146

Remuneration Committee report 148

Directors’ Remuneration report 151

Directors’ report 171

Financial Statements

Independent auditor’s report 175

Financial statements 185

Notes to the financial statements 191

Other Information

Alternative performance measures 239

Five-year financial summary 243

Glossary 244

Shareholder information 245

Living our purpose, we are bringing water to life

supporting the lives of people and the places they love for generations to come

Our reporting suite

Clear and transparent reporting is important to us and

our stakeholders. Our Annual Report is supported by

additional disclosures contained in our wider corporate

reporting suite. These include:

Our Annual Report and the

other reports in our corporate

reporting suite can be

found on our website: www.

pennon-group.co.uk/investor-

information/financial-reports-

and-presentations

Net Zero plan

Modern slavery

statement

ESG Databook 2023

Gender and Ethnicity

PayGap Report 2023

Cover photo credits/captions

1. New abstraction pontoon at Blackpool Pit, Cornwall.

2. Thickener plant and sludge transfer pumps, as part of the

new GAC structure at Stithians Water Treatment Works,

Cornwall.

3. New storm tank capacity to reduce reliance on storm overflows

at our Hatherleigh, Wastewater Treatment Works, Devon.

4. New storm tank capacity storage at Lifton Wastewater

Treatment Works, Devon.

5. Membrane Transportable Treatment Units building at

Alderney Water Treatment Works, Bournemouth.

6. Works to divert surface water to reduce overload

onthesewer system at Bere Alston Wastewater

Treatment Works, Devon.

7. Newly constructed storm tank at Hawkchurch Wastewater

Treatment Works, Devon.

8. Construction of the state-of-the-art ceramic membrane,

Alderney Water Treatment Works, Bournemouth.

The acquisition of Sutton and East Surrey Water (SES Water) on

January 2024 and the CMA’s hold separate order has presented

reporting challenges for the data for the 52 weeks ended 31

March 2024.

Data presented in pages 32 to 39 relate to the Group, excluding SES Water.

SES Water operational review information can be found at pages 40 to 41.

Year at a glance - Our fundamentals are strong

Making progress on what matters to our customers

• Breaking the drought cycle: c.100% reservoir peak capacity

achieved with 1/3 improvement as a result of our investment.

• Maintaining gains on storm overflows and pollutions: We are

expected to retain a 2

EPA rating with a road map to EPA 4 .

• Driving environmental gains: c.127,000 cumulative hectares

of drinking water catchments restored, over 250,000 trees

planted, both ahead of target.

• Affordability: 132,000 customers benefiting from our schemes.

Robust financial position

• Water group gearing: 63.5% reflecting increased capex spend

and timing of RCV build, within K7 policy.

• Liquidity: c.£1.2bn raised since March 2023, in addition to the

successful equity raise of £180m for the SES Water acquisition.

• Cost management: operational efficiency programmes

keeping cost increases below inflation despite impacts of

unprecedented wet weather.

Solid building blocks in place

• Accelerated transition to K8: ‘Amplify’ a 10-year delivery

alliance with suppliers, already mobilised on c.1,000 projects.

• Transformational programmes: improvements in operational

effectiveness delivering annualised synergies of £26m in 2023/24,

targeting £86m run rate into K8.

• Investing in people: One in 10 colleagues have been through

our apprenticeship or graduate programmes.

• Leveraging technology: Using predictive modelling in our

wastewater operations.

Sound business - growing sustainably

• Peak capital delivery for the wholesale water businesses:

investment increased 63% year on year to £583m. Cumulative

RCV growth (organic and acquisitive) of c.65% excluding SES

Water.

• The Pennon Power programme on track: investment of £59m

in 2023/24, ramping up EBITDA contribution from H2 2024/25

with delivery of 39 GWh and 60 MWh battery storage.

• Delivering on our acquisition strategy: Bristol Water

acquisition benefits programme on track, c.£17m annualised

operating synergies to 2023/24. SES Water acquisition is fast

tracking through the CMA process.

1Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

All figures as at 31

March 2024, other than population

and litres of drinking water per day which are as at 31

March 2023, as shown in Annual Performance Report -

January 2024.

c. 1.8m

population served

490m litres

of drinking water per day

Supplying Cornwall, Devon

and small areas of Dorset

andSomerset

c. 500,000

population served

160m litres

of drinking water per day

Supplying parts of Dorset,

Hampshire and Wiltshire

Acquired in 2015

c. 2,000

population served

700,000 litres

of drinking water per day

Assumed responsibility

in2020

Pennon at a glance

Pennon is an environmental infrastructure group focused on the UK water sector.

Our team of around 4,000 talented colleagues work around the clock to deliver over

1 billion litres of water to 4.24 million people every day.

c. 1.2m

population served

280m litres

of drinking water per day

Supplying the city of Bristol

and surroundings

Acquired in 2021

c. 740,000

population served

160m litres

of drinking water per day

Supplying parts of Surrey,

Kent and South London

Acquired in 2024

Our locations

Key:

Water services

Wastewater services

Non-household water and

wastewater services (England-wide)

Renewable power services

Fife – Solar and battery

energy storage system

Aberdeenshire – Solar

Cumbria – Solar

Buckinghamshire – Solar

Our businesses

2 Annual Report and Accounts 2024 « Pennon Group plc

Our businesses continued

95,000

customers accounts including Rolls Royce,

Pets at Home and Nuffield Health

4.8

out of 5 Trustpilot score

115,000

customers accounts including Aldi, Pirelli

andVision Express

4.9

out of 5 Trustpilot score

135 GW hours

of future annual power generation

Enough electricity to power

50,000 homes

Our Group

Communities

Over 500

water-saving devices

distributed across the

South West per day

4,000

children taught in 116

lessons using South

West Water education

resources

Over

55,000

people at 28 events

reached by our Awesome

Water campaign

Over 1,300

LeakBot devices sent out

to homes across Devon

and Cornwall to detect

customer leaks

Customers

4.24m

people served

23,000

customers moved onto

social tariffs in FY23/24

£100m

of financial support

provided to customers since

2020

98%

of South West Water

and Bournemouth Water

customers find their bill

affordable

100%

of Bristol Water customers

find their bill affordable

People

4,000

colleagues

470

apprentices supported

since 2020

graduates recruited

to graduate programme

since its launch in 2021,

with 55% female and over

half ethnically diverse or

international

200

days of work experience

opportunities created

for year 12 students from

low-income backgrounds

across Exeter and Bristol

expanding to Plymouth,

Truro and St Austell

in2024

Operations

23,000

kilometres of sewers

reservoirs

29,000

kilometres of water pipes

water treatment works

655

wastewater treatment

works

860

miles of coastline

3Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Chair’s letter

In my last letter as Chair, I want to thank our 4,000 employees that live and

work in the communities we serve. They continue to work tirelessly to deliver

a water system that everyone can be proud of. Our responsibility goes beyond

pipes, treatment works and reservoirs; it’s about ensuring the natural rivers and

860 miles of coastline continue to thrive and to make our waters the benchmark

for quality. It’s also about ensuring that customers have a clean and plentiful

supply of water. From apprentices to graduates, data scientists to lab technicians,

environmentalists, engineers and customer service teams, everyone who works at

Pennon shares the same ambition.

Today we are investing more than ever to improve our assets, in new and

innovative ways, both nature first and future proof, building resilience in the

face of a changing climate and population growth. It’s no longer acceptable

to build more concrete, or complex infrastructures, that have long term

environmental impacts. From using reed beds to smart ponds and smart water

butts, we want to protect the planet and use less. Our investment in Pennon

Power will support our commitment to ensuring 50% of our energy needs come

from renewable sources as part of our Net Zero ambitions.

In 2022, the South West experienced one of the driest years on record,

with reservoirs hitting their lowest ever levels as we worked to protect both

river health and ensure a continuous supply of clean drinking water to our

customers. We moved quickly, innovating to repurpose ex quarries and

mines to store water across Devon and Cornwall. Together with this, and by

You can read more on how we are engaging with our stakeholders

in our Section 172(1) statement on page 128.

“We’re doing

this, for a water

system that

everyone can

be proud of”

Gill Rider

Group Chair

investing in desalination, we will continue to use innovative techniques to

re-use what we have and break the cycle of drought.

Whilst 2022 was one of the driest, 2023 will be known for being one of the

wettest. Whilst good for water resources, this has triggered more use of

storm overflows and more pollution incidents than any of us agree is right. If

we could go back to the Victorian era when the UK’s infrastructure was built,

we would make significant changes, and the design is the same the world

over. What does set us apart from the rest of the world, is the monitoring. As

one of the first water companies to achieve 100% monitoring, we will use the

data and information to target our efforts to fix this.

We know this will take time and we can fix this, because 30 years ago, half of our

sewage in the South West did go directly untreated into the sea. In a journey

starting in the 1990s with Clean Sweep, and a £13 billion investment, we created

a legacy of wastewater services, and a first for the South West. The result is that

we now have some of the best bathing water quality in the UK, up from c.29% in

the 90s to 100% for the last three years running. Whilst excellent in between May

and September, (when bathing water quality is monitored) it’s clear we need to

go further, ensuring excellent water all year round. We do need to reduce the use

of storm overflows.

Post 2025 and as part of a wider £2.8 billion investment plan across the

Greater South West, our plans will also support 2,200 jobs directly and in the

supply chain. It’s a plan grounded in extensive customer research, and the

Board and I met regularly with the independent Chair and deputy Chair of

the Watershare+ panel who led the engagement. We also received feedback

from our 90,000 customers who are shareholders through our WaterShare+

scheme. We’re pleased this plan received strong support from customers,

stakeholders and our shareholders – to invest more in the region, and we

believe it’s also aligned with Ofwat’s objectives.

At the same time, the Board has committed to extend our zero-water poverty

pledge to 2030, with a £200 million support package, as we find new ways

to help our customers to save money. From our “Stop the Drop” to “Water is

Precious” campaigns and innovative tariffs, we are helping customers to save

water, save money and change how we all use water.

That same care for customer service is being demonstrated in the growth

of our non-household retail businesses Pennon Water Services and

Water2Business. And with the acquisition of SES Water earlier this year, and

our continued focus on the local delivery of local services, the Board are

pleased to be able to enhance SES Water’s ongoing financial resilience to

better deliver for customers and stakeholders and demonstrate our ongoing

commitment to the UK Water Sector.

Finally, I want to extend my thanks to our Board, our CEO Susan and her

executive team for their support. I am grateful to have worked alongside

such a talented and dedicated team over many years and I look forward

tocontinuing my relationship with Pennon as a customer.

Gill Rider

Group Chair

May 2024

4 Annual Report and Accounts 2024 « Pennon Group plc

At Pennon, we all work in water because it is too

important not to

150 years ago, water professionals were seen as one of the founding

champions of public health. This is at our core of what we do. Today,

climate change is the single biggest threat facing people and planet, water

companies also need to demonstrate that we are also custodians of the

environment, and as we look ahead.

That’s why when asked, I always say that we all work in water because

itis too important not to. Our c.4,000 employees, who live and work in

the communities we support are bolstered by the wider supply chain, now

collectively known as Amplify and nearly doubling the number of people we

support as one of the largest private employers in the Greater South West.

We are also a growing team, through our acquisition of SES Water, and we

were delighted to be able to safeguard c.470 jobs.

In the year, we have also signed the Armed Forces Covenant and become a

disability confident employer and continue to increase our responsibility on

social mobility as a tier 1 funder of the Social Mobility Partnership, launching

work experience clusters, and as we look to offer 5,000 work placements for

young people by 2030.

I want to pay tribute to everyone who works for the Group and with us,

aswecouldn’t deliver any of this without talented people doing great things

for customers and each other and they are the real heroes in delivering

thisset of results.

Doing what’s right

This has also been a year where we have refreshed our values, an

opportunity to galvanise everyone who works for Pennon and our supply

chain, as we grow and continue to evolve how we deliver for customers,

Our fundamentals are strong

As I look back on the year, the fundamentals are strong for a more

sustainable future, reflected in record levels of investment, record support

for customers, and as we create record numbers of jobs directly and in the

supply chain, supporting the economic health of the regions we support.

With a strong balance sheet and good liquidity, we retain the agility and

ability to respond when it matters most and for the longer term, and in

delivering on our strategy focused on UK Water. We are growing sustainably,

whether through acquisition or investment, with an efficiently funded and

robust balance sheet, growing shareholder value. And this in turn, is ensuring

we can make good operational progress, delivering on our 4 priorities and

what matters most to our customers.

We are listening

The UK Water sector remains firmly in the spotlight, with regulatory, political

and public scrutiny at an all-time high. It’s difficult for any water company to

ignore. We are listening

Our customer and community roadshows have been a personal highlight for

me as we have directly faced into public anger of the sector, head on and

we have focused on talking about what really matters most. From Bristol to

Bournemouth, and across Devon, Cornwall and the Isles of Scilly, and soon to

be in Sutton and East Surrey Water, we are slowly changing perceptions, one

conversation at a time. At the same time, we have embarked on our largest

ever direct customer engagement, gathering the views and feedback of over

250,000 customers and 1,000 stakeholders as part of our £2.8 billion PR24

business plan submission.

Our CEO’s review

“The fundamentals

are strong for a

more sustainable

future”

Susan Davy

Group Chief Executive Officer

5Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

This is a year in which the weather has been both our friend and our foe.

With 10 named storms and 12 yellow weather warnings since September, it is

a sobering statistic that 5 of the 10 wettest Februarys have been in the last

5 years, and with average rainfall increasing by 50% when compared to long

term averages in the second half of the year. On one hand with more rainfall,

we have been able to break the back of the drought we experienced in 2022,

and in doing what we said we would by achieving 100% strategic reservoir

capacity for Devon and Cornwall by April, ahead of target.

This has been a monumental undertaking, from teams across South West

Water and the supply chain as we have opened 2 reservoirs at Blackpool

Pit this year and Hawks Tor last year, and increased treatment capacity at

Rialton, alongside pump recharge schemes. We are also on track to deliver

a 2-phase desalination scheme for Cornwall. It is not just been about fixing

the here and now. We are investing enough now to protect resources over

the next 25 years, building trust in our services for the longer term. We have

delivered on our 2025 target for Devon, with 30% greater resource availability

and are on track for 45% in Cornwall, with 30% delivered to date.

There are always two sides to the coin, as in addition to diversifying our portfolio,

it has also been about reducing demand. We are delivering on our leakage

targets. And our sector-leading demand reduction schemes, are focused on

supporting customers to use less water and save money, with c.500 water saving

devices provided every single day last year and we are piloting trial tariff schemes

to better distribute charges and encourage water efficiency.

Overall, water quality continues to deliver upper quartile performance. We have

delivered a step change in the Isles of Scilly, with zero failures of water treatment

processes for Devon, Cornwall and Bournemouth, and with a robust action plan in

place for Bristol to address the legacy issues we inherited.

The significantly increased wastewater flows have also impacted our headline

performance for wastewater pollutions and the use of storm overflows, with

rising groundwater levels and increasing flows into the network. Historically,

70% of our pollutions have occurred in our networks. The work we have

done over the last few years is working, with performance stabilising. We are

achieving sector-leading internal sewer flooding performance, outperforming

regulatory targets for sewer collapses and blockages and maintaining the

gains we have made previously in reducing network pollutions.

Turning to the 20% increase in flows we have seen in 2023; we are focused

on infiltration work. We have redoubled efforts at both our treatment works

and pumping stations, where the higher levels of flows have driven spikes in

performance. By reinvigorating action plans, our treatment works performance

has recovered from the degradation we saw last year, stabilising performance

into 2024, with a combination of inlet and storm tank cleansing and risk-based

generator servicing, site-based compliance, reedbed surveys and refurbishments.

Efforts have now turned to the 1,250 pumping stations, with improved site MOTs,

and enhanced cleansing as well as tackling power resilience.

Reducing pollutions remains a top priority for the Board, and everyone

who works in Wastewater. I am reassured that we have maintained serious

pollution incidents at the lowest level for 2023 (2), noting we are aiming for

zero. For all other incidents, we have a revised trajectory to achieving 4 star

performance for the 2025 calendar year.

communities and the environment. I am proud of our new values. Developed

bottom up with employee engagement sessions and with our top 100 leaders

and in response to our customer and stakeholder feedback as part of PR24

preparations, our values will help us to stand apart.

They epitomise everything we do as a good corporate citizen, as we continue

to deliver strong performance in external ESG benchmarks, retain the Fair

Tax mark for the 6

year running, move 23,000 customers on to social tariffs

and welcome over 2 million visitors to our lakes and reservoirs This ensures

that any customer or visitor to the region is never more than an hour away

from water, and able to use them for health and recreation.

We remain the only water company in the sector to reinvest outperformance

directly with customers, by giving them a unique opportunity to become

shareholders in their local water company with Watershare+. With over 78,000

customer shareholders, all stakeholders can be assured that customers

directly benefit. As we have acquired businesses as part of our growth strategy,

Watershare+ is now one of the first commitments we make.

As CEO, it’s also my job to lead from the front, and champion living our

values. With executive remuneration continuing to be in the media, and

regulatory spotlight, I recommended to the Remuneration Committee, that

the annual bonus was foregone. It’s the right thing to do.

A sound business - growing sustainably

We have a clear twin track organic and acquisitive growth strategy. With

peak capital investment up nearly two thirds, year on year, this represents

our largest ever water programme. That translates in accumulative RCV

growth, of 65% and on track to 70% to 2025. This investment delivers asset

backed, inflationary returns.

Our operations in the Group require reliable and efficient power supply

and we are investing to increase our renewable energy provision through

Pennon Power, with its first EBITDA contribution due in 2024/25, supporting

our Net Zero ambitions and targeting to meet 40% of energy requirements

of the Group. We are also delivering on our acquisition and consolidation

strategy. We are realising the benefits we set out as part of the Bristol Water

acquisition, and having acquired SES Water in January, safeguarding their

financial resilience through a successful equity raise, we are now fast-

tracking through the CMA process, ahead of plan.

Making progress on what matters most to customers,

delivering on our four priorities

Turning to performance, we remain resolutely focused on our 4 customer

priorities across the Greater South West. We are investing to protect water

quality and enhance resilience; tackling storm overflows at our beaches and

eradicating pollutions across Devon and Cornwall and driving environmental

gains, wherever we serve. At the same time, we have successfully managed

customer bills to be lower than they were 10 years ago, and as we pledge

to eradicate water poverty. Bills in the region are no longer the outliers in

the sector they once were, in the aftermath of post privatisation, and the

£13 billion legacy costs involved in putting waste water treatment into the

region for the first time.

Our CEO’s review continued

Water quality and

resilience

Addressing affordability

and delivering for

customers

Storm overflow and

pollutions

Net zero and environmental

gains

Our four strategic priorities

6 Annual Report and Accounts 2024 « Pennon Group plc

“We have a robust financial

position with solid financial

performance and well

positioned for the next

regulatory period.”

We are clear and transparent about where we are, and over time, we have

improved self-reporting of pollutions incidents, and now are one of the best

in the sector.

The same higher levels of flows impacting pollutions, has made demonstrable

improvements in storm overflows numbers, challenging to see at a headline

number. On a like for like basis, the investments we are making today, are

delivering underlying performance improvements and which we will see in future

years. Of the c.280 interventions planned, they have all been completed or are

underway. And we’re equally focused on a nature first approach.

As we focus on improving 49 of 151 beaches through our WaterFit

investment programme by 2025, WaterFit Live is giving communities and

visitors to the region near real time information about their favourite beach,

alongside community roadshows, as we place communities at the heart of

our future plans. And whilst beaches are a priority, we are equally focused on

improving river waterquality with RNAGs reduced from 19% to 12.4% and on

track to get to our 2025 target.

One of the benefits of taking a nature-based approach is reduced costs for

customers over the longer term. With a nature first approach to investment,

our award-winning catchment management programme is leading the way

for biodiversity gains as well as continuing to help the way others manage

their land, improve water quality, biodiversity and climate resilience.

Activities range from installing water side fencing, building ponds, improving

farm tracks, slurry storage, under sowing maize, as well as planting trees and

buffer strips to catch and filter water. With c.127,000 cumulative hectares

restored, we are also exceeding our tree planting target at over 250,000.

Having worked on our catchments for the last 15 years, we have the science

to back up the improvements and I was delighted that we officially opened

our partnership with the University of Exeter in March 2024 providing

research through a state-of-the-art laboratory into the key challenges and

issues facing water, wastewater and the environment globally.

In tackling affordability, it is about two things, keeping bills as low as they can

be for all customers, and secondly, supporting those who are struggling. We

have always been focused on being as efficient as we can be in delivering

services, and in keeping bill increases to 2025 well below inflation. In fact bills

for Devon and Cornwall are lower today than they were 10 years ago. That’s

why we continue to support customers and communities having provided

over £100 million of customer support with 132,000 customers benefiting

from one or more of our affordability initiatives tariffs, building awareness

of our customer outreach engagement programmes. As a result, 100% of

customers in Bristol find their bills affordable and 98% across other regions.

And given you can’t choose your water provider; we believe you should have

asay which is why we plan to grow our unique Watershare+ scheme to one

inevery 10 households and will extend this scheme to SES Water customers

for the firsttime.

A sustainable future in the UK Water Sector

We’re reshaping the Group to be even more efficient, as we grow, and to

ensure we are performance led, with planned improvements in processes and

operational effectiveness which will deliver synergies. We are bolstering delivery

of the wider supply chain, collectively known as Amplify, with a two-tier supplier

model already in place and supporting 1,000 projects and in support of our

£2.8 billion investment plan for the region and delivery of RCV growth.

And to be a sustainable business, I’ve always been clear, our investments

can’t just be in assets, they’re in people too. We are the only water company

to have been recognised as a Top 100 employer for apprenticeships. With

over 470 apprenticeships to date and accredited as a gold employer for

our “earn and learn” approach, c.1 in 10 colleagues have either undertaken

an apprenticeship or graduate programmes. As we promote social mobility,

we are giving young people the opportunity to dive into their local water

company. For the third-year running we have had our best health and safety

performance, as we deliver on our HomeSafe strategy to ensure everyone

who works for us and with us goes home safe every single day.

We’re also leveraging technology, trialling AI in customer services and using

predictive modelling to support wastewater operations.

Robust Financial Position

Overall, we have a robust financial position with solid financial performance

and well positioned for the next regulatory period. Our efficiency programmes

are focused on keeping costs below inflationary levels and despite the

impacts of the unprecedented wet weather. Furthermore, with a robust

balance sheet, we are also efficiently funded and growing shareholder value.

Our strategy for financing will continue to seek to ensure we remain one of

the most efficient in the sector, and delivered in the right way as we continue

to make progress.

We have raised £1.2 billion of liquidity since March 2023, and completed

thesuccessful equity raise of £180 million for the SES Water acquisition.

Ourwater group gearing at 63.5% is in line with policy, reflecting the

increased investment spend in assets and the timing of RCV build and with

a near doubling of sector-leading base returns. And the development of the

B2B retailers, Pennon Water Services and Water2Business, are delivering a

c.50% increase in EBITDA and increase in market share through providing

excellent customer services.

We have carefully considered the final dividend position for 2023/24,

considering the new guidance from Ofwat in March 2024. We’ve made an

assessment on the performance of the Group in the round, including the

performance of the B2B retailers and the development of Pennon Power, and

the overall robust performance of our water businesses.

It’s in this context, we think it’s right to reflect on Ofwat’s guidance on dividends.

The final Pennon dividend has therefore been adjusted to reflect the fines linked

to a SWW prosecution we had in May 2023, where we were fined £2.4 million, with

theultimate shareholders of the Group, bearing that impact, and not customers.

The revised recommended final dividend is 30.33 pence per share.

In Summary

Our fundamentals are strong, reflected in record levels of investment, record

support for customers, and creating record levels of jobs directly and in the

supply chain, supporting the economic health of the region. We are growing

sustainably, whether through acquisition or investment with an efficiently

funded and robust balance sheet, growing shareholder value.

The building blocks are in place, focusing on not only what we do, but how

we do business. And this in turn, is ensuring we are making good operational

progress, delivering on our 4 priorities and what matters most to customers.

With a strong balance sheet and good liquidity, we maintain the agility to

deliver on our strategy in UK Water and are well positioned for a sustainable

future, with robust financials.

And finally

I could not end this update, without paying my personal respects to Gill

Rider, our out-going Chair. She has been both a mentor and a Chair, and her

championing of diversity and inclusion across Pennon is a fitting legacy on

which we intend to build. On behalf of everyone who works for the Group,

and will join us in the future, thank you Gill.

Susan Davy

Group Chief Executive Officer

May 2024

7Pennon Group plc » Annual Report and Accounts 2024

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Pennon, a business that listens and acts

How we listen

We constantly listen carefully to our stakeholders to understand their concerns on the important issues of the day and to review and refine our strategy and actions to

deliver maximum benefit to the communities we serve. Our engagement approach involves regular dialogue so that we can build open, meaningful relationships,

based on trust and transparency. Understanding our stakeholders’ needs and priorities helps to shape our strategy and social purpose as well as shape our

Board decisions. For more information on how stakeholder feedback shapes our Board decisions, read our Section 172(1) statement on pages 128 and 129.

In the table below, we outline in detail our approach to engagement with each of our key stakeholders.

Customers

Who they are

Our businesses supply water and wastewater services to 3.5 million residents across the South West region. We also have

10 million visitors a year to the region who receive our services. Through our acquisition of SES Water, – a further 740,000 people

are also served by the Group.

We serve 210,000 business customers nationally across England through our non-household retail businesses.

Why we engage How we engage Key challenges and how we are responding

Understanding customer needs,

expectations and concerns helps

us to share our engagement

with the people we serve and

find better ways of meeting their

needs.

We engage with our customers

and communities every day,

whether by phone, in communities

or through one-to-one

interactions. We understand their

concerns and priorities and share

their sense of urgency about

improving our network.

We also know that broader

engagement is vital, whether it’s

educating children about the

water cycle, supporting customers

who need additional help

through one-to-one meetings,

or answering questions at public

events.

We also engage and work with

the Consumer Council for Water

(CCW) - the voice for water

consumers.

• Our customer contact and support centres – we now hold the BSI

ISO 22458 KiteMark for Vulnerability and Inclusive Service.

• Customer feedback – has driven improvements to MyAccount and

Incident Management.

• WaterShare+ Customer Advisory Panel – an independent group of

customer, business, and social representatives. The membership

of the Panel is strengthened with expert advisors from the

Consumer Council for Water, the Environment Agency and Natural

England. 1 in 14 of our customers are now shareholders thanks to

the WaterShare+ scheme.

• PR24 Business Plan - we engaged with more than 250,000

customers to inform the strategic priorities for our plan to reflect

the views of households, visitors, retailers and housing developers.

• Customer AGM.

• WaterFit Live – our interactive map with real-time storm overflow,

and investment information for coastal communities.

• Awesome Water – attending over 28 events and reaching 55,000

people through fun, interactive displays and activities.

• Roadshows and local events – bringing the experts into

communities to address concerns and answer key questions.

• Customer research and focus groups.

• Community, charity and education projects.

• Neighbourhood and Water- Saving Community Funds.

• Communication campaigns – water-efficiency and leakage

messaging targeting households, businesses and visitors to

theregion.

• The provision of clean, safe drinking water

continues to be the number one priority for

our customers – we are focused on building

new resources, investment to upgrade

infrastructure and reducing leakage.

• Reducing pollution and protecting our bathing

waters – we are building trust through a

commitment to a programme of sampling and

monitoring. WaterFit Live is evolving to share

the near-real-time status of all 1,600 overflows

including rivers and is supported by face-to-

face roadshows in coastal communities to

respond to customer concerns.

• Ensuring we are a socially responsible

business - focus on achieving net zero by

2030, focusing on key environmental projects.

We are also creating an independent WaterFit

environmental advisory board.

• As the cost-of-living crisis continued, keeping

bills affordable for everyone and supporting

those who need additional help is crucial.

• We are focused on extending our zero water

poverty pledge to 2030, ensuring fair pricing

for all customers and to accelerate smart

metering.

WaterShare+ Customer Panel at the WaterShare+ AGM - Oct 2023

8 Annual Report and Accounts 2024 « Pennon Group plc

Communities

Who they are

Our businesses operate in the heart of local communities and we engage with the groups that represent them and provide forums

for our customers to come together as a community to express their views.

Why we engage How we engage Key challenges and how we are responding

We are integral to the communities across our

region and we are committed to listening and

engaging regularly to understand their needs,

working together to ensure water for all and

protecting our environment today and for

futuregenerations.

Our charitable donations and community funds

support hundreds of amazing causes making

a real difference to the lives of people and the

places they love. Our education programme has

the goal of inspiring future champions across the

region to learn about the value of water in fun and

interactive ways.

Our community outreach programme works

directly in the communities we serve. It achieves

this by offering support to those who need a

little extra help when it matters most and talking

directly to customers about environmental

challenges and how we can work together to

secure the future we all want to see.

For over a decade, we have been working with

local community partners to protect and restore

our environment using nature-based solutions

to make a difference. This includes working

with local farmers to create more sustainable

farming practices, planting trees and restoring

the South West’s precious peatlands to boost

nature and reduce harmful runoff into waterways.

Our partnerships with charities also seek to

provide health and recreational benefits to local

communities through the use of our lakes and

reservoirs – helping us support the health and

wellbeing in our region.

• Our Stakeholder Forum – that has brought

over 1,000 stakeholders across the region

together over the last two years to review and

co-develop plans.

• A roadshow programme across the South West

Water region, focused on providing information

at a local level and delivered in coastal

communities. This provides a forum to talk

about local upcoming plans, and listen to and

answer customer concerns.

• Print, digital and social media – including our

‘Water is Precious’ campaign and engaging our

communities in behavioural change campaigns

such as Love Your Loo, and Think Sink!

• An education programme working with primary

schools. This has delivered a record year,

with116 lessons relating to the water cycle,

sewer misuse and water efficiency to over

4,000 children.

• The Awesome Water programme; this consisted

of 28 event days across the South West

involving over 55,000 people. This enabled

direct feedback and the sharing of important

messages around sewage misuse, water

efficiency, drought and the hosepipe ban.

• The South West Water Neighbourhood Fund;

this has been running for three years, in that

time we have given out £100,000 to 56 different

charities and groups helping 22,000 individuals

across the South West.

• Bristol Water ‘Together for good’ programme;

this is a community lottery providing the

opportunity for a different charity or community

scheme to win £500 towards a project that

benefits the community.

• Bi-annual Conservation and Recreation Forum.

• Specific partner engagement to support access

to our land and sites for recreation in the South

West – e.g. South West Lakes Trust.

• Our region has over a third of the nation’s

bathing waters and it is important that we

protect these vital recreational areas – we have

for three years maintained 100% bathing water

quality where we operate.

• We continue to progress rivers into bathing

waters, with our River Dart and Tavy pilot

studies complete allowing communities

tosuccessfully seek designation on 4

stretchesof river.

• We provide access to our 40 inland lakes

and reservoirs, so that local communities

can continue enjoying them for health and

recreation – used by two million visitors a year.

• All of this means that any customer or visitor

is never more than an hour away from a

bathing water, with nature and recreation on

everyone’sdoorsteps.

Our Exmouth Community Roadshow

9Pennon Group plc » Annual Report and Accounts 2024

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Pennon, a business that listens and acts continued

People

Who they are

A total of c.4,000 (including SES Water) people work across the Group and its brands, in corporate and operational roles. It’s our

people that keep things moving 24/7 to deliver drinking and wastewater services and to ensure our customers receive clean and

safe drinking water.

Why we engage How we engage Key challenges and how we are responding

Our employees are our greatest asset. We provide

the opportunity for them to be engaged at multiple

levels of the business and through a variety of

two-way dialogue and feedback channels so we

can listen to them and make improvements based

on their feedback of what’s important to them. We

continually engage and communicate with our

people on topics such as their health, safety and

wellbeing, our organisational culture, promoting

diversity and inclusion, training and development.

We use a variety of mechanisms to engage with

colleagues including pulse surveys, listening

sessions, employee forums and trade union

representation.

• Great Place To Work pulse surveys and work

with senior leaders to develop local action plans.

• 100% employee representation either through

RISE (employee forum) or collective bargaining

agreements with our Trade Union partners

GMB and Unite in our operational teams.

• Two-way communication activities, including

fortnightly Big Chats, ‘Ask Susan’, monthly

senior leadership calls and listening sessions.

• Executive and Board site visits.

• Employee training programmes.

• Internal communication activities including,

weekly internal newsletter, social channels

eg.Viva Engage and our Group-wide intranet.

• Monthly ‘Time to Talk’ sessions, primarily

focusing on wellbeing, featuring both internal

and external speakers.

• Regular ‘This is Me’ features including videos

and podcasts.

• Regular appraisals and one-to-ones.

• Proactively recognising and addressing

employees’ mental health and wellbeing

by delivering a broad and comprehensive

programme of offerings for all employees and

their family members.

• Maintaining focus on Health and Safety with

continued investment through HomeSafe.

• Supporting diversity and inclusion by launching

our new employee networks.

• Involving existing colleagues as we recruit and

train the next generation of employees through

our apprenticeship, internship and graduate

programmes.

• Addressing employee survey feedback by

enhancing Group communications and

employee pay and bonuses.

Environment

What they are

Beaches, bathing waters, rivers and our natural environment set us apart as a region. We recognise that is what makes us unique.

They also creates a similarly unique set of challenges and opportunities. We recognise that to meet these properly, we need to

collaborate and to build strong, value-filled partnerships with a wide range of environmental stakeholders in the region. These

stakeholders include South West Lakes Trust, Westcountry Rivers Trust, local Wildlife Trusts, Natural England and various

conservation, environmental and recreational interest groups and charities.

Why we engage How we engage Key challenges and how we are responding

We seek to identify and build strategic

relationships around shared ambitions and

objectives. By working in collaboration with our

partners we can amplify the impact of our work.

Our core activities are directly linked to the health

and wellbeing of the people and environment

of our unique region. We seek to carry out our

business in a sustainable and responsible way

and recognise that to do this, collaboration and

partnership working are key.

It is our role to listen and respond, innovate and help

find solutions to the challenges we all face today

and for generations to come. We see that we need

to work collectively to do this. For example, through

our CREWW partnership with Exeter University.

We want to ensure we are delivering on our

environmental commitments and support stakeholders

in the work they do, in partnership with us.

• Regular meetings and liaison with

environmental partners in our operational

areasin relation to specific strategic projects

and objectives.

• Regular attendance by operational colleagues

at local, regional and national working groups,

forums and partnership meetings to ensure our

priorities and actions are represented and that

insight gathered is fed back into the business.

• Our senior leadership team, including CEO

Susan Davy, meets routinely with CEOs

andleaders of environmental organisations

andcharities.

• Regular meetings with the Environment

Agency as our environmental regulator,

bothatstrategic and catchment level.

• Every two months we host our ‘Let’s Talk

Water’ stakeholder forum to share progress

onourenvironmental programme and share

ideas for collaboration.

• We keep stakeholders abreast of latest news

from the business through regular review and

revision of our stakeholder communication and

engagement programme.

• We ensure the business keeps abreast

of stakeholder news and development

through regular review and revision of our

engagementprogramme.

10 Annual Report and Accounts 2024 « Pennon Group plc

Suppliers

Who they are

As a large organisation we work with a large and diverse supply chain. Our supply chain partners play a vital role in supporting

sustainable growth and cost-base efficiency across the business.

Why we engage How we engage Key challenges and how we are responding

We want to be ready to meet the challenges

of the future through our investment

programmes and have made extensive

preparations to ensure that our programme

is deliverable. We are ready to meet the

step change in the scale of the programme

forK8.

We are committed to ensuring our supply

chain partners align with the same values,

standards and behaviours we expect

of ourselves. Through rationalising and

segmenting our supply base to reflect either

strategic, key, preferred or transactional

relationships, we are developing an

approach that maximises our engagement

with each supply chain partner. As a

signatory to the EU Skills Accord, we work

collaboratively tosupport skills development

and investment throughout the supply

chain and as part of our ESG and Net Zero

strategies we engage our supply chain

so that we can better understand and

manage our collective environmental impact

throughcollaboration.

• We unveiled our major new alliance, Amplify, with

some of the country’s best engineering companies to

deliver South West Water’s major infrastructure plan for

2025-2030, worth £2.8 billion. It will drive investment

into the local economy, creating around 2,000 new jobs,

with new treatment works and reservoirs among the

investments planned as part of the company’s ongoing

commitment to its customers, communities, and the

environment. To help deliver these projects, BAM

Nuttall, Clancy, Mott McDonald Bentley, Tilbury Douglas,

MWH Treatment and Network Plus Envolve are

Amplify’s main construction partners, following ahighly

competitive tendering process. They will be supported

by a range of consultancy organisations: Stantec, Long

O’Donnell, and Turner & Townsend will provide project

management; Aecom, ChandlersKBS and Turner &

Townsend will ensure best value for money; while

Aecom, Arcadis, Pell Frischmann, Stantecand WSP will

produce innovative designs.

• Supplier reviews and audits.

• Code of Conduct for Supply Chain Partners.

• Sustainable Procurement Policy.

• Formal contracts and framework agreements.

• E-procurement and Risk Management platforms.

• We are driving alternative ways of working

through our new partnership.

• We are adopting a ‘nature first’ approach

andsecuring the best talent and expertise

fromour partners.

• Our established mobilisation board is already

working on the delivery of current schemes.

• We minimise risk of supplier failure and/

or insolvency through comprehensive due

diligence checks, and continually seek to

strengthen resilience within our supply chain.

Investors

Who they are

We have a range of debt providers, institutional equity investors and retail investors, including customers, following the launch

of WaterShare+, with one in 14 customers in the South West Water region opting to become shareholders.

Around 50% of Pennon’s shares are held by UK-based investors including individuals, pension funds, and charities. Over a third

of the Group’s c.4,000 employees (including SES Water) are shareholders.

Our diverse debt portfolio includes institutional debt investors, lessors and bank debt.

Why we engage How we engage Key challenges and how we are responding

As a publicly listed company, access to

capital and debt markets is vital to fund our

growth. We run an extensive global investor

relations programme to ensure that debt

providers and institutional equity investors,

retail shareholders and research analysts

areinformed of our business, its strategy

and prospects.

• Comprehensive institutional equity investor

relationsprogramme.

• Engagement with investor representative bodies

including proxy agencies via the Investor Forum.

• Our AGM is attended by retail shareholders and

provides them with the opportunity to put questions

to the Board.

• Through our unique WaterShare+ scheme, customers

have the opportunity to become shareholders in

Pennon Group, giving customers a stake and a say

intheir water company. Working with our independent

WaterShare+ Customer Advisory Panel gives us an

opportunity to continuously engage our customers

andto share our work and hear feedback on our

business performance and business plans.

• We engage with our debt investors through regular

meetings and investor conferences to ensure our lenders

are up to date with our plans and funding strategy.

• In October 2023 we submitted our Business Plan

for 2025-30 to Ofwat. We published an Investor

Summary of our plan and held an investor

presentation where we explained our plan

andanswered investor questions.

• In January 2024 we announced that we

hadacquired 100% of the holding company

ofSES Water and raised c.£180 million gross,

excluding transaction costs, through an equity

issuance to institutional and retail investors.

An investor presentation was held where we

explained the rationale andbenefits of the

acquisition for the Group andits stakeholders.

• In April 2023 South West Water issued its first

syndicated private placement of £300 million.

We met with a number of potential UK and

USinvestors to explain our business and

fundingstrategy.

11Pennon Group plc » Annual Report and Accounts 2024

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Pennon, a business that listens and acts continued

Regulators

Who they are

We have an open dialogue and meet regularly with our regulatory bodies: Ofwat, the Environment Agency, the Drinking Water

Inspectorate, Natural England, and the Health and Safety Executive (HSE).

Why we engage How we engage Key challenges and how we are responding

We ensure that our business plans address

ourregulators’ priorities and concerns relating to

our strategy, performance, risks and opportunities,

and delivery for customers.

We also engage with key trade and customer

bodies, including CCW – the voice for water

consumers.

Our independent WaterShare+ Customer Advisory

Panel is now well established and provides reviews

and challenges of all aspects of our business

performance and business plans.

• Regular meetings.

• Action plans, reports and reviews.

• Consultations.

• Workshops and our Stakeholder Forum.

• One-to-one meetings.

• With technological advances and a heightened

focus on the environment, our customers and

stakeholders want us to go further to protect

the environment by assessing and responding

to water quality and water scarcity issues.

Thisisagainst the backdrop of changing

weather patterns, increased growth and

urbanisation, andwider pressures on household

incomes. Weare collaborating with our

regulators to ensure the regulatory framework

can meet these challenges, and support the

identification of the right business plans to

meet current and future needs.

Policy makers

Who they are

We create open and transparent relationships with the widest range of policy makers, from local MPs, who seek to reflect the

priorities of their constituents, to UK government who ultimately set water priorities and policy, through bodies such as the

Department for Environment, Food & Rural Affairs (Defra), Natural England, and the Environment Agency. We engage with

Parliamentary Committees regularly to set the tone of legislative activity, ensuring that Pennon’s voice is heard at the heart

of government. But we don’t just engage with the Government, we work cross-party to ensure that Pennon’s values are heard

across the political divide. In addition, and as a FTSE-listed business, we collaborate with third parties such as the CBI and

Chambers of Commerce, to ensure that the voice of business in the UK isheard.

Why we engage How we engage Key challenges and how we are responding

Water is a precious national resource, requiring

water companies and policy makers to work

together to deliver the best possible outcomes

for the environment, customers and communities.

Asone of the largest employers and businesses in

the Greater South West, we have a responsibility

to support the local economy and support

growth in the region. Working with regional and

national political stakeholders, we are able to talk

about our best-in-class skills agenda to those

across ourarea, delivering vital up-skilling across

the Greater South West as we play our part in

growingthe economy.

• We are a member of Water UK, which works

with government, regulators and stakeholders

to develop policy on water and the sustainable

delivery of water services in the UK.

• We meet on a regular basis with MPs,

hosting site visits and constituency-based

meetings, as well as events in Westminster.

We also contribute to round table debates

whilst briefing MPs and ministers ahead of

parliamentary debates, setting the narrative

before a word is spoken.

• We regularly respond to consultations, such as

the Government’s consultation on wet wipes,

which has seen cross-party promises to ban

non-flushables in the next parliament.

• We are one of the founding members of the

Back the South West campaign, and in July

2021, published our response to the G7 legacy,

‘Levelling Up the Great South West’. This has

helped focus our social mobility activity and

recruitment opportunities across the region,

offering varying roles and opportunities for the

range of our communities, providing jobs across

our operations and bringing talent and diversity

into the business.

• Our sector faces generational change, with

challenges from population growth, climate

change, rising environmental standards from

theEnvironment Act and evolving customer

andpolitical priorities. These challenges will

requirefurther investment, and continuing

evolution of the sector’s regulatory framework,

to be able to flex to meet changing priorities

and meet the needs sustainably, whilst keeping

customer bills low.

• We continue to work collaboratively with

policy makers, to ensure we can deliver these

commitments, now and in the future, playing our

societal role as well as investing for the future.

For example, South West Water’s c.£82 million

investment in Green Recovery for the region,

our Net Zero plans to 2030, and our evolving

WaterFit Live programme, which sets out our

plan to improve river and sea health, working

incollaboration with others in the region.

12 Annual Report and Accounts 2024 « Pennon Group plc

Water quality and resilience

new sources in development

including desalination plant

£369.3m

of total Investment in clean water

Storm overflows and pollutions

2,732m

of storage increases

£213.6m

of total Investment in wastewater

Water quality and resilience –

Increasing water resources

In 2022/23 we announced our approach to breaking the cycle

of drought in the South West which would be achieved through

enhancing our supplies across Devon and Cornwall as well as targeting

water efficiency. These measures are part of a £125 million shareholder

injection and would bring an increase in resources in Cornwall and

Devon by 45% and 30% by 2025.

During 2023/24 we have broken the drought cycle with our strategic

reservoirs reaching 100% peak capacity in early April 2024 – a third

ofthis storage was achieved through our interventions.

A new supply at Gatherley was delivered in the year (adding to the

Lydpumping scheme last year), reaching our 30% target for Devon.

We have also achieved 30% in Cornwall with the completion of a

new 22km pipeline network and raw water pump station at another

redundant quarry in Mid-Cornwall, named Blackpool Pit. This new

pipeline network and pump station will supply raw water straight

to Cornwall’s strategic water treatment works in Lostwithiel.

Theabstraction pontoon at Blackpool Pit is pictured opposite.

We continue with our investments at Porth Rialton and desalination

todeliver the remaining 15% for Cornwall.

How we act

2023/24 investment highlights

Financial year 2023/24 has seen our largest in-year capex investment to date coupled with the first phase of funding to enable the creation of Pennon Power.

Here are some of our Group highlights mapped against our four strategic priorities:

Net zero and environmental

gains

Solar Sites acquired

£59m

of Investment

Addressing affordability and

delivering for our customers

23,000

Customers moved onto social tariffs

in the year

£18.3m

of financial support to customers

13Pennon Group plc » Annual Report and Accounts 2024

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Beals Mill

New rising main control infrastructure

Beals Mill has historically been a site where we have experienced

our highest number of spills; hence it was at the top of our list of

engineering priorities this year.

A number of interventions to reduce infiltration of groundwater into

the sewer network have been completed in the year. These include

thereplacement of the rising main on the network, the rehabilitation

of31 manholes within the area and 600 million of new sewer lining.

Attention now moves to ancillary works, to ensure the full spill

reduction benefits are achieved.

Bere Alston

Bere Alston Wastewater Treatment Works

The investment at Bere Alston has focused on reducing groundwater

infiltration into the sewer network and removing the flow of surface

water from the combined drainage and sewer network in the area.

Works included the installation of 1,640 million of new sewer

lining, the rehabilitation of 60 manholes, 245 dig-down repairs to

pipework andthe separation of three areas of surface water from the

combinedsystem.

Hatherleigh

New storage tank installed at our Hatherleigh site with a capacity of 120m

Prior to the project being completed the site had no existing storm

storage. Following agreement with the Environment Agency, a

below-ground storm tank with a capacity of 120m

was installed at the

end of Q1 2023; this was a year ahead of the original regulatory deadline.

As part of the programme a new inlet pumping station control kiosk

andinstrumentation for the storm tank were also installed.

The investment has led to a c.90% year-on-year reduction in spills

incalendar year 2023, with this trend continuing into Q1 2024.

Thisissetagainst a backdrop of increasing frequency and volume

ofrainfall sinceinstallation.

Chittlehamholt

New balancing tank installed at our Chittlehamholt site with a capacity

of 62m

Completed at the end of Q4 2023, the project comprised the

installation of a balancing tank to reduce flows during periods of high

rainfall, and an intervention to remove an unpermitted connection

tothe sewer network which materially increased flow into the system.

The combination of the investment made and action taken by South

West Water has led to a c.70% year-on-year reduction in spills in

Q12024.

Storm overflows and pollutions – increasing storm storage capacity

andreducing infiltration

Pennon, a business that listens and acts continued

14 Annual Report and Accounts 2024 « Pennon Group plc

Storm overflows and pollutions –

WaterFit Live

Addressing affordability and delivering for our customers - water poverty

model and affordability toolkit

To achieve our target of eradicating water poverty by 2030, we have worked with CACI and ICS to develop a water poverty model, supported by an

extensive suite of data, allowing us to identify with high levels of probability those customers who are in water poverty and in need of our support.

To deliver this we have announced our largest ever package of support, of over £200 million by 2030.

We launched Waterfit Live ahead of the 2023 bathing season, to give

customers more information about the impact of our wastewater

network on their local beach. Our interactive beach maps provide a live

view to see if a storm overflow is in operation at their local beach and

the potential for it to be temporarily affecting bathing water quality.

Alongside the map, we have also shared information about the bathing

water quality at that beach, the improvement over time, and the work

we are undertaking to further enhance water quality at our bathing

waters through our WaterFit programme.

Our community engagement programme has responded to interest

around the near-real-time information we have been sharing on storm

overflows, by holding both online and face-to-face events with local

communities such as Exmouth, Harlyn Bay and Lyme Regis.

As well as giving customers the opportunity to challenge us, these

roadshows have allowed us to explain our short- and long-term

plans, provide data on sampling in their local area and explain how

we manage the impact of new developments on our network. We

also gathered feedback from local communities that will help shape

investment priorities and the way in which we continue to engage with

them in the future.

This includes:

• Proactive auto-enrolment of customers onto tariffs to remove them

from water poverty.

• Affordability toolkits to give customers flexibility in how they

receivesupport.

• Taking a water-efficiency-first approach.

• Working with partners to ensure we engage with and

supportcustomers.

Using this tool, we have already identified those in water poverty

and begun to auto-enrol these customers onto support tariffs. In the

South West Water area, we auto-enrolled 8,000 customers onto our

WaterCare tariff in 2022/23 and a further 18,000 in 2024/25; with more

customers set to benefit into 2025 and beyond.

Our approach to helping those in water poverty is supported by our

affordability toolkit. This provides a range of options to help customers

lower their water bill, including switching to a metered tariff, payment

breaks, water efficiency advice and home visits, low tariffs and help with

managing debt.

15Pennon Group plc » Annual Report and Accounts 2024

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Net zero and environmental gains -

Pennon Power, Fife

In April 2023, Pennon Power acquired its first renewable energy site

fordevelopment in Dunfermline, Fife. The site comprises a 45MWp

solar farm, with a 30MW 2-hour co-located battery storage system,

situated on the site of a former open-cast coal mine. The annual

generation from this single asset will be equivalent to the entire current

Group renewable energy portfolio.

Since acquisition, a series of activities have been completed to prepare

the site for construction including design specification, geotechnical

investigations, grid connection designs, planning condition discharge

and identifying an EPC contractor to build the site.

Construction contracts were signed in early 2024, and the site is

currently working towards commissioning of the solar array in late

2024, with the battery storage unit connecting in Q1 2025.

Groundworks pull-out testing conducted in preparation of construction

of the solar array.

How we are preparing for the future

We are not just focused on meeting the immediate challenges we face. CREWW, is a 25-year research partnership between South West Water and the University

of Exeter (UoE). It builds on many years of collaboration between the two organisations including our catchment management programme, Upstream Thinking

(first pioneered in 2006) which has acted as a beacon of change which others in the water sector have followed.

CREWW is bringing together subject matter experts from SWW and UoE,

under one roof, who will combine their knowledge and expertise to undertake

innovative research into some of the most pressing challenges facing both

the business and the water industry. The outcomes will help inform our

operations and enable us to better deliver for our customers, the region and

the environment.

Officially opened in March 2024, the new dedicated, operationally net

zero research facility is underpinned by a £21 million capital and research

investment by South West Water. It is the only water sector partnership

to receive support from the UK Research Partnership Investment Fund

(UKRPIF), as well as being the largest RPIF-sponsored project in the

SouthWest.

CREWW has already begun working on projects including the creation of

a state-of-the-art laboratory which will tackle the scourge of microplastics

in our environment. The project represents an investment of £1.4 million

from South West Water and will initially develop our understanding of

the presence of microplastics in sewage sludge to inform our wastewater

operations. In the long-term, the ambition is to provide guidance and support

to any stakeholders involved in sewage operations, their management or

monitoring, as well as regulators. The project team at CREWW is headed

up by Professor Tamara Galloway, an internationally renowned scientist in

the field of microplastics. Tamara and her team work alongside wastewater

experts from South West Water, including Helen Dobby, the company’s

Headof Environmental Performance.

Susan Davy and Lisa Roberts, Vice Chancellor and CEO, Exeter University,

opening the CREWW building, March 2024

Pennon, a business that listens and acts continued

16 Annual Report and Accounts 2024 « Pennon Group plc

The markets in which we operate

Household water sector

The industry was privatised in 1989 in response to the demands for high-

quality water and the need to clean up routine pollution to rivers and seas.

Since then, £200 billion has been invested, catching up the previous decades

of under-investment, improving services and protecting the environment.

Every day, homes and businesses receive a continuous supply of world-class

water – ranked consistently as among the best in the world. Household and

non-household consumers have seen significant improvements to customer

service. And with the installation and upgrade of vital infrastructure across

communities, environmental standards are higher than they have ever been,

with improvements to the quality of rivers, lakes and coastal waters.

This is particularly so in the regions we serve. When South West Water

was privatised, nearly half of all sewage in the region was untreated and

discharged directly into the sea. Testing carried out to assess levels of

harmful bacteria showed bathing water quality was low, with only 28%

passing the most stringent tests. We invested, including through our Clean

Sweep programme, to ensure that world class wastewater services were put

in place for the first time – so that all sewage is now treated through one of

our 655 treatment works.

Privatisation was set alongside the establishment of independent regulators,

which has provided powerful incentives to the industry to innovate and

transform in order to drive efficiency, deliver against the obligations, and

ensure a stable operating environment for investors.

Greater innovation and efficiencies have been delivered alongside record

investment – due to the sector’s stable regulation, which has long attracted

investors. Investors are essential to the sector, providing investment that

has supported record levels of investment whilst keeping bills affordable,

with bills remaining at around £1 a day. Without this investment, all water

companies would collect all expenditure requirements through customer

billson a ‘pay as you go’ basis – which would make bills much more volatile

and higher than they are today.

Consolidation and mergers across the sector over the last 30 years have

provided benefits to customers, setting new benchmarks for the sector.

Today, there are 16 privately owned water companies – of which 11 provide

water and wastewater services and five provide water only services.

Collectively these provide clean water through a mains network that is

340,000km long, and wastewater services through 567,000km of sewers

and6,000 wastewater treatment plants.

Pennon is one of the three FTSE-listed companies that supply water

and wastewater services across England and Wales. Pennon’s group

ofcompanies provides water and wastewater services to a population

ofc.4.24 million across the South of England.

The non-household retail market

The non-household retail market allows up to 1.2 million businesses and

other non-household customers across the country to choose which retailer

they buy water and wastewater services from.

The non-household market operates through a controlled portal operated

by Market Operator Services Limited. This has required the separation

ofthewholesale and retail arms of water businesses.

Pennon Water Services was established to manage the non-household

retailbusiness for Pennon via a retail venture with South Staffordshire

plc. Our reach into non-household has grown from the addition of

Water2Business and SES Business Water to the group.

The power market

Pennon Power is a start-up business, wholly owned by Pennon Group to

generate clean energy. The energy market is regulated by the independent

energy regulator, Ofgem. To date Pennon Power has acquired four projects

in the UK and each site has a capacity less than 50MW which is considered

to be small-scale solar development for planning purposes, this means

planning permission was granted by the relevant local planning authorities.

Each of the projects has attained planning consent and Pennon Power

will construct them. Once operational the projects will generate enough

electricity each year to power c.50,000 homes.

Pennon Power was established to support delivery of the Group’s Net Zero

commitments and to provide financial protection from energy price volatility

whilst providing sustainability financial returns and to contribute towards

Group profitability.

17Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Water companies have a vital role in society, operating in the public interest to ensure safe and reliable water and wastewater services for all.

As a provider of water and wastewater services, we are subject to regulation on price and performance by economic, quality and environmental regulators.

Thisregulatory framework is designed to safeguard the best interests of customers and the environment.

Defra sets the overall water and sewerage policy framework in England, while our regulators focus on specific aspects including water and sewerage policy,

economic, environmental, drinking water quality and the customers we serve.

The water sector regulatory framework

Our regulators

Department for Environment, Food and Rural Affairs (Defra)

Defra sets the overall policy framework in England, including the environmental and service requirements.

Climate change, growth, consumer expectations, and macroeconomic trends all impact on the policies

that Defra sets.

Ofwat

Ofwat is the economic regulator, with duties to protect the interests of consumers, and ensure companies can

carry out their functions, and ensure companies can finance their functions – through promoting efficiency,

innovation, competition and economic growth.

Environment Agency (EA)

The EA is the environmental regulator focused on protecting and improving the environment.

It is also responsible for managing and reducing flood risk. The EA is a principal advisor to Defra

on the water environment.

Drinking Water Inspectorate (DWI)

The DWI is the drinking water quality regulator, with responsibility for ensuring that companies supply

wholesome water that is clean and safe to drink.

Consumer Council for Water (CCW)

CCW represents the needs of customers, and supports customers who have complaints about their

water company.

Natural England

Natural England is the government’s advisor on the natural environment, with the aim to protect and improve

the natural environment.

Market Operator Services Limited (MOSL)

The non-household retail market allows up to 1.2 million businesses and other non-household customers

across the country to choose which retailer they buy water and wastewater services from. MOSL manages

the day-to-day running of the non-household retail market, ensuring that wholesalers and suppliers who trade

in the competitive market work together effectively.

Our regulatory positioning

What we do now is crucial in terms of delivering plans now and planning

forthe future. And, as we operate at the forefront of the changing regulatory

water markets, we remain well placed to respond to change and to identify

further growth opportunities.

Our strategy is to be a responsible leader for the regions we serve today

and every day. Our vision is to create collaboration opportunities and drive

transformational changes through innovation across the value chain of the

water sector.

We are focused on demonstrating leadership within the water sector.

Attheheart of this is how we manage water and the water cycle.

We are pioneering new technologies and methods to improve customer

service, efficiency and resilience while working closely with industry peers,

as appropriate, and with our supply chain, to identify and implement best

working practices across all areas of the business:

• We are continuing to upgrade and modernise our networks and assets

toaddress climate change and accommodate a growing population.

• We are leveraging digital technology to better monitor and understand

factors that impact water quality and availability, enhancing our ability

totrack and understand consumption to support customer engagement

and affordability, optimising performance, and to understand and prioritise

the innovations in water quality management.

• We are learning more about the use of nature-based solutions which

restore or imitate natural processes – such as improving water storage by

creating smart ponds or restoring peatlands. We see these as mainstream,

scalable options for water management.

• We are exploring opportunities to build water resilience through non-

climate-dependent water sources, such as repurposing quarries and

wastewater treatment and reuse – with only a fraction of wastewater

currently reused this is important area for future development.

With the opportunities that we see, we welcome the development of market

mechanisms within the sector to drive innovation and value for customers,

the environment and stakeholders.

18 Annual Report and Accounts 2024 « Pennon Group plc

Our Future Plans: 2025 to 2030

The five-yearly business

planning cycle

Every five years, we submit our future plans to the economic regulator, Ofwat.

Our business plans set out our investment proposals, performance

improvements and targets, the benefits of our plans for customers and

communities, and the impacts on customer bills.

In October 2023 all 16 regional companies submitted their business plans

to Ofwat as part of the 2024 Periodic review of prices (PR24), covering

the period 2025-30 (AMP8). This saw an unprecedented £96 billion of

investment planned for AMP8 – a near-doubling of the £51 billion of AMP7.

Our plan for the South West

In October 2023 we shared our Plan for

Change 2025-2030.

Our PR24 Business Plan represents a step-change in our long-term strategic

approach. It includes a clear outline for all stakeholders of our purpose and

strategic ambition, and our priorities for the next 25 years and five year focus.

This has reinforced how we will prioritise, plan and manage for the future

and ensure that we are focused on things that matter the most to people,

communities and the local economies where we operate.

Our plan 2025-2030 is a no surprises plan, as we continue to do what we

said we would. It’s a plan that goes further in tackling the biggest challenges

in our region, as we invest to protect water quality and enhance resilience,

tackle storm overflows at our beaches, eradicate pollutions and protect

theenvironment from climate change.

Our £2.8 billion investment will create c.2,000 jobs in the region, as we

commit to providing 1,000 apprentices and graduate opportunities to 2030.

It will provide much needed job security in the wider supply chain across

theregion. It’s also a balanced plan, between water and wastewater, and one

we are well placed to deliver. To further bolster our best-in-class approach

toaccountability, we are developing our new Environmental Advisory

Panel to hold us to the same high standards as our WaterShare+ Customer

Advisory Panel protecting customer interests.

Overall this plan has received strong support that we should invest more,

with universal agreement that the priorities are the right ones. We therefore

consider that it meets Ofwat’s quality and ambition assessments, with an

outcome framework anchored in customers’ expectation and aligned with

Ofwat’s objectives for PR24.

In summary, our 2025-2030 business plan is a plan building on the

momentum we have today, and which goes further in tackling the biggest

challenges in our region, as we invest to protect water quality and resilience,

tackle storm overflows at our beaches, eradicate pollutions and protect the

environment from climate change. With a laser like focus on efficiency, it is

also a plan that supports customer affordability. Our £2.8 billion investment

isan ambitious plan, the right plan, and the right deal for our region.

The next steps in PR24

In October 2023 all companies submitted their business plans to

Ofwat following 18 months of analysis and engagement. Ofwat

will issue its PR24 Draft Determinations in June, and its Final

Determinations in December.

Ofwat’s timetable for PR24:

2023

October

Submitted our business

plans toOfwat

2024

June

Ofwat issues Draft

Determinations (DD)

August

Company written response

to the DD

September

Company representation

meeting on the DD

December

Final Determinations issued

19Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Delivering 1,000

apprenticeships

and graduates

Doubling our

investment to

£2.8 billion

90,000

WaterShare+

customers

250,000

customers

engaged

Quadrupling

oursupply chain

Creating 2,000

jobs

Water quality and

resilience

Water quality and

resilience

• Upgrading a third of water

treatment works across our

region and investing in two

new treatment works in Bristol,

alongside the completion of

Bournemouth’s state-of-the-art

ceramic new treatment works.

• Resurrecting plans for the

Cheddar 2 reservoir to boost

water resources in the Greater

South West.

• Creating a water grid to ensure

all our strategic reservoirs

areconnected, ensuring we

can move resources across

theregion.

• Reducing leakage levels to less

than 10% on our network and

less than 4% on customers’

networks.

Storm overflow and

pollutions

• By 2030, we will have tackled all

storm overflows at our bathing

beaches, shellfish waters

and high-spilling sites given

the importance of tourism to

ourregion.

• In the meantime, and to restore

confidence in our bathing

waters, we will implement a first-

of-its-kind monitoring regime

so everyone can feel they can

enjoy being in the water at their

favourite beach.

• We are implementing our

“GreenFirst” approach to

investment, working with nature

to improve drainage and reduce

storm overflows.

Addressing

affordability and

delivering for

customers

Addressing affordability

anddelivering for customers

• Importantly, in a cost of living

crisis, we appreciate how

unwelcome it is for any bills to

increase. In response, we have

challenged ourselves to ensure

that the necessary increases

are fair. The Board has pledged

to extend our commitment to

ensure zero customers in water

poverty to 2030.

• Delivering our largest ever

package of support with over

£200 million of affordability

measures.

• Expanding our unique

Watershare+ scheme to one

inevery 10 households.

• Introducing a range of fair tariffs

to help customers use less and

save more.

Storm overflow and

pollutions

Net zero and

environmental

gains

Net zero and

environmental gains

• We will continue with our

‘Promise to the Planet’ to

become Net Zero by 2030 by

decarbonising our operations,

and reducing emissions of

nitrous oxide and repurposing

methane.

• Expanding our nature recovery

programme - extending

Upstream Thinking into new

catchments, planting 300,000

trees and re-naturalising

waterways for wildlife – working

with nature to build resilience.

• Transforming sludge treatment

processes to protect rivers.

Price Review 2024 (PR24) investment highlights

Our Future Plans: 2025 to 2030 continued

Our strategic priorities

Customer driven plan

Our customers have been at the heart of developing our Business Plan for 2025 to 2030; to this end, we have had more direct feedback and engagement than

ever before and we have listened to the views of more than 250,000 customers. These interactions have led to the creation of our four strategic priorities.

20 Annual Report and Accounts 2024 « Pennon Group plc

Each and every day we operate a water recycling system for the region.

Over 30 years we have invested more than £13 billion in the areas we serve,

innovating to deliver world-class drinking water, cleaner, safer bathing

beaches and more reliable services. We have also supported nature to

thrive and pioneered ways to give our customers a say in our business and

a share in our success – all for a little over £1 a day.

Our Strategic Direction to 2050 sets out our ambition for this water system

for the next 25 years. It sets out the leadership and action we will take,

the action needed from others, and the opportunities we must collectively

grasp if we are to ensure high-quality, reliable and resilient water services

for future generations.

Significant challenges lie ahead and some are very real today. Between now

and 2050 we are striving to provide the services society needs, expects

and values.

Over the next 25 years we will invest to address storm overflows into

beaches and rivers, minimise nutrients in rivers, innovate to remove

plastics from sludge and maximise the beneficial use of sludge, achieve net

zero, data transparency, decommission lead pipes, protect supplies from

emerging contaminants, achieve world class leakage levels, build drought

resilience, ensure affordable bills for all and do our bit to address the

environmental crisis. We are truly on a journey to a water and wastewater

system that we can all be proud of.

Sequencing and balancing this investment is a great challenge, and we

have long term adaptive plans to make sure that we tackle the biggest

challenges and deliver the greatest outcomes first.

Our Ambitions to 2050

As a responsible business we

have set out our Strategic

Direction to 2050, driven by our

purpose, to support the lives of

people and the places they love

for generations to come.

Our aims and outcomes by 2050:

• Resilient infrastructure systems – able to withstand the impacts

of changing and more extreme weather patterns and meet

environmentalstandards.

• Incentives to innovate – innovation in frontier technologies to drive

efficiency, and to enhance mitigation and adaptation to change.

• Working with nature – to manage flows in a different way,

generatingsocio-economic benefits and biodiversity, – rather than

pouring concrete.

• Improved water efficiency – conservation is essential for economic

andenvironmental sustainability. Working with others to address water

use across households and industry: agriculture to manufacturing.

• Growth and support for local economies – water is an economic driver

that can facilitate growth and development, supporting agriculture,

tourism, manufacturing, energy and mining.

• Support for the circular economy – maximising the beneficial use of

waste and ending the use of high grade drinking-quality water to water

gardens and clean driveways – through more local storage and recycling

of rainwater.

• Building talent – ensuring our pool of talented, diverse people.

• Working with stakeholders – to together deliver transformational

change. The water cycle is a common good, a finite resource, and crucial

segment of our economy, that needs to be protected through multi-

stakeholder approaches to partnerships and investment.

• Protect vulnerable customers – maintaining our pledge to end water

poverty by 2025.

Strategic report Governance Financial statements Other information

21Pennon Group plc » Annual Report and Accounts 2024

Our business model

Delivering water services

through...

Our business model is shaped by our purpose: Bringing water to life, supporting the

lives of people and the places they love for generations to come. This means we are

not only seeking to create value for our stakeholders today but reinvesting in our

business in a carefully planned andsustainable way for the future.

1. Renewable energy production

We are building a portfolio of renewable energy projects to secure

c.50% of the Group’s energy.

2. Water resources, treatment and distribution

Ensuring an available and sufficient supply of raw water is critical to

ensuring a continuous supply to customers. Our operations play a vital

part in maintaining the level of river flows and their ecological health

– from the level of water we release from our reservoirs into rivers,

tothelevel we abstract and take to our treatment plants. Protecting

the region’s precious natural resources is at the heart of what we do.

We take water from our reservoirs, river and groundwater sources

and transport it to our treatment works, where it is treated to a high

standard using a number of processes. Once the water is clean, safe

and reliable we transport this to customers’ homes and businesses

through our c.29,000km of water pipes.

Bringing water to life – supporting

the lives of people and the places

they love for generations to come

3. Services to homes, businesses and wider

communities

We manage an extensive network to deliver uninterrupted supplies to

our customers whilst keeping customers’ bills affordable. Our household

and business retail contact centres are focused on providing excellent

end-to-end customer experiences. From providing water and sanitation,

through to environmental protection, recreational facilities, education,

local jobs and investment for future generations. The services we

provide are essential for the health and economic wellbeing of our local

communities.

4. Wastewater collection, treatment and recycling

We maintain and operate c.23,000km of sewers in the South West

region,removing waste from the homes and properties of our

customers. Through our programme of proactive interventions,

informed by extensive data and AI, we keep our network in the best

possible condition, identifying and repairing issues alongside an

extensive sewer cleaning programme.

We treat wastewater to a high standard at our 655 wastewater

treatment works before returning treated wastewater to the

environment, safely. Bioresources created during the treatment process

are a valuable source of both nutrients and energy and contributes

toacircular economy.

Water resources,

treatment and

distribution

Wastewater collection,

treatment and recycling

Renewable energy production

Services to homes,

businesses and wider

communities

22 Annual Report and Accounts 2024 « Pennon Group plc

Environmental, social and governance

(ESG) considerations are at the heart of

how we deliver our business model. We

pride ourselves on doing the right thing.

The quality of the services that we provide is of critical importance to our

business, however we place equal weight on how we deliver those services

through strong financial governance, a focus on the environment and

investment in our people – in effect our ESG DNA. In this section, we reflect

of how we have, this year, brought this approach to life.

Firstly, we focus on our approach to ensuring that we are financially

sustainable, both from a balance sheet point of view and in relation to our

ESG responsibilities; next we focus on our environmental delivery strategy

which is central to everything we do; then we look at how we invest in our

4,000 colleagues to ensure they are valued and safe in turn delivering

excellent customer service and driving growth and opportunity in the

regionswe serve.

Strong and ethical financial

governance

We continue to maintain financial resilience underpinned by an ethical

approach, as evidenced by retaining our Fair Tax Mark accreditation and

adherence to our sustainable financing framework.

Financial resilience

Our current gearing is at a relatively low level compared to the sector, and as

we move into the next regulatory period our gearing will benefit from regulatory

true-up adjustments, taking our opening Regulatory Capital Value (RCV)

to c.£5.4 billion excluding SES Water. Through 2025 to 2030 we anticipate

nominal RCV growth of 38% (real – 25%) reflecting our long-term investments

and the value being created for customers, the environment and our investors

of which two thirds are pension savings, and charities, as well as employees and

customers.

Having considered Ofwat’s cost of capital and retail net margins, we have

prepared our plan on that basis. We plan to continue to finance activities

in away that will maintain key financial ratios, consistent with a strong

investment grade rating. We will take a balanced approach to the sharing

How we deliver

Fair Tax Mark

We are proud to have been awarded the Fair Tax Mark for the sixth

year in a row in December 2023.

The Fair Tax Mark accreditation scheme is the gold standard of

responsible tax conduct. It seeks to encourage and recognise

organisations that pay the right amount of corporation tax at the

right time and in the right place. Accredited businesses include

listed companies, co-operatives, social enterprises and large private

businesses.

As a FTSE 250 UK-focused company, Pennon takes its responsibility

to transparency and societal contribution seriously which includes

ensuring it pays the right amount of tax, in the right way, at the right

time.

The Group became the first UK business in the water industry to be

awarded the Fair Tax Mark in 2018 and has now successfully retained

it each year since.

How we deliver value

For investors and the Group

We focus on our approach to ensuring that we are

financially sustainable, both from a balance sheet point

of view and in relation to our ESG responsibilities.

For the environment and our communities

We focus on our environmental strategy, which is central

to everything we do, as evidenced by the fact that the

environment and ‘nature first’ solutions underpin three

of our four strategic priorities.

For our colleagues and customers

We focus on how we manage and work with our 4,000

colleagues to ensure they both feel valued and deliver

excellent customer service.

For our wider stakeholders

We focus on how we communicate, engage and work with

our other key stakeholders namely, our regulators, our

investors, our suppliers and policy makers.

Key resources and relationships

Quality of the services we

provide

Focus on the environment

Our people and investment in

their wellbeing and development

Customer engagement and wider

stakeholder relationships

Strong financial governance

23Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

ofdelivery and operational risks between our shareholders and our

customers. We have set stretching targets and a cost base that assumes

efficiency is delivered to ensure we play our part in making this plan efficient

and affordable. We are confident in our abilities, and well positioned in our

capital delivery capability across the South West. We have appointed new

delivery partners with long-term contracts that can run out to 10 years.

Advance planning for the transition to the plan’s delivery model has been

underway since September 2022, broadening our supply chain alliance,

withpartners already in place and delivering our current plans.

We have considered how else to rebuild trust with our actions. We have

demonstrated restraint in our approach to executive pay and our dividend

policy ensures we take a holistic view of performance including outcomes

forboth customers and the environment.

Sustainable Financing Framework

Created in 2018 and updated in 2021, Pennon Group’s Sustainable Financing

Framework, in alignment with the ICMA Green Bond Principles (GBP), Social

Bond Principles (SBP) and the LMA Green Loan Principles (GLP) and

Sustainability linked loan principles (SLL). Under the Framework, Pennon

Group can issue securities as well as enter into financing relationships to

support investment across the Group’s activities. The Group aims to raise

allnew debt through the framework and in FY23/24 the proportion achieved

was c.80%.

Investing in our environment

The environment and nature first solutions underpin three of our four

strategic priorities set out in our K8 Business Plan evidencing our

commitment to improving our communities and in turn the lives of our

customers. We have delivered against this commitment in a multitude

ofways as set out below.

Collaborating for nature recovery

Pennon is engaged and participating in a range of local and regional public,

private and third sector partnerships tacking action to tackle climate change

and nature recovery, including the local nature partnerships and catchment

partnerships. We also convene forums and events, including our Let’s Talk

Water stakeholder forum, to engage partners and share best practice, reflecting

together on progress and developing shared plans for the future. We are proud

of the delivery partnerships with whom we monitor, collaborate and deliver

ourenvironmental improvement and biodiversity enhancement activities.

Biodiversity enhancement

Catchment management protects and improves river quality and critical

water abstraction sources to provide clean, safe drinking water, reducing

the need for treatment. It is supported by our customers as part of Pennon’s

commitment to protect and enhance the environment in the drinking

water catchments in which we operate. This performance commitment

is designed to incentivise an increase in the area of land under active

improved catchment management as part of the ‘Upstream Thinking’ and

the more recent ‘Green Recovery’ project interventions. The annual target

for Upstream Thinking is 10,000 hectares of new land under active improved

catchment management (50,000 more hectares over the five-year regulatory

period). The Green Recovery programme will deliver a further 10,000

hectares of new land under active management during the four years it will

be active leading up to 2025. In 2023/24 a further 11,854 hectares of land

were added to our Upstream Thinking project whilst a further 3,364 hectares

were added to the Green Recovery programme, resulting in an annual

delivery of 15,218 hectares against an annual combined target of 13,000

hectares. This brings our cumulative position to 126,733 hectares ofnew

areas under active catchment management since April 2015, well overthe

target for this plan period of 123,209 hectares.

Biodiversity compliance

In order for Pennon to avoid pollution harming the most special and rare

habitats and species present across the South West, we have a particular

focus on freshwater locations. This includes sites which are designated as

a Site of Special Scientific Interest, as a Special Area of Conservation, as a

Special Protected Area, or as a County Wildlife Site. During 2023/24, there

were no pollutions events at any of these locations and therefore, as in the

previous three years, the target was met. This outcome supports the Pennon

commitment to achieving the outcomes of the Government Environmental

Improvement plan and its ambitions to improve the condition of all Sites

ofSpecial Scientific Interest in the next ten years.

Preventing biodiversity deterioration

The maritime nature, climate and geography of the South West means

that wildlife and nature are particularly under threat of deterioration from

the presence and spread of invasive non-native species (INNS). INNS can

impact on all aspects of the business with significant operational, compliance,

reputational and financial risks and are considered to be one of the most

significant causes of biodiversity loss globally. We have delivered biosecurity

installations at Pennon sites, to prevent the introduction of new and spread

of existing INNS and over the last year we have accelerated our delivery of

guidance and awareness raising signage which are now installed at 121 sites.

We have also installed biosecurity wash down facilities and are scoping two

further watercraft washdowns. Our exemplar biosecurity wash down facilities

at Roadford, includes a pressure washer for watercraft, an angling dip tank

and a boot scrub.

Putting non-native trees to good use to help restore

damaged peatlands

The Natural Resources Team have removed non-native trees from two

wastewater treatment sites to remove large conifer trees as part of

biodiversity improvements. The trees that have been removed have been

replaced with native broadleaf species such as oak, hazel, lime and rowan

that offer much greater benefits to birds and other species.

The logs from the cut conifer trees have been recycled for use in peatland

restoration work at two South West Water sites – Burrator Reservoir in Devon

and Park Pit in Cornwall. This work is being carried out by the South West

Peatland Partnership, a £13 million project, led by South West Water, which

isdelivering peatland restoration in the South West of England.

The wood removed from the sites has been used by the South West Peatland

Partnership to create leaky wooden dams, or timber rounds, which help to

trap water in the environment, restoring dried and degraded peat bogs. The

work will ultimately help to prevent run-off from the land into the watercourse,

improving water quality in the area and trapping carbon in the landscape.

Our business model continued

Beach clean at Portwinkle - Sept 2023

24 Annual Report and Accounts 2024 « Pennon Group plc

Investing in our People

As one of the largest employers in the region, with almost 4,000 colleagues,

we have a responsibility and duty to make a positive societal contribution.

Our goal is to be the Employer of Choice across our region through

promoting social mobility, prioritising Diversity and Inclusion by addressing

racial and gender inequality. We provide safe, secure and meaningful

employment where all employees are paid fairly for the work they do and

where trust is high. We want to show that it is a dynamic and exciting time

tobe working in the water industry.

Over the past 10 years our region has seen significant population growth.

It’s been estimated that more people moved to the South West during and

following the pandemic than had been anticipated by 2050. This increase

in population has an impact on many different areas of society, including

employment, housing and opportunities for young people.

With a double coastline and dispersed population, many coastal towns

around the South West suffer from high rates of poverty, unemployment and

health risk factors, together with poor housing and public service provision,

poor public transport and communication connections.

All this goes to show that whilst the greater South West region has

traditionally had a reputation as a well-off area, in reality the picture is far

more complex. This places an even greater responsibility on Pennon, as the

largest private sector employer in the region, and given the wider supply

chain we support.

Our Reward Strategy continues to evolve each year, noting the feedback

we receive from colleagues ensuring it aligns to our People Strategy and

our new Group Values. The key focus for this year has been on supporting

colleagues during the cost-of-living crisis. Prioritising those colleagues that

need it most and bringing forward the employee bonus payments to help

those in most need.

At Pennon we take our social stewardship role seriously, whether that’s

through driving our environmental improvements or growing the number

of jobs we support. Our exciting business plan, submitted to our regulators

this year, targets the creation of 2,000 new jobs as part of a wider £2.8 billion

investment planned across the Greater South West – a doubling of

investment from the first half of this decade. Our business plan fosters our

new Values and aims to have a positive impact on customers, communities,

colleagues and the environment.

Our approach to Human Capital seeks to go further: supporting Community

Investment and social mobility across the Greater South West by creating

education and employment opportunities across our region; ensuring we pay

our employees a fair wage for doing a fair day’s work and therefore be well

placed to be able to make a wider societal contribution; and delivering our

Diversity and Inclusion strategy by prioritising diversity of thought, gender

and ethnicity to promote social mobility and opportunity for all.

This is all part of a wider strategy to be the employer of choice in the region,

and in creating a Great Place to Work.

Colleagues from our Laboratory team

at Countess Wear, Exeter

Our new Group Values

Pennon Group has evolved in recent years, with the sale of Viridor

in 2020, the acquisitions of Bristol Water and SES Water, and the

formation of new divisions including Pennon Power. These changes

created an opportunity to evaluate and refresh our corporate values

that had been in place for some years, resulting in a new set of values

that more properly reflect who the Group is today and represent

ourpeople at their best.

Corporate values are guiding concepts that shape our culture,

behaviour, and decision-making processes. They help colleagues match

their actions and behaviours with the company’s overarching mission

and objectives, giving a framework for how colleagues should engage

with one another, with customers, and with other stakeholders. This will

help strengthen Pennon’s collective values, offer everyone with a set

of authentic and emotive guiding principles, provide clear direction for

supporting behaviours, and distinguish us from the rest of the industry.

It was critical to develop a set of values that not only reflect today’s

business and teams, but are also more than just words on a poster.

Weintended to develop a set of values that are distinctively Pennon,

are interwoven into daily actions, and are consistently demonstrated

byour teams across the Group.

Our new values were developed after intensive involvement and

listening sessions with the Pennon Executive Board, the larger

leadership group, colleague representative groups such as the

employee forum, and comprehensive colleague listening groups. Our

values also incorporate the views of our customers collated during our

biggest ever customer listening exercise conducted during PR24.

Our new values acknowledge a significant shift in how we seek to

deliver our strategic priorities across the Group and are intended to

serve as a unifying thread across all areas of the Group. The goal is

to distinguish ourselves from all other water firms and environmental

infrastructure businesses. The new values will differentiate how we

carry out our plans.

The new values are:

Be you

We want you to bring your best every day.

Be open and inclusive, work together and win

as one team. Let your passion inspire those

around you. Be authentic, make your mark

and be you.

Be rock solid

We want you to be the one we all look up to.

Be trusted. Act with integrity and make good

on your promises. Build trust, one relationship

at a time. Be rock solid.

Be the

Be the future

We encourage you to be curious and challenge

convention. Share ideas with confidence and

purpose, and help share our future. Embrace

change. Drive progress. Own the challenge.

Bethe future.

25Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Speak Up

Our Speak Up whistleblowing policy continued to operate throughout the

year, providing another engagement channel. Speak Up helps to create an

open, transparent and safe working environment, where employees feel able

to speak up and are supported if they do so. Read more on Speak Up on

page 143 in the Corporate Governance report.

Additionally, all employees are invited to pose questions or comments to our

senior leaders through our new ‘open door’ communication channels. This

new approach brings together several employee communication channels

and encourages employees and senior leaders to keep connecting more.

Enhancing our employee communications

Each year, we review and seek to enhance our employee communications

and engagement channels.

Our regular Big Chat video calls with our CEO and the executive team

continue to be very well supported by employees, with strong engagement.

Items discussed largely focus on the topical business issues of the time plus

key employee highlights. We have also broadened the group of speakers,

involving colleagues from all areas and levels across the company.

Our Time to Talk sessions focus on a broad range of topics and are

supported by many external specialist speakers and facilitators. Topics

discussed include mental health, the cost-of-living crisis, financial wellbeing,

apprenticeships and business-specific initiatives including nature and

catchment management.

Our internal communications tool and discussion platform, Viva Engage, is

growing in popularity and is now used regularly by over 2,000 Group employees.

For our remote teams working tirelessly around the clock, we host regular

breakfast meetings supported by our senior leaders. These have proved to

be helpful in promoting more effective two-way communication with front-

line operational teams.

WaterWorks is the name given to the monthly performance measures

dashboard, which helps employees keep updated on how we are delivering

for our customers, communities and the environment. It’s important that all

our employees are regularly updated on these critical measures regardless of

which part of the Group they work for.

Talent development

We have a strong commitment to investing in the development of our

employees and in building and recognising talent across the Group. Training

and development are available for employees at all levels within the Group

and all are actively encouraged to participate. Our aim is to increase

productivity, job satisfaction and safety, and to equip the next generation

of leaders and employees with appropriate knowledge, skills and the

competencies they need to thrive.

Our business model continued

Launch of our Reciprocal Mentoring Programme -

Dec 2023

Immersing the organisation

A complete Values launch programme has been established to ensure that

the values are followed as guiding principles by all colleagues. This began

inJanuary 2024 and will continue through 2025.

To properly embed the values, we need behavioural change accompanied by

a new structure for recruitment, induction, performance management, and

reward. Setting the tone from the top is also important in ensuring that these

principles are reflected across the company and the Group.

To ensure a successful launch and embedding of the new values, as well

as to accelerate our cultural transformation, the strategy includes the

development of a behavioural framework and training, both in workshop

format for leaders and e-learning for all colleagues. This supporting training

component will ensure that all colleagues understand what the values

mean and how their actions at work affect performance. Senior executives

will participate in face-to-face workshops as part of a series of leadership

sessions held throughout the year.

An internal communication campaign will also continue for several months

through all business areas, informing colleagues about what each of the

values implies, how they can bring these to life, and where they will see the

values interwoven into daily company operations.

Across the Group we have developed a coherent approach to leadership,

culture, talent, and skills development which will not only help us unlock the

full potential in our business, ensuring we are match fit today, but also in

anticipation of future challenges.

Ensuring our people are at the heart of all these key areas of focus will mean

we continue to successfully deliver for all our customers and stakeholders

that rely on us. Our people are our greatest asset. We are proud of the values

we live by in all that we do and we have been delighted in how our employees

have risen to the challenges we have faced throughout the last year and in

going above and beyond to deliver for our business and our customers.

We continue to work to develop strong relationships with our employees

and Trade Union Partners, ensuring we are engaging with these important

stakeholders in our business in all aspects of our People Strategy.

As a purpose-led organisation, Pennon has strong values and ethics which

are important barometers in fostering the culture and beliefs that we require

to be successful. One of the key reasons why we use Great Place to Work

to survey our employees is that it is one of the few providers that seeks to

measure values and ethics. These are notoriously difficult areas to measure

as they are impacted by individual’s personal values and ethics. See page 119

on how the Board monitors culture.

Great place to work

To enhance our Great Place To Work (GPTW) Colleague Survey, we have

introduced pulse surveys during the year to give colleagues additional

opportunities to provide structured feedback during the year. The pulse

surveys provide a regular stream of feedback in additional to the full survey

which we conduct annually. We are delighted to be recognised as a Great

Place To Work and continue to work hard to keep engaging and supporting

our employees to enable them to be able to bring their best to work and

to ensure we are creating the best work environment and supporting

themappropriately.

Listening and acting on employees’ views

Under the Financial Reporting Council’s (FRC) code of standards, companies

are required to explain how they are incorporating employee views in Board

decisions. You can read more on how the Board is engaging and making

decisions in our Section 172(1) statement on pages 128 and 129.

26 Annual Report and Accounts 2024 « Pennon Group plc26 Annual Report and Accounts 2024 « Pennon Group plc

As a business we joined the 5% Club, an organisation with over

1,000 members that aims to address the issue of poverty arising from high

youth unemployment and a shortage of the right skills for the workplace of

today and tomorrow. For the second year running, we were delighted to be

awarded Gold Membership status of the 5% Club as we have around 10%

of our employees undertaking apprenticeships or on a formal structured

graduate programme. We are the only utility sector company to achieve the

Gold Membership accolade and have done so for two years. Achieving Gold

status demonstrates our long-term commitment to investing in structured

apprenticeship and graduate programmes for our employees.

Apprenticeships

We are delighted that one of our apprentices, Meg Ginsberg, was awarded a

Special Recognition Award at the National Apprenticeship Awards for being

an outstanding apprentice and ambassador. Meg is a Project Management

Apprentice in our Engineering Department. Despite being a wheelchair user,

nothing holds Meg back and she thrives in this role, leading by example and

promoting apprenticeship and women in engineering at every opportunity.

We have a long-standing commitment to apprenticeships. After doubling

our commitment and target for apprenticeships where we now pledge to

support 1,000 roles by 2030, we are delighted to report we are ahead of

schedule and have welcomed 470 since 2020. Attracting and developing

thenext generation of talented employees is vital in building resilience in our

workforce and ensuring we can deliver the essential services our customers

and communities deserve.

Our graduate programme

After launching our new graduate programme in 2021 and setting a

long-term commitment to recruit 100 graduates, we have doubled this

commitment to now support 200 new graduates on a structured two-year

development programme by 2030.

Since the launch, the graduate programme has recruited 85 talented

graduates, with 55% being female and over half being ethnically diverse or

international graduates. Attracting larger numbers of female and ethnically

diverse employees has been a core part of our People Strategy. We are

delighted our graduate programme is helping deliver this outcome whilst

providing high-quality career opportunities for all these individuals.

Leadership development

We continue to invest in our leaders and, utilising our ‘Best of the Best’

mindset following our integration with Bristol Water, we have rolled out

two leadership programmes across the business, LEAD Aspire and LEAD

Programme.

LEAD Aspire is a four-day programme for employees who have been

recognised as being a leader of the future and are working towards this

as part of their personal development plan. The programme allows them

to develop their leadership mindsets and approaches, explore leadership

theories, models and best practices, and learning that you don’t need a title

to be a leader. The four-day programme also has senior leaders from across

the business sharing their thoughts on leadership, providing great insight

into their personal experiences of leadership and how it has shaped them.

Our LEAD Programme is for our current manager and leadership population

to help them hone their leadership skills, working across a six-month

programme on leadership mindset, such as personal impact and purpose-

led leadership and skills areas such as coaching and mentoring, inclusive

leadership, and building high-performing teams.

Throughout 2023/24, we delivered 20,000 training days, ensuring that

onaverage each employee received 50 hours of training – 7 days.

Prioritising health and wellbeing

Our wellbeing strategy is a core area in our People Strategy to ensure our

people know that we care about them. It is estimated that in any given week,

one in six people of working age experiences a common mental health

problem like stress, depression or anxiety. Most of us will understand,

from personal experiences or friends and family, the huge personal cost

that this can bring.

Separately, data from Champion Health, our online wellbeing platform

provider, supports the outcomes from the Great Place to Work survey. 93% of

employees who completed the health assessment were motivated to change,

with their three key areas being improving energy levels, reducing stress and

improving mental wellbeing.

Our wellbeing strategy focuses on the following four main

areas:

Mental

Taking care of our minds, coping effectively with life and

creating satisfying relationships.

Physical

Taking care of our bodies, acknowledging the importance of

activity, nutrition and sleep.

Financial

Taking care of our financial wellbeing, being in control over

ourfinancial future.

Community

Encompassing the major external and internal factors such

associal health.

Our approach to wellbeing, incorporates a number of initiatives including:

• Mental Health First Aiders: We have trained over 100 Mental Health

First Aiders across the Group – one for every 40 employees, ahead of our

target of one for every 50 employees.

• Wellbeing Champions: We have established a network of wellbeing

champions across the business to help us engage colleagues.

• Time To Talk: Regular sessions where colleagues are invited to join online

webinars focusing on a range of health and wellbeing issues, primarily

mental health.

• Champion Health: Our Champion Health portal gives colleagues a broad

range of resources, advice and guidance across all areas of wellbeing,

from healthy recipes to fitness regimes, mental health support and health

assessments. It is free to both employees and their families.

• FinWell partnership: We have launched a new partnership with FinWell,

a financial wellness organisation, to provide employees with help, support

and advice about their personal finances.

• Inside Out partnership: Our close partnership with the Inside Out

Leaderboard provides a tangible way of demonstrating leadership,

commitment and action to the mental health agenda.

• EAP Helpline: Our Employee Assistance Programme (EAP) had a 6%

uptake compared to the industry average of 1.39%. The service is also

available for employees’ families.

Our 2023 cohort of graduates

27Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

HomeSafe Bite-size Live event - July 2023

HomeSafe, the Group’s flagship health and safety programme

HomeSafe has targeted three specific areas this year, building on the

foundations delivered last year to drive continued improvements in all health

and safety activities. This focus has seen the Group’s Lost Time Injury

Frequency Rate (employees and agency, excluding contractors) almost halve

in the year, and furthermore seen a 75% reduction in actual lost working days,

delivering an additional 450 productive days back into the business.

The three areas we focused on:

1. Visible Safety Leadership

• HomeSafe Live events

i. 17 conferences across Devon, Cornwall, Bournemouth and Bristol.

Led by the Senior Management Team from all departments.

ii. Over 2,300 employees attended fun engaging sessions, with real-life

experiences of the consequences of not ‘Taking Ownership’.

iii. Leaders owning HomeSafe, celebrating success with the intention

ofencouraging others to develop good practice and behaviours.

iv. Leaders hosting safety ‘stand-downs’ to discuss recent events and

immediate lessons to be adopted.

v. The use of external expert speakers delivering real life stories of the

impact of incidents.

vi. A ‘12 days of Christmas’ campaign where each day for 12 days one

department owned a key HomeSafe message for the Group ranging

from simple pictures and messages through to scripted and acted

out videos to engage the audience.

2. Driving a culture of accountability throughout the organisation:

• With a focus on over 20 leading indicators, driving up performance

against these areas and embedding these behaviours as the ‘way

wework’.

• Building on our 2.2.2 approach to incident reporting and investigating,

ramping up the pace and quality of our response to ensure individuals

were supported immediately in the event of an incident, improvements

identified and shared rapidly across the Group.

3. Using analytics to target interventions on the key areas at the right time

todrive down harm, particularly in manual handling and slips, trips and falls.

These focus areas were supported through the core elements within the

HomeSafe strategy, building our internal competence, elevating our Site

Pride initiative across all areas, strengthening the health and safety team,

achieving ISO45001 accreditation, and implementing a process safety

framework.

The Lost Time Injury Frequency Rate (LTIFR) for employees and agency

staff continues to be the Group’s primary measure of health and safety

performance. Following reductions year on year for the last three years for

the Group, this year we delivered a 46% reduction in actual Lost Time Injury

(LTI) numbers, with 15 LTI’s in the year compared to 28 last year, and an

LTIFR of 0.30 compared to 0.59 last year.

While the number of incidents reduced, we also significantly reduced the

severity and impact of these incidents, through a focus on rapid intervention,

treatment and support to the individual involved, delivering a 75% reduction

in the actual number of days lost due to injury. This means we delivered

anextra 450 productive days back into the business through improved

safety performance.

We continue to broaden the reach of HomeSafe to everyone working for or

on our behalf, and this was in evidence at a joint event between our Bristol

Water Operations team and Network Plus who provide water networks

expertise within Bristol, bringing to life HomeSafe across the broader

supplychain.

While we have delivered year-on-year improvements, we continue to

recognise that HomeSafe is not a project to be completed. It continues to be

the way we work and deliver all our performance commitments. Our roadmap

to HomeSafe 2025 has provided the framework to deliver improved health

and safety performance across the Group.

Over the year we will evolve our strategy, plans and approach to look ahead

to HomeSafe 2030, building on the strong successful elements of HomeSafe

while aligning our strategy to the new Group values, ensuring we support

our people to be the best version of themselves and that everyone goes

HomeSafe every day.

Diversity, equity and inclusion

As one of the largest employers in the Greater South West, we have a

responsibility to promote social mobility, address inequality and drive

inclusivity across our region.

We continue to champion diversity and promote an inclusive workplace.

Wehave published our Gender Pay Gap report for the last six years and are

now pleased that this incorporates our Ethnicity Pay Gap report. These can

both be found on our website: www.pennon-group.co.uk

It is important to be open and transparent about the gender and ethnic

diversity of our employees and this report is a key tool for us to do that,

whilst also allowing us to share the measures we have taken and will be

taking to continue to create a more diverse workforce across all roles and

levels within the organisation.

We understand that fostering an inclusive workplace is imperative for both

attracting and retaining talent within our organisation. As one of the largest

employers in the region, we have a duty to contribute positively within our

communities, providing a work environment that promotes social mobility,

celebrates and drives diversity and inclusion and ensures an equitable

andpsychologically safe space for all our employees.

Our business model continued

28 Annual Report and Accounts 2024 « Pennon Group plc

Inclusion Week at Pennon - Sept 2023

In the latest edition of the FTSE Women Leaders Report, we have once again

solidified our standing as a trailblazer for female representation, claiming the

bronze position for best performers in the Women on Boards category within

the entire FTSE 250. The report, independently conducted and backed by

the government, is a ringing endorsement of Pennon’s relentless efforts

to lead the charge in fostering equality and inclusivity, with Pennon one

ofthe rare FTSE-listed entities where women on the board outnumber their

malecounterparts.

We are pleased with the recent progress made but know there is more

todoin increasing the diversity of our workforce during the coming year.

Last year, 30% of job applicants were female and similarly 30% were

ethnically diverse. We offer additional support to our new employees on

our graduate programme and the 10,000 Black Interns programme as we

recognise many of them move to the region to start in these new positions.

Employee Led Inclusion

Our Employee Network Groups continue to play a significant role in raising

awareness and driving change. Areas of focus for these groups include

raising awareness around challenges that under-represented groups

face, which has included educating employees on LGBTQ+ topics and

experiences, including a session led by a transgender speaker, celebrating

different cultures and customs through in-person events, sessions on racism

and allyship, promoting understanding of neurodiversity, developing a

webinar on sexism and misogyny and creating an ED&I awareness session,

which is delivered to all new starters to the business.

Recruitment

We continue to develop our careers website to leverage our employer

value proposition and the creative campaign that sits alongside this,

#JustAddWater. We have forged new partnerships with third parties to

enhance and drive our work in the recruitment space to support our ED&I

agenda. In June 2023 we celebrated signing the Armed Forces Covenant

andalso signed up to be a Disability Confident Employer at ‘Committed’

status during the year.

We regularly review our approach to monitoring diversity and inclusion

withaspecific focus on job applications. We use a software gender decoder

tool which allows us to check all our job adverts for masculine bias to reduce

the potential risk of alienating female applicants. We ensure that our brand

imaginary represents both the communities we serve and our workforce,

which encourages more diverse candidates to apply. We are pleased that

we are seeing significant increases in the number of applications we are

receiving from ethnically diverse applicants and women into what is still

amale-dominated industry.

Induction day for some of the 2023 apprenticeship

intake

Gender Diversity dashboard

Pennon is one of only a few businesses in the UK to have both a female

Chief Executive Officer and Chair. The following dashboard shows

abreakdown of gender diversity across the Group.

Gender – Board

●

Male 3

●

Female

2023/24

38%

62%

Gender – Senior Management

●

Male 30

●

Female

2023/24

62%

38%

Gender – Employees

●

Male 2,664

●

Female

1,246

2023/24

68%

32%

29Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our two new network groups this year, brought about through employee

feedback, are the Veterans Network and the Neurodiverse Network. All of

our groups have members sat on the overall ED&I Steering Group to ensure

collaboration across the whole ED&I agenda and drives communication

between the groups.

We have also introduced flexible bank holidays, as we recognise that half

ofthe UK bank holidays are linked to the Christian calendar, but many of our

employees do not follow the Christian faith. The scheme enables colleagues

to swap traditional bank holidays based on their religious or cultural beliefs,

or personal need.

Progression

One of our key challenges has been enabling a diverse workforce at all

levels through internal progression. The REACH (Racial, Ethnic and Cultural

Heritage) Network and Women’s Network have both been key drivers in

looking at how we can better support them with career progression across

the organisation.

This year we launched our Women’s Mentoring Programme, which supports

women whether they are seeking professional guidance, building their

network, or navigating their working environment and some of the challenges

it entails. In January, we launched our Reciprocal Mentoring pilot, which

paired eight members of the REACH Network with eight members of our

executive and senior leadership team, with the goal being for individuals

toshare their lived experiences and encourage actionable behaviours from

those involved.

We have also partnered with the Inclusive Village to design a REACH

development programme. The programme is designed to support the career

ambitions of those who may experience career disadvantage orinequalities

due to their racial identity, whilst also enabling Pennon to foster the

realisation of our commitment to the Change the Race Ratio campaign.

This programme will cover a range of career-enabling topics identified by

research as most pertinent in supporting ethnic minorities in the workplace,

including; leveraging line manager and ally relationships, impact and

influence, and developing a credible professional/personal brand.

We will continue to work with these groups in relation to career progression

opportunities, to understand the challenges they face, and how as an

organisation we can address these.

Change the Race Ratio initiative

Back in 2020, Pennon pledged its support to the Change the Race Ratio

initiative, a campaign to increase racial and ethnic participation in the senior

leadership of companies, as a route to encouraging more diversity at all levels

and was the first water company to do so. During the last year, our pledge

and ongoing commitment continued to help shape our business activities

and decisions.

10,000 Black Interns initiative

We are pleased to be a proud supporter and sponsoring business of the

10,000 Black Interns initiative. Over the last two years we have supported

10 placements and are set to support at least 15 for this coming year.

Following successful completion of their internships, most students returned

to university to complete their degrees. We are pleased that so far, four

of our interns have already secured permanent position on our graduate

programme. This important scheme not only offers Black students an

opportunity to understand our business but also to improve the levels

ofethnic diversity across our industry.

Our business model continued

Social Mobility Business Partnership (SMBP) students

visit Pennon - July 2023

30 Annual Report and Accounts 2024 « Pennon Group plc

Diversity awareness and training

We have continued our programme of unconscious bias training and have

rolled this out to the majority of our senior leadership and hiring managers

during the year. We have held ‘lived experience’ group sessions to understand

what it is like to work at Pennon for employees from minority groups.

Theoutputs have been shared with our Diversity Committee to understand

these perspectives and consider appropriate actions when issues are raised.

Our gender and ethnicity pay gap

In recent years, the composition of Pennon Group has further evolved with

the acquisition of Bristol Water plc and the inclusion of these employees into

the growing Group. This is the second year we have included Bristol Water in

the Pennon Group results and next year will be the first year we include SES

Water. Our mean gender pay gap has remained fairly consistent this year and

stands at 8.51%, but sits lower than the national average of 14.3%. Our median

gender pay gap has seen a decrease of over 1% to 14.4%, indicative of a shift

in the representation of women, notable within the upper quartiles, where

we have seen an uplift from 21.4% to 25.6% in female representation, which

reflects our efforts to enhance female representation at leadership levels.

Since 2022, we have voluntarily produced and published our ethnicity pay

gap, which stands at 11.9%. We know that there is still more for us to do in this

area, including increasing the employee self-disclosure diversity rates across

the Company and continuing to attract more ethnically diverse candidates

atall levels across the Group.

Furthermore, by offering dedicated support to new employees through the

graduate programme and supporting the 10,000 Black Interns Programme,

wehave been able to attract more ethnically diverse applicants. As many of these

applicants are recruited and progress their careers, we anticipate them having

afurther positive impact on our ethnicity pay gap.

A full report breakdown and an update on our performance and plans,

canbefound on our website.

Social mobility

We continue to be a proud signatory of the Social Mobility Pledge and have

set further commitments across the Group during this year to strengthen

our resolve to deliver for our customers and communities and support the

drive to address social injustice. To this end we have become a tier 1 funder

of the registered charity Social Mobility Business Partnership and launched

work experience clusters in Exeter and Bristol with Plymouth, Truro and St

Austell to follow later this year. During the FY23/24 year we have doubled our

commitment to apprentice and graduate recruitment and set new targets to

support 1,000 apprentices and 200 graduates on structured programmes

by 2030. We have set a new commitment and target to offer 5,000 work

placements for young people by 2030, significantly growing our previous

work in this area. We believe this initiative is vitally important in helping young

people understand our Company and the water industry, and supporting them

in their early careers.

Slave-Free Alliance membership

Pennon has maintained its membership of the Slave-Free Alliance, which is part

of Hope for Justice, the global anti-slavery charity. Our membership demonstrates

our commitment to the highest employment standards for both our direct

employees and those within our supply chain. Our Modern Slavery Report is

published annually and can be found on our website www.pennon-group.co.uk.

Human rights

We are fully supportive of the principles set out in the UN Declaration of

Human Rights, and the Group ethics policy outlines the high standards

of employment practice with which all employees of Pennon Group are

expected to comply. The Group also supports the International Labour

Organisation’s core conventions for the protection and safety of employees

wherever they may work throughout the Group. These standards are

also embedded in our sustainable supply chain and documented in our

procurement policy and Code of Conduct for supply chain partners.

Pennon welcomes SES Water to the Group

Pennon is delighted to welcome SES Water colleagues to the

growing Pennon Group and looks forward to working with them

all during the coming year.

In 2024/25, SES Water will continue to deliver in line with their

People Plan, the three priority areas being - Building capability

for the future, Developing a culture that thrives and Enabling our

business to be future ready.

SES Water invest in their people through learning, development,

effective communications, reward and recognition. Unlocking

the potential of all their people by investing in their skills

development, leadership capability, professional development,

creating a performance management culture, and opportunities

for career progression through internal transfers and promotions.

Throughout 2023/24 SES Water delivered 934 training days,

in addition to those studying an apprenticeship or professional

qualification.

In the past year, a new Working Group was established, aligned

with the key themes of diversity, inclusion, wellbeing, the

environment, and health and safety. By adopting this collaborative

approach and a new internal communications plan, more

opportunities have been made available for everyone to get

involved with the activities they are most enthusiastic about and

brings the Company purpose to life.

Finally, making work life easier for colleagues through investment

in new physical equipment and the HR digital transformation

programme is fundamental to being ready for the future. SES

Water has upgraded their people systems and processes from an

online Welcome Portal for new colleagues during the recruitment

process to sickness and absence management, digital

correspondence and learning management.

SES Water has long term commitments in the arena of social

responsibility and wants their people to feel they can make a

difference working as part of a business set in the heart of the

community they serve.

A new Working Group was established in 2023/24 which

collaborates with many stakeholders to create an internal

events calendar for the year, aligned with our purpose and our

People Plan. This has provided colleagues with opportunities

toparticipate in events and support some great local causes.

467

SES Water employees

36%

Female employees

7.1%

Mean gender pay gap

153

Colleague volunteering days

(As at 31

March 2024)

31Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our operational review

We are making progress in the areas that matter most, focusing

onour four priorities and delivering for customers, communities

and the environment.

Investing to secure resilience, now and into the future

Across the Group we are trusted to provide a clean, safe and reliable water

supply to c.3.5million people across Bristol, Bournemouth, Devon, Cornwall,

the Isles of Scilly and parts of Dorset. The health of our environment is

intricately linked to the state of our water supply, so as we look to ensure

robust supplies into the future, we focus on protecting the environment from

which we take raw water to be treated and put into supply.

Building water resources

Delivering a resilient water service requires us to invest smartly in securing

new sources of supply as well as reducing the demand placed on our

infrastructure. Our twin-track approach has been to invest in new resources

and accelerate plans for improvement, whilst seeking to tackle leakage and

reduce customer demand.

Our programme to diversify the Group’s portfolio of water resources in Devon

is now complete, with two thirds of the programme of work in Cornwall also

complete. Wet weather through 2023/24 has benefited our storage position

augmenting the investments that have contributed one-third of the gains

tostrategic storage in the region, with the early achievement of 100% storage

for our strategic reservoirs ahead of 31

March 2024.

Supply Schemes

Construction work at Blackpool Pit is now complete which brings our

portfolio of repurposed quarries to four. Blackpool Pit, along with Stannon,

Park and Hawks Tor, have all been used this year to support an improvement

in water resources in Cornwall. In Devon, our winter pump storage work at

Gatherley is also now operational, and along with the Lyd pumping scheme

delivered last year, both new schemes have been used this year to support

improvement in our water resources in Devon.

In addition to these, our desalination plant in South Cornwall is on track

to be operational in 2024/25 and our Porth Rialton water abstraction and

treatment scheme will be operational under its winter licence in 2024/25.

With these projects, we are improving the long-term resilience of the region

following a year-long drought in 2022/23.

We are on track to reach our target of a 45% increase in Cornwall water

resources by 2025, having already achieved our targeted 30% increase

inDevon water resources one year ahead of schedule.

In Bristol, supply levels remain in surplus but our long-term plans include

investment in Cheddar 2 Reservoir which will support resources across

thewider South West region.

Water quality

Compliance Risk Index (CRI)

The Compliance Risk Index score as reported by the Drinking Water

Inspectorate (DWI) measures water quality compliance.

Our CRI score for South West Water of 3.02 is slightly higher than last year

but is again likely to be better than the industry average. We continue to

make progress through our ‘Quality First’ programme with investment at

our Water Treatment Works and there were no failures in the treatment

processes in 2023. Our performance is above target and has been impacted

due to higher incidents on our networks, particularly at consumer taps

following network burst events. We have implemented an enhanced mains

flushing programme to mitigate this risk further.

In Bristol, our CRI performance remains challenging for the region, and

performance for Bristol was a score of 7.05. Our investigations have identified

the condition of the treated water tank and a valving arrangement as

the likely causes for these failures. While we have implemented remedial

actions, longer-term improvements are required within our future regulatory

investment programmes.

Further enhanced maintenance and resilience improvements are being

delivered across our Bristol water treatment works with specific sites

targeted for improvement. Consistent with our action plan published for

South West Water, we are rolling out our Quality First programme in Bristol,

targeting key areas for improvement, which includes tank cleaning and

mainsflushing.

Water Quality and Resilience

32 Annual Report and Accounts 2024 « Pennon Group plc

Water Quality Upgrades

As part of our business plan to 2025 we committed to building two state

ofthe art treatments works in the Bournemouth area and work is progressing

well at Alderney and Knapp Mill following planning permission being

achieved at this site during the year. We are on track to achieve water into

supply at Alderney by March 2025, and customers will then benefit from the

enhanced ceramic membrane treatment. In addition, upgrades at four works

in Devon and Cornwall are also progressing well with investments made

toreduce manganese and install Granular Activated Carbon Treatment.

Taste, smell and colour contacts

We recognise that consumers expect their drinking water to look and taste

great and that this is important in maintaining consumers’ trust in the quality

of our supplies. We continue to invest in all aspects of our operations from

source to tap to maintain that trust.

South West Water contacts at 1.66 per 1,000 population, have increased

slightly compared to last year, and are outside the performance commitment

target for this year. This increase in contacts has followed a continued

temporary suspension on maintenance flushing of the drinking water

network during the periods of temporary use restrictions, following the

drought in 2022, which in some areas lasted until September 2023.

Bristol has separate regulatory targets for taste and smell contacts, as

well asseparate targets for appearance contacts. 2023 saw improved

performance in both of these metrics and there has been a substantial

reduction in water quality contacts over this reporting period. The target

fortaste and smell was achieved reflecting the Company’s focus in this area,

with a systematic flushing programme which is helping to alleviate those

tastes and smells that may develop in the mains water before it reaches

thecustomer. Although the appearance metric was missed, this year saw

the Company’s best performance in this area to date and to further improve

performance, we are increasing our flushing activities across a greater

proportion of the network to be flushed.

Reducing leakage and supply interruptions

Leakage

We recognise that the prevention of water being lost in leakage from our

(and customers) pipes and assets is a key issue for all customers and is

something we work continuously to reduce.

In South West Water we are focused on reducing leakage with a target of

c.15% by 2025 (based on a three-year average). Leakage in 2023/24 has been

impacted by two ‘cold snaps’ in November and January as well as a decline

in the number of reported leaks (where the wetter weather has reduced

the visibility water arising from leaks). This has placed greater focus on our

detection activities which have increased, pressure management to continue

to calm our network and using innovation. We have also focused on reducing

losses from our trunk mains and continuing to support customers to identify

and fix leaks within their supply pipes. Whilst this year is higher than 2022/23,

the three year rolling average performance commitment has been met.

Weknow that there is still more we need to do to find, fix and prevent leaks

and we continue to focus on action plans to significantly reduce leakage

in2024/25 to meet this target.

Bristol Water has not performed well with regard to leakage. In order to

make improvements going forward, we are focused on enhanced data and

monitoring with c.7,000 acoustic monitors installed to support quicker and

more accurate detection. In addition, a key mains replacement programme

is60% complete and will support further resilience of our networks. As a

result of our activities leakage in the year has reduced, but remains elevated

and with the impact of the cold weather (over the last two years) we have

not met our performance commitment in this area.

Minimising customer supply interruptions

We understand the inconvenience that supply interruptions can cause.

The importance of ‘always on’ supplies, maintaining both public health and

customer confidence is one of our key priorities. In both South West and

Bristol, a relatively small number of events of scale have continued to impact

our performance.

Three significant events in Devon and Cornwall occurred in June, although

these were partially mitigated through re-valving and deployment of

Alternative Water Supply tankers. For South West Water, we continue to

develop and deliver against our action plans, including increased 24/7

alternative water supply availability, incident management improvements,

training and further calm network assessments. After June, performance in

the remainder of the year returned to normal levels, however larger events

continue to disproportionately impact our overall performance, which was

9 minutes 20 seconds for the year.

Bristol has been primarily impacted by third-party damage in Hallen and

a complex Christmas Day burst trunk main in Winterbourne – these two

incidents accounted for 70% of supply interruptions in the Bristol area, with

overall performance of 9 minutes 24 seconds.

Whilst we have not delivered against our performance commitment this

year, we expect to still be above the industry average (based on 2022/23

comparative data).

Managing demand and ensuring efficiency

Demand reductions

To reduce demand we are focused on minimising our own use, tackling

leakage and reducing customer demand through water efficiency.

We have successfully reduced our own use by 11Ml/day over the last two

years and we continue to improve efficiency within our processes.

33Pennon Group plc » Annual Report and Accounts 2024

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Per capita consumption (PCC)

This measure is to incentivise companies to conserve natural resources and

to target and support customers in using less water. Like all companies we

saw a significant change in usage as a result of the COVID pandemic where

behaviours and consumption for household customers has permanently

changed. Therefore, both South West Water and Bristol Water will not meet

this performance commitment this year.

In South West Water we have continued our significant water efficiency

programmes including:

• Launching our ‘Water is Precious’ campaign– as part of this we have

provided around 500 water saving devices every day this financial year.

• Our North Devon smart metering programme is now 50% complete and on

track for completion in 2025 – which will result in 76,000 meters deployed

in this area.

• Following on from the ‘Stop the Drop’ campaign last year, we launched

atariff incentive so that customers in Cornwall could receive a £10 credit

to their bill if they collectively reduced their water consumption by c.5% -

which they achieved.

• Launched our progressive charging trials for 2024/25 to include standard

seasonal tariffs (both households and businesses), rising block tariffs and

peak period seasonal tariff.

Water efficiency initiatives in Bristol are also targeting customers to use less,

through water saving devices, as well as donations to charities that promote

and educate on water consumption.

Water availability

Following one of the hottest and driest years on record in 2022 we

introduced water restrictions in Cornwall and parts of Devon which were

inplace until September 2023. We have invested record amounts to deliver

our drought plan and by the end of March 2024 total reservoir levels for

South West Water stood at nearly 100%, ahead of our targeted levels.

Whilst the recent wetter winter has helped reservoir levels, our interventions

and the hard work of customers to reduce their water usage has combined

to recharge our reservoirs ahead of the summer months and peak demand

for the region’s water resources – with one third of capacity delivered by

ourinterventions. On a longer term basis, many of the investments will

deliver a sustained increase in capacity where we have seen most challenge

and demand on our network, whether through the new reservoir Blackpool

Pit onBodmin Moor, a new treatment works at Porth Rialton or a new

desalination works in Par. We are therefore confident that there will be

norestrictions in the coming year.

Bristol’s water resources remain robust and storage at the ends of March

2024 was c.100%, as it was in March 2023, despite the challenges of hot,

dryconditions in 2022.

Maintaining asset health

Mains repairs

When our mains get damaged or fail, it is vitally important that these are

repaired to ensure that we do not waste valuable water and that customers

are kept in supply.

South West Water has had a focus on optimising the operation and control

ofour network by pressure management and other ‘network calming’

activities. This has included the delivery of training through our innovative

network training centre. We also minimise the likelihood of mains bursts by

replacing targeted sections or whole areas of poorly performing pipes.

For 2023/24, our performance has returned to target in both areas, despite

an increased focus from our leakage programme, with performance of 134.6

in South West Water and 124.8 in Bristol per 1,000km of mains respectively.

Unplanned outages

Water treatment unplanned outage provides a means of assessing reliability

of our water treatment works. It tracks the temporary loss of production

capacity across all water treatment works, resulting from unplanned

breakdowns and asset failure.

South West Water has once again met its target for unplanned outage with

a figure of 1.15% compared to the industry target of 2.34%. This means we

have achieved this target in each year of the current regulatory period.

Thisis founded on effective investment and maintenance regimes to ensure

that unplanned failures are minimised. This in turn minimises the risk of any

production outages resulting in service impacts for our customers.

For Bristol, outages at Purton Treatment Works, which commenced in the

prior year, carried on into the early part of 2023/24. However, following

resolution of the immediate issues, performance for the year achieved target

with performance of 2.58% unplanned outages. A multi-year programme is

ongoing to reduce future risks through the replacement of relevant assets.

34 Annual Report and Accounts 2024 « Pennon Group plc

2023 has seen some of the most tumultuous weather on record – particularly

in the second half of the year. Across the South West Region, 2023 was

the fifth wettest year on record, with a 34% increase in rainfall from 2022

and we experienced 50% more rainfall than the long-term average in the

second half-of the year, peaking at 130% in July. We have also experienced

ten named storms back to back in the latter months of the year, along with

yellow weather warnings which has tested the resilience of our assets and

operations. This exceptional weather continued into the early part of 2024

which has continued to place pressures on our wastewater infrastructure.

The impact of the extreme weather has varied across our operations, with

the wetter weather supporting the recovery of our reservoir storage and

water resources, but the increased rainfall and high groundwater levels has

driven up the use of storm overflows which are used in wet weather as a

‘release valve’ on the network to avoid flooding to homes and businesses

aswell as increasing the number of pollution incidents in the year.

Reducing flooding incidents

Sewer flooding

We understand how distressing sewer flooding can be and that how we react

when these situations occur is a good indicator of the commitment of care to

our customers.

In 2023/24, despite the wetter weather, we have again seen significant

outperformance, with performance of 0.76 internal sewer flooding incidents

per 10,000 connections against a target of 1.44. This is a slight increase in

the metric from 2022/23, resulting from a small increase in the number of

overloaded sewers following heavy rainfall. We have however outperformed

this target in each of the four years of the regulatory period and are one of

the best performers in the industry for this measure.

Despite the very high level of rainfall experienced in the winter the total

number of external sewer flooding incidents has reduced by 13% compared

to the prior year. Although we have missed the target for this metric

(performance of 1,578 incidents with a target of 1,260), a clear focus on

avoiding repeat flooding incidents with an increase of planned cleansing and

routine jetting, is having a positive impact.

Improving asset health

Sewer collapses and blockages

Targets for both sewer collapses and sewer blockages have been met for

2023/24, with performance of 11.4 collapses per 1,000km of sewer and 6,448

blockage incidents respectively. We are proud to report that 2023/24 was our

best-ever performance on blockages.

Proactive management of our network, including enhanced cleansing

removing debris from sewers, an increase in the number of repairs as well

as sewer overflow inspections being completed. In addition, a focus on

improving compliance of commercial premises who dispose fat, oil and

grease into our sewers, as well as other operational change initiatives, have

all contributed to this achievement.

Targeting improvements in the Environmental

Performance Assessment (EPA)

The EPA is the Environment Agency’s assessment of environmental

performance. The assessment covers a combination of measures, with

an overall ranking out of four stars. Our provisional rating for the 2023

calendar year is again 2 stars, maintaining improvements from the previous

year. However, following the extreme levels of rainfall and high number of

storms over the winter of 2023/24, the full benefits of our Pollution Incident

Reduction Plan (PIRP) have not yet been seen and we have a road map to

achieve a 4 star EPA status in 2025.

Pollution incidents

Total wastewater pollution incidents (category 1-3) remains our most

challenging area. 2023 saw a deterioration in performance following the

winter weather in 2023/24, which was the fifth wettest on record with a

significant increase in the number of storms and intense periods of rain.

The rain also led to exceptionally high groundwater, which also provides

challenging operating conditions and tends to result in less time to respond

to issues that arise at our treatment works pumping stations, as the issues

escalate more rapidly.

Despite the overall increase in pollution incidents, serious pollution incidents

(category 1 – 2) have remained stable. We know there is much more to do

and we continue to target a step change in performance.

Our key initiatives to deliver continued improvements in pollutions

performance include acceleration of additional telemetry on our sewer

network (including 12,000 sewer level monitors and deployment of

AI technology), continuation of our ‘hotspot’ investment programme

at problematic locations and completion of a proactive rising mains

replacement programme. Investment in power resilience and increased

operational activities such as sewer cleansing and pumping station MOTS

are all targeted in 2024.

Numeric compliance

Numeric permits place measurable conditions on the final effluent

discharged to the environment and measure compliance with these

conditions. Our performance of 96.2% was below the target for this year,

following our best ever score of 99.4% in 2022/23.

We experienced some challenges at individual sites over the summer of

2023/24, however we took immediate action to contain issues with activities

including reedbed surveys and remediation, enhanced targeted maintenance

and enhanced monitoring and review of Critical Asset Plans.

We have enhanced our action plans across our treatment works, including

regular reviews with the Environment Agency taking place. We are focused

on delivering our 2024 target, with no wastewater failures in the first four

months of the year.

Storm Overflows and Pollutions

35Pennon Group plc » Annual Report and Accounts 2024

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Net Zero and Environmental Gains

Net Zero

Lowering the carbon emissions from our operational activities and

throughout our supply chain is the responsible thing to do and aligns

withefforts being taken by businesses, institutions and customers across

the region to tackle the climate crisis and increase our resilience to

climatechange.

Our Net Zero 2030 plan is well underway, and we are making good progress,

reducing our carbon footprint by c.45% to date against our 2020/21 baseline.

Investment in renewable energy generation is an important part of achieving

our Net Zero strategy and is aligned with our long term sustainable growth

strategy in UK environmental infrastructure.

Pennon Power Limited, a direct subsidiary to Pennon Group plc, has been

formed as an entity to deliver on this element of the Net Zero strategy.

Todate, investment of c.£145 million has been announced by Pennon Power

in four projects across the UK, generating up to 135 GWh once operational,

along with a two-hour battery system providing 30 MW of storage. When

combined with the smaller scale on-site solar generation roll out, this puts

the Group on track to secure c.50% of its energy from renewable sources.

This strategy will also benefit the Group by reducing our exposure to future

volatility in wholesale power markets that we have experienced in recent

years, and will provide commercial returns ahead of those earned from the

regulated water business. The sites, acquired by Pennon Power, have the

required consents in place and will see construction commence in 2024,

withenergisation for the full portfolio in financial year 2025/26.

Our operational review continued

Continued quality levels at our bathing waters

South West Water has over 860 miles of coastline to protect, representing

over one-third of the UK’s designated bathing waters. This is something we,

and our customers, have always valued and prioritised.

In the 2023 bathing water season, 100% of bathing waters (where South West

Water has assets that can impact on bathing waters) achieved the stringent

quality standards for the third year in a row.

We were particularly pleased that the newly designated Plymouth Firestone

Bay achieved excellent status. For the 2024 bathing water season, six

further bathing waters in our region including four on the River Dart

(Dittisham, Stoke Gabriel, Steamer Quay and Warfleet) will be included

intheassessment.

Tackling spills from storm overflows

Despite the exceptional rainfall over the summer, we maintained 100%

bathing water quality for the third consecutive year.

This extraordinary weather has triggered an increase in the use of storm

overflows, operating to protect thousands of homes and businesses from

flooding and higher spills have been recorded from new monitors (installed at

the end of 2022) with 100% coverage of our overflows. This position has been

seen across the industry and for South West Water we recorded an average

of 43.4 spills, compared with 28.5 in 2022.

On a like for like basis (taking account of the first full year of monitoring and

the impacts of exceptional rainfall and higher groundwater) the number of

spills is lower reflecting the c.80 interventions delivered in 2023 and these

actions will continue to support reductions into 2024. We have already

ramped up our plans with c.60 interventions already delivered by the end of

March 2024 – including 20 additional storm storage schemes.

We are seeing tangible benefits from our interventions which are focused

on not only increasing storage but reducing the water entering our systems

through groundwater infiltration and surface water separation.

We continue to present our storm information through WaterFit Live

launched in March 2023 to cover all our bathing beaches, we are in the final

stages of rolling this out across our rivers which will give live updates on all

our storm overflows.

Furthermore, in March 2024, we were one of the nine water companies in

England that published a National Storm Overflows Plan setting out how

the sector will meet or exceed all Government targets – this is the most

expansive programme for overflows in the world, and South West Water

hassubmitted an ambitious plan which, if approved, meets the targeted

spillreduction a decade earlier than required in 2040.

36 Annual Report and Accounts 2024 « Pennon Group plc

The first site to enter construction is a 45 MWp solar site with co-located

battery storage in Dunfermline, acquired in May 2023. With total build

costs expected to be c.£60 million, we are targeting a split connection with

generation expected late in calendar year 2024, with the battery storage

unit connecting in Q1 2025. A further three sites, located in Aberdeenshire,

Cumbria and Buckinghamshire, were acquired in July 2023. These sites, with

total anticipated build costs of c.£85 million, will add a further 98.5 MWp of

generation capacity. The sites in Aberdeenshire and Cumbria are targeted to

be operational early in financial year 2025/26, and Buckinghamshire following

later in the year.

Pennon Power continues to identify further acquisition targets and

anticipates making further investments once the Dunfermline project is

fullyoperational.

Environmental Gains

A healthy environment is important for our region, and in the face of climate

change, ecological decline and greater recreational use of rivers and seas.

Nature and the environment is a priority for us, as we look to work with

nature to provide sustainable solutions for the challenges we face. Putting

the journey to net zero and nature recovery at the heart of what we do,

working with partners, means we can create climate resilient places and

infrastructure.

Catchment management and Upstream Thinking

Since 2010, we have been working with local delivery partners, farmers and

landowners to deliver our award-winning Upstream Thinking programme.

Today we have well established relationships with key delivery partners

across the region including Cornwall Wildlife Trust, Devon Wildlife Trust,

Natural England, Farming and Wildlife Advisory Group, South West Lakes

Trust and Westcountry Rivers Trust.

To date, this approach has improved the management of 127,000 hectares

ofland across 80% of our drinking water catchments, outperforming our

target of 123,000 hectares by March 2025; this has been achieved through

working with partners to deliver initiatives across the region including

Exmoor, Dartmoor and Bodmin Moor. We have restored 1,550 hectares of

peatland since 2020. Over 250,000 trees have been planted since 2020,

meeting our 2025 target one year early.

The range of pollutants which the programme helps to remove from

the water course includes farming-derived nutrients, pesticides, faecal

coliforms, sediment, veterinary medicines and antibiotics. The benefits of

thisinvestment are reliable clean water supplies, better wastewater dilution

and natural flood management.

Nature recovery

Our sites include reservoirs, moorlands, major operational sites, former clay

pits, estuaries, farmland and forests, and small urban sites with pumping

stations and pipework. Many of our sites are already well-established havens

for wildlife, with some designated as Special Areas of Conservation (SAC)

and County Wildlife Sites (CWS).

We own and manage 1,251 hectares of Sites of Special Scientific Interest

(SSSIs), of which 88.5% is in favourable condition and all but 9.5 hectares

ofthe remainder is classed as in recovery.

We have proven experience of habitat restoration, including land adjacent

to two former industrial mining quarries in Cornwall, Park Pit and Stannon.

South West Water bought Park Pit and the surrounding industrial land on

Bodmin Moor in 2007. At the time, ecologists described the area around Park

Pit as a “moonscape of waste sand and mica”. Fast forward to today, and

the industrial wasteland has been transformed into a nature-rich heathland

andreservoir.

We take our biodiversity responsibilities seriously – we have surveyed our

land and ensured biodiversity enhancement plans to boost nature and

to monitor and control the invasive non-native species are in place for all

ofoursites.

Addressing Affordability and

Delivering for Customers

Keeping bills affordable

Managing affordability starts with ensuring we deliver quality services

efficiently, keeping bills as low as possible and minimising any bills rises.

Soits only right that we continue to be at the forefront of the sector when

itcomes to cost efficiency.

In all the areas we serve, average bill increases for 2023/24 and 2024/25 were

below the headline rates of inflation. Our current bill for South West Water

islower in real terms today than a decade ago, bolstered by initiatives such

as WaterShare+ and our innovative tariffs and incentive schemes, which give

customers lower bills for lower water usage. We are pleased that our latest

water efficiency tariff across Cornwall has been successful, leading to a 5%

reduction in water use and a rebate on customer bills.

37Pennon Group plc » Annual Report and Accounts 2024

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Business Retail

Pennon Water Services (PWS)

PWS continues to deliver for its business customers offering a range of

attractive tariffs and value-added services, whilst also delivering year-on-year

improvements in its revenue, EBITDA and PBT.

Serving its customers

PWS maintained its focus upon high quality customer interactions, resulting

in a Trustpilot of 4.8 out of 5 measured through the independent review

platform comparing favourably to its peers. Its large strategic users of

water rated the quality of service from their account team at 4.94 out of 5,

demonstrating its ability to provide tailored support services to meet varying

business needs. Its customer service teams issued over 300,000 customer

bills in the year and answered over 90,000 phone calls, assisting with simple

queries as well as complex customer challenges relating to their site and its

future requirements. Its focus upon root causes of complaints into its own

service and those it recorded against wholesalers has supported a 16.5%

reduction in its volume of complaints compared to the prior year.

Financial performance

Revenue increased by 8% from £218 million in 2022/23 to £233.8 million

in2023/24. A direct result of continued customer growth and low

customerattrition despite a reduction in customer consumption in our

incumbent areas.

EBITDA and PBT grew by 67% and 128% in the year respectively,

demonstrating its operational efficiency against its higher revenues, a

disciplined approach to winning new business and control of operating costs.

Since the market opened in 2017, PWS has provided strong customer

support and high quality of services to maintain a stable market share of

c. 6% in England and Wales. The market share for the UK is 5.2% including

Scotland, serving over 154,800 business accounts (c. 95,000 customers) intotal.

Our operational review continued

Eradicating water poverty

In 2019 we made a pledge to eradicate water poverty and ensure everyone

has an affordable bill by 2025, a full five years ahead of the industry target.

This was set for South West Water and Bournemouth Water, with a similar

target independently set by Bristol Water, to achieve 0% in water poverty.

With households feeling the impacts of the cost-of-living crisis, we have

extended our package of affordability measures, unlocking £100m of financial

support for customers, and we are pleased that we are on track to achieve

our industry leading commitments to eradicate water poverty by 2025.

Acommitment we have doubled down on in our Business Plan to 2030.

98% of South West Water and Bournemouth Water households have been

independently assessed as having an affordable bill. This is up from 96.8%

last year. 100% of Bristol Water customers receive an affordable bill.

Over 132,000 unique customers have benefited from one or more of our

affordability initiatives across South West Water, Bournemouth Water and

Bristol Water to date.

We are focused on lifting a further 10,000 customers out of water poverty in

the next year as we continue to evolve our affordability toolkit. This includes

our innovative data model allowing us to identify and auto enrol customers

who are within the group who are often the most vulnerable and hardest to

reach onto social tariffs. We are also continue to work with local councils and

debt partners to identify customers who may be in financial difficulty and

may need support.

Supporting vulnerable customers

Our priority services programme is underpinned by the following pillars:

• Providing easy ways to register for our Priority Services Register, so those

who may need support reading their bills or meters can find the right help.

• Data sharing with key utility partners so customers who need extra

support are added to our Register.

• Ensuring customers who have needs that rely on a constant supply of

water have the right help if an incident occurs interrupting that supply.

WaterShare+

We have a unique structure, through our WaterShare+ scheme, which gives

customers the chance to either own a share in our business or receive a

reduction in their water bills.

To date, we have shared £38m with customers through shares or bill

reductions, and 1 in 14 households in the South West are now shareholders.

We are looking to increase this to 1 in 10 by 2030 so that more customers

have a stake in our business.

38 Annual Report and Accounts 2024 « Pennon Group plc

PWS continued to win new customer contracts across a diverse range of

business sectors. This was achieved despite ongoing economic uncertainty.

The combination of strong growth in new contracts and high retention

delivered a cumulative net consumption gain of c. 4% (2,105 megalitres) in

the current year.

As a result, PWS has taken its cumulative position since the market opened

to c. 51,000 megalitres, the equivalent of c. 20,330 Olympic-sized swimming

pools. New contracts in the year included Agrial Fresh Produce, Aggregate

Industries, and Welcome Break.

Whilst growth in new contracts continued PWS maintained its low levels of

customer attrition. Our continued focus on value and service with existing

customers ensured we renewed a number of contracts including Unite, GSK

and Kerry Ingredients.

Outlook

Pennon Water Services remains well placed to deliver against its long-term

strategic objectives, growing organically and sustainably, investing in its

people, systems, processes, and innovative customer solutions.

Water2Business

Pennon’s 30% shareholding in Water2Business continues to deliver market

leading customer service performance, maintaining their Trustpilot score of

4.9/5, the highest of all water retailers. Further customer growth has seen

Water2Business grow to a c.7% market share. Water2Business has continued

their strong financial performance during the year, contributing c.£0.7 million

of associated companies’ profit after tax to the Group’s results, supported

by the addition of c.5,100 new customers. Water2Business has also topped

the MOSL holistic retailer reporting tables for the entire 2023/24 financial

year, demonstrating its commitment and effectiveness of data management,

process control and customer service.

Strategic report Governance Financial statements Other information

39Pennon Group plc » Annual Report and Accounts 2024

SES Water

How SES Water Deliver

Like the rest of Pennon Group, the SES Water approach to delivering its

business model has ESG at its core.

Strong Financial Governance

The SES Water Board has a Code on principles of good governance

(including financial governance) and assesses compliance with the UK

Corporate Governance Code 2018 on an annual basis. The SES Water Board

takes its obligations for good corporate governance extremely seriously

and applies standards appropriate to the nature and ownership structure

of the business. These standards are kept under continuous review and are

amended in line with business developments and to reflect best practice.

With respect specifically to Financial Governance, the SES Water Board

is provided with assurance that the principles of good governance are

maintained via input from the SES Water Audit Committee and the

SES Water Financing Committee. The former includes insights and

recommendations from the external financial auditor, PwC, on various

aspects of financial governance such as internal control improvements,

enhancing transparent external reporting and assessments on areas

offinancial judgement, which management appropriately actions

whererequired.

Investing in the Environment

SES Water has continued to invest in local catchment initiatives, contributing

to land management changes and supporting local groups with enhanced

nature conservation. SES Water achieved its third Biodiversity Benchmark

with The Wildlife Trusts, delivering on their bespoke performance

commitment and remain on track with their WINEP delivery.

SES Water has continued with its fleet decarbonisation and energy

efficiencyprojects, whilst also progressing external assurance for its GHG

emissions reporting.

SES Water colleagues are building strong partnerships with a range of

stakeholders in readiness for their ambitious catchment work, including

non-statutory proposals to invest in catchment resilience and long-term

future sustainable water resources. Local estate projects are gaining

momentum with integration to the South East’s regional water resource and

landscapeplanning.

Investing in the Community

SES Water has long term commitments in the arena of social responsibility

and wants their people to feel they can make a difference working as part

ofa business set in the heart of the community they serve.

A new working group established in 2023/24 collaborated to create an

internal events calendar for the year, aligned with the SES Water Purpose

and People Plan. This has provided everyone with opportunities to

participate in events and support some great local causes. For example,

SES Water colleagues participated in the Give A Day (153 colleagues in

total) initiative, supporting a wide range of local charities including Stripey

Stork, Community Fridge, The Wildlife Aid Foundation, The Orpheus Centre,

The Conservation Volunteers, Crossroads Care, and Methodist Homes

Association.

Building relationships with local education providers further strengthens the

early careers strategy implementation by continuing attendance at career

fairs, offering a structured work experience week and apprenticeships.

Thesemeasures are bolstered by the highly successful education

programme held at the Flow Zone centre at Bough Beech Treatment Works.

Health & Safety

SES Water has had another excellent health and safety performance in the

past year, with no Lost Time Accidents (LTAs), and no reportable incidents

or injuries at year end. Numbers of minor Non-Lost Time Accidents (NLTAs)

were also lower than the previous year. They were proud to achieve two

RoSPA Gold Awards (The Royal Society for the Prevention of Accidents) –

one for health and safety performance and the other for fleet safety and the

management of occupational road risk.

Delivering for its Customers

SES Water prides itself on continually seeking to improve the quality of the

service for its customers. The following is a summary of in year performance

and Performance Commitments (PCs).

Leakage

The SES Water overall leakage reduction performance continues to meet

its required three-year rolling target, and the Company remains on track to

deliver the 15% in-year reduction required by 2025. SES Water has stayed at

or below the maximum allowed level of leakage every year since the target

was first set more than 20 years ago and has once again met our leakage

reduction, which is industry leading.

Per capital consumption (PCC)

SES Water has progressed its universal metering programme and continued

to support in-home water efficiency assistance. The Company also deployed

a targeted water efficiency campaign from which it has gained important

insight to inform its 2024 concept. SES Water has historically had relatively

high PCC and whilst its 2023/24 PCC is reduced compared to 2022/23, it is

in the process of designing a water efficiency pilot to inform the best value

support it can give to its customers.

Our operational review continued

40 Annual Report and Accounts 2024 « Pennon Group plc

Improving Water Quality

SES Water has continued to deliver excellent water quality performance in

2023. It has determined its Compliance Risk Index (CRI) score to be just 0.01,

with only three sample exceedances for lead or nickel, linked to the condition

of service pipework and customer fittings, contributing to this score. SES

Water expects its performance to be confirmed as an industry leader when

the DWI publishes industry results in July 2024.

SES Water has had a very challenging target to minimise the number of

customers that need to contact it about the taste, smell or appearance of

their water. In 2023, SES Water received 0.58 contacts per 1000 population,

which was above its target for the year of 0.50, and so it will receive a small

financial penalty from Ofwat. Whilst it is disappointing that the business did

not meet the target set, it expects its contact rate performance to continue

to be in the industry upper quartile.

Maintaining water resilience and asset health

SES Water continued work to make sure it operates, maintains and invests in its

water treatment work assets, which has ensured it has once again outperformed its

target on unplanned treatment work outages, achieving 0.81% against a target of

2.34%. SES Water continues to invest in the long-term resilience of its network and

remains on target to have every property connected to two water treatment works

by 2025. The level of mains repairs has improved significantly since last year, but

the business will not meet its target and will receive a financial penalty from Ofwat

this year. Despite that, its performance will likely remain upper quartile within the

industry. SES Water’s smart network, which helps it find and fix leaks in near real-

time, has enabled them to reduce its leakage run times by up to 40%. SES Water

are the first UK water company to roll out this intelligent technology across its entire

water distribution network, with the aim of more than halving their leakage by 2045.

SES Water have once again achieved its supply interruptions target as it nears

the completion of a 15-year resilience programme it has been progressing since

2010. By 2025, every property across its region will be supplied by more than one

treatment works if, due to operational challenges, this is needed. SES Water has also

not had to implement any water restrictions within their area for over a decade.

Clean, safe and reliable water

Clean, safe and reliable water (CRI score)

SES Water – Non-financial metrics

76.05

76.3 5

72.45

2021

2022

2023

84.91

77.39

Subject to assurance

2021

2022

2023

Supporting customers in financial hardship

Customer Measure of Experience (C-MeX)

Delivering for our customers

Developer Measure of Experience (D-MeX)

19,476

19,994

22, 250

2021

2022

2023

6.8%

5.6%

9.3%

2021

2022

2023

38%

32.1%

39.5%

2021

2022

2023

PSR reach

This is measured as the number of households that are registered as part of our

Priority Services Register at the end of the Financial year, divided by the number

ofoverall households in our supply area that have active accounts at the time.

Supply interruptions (Duration per property per year)

Taste, smell and colour (contact per 1,000 population)

Leakage (3-year average – Megalitres per day)

0.01

0.00

0.01

2021

2022

2023

0.64

0.58

2021

2022

2023

0:03:51

0:02:58

0:03:36

2021

2022

2023

0.93

1.36

0.81

2021

2022

2023

23.6

21.5*

2021

2022

2023

101.5

57.9

63.8*

2021

2022

2023

Unplanned outages (%)

Mains repairs (Number of repairs per 1,000km)

* unassured forecast

Vulnerable support scheme awareness

The percentage of customers that answer “yes” to the question “Are you aware of

the additional support SES Water offers customers in vulnerable situations through

their `Here for you` Scheme and Priority Services Register?” The survey takes place

quarterly to a sample of 500 household customers (100 of which are on the vulnerable

support schemes). The survey is conducted by a third-party research company (in

this case Explain, SES Water’s Voice of the Customer agency). The % reported is for all

4quarters combined in the applicable year. Vulnerable support scheme awareness.

41Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our KPIs – non-financial metrics

Clean, safe and reliable water

Asset Health is essential for ensuring a robust supply of water to our customers. Mains repairs performance has improved despite an increase in repairs we have

undertaken to reduce leakage and address bursts, ensuring that we have meet targets in SWB and Bristol Water. In SWB, our unplanned outages increased, but

remains well within the regulatory target for the year. Bristol Water unplanned outage performance improved over 2022/23, but an unplanned event at one of

our largest treatment works in Bristol meant the target was narrowly missed for 2023/24.

Water quality (CRI score)

The Compliance Risk Index (CRI) is the Drinking Water Inspectorate’s

measure of water quality. In 2023/24 we continued with our ‘Quality First’

transformation programme. Performance in our SWB region (consisting of

South West Water and Bournemouth Water but not Bristol Water, which is

subject to separate cost and performance reporting to Ofwat) was impacted

by tanks on one site. There were no failures from water treatment processes

in 2023, and our performance remains upper quartile for the industry.

Bristol Water was below average but is learning from the SWW approach

and applying the ‘Quality First‘ programme (rolled out with enhanced mains

flushing, tank inspection and cleaning and staff survey and training) to

improve Bristol Water’s performance. Performance for 2023 was impacted by

3 events at our larger sites.

Supply interruptions (Duration per property per year)

Performance across the Group is often impacted by colder weather

and third-party damage. At SWB, 35 incidents contribute c. 5 minutes

to performance, 10 events contributed c. 2.5 minutes to performance and

third-party damage contributed c. 30 seconds. At Bristol Water, performance

has been primarily impacted by third-party damage in Hallen and the

complex Winterbourne Christmas Day burst trunk main. The two incidents

have dominated performance this year accounting for c.70% of our supply

interruptions (6 mins 41 secs).

Our underlying operational performance indicates that the 2024/25 target

level (at 5 minutes) is achievable.

Taste, smell and colour (contact per 1,000 population)

We recognise that customers expect their drinking water to look and taste

great and this is important in maintaining customers’ trust in the quality of

our supplies.

At SWB our performance had been consistently improving in line with our

targets, however as a result of the drought conditions in summer 2022, we

limited our flushing activities in areas until restrictions were lifted which

has impacted performance in 2023/24. At Bristol Water there has been a

substantial reduction in appearance contacts and taste and odour contacts

over this reporting period.

Leakage (3-year average – Megalitres per day)

Reducing leaks is a critical component of ensuring a sustainable

watersupply.

Most companies saw an increase in annual leakage in 2022/23 reporting

higher levels of bursts resulting from a hot, dry summer and the winter

freeze-thaw. Whilst leakage has remained stable in South West Water and

Bristol, in the year, the position in 2022/23 has an enduring impact on the

regulatory three-year rolling performance.

South West Water (SWB)

Bristol Water

00:09:18

00:08:42

00:13:40

00:08:03

00:02:31

00:09:24

21/22

22/23

23/24

21/22

22/23

23/24

South West Water (SWB)

Bristol Water

3.02

2.39

3.86

4.60

4.19

7.05

2021

2022

2023

2021

2022

2023

South West Water (SWB)

Bristol Water

1.66

1.51

1.55

1.21

1.39

0.82

2021

2022

2023

2021

2022

2023

South West Water (SWB)

Bristol Water

107.1

113.0

116.7

37.0

36.0

37.6

21/22

22/23

23/24

21/22

22/23

23/24

Unplanned outages (%) Mains repairs (Number of repairs per 1,000km)

South West Water (SWB)

Bristol Water

1.15

0.70

0.96

6.27

1.74

2.58

2021

2022

2023

2021

2022

2023

South West Water (SWB)

Bristol Water

134.6

141.1

111.4

170.8

106.4

124.8

21/22

22/23

23/24

21/22

22/23

23/24

42 Annual Report and Accounts 2024 « Pennon Group plc

Pollution incidents (number of wastewater incidents)

Category 1-3 pollutions is our most challenging area. The 2023 weather

(fifthwettest on record and increased number of storms) and operating

conditions (exceptionally high groundwater and scale of rainfall) has

resulted in less time to respond to issues that arise at our 655 treatment

works and c.1,200 pumping stations. This has meant the benefits of our

Pollution Incidents Reduction Plan (PIRP) will not be seen until 2025.

Serious pollutions (category 1-2) have however remained stable this year.

Weknow there is more to do and we continue to target a further step change

inperformance.

Numeric Compliance (%)

We measure the compliance of our discharges against our permits.

Biodiversity (Hectares)

We are continuing our pioneering catchment management approach.

Catchment management protects and improves river quality and critical

water abstraction sources to provide clean, safe drinking water without the

need to provide additional infrastructure.

Environmental Performance Assessment

A combination of a basket of measures, the EPA is the Environment Agency’s

assessment of environmental performance. Our performance this year results

in a provisional 2 star rating this year.

Protecting the environment – robust wastewater delivery

194

108

151

2021

2022

2023

South West Water

96.19%

99.40%

97.46%

2021

2022

2023

South West Water

126,733

111,515

95,453

21/22

22/23

23/24

South West Water

21/22

22/23

23/24

South West Water

Sewer flooding is a key area that significantly impacts on customers. For 2023/24 we are maintaining our industry-leading internal sewer flooding performance

and have delivered c.8% reduction in external flooding incidents, despite the prolonged periods of significant rainfall and high groundwater levels.

These measures reflect service impacts to our customers as well as being a lead indicator of asset health. Although there has been a slight increase in sewer

collapses, both measures have outperformed the targets for 2023/24, and reflect the increased cleaning activity completed on our network.

Internal sewer flooding (Incidents per 10,000 sewer

connections)

External sewer flooding (Number of incidents)

0.74

0.63

0.76

21/22

22/23

23/24

South West Water

1,578

1,816

1,407

21/22

22/23

23/24

South West Water

Sewer collapses (Incidents per 1,000km) Sewer blockages (Number)

6,448

7,056

6,545

21/22

22/23

23/24

South West Water

11.42

8.3

6.7

21/22

22/23

23/24

South West Water

43Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Overall satisfaction with PSR (%)

We provide the Priority Services Register (PSR) services for vulnerable

customers across the Group and we measure customer satisfaction with these

services each year. At SWB there are over 107,000 customers registered for

PSR. This is an increase of 36% compared to the previous year. South West

Water and Bristol Water have both outperformed our target (both companies

had a target of achieving 7% customer registration by 2024/25).

Customer Measure of Experience (C-MeX)

C-MeX is Ofwat’s measure for customer experience both for those customers

who contact us as well as the perceptions of all our customers. For SWB,

our C-MeX rankings have remained consistent year-on-year with results

impacted by customer perception scores, whilst for Bristol performance has

been consistently strong.

Delivering for our customers

South West Water

in ranking

Bristol Water

in ranking

South West Water

Bristol Water

21/22

22/23

23/24

21/22

22/23

23/24

Customer affordability (%)

We are targeting zero water poverty by 2025 and we have a range

ofaffordability schemes to address customer needs. South West Water

and Bristol Water have a measure which assesses customer affordability

which is improving year-on-year. For SWB we have achieved target

inboth: ‘Percentage of Customers who find their Water Bill Affordable’

and ‘Numberof Customers on one of our Support Tariffs’ performance

commitments for each year of the AMP so far.

Developer Measure of Experience (D-MeX)

D-MeX is Ofwat’s measure of service experience for developers which

directly compares us with our peers.

South West Water

in ranking

Bristol Water

in ranking

South West Water

Bristol Water

98.0

96.3

93.3

100.0

99.0

100.0

21/22

22/23

23/24

21/22

22/23

23/24

Bathing waters

South West Water has over 860 miles of coastline to protect, representing

over one third of the UK’s bathing waters. In 2023 there were 151 designated

bathing waters in the region, including one new bathing water at Plymouth

Firestone Bay. However, only 150 bathing waters were classified as

Watcombe was not classified by the EA due to access issues and so

wasexcluded from the 2023 assessment (Watcombe was classified as

‘excellent’ in 2019).

In 2023, 100% of our bathing beaches where South West Water assets

would have an impact on the bathing beach met the high standards set

forwater quality for the third year in a row (one bathing water (Porthluney)

was classed as poor but SWW do not have any assets impacting this

bathingwater).

Average Spills

Our Waterfit programme is focused on protecting rivers and seas. During

2023, the average number of spills has increased - the increase this year can

be accounted for by the amount of named storms and weather warnings in

2023. But we will continue to deliver our plans to reduce to an average of

20spills per overflow by 2025.

100

Met standards (%)

Good/excellent (%)

South West Water

23/24

22/23

21/22

43.4

28.5

38.9

21/22

22/23

23/24

South West Water

Our KPIs – Non-financial metrics continued

44 Annual Report and Accounts 2024 « Pennon Group plc

KPIs – financial metrics

Annual

Operational

Profit before tax (£m)

Why is this KPI important to us?

Profit before tax is a key measure of the Group’s financial performance after

deducting all operating and finance costs. Underlying Profit before tax is

measured to exclude any distorting non-underlying items as explained in

ourAlternative Performance Measures on pages 239 to 242.

Our performance in 2024

Commentary on performance is set out in the Group Chief Financial Officer’s

report on pages 47 to 54.

Link to remuneration, bonus/LTIP

Annual bonus performance measure.

^ Measures with this symbol are defined in the Alternative Performance Measures

(APMs) as outlined on pages 239 to 242.

1. For further information on the relevance to Executive Directors’ remuneration

seepage 148.

2. Cumulative K7 measure.

3. South West Water ROCE measure used for 2020/21 and 2021/22. This provides

acomparative figure to previous Group performance. See calculations provided

inthe alternative performance measures section on pages 239 to 242.

Return on capital employed (ROCE) (%)

Why is this KPI important to us?

ROCE provides a measure of the return being generated by the Group

compared to the total equity and debt capital deployed to generate

thatreturn.

Our performance in 2024

Commentary on performance is set out in the Group Chief Financial Officer’s

report on pages 47 to 54.

Link to remuneration, bonus/LTIP

LTIP performance measure.

4.1

4.5

8.6

9.1

9.3

19/20

20/21

21/22

22/23

23/24

Return on regulated equity (RORE)^ (%)

WaterShare

Why is this KPI important to us?

Return on regulated equity (RORE) expresses the return the water

businesses have managed to earn above and beyond expectations set by the

regulator through financial and operational performance as explained in our

Alternative Performance Measures on pages 239 to 242.

Our performance in 2024

Commentary on performance is set out in the operational performance

review on pages 32 to 41.

Link to remuneration, bonus/LTIP

LTIP performance measure.

21/22

22/23

23/24

South West Water

Bristol Water

New regulatory period

19/20

20/21

7.6

4.2

8.0

8.2

6.3

7.8

12.1

5.2

21/22

22/23

23/24

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

Sale of Viridor

19/20

20/21

(9.1)

16.8

(8.5)

127.7

143.5

157.0 200.3

132.1

193.1

183.0

301.5

287.6

16.8

+£1,650.4m

statutory profit on

discontinued operations

45Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

KPIs – financial metrics

Long-term

Earnings per share (pence)

Why is this KPI important to us?

Earnings per share (EPS) is a key financial metric indicating the Group’s

profitability after tax and provides a relative measure of profitability in

comparison to the Group’s share price. Underlying^ EPS excludes the impact

of potentially distorting non-underlying items as explained in our Alternative

Performance Measures on pages 239 to 242.

Our performance in 2024

Commentary on performance is set out in the Group Chief Financial Officer’s

report on pages 47 to 54.

Link to remuneration, bonus/LTIP

LTIP performance measure.

Group dividend cover (times)

Why is this KPI important to us?

Group dividend cover ensures that the profitability of the Group supports the

sustainable delivery of our dividend policy.

Our performance in 2024

Commentary on performance is set out in the Group Chief Financial Officer’s

report on pages 47 to 54.

Link to remuneration, bonus/LTIP

LTIP sustainable dividend measure.

0.1x

0.2x

1.4x

1.5x

1.4x

19/20

20/21

21/22

22/23

23/24

Sale of Viridor

Dividend per share (pence)

WaterShare

Why is this KPI important to us?

Our sector-leading dividend policy is a key measure of the success of our

sustainable growth strategy.

Our performance in 2024

Commentary on performance is set out in the Group Chief Financial Officer’s

report on pages 47 to 54.

Link to remuneration, bonus/LTIP

LTIP sustainable dividend measure.

21/22

22/23

23/24

Dividend per share

EBITDA dividend cover^ (times)

Sale of Viridor

19/20

20/21

44.4

2.7x

42.7

38.5

3.8x

3.7x

21.7

43.8

3.2x

2.8x

21/22

22/23

23/24

19/20

20/21

(3.6)

6.2

nil

4.9

50.2

31.9 10.2 42.1

25.5

27.7 47.7

35.2 26.5 61.7

7.3

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

Sale of Viridor

+393.0p

statutory EPS on

discontinued operations

46 Annual Report and Accounts 2024 « Pennon Group plc

Our CFO’s review

Underlying profitability improving

Full year underlying profit before tax of £16.8 million following losses in the

second half of 2022/23.

More information on pages 47 to 50

Investing for growth

Group capital investment up c.80% versus 2022/23, with investment

weighted towards the end of the AMP.

More information on page 49

Robust liquidity and flexible financing

strategy

Pennon Group available liquidity in excess of £1 billion.

More information on pages 51 to 52

Acquisition of SES Water

The business acquired on 10

January 2024, representing our ambitions to

be a leader in the UK water sector.

More information on pages 49 to 50

Financial highlights of the year

I am excited to have joined Pennon at this time in the Company’s

development. As I look back on the fourth year of our 2020-2025 business

plan we continued to outperform the regulatory cost of equity, maintained

financial discipline by managing gearing, raised debt to sustain liquidity and

made an early start on cost reduction for K8. Furthermore, we are gaining

momentum in the build out of our renewable energy generation sites through

Pennon Power and see further positive progress in our non-household retail

business, Pennon Water Services.

In addition to our organic development, soon after I joined the Company in

January, we announced the acquisition of SES Water and the £180 million

equity raising to fund the acquisition. This successful transaction represents

the ambitions we have as a Company to grow and be a leader in the UK

Water sector whilst maintaining our commitment to financial discipline.

Delivery of our regulatory programmes, the reinvestment of RORE, investing

in Pennon Power and the acquisition of SES Water have resulted in the

largest capital expenditure programme in one year. The level of regulatory

investment demonstrates our capacity and capability to deliver at investment

rates set out in our PR24 submission.

As I look ahead into the fifth and final year of the K7 plan, we are working to

ensure that we are in a strong position financially to support our 2025-30

business plan. We will: diversify our debt portfolio, supported by our debut

credit ratings; de-gear the SES Water balance sheet; continue to achieve

outperformance on regulatory returns and deliver a step change in our

cost base. We have already realised c.£9 million of total benefits in 2023/24

through our existing transformation programmes (including optimisation

of sites to reduce power and chemical costs and enhancing contract

management processes). We expect to continue and extend this programme,

with targeted annualised savings of c. £55 million during K8. We expect

further sustainable growth from Pennon Water Services and are expecting

Steve Buck

Group Chief Financial Officer

47Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our CFO’s review continued

our first renewable energy site to start generation late in financial year

2024/25.

The improving performance, following a loss before tax in H2 2023, is

expected to continue to the end of K7. The start of K8 will be a point of reset

for the financial position of the Group, enabling a return to stronger income

statement performance and recognition of the K7 true-ups to Regulated

Capital Value^ (RCV). We continue to deliver regulatory outperformance and

our investments have generated RCV growth of around 10% in the year, with

overall RCV growth of c.65% since the start of K7. Despite the current low

level of earnings per share, there is significant retained shareholder value in

the regulated business.

Overall, our financial performance for 2023/24 is in line with our expectations.

As we have said previously, the impact of high inflation on our cost base

reduces our earnings, in particular due to power costs remaining high, and

in part due to hedging our power at previous higher prices. The second half

of 2023/24 experienced some of the highest levels of rainfall seen in recent

times and this contributed to higher wastewater treatment costs. Despite this

upward pressure on costs, we have managed to keep our regulated costs

broadly flat year on year. Despite increased borrowing levels and rising base

rates, our effective interest rate^, in South West Water, has remained broadly

constant at 5.6%

(2022/23: 5.5%), with the inflationary impact on finance

costs stabilising, in part through the £300 million RPI swaps that were put in

place in 2022/23. Tariff increases have recovered previous inflationary cost

increases. Underlying profit before tax for 2023/24 is up from £16.8 million to

£19.3 million before the impact of the acquisition of SES Water, an increase of

c.15% compared with 2022/23.

SES Water has contributed to the financial results since 10

January 2024

and is performing in line with our expectations, contributing £35.7 million of

revenue and a £2.5 million loss before tax for the c.2.5 months of ownership.

In late January 2024, the Competition and Markets Authority (CMA) stated

that it did not consider a parallel formal investigation under the Enterprise

1. Includes K and inflation.

2. Includes ODI impacts and prior year revenue over recovery.

3. Includes K, ODI penalties and prior year over recovery of revenue.

4. PWS - 80:20 joint venture with South Staffs, Water2Business - 30% share of joint venture with Wessex Water.

5. Based on South West Water Group, including Bristol Water, excluding SES.

6. References to organic movements throughout this commentary refer to the performance of the business excluding the contribution from SES Water from 10

January 2024.

^ Measures with this symbol are defined in the alternative performance measures section of the annual report on pages 239 to 242.

Revenue underlying^ (£m)

2022/23

Revenue

Water

Inflationary

factors

Other revenue

movements

including

regulatory

adjustments

PWS

contract

wins

PWS

Inflationary

factors

SES Other 2023/24

Revenue

825.0

61.6

(31.6)

8.5

7.3

35.7

907.8

1.3

2022/23

PBT

Inflationary

tariff

increases

Regulatory

revenue

adjustments

Cost

inflation

and

pressures

Early

transitioning

to K8

benefits

and Bristol

integration

Depreciation Interest PWS,

JV PAT

& other

Group

movements

2023/24

PBT

(excl. SES)

SES 2023/24

PBT

16.8

19.3

61.6

(31.6)

(13.2)

6.9

(13.7)

(11.2)

3.7

(2.5)

Act for the non-household aspect of the acquisition to be needed. The

regulated aspect of the acquisition of SES Water is progressing through the

CMA review and as expected, has been referred for a Phase 2 review under

the prescribed process. The CMA has indicated that there are reasonable

grounds for believing that the undertakings offered by the parties under

the process might be accepted. Whilst the CMA review is ongoing, SES

Water and South West Water will continue to be operated independently

ofeachother.

The merger of South West Water and Bristol Water completed on 1

February

2023 with the combined water business now operating under one licence held

by South West Water Limited. Within this report, to aid comparability both now

and ongoing, the results of South West Water include the operating performance

ofBristol Water in both 2023/24 and the comparative period, 2022/23.

Group performance – summary

The Group’s statutory revenue for 2023/24 was £907.8 million compared

with £797.2 million in 2022/23 which included non-underlying reductions of

£27.8 million in respect of the second issuance under WaterShare+ (£20.2 million)

and our “Stop The Drop” demand reduction incentive (£7.6 million). Group

underlying revenue increased by £82.8 million, or 10.0%, to £907.8 million, with

SES Water contributing £35.7 million of the increase.

Organically

, underlying revenue has increased by £47.1 million (5.7%) with

South West Water’s revenue increased by £28.5 million with inflationary

tariff increases being offset by ODI penalties and prior year over recovery

of revenue. Pennon Water Services’ revenue increased by £15.8 million to

£233.8 million, with new contracts, predominantly outside South West Water’s

regions, contributing c.£9 million to this increase.

Overall, underlying EBITDA has increased 9.9% from £307.8 million

to £338.3 million with South West Water and Pennon Water Services

contributing £332.5 million and £7.4 million respectively of this overall

increase. SES Water contributed £3.6 million to the overall increase.

48 Annual Report and Accounts 2024 « Pennon Group plc

Further details of the performance of South West Water, Pennon Water

Services and SES Water are outlined below.

We recognise the pressure the ongoing cost-of-living crisis puts on our

customers, so we are determined to continue to assist customers with access

toa broad range of affordability measures to support those in financial need.

Across all Group businesses, the potential impact of significant increases in the

cost of living on affordability has been considered in assessing our expected

credit loss charges.

Cash collections across the Group have remained robust during the financial

year. Expected credit loss charges for 2023/24 of £6.3 million for South West

Water (0.9% of revenue) are in line with previous levels (2022/23: 1.0%). For

Pennon Water Services, the expected credit loss charge of £1.0 million (0.4%

of revenue) is also in line with previous levels (2022/23: 0.4% of revenue).

The Group reported a statutory loss before tax of £9.1 million (2022/23:

loss of £8.5 million) after net non-underlying costs of £25.9 million

(2022/23: £25.3 million). Group underlying profit before tax is in line with prior

year at £16.8 million (2022/23: £16.8 million) with SES Water contributing

an underlying loss before tax of £2.5 million. Organically, Group underlying

profit before tax increased by £2.5 million to £19.3 million. While this outturn

reflects a marginal overall improvement in earnings compared with 2022/23,

it represents an overall marked improvement in performance given the

challenging operating conditions, caused by the excessive rainfall during the

second half of 2023/24. Underlying, organic profit before tax in H2 2023/24

was £10.2 million compared to an underlying loss of £5.7m in H2 2022/23.

Segmental performance – Water

South West Water

Since 1

February 2023, the trade and the significant majority of assets and

liabilities of Bristol Water plc were transferred to South West Water Limited under

a statutory transfer mechanism set out in the Water Industry Act. The Bristol

Water brand continues as a trading name of South West Water. As noted above,

the financial performance of South West Water includes the performance of

Bristol Water in both this financial year and the comparative year.

South West Water’s statutory revenue for 2023/24 was £729.8 million

compared with £673.5 million in 2022/23. Last year’s revenue included

non-underlying reductions of £27.8 million in respect of the second

issuance under WaterShare+ (£20.2 million) and our ‘Stop The Drop’

demand reduction incentive (£7.6 million). Underlying revenue of

£729.8 million for 2023/24 has increased by 4.1% compared with the prior

period (2022/23: £701.3 million). The revenue growth of £28.5 million is

explainedabove.

Underlying operating costs of £397.3 million are largely flat year on year

witha small increase of £4.4 million (2022/23: £392.9 million). Normal

inflationary increases have been offset by early benefits from our

transformation programme and continuing integration efficiencies. Energy

unit prices, which were specifically impacted by high levels of inflation

over the last two years are now stabilising with a year on year decrease of

£1.0 million. However, in order to de-risk the business from the volatility of

the wholesale energy markets, some of the recent higher power prices were

locked in through our hedging strategy. We expect the impact of those to

decline over the coming year.

South West Water’s underlying EBITDA increased by 7.8% to £332.5 million.

Underlying operating profit has increased by 6.7% reflecting the improved

EBITDA performance and an increase in the depreciation charge of

£13.4 million compared to last year as our accelerated capital investment

programme starts to impact the depreciation charge.

The net interest charge of £155.5 million is £10.2 million higher than prior

year (2022/23: £145.3 million), reflecting an effective interest rate^ of 5.6%

(2022/23: 5.5%).

South West Water’s statutory loss before tax was £1.0 million (2022/23: loss of

£29.6 million) after non-underlying costs of £15.6 million (2022/23: £43.7 million).

South West Water’s capital expenditure was £582.9 million, an increase of

£224.7 million (62.7%) on the prior year (2022/23: £358.2 million). The final

determination, Green Recovery, Defra accelerated delivery, and the RORE

reinvestment were weighted towards the end of the K7.

Major categories of Capital expenditure (£m)

Enhancement spend has been pulled forward from year 5 to year 4

byc.£80 million due to our investment in water resources and network

monitoring. This expenditure is delivering new water treatment works in

Bournemouth, a desalination plant in Cornwall, additional reservoirs to

improve resilience to drought, and enhanced network monitoring including

acoustic loggers and sewer level monitors.

Base expenditure has increased by c.£80 million as a result of spend to

mitigate the impact of the weather on our assets, and the expansion of our

Quality First programme across the regions. The exceptional weather we

have experienced over the year has resulted in spend to minimise pollutions

and spills and to drive targeted reductions in leakage. We expect 50%

(£40 million) of the increase to be recovered in our RCV in K8.

SES Water

SES Water has contributed to the financial results since 10

January 2024.

Since that date, the business has contributed £35.7 million of revenue and

£3.6 million of EBITDA to the Group results. The business continues to

be impacted by high levels of financing costs which the Group intends to

address where possible once it is able to leverage benefits from the Group’s

financing strategy, as and when CMA clearance is obtained. In the period

since acquisition, the business has performed in line with our expectations.

Over the 12 month period to 31

March 2024, SES Water has benefited from

higher revenues, mainly due to tariff rises allowed under the regulatory

regime and increased non-household demand. Operating costs have

increased in the year, mainly driven by supply chain pressures resulting in

higher electricity costs and chemical spend. Financing costs continue to be

adversely impacted by high inflation on the index linked bond although this

pressure is starting to reduce as RPI comes down.

South West Water (Water): £369.3m

South West Water (Wastewater): £213.6m

Pennon Power: £59.0m

Other: £7.6m

£649.5m

TOTAL

1. A measure of the mean average interest rate payable on net debt associated with

South West Water Ltd’s group of companies, which excludes interest costs not

directly associated with net debt.

Major categories of Capital expenditure

(£m)

49Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our CFO’s review continued

Segmental performance - non-household retail

Pennon Water Services

Pennon Water Services has delivered a strong financial performance for the

year through its continued focus on key strategic initiatives; growing through

long-term contracts in targeted business sectors, good customer retention

and strong control of operating costs despite additional cost pressures.

Non-household demand within our wholesale water region fell due to usage;

however, year on year revenue, EBITDA and profit before tax have continued

to grow throughout 2023/24.

The overall impact on revenues for Pennon Water Services, including

the impact of new contract wins, is an increase of 7.2% compared to the

prior year. New business wins have contributed £8.5 million of additional

revenue compared to the last year, with inflation (net of customer attrition)

contributing further to the increase.

The non-household market continues to be very competitive with low

margins, as a result, a clear focus on cost control and efficiencies is critical

to the success of the business. The business has improved its performance

year on year, with underlying operating costs growing marginally behind

improving revenues, the business has improved its underlying EBITDA

by c.72% to £7.4 million (2022/23: £4.3 million). This strong performance

has resulted in the business reporting a profit before tax of £4.7 million

(2022/23: £1.8 million), an increase of 161%.

Group net finance costs

Total net finance costs were £150.2 million compared to £118.2 million in

2022/23, which included a non-underlying gain of £18.4 million resulting from

the repayment of the Bristol Water plc index linked bond due 2041. There are

no non-underlying finance costs in 2023/24.

Underlying net finance costs for the Group of £150.2 million are £13.6 million

higher than last year (2022/23 £136.6 million) arising from: c.£29 million

increased levels of net debt, including post-acquisition finance costs of the

SES Group; continued rate rises (c.£9 million), offset by reduction in inflation

(c.£15 million) and increased levels of capitalised interest on our capital

programme (c.£9 million).

The non-cash element of our finance charges, which accretes to the debt

principal, was c.£56 million (2022/23 c.£67 million).

Overall, the efficient funding mix and hedging strategy has resulted in an

effective interest rate of 5.6% (2022/23 5.5%) for South West Water. The

Group continues to efficiently secure funding for South West Water through

its Sustainable Financing Framework and to ensure c.60% of its interest rate

risk is mitigated in line with the Group Treasury Policy, which is achieved

both through issuing fixed rate debt and effective interest rate hedging, with

a further element being index-linked.

5.6

5.5

3.9

2.5

3.4

2022/232021/222020/212019/20 2023/24

from our associated company, in our 2023/24 results (2022/23: £0.3 million),

an increase of 133%.

Acquisition accounting

As part of the requirements of acquisition accounting, we have determined

the provisional fair values of the acquired balance sheet of SES Water.

Goodwill arising from the acquisition of £15.6 million, based on these

provisional fair values, has been recorded in the Group consolidated balance

sheet and is attributable to the recognition of deferred tax liabilities on fair

value gains recognised as part of the acquisition. The acquisition of the SES

Water Group provides a strategic fit for Pennon Group plc as the Group

expands its presence in water supply across Southern England.

These provisional values will continue to be reviewed and will be finalised

within 12 months from the date of the acquisition. The most material areas of

adjustment relate to the fair value of acquired property, plant and equipment,

including the network infrastructure, and the fair value of SES Water’s

debtportfolio.

Non-underlying items

Non-underlying items for 2023/24 were a net charge before tax of

£25.9 million (2022/23: net charge of £25.3 million). Non-underlying items

are those that in the Directors’ view should be separately identified by virtue

of their size, nature or incidence and where they believe excluding non-

underlying items provides a more useful comparison of business trends and

performance.

The non-underlying charge includes:

• £13.9 million of costs in connection with the setting up of a business

transformation programme in South West Water following the merger of

Bristol Water into South West Water.

• £0.6 million of expenses in connection with the strategic review of

renewable energy generating investments, not directly attributable to the

intangible assets acquired.

• £9.6 million of expenses in connection with the acquisition of SES Water

and the related merger review by the CMA.

• £1.8 million of further specifically identifiable costs in respect of mitigating

measures and one-off expenditure to address the impacts of severe

drought conditions following costs of £17.0 million incurred in 2022/23.

The non-underlying charges in 2023/24 give rise to a net tax credit of

£4.9 million in relation to the above items.

Responsible approach to tax

We are proud of our responsible approach to tax. The Group has maintained

the Fair Tax Mark accreditation for the year, having been the first water

company to achieve this status and holding the award continuously

since2018.

The overall 2023/24 tax credit for the Group is £0.6 million (2022/23: credit of

£8.9 million). On an underlying basis, the net tax charge for 2023/24 for the

Group of £4.3 million (2022/23: credit of £3.6 million) consists of:

• Current tax credit of £0.6 million, reflecting an effective tax credit rate of

3.6% (2022/23: credit of £2.7 million, 16.1%). The reduction in rate is due to the

Group generating tax losses, all of which are carried forward for future relief.

These tax losses reflect the enhanced capital allowances available because

of full expensing and first year allowances, along with pension payments

made during recent years where tax relief is now due, and capitalised interest

which for tax purposes is deductible in the year incurred. Around 50% of the

Group’s capital additions qualify for enhanced capital allowances. This current

tax credit relates to prior year adjustments in respect of additional interest

deductions due in accordance with UK tax legislation.

• Deferred tax charge of £4.9 million (2022/23: credit of £0.9 million). This

primarily reflects a current year deferred tax charge in relation to capital

allowances in excess of depreciation charged across the Group, largely due to

full expensing, and a charge in respect of pension payments paid in previous

years and where tax relief is now due. These are offset by a credit for tax

losses carried forward for utilisation in later periods. The prior year deferred

tax charge is £nil.

Progression of effective interest rates

Share of post-tax profit from associated companies

The Group has a 30% interest in Water2Business Limited (W2B), a water

retailer joint venture with Wessex Water. This investment is accounted for

under the equity method and following a period of losses as the business

reached scale, we are pleased to recognise £0.7 million of profit after tax

1. PWS - 80:20 joint venture with South Staffordshire.

50 Annual Report and Accounts 2024 « Pennon Group plc

There is also a non-underlying deferred tax credit of £4.9 million in 2023/24

relating to the non-underlying items set out above. This relates to losses

carried forward for utilisation in later years.

Full expensing deductions which originally applied for the three years from 1

April 2023 to 31

March 2026 together with 50% first year allowances on long

life assets and integral features, were made permanent in the recent Autumn

Statement. Given the Group’s continued capital investment programme,

these changes mean that the Group does not expect to generate taxable

profits for the foreseeable future, and therefore does not expect to make

anycorporation tax payments during this time.

Earnings per share

The earnings per share calculations reflect an increase in average shares

due to the equity raise in January 2024. The Group has recorded a statutory

loss per share of 3.6 pence per share for the year ended 31

March 2024

(2022/23: earnings of nil pence per share). This includes a net non-

underlying charge before tax of £25.9 million (2022/23: £25.3 million) and a

net non-underlying tax credit of £4.9 million (2022/23: credit of £5.3 million).

Our adjusted earnings per share excludes the impact of deferred tax charges

and non-underlying items. For the Group, we have generated adjusted

earnings per share^ for 2023/24 of 6.2 pence (2022/23: 7.3 pence). Excluding

the impact of the loss generated by SES Water in the period post acquisition,

our adjusted earnings per share would be 7.2 pence.

Net debt movements

The Group’s cash flow from operating activities for 2023/24 was

£261.7 million (2022/23: £313.7 million). Cash collections have remained

robust and we continue to monitor these closely and are focused on

providing a broad range of affordability measures to support those in

financial need. The reduction in operating cashflow reflects the lower

levels of underlying profitability in the last two financial years, caused by

inflationary pressures, alongside the cash impact of our Watershare+ and

‘Stop the Drop’ bill credits which were recognised the income statement in

H2 2022/23.

Net interest payments were £109.1 million (2022/23: £154.8 million) with the

higher payment in 2022/23 driven by £51.5 million of interest paid on lease

settlements relating to interest which accretes to the lease principal.

Capital expenditure has resulted in an increase in capital investment cash

outflows of £267.6 million to £598.1 million (2022/23: £330.5 million). This

includes c.£49 million of cash outlay from the total £59 million investment

recognised in Pennon Power.

The acquisition of SES Water resulted in net cash outflows of £62.7 million

being £90.2 million gross consideration, net of £27.5 million cash acquired.

The Group’s net debt is further increased by the £360.1 million book value of

SES Water’s net debt including fair value adjustments of c.£15 million at the

point of acquisition. In addition, £9.6 million of acquisition transaction costs

and costs associated with the CMA review have been recognised as non-

underlying operating costs and cash flows.

In connection with the acquisition, we completed an equity capital raise in

order to ensure we maintain financial discipline with the leverage and capital

structure for the Group. Proceeds from the equity raise, net of associated

expenses, were £175.7 million.

Other significant movements in net debt in 2023/24 include payment of our

interim and final dividends for 2022/23 (£111.7 million) and £46.8 million of

non-cash indexation on our loan instruments.

The Group’s IFRS net debt at 31

March 2024 was £3,809.2 million (31

March 2023 £2,965.4 million). This includes fair value adjustments on

acquired debt of £125.7 million which are released over the life of the related

debt instruments. The Group’s net debt position excluding these adjustments

is £3,683.5 million.

Sustainable net debt

Pennon Group – summarised net debt flow

(£m)

2023/24

flows

Net debt excluding fair value uplifts 1 April (2,841.4)

Opening balance 1 April (2,965.4)

Cash generated from operations 261.7

Corporation tax received 3.4

Net interest paid (109.1)

Capital investment (598.1)

SES acquisition, net of cash acquired

(62.7)

Debt acquired on acquisition including fair value

adjustments (360.1)

Proceeds from share issue 175.7

Ordinary dividends paid (111.7)

Non-cash index-linked accretion (46.8)

Other movements

3.9

Closing balance 31 March (3,809.2)

Net debt excluding fair value uplifts 31 March (3,683.5)

Robust liquidity and flexible funding strategy

As at 31

March 2024, the Group has £601.4 million of cash and committed

facilities. This consists of cash and cash deposits of £171 million (including

£26 million of restricted funds representing deposits with lessors against

future lease obligations) and £335 million of undrawn committed facilities.

Afurther £500 million has been raised since March 2024, providing the

Group with in excess of c.£1 billion of available liquidity, providing enough

funding to support its obligations for at least the next 18 months.

Since 31

March 2023, the Group has secured c.£675 million of new debt,

through its diverse portfolio of debt, consisting of:

• £475 million in private placements with an average maturity of 13 years

• £100 million of new term loans and leasing with an average maturity

of9years

• £100 million bilateral facility to support Group investments.

In addition, further pre-funding of £500 million has been secured.

The issuance of private placements signals the move to more benchmark-

sized transactions in both the private placement and public bond markets,

as the capital expenditure and ongoing refinancing continues. Our most

recent private placements were at least 4.5 times oversubscribed, showing

continued support for the Group.

This will see South West Water obtain two strong investment grade

credit ratings during 2024 and it plans to establish a EMTN

programme

to facilitate further public issuances and maintain our diverse financing

portfolio.

We look to raise all new and renewed facilities under our Sustainable

Financing Framework where possible with 82% achieved in 2023/24.

The Group took steps during the previous financial year to re-balance the

proportion of index-linked debt to align with previously maintained levels for

the longer-term. Whilst the current level is around 20% including SES Water

we expect this to increase in March 2025 as the swaps mature.

Resulting from the changes above and drawing of new debt during the year,

South West Water gross debt at 31

March 2024 was £3,323 million (31

March 2023 £2,918 million). The debt has a maturity of up to 33 years with

aweighted average maturity of 13 years.

1. Reflecting £90.2 million on acquisition of SES Water, offset by £27.5 million

cash acquired.

2. Includes unwind of fair value adjustments.

3. Carrying value of fair value acquisition adjustments to net debt as at 31

March

2024 – £32.8 million Bournemouth Water, £79.3 million Bristol Water and SES Water

£13.6 million.

4. Euro Medium Term Note.

51Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our CFO’s review continued

South West Water

net debt at 31

March 2024 is a mix of fixed / swapped

(£2,147 million, 65%), floating (£696 million, 21%) and index-linked borrowings

(£452 million, 14%), which reflects our diverse debt portfolio and compares

to an industry average

of fixed / swapped 40%, floating 7% and index-linked

53%. New debt raised during this regulatory period has been fixed to align

to iBoxx indices in line with Ofwat’s approach to allowed cost of debt. Where

appropriate, derivatives are used to fix the rate on floating ratedebt.

At 31

March 2024, South West Water’s net debt to RCV ratio

stood at 63.5%

(31

March 2023 60.8%). This is due to increased capital expenditure and

reduced operating cashflows.

South West Water’s cost of finance, with an effective interest rate in 2023/24

of 5.6%

, continues to benefit from the diverse portfolio of debt.

Strong investment grade gearing levels

As we progress through the remainder of K7, we expect the mix of our debt

portfolio to evolve. We are currently considering the most effective debt

structure to provide best value for our shareholders whilst maintaining

theflexibility to adjust to market challenges and to remain within our

treasury policy of at least 60% fixed rate debt throughout the current

regulatory period.

As the Group continues to grow through capital investment in our

infrastructure so will our funding requirements. In the coming years,

weexpect the Group to manage its portfolio with larger, and more diverse

debt instruments, taking advantage of the public ratings once established.

The Group plans to raise c.£500 million in new funding by March 2025

tocomplete the K7 business plan.

We will continue to maintain a diverse portfolio of debt to support flexibility

and growth opportunities. In the long term, this investment will provide

returns through K8 revenues and a higher RCV.

As we look to obtain strong investment grade credit ratings during the year,

a target gearing level of below 72% will need to be maintained and South

West Water remains well within the level.

As the year progresses, further clarity will be provided through the draft and

final determinations. The Group and Water business balance sheets will be

optimised post SES Water CMA clearance and the PR24 outcomes. The start

of the new PR24 business plans, in April 2025, will provide a point of re-set

and policy review.

Retaining value in the regulated business

In the first four years of K7, South West Water has created c.£820 million

of value for the Group from base returns, RORE outperformance and the

growth in RCV. The South West Water Board has taken a prudent approach

to its dividend payments in making distributions to Pennon Group and as

result c.£250 million has been distributed in K7 to date. This results in over

£500 million of retained value in South West Water, which the South West

Water Board will consider as K7 closes.

Internal borrowing

South West Water’s funding is treated for regulatory purposes as ring-fenced.

This means that funds raised by South West Water are not available for other

areas of the Group.

Bristol Water was transferred to South West Water in February 2023 and

all the debt is now managed on the South West Water standard covenant

package as unsecured and unrated.

Following its acquisition, SES Water continues to maintain its current Group

structure, which will be reviewed as part of the integration process.

Pennon Water Services funding is predominantly provided by Pennon. Pennon will

continue to use funds to support the Group’s ongoing operations as appropriate.

Taxation strategy

Transparency remains a critical component of our approach, recognising that

openness and honesty with our customers is essential. Optimising our tax

position benefits them, for example by keeping water bills down, but we do

not enter into artificial tax arrangements, use tax havens or take an aggressive

stance in the interpretation of tax legislation. As a long-term business with a

long-term approach to financial management, there have been no changes to

the Group’s overall tax strategy this year compared to last.

We continue to hold the Fair Tax Mark. Launched in 2014, the Fair

Tax Foundation’s purpose is to encourage and recognise businesses

through their Fair Tax Mark accreditation scheme. This is an independent

accreditation scheme for businesses paying their fair share of corporation

tax and reporting on their tax practices transparently. We have also inspired

other water companies to apply for the accreditation, thereby improving the

tax transparency of the sector in which we operate.

Under our tax strategy we:

• At all times, consider the Group’s corporate and social responsibilities in

relation to its tax affairs.

• Operate appropriate tax risk governance processes to ensure that the

policies are applied throughout the Group.

• Comply with our legal requirements, file all appropriate returns on time

and make all tax payments by the due date.

• Consider all taxes as part of ongoing decisions.

• Do not enter into artificial tax arrangements nor take an aggressive stance

in the interpretation of tax legislation.

• Do not undertake transactions that are outside the Group’s low-risk

appetite for tax or not in line with the Group’s Code of Conduct.

• Engage with HMRC in a proactive and transparent way and discuss our

interpretation of tax laws in real time, such interpretations following both

the letter and spirit of the laws.

1. Based on South West Water Group, including Bristol Water excl. SES.

2. UK water position as at 31

March 2023 as per published Annual Performance

Reports – weighted average.

3. Based on South West Water group including Bristol Water net debt/shadow RCV.

Index-linked: £452m

Floating: £696m

Fixed: £2,147m

£3,295m

TOTAL

South West Water Net Debt Structure (£m)

South West Water

£5,186m

£4,716m

£4,209m

£3,393m

£3,573m

2023202220212020 2024

South West Water RCV^

52 Annual Report and Accounts 2024 « Pennon Group plc

• Do not have any connections with tax havens unless it is necessary

forthepurposes of trading within those jurisdictions.

• As a long-term business with a long-term approach to financial

management, there have been no changes to the tax strategy which is

reviewed and reaffirmed on an annual basis.

Further details are given in the Group’s tax strategy report available on the

Pennon Group website www.pennon-group.co.uk

Tax contribution 2023/24 – borne/collected

The Group’s total tax contribution (TTC) for 2023/24 amounted to £100 million

(excluding £144 million of VAT receipts) (2022/23 £95 million excluding

£150 million of VAT receipts). TTC is a standardised measure ofagroup’s total

tax contribution, having been developed by PwC and the 100 Group (FTSE

100 Finance Directors). It is acknowledged as being a fair and comparable

representation of total tax cost.

TTC looks at taxes borne, and taxes collected. Taxes borne includes all taxes

which are a cost to the Group, such as business rates, corporation tax and

employers’ National Insurance contributions (NICs). Taxes collected and

recovered highlights where the business is collecting tax on behalf ofHMRC.

Employment taxes totalled £52 million (2022/23 £41 million) including employees’

Pay As You Earn (PAYE) and total NICs. The total amount of £52 million includes

PAYE of £5 million (2022/23 £4 million) on pension payments made by the Group

pension scheme. A net amount of £37 million (2022/23 £30 million) was collected

on behalf of the authorities for employee payroll taxes.

Business rates of £30 million (2022/23 £35 million) were paid to local

authorities. This is a direct cost to the Group and reduces profit before tax.

UK Corporation Tax receipts from HMRC in the year were £3 million (2022/23

£1 million payment) in relation to over-payments made in prior years. There

were no payments due in respect of 2023/24 as the Group has generated tax

losses in the year.

Payments to the Environment Agency and other regulatory bodies total

£20 million (2022/23 £17 million). This reduces profit before tax.

Fuel excise duty of £1 million (2022/23 £1 million) related to transport costs.

This reduces profit before tax.

VAT repayments of £144 million (2022/23 £150 million) have been received by

the Group from HMRC. VAT has no material impact on profit and is excluded

from the TTC figure to avoid distortions in this.

Contingencies

Ofwat and the Environment Agency (EA) announced an industry-wide

investigation into sewage treatment works on 18

November 2021. On 27

June 2022, as part of its ongoing investigation, Ofwat announced enforcement

action against South West Water Limited, the company is now included

alongside five other companies which received enforcement notices in

March 2022. The Group continues to work openly with Ofwat to comply with

the notice as part of this ongoing investigation. The Group has undertaken

its own internal investigation and investment interventions have been

undertaken at a small number of our sites. In addition, the Group has looked for

opportunities for additional future investment to include further storm storage

and an extension of its sewer misuse programme which has been shared

with Ofwat. Ofwat have yet to formally respond on the investigation and the

timing ofaresponse is unknown, although has been potentially indicated for

Summer2024.

Until such time that an initial response is received, the potential outcome of

these investigations continues to be unknown. Ofwat has a range of options

that it could apply from closing the investigation with no further action,

agreeing to formal S.19 undertakings through to fining the Group up to 10%

of its revenue in relation to the regulated wastewater business. Given the

wide range of possible outcomes therefore the potential outcome of this

investigation continues to be unknown, and it is not possible to estimate

anyobligations arising from the investigation with any certainty.

On 23

May 2023 Ofwat announced an investigation into South West Water's

2021/22 operational performance data relating to leakage and per capita

consumption. This operational performance data was reported in South

Employment taxes: £52m

Business rates: £30m

Corporation tax: £-3m

Environmental payments: £14m

Fuel excise duty: £1m

Other: £6m

£100m

TOTAL

West Water's Annual Performance Report 2021/22. This report is subject

to assurance processes which include independent checks and balances

carried out by an external technical auditor. The Group continues to work

openly and constructively with Ofwat to comply with the formal notice issued

to South West Water as part of this investigation. The Group has undertaken

its own internal investigation into the data and third party experts have

concluded the calculations are within a tolerance as reported, as a result

there were no detrimental impacts to customers through Outcome Delivery

Incentives (‘ODIs’). The Group recognises opportunities to enhance data

quality to improve the estimation process and these have been shared

withOfwat.

Until such time that an initial response is received, the potential outcome of

these investigations continues to be unknown. Ofwat has a range of options

that it could apply from closing the investigation with no further action,

agreeing to formal S.19 undertakings through to fining the Group up to 10%

of its revenue in relation to the regulated drinking water business. Given the

wide range of possible outcomes therefore the potential outcome of this

investigation continues to be unknown, and it is not possible to estimate any

obligations arising from the investigation with any certainty.

Pensions

At 31

March 2024, the overall surplus on retirement obligations of

£26.6 million compares to a surplus of £29.3 million at 31

March 2023.

The small reduction in the overall Group surplus in 2023/24 of c.£3 million reflects:

• c. £8 million net reduction in surplus of the Group’s principal pension

scheme, Pennon Group Pension Scheme (PGPS), recognised in other

comprehensive income, reflecting adverse experience losses on deferred

revaluation and pension increases, offset by favourable movements in

gains in demographic assumptions.

• c. £3 million recognition of net pension surplus acquired with SES Water.

• c. £2 million increase on Bristol Water scheme surplus arising from change

in income tax rate which is applied to restrict the surplus recognised.

The triennial valuation of PGPS as at 31

March 2022 was finalised in March

2023 and no deficit recovery contributions were required. The ongoing funding

requirements for the Company to the scheme are limited to the continuing

administration expenses.

The Group pension surplus includes a net surplus of c.£9 million (31

March

2023: c.£7 million) relating to the Bristol Water Section of the Water Companies

Pension Scheme (WCPS). The gross surplus remains largely unchanged as the

liabilities of the scheme are fully insured through a bulk annuity policy. The net

surplus has increased as the tax rate on the restriction applied to the surplus

under UK tax legislation has reduced from 35% to 25%. The trustee of WCPS

Total Tax Contribution

53Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

continues to work through the process to wind up the Bristol Water section of

WCPS and has indicated its intention to return the surplus to the Company.

The net surplus recognised from the SES Water acquisition reflects the surplus in

the SES Water section of WCPS. The trustee of WCPS has recently fully insured

the liabilities of the scheme through a bulk annuity policy. The surplus has been

restricted for income tax, consistent with the Bristol Water scheme.

Dividends

The Group continues to strive to deliver on its commitments to customers,

shareholders and stakeholders as our investments drive strong and

sustainable results. Around 50% of Pennon’s shareholders are UK-based

investors including individuals, pension funds, and charities. Over a third of

the Group’s c.3,500 employees (excluding SES Water) are shareholders and

following the second issuance of our unique WaterShare+ initiative, around

90,000 customers are now also shareholders.

Pennon’s 2020-2025 dividend policy of growth of CPIH +2% reflects the

Board’s ongoing confidence in the Group’s strategy and is underpinned by

continued RORE outperformance in South West Water.

The Board has recommended a final dividend of 30.33 pence per share for

the year ended 31

March 2024. Together with the interim dividend of 14.04

pence per share paid on 5

April 2024 this gives a total dividend for the year

of 44.37 pence. This represents an increase of 3.84% on 2022/23 which is per

our policy (March 2024 CPIH + 2%) with a 1.96% reduction for the £2.4 million

fine from the Environment Agency. Pennon offers shareholders the

opportunity to invest their dividend in a Dividend Reinvestment Plan (DRIP).

The proposed dividends totalling £126.9 million are covered 2.7 times by

underlying EBITDA (2022/23 2.8 times). Pennon Group plc has substantial

retained earnings and a sustainable balance sheet to support its stated

dividend policy. The strong fundamentals of its principal operating subsidiary,

South West Water Limited, underpin this policy with its strong RORE and

growing RCV. Dividends are charged against retained earnings in the year

inwhich they are paid.

Investing for sustainable growth – renewable energy

generation

In line with both our long-term sustainable growth strategy in UK

environmental infrastructure and our commitment to deliver Net Zero

by 2030, we have committed c.£145 million for investment in renewable

energy generation. This strategy will also benefit the Group by reducing

our exposure to future volatility in wholesale power markets and will deliver

attractive and sustainable financial returns.

Pennon Power, a wholly owned subsidiary to Pennon Group plc, has acquired

the rights to build four solar farms, one of which includes a co-located

battery storage asset in the UK. Specifically these investments include:

• A co-located solar (45 MWp) and battery storage (60 MWh) site in Fife, acquired

in May 2023. This is a ready to build site, with consents in place, with total build

costs expected to be c.£60 million. Solar generation is expected to be c.39 GWh

commencing at the end of next financial year 2024/25.

• A further three sites, located in Aberdeenshire, Cumbria and Buckinghamshire,

acquired in July 2023. These sites, with total anticipated build costs of

c.£85 million, are expected to provide a further 98.5MWp of generation capacity,

generating c.96 GWh and are targeted to be operational during 2025 and first

half of 2026.

Of this overall commitment, we have incurred total costs of c.£59 million for

the acquisition of these sites and construction costs to date on our first project

at Fife. This is expected to commence energy generation late in financial year

2024/25. Aberdeenshire and Cumbria sites will enter construction during late

summer 2024 and Buckinghamshire in 2025. The financial contribution will

accelerate in financial year 2025/26 and all four sites will generate income

during 2026/27.

Return on Regulated Equity^

During K7 to date we have continued to deliver South West Water group

RORE performance (excluding SES Water) of 7.3% cumulatively, equating

toc.£160 million of outperformance. This consists of c.£255 million financing

outperformance, net of c.£60 million totex^ overspend, and c.£35 million

ODI net penalty impact. This has enabled the funding of additional capital

investment initiatives as noted above.

The cumulative benefits from the structure of our debt book on financing

costs persist, but have reduced due to the impact of falling inflation. Totex

performance has been impacted in year due to peak levels of capital

expenditure following past outperformance.

ODI performance across the South West Water group in 2023/24 has been

impacted by the extreme weather events, including heavy rainfall through to

March 2024. As a consequence, South West Water has incurred a penalty of

c. £12.1m

(FY2022/23: penalty c. £4.2m). South West Water continues to build

on its ODI performance with c.70% either on track or ahead of target

across

abroad range of challenging bespoke, common, and comparative measures.

This performance will contribute to the potential ODI award at the end of K7.

ODI performance for Bristol Water is on track to achieve c. 70% of its ODIs and

has resulted in a net financial penalty of c. £1.7m

(FY2022/23: penalty of c. £5.9m).

Financial outlook

Looking to 2024/25, we expect overall organic revenue growth with the

combined impact of inflation on our 2024/25 tariffs (net of the year on year

impact of regulatory adjustments and ODI penalties) and ongoing expected

growth in our non-household retail business. The full year impact of trading

at SES Water will improve this further.

Overall, we expect total operating costs in South West Water to be broadly

flat compared to 2023/24 levels. Total power costs

in 2023/24 were

£110 million (wholesale costs £73 million, non-commodity costs £37 million).

Whilst wholesale power cost levels are falling, we anticipate a more modest

improvement in our overall power costs as the impact of hedging over the

last two years continues to unwind. These expected reductions coupled

with other efficiencies from our transformation programmes will be largely

offset by normal inflationary pressures on other input costs. In particular we

continue to recognise the pressures of the cost of living on our colleagues

and pay increases of c.4% have been agreed. Total Group operating costs will

increase overall, with growth in the non-household retail business outside our

region increasing wholesale water costs, and the impact of an additional nine

months of trading at SES Water.

Further increases in depreciation are expected as a result of our capital

investment programme and the full year impact of SES Water.

Increased debt levels to support our capital investment profile are expected

to result in an overall increase in net finance costs. The total Group net

finance costs are also expected to increase with the full year impact of SES.

Overall capital expenditure is expected to reduce in 2024/25. In South West

Water, following the peak in 2023/24, we expect overall capital expenditure of

c.£930 million in the last two years of K7. However we will continue to assess

the benefits of early start expenditure for K8. The build-out of our Pennon

Power renewable energy sites will continue. The full year impact of SES

Water will represent a small increase in our overall capital expenditure.

We remain in a strong position from a liquidity perspective with additional

facilities already raised in the early part of the year, and with further

programmes planned, supported by our plan to have two strong public

ratings by the end of the year.

The Group’s RCV is expected to increase in line with K7 business plan

levels of investment in addition to additional and accelerated investment,

regulatory true-ups ad inflationary impacts. SES Water’s RCV at 31

March

2024 was c.£0.4 billion.

Steve Buck

Group Chief Financial Officer

May 2024

Our CFO’s review continued

1. On track or ahead of target, or within regulatory tolerances (deadband).

2. All guidance measured on an underlying basis.

3. Excludes impact of Per Capita Consumption, as under review by Ofwat

4. Based on current market pricing and current hedged position of c.85% for 2024/25

and c.30% for 2025/26

54 Annual Report and Accounts 2024 « Pennon Group plc

Our risk management

The Group operates within a complex and evolving risk

environment which includes responding to changing Government

policy, multipleregulatory frameworks and increasing customer

andsocietal expectations.

the context of the Group’s strategic priorities and the external environment

within which the Group operates.

The consideration of these risks and the effectiveness of their management

against the desired risk appetite is informed by, and reviewed against

other data points including; key performance metrics, operational

insights, theoutcome of assurance activities and broader geopolitical and

economicdevelopments.

This is underpinned by an established risk management framework which

forms part of our governance structure and is embedded into our processes,

culture and ways of working ensuring that there is robust identification,

review, challenge and assurance over the management of both our current

and emerging risks and opportunities.

The long-term success of the Group is dependent on the effective

management of risks and opportunities and remains a key focus for the

Pennon Board andExecutive.

The Group’s risk management framework considers risk from both a strategic

(top down) and tactical (bottom up) perspective. This enables a common

understanding of risks and opportunities and their interdependencies,

allows risks and opportunities to be cascaded and escalated effectively

andprovides amulti-layered approach to the review and challenge of risk.

Pennon’s risk management framework

Principal and emerging risks are regularly reviewed by both the Pennon

Board and the Pennon Executive throughout the year and are considered in

Operational Risk and Assurance Steering Group

Risk Management Responsibilities

• Review of highest priority tactical risks within the Water

relatedactivities.

• Perform horizon scanning of emerging tactical risks.

• Share innovation and encourage collaboration in the management

of common risk themes.

• Operate as a conduit for the escalation of risks.

Key Assurance Activities

• Ensuring the completion of actions to mitigate risks identified.

Pennon Executive Committee

Risk Management Responsibilities

• Ensuring the operation of the Group’s risk management

andinternal control frameworks.

• Quarterly review of the Group’s principal risks and mitigation

strategies.

• Review of significant bottom-up tactical risks.

• Provides challenge to individual functional areas over the

management of their risks.

• Horizon scanning to identify emerging risks and opportunities.

Oversight

Pennon Board

Risk Management Responsibilities

• Sets the Group’s strategic objectives.

• Establishes the Group’s risk appetite.

• Determines the Group’s principal risks.

• Ensures an effective internal control framework.

Key Assurance Activities

• Quarterly review of the Group’s principal risks against the

determined risk appetite.

• Quarterly review of emerging risks and horizon scanning.

Audit Committee

Risk Management Responsibilities

• Reviews the effectiveness of the Group’s risk management

andinternal control frameworks.

Key Assurance Activities

• Performs regular deep-dive reviews on principal risks.

• Ensures an appropriate level of assurance coverage over the

Group’s principal risks.

• Approves the risk-based Group Internal Audit Plan.

• Receives reports on the outcomes of key assurance activities.

Second line

Group Internal Audit

Risk Management Responsibilities

• Provides independent, risk-based assurance on the effectiveness

ofthe internal control framework.

• Coordination of independent assurance activities.

Key Assurance Activities

• Quarterly reporting to Audit Committee and Pennon Executive

on the effectiveness of internal controls and the outcomes of key

assurance activities.

Operational Risk Management

Risk Management Responsibilities

• Identification, evaluation and monitoring of strategic

andtacticalrisks.

• Maintaining robust internal controls to mitigate key risks.

• Monitoring compliance with internal control framework.

Key Assurance Activities

• Ensure robust first line assurance across key business processes

• Annual self-assessment and certification of compliance.

Third line

First line

55Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our risk management continued

Risk appetite

and identification

Risk

assessment

Risk monitoring

and reporting

Risk

mitigation

A B C D

Risks Matrix

Likelihood

Impact Impact

Opportunity Matrix

Key: Likelihood of risk occurring over 5 year period

1. Rare 2. Unlikely 3. Possible 4. Probable

Only in

extreme

circumstances

Less than

evenchance

Even chance Above average

Key: Financial Impact (over 5 years)

A. Minor B. Moderate C. Major D. Severe

<2% Profit

AfterTax

2-5% Profit After

Tax

5-7.5% Profit

After Tax

>7.5% Profit

AfterTax

A consistent methodology is applied when assessing the Group’s risks and

opportunities (including climate-related risks and opportunities), which

considers both the likelihood of a risk occurring and its potential impact.

Risk impact is assessed across various financial and non-financial categories

including: financial, safety, environmental, stakeholder and customer impact,

reputation, sustainability, and quality. Likelihood is defined as the probability

of a risk event occurring over the next five years under four categories

(probable, possible, unlikely or rare) with defined probability thresholds.

Risks are assessed on both a ‘gross’ (without the consideration of existing

control measures) and ‘net’ (with consideration of existing control measures)

basis enabling the effectiveness of control measures to be assessed and

assured. The combined impact and likelihood determines the overall Red,

Amber, Green (RAG) risk rating which is assessed against the relevant risk

appetite to determine and prioritise further action.

Environmental, social and governance risk management

Our purpose and values recognise the broader societal role that the

Group plays within the regions and communities it serves. Consequently

environmental, social and governance (ESG) considerations are at the

heart of the Group’s activities and how we operate as a responsible

business. Theidentification, assessment and management of ESG risks

and opportunities is integrated into the Group’s overall risk management

framework and methodology. The delivery of ESG metrics and targets, and

the associated risks and opportunities, are monitored thorough the ESG

framework by the ESG Committee. Further detail is provided on page 144.

As the owner of a water and wastewater company, the Group acknowledges

the fundamental impact that climate change has on the Group’s strategy

andpriorities and is considered to be pervasive across the Group’s principal

risk profile. The assessment of the individual principal risks, as detailed

within the table below, has included the consideration of both physical and

transitional climate change influences, where relevant, and the mitigating

actions being taken.

Further detail on the specific physical and transitional climate change risks

and opportunities relevant to the Group, along with mitigating actions being

taken, are detailed further within TCFD on pages 78 to 110.

South West Water technical (non-financial) data

In addition to the risk management framework detailed above which

applies across the Group, recognising the importance of the regulatory ODI

framework, South West Water engages independent, third-party auditors

to audit the accuracy of the technical (non-financial) data reported within

the various annual performance reports and regulatory publications and

submissions, including its performance commitments and environmental

data. Furthermore, a third party provider, DNV, has also performed additional

assurance work over selected sustainability measures.

Continuous improvements to risk management

andinternal control

The Group is committed to continuously improving its ability to identify

and respond to current and emerging risks. Examples of risk management

improvements during the year include:

• The Group’s confidential Speak Up process has been reviewed and

furtherenhanced.

• A dedicated second line function has been established focused on

environmental permit assurance across the Group’s water and wastewater

sites, providing an additional layer of assurance in this area.

• South West Water has successfully achieved external ISO45001

accreditation of its Occupational Health and Safety Management System.

• The formation of the Operational Risk and Assurance Steering Group

has enhanced the bottom up process through the collective review

and discussion of key tactical risks, enabling greater collaboration

andinnovation.

Sutton and East Surrey (SES Water) Risk Management

Framework

Following the acquisition of Sutton and East Surrey Water (SES Water) plc

on 10

January 2024, the transaction is currently subject to review by the

Competition and Market’s Authority. In line with the requirements of the

CMA’s Initial Enforcement Order (IEO) SES Water has continued to operate

separately from the wider Pennon Group.

Throughout 2023/24 SES Water has continued to operate their established

risk management framework and processes to identify, manage and mitigate

risks. This has included regular review of the SES Water principal and emerging

risks and mitigation strategies by the Executive Management Team and twice

a year principal risks are reviewed by the Audit Committee who report to the

SES Water Board. SES Water will continue to separately operate their risk

management processes until such a time that regulatory approval is received.

56 Annual Report and Accounts 2024 « Pennon Group plc

Management of South West Water within the Group’s

risk management framework

Pennon manages its risks in such a way that South West Water, as

a regulated company, is protected from risk elsewhere in the Group.

TheGroup’s principal risks and uncertainties include those Group-level

risksthat could materially impact on South West Water.

Pennon’s risk management and internal control frameworks ensure that

it does not take any action that would cause South West Water to breach

its licence obligations. Further, the Group’s governance and management

structures mean that there is full understanding and consideration of

South West Water’s duties and obligations under its respective licences,

aswell asan appropriate level of information sharing and disclosure to give

South West Water assurance that it is not exposed as a result of activities

elsewhere within the Group.

Horizon scanning

Emerging risks and opportunities are considered to be factors or events

which could have a future impact on the achievement of the Group’s

strategic priorities, but lack the required clarity or certainty in order to

adequately assess their impact. Horizon scanning of emerging risks and

opportunities is embedded within the risk management process.

Emerging risks are reviewed by the Pennon Executive and Pennon Board as

part of their regular assessment of the Group’s risk profile. Notable emerging

risks and opportunities are detailed within the table below:

Risk appetite

There are inherent risks that exist within the water sector and all risk cannot

be completely eliminated in the delivery of the Group’s activities. The Group

therefore seeks to strike an appropriate balance between risk and reward

which aligns not only with the Group’s strategic priorities but also its purpose

and values.

Recognising that it is not possible to apply a single risk appetite to all risks

that the Group is exposed to, the Board has developed overarching risk

appetite statements foreach risk category which then informs the risk

appetite statement for individual principal risks.

This allows the business to pursue value-enhancing opportunities, while

maintaining an overall level of risk exposure that the Board considers to

beappropriate.

The risk appetite statement for each risk category is detailed below:

Geopolitical Tensions

Comment Risk category Time horizon

Increased escalation of conflict in the

Middle East combined with the ongoing

war in Ukraine could further impact the

global economy, heighten energy resilience

risks and disrupt key supply chains such

as chemicals.

• Market and

Economic

Conditions

• Short-

Medium

term

Artificial intelligence and machine learning

Comment Risk category Time horizon

There is a risk that automated intelligence

and learning deployed within operational

processes develops faster than

Government regulations and standards.

• Operating

performance

• Long term

Quality of water resources

Comment Risk category Time horizon

Changes in regulatory requirements over

the treatment of micro-plastics, micro-

pollutants and ‘forever chemicals’ (e.g.

PFAS) as a result of ongoing research may

require significant changes in operational

processes in the water treatment process.

• Operating

performance

• Business

Systems

and Capital

Investment

• Medium-

Long term

Changes to demographics within the areas that

weserve

Comment Risk category Time horizon

Increases in population migration to the

South West due to climate change and

an increasingly aging population could

place greater demand on our resources

and assets.

• Operating

performance

• Long term

Law, regulation and finance

Risk Appetite

The Board is committed to complying fully with, and being seen to be complying

with, all relevant laws, regulations and obligations and has no appetite for non-

compliance in this area. This includes, but is not limited to, environmental and

health and safety laws and regulations.

The Group also operates a low risk appetite in respect of our financing strategy,

ensuring our long-term financing commitments are met.

The Board acknowledges, however, that the Group operates in a complex

environment influenced by Government and regulatory policy. Consequently,

there is a greater risk appetite in these areas whilst seeking to mitigate any

potential downside and leverage opportunities that may arise from Government

policy and regulatory change.

Market and Economic Conditions

Risk Appetite

The Board recognises that the Group’s activities are exposed to changes in

macroeconomic and external market conditions. The Group seeks to take well-

judged and informed decisions to mitigate these risks where possible but accepts

that a level of residual risk may remain beyond the Board’s control.

Operating performance

Risk Appetite

Whilst the Board recognises that unforeseen events do occur from time to time,

the Board has no appetite for significant operational failure of our water and

wastewater assets and seeks to reduce both the likelihood and impact through

long-term planning and careful management of our operational assets.

There is greater appetite for well-informed risk taking to develop further markets,

subject to this not detrimentally impacting on the level of service expected of our

regulators, customers and wider stakeholders.

Business Systems and Capital Investment

Risk Appetite

The Board has a low risk appetite for risk associated with the delivery of capital

investment within our regulated business plan.

There is greater appetite for broader value accretive investments with risk

weighted against the expected level of return on a case-by-case basis and

subject to this not detrimentally impacting on the level of service expected of our

regulators, customers and wider stakeholders within our core water business.

The Group seeks to minimise technology and security risk to the lowest possible

level without detrimentally impacting on the Group’s operations.

57Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Our risk management continued

Principal risks and uncertainties

During the year the Board has carried out a detailed review of the Group’s principal risks in the context of the Group’s strategic objectives and priorities as well

as the external environment within which it operates. This has included:

• Confirming that the Group’s risk appetite statements remain appropriate.

• Receiving and reviewing updates on the Group’s principal risks, including movements in the risk exposure.

• Undertaking horizon scanning of emerging risks and trends.

• Performing deep dive reviews into key risk areas.

• Through the Audit Committee, confirmed the effectiveness of the risk management and internal control framework.

This has resulted in the following material changes to the Group’s principal risks compared with those previously reported:

• The water resources and operational water treatment risks have been combined into a single drinking water principal risk, reflecting the interconnectivity

ofthese individual elements.

• Delivery of the Group’s net zero programme has been removed as a standalone principal risk and instead reflected within the delivery of the Group’s broader

environmental commitments and associated risks.

• A new principal risk has been established reflecting the ongoing CMA process over the SES Water acquisition.

These principal risks have also been considered in preparing the viability statement on page 65.

58 Annual Report and Accounts 2024 « Pennon Group plc58 Annual Report and Accounts 2024 « Pennon Group plc

Overview of Pennon’s principal risk profile

The chart below summarises the net risk assessment of the Group’s Principal risks relevant to the risk categories.

Category Reference Strategic priorities Risk description

Net risk/

Direction

of travel

Law. Regulation

and finance

1, 2, 3, 4

Changes in Government policy

1, 2, 3, 4

Changes in regulatory frameworks and requirements

1, 2, 3, 4

Non-compliance with laws and regulations

1, 2, 3, 4

Inability to secure sufficient finance and funding, within our debt covenants,

tomeet ongoing commitments

1, 2

Non-compliance or occurrence of an avoidable health and safety incident

Failure to pay all pension obligations as they fall due and increased costs

totheGroup should the defined benefit pension scheme deficit increase

Market and

economic conditions

3, 4

Macroeconomic near term risks impacting on inflation, interest rates and

powerprices

Operating

performance

Failure to secure, treat and supply clean drinking water

1, 3

Failure to improve wastewater performance resulting in environmental

commitments not being delivered

Failure to provide excellent service or meet the needs and expectations of our

customers and communities

1, 2, 3, 4

Difficulty in recruiting and retaining staff with the skills required to deliver the

Group’s strategy

Business systems and

capital investment

1, 2, 3

Insufficient capacity and resilience of the supply chain to support the delivery

of the Group’s operational and capital programmes in K8

1, 2, 4

Inadequate technological security results in a breach of the Group’s assets,

systems and data

Failure to receive CMA approval for the acquisition of SES Water

Key for pages 59 to 64 – Strategic priorities

Water Quality and Resilience

Storm Overflows and pollutions

Net Zero and Environmental gains

Addressing affordability and delivering for our customers

Net risk level

High

Medium

Low

Direction of travel

Increasing

Stable

Decreasing

Climate change and nature-based impacts

Transitional climate change/nature based influence

Physical climate change/nature based influence

59Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Law regulation and finance

Principal risk

Changes in

Governmentpolicy

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Changes in Government

policy and direction may

fundamentally impact

our ability to deliver the

Group’s strategic priorities,

impacting shareholder

value.

Mitigation

There remains a significant focus on the water sector across all political parties

ahead of a General Election which is expected to take place later in 2024.

We actively engage and respond to policy consultations and the Group regularly

engages with a MPs and other political stakeholders, both directly and via Water

UK. This includes highlighting the impact that our proposed capital investment

of £2.8bn in the next regulatory period will have on our operational performance

as well as our wider contribution to society and the economy.

Additionally, horizon scanning of emerging changes in Government policy,

including climate change related policies, is regularly undertaken to monitor

andassess the potential direct or indirect impact on the Group.

Appetite

We recognise that Government policy evolves which presents both risks and

opportunities. The Group seeks to minimise the potential risks and maximise

opportunities through regular engagement and robust scenario planning.

Net risk/

Direction

of travel

Principal risk

Changes in regulatory

frameworks and

requirements

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Changes to regulatory

frameworks may impact

on the deliverability and

affordability of the Group’s

priorities, which can impact

shareholder value.

Mitigation

South West Water has an established and experienced regulatory function.

Arobust governance framework remains in place over the PR24 business plan.

Following the submission of South West Water’s business plan in October

2023, South West Water has been working proactively with Ofwat and other

regulators as part of Ofwat’s standard review process.

A significant degree of uncertainty will remain until such time that Ofwat

confirms their Draft Determination, particularly whether the levels of funding

approved will be sufficient enable the significant levels of investment set out

within the business plan.

Appetite

We accept that regulatory frameworks evolve which creates both risks and

opportunities. We seek to minimise the potential risks by targeting changes

which are NPV neutral over the longer-term to protect customer affordability

and shareholder value.

Net risk/

Direction

of travel

Principal risk

Non-compliance with

lawsand regulations

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

T P

Nature related influence

T P

The Group is required

to comply with a range

of regulated and non-

regulated laws and

regulations across

our businesses. Non-

compliance with one or

a number of these may

result in financial penalties

negative impact on our

ability to operate effectively

and reputational damage to

the Group.

Mitigation

The Group operates within robust and mature frameworks, which includes

second line compliance functions, ensuring compliance with permit and

other requirements of Ofwat, the Environment Agency and other relevant

regulators. These frameworks are regularly reviewed and assured to ensure the

Group remains compliant with the increasingly complex legal and regulatory

landscape. The control framework has been further enhanced during the year

with the creation of a dedicated internal Environmental Permit Assurance Team.

The Group also maintains a comprehensive internal framework, overseen by the

Legal Compliance function, to ensure compliance with corporate laws applicable

to public limited companies, reinforced through key policies approved by the

Pennon Board and compliance training provided to staff.

The Group operates a confidential whistleblowing process which has been

comprehensively reviewed during the year. This is overseen by the Executive-

led Ethics Management Committee.

There remains an increased appetite amongst regulators for pursuing

enforcement action for perceived non-compliance with industry-wide

investigations of wastewater treatment works permit compliance ongoing.

Appetite

The Group maintains the highest standards of compliance and has no appetite

for legal or regulatory breaches.

Net risk/

Direction

of travel

Our risk management continued

60 Annual Report and Accounts 2024 « Pennon Group plc

Law regulation and finance

Principal risk

Inability to secure

sufficient finance and

funding, within our debt

covenants, to meet

ongoing commitments

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

T P

Nature related influence

T P

Failure to maintain funding

requirements could lead

to additional financing

costs and put our growth

agenda at risk. Breach of

covenants could result in

the requirement to repay

certain debt.

Mitigation

The Group has well established treasury, funding and cash flow arrangements

inplace, underpinned by a Treasury Management Policy endorsed by the

Pennon Board.

The Group’s financing commitments and cash flow, funding and covenant

compliance is regularly reviewed by the Pennon Executive and Pennon Board.

Since March 2023 over £700m has been secured through the Group’s

Sustainable Financing Framework.

The Group retains £601.4m of cash and committed facilities as at 31

March2024.

Appetite

The Group operates a prudent approach to our financing strategy, maintaining

an appropriate mix of cash and pre-funding facilities, to ensure our funding

requirements are fully met.

Net risk/

Direction

of travel

Principal risk

Non-compliance or

occurrence of an

avoidable health and

safety incident

Strategic impact

Strategic priorities

1, 2

Climate change influence

Nature related influence

A significant health and

safety event could result

in financial penalties,

significant legal costs and

damage to the Group’s

reputation.

Mitigation

The Group has continued to deliver and embed the 2025 Homesafe strategy.

Established health and safety training, procedures and reporting systems are

complimented with site based investment, regular site visits by senior staff,

initiatives such as Site Pride and Homesafe Live as well a regular programme

ofwellbeing events.

Health and safety performance is monitored by the Pennon Executive and

therespective Board and Executive Health and Safety Committees.

During the year South West Water successfully achieved ISO45001

accreditation of its Occupational Health and Safety Management System and

the Group achieved its best ever health and safety performance with 15 LTIs

during the year – a reduction of 46% on the prior year.

Appetite

The Group has no appetite for health and safety related incidents and

maintainsthe highest standards of compliance for our staff, contractors and

other third parties.

Net risk/

Direction

of travel

Principal risk

Failure to pay all pension

obligations as they fall

due and increased costs

to the Group should the

defined benefit pension

scheme deficit increase

Strategic impact

Strategic priorities

Climate change influence

n/a

Nature related influence

n/a

The Group could be called

upon to increase funding

to reduce the deficit,

impacting our cost base.

Mitigation

The Group has in-house pensions expertise supplemented by external

specialists, including professional advisors who manage the scheme’s

investment strategy.

The Pennon Group Pension Scheme is overseen by an independent Board

ofTrustees.

The liabilities of the Bristol Water Section of the Water Companies Pension

Scheme are fully insured through a bulk annuity policy.

As at 31

March 2024 the Group’s pension schemes remain in surplus of

£26.6m. The triennial valuation of PGPS at 31

March 2022 did not require any

deficit recovery contributions.

Appetite

The Group will ensure that all obligations are met in full but seeks to manage

this without unnecessary costs to the Group.

Net risk/

Direction

of travel

61Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Market and economic conditions

Principal risk

Macroeconomic near

term risks impacting on

inflation, interest rates

and power prices

Strategic impact

Strategic priorities

3, 4

Climate change influence

Nature related influence

Significant changes in

inflation, interest rates and

power prices could increase

the Group’s near term cost

base.

Mitigation

The macroeconomic volatility has eased during the year with power prices and

inflation softening. With ongoing global conflicts the potential remains for this

position to change.

The Group maintains a manageable debt maturity profile and diverse funding

mix with c. 15% index linked which is continuously monitored. Additionally,

asignificant proportion of the Group’s power prices has been hedged for the

next 12 months in line with defined levels.

The Group’s in-house procurement function drives value within strategic

contracts and consumables through competitive sourcing and tendering

processes.

Long-term protection from an increasing inflationary environment is provided

through regulatory mechanisms with inflation linked revenues and RCV growth,

along with regulatory true-ups.

Appetite

The Group seeks to de-risk volatility by having set proportions of inflation

linked debt, fixed interest, and power prices. These are implemented over time

to avoid concentrated exposure to one particular cycle of the macroeconomic

environment. The macroeconomic environment sets the financial background

for performance and 5 yearly regulatory reviews provide a natural long-term

mitigation.

Net risk/

Direction

of travel

Operating Performance

Principal risk

Failure to secure, treat

and supply clean drinking

water

Strategic impact

Strategic priorities

Climate change influence

T P

Nature related influence

T P

An inability to secure,

produce or supply clean

drinking water could result

in financial penalties,

regulatory enforcement

and damage to the Group’s

reputation.

Mitigation

The Group continues to diversify its water resource capacity and the resilience

of our network and assets, informed by key plans including Water Resources

Management Plan and drought plans. As a result of this investment and higher

rainfall no water restrictions are anticipated for 2024. Furthermore, delivery of

phase 1 of the desalination project is expected during 2024/25, enabling more

time to develop the application for a larger desalination plant.

During the year we have extended our ‘Quality First’ continuous improvement

culture and training programme to our Bristol colleagues.

Asset health is managed through a well-established programme of routine

planned and preventative maintenance works with asset and network

performance managed by the 24/7 Control Centre.

Where such events do occur, these are managed through established incident

management procedures and utilises the Group’s supply chain partners.

Appetite

The Group operates a low tolerance for significant operational failure of its

water treatment assets or quality of water produced and seeks to mitigate these

risks where possible.

Net risk/

Direction

of travel

Principal risk

Failure to improve

wastewater performance

resulting in environmental

commitments not being

delivered

Strategic impact

Strategic priorities

2, 3

Climate change influence

T P

Nature related influence

T P

An inability to improve

waste wastewater

could result in adverse

environment impacts,

financial penalties,

regulatory enforcement

and damage to the Group’s

reputation.

Mitigation

Minimising the impact of our activities on the environment remains a strategic

priority for the Pennon Board and Executive.

The Group continues to make progress in delivering environmental

improvements through the WaterFit programme which combines enhanced

processes, targeted capital investment and proactive asset maintenance.

Robust governance structures also ensure there is regular reporting on

pollution, storm overflow and numeric compliance activities.

Despite this progress the significant increase in rainfall and named storms

during the second half of the year have increased wastewater flows and

impacted headline performance for pollutions and use of storm overflows.

Appetite

The Group operates a low tolerance for significant operational failure of

its wastewater processes and assets and maintains the highest level of

environmental standards.

Net risk/

Direction

of travel

Our risk management continued

62 Annual Report and Accounts 2024 « Pennon Group plc

Operating Performance

Principal risk

Failure to provide

excellent service

or meet the needs

and expectations of

our customers and

communities

Strategic impact

Strategic priorities

Climate change influence

T P

Nature related influence

T P

Failure to meet the needs of

both customers and wider

stakeholders may result

in reputational damage

to the Group and lower

performance resulting

in financial penalties

impacting on shareholder

value.

Mitigation

The Group continues to enhance and invest in its customer services teams,

expanding the channels by which it can interact with and support house-hold

and business customers.

The Group offers a range of schemes and tariffs to support customers with

affordability challenges. Additionally, from April 2024 the Smart Saver tariff

trialoffers customers water rates reflecting their level of consumption.

During the year both South West and Bristol Water successfully achieved

kitemark certification to the vulnerable customer ISO22458 standard.

The Group also undertakes a range of initiatives to engage with the wider

communities it serves including community road-show events, Neighbourhood

Fund and funding to support water retention and leakage reduction.

Whilst Bristol Water’s regulatory customer service metric was positive, further

improvement is required for South West Water. Both Pennon Water Services

and Water2Business continue to maintain high customer satisfaction scores,

with ratings 4.8 and 4.9 out of 5 respectively on Trustpilot.

Appetite

The Group continually seeks to engage with and improve satisfaction levels

amongst customers and wider stakeholders.

Net risk/

Direction

of travel

Principal risk

Difficulty in recruiting and

retaining staff with the

skills required to deliver

the Group’s strategy

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Failure to maintain a

workforce of skilled and

motivated individuals will

detrimentally impact all of

our strategic priorities. We

need the right people in the

right places to innovate,

share best practice, deliver

synergies and move the

Group forward.

Mitigation

The demands for high quality skills and expertise across the Group remains

high, which mirrors the national and regional skills demands for our industry.

The Group’s People strategy, aligned to the new Group Values, enables the

Group to attract, retain and develop our employees as well as recognising the

significant contribution that our people make in delivering for our customers

and communities every day. The key areas of focus during the year have been

on supporting our customers and colleagues during the cost-of-living crisis,

reallocating resources to align with customer and business priorities and

building capacity to manage a growing capital programme.

We regularly engage with our employees, both individually and in groups across

multiple communication methods, to really understand their issues, concerns

and obtain feedback. We undertake employee pulse surveys throughout

the year, conduct Big Chat’s for all employees to hear from our Executive

most weeks, have an Employee Engagement Forum attended by functional

representatives, provide employee newsletters sharing topical updates and

have an employee collaboration platform via Viva Engage. These are all in

addition to the countless team meeting, breakfast meetings and toolbox talks

which take place every day across the company, to share updates and gather

employee feedback.

We have continued to develop a diverse and inclusive talent pipeline and have

doubled our long-term commitments with enhanced recruitment targets for

graduates and apprentices through to 2030 and continued prioritisation of our

diversity and inclusion agenda.

The Group continues to invest in leadership development with two leadership

programmes rolled out across the business helping current and prospective

senior leaders develop key skills and mindsets.

Appetite

We ensure the appropriate skills, knowledge and experience are in place, which

combined with our Reward Strategy and robust succession plans provide

adequate resilience to keep employee turnover at a minimum.

Net risk/

Direction

of travel

63Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Business systems and capital investment

Principal risk

Insufficient capacity and

resilience of the supply

chain to support the

delivery of the Group’s

operational and capital

programmes in K8

Strategic impact

Strategic priorities

1, 2, 3

Climate change influence

T P

Nature related influence

T P

The inability of our

supply chain to support

in the delivery of our

operational and capital

programmes may result in

increased costs and delays,

detrimentally impacting our

ability achieve our change

and growth agenda.

Mitigation

Delivery of the investment included within South West Water’s PR24 business

plan will require a significant increase in the Group’s capital programme.

The integrated delivery model for K8 will enable greater flexibility and broadens

the number of supply chain partners providing enhanced resilience for the

Group. The framework procurement for professional services and Tier 1

contractors has been completed and is well progressed for Tier 2.

The Group also regularly monitors the financial health of key partners and we

work in partnership with our supply chain to identify and manage potential

issues and challenges. Where action is required there are established plans

andalternative arrangements which provide mitigation and early intervention.

Appetite

The Board has a low appetite for risk associated with the delivery of key

operational and capital programmes within our regulated business plan.

Net risk/

Direction

of travel

Principal risk

Inadequate technological

security results in a

breach of the Group’s

assets, systems and data

Strategic impact

Strategic priorities

1, 2, 4

Climate change influence

n/a

Nature related influence

n/a

Failure of our technology

security, due to inadequate

internal processes or

external cyber threats,

could result in the

business being unable to

operate effectively and

the corruption or loss of

data. This could have a

detrimental impact on

our customers and result

in financial penalties and

reputational damage to the

Group.

Mitigation

External threats are increasing in complexity and sophistication with the

National Cyber Security Centre (NCSC) highlighting the heightened risk

tocritical national infrastructure and an increased focus on the water sector.

The Group maintains a dedicated Information Security team with a strong

preventive and detective information security framework, aligned to guidance

issued by the NCSC supported by regular training, communications and

awareness to staff. South West Water continues to hold the ISO27001

accreditation.

Enhanced technical controls introduced during the year across the Group’s

corporate and operational technology sector are informed by best practice

and learnings from across sectors. Furthermore, the regulated water business

continues to progress actions as part of the roadmap to meet the requirements

of the Network and Information Systems Directive (NIS), with activities aligned

to the priorities identified by the Drinking Water Inspectorate.

The Group also maintains established disaster recovery plans which are subject

to regular review and testing.

Appetite

The Group seeks to minimise technology and security risk to the lowest

possible level without detrimentally impacting on the Group’s operations.

Net risk/

Direction

of travel

Principal risk

Failure to receive

CMA approval for the

acquisition of Sutton and

East Surrey Water (SES)

Strategic impact

Strategic priorities

Climate change influence

n/a

Nature related influence

n/a

Failure to obtain the

necessary regulatory

approvals could result in

the Group having to divest

the acquired business,

impacting on shareholder

value.

Mitigation

The Group has a senior project team with experience of the regulatory

approvals process following the acquisitions of Bournemouth Water and, most

recently, Bristol Water.

The CMA have confirmed that it will refer the transaction for a Phase 2 review

unless acceptable undertakings are offered. Pennon intends to offer appropriate

undertakings and, in line with the CMA’s guidance, the CMA will then consider

whether to provisionally accept the proposed undertakings. Should those

undertakings be provisionally accepted, in line with standard procedure, the

CMA would then launch a consultation on those proposals.

Robust controls have been implemented to ensure the Group is fully compliant

with all CMA requirements during the process.

Appetite

Opportunities that support the Group’s strategic priorities are assessed against

an expected level of return adopting clearly defined factors and metrics.

Net risk/

Direction

of travel

Our risk management continued

64 Annual Report and Accounts 2024 « Pennon Group plc

The Board’s consideration of the longer-term viability of the Group is an

extension of the Group’s strategic business planning, which is managed

through regular long-term modelling and monitoring of key measures

including gearing, debt covenant headroom and level of liquidity. The

resilience of the business and these key viability measures are appropriately

assessed by a number of mechanisms including a robust risk management

assessment, sensitivity analysis and stress tests of financial performance.

The overall market context is a cornerstone of the viability assessment.

The Group’s main operating subsidiary of South West Water now accounts

for the vast majority of the Group’s earnings, being a long-term business

characterised by multi-year investment programmes, with associated

revenue streams with high levels of future visibility.

The viability assessment has been made with reference to the Group’s

current position and prospects, including consideration of the ongoing

impacts of the Ukraine crisis, climate change, its longer-term strategy, the

Board’s risk appetite and the Group’s principal risks and how these are

managed, as detailed on pages 55 to 64 of the Risk report.

Period of assessment

The Board regularly considers the appropriate period for the viability

assessment to be performed in line with the UK Corporate Governance Code.

The Board considers the appropriate period to assess the Group’s viability

remains unchanged at five years, which recognises both the longer-term

visibility in the regulatory environment of the South West Water business

and the corporate activity, including acquisitions and other non-regulated

investments, undertaken by Pennon.

Risks

The Board considers the preventative and risk management actions in

place and the potential impact of the principal risks (as detailed on pages

55 to 64) against our ability to deliver the business plan. This assessment

has considered the potential impact of these and other risks arising on the

business model, future performance, solvency and liquidity over the period

in question. The Group has a strong liquidity and funding position with

£601.4 million of cash and committed facilities as at 31

March 2024 and

netassets of £1,162.6 million.

The Group has a mixture of fixed, floating and index-linked debt financing

with a weighted average maturity of non-current debt, excluding leases,

being 12 years. In making their assessment, the Directors reviewed the

principal risks and considered which risks might threaten the Group’s

viability. Over the course of the year the Board, either directly or through

the activities of the Audit Committee, has considered a deep-dive review of

the following principal risks to enable a thorough assessment of the impact

ofthese risks on ongoing viability:

• Engineering supply chain resilience.

• Water quality.

• Cyber security.

Stress testing

The Group’s business plan has been stress-tested. Whilst the Group’s risk

management processes seek to mitigate the impact of principal risks as set

out on pages 55 to 64, individual sensitivities (shown in the table below) have

been identified. These sensitivities, which are ascribed a value with reference

to risk weighting, factoring in the likelihood of occurrence and financial

impact, were applied to the baseline financial forecast which uses the Group’s

annual budget for FY 2024/25 and longer-term strategic business plan

through to March 2029.

The impact of climate risks have been assessed in detail as set out in the

Task Force on Climate-related Financial Disclosures (TCFD) section on

pages 78 to 109. The Group’s strategic business plan includes the expected

investment identified at this stage to meet climate-change adaptation.

Thestress-testing scenarios applied during the viability assessment

period do not include specific reference to climate-change related risks

alone as climate change has been considered as part of the principal risks

identified. Beyond the period of assessment, additional impacts from climate

change are considered in more detail within the TCFD section along with

mitigatingactions.

Viability statement

The Directors of Pennon Group plc are responsible for ensuring

thelong-term viability of the Group. The Directors need to ensure

the resilience of the Company by identifying, managing, avoiding

or mitigating risks which may impact viability.

Principal risk Viability sensitivities tested

A: Changes in Government policy Changes in Government policy affecting the water industry, such as additional environmental

legislation, may impact operational performance or investment requirements. The estimated average

adverse impact on the Group’s cash flows from a range of potential policy changes has been applied

as a sensitivity.

B: Changes in regulatory frameworks and requirements Potential changes in the PR24 price review may impact allowed regulatory returns in the Water

segment. The estimated average adverse impact on the Group’s cash flows from a range of potential

policy or determination changes has been applied as a sensitivity.

C: Non-compliance with laws and regulations The estimated impact of financial penalties and reputational damage from failure to comply with laws

and regulations has been modelled as a sensitivity.

D: Inability to secure sufficient finance and funding,

within our debt covenants, to meet ongoing

commitments

The impact of reduced availability of financing resulting in increased costs has been modelled

asasensitivity.

E: Non-compliance or occurrence of an avoidable

health and safety event

The financial impact and cash outflows related to a major health and safety event has been applied

as a sensitivity.

F: Failure to pay all pension obligations as they fall due

and increased costs for the Group should the defined

benefit pension scheme deficit increase

The financial impact on the Group’s gearing from additional funding being required to support

theGroup’s defined benefit pension schemes has been applied as an adverse scenario.

65Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Principal risk Viability sensitivities tested

G: Macroeconomic near-term risks impacting on

inflation, interest rates and power prices

The adverse impacts of higher operating and finance costs from increasing power prices and

general inflation increases over and above increases assumed in base financial plans, including the

impact on Totex underperformance on regulatory returns and impact on debt financing costs have

been applied as a sensitivity, as well as a reduction in the collection of customer debt from adverse

economic conditions.

H: Failure to secure, treat and supply clean drinking

water

The adverse impacts from non-delivery of regulatory performance targets which result in ODI

penalties, other financial penalties and required additional investment reducing Group revenues

andcash inflows have been applied as a sensitivity to the base plan.

I: Failure to improve wastewater performance results

inenvironmental commitments not being delivered

J: Failure to provide excellent service or meet the

needs and expectations of our customers and

communities

K: Difficulty in recruiting and retaining staff with the

skills required to deliver the Group’s strategy

L: Insufficient capacity and resilience of the supply

chain to support the delivery of the Group’s operational

and capital programmes which more than doubles

inAMP8.

M: Inadequate technological control or cyber attack

results in a breach of the Group's assets, systems

anddata

The adverse financial impacts of a cyber attack resulting in operational disruption, potential loss

ofdata, potential detrimental impacts on customers with potential for financial penalties have been

included in the sensitivity analysis.

N: Failure to receive CMA approval for the acquisition

of Sutton and East Surrey Water (SES Water)

The costs associated with failing to receive CMA approval for the acquisition of SES Water have

been modelled in a downside scenario.

A combined stress-testing scenario has been performed to assess the overall impact of these individual scenarios impacting the Group collectively.

Thecombined weighted impact of the risks occurring is c.£80 million: this value is considered equivalent to an extreme one-off event that could occur within

ayear, though the probability of such an event happening is deemed unlikely.

Stress-testing evaluation and mitigations

Through this testing, it has been determined that none of the individual

principal risks would in isolation, or in aggregate, compromise the Group’s

viability over the five-year period. The assessment has been conducted by

reviewing the impact on the solvency position as well as debt and interest

covenants. The financial impacts of the risks were probability weighted to

obtain a value that was used in the stress testing. While mitigations were not

required in any of the above individual or combined scenarios to ensure that

the Group was viable, additional mitigations could be deployed to reduce

gearing and increase covenant headroom. These include:

• Reduction in discretionary operational expenditure.

• Deferral of capital expenditure and/or cancellation of non-essential capital

expenditure.

• Reduction in the amount of dividend payable.

• Raising additional funding.

The Group has confidence in its ability to raise additional funding should it

be required to ensure the Group maintains solvency.

In addition, a reverse-engineered scenario that could possibly compromise

the Group’s viability over the five-year assessment period has been modelled.

This scenario builds on the factors above and additionally assumes all the

Group’s principal risks incurring in any given year across the viability period,

with no probability weightings attached. The Board considered the likelihood

of this scenario on the Group’s viability over the five-year viability period

as remote, concluding the Group could remain viable. Mitigations, as noted

above, could also be deployed over the period if deemed necessary.

In making its assessment of the Group’s viability, the Directors have taken

account of the Group’s strong capital solvency position, the Group’s latest

assessments of forward power and other commodity prices, latest inflation

forecasts, its ability to raise new finance and a key potential mitigating action

of restricting any non-contractual payments. In assessing the prospects

of the Group, the Directors note that, as the Group operates in a regulated

industry which potentially can be subject to non-market influences, such

assessment is subject to uncertainty, the level of which depends on the

proximity of the time horizon. Accordingly, the future outcomes cannot be

guaranteed or predicted with certainty. As set out in the Audit Committee’s

report on pages 136 to 141, the Directors reviewed and discussed the process

undertaken by management, and also reviewed the results of the stress

testing performed.

Viability assessment conclusion

The Board has assessed the Group’s financial viability and confirms that

it has a reasonable expectation that the Group will be able to continue in

operation and meet its liabilities as they fall due over a five-year period, the

period considered to be appropriate by the Board in connection with the UK

Corporate Governance Code.

Viability statement continued

66 Annual Report and Accounts 2024 « Pennon Group plc

Our integrated approach to Environmental,

Social and Governance (ESG)

Our approach to ESG ensures we are focused on what matters most. All that we do

supports our commitment to provide environmental stewardship, whilst supporting

our customers and local communities. We remain focused on employee welfare with

health, safety, and wellbeing being at the heart of everything we do, whilst providing

strong opportunities for development. Our approach is built on the foundations

ofour robust governance framework, upholding our new core values throughout

theorganisation and our value chain.

ESG Capitals

Creating value through our ESG approach

Everything we do links to a capital in some way – the development of our capitals framework is integral to better decision making for the future.

External benchmarking

Our ESG strategy and capitals framework has driven positive change in the

business as we continue to embed sustainability in everything we do. We continue

to show strong performance across external ESG assessments, demonstrating our

commitment to, and management, of risk across our integrated ESG approach.

Latest external assessment scores:

Disclaimer

The use by Pennon Group of any MSCI ESG Research LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service marks

orindex names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of Pennon Group by MSCI. MSCI services

anddata are the property of MSCI or its information providers and are provided ‘as-is’ and without warranty. MSCI names and logos are trademarks

orservice marks of MSCI.

12.0

ESG Risk

(Previous rating: 13.8)

82.5

ESG Rating

(Previous rating: 80)

CDP Climate Change

(Previous rating: B)

CDP Water security

(Previous rating: C)

3.7/5

FTSE Russell ESG Score

(Previous rating: 3.9/5)

B+

Prime ISS corporate

rating

(Previous rating: B)

GRESB Infrastructure

Public Disclosure

(Previous rating: A)

MSCI ESG Indexes

(Previous rating: AA)

57/100

Corporate

Sustainability

Assessment (CSA)

(Previous rating: 60/100)

Our Natural Capital – Environment

• Freshwater

• Land (including soils)

• Species

• Ecological communities

• Coasts

• Atmosphere

• Waste

Our Social & Human Capital – Social

• Colleagues

• Customers

• Communities

Our Manufactured, Intellectual

&Financial Capital – Governance

• Supply chain

• Responsible business

• Stakeholders and partnerships

• Finance

67Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

ESG performance and targets

Materiality assessment

In 2021/22, we conducted a thorough materiality assessment with

stakeholders to shape our strategy and ESG targets up to 2025, and plan to

refresh our assessment in 2024/25. The results were disclosed in our 2022

Annual Report. Further stakeholder engagement occurred in December 2022

to inform our 2050 Strategic Direction report: https://www.southwestwater.

co.uk/about-us/documents/business-plan-2020-2025

The 2023 publication of our 2025-2030 business plan emphasises customer

engagement in identifying priorities to enhance customer satisfaction,

community wellbeing, and environmental sustainability. This process involved

gathering feedback on effective approaches and timelines for meeting

statutory requirements. Insights from customers and stakeholders were

instrumental in shaping our investment and service enhancement plans, with

a focus on prioritising impactful initiatives.

Thisfeedback, combined with assessments of business and external risks,

guided the review of our material issues, affirming our alignment with key

concerns. While the importance of certain issues has evolved, we remain

committed to addressing high-priority matters.

UN Sustainable Development Goals (SDGs)

We actively engage with the UN SDGs to inform our approach and better

understand our impact. We have mapped which of the UN SDGs our ESG

targets most directly support. Our primary contribution is to SDG 6: Clean

water and sanitation. Read more on our ESG targets on page 68 andto read

more on our contribution towards the SDGs visit our website www.pennon-

group.co.uk/sustainability

UN Global Compact

This year we have built on our support for the UN SDGs, by becoming a

signatory of the world’s largest corporate sustainability initiative, The UN

Global Compact. Becoming a participant affirms our commitment to our ESG

targets, as we work to embed the ten principles of the United Nations Global

Compact covering human rights, labour, environment and anti-corruption

into our ESG approach, whilst communicating our progress against these

principles annually.

Highest importance to stakeholders What it means to all stakeholders

Net Zero Taking action to mitigate our own emissions.

Freshwater stewardship Taking care of precious water resources.

Water quality – river and coastal Taking action to deliver a step change in both river and coastal water quality.

Climate resilience Our preparedness for climate change.

Drinking water quality The provision of clean, safe drinking water.

Amenity and recreation Access to high standard bathing water across our region’s coasts and inland waters.

Trust and transparency Being open and transparent in a time of increased water sector scrutiny.

Material issue and associated target Annual performance against target 2023/24 target 2025 Target SDG

Net Zero

% energy usage from renewable generation 8% 13%

Reducing greenhouse gas emissions

68% 70%

Freshwater stewardship

Reduce water use within our operational sites 7.5MI 10Ml

Biodiversity

Trees planting (cumulative) 200,000 250,000

Material issue and associated target Annual performance against target 2023/24 target 2025 Target SDG

Customer and community engagement

Increase our community investment by 10% each year 20% 30%

Diversity and skills

% Female representation 32% 33%

Increase REACH recruitment (excludingBristolWater)

10% 10%

Achieve 5% club status

Gold Accreditation Gold Accreditation

Health, safety and wellbeing

Number of LTIs across the group 20 11

Great Place to Work accreditation

Maintain Maintain

Measure/issue and associated target Annual performance against target 2023/24 target 2025 Target SDG

Trust and transparency

ESG Rating (Sustainalytics Management Score) 78 80

Fair Tax Mark accreditation

Maintain Maintain

% of active institutional investors met or offered to meet

72% 75%

Sustainable finance

New funding raised through Sustainable Financing Framework % 75% 75%

Supply chain

Supplier payment days (average) 35 days 30 days

% of key and strategic suppliers that have established

anESGpolicyorequivalent

75% 100%

Key:

Achieved Not Achieved

68 Annual Report and Accounts 2024 « Pennon Group plc

Net Zero – our promise to the planet

In 2021, we published our Promise to the Planet – our ambitious plan to reduce

our operational carbon emissions to Net Zero by 2030. During 2023/24 we have

committed to even more ambitious targets, to go beyond reducing our operational

emissions, and set out scope 1, 2 and 3 GHG emission reduction targets, targets

to reduce emissions across our value chain, and to increaseour use of renewable

electricity.

Pillar

Our three-pillar strategy

remains unchanged Progress against our three-pillar strategy

Sustainable

living

• Reducing emissions through

changes to operational practices,

increasing energy efficiency, and

switching to lower carbon fuel

sources.

• Meeting our commitments to

reduce leaks and help customers

to use less water – protecting the

environment and saving carbon.

• In 2023/24 our wastewater back-up generators have been switched from using diesel fossil-fuel

to using lower carbon HVO (Hydrotreated Vegetable Oil) made from waste oil.

• We are continuing with our programme of pump efficiency testing, pump repair and

replacement. We have installed two new pumps at our Roadford Dam site, one low lift pump

at Restormel water treatment works in Cornwall as well as one at Longham water treatment

works in our Bournemouth region. We have proactively developed a new plan to refurbish our

activated sludge processes on our wastewater treatment works as well as plans to replace some

of our largest blowers providing air to those processes. We have also conducted site-based

energy audits on our Bristol Water sites as part of compliance with Phase 3 of the Government’s

Energy Savings Opportunities Scheme (ESOS).

• We have embarked on a nitrous oxide (N2O) emissions monitoring trial at our Countess Wear

(Exeter) wastewater treatment works, as well as a separate trial to measure fugitive emissions

ofmethane (CH4) emissions at the same site.

• Our transition to electric vehicles continues with over 50 electric vehicles now on our fleet

ofvans and cars. Whilst the most of our transport fleet is still petrol or diesel fuelled, we plan

togradually transition to a 100% electric vehicle fleet during the next decade.

Championing

renewables

• Maximising self-generation from

renewables at our sites across

the South West – working with

partnerships and utilising our

expertise.

• Where we cannot generate

enough electricity to meet all our

needs ourselves, 100% of what we

purchase will be from renewable

sources.

• South West Water continues to source 100% renewable electricity (since 2022). We will

negotiate to switch Bristol Water to 100% renewable electricity at the appropriate contract

renewal time.

• Onsite renewables with third parties are a mix of CHP, hydro, solar and wind. SWW has achieved

9.1% and Bristol 1.1% on-site renewable energy generation.

• We have completed a feasibility study for the installation of floating solar PV arrays at a number

of our reservoirs and are progressing to the next stages at one of our large drinking water sites.

• We have made a significant advance in sourcing off-site renewables through the third party

owned Rexon Cross 500kW wind turbine, which is now feeding renewable electricity into our

Roadford Reservoir site through a private wire. The turbine has the potential to generate 1.5GWh

of energy each year which is approximately 15% of the total energy used on the site.

Reversing

carbon

emissions

• Reversing carbon emissions from

our core activities.

• Working in partnership to ensure

our core activities reverse carbon

emissions through solutions such

as peatland restoration.

• Supporting the development

of innovative solutions to

develop low carbon footprint

processes through research and

development.

• Our catchment management programmes include improved soil management, wetland

creation, buffer strips, tree planting and other nature-based solutions. We have pioneered

a collaborative partnership approach to peatland restoration across the region, continuing

to develop best practice and build capacity to scale up into the future. Over time these

interventions store more carbon in the landscape and reduce loss to the atmosphere, whilst

retaining water upstream to improve long-term resilience.

• In 2023-24 we have planted 80,327 trees to exceed our annual target of 50,000 trees and

restored 493 hectares of peatland towards a total of 1,558 hectares restored so far throughout

AMP7. Once completed our peatland restoration programme planned for AMP7 is expected

to sequester around 650,000 tCO

e over the next 50 years. Meanwhile the 253,000 trees

nowplanted (AMP7 delivery) are expected to store an estimated 17,700 tCO

e during the next

30years.

• Looking forward, we have included a range of nature-based solutions in the PR24 Business

Plansubmission (2025-2030) to increase opportunities to lock up carbon through our activities.

Wecontinue to collaborate across the water industry to investigate other land and marine-

based carbon sequestration opportunities, such as seagrass restoration and development

ofasoil carbon code.

69Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Science Based Targets

As a Group we have committed to near-term Science Based Targets (SBTs).

Our targets were validated and approved by the Science Based Targets

Initiative in May 2024 and we will now focus on delivering our targets.

SBTs provide a clearly defined pathway for companies to reduce greenhouse

gas emissions. Targets are considered ‘science-based’ ifthey are in line

with what the latest climate science deems necessary to meet the goals

oftheParis Agreement – limiting global warming to 1.5°C above pre-

industrial levels.

Our SBTs, presented below, support our water and wastewater greenhouse

gas, and embodied carbon bespoke performance commitments.

The Group commits to reduce absolute scope 1 and scope 2 GHG emissions

68% by 2032/33 from a 2021/22 base year.

The Group commits to reduce absolute Scope 3 GHG emissions from 'well

to tank' electricity and fuels, the delivery of electricity, emissions from waste,

and business travel and commuting, by 30% over the same timeframe.

The Group commits that 60% of its suppliers by emissions covering

purchased goods and services, capital goods and upstream transportation

and distribution will have science-based targets by FY2027/28.

The Group commits to increase annual sourcing of renewable electricity

to100% by 2030.

Further details of how we are integrating climate into our business and

readying for a low carbon future can be found in our TCFD report on pages

78 to 109.

GHG emissions performance

In line with good practice and to reflect the outcome of our

2021/22 materiality assessment, we set new interim Net Zero targets in 2022.

Our 2023/24 performance is presented below.

Net Zero target

2023/24

Performance

2023/24

Target

2025

Target

2030

Target

% Energy usage from

renewable generation 7.5% 8% 13% 50%

Reducing GHG emissions (%)* 71.9% 68% 70% 100%

These figures have been externally assured by DNV.

* Scope 2 market-based emissions only.

GHG emissions

Scope 2 market-based GHG emissions have reduced from 91,330 tCO

(restated figure due to fuel mix disclosure correction) to 25,662 tCO

e this

year from our 2020/21 baseline equating to a 71.9% reduction.

Overall GHG emissions against our Net Zero 2030 emission boundary for

Scope 1, Scope 2 and selected Scope 3 operational emissions within the

boundary of the regulated businesses have decreased by c.45.2%.

Full details of our 2023/24 GHG emissions are provided in our SECR report

from page 71.

Embodied carbon

Our carbon emissions extend beyond our daily operations. Embodied carbon

are emissions associated with the construction, repair, and maintenance of

our physical assets, and we are cognisant that they can account for up to

one-third of the water sectors total emissions. We are committed to reducing

all sources of our carbon emissions, which is why we have developed a

bespoke performance commitment to support our embodied carbon goals.

Embodied carbon accounting is the foundation of decarbonising our capital

projects and our supply chain, and we are working collaboratively with

our supply chain to identify the best technologies for embodied carbon

accounting, and strategies to drive down our emissions.

Net Zero culture

We recognise that achieving our Net Zero goals will be a collaborative effort.

We are working towards creating a working environment in which workers,

customers, and suppliers are motivated to hasten our transition to Net Zero

emissions. We have developed a robust communication and engagement

plan, supported by an effective governance structure working with internal

stakeholders at all levels to ensure carbon emissions and our net zero

commitments are adequately considered in decision making. This is further

corroborated by data, and our benefits realisation work, where we quantify

and monitor the greenhouse gas consequences of our Net Zero initiatives.

Our bespoke approach will ensure an enduring Net Zero culture.

Renewable energy

We remain committed to our target of 50% of energy generation from a mix

of renewable energy sources including onsite Solar PV, floating Solar PV, grid

connected Solar PV, wind power, hydroelectricity and making more use of

our bioresources for generating energy.

We have achieved 7.5 % energy from renewable sources across the group

in2023/24.

This performance is despite below average solar radiation last year and

an enhanced maintenance regime across all our assets. In addition, we

have continued delivery of our latest on-site solar and connection of a

wind turbine to Roadford treatment works via a private wire arrangement.

Overall, our installed renewable energy capacity now totals 18.5MW including

connected private wire assets.

Process and fugitive emissions

Process and fugitive emissions, mainly in the form of methane (CH4)

and nitrous oxide (N2O), arise from our wastewater treatment processes.

Worldwide there is difficulty in measuring process emissions, this mean that

it is difficult to establish a baseline and monitor changes in N2O emissions.

Measuring and monitoring is the first step; without it, we cannot establish

the efficacy of N2O reduction initiatives. We are piloting a N2O monitoring

technology at one of our wastewater treatment sites, Countess Wear. This

pioneering initiative, where the treatment facility has recently been cleaned,

will benchmark ‘low’ N2O emissions under various scenarios, and allow us

to assess seasonal variability in N2O emissions over the course of the year.

We have also commenced with a separate trial to directly measure fugitive

emissions of methane (CH4) at the same site. Findings from these trials will

inform effective process emission reduction strategies in the future.

Transition plan

Through our established strategies, plans and policies, we are preparing for

a changing climate and lower carbon economy. Our annual TCFD response

on pages 78 to 109 sets out further details of this in accordance with the

TCFD recommendations. This identifies one of our key transition risks as

rising energy costs. Through our planned investment in renewable energy

alongside our dynamic hedging strategy we are managing this risk. We

are aware of the work of the newly established Transition Plan Taskforce

(TPT) to develop a ‘gold standard’ framework for transition plans. We are

considering the TPT’s guidance and will look to publish our Group Transition

Plan in due course.

For further information on nature-related disclosures, please see our

Taskforce on Nature-related Financial Disclosures on pages 78 to 109.

Net Zero Plan scope includes Scope 1 & 2 (market based) GHG emissions

and the following Scope 3 activities: outsourced activities; power

transmission & distribution, business travel, grey fleet (private vehicles used

on Company business).

Net Zero – our promise to the planet continued

70 Annual Report and Accounts 2024 « Pennon Group plc

Sustainability Reporting

Streamlined Energy and Carbon Report (SECR)

Pennon Group plc GHG emissions

2023/24 2022/23

market based location based market based location based

Scope 1 GHG emissions by source (tCO

Direct emissions from burning of fossil fuels 5,467 5,467 8,003 8,003

Process and fugitive emissions 16,170 16,170 15,389 15,389

Transport: Company owned or leased vehicles 5,100 5,100 5,381 5,381

Total Scope 1 GHG emissions (tCO

e) 26,737 26,737 28,773 28,773

Scope 2 GHG emissions (tCO

e) 25,662 83,575 31,321 77,217

Total gross Scope 1 & 2 GHG emissions (tCO

e) 52,399 110,312 60,094 105,990

Scope 3 GHG emissions

(estimated)

315,867 315,867 239,653 239,653

Total gross Scope 1, 2 & 3 GHG emissions (tCO

368,265 426,178 299,747 345,643

GHG emissions removals through purchases of Renewable Energy Guarantees

ofOrigin (tCO

Included in

scope 2 above –

Included in

scope 2 above –

GHG emissions saved by exporting self-generated electricity (tCO

e) 0 0 0 0

Total annual net GHG emissions (tCO

368,265 426,178 299,747 345,643

Energy consumption used to calculate Scope 1 and 2 GHG emissions (MWh)

(see Energy usage section) 459,736 459,736 461,716 461,716

GHG emissions intensity measure: tCO

e (gross Scope 1+2/£100,000 revenue)

6.0 12.7 7.3 12.9

Biogenic GHG emissions outside of Scopes (tCO

e) 3,076 3,076 3,148 3,148

SES Water GHG emissions

2023/24

market based location based

Scope 1 GHG emissions by source (tCO

Direct emissions from burning of fossil fuels 516.54 516.54

Process and fugitive emissions 0 0

Transport: Company owned or leased vehicles 411.60 411.60

Total Scope 1 GHG emissions (tCO

e) 928.14 928.14

Scope 2 GHG emissions (tCO

e) 0 11,018.64

Total gross Scope 1 & 2 GHG emissions (tCO

e) 928.14 11,946.78

Scope 3 GHG emissions (estimated) 1,281.42 1,281.42

Total gross Scope 1, 2 & 3 GHG emissions (tCO

e) 2,209.56 13,228.20

GHG emissions removals through purchases of Renewable Energy Guarantees of Origin (tCO

Included in

scope 2 above –

GHG emissions saved by exporting self-generated electricity (tCO

e) 0 0

Total annual net GHG emissions (tCO

e) 2,209.56 13,228.20

Energy consumption used to calculate Scope 1 and 2 GHG emissions (MWh) 55,436.58 55,436.58

GHG emissions intensity measure: tCO

e (gross Scope 1+2/£100,000 revenue) 1.39 17.84

Biogenic GHG emissions outside of Scopes (tCO

e) - -

Notes:

Pennon Group plc total Scope 1 (26,737 tCO

e), Scope 2 market-based (25,662 tCO

e), Scope 2 location-based (83,575 tCO

e) GHG emissions, market-based GHG emissions intensity

measure (6.0 tCO

e) (gross Scope1+2/£100,000 revenue), and location-based GHG emissions intensity measure (12.7 tCO

e) (gross Scope1+2/£100,000 revenue). These figures

have been independently assuredbyDNV.

Scope 1 (direct GHG emissions): GHG emissions activities owned or controlled by our organisation that release emissions straight into the atmosphere. For Pennon, primary Scope 1

GHG emission sources during 2023/24 include GHG emissions from stationary plant, fugitive emissions from air conditioning plant and wastewater treatment, transport related GHG

emissions from our own vehicles, and fleet Scope 2 (indirect GHG emissions) GHG emissions released into the atmosphere associated with our consumption of imported electricity.

Scope 3 (other GHG indirect emissions) GHG emissions are at a consequence of our actions, which occur at sources which we do not own or control.

1. GHG emission figures are expressed in tonnes of carbon dioxide equivalents (tCO

e) whereby emissions of carbon dioxide (CO

), methane (CH4), nitrous oxide (N2O),

thefluorinated gases (HFC, PFC, SF6) are shown in terms of the equivalent emissions from CO

. A breakdown of emissions by GHG is available in our ESG Databook available

onourwebsite: www.pennon-group.co.uk/reportandpresentations.

2. Estimated GHG emissions for relevant Scope 3 categories calculated in 2023/24 are provided in our ESG Databook available on our website:

www.pennon-group.co.uk/reportandpresentations.

3. Based on relevant Group revenue for 2023/24 (excluding SES Water).

4. 2022/23 Scope 3 figures restated to correctly account for waste generated in operations.

5. SES Water’s GHG Emissions figures have been assured in line with ISO14064-1.

6. Renewable Energy Guarantees of Origin (REGOs) certificate assured by DNV for electricity consumption in period April 2023 to March 2024 for South West Water

electricityconsumption.

71Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

71Pennon Group plc » Annual Report and Accounts 2024

Sustainability reporting continued

Operational Pennon Group plc GHG emissions by business

South West Water Bristol Water Group total*

Scope 1 GHG emissions (tCO

e) 20,870 5,548 26,737

Scope 2 GHG emissions (market based) (tCO

e) 72 25,238 25,662

Total gross Scope 1 & Scope 2 GHG emissions (tCO

e) 20,942 30,787 52,399

Operational intensity measure (kgCO

e/Ml) – Water 38.77 209.42 n/a

Operational intensity measure (kgCO

e/Ml) – Wastewater 111.15 n/a n/a

Note:

For ‘Water’ measure Ml = measured water into supply.

For ‘Wastewater’ measure Ml = full measured flow treatment.

* Group total includes 670 tCO

e from Pennon Water Services and Group shared service, and excludes SES Water.

Change in GHG emissions

Operational Scope 1 and 2 emissions (market-based) decreased by 12.8%

from 2022/23, largely as a result of a reduction in the need for additional

water pumping in 2023/24 as the weather was much wetter than 2022/23,

this also coincided with a reduction in the use of diesel fuel for pumping

and stand-by generation, as well as a reduction in the emissions factor

applied toour Bristol Water grid electricity consumption. The revenue-based

intensity metric has continued to reduce for the Group and the 'market-

based' value now stands at 6tCO

e/£100,000 turnover compared to a

value of 7.3 tCO

e/£100,000 in the previous year, continuing the trajectory

ofemissions reductions relative to revenue earned.

Scope 3 GHG emissions

Scope 3 categories were evaluated for relevant categories in line with the

reporting guidance. The assessment, carried out by carbon consultants

Eco Act on behalf of Pennon, is based on 2023/24 activity data for the

Group. The estimated Scope 3 GHG emissions for 2023/24 for the Group

are 314,999 tCO

e compared to the equivalent figure in 2022/23 of 239,653

tCO

e (Restated to correctly account for waste generated in operations).

Bristol Water’s Scope 3 activities have been calculated and reported within

the Group figures for the first time. The change in reported emissions is due

to better interrogation of the spend data used to drive Category 1 purchased

goods and services calculation. This analysis showed that some financial

spend lines were wholly down to financial transactions with zero emissions

associated and therefore these activities were excluded from 2023/24

calculations.

A breakdown of our estimated Scope 3 GHG emissions is provided in

our ESG Databook, published on our website (www.pennon-group.co.uk/

sustainability).

GHG Reporting Methodology

Our approach follows the UK Government’s Environmental Reporting

Guidelines, including Streamlined Energy and Carbon Reporting guidance

(2019) and the Greenhouse Gas Protocol Corporate Standard including

the Scope 3 Calculation Guidance (collectively referred to here as the

reporting guidelines). In calculating our emissions, we have used the 2023

UKGovernment conversion factors for GHG reporting.

Organisational boundary and scopes

The GHG emissions listed here cover 100% of the Group’s companies, each

of which uses the financial control approach, except equity share for Bristol

Water Holdings Companies, to report GHG emissions. We report our Scope

1, 2 and 3 GHG emissions where relevant. A breakdown of Scope 3 GHG

emissions categories is provided in our supplementary ESG Databook online

at www.pennon-group.co.uk/sustainability.

Market and location-based methodology

We report both market-based and location-based Scope 2 GHG emissions.

Where our supply is backed by Renewable Energy Guarantees of Origin

(REGOs), this qualifies as zero carbon market-based emissions. Where

supply is not REGO backed, in accordance with the reporting guidelines,

wehave used our electricity suppliers’ specific published Fuel Mix Disclosure

emissions factors to report our Scope 2 market-based emissions. Where

FuelMix Disclosure emissions factors are not available, we have used

theresidual grid mix emissions factor.

Self-generated renewable energy export

In accordance with the reporting guidelines, we may report an emissions

reduction in our reported net CO

e figure for any renewable electricity

wehave generated and exported to the national grid or a third party.

External assurance statement

Group Scope 1 and 2 GHG emissions and energy use, together with selected

Scope 3 GHG emissions, have been independently assured by DNV. The

assumptions, methods and procedures that are followed in the development

of the reported data have been tested and the data audited for accuracy

and consistency. Assurance statements can be found at www.pennon-group.

co.uk/sustainability.

Offshore Emissions

All of Pennon Group’s energy usage is within the UK and Pennon Group

hadno offshore GHG emissions or energy usage in the reporting period.

Energy usage

Including self-supplied energy, the Group used 484,374 MWh of energy

in 2023/24, compared to 485,823 MWh in 2022/23. A breakdown of Group

energy usage and associated data assessment methodologies is shown

below. Further details and previous years’ data are provided in our ESG

Databook, which can be found at www.pennon-group.co.uk/sustainability.

72 Annual Report and Accounts 2024 « Pennon Group plc

Energy usage

2023/24 (MWh) 2022/23 (MWh) Methodology

Imported grid electricity

404,426 399,301

Metered data except some NHHM supply which is estimated by

electricity supplier

Imported private wire electricity (renewable) 5,804 4,819 Metered data

Self-supplied renewable electricity 10,656 12,079 Metered data

Self-supplied heat 7,068 7,141

Estimated that 60% of heat generated by sewage gas CHP is

beneficially used, the rest (40%) is released to atmosphere

Natural gas

25,407 23,471 Metered data – from billing (some element of estimates)

Liquid fuels (for stationary applications)

6,375 14,904

Estimated based on fuel use/spend data. Reported totals

calculatedbased on raw data provided by the supplier

Energy used by fleet transport

24,639 24,107 Estimated based on fuel use/spend and mileage data

Total energy usage 484,374 485,823

Intensity measure: MWh/£100,000 revenue

55.53 58.97

Energy usage data notes:

1. Total energy usage (484,374 MWh) by has been independently assured by DNV.

2. Hire car fuel usage and grey fleet (use of private vehicles on company business) are included in these SECR volumes – as per SECR guidance.

3. Based on relevant Group revenue for 2023/24.

4. Energy consumption used to calculate Scope 1 and 2 GHG emissions.

Energy efficiency action taken

Our energy efficiency interventions during 2023/24 are estimated to have avoided around c.6.5 GWh of additional energy use, or around 1.4% of our total

energy consumption (excluding transport). We have taken further steps this year to focus on testing, repairing or replacing our largest rotating operational

assets. These actions were prioritised based on the resilience offered to sites, as well as for optimising our energy consumption. We have been modernising

ourrotating assets, including the deployment of more efficient aeration equipment in the form of new blowers (air compressors), and we have also embarked

on a programme of optimising our Ultra-Violet treatment infrastructure, including making sure the calibration of the equipment controlling is carefully set up

todeliver the most efficient usage.

73Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

73Pennon Group plc » Annual Report and Accounts 2024

Sustainability reporting continued

SASB Pennon 2023/24 disclosure

For the third year, we have aligned our non-financial disclosures

tothe Sustainability Accounting Standards Board (SASB)

reporting framework.

Metric Code 2023/24 Disclosure

Energy Management

(1) Total energy consumed,

(2)percentage grid electricity and

(3) percentage renewable

IF-WU-130a.1 (1) 484,374 MWh

(2) 83.5%

(3) 72.9%

Pennon Annual Report, SECR, page 73

*These figures are excluding SES Water

Distribution Network Efficiency

Water main replacement rate IF-WU-140a.1 Mains Repairs, (Number of repairs per 1,000km)

SWW: 136.6

BRL: 126.5

SES: 63.8 *unassured forecast

Pennon Annual Report, Mains Repairs, page 42

Volume of non-revenue real

waterlosses

IF-WU-140a.2 Leakage (3-yr average) (ML/day)

SWW: 107.0

BRL: 37.6

SES: 21.5 *unassured forecast

Pennon Annual Report, Leakage, page 42

Effluent Quality Management

Number of incidents of non-

compliance associated with water

effluent quality permits, standards,

and regulations

IF-WU-140b.1 South West Water EPA data report, 5. Discharge permit compliance metric. Available at:

https://www.gov.uk/government/publications/water-and-sewerage-companies-in-england-

environmental-performance-report-2022

Discussion of strategies to manage

effluents of emerging concern

IF-WU-140b.2 South West Water contribute to the Chemical Investigation Programme (CIP), please refer to CIP

data portal – available at:

https://ukwir.org/sign-up-and-access-the-chemical-investigations-programme-data-access-portal

To see the findings from the latest CIP3 report, please refer to: CIP3 reports. Available at:

https://ukwir.org/cip3-information

SASB provides a set of industry specific standards (Water Utilities and Services industry), which each cover topics

which are material to our investors. These topics contain a number ofmetrics we disclose against. SASB metrics

include the full Group including Bristol Water and SES Water unless explicitly stated; however some metrics related to

regulated figures are currently reportedseparately within the South West Water and Bristol Water Annual Performance

Reports (APR’s) respectively. The latest APR’s were published in July 2023.

74 Annual Report and Accounts 2024 « Pennon Group plc

Metric Code 2023/24 Disclosure

Water Affordability & Access

Average retail water rate for

(1)residential, (2) commercial,

and(3)industrial customers

IF-WU-240a.1 SWW:

(1) avg.: £486/year (£50 Government contribution applies)

(2), (3) Details of wholesale charges can be found at: https://www.southwestwater.co.uk/businesses/

wholesale-services/tariffs

BRL:

(1) avg.: £185/year (clean water only)

(2), (3) Details of wholesale charges can be found at: https://www.bristolwater.co.uk/hubfs/

Wholesale%20Tariffs/BRL%20Wholesale%20Charges%20Schedule%2024-25.pdf

(1) Number of residential

customer water disconnections

for non-payment, (2) percentage

reconnected within 30 days

IF-WU-240a.3 0, we do not disconnect customers for non-payment.

Discussion of impact of external

factors on customer affordability

of water, including the economic

conditions of the service territory

IF-WU-240a.4 We address affordability and vulnerability of customers within our service territory extensively

within our business plan document available at:

www.southwestwater.co.uk/siteassets/document-repository/business-plan-2020-2025/

addressing-affordability-and-vulnerability.pdf

Drinking Water Quality

Number of incidents of non-

compliance associated with

drinking water quality standards

and regulations

IF-WU-250a.1 Drinking Water Quality is reported in our Clean, safe and reliable water scores (CRI Score):

SWW: 3.02

BRL: 7.05

SES: 0.01

Also in our Taste, smell and colour contacts rates (contacts per 1,000 population):

SWW: 1.66

BRL: 0.82

SES: 0.58

Pennon Annual Report, Clean, safe and reliable water, (CRI Score), Taste, smell and colour contacts,

pages 42 to 43

Discussion of strategies to manage

drinking water contaminants of

emerging concern

IF-WU-250a.2 For more information on our specific strategies to improve water quality, such as the Upstream

Thinking Project, please visit: https://www.southwestwater.co.uk/environment/working-inthe-

environment/upstream-thinking/the-project/

For more information about Bristol Water’s catchment sensitive farming partnership

toimprove water quality and enhance habitats please visit: https://www.bristolwater.co.uk/

performancecommitments

End-Use Efficiency

Percentage of water utility revenue

from rate structures designed to

promote conservation and revenue

resilience

IF-WU-420a.1 We do not apply different rate structures.

Customer water savings from

efficiency measures, by market

IF-WU-420a.2 In addition to reducing our own water use by over 11ML/day over the past two years, we provide

funding to support local organisations every year through our Water-Saving Community Fund

which helps to provide water efficiency improvements such as education campaigns, water butts

and rain gardens.

Pennon Annual Report, Water Saving Community Fund, page 33, and more information available at:

https://www.pennon-group.co.uk/sustainability

75Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Metric Code 2023/24 Disclosure

Water Supply Resilience

Total water sourced from regions

with High or Extremely High

Baseline Water Stress; percentage

purchased from a third party

IF-WU-440a.1 You can visit our South West Water Drought Plan (2022)- available at:

https://www.southwestwater.co.uk/siteassets/document-repository/environment/sww-bw-

finaldrought-plan-september-2022.pdf

For further information of classifications, please refer to the EA’s Water Stressed Areas

Classification report available at: https://www.gov.uk/government/publications/water-stressed-

areas-2021-classification

Under the EA classification Bristol Water do not source water from regions with high or extremely

high-water stress

Volume of recycled water delivered

to customers

IF-WU-440a.2 We do not currently deliver recycled water to customers, however South West Water Updated Draft

Water Resources Management Plan 2024 (dWRMP24) highlights plans to do this in the future in

locations such as Poole and Countess Wear. Read more here: https://www.southwestwater.co.uk/

siteassets/documents/about-us/wrmp/revised-wrmp/sww-dwrmp24-appendix-7-sea-report-dec23-

main-report.pdf

Discussion of strategies to manage

risks associated with the quality

and availability of water resources

IF-WU-440a.3 Our dWRMP24 highlights our Drinking Water Safety Plan, and Modelling & Scenario Analysis. Read

more here: https://www.southwestwater.co.uk/siteassets/documents/about-us/wrmp/revised-wrmp/

sww-dwrmp24-appendix-7-sea-report-dec23-main-report.pdf

Network Resiliency & Impacts of Climate Change

Wastewater treatment capacity

located in 100-year flood zones

IF-WU-450a.1 We have published our first Drainage and Wastewater Management Plan (DWMP), in

accordance with new government regulations. Within this plan we have outlined which of our

assets are at risk from coastal erosion and sea level rise, available at: https://www.southwestwater.

co.uk/siteassets/documents/about-us/dwmp/our-plan/dwmp-our-plan.pdf

(1) Number and (2) volume of

sanitary sewer overflows (SSO)

and (3) percentage of volume

recovered

IF-WU-450a.2 Please refer to our 2023 EDM Return – available at: https://www.southwestwater.co.uk/siteassets/

documents/about-us/business-plans/2020-25/edm-return-south-west-water-storm-overflow-

annual-2023---ea-publish-version.xlsx

(1) Number of unplanned service

disruptions and (2) customers

affected, each by duration category

IF-WU-450a.3 “Unplanned outages (%) and Supply interruptions (Duration per property per year):

SWW:

(1) 1.14

(2) 00:09:28

BRL:

(1) 2.58

(2) 00:09:24

SES:

(1) 0.81

(2) 00:03:36

Pennon Annual Report, page 42

Description of efforts to

identify and manage risks and

opportunities related to the impact

of climate change on distribution

and wastewater infrastructure

IF-WU-450a.4 South West Water

WRMP, Section 5. Forecasting our supply requirements, chapter 4. Impacts of climate change on

water supply. Please refer to: South West Water Draft Water Resource Management Plan (WRMP)

2024 - available at: https://www.southwestwater.co.uk/environment/water-resources/

waterresources-management-plan/

Climate change Adaptation Report, 2021. Appendix A: Detailed risk management matrix - available

at: https://www.southwestwater.co.uk/siteassets/document-repository/environment/climatechange-

adaption-2021.pdf

Bristol Water

Bristol Water’s Draft Water Resource Management Plan (WRMP) 2024, Chapter 9. Climate Change

- available at: https://www.bristolwater.co.uk/about-us/our-plans/water-resources/

Please see our Pennon Group plc TCFD statement available in our Pennon Annual Report, pages

78-109

Activity Metric

Number of: (1) residential, (2)

commercial, and (3) industrial

customers served, by service

provided

IF-WU-000.A Populations served:

SWW c1.8m

BW c.500,000

BRW c1.2m

Isles of Scilly c.2,000

SES c.740,000

Pennon Annual Report and Accounts, Pennon at a glance, Page 2.

Sustainability reporting continued

76 Annual Report and Accounts 2024 « Pennon Group plc

Metric Code 2023/24 Disclosure

Activity Metric (cont.)

Total water sourced, percentage

by source type

IF-WU-000.B South West Water and Bristol Water APR

Additional regulatory information section - Water resources asset and volumes data table

ESG Databook, section 1.5 Water

Total water delivered to: (1)

residential, (2) commercial,

(3) industrial, and (4) all other

customers

IF-WU-000.C South West Water and Bristol Water APR

Additional regulatory information – Water network plus, Treated water distribution – assets and

operations table

Average volume of wastewater

treated per day, by (1) sanitary

sewer, (2) stormwater, and (3)

combined sewer

IF-WU-000.D South West Water and Bristol Water APR

Additional regulatory information -Wastewater network plus, Wastewater network+ – Sewer and

volume data table and Sewage treatment works data table

Length of (1) water mains and (2)

sewer pipe

IF-WU-000.E Pennon Group plc

(1) 29,000km of water pipes

(2) 23,000km of sewers

Pennon Annual Report and Accounts, Pennon at a glance, Page 2.

77Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

77Pennon Group plc » Annual Report and Accounts 2024

We are driven by our strategic focus of leading on UK environmental infrastructure,

delivering for the benefit of our customers, communities, and the environment.

We are committed to meeting the challenges arising as a result of climate

change, the nature emergency, and the transition to Net Zero.

Our regulated water business is the main focus of our TCFD & TNFD

disclosures, with the majority of our assets, revenues, and expenditures

related to this area of our business.

TCFD recommendations

Created by the Financial Stability Board (FSB), the TCFD published its

recommendations in June 2017. This is our fifth year of TCFD reporting and

the below shows our progress and compliance with the recommendations

including the updated TCFD guidance (2021 Annex).

In alignment with FCA listing rule 9.8.6R(8) we have taken into

account available knowledge and guidance concerning the listing

rule and climate-related risks to develop our compliant TCFD

disclosure. Each year our disclosures have been enhanced as

knowledge and guidance improves. Pennon has addressed the

11 recommended disclosures and has considered the latest best

practice guidance from the TCFD.

As part of our ongoing TCFD programme, we have continued to enhance

our assessment of physical risks, transition risks, and climate-related

opportunities.

TNFD recommendations

The TNFD published its final framework for nature-related financial

disclosures in September 2023. This is our third year of voluntarily reporting

against the TNFD framework. This year we are taking the opportunity to

integrate TNFD into our TCFD disclosures, recognising the substantial

overlap and synergies for our business between action on climate change

and the nature emergency. At the same time, we also recognise some trade-

offs in meeting our goals around resilience, Net Zero, and nature.

We acknowledge there is further work to do on the recommended TNFD

disclosures, and we are continuing to monitor the inclusion on nature-risks

inthe UK sustainability disclosure requirements.

Developments in 2023/2024

2023 was another year of record-breaking weather with higher than average

rainfall rates and frequent storms bringing extreme rainfall and winds. This

has presented operational challenges to overcome and although we have

ensured the safe and secure supply of water and wastewater services in

the region, it further highlights the need for climate change resilience and

preparedness. These events have provided us with significant insight into

our resilience to these kinds of events (which we may see more frequently

in the future), which are factored into our update of our physical climate risk

assessment and our review of adaptive strategies.

In addition to our published Water Resources Management Plan (WRMP24)

and Drainage & Wastewater Management Plan (DWMP), South West Water

developed its £2.8 billion business plan proposal (2025-2030) for PR24,

focusing on water quality and resilience, storm overflows and pollution,

net zero and environmental gains, and addressing customer affordability.

Therefore, our TCFD disclosure reflects updated current and future actions

to mitigate risks and realise opportunities. The updates to our climate

risk assessments also consider new climate-related evidence and recent

publications from the Intergovernmental Panel on Climate Change (IPCC)

and Climate Change Committee (CCC), further to recent publications from

Ofwat (our economic regulator) on scenario analysis, adaptive planning,

PR24 methodology, and updates in regulation and legislation, the latter of

which gives us greater confidence in our transition risk impact reporting in

the short term.

Our Company has continued to grow over the past year, with Pennon Power

acquiring four new renewable energy generation projects to accelerate our

transition to Net Zero, and the acquisition of SES Water. Through Pennon

Power we are realising some of the benefits described in our opportunities,

whilst in our view SES Water’s material climate risks and opportunities will

be similar to the SWW water business risks. We are taking the opportunity to

further our resilience this year as we update our Climate Adaptation Report

as part of the UK government’s adaptation reporting cycle to feed into the

next UK Climate Change Risk Assessment.

We are focused on delivering for our stakeholders including our customers

and shareholders. As a result, we are continuing to embed climate change

resilience, sustainability, and nature-positive practices into decision

making within our business, as well as managing the near-term inflationary

pressures including power prices. We will also continue to manage changes

to our investments to explore new technology, materials, and nature-based

solutions, within the current global constraints on capacity and supply chains

to deliver both affordability and fairness for our customers.

As a Group, we maintain consistent and strong reporting with the CDP,

presenting our efforts to combat climate change and our GHG emissions

since 2013. Our GHG emissions performance continues to improve, reported

through our CDP Climate Change submission in which we received a B in

2023 for both climate change and water security. You can read about our

GHG emissions performance on page 71.

Task Force on Climate-related Financial

Disclosures (TCFD) and Task Force on

Nature-related Financial Disclosures (TNFD)

78 Annual Report and Accounts 2024 « Pennon Group plc

Governance

Our governance around climate-related and nature-related risks and opportunities

2023/24 progress 2024 and beyond

• We are continuing to enhance our governance framework, including

increased recognition of the role that each Board Committee and

several executive committees play in managing climate-related risk and

opportunities.

• We continue to incorporate carbon values into our investment decision-

making, and we continue to incentivise our Executives to deliver climate

and environmental goals.

• We will continue to further embed climate resilience and consider

enhancements to our governance around nature-related risks and

opportunities.

• We will continue to further embed the assessment and identification

of climate-related risks and nature-related risks within our investment

appraisal processes.

Strategy

The actual and potential impacts of climate-related and nature-related risks and opportunities on our business, strategy, and financial planning

2023/24 progress 2024 and beyond

• We have reviewed and enhanced our assessments of physical and

transitional climate risks and opportunities. We have re-assessed the

materiality of key risks with stakeholders across the Group and enhanced

the actions we are taking to manage the most pressing risks.

• We have considered climate change and nature recovery in South West

Water’s strategic planning for Water Resources (WRMP24) and our PR24

Business Plan.

• We will continue to integrate our climate risks within our existing risk

management systems and risk registers across the Group. Risk owners

will continue to drive and monitor action to manage risks and pursue

opportunities.

• We will consolidate our assessment of nature-related risks and

opportunities to identify our most material risks.

• We will continue to review our policies and strategic decision-making

across the Group in order to enhance considerations of climate and

nature risks and opportunities.

Risk management

The processes we use to identify, assess, and manage climate-related and nature-related risks and opportunities

2023/24 progress 2024 and beyond

• We have reviewed our principal risks and enhanced our recognition of how

climate change, Net Zero, and the nature emergency impact and influence

our principal risks.

• We will continue to review and update our management of climate and

nature risks and our decision-making frameworks to ensure risks are

clearly identified and assessed through the investment processes and

operational decision-making.

Metrics and targets

The metrics and targets we use to assess and manage the relevant climate-related and nature-related risks and opportunities

2023/24 progress 2024 and beyond

• We have continued to monitor key metrics linked to selected climate risks

and opportunities, and our investments in climate action. We are tracking

progress against our ESG targets and our Net Zero commitments and

renewable energy generation.

• We are undertaking analysis to quantify key risks, such as major assets at

risk of coastal flooding.

• We are continuing to explore options to develop quantitative metrics

for our key climate risks and opportunities, and exploring our ability to

report on our capital expenditure related to climate action.

Climate-related and nature-related governance

Board oversight

The Group has a strong governance structure in place to oversee the

effective operation of our business and to manage all risks - including

climate-related and nature-related risks and opportunities. Overall ownership

and responsibility for risks, opportunities, and mitigation actions is held by

the Pennon Group Board and CEO. Various Board Committees and executive

sub-committees play a key role in overseeing climate-related and nature-

related risks within their domain.

The Group recognises that climate change, the nature emergency, and the

transition to Net Zero impacts and influences several of the Group’s principal

risks (see our Principal Risks report on page 55). Principal risks are reviewed

as part of our audit governance processes. During the regulatory period,

climate change planning is assessed to ensure the business remains resilient

to changes to its capital programme.

79Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Pennon Group and South West Water Boards

The Group and South West Water Boards provide oversight to the management of our climate-related and nature-related risks and opportunities, through

the ESG Committee. The Boards have overall responsibility for the Group’s risk management policies and processes, and all principal risks are reviewed by the

Boards on a regular basis. The Boards consider climate-related and nature-related risks and opportunities throughout its duties - including when considering

the Group’s strategy and objectives, monitoring business and operational performance, business planning and annual budget setting, reviewing major capital

expenditures and existing investments, and in considering acquisitions/divestments. We are continuing to enhance the awareness and capacity of our Boards

and senior executives relating to climate and nature risks and opportunities. For more information see our Corporate Governance report pages 112 to 174.

Board Committees

All Board Committees play a role in managing our climate-related risks and opportunities, and several play a role in managing our nature

risks and opportunities, and we are continuing to raise awareness of these issues across Board Committees. Matters are escalated to the

Board as appropriate. Board Committees report their actions and decisions to the Board, ensuring robust governance - including for matters influenced

by climate change, nature recovery and the transition to Net Zero. The responsibility for climate-related and nature-related risks and opportunities

iscascaded through the business in order to meet our targets and objectives. Governance of nature-related risks and opportunities will be enhanced

inthe next AMP period when our performance commitments will include biodiversity.

Audit Committee

Attendance: Meets 4 times annually.

Attended by the Chair and other Non-

Executive Directors.

Role relating to climate risks and

opportunities: The Committee

monitors the Group’s financial reporting,

including how the impacts of climate

risks are accounted for in financial

statements. The Committee also

reviews key risks and opportunities

(including climate-related risks), and

challenges and tests the Group’s

internal control processes including risk

management and internal audit. Further

information on page 136.

Remuneration Committee

Attendance: Meets 4 times annually.

Attended by the Chair and other Non-

Executive Directors.

Role relating to climate risks and

opportunities: Considers the Group’s

objectives and responsibilities, and

advises the Board on the framework

of executive remuneration for the

Group and for the wider workforce,

including mechanisms to incentivise

achievement of the Group’s objectives

related to climate change, Net Zero, and

sustainability goals. Further information

on page 148.

ESG Committee

Attendance: Meets 4 times annually.

Attended by the Pennon Board, CEO,

and other Group Executives.

Role relating to climate and nature

risks and opportunities: Provides the

platform for discussion of the Group’s

ESG agenda and related climate and

nature risks and opportunities, as well

as setting and reviewing key metrics

relating to our ‘6 capitals’ assessments,

and reviewing performance against

ESG targets and goals. The Sustainable

Financing reporting and monitoring is

reported to the Committee for onward

submission to the Board. Further

information on page 144.

Health and Safety Committee

Attendance: Meets 2 times annually.

Attended by the Chair, CEO, and other

Non-Executive Directors.

Role relating to climate risks and

opportunities: Supports the Executive

Board on matters of risk across all

areas of health and safety, resilience,

and process safety - including areas

impacted by climate-related risks,

particularly related to harm from

extreme weather events. Also reviews

the effectiveness of the Group’s

procedures for H&S reporting and

performance. Further information on

page 146.

Nomination Committee

Attendance: Meets 4 times annually.

Attended by the Chair and other Non-

Executive Directors.

Role relating to climate risks

and opportunities: Considers

competency related to climate risks

and opportunities when reviewing the

structure, size, and composition of the

Board and senior executives In the

Group. Further information on page 131.

PR24 Committee

Attendance: Meets during the Board

cycle to review and monitor the PR24

Business Plan progress. Attended

by the Chair, other Non-Executive

Directors, CEO, CFO, and other Group

Executives.

Role relating to climate and nature

risks and opportunities: Considers

climate change, nature recovery, and

Net Zero as part of business planning

and the Group’s PR24 strategy.

TCFD and TNFD continued

80 Annual Report and Accounts 2024 « Pennon Group plc

Management’s role

Executive managers play a key role in identifying, assessing, and managing

climate-related risks and opportunities, and Executive managers sit on

relevant Executive committees. The responsibility for climate-related and

nature-related risks is owned, managed, and assessed by a number of the

Group’s management teams across our business including our management

responsible for water resources, wastewater, regulation, procurement,

engineering, natural resources/biodiversity, and finance. Risk is identified and

categorised in different parts of our business prior to being formally passed

onto senior management responsible for those business functions. Each

business function and department maintains a risk register, and management

escalate risks to the Executive Committees as appropriate. We are continuing

to raise awareness and the capacity of teams and executive management

toidentify, assess, and manage climate and nature risks and opportunities.

The Executive Directors’ remuneration policy is set to incentivise the

achievement of key performance objectives. This includes ESG objectives

and performance including targets relating to climate resilience, carbon

reduction, water quality, environmental performance, the working

environment for our employees, and diversity.

Pennon Executive Board

Attendance: CEO, CFO, COO, GCCS, CPO, CCDO, Director of Regulation

Strategy and Net Zero of SWW, Chief Engineering Director of SWW, Director

of Drought and Resilience of SWW.

Role relating to climate and nature risks and opportunities: The

Committee monitors, approves and reviews business objectives and plans,

and provides challenge and feedback to investment decisions. Throughout

these processes climate-related and nature-related risks and opportunities

are considered and actions to manage risks are embedded in business

planning and investment decision-making. There are several executive

committees who report to Pennon Executive Board (PEX), and below are

some of the key committees which consider climate-related risks and

opportunities within their remit:

• South West Bournemouth Bristol Executive Board (SWBB) - oversees and

informs Board Committees on operational performance and risks across

the regulated water businesses, including the impacts of climate-related

and nature-related risks to operations, and the actions being taken to

manage operational risks.

• Net Zero Executive Committee - monitors, reviews, and provides support

for the implementation of the Net Zero Strategy, including considering

risks and opportunities relevant to delivery of the strategy, including

nature-based solutions.

1. CEO = Group Chief Executive Officer, CFO = Group Chief Financial Officer, GCCS = Group General Counsel & Company Secretary, COO = Chief Operating Officer of SWW, CPO =

Group Chief People Officer, CCDO = Chief Customer and Digital Officer of SWW

Strategy

We are recommended by TCFD to disclose the actual and potential impacts

of climate-related and nature-related risks and opportunities onthe

organisation’s businesses, strategy, and financial planning where such

information is material.

Climate-related risks and opportunities

Our most material physical and transitional climate-related risks and

opportunities are presented on the following pages. These have been

identified by considering the climate scenarios described on page 102.

Therisks have been assessed using the Pennon 4x4 risk assessment matrix

which puts the highest risks in the red category under the RAG rating.

Further information on our risk assessment methodology can be found

on page 55. We have identified impacts over short (0-10 years), medium

(10-30years) and long term (30-100 years) horizons (the rationale behind

these time horizons is presented on page 102).

Due to the nature of our business, the opportunities are not only assessed

ontheir ability to increase our revenues; some are opportunities to save

costs and/or carbon, which supports our ability to provide the best outcomes

for our customers and stakeholders.

We then present our findings from scenario analysis, exploring the potential

range of impacts and our strategic responses under plausible contrasting

climate scenarios (see page 103).

81Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Physical climate risks

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency and intensity of droughts

- risks to water supply, wastewater networks,

andservices.

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Sustained drought can lead to supply shortfalls with a heightened risk for recovering water

storage if there are consecutive drought years.

• Risk compounded by high temperature events that increase daily and peak demand for garden

watering, crop irrigation, and tourism exceeding the capacity to redistribute water.

• Drought events lead to loss of supply and de-pressurisation of pipelines, greater incidence

ofpipe failure and contamination.

• More extreme wetting and drying cycles cause soil movement, more pipe movement/ subsidence

and bursts/ increased leakage.

• Lower river flows, as a result of drought events, reduce yields. Could lead to reductions in

our future abstraction allowances and increased need to release more water to rivers/the

environment (see also ‘Climate-related regulation in the Water sector’ transition risk).

• Lower groundwater levels reduce borehole yields. Intake, borehole pump and reservoir draw-off

levels may not match reduced levels.

• Water companies are legally expected to protect, restore and enhance the environment, which

includes ensuring sustainable abstraction practices to leave enough water for the environment.

This becomes more challenging during droughts.

• Saline intrusion due to lowering groundwater compounded by sea level rise (see ‘Rising sea

levels’ risk).

• Decreased quality of raw water (see ‘gradual and significant increasing average and high

temperatures - risks to water quality and water treatment’).

• Impacts on wastewater networks due to low flows from surface water.

• Low water levels lead to increased incidences of invasive non-native species (INNS) as they are

de-stressed and seek new habitats.

Current actions:

• Collaborative water resource management planning – West Country Water

Resources and Water Resources South East.

• Drought planning including more extreme events. Stochastic and multi-

year drought analysis to test how water supply systems perform in extreme

prolonged droughts.

• Prioritisation of support for vulnerable customers during droughts.

• Demand management and water efficiency, including increased metering, Per

Capita Consumption (PCC) reductions and leakage reduction strategy.

• Smart Saver tariff trial.

• Cheddar 2 reservoir in Bristol and water reuse plant in Poole.

• Water grid to ensure all strategic reservoirs are connected and improve

resilience.

• Leakbot trial to reduce leakage levels.

• Smart pond trial to provide a local storage solution.

• Investigation of regional water transfers.

• Potential Abstraction Incentive Mechanism (AIM) schemes.

• Enhancements to distribution system to remove bottlenecks/ support us to

meet peak demand.

• Desalination schemes in development to enhance our drought management

in both Isle of Scilly and Cornwall.

• Repurposing quarries to provide new storage.

Planned or future actions:

• West Country Water Resources Regional Plan 2029 and Water Resources

Management Plan 2029 water treatment improvements and wastewater

reuse.

• Potential for additional desalination schemes.

• Ability to convert Mayflower Water Treatment Works (WTWs) to water reuse

plant when, and if required in the future.

• Mainstream smart ponds.

Impacts from mitigating the risk:

We could incur increased expenditure (Opex and Capex) to increase

capacity for water supply infrastructure, and to manage drought conditions

and water demand. Some of these costs could be recoverable through

theregulatory system. Increased energy and material use could impact

ouroperational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation and reduce

ODI rewards/ increase ODI penalties (affecting our revenue). We could

face additional expenditure (Opex and Capex) to recover from service

disruptions, reduce leakage, and manage water demand. Some of our

assets could deteriorate and face impairment due to physical impacts.

Key physical climaterisks

Gradual and significant increasing average and

high temperatures - risks to water quality and

watertreatment

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Decreased water quality (odour, discolouration, dissolved organics, cryptosporidium) requiring

additional resources and cost to remove pathogens from drinking water or ensure water quality

meets regulatory standards at water treatment works (WTWs).

• Increased microbe propagation and survivability affecting treatment processes.

• Higher septicity levels in received wastewater.

• Algal blooms, triggered by catchment runoff, are exacerbated by higher temperatures.

• Higher peak demand for water compounded by reduced runoff yields due to higher temperatures

increasing evaporation (see ‘Increasing frequency and intensity of droughts’ risk).

• Decreased water quality compounded by overheating of equipment/assets.

• Cascading impacts to interdependent networks (e.g. power supply) from overheating, leading

toservice disruption.

• Increased prevalence of INNS.

Current actions:

• Upstream Thinking catchment management programme tackling raw

water quality to increase resource availability in 80% of our drinking water

catchments.

• Investment in six treatment works including granular activated carbon at

certain WTWs.

• Robust health and safety practices and management.

• Farm water efficiency and resilience project – 1,000 pond nature-based

solutions.

• Biodiversity management and INNS programmes.

• Installation of cooling systems for equipment/assets.

Planned or future actions:

• Upgrade to granular activated carbon treatment at further WTWs.

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex) for water and

wastewater treatment and odour management, and to increase capacity

for water supply infrastructure. Some of these costs could be recoverable

through the regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions and lower-quality service provision could negatively

impact our reputation and reduce ODI rewards/increase ODI penalties

(affecting our revenue).

We could incur increased expenditure (Capex and Opex) to recover

ourservices or use alternative water supplies.

Some of our assets could deteriorate and face impairment due to

physicalimpacts.

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

82 Annual Report and Accounts 2024 « Pennon Group plc

Physical climate risks

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency and intensity of droughts

- risks to water supply, wastewater networks,

andservices.

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Sustained drought can lead to supply shortfalls with a heightened risk for recovering water

storage if there are consecutive drought years.

• Risk compounded by high temperature events that increase daily and peak demand for garden

watering, crop irrigation, and tourism exceeding the capacity to redistribute water.

• Drought events lead to loss of supply and de-pressurisation of pipelines, greater incidence

ofpipe failure and contamination.

• More extreme wetting and drying cycles cause soil movement, more pipe movement/ subsidence

and bursts/ increased leakage.

• Lower river flows, as a result of drought events, reduce yields. Could lead to reductions in

our future abstraction allowances and increased need to release more water to rivers/the

environment (see also ‘Climate-related regulation in the Water sector’ transition risk).

• Lower groundwater levels reduce borehole yields. Intake, borehole pump and reservoir draw-off

levels may not match reduced levels.

• Water companies are legally expected to protect, restore and enhance the environment, which

includes ensuring sustainable abstraction practices to leave enough water for the environment.

This becomes more challenging during droughts.

• Saline intrusion due to lowering groundwater compounded by sea level rise (see ‘Rising sea

levels’ risk).

• Decreased quality of raw water (see ‘gradual and significant increasing average and high

temperatures - risks to water quality and water treatment’).

• Impacts on wastewater networks due to low flows from surface water.

• Low water levels lead to increased incidences of invasive non-native species (INNS) as they are

de-stressed and seek new habitats.

Current actions:

• Collaborative water resource management planning – West Country Water

Resources and Water Resources South East.

• Drought planning including more extreme events. Stochastic and multi-

year drought analysis to test how water supply systems perform in extreme

prolonged droughts.

• Prioritisation of support for vulnerable customers during droughts.

• Demand management and water efficiency, including increased metering, Per

Capita Consumption (PCC) reductions and leakage reduction strategy.

• Smart Saver tariff trial.

• Cheddar 2 reservoir in Bristol and water reuse plant in Poole.

• Water grid to ensure all strategic reservoirs are connected and improve

resilience.

• Leakbot trial to reduce leakage levels.

• Smart pond trial to provide a local storage solution.

• Investigation of regional water transfers.

• Potential Abstraction Incentive Mechanism (AIM) schemes.

• Enhancements to distribution system to remove bottlenecks/ support us to

meet peak demand.

• Desalination schemes in development to enhance our drought management

in both Isle of Scilly and Cornwall.

• Repurposing quarries to provide new storage.

Planned or future actions:

• West Country Water Resources Regional Plan 2029 and Water Resources

Management Plan 2029 water treatment improvements and wastewater

reuse.

• Potential for additional desalination schemes.

• Ability to convert Mayflower Water Treatment Works (WTWs) to water reuse

plant when, and if required in the future.

• Mainstream smart ponds.

Impacts from mitigating the risk:

We could incur increased expenditure (Opex and Capex) to increase

capacity for water supply infrastructure, and to manage drought conditions

and water demand. Some of these costs could be recoverable through

theregulatory system. Increased energy and material use could impact

ouroperational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation and reduce

ODI rewards/ increase ODI penalties (affecting our revenue). We could

face additional expenditure (Opex and Capex) to recover from service

disruptions, reduce leakage, and manage water demand. Some of our

assets could deteriorate and face impairment due to physical impacts.

Key physical climaterisks

Gradual and significant increasing average and

high temperatures - risks to water quality and

watertreatment

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Decreased water quality (odour, discolouration, dissolved organics, cryptosporidium) requiring

additional resources and cost to remove pathogens from drinking water or ensure water quality

meets regulatory standards at water treatment works (WTWs).

• Increased microbe propagation and survivability affecting treatment processes.

• Higher septicity levels in received wastewater.

• Algal blooms, triggered by catchment runoff, are exacerbated by higher temperatures.

• Higher peak demand for water compounded by reduced runoff yields due to higher temperatures

increasing evaporation (see ‘Increasing frequency and intensity of droughts’ risk).

• Decreased water quality compounded by overheating of equipment/assets.

• Cascading impacts to interdependent networks (e.g. power supply) from overheating, leading

toservice disruption.

• Increased prevalence of INNS.

Current actions:

• Upstream Thinking catchment management programme tackling raw

water quality to increase resource availability in 80% of our drinking water

catchments.

• Investment in six treatment works including granular activated carbon at

certain WTWs.

• Robust health and safety practices and management.

• Farm water efficiency and resilience project – 1,000 pond nature-based

solutions.

• Biodiversity management and INNS programmes.

• Installation of cooling systems for equipment/assets.

Planned or future actions:

• Upgrade to granular activated carbon treatment at further WTWs.

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex) for water and

wastewater treatment and odour management, and to increase capacity

for water supply infrastructure. Some of these costs could be recoverable

through the regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions and lower-quality service provision could negatively

impact our reputation and reduce ODI rewards/increase ODI penalties

(affecting our revenue).

We could incur increased expenditure (Capex and Opex) to recover

ourservices or use alternative water supplies.

Some of our assets could deteriorate and face impairment due to

physicalimpacts.

83Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Physical Climate Risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency of heavy rainfall and floods

- risks to assets and services, water quality,

andtheenvironment

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Impacts from intense rainfall overwhelming the surface water drainage system and from

prolonged rainfall leading to groundwater flooding.

• Flooding of assets and treatment works, loss of access to assets, and greater sediment levels

inraw water which disrupt services and potentially impact the environment.

• Cascading impacts to interdependent networks (e.g. power supply) from flooding, leading

toservice disruption.

• Increased groundwater leading to increased infiltration into assets.

• Increased volumes of storm-water exceed pump capacity leading to service failures.

• Exceedance of storm tank design and asset flooding/damage with interruption to service.

• Increased frequency and duration of storm overflows, with potential impacts to water bodies -

including potential closure of beaches.

• Increased river flows and risk of bank erosion exposing wastewater pipes, increasing the risk

ofcollapse.

• Catchment erosion in moorland or peatland areas, with nutrients leaching that increase algal

growth in waterbodies and reservoirs.

• Dilution of, and rapid variations in, influent flows – longer retention of water in storm tanks

leadsto increased septicity and operational problems.

• Increased flood incidence impacts water quality for some boreholes, may result in temporary

inaccessibility or contamination.

• Increased turbidity of water sources.

• Increased river flows and riverbank erosion. Risk to riverside pipework and assets.

Current actions:

• Drainage & Wastewater Management Plan (DWMP) which includes working closely

withother flood risk management organisations to develop shared solutions.

• Asset flood risk assessments undertaken every five years.

• Contingency planning in flood risk hotspots e.g. River Otter, including prioritisation

ofsupport for vulnerable customers.

• Sites have temporary deployable flood protection.

• Investment in current period to improve flood defences at four WTWs to provide resilience

up to 1-in- 1,000-year events.

• Catchment management through Upstream and Downstream Thinking.

• Continued investment in our WaterFit Plans - reducing storm overflow releases and

improving river and coastal water quality, creating and restoring habitat, and looking

toinspire local champions to improve water quality through schools and communities.

• Partnership flood schemes e.g. Countess Wear Wastewater Treatment Works (WWTW)

(Exeter).

• Catchment Systems Thinking Co-operative (CaSTCo) project with the Centre for

Resilience in Environment, Water and Waste (CREWW). Considers how nature based

solutions can help reduce surface water inputs to the combined sewer network.

• Natural catchment management plan pilot study.

Planned or future actions:

• Continue to work closely with other flood risk management organisations on our shared

responsibility for surface water flooding and drainage.

• Further sewer separation schemes in areas at risk.

• Surface water drainage plans and investment in key areas.

• Expand our Upstream Thinking initiative.

• Real-time monitoring and control e.g. at all Combined Sewer Overflows (CSO). Improved

data recording has led to more transparency of this risk.

• Promote improved understanding that the number of CSOs does not directly equate

toenvironmental or human health impact.

• Continue to improve incident management.

• Assess storm overflow solutions using the ‘Green First’ principle prioritising the

consideration of nature-based solutions. Pilot study to develop a natural capital plan.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) to

improve operational resilience and flood defences, and to

enhance our Upstream and Downstream Thinking programmes.

Some of these costs could be recoverable through the

regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions and combined storm overflows could

negatively impact our reputation and reduce ODI rewards/

increase ODI penalties (affecting our revenue).

We could incur additional expenditure (Opex and Capex)

torecover our services and repair damaged assets.

Some of our assets could deteriorate and face impairment

dueto physical impacts.

Key physical climaterisks

Rising sea levels and coastal erosion - risks to assets

and services

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Direct asset damage from flooding, storm damage and/or coastal erosion.

• Cascading impacts to interdependent networks (e.g. power supply) due to damage from coastal

flooding, storm damage and/or coastal erosion.

• Rising sea levels increase the extent of the saline intrusion zone. Tidal limits move upstream,

causing increased salinity at river intakes. This can cause accelerated asset deterioration

andreduced process performance efficacy.

• Increased health and safety implications e.g. hydrogen sulphide gas from wastewater

treatmentworks.

• Saltwater intrusion of groundwater sources causing source to become unusable (compounded

by lowering groundwater levels – see our ‘Increasing frequency and intensity of droughts’ risk).

• Coastal estuarine storm overflow discharges become tide-locked hindering free discharge.

• Increased environmental ambition by other stakeholders to replace lost coastal habitat and

manage coastal erosion, impacting our assets and services (in some cases requiring us to carry

out actions which may not be funded through the regulatory system).

Current actions:

• Asset flood risk assessments undertaken every five years. Recent risk assessment

incorporates the latest UK Climate Projections. Informs the development of Shoreline

Management Plans to working collaboratively with other land holders on shared solutions.

• Managing risk to sites through existing Operational Response and Recovery Plans.

• Drainage and Wastewater Management Plan (DWMP)

• Prioritisation of support for vulnerable customers.

• Improved flood resilience of all assets in the coastal floodplain.

• Partnership flood schemes e.g. Countess Wear WWTW (Exeter).

• Protection of sites from saline intrusion/incursion (Otter Basin).

• Continuing work with stakeholders involved in managing coastal erosion.

Planned or future actions:

• Protection of further sites from saline intrusion/incursion.

• Desalination programme to replace ‘at risk’ sources such as Isles of Scilly boreholes.

• Ongoing work with other risk management authorities to inform the development

oftherelevant Shoreline Management Plans.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) for

protecting our sites and assets from coastal flooding and saline

intrusion. Some of these costs could be recoverable through

the regulatory system.

Increased energy and material use could impact our operational

and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation

and reduce ODI rewards/increase ODI penalties (affecting

ourrevenue).

We could face additional expenditure (Opex and Capex)

for using alternative water supply if sites/sources

becomeunusable.

Some of our assets could deteriorate and face impairment

dueto physical impacts.

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

84 Annual Report and Accounts 2024 « Pennon Group plc

Physical Climate Risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency of heavy rainfall and floods

- risks to assets and services, water quality,

andtheenvironment

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Impacts from intense rainfall overwhelming the surface water drainage system and from

prolonged rainfall leading to groundwater flooding.

• Flooding of assets and treatment works, loss of access to assets, and greater sediment levels

inraw water which disrupt services and potentially impact the environment.

• Cascading impacts to interdependent networks (e.g. power supply) from flooding, leading

toservice disruption.

• Increased groundwater leading to increased infiltration into assets.

• Increased volumes of storm-water exceed pump capacity leading to service failures.

• Exceedance of storm tank design and asset flooding/damage with interruption to service.

• Increased frequency and duration of storm overflows, with potential impacts to water bodies -

including potential closure of beaches.

• Increased river flows and risk of bank erosion exposing wastewater pipes, increasing the risk

ofcollapse.

• Catchment erosion in moorland or peatland areas, with nutrients leaching that increase algal

growth in waterbodies and reservoirs.

• Dilution of, and rapid variations in, influent flows – longer retention of water in storm tanks

leadsto increased septicity and operational problems.

• Increased flood incidence impacts water quality for some boreholes, may result in temporary

inaccessibility or contamination.

• Increased turbidity of water sources.

• Increased river flows and riverbank erosion. Risk to riverside pipework and assets.

Current actions:

• Drainage & Wastewater Management Plan (DWMP) which includes working closely

withother flood risk management organisations to develop shared solutions.

• Asset flood risk assessments undertaken every five years.

• Contingency planning in flood risk hotspots e.g. River Otter, including prioritisation

ofsupport for vulnerable customers.

• Sites have temporary deployable flood protection.

• Investment in current period to improve flood defences at four WTWs to provide resilience

up to 1-in- 1,000-year events.

• Catchment management through Upstream and Downstream Thinking.

• Continued investment in our WaterFit Plans - reducing storm overflow releases and

improving river and coastal water quality, creating and restoring habitat, and looking

toinspire local champions to improve water quality through schools and communities.

• Partnership flood schemes e.g. Countess Wear Wastewater Treatment Works (WWTW)

(Exeter).

• Catchment Systems Thinking Co-operative (CaSTCo) project with the Centre for

Resilience in Environment, Water and Waste (CREWW). Considers how nature based

solutions can help reduce surface water inputs to the combined sewer network.

• Natural catchment management plan pilot study.

Planned or future actions:

• Continue to work closely with other flood risk management organisations on our shared

responsibility for surface water flooding and drainage.

• Further sewer separation schemes in areas at risk.

• Surface water drainage plans and investment in key areas.

• Expand our Upstream Thinking initiative.

• Real-time monitoring and control e.g. at all Combined Sewer Overflows (CSO). Improved

data recording has led to more transparency of this risk.

• Promote improved understanding that the number of CSOs does not directly equate

toenvironmental or human health impact.

• Continue to improve incident management.

• Assess storm overflow solutions using the ‘Green First’ principle prioritising the

consideration of nature-based solutions. Pilot study to develop a natural capital plan.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) to

improve operational resilience and flood defences, and to

enhance our Upstream and Downstream Thinking programmes.

Some of these costs could be recoverable through the

regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions and combined storm overflows could

negatively impact our reputation and reduce ODI rewards/

increase ODI penalties (affecting our revenue).

We could incur additional expenditure (Opex and Capex)

torecover our services and repair damaged assets.

Some of our assets could deteriorate and face impairment

dueto physical impacts.

Key physical climaterisks

Rising sea levels and coastal erosion - risks to assets

and services

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Direct asset damage from flooding, storm damage and/or coastal erosion.

• Cascading impacts to interdependent networks (e.g. power supply) due to damage from coastal

flooding, storm damage and/or coastal erosion.

• Rising sea levels increase the extent of the saline intrusion zone. Tidal limits move upstream,

causing increased salinity at river intakes. This can cause accelerated asset deterioration

andreduced process performance efficacy.

• Increased health and safety implications e.g. hydrogen sulphide gas from wastewater

treatmentworks.

• Saltwater intrusion of groundwater sources causing source to become unusable (compounded

by lowering groundwater levels – see our ‘Increasing frequency and intensity of droughts’ risk).

• Coastal estuarine storm overflow discharges become tide-locked hindering free discharge.

• Increased environmental ambition by other stakeholders to replace lost coastal habitat and

manage coastal erosion, impacting our assets and services (in some cases requiring us to carry

out actions which may not be funded through the regulatory system).

Current actions:

• Asset flood risk assessments undertaken every five years. Recent risk assessment

incorporates the latest UK Climate Projections. Informs the development of Shoreline

Management Plans to working collaboratively with other land holders on shared solutions.

• Managing risk to sites through existing Operational Response and Recovery Plans.

• Drainage and Wastewater Management Plan (DWMP)

• Prioritisation of support for vulnerable customers.

• Improved flood resilience of all assets in the coastal floodplain.

• Partnership flood schemes e.g. Countess Wear WWTW (Exeter).

• Protection of sites from saline intrusion/incursion (Otter Basin).

• Continuing work with stakeholders involved in managing coastal erosion.

Planned or future actions:

• Protection of further sites from saline intrusion/incursion.

• Desalination programme to replace ‘at risk’ sources such as Isles of Scilly boreholes.

• Ongoing work with other risk management authorities to inform the development

oftherelevant Shoreline Management Plans.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) for

protecting our sites and assets from coastal flooding and saline

intrusion. Some of these costs could be recoverable through

the regulatory system.

Increased energy and material use could impact our operational

and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation

and reduce ODI rewards/increase ODI penalties (affecting

ourrevenue).

We could face additional expenditure (Opex and Capex)

for using alternative water supply if sites/sources

becomeunusable.

Some of our assets could deteriorate and face impairment

dueto physical impacts.

85Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Physical Climate Risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency of extreme weather events,

heatwaves and storms – Acute risks to assets and

services

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Power supply failure due to high winds, heavy rainfall/flooding, lightning at key network and

treatment sites and resultant cascading impacts to interdependent networks, including water

supply delivery and wastewater management.

• Cold snaps and freeze/thaw events leading to pipe bursts/ increased leakage.

• Reduced ability for our services and assets to recover under consecutive storms.

• Surges in customer water-use during heatwave events leads to operational challenges to treat

and distribute water at pace even when there is enough water in sources (also see ‘Increasing

frequency and intensity of droughts’ risk).

• Damage to our assets due to extreme weather and/or heatwaves e.g. overheating of electrical

equipment.

• Decreased water quality during heatwaves.

Current actions:

• Cold weather plan, including prioritisation of support for vulnerable customers.

• Investment in centralised control room and alternative water supply teams.

• Appointment of a new incident management team.

• Improved staff incident training.

• Working with other water companies to develop a business continuity and visualisation

tool that will support operational decisions and reduce customer impacts, including to the

most vulnerable people.

• Backup power at plants to manage risks of energy supply interruption.

• Programme of generator roll-outs.

• Recovery plans for 100 WWTWs.

• Working with other stakeholders (e.g. energy providers) to enhance resilience.

• Mutual aid agreements to manage competing responses for aid during emergency events.

• Strategic water grid to enhance resilience of supply.

• Diversified energy supply with our own generation of renewable energy provides additional

energy resilience.

Planned or future actions:

• Extend real-time monitoring and control.

• Extend recovery plans at more WWTWs.

• Invest in mobile granular activated carbon units.

• Further investment in generating renewable energy and back-up power.

• Use of drones during drought and high temperature events to identify leaks.

• Public value assessments in decision-making (balancing trade-offs of different agendas,

and contradictions in the regulatory framework).

• Seeking opportunities for additional funding, making the investment case based on core

water company activities.

• Future climate adaptation planning and transition planning.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) for

maintenance and upgrades to assets to enhance resilience to

storms. Some of these costs could be recoverable through the

regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation

and reduce ODI rewards/increase ODI penalties (affecting our

revenue).

We could face additional expenditure (Opex and Capex) to

restore services and repair assets. Some of our assets could

deteriorate and face impairment due to physical impacts.

Climate transition risks

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon of risk

Short and medium term

Potential for this risk to decrease over time as

regulation evolves to remove contradictions and

misalignment, and as leadership on climate action

becomes commonplace across Government and the

economy.

Current risk rating

Last year’s risk rating

Risk of challenges balancing trade-offs in regulation in the Water sector between agendas

of Net Zero, climate resilience, environmental enhancement, and other objectives, posing

the risk of increasing costs and carbon: Potential undesired climate outcomes due to trade-offs

in regulatory priorities. Challenges with balancing objectives to improve environmental outcomes

while reducing carbon emissions at the same time as rapid changes in climate-related policies and

regulations are occurring in the Water sector.

A holistic and balanced approach to delivering our goals for Net Zero, providing a resilient water

supply and protecting and enhancing the environment, could be at risk if one agenda imposes

more stringent regulation, thus presenting a misalignment in the pace with which preferably

holistic actions can be delivered relative to actions that benefit a single more stringent agenda. In

some cases, new/enhanced policies and regulations pose a risk due to increasing costs to Pennon

or increasing Pennon’s carbon footprint, in other cases the absence of policies and regulation

pose arisk due to potential that costs incurred by Pennon may not be recovered through the

regulatorysystem.

Some examples include:

• More stringent environmental regulation being imposed in response to the climate adaptation

and nature positive agenda, including the pace with which requirements are being imposed.

• Reduced abstraction allowances and increased compensation flows into our rivers being

imposed (see our ‘drought’ physical risk).

• Increased environmental ambition by other stakeholders to replace lost coastal habitat and

manage coastal erosion (see our ‘rising sea levels’ physical risk).

• Changes to carbon accounting methodologies and scope boundaries, including switch to

location-based GHG accounting methodology instead of market-based accounting (e.g.

disincentivising power purchase agreements (PPAs) for renewable energy).

• Use of modular desalination to ensure drought resilience at pace, but leading to increased

energy consumption.

• Enhanced requirements which increase Pennon’s energy and carbon footprint e.g. phosphorus

removal, UV disinfection, reducing combined sewer overflows in cases where the scale and pace

required disadvantages nature-based solutions.

• Regulation in contradiction to achieve overall Net Zero goals, and regulatory system providing

limited incentives for wider Net Zero action outside of the regulated water business.

Balancing trade-offs from actions to address different agendas in policy and

regulation:

Current actions:

• Horizon scanning to identify emerging/changing regulation.

• Stakeholder engagement/public relations management.

• Net Zero programme.

• Engaging with regulators to explain the climate change impacts of new regulation.

• Working with others in the sector to clarify carbon accounting approaches.

• Widely engaged with around 200,000 customers and stakeholders over the past two

years in developing PR24 business plan. These engagement activities will continue across

theregion.

• Working with our WaterShare+ Customer Advisory Panel gives us an opportunity to

continuously engage our customers and share our work on sustainability and resilience.

• Adaptive planning approach within WRMP24 and DWMP23, including high, moderate,

andlow environmental ambition.

• Considering options which Pennon can take outside of the regulatory framework

(e.g.offsite investment in renewable energy).

• Ofwat innovation fund being explored to provide additional investment to support

Pennon’s ambitious objectives.

• Establishment of the Centre for Resilience in Environment, Water and Waste (CREWW)

tocollaborate with academia and tackle challenges facing water sector.

Future actions:

• Pursuing opportunities through our Upstream Thinking programme which includes

nature-recovery programmes across our region and other nature-based solutions where

these are acceptable under the regulation.

• Investment in innovation/ research and development, and investment in enhancements

toresilience to key climate risks.

• Considering applying an internal carbon price to consider full costs and benefits

ofdecisions.

• Public value assessments in decision-making (balancing trade-offs of different agendas,

and contradictions in the regulatory framework).

• Seeking opportunities for additional funding, making the investment case based on

corewater company activities.

• Future climate adaptation planning and transition planning.

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex)

due to changes to regulation, for example costs related

to installation and operation of new process equipment to

meet enhanced regulations. Some of these costs could be

recoverable through the regulatory system. Increased energy

and material use to meet increased regulatory requirements

has potential to increase our footprint through operational

andembodied carbon.

Impacts of the unmitigated risk:

If we fail to balance regulatory requirements, we could face

reduced ODI rewards/ increased ODI penalties (affecting our

revenue). Public perception of how we balance trade-offs could

result in negative impacts on our reputation (see our see our

‘Negative public and stakeholder’ relations risk).

Some of our assets could incur obsolescence and

impairment if they are driving high carbon emissions or poor

environmentaloutcomes.

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

86 Annual Report and Accounts 2024 « Pennon Group plc

Physical Climate Risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Key physical climaterisks

Increasing frequency of extreme weather events,

heatwaves and storms – Acute risks to assets and

services

Relevant time horizon

Short, medium and long term, with increasing

likelihood and magnitude of risk over each horizon

This year’s risk rating

Current risk rating

Risk score in 2050 without further action

Last year’s risk rating

Current risk rating

Risk score in 2050 without further action

• Power supply failure due to high winds, heavy rainfall/flooding, lightning at key network and

treatment sites and resultant cascading impacts to interdependent networks, including water

supply delivery and wastewater management.

• Cold snaps and freeze/thaw events leading to pipe bursts/ increased leakage.

• Reduced ability for our services and assets to recover under consecutive storms.

• Surges in customer water-use during heatwave events leads to operational challenges to treat

and distribute water at pace even when there is enough water in sources (also see ‘Increasing

frequency and intensity of droughts’ risk).

• Damage to our assets due to extreme weather and/or heatwaves e.g. overheating of electrical

equipment.

• Decreased water quality during heatwaves.

Current actions:

• Cold weather plan, including prioritisation of support for vulnerable customers.

• Investment in centralised control room and alternative water supply teams.

• Appointment of a new incident management team.

• Improved staff incident training.

• Working with other water companies to develop a business continuity and visualisation

tool that will support operational decisions and reduce customer impacts, including to the

most vulnerable people.

• Backup power at plants to manage risks of energy supply interruption.

• Programme of generator roll-outs.

• Recovery plans for 100 WWTWs.

• Working with other stakeholders (e.g. energy providers) to enhance resilience.

• Mutual aid agreements to manage competing responses for aid during emergency events.

• Strategic water grid to enhance resilience of supply.

• Diversified energy supply with our own generation of renewable energy provides additional

energy resilience.

Planned or future actions:

• Extend real-time monitoring and control.

• Extend recovery plans at more WWTWs.

• Invest in mobile granular activated carbon units.

• Further investment in generating renewable energy and back-up power.

• Use of drones during drought and high temperature events to identify leaks.

• Public value assessments in decision-making (balancing trade-offs of different agendas,

and contradictions in the regulatory framework).

• Seeking opportunities for additional funding, making the investment case based on core

water company activities.

• Future climate adaptation planning and transition planning.

Impacts from mitigating the risk:

We could incur additional expenditure (Opex and Capex) for

maintenance and upgrades to assets to enhance resilience to

storms. Some of these costs could be recoverable through the

regulatory system. Increased energy and material use could

impact our operational and embodied carbon.

Impacts of the unmitigated risk:

Service disruptions could negatively impact our reputation

and reduce ODI rewards/increase ODI penalties (affecting our

revenue).

We could face additional expenditure (Opex and Capex) to

restore services and repair assets. Some of our assets could

deteriorate and face impairment due to physical impacts.

Climate transition risks

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon of risk

Short and medium term

Potential for this risk to decrease over time as

regulation evolves to remove contradictions and

misalignment, and as leadership on climate action

becomes commonplace across Government and the

economy.

Current risk rating

Last year’s risk rating

Risk of challenges balancing trade-offs in regulation in the Water sector between agendas

of Net Zero, climate resilience, environmental enhancement, and other objectives, posing

the risk of increasing costs and carbon: Potential undesired climate outcomes due to trade-offs

in regulatory priorities. Challenges with balancing objectives to improve environmental outcomes

while reducing carbon emissions at the same time as rapid changes in climate-related policies and

regulations are occurring in the Water sector.

A holistic and balanced approach to delivering our goals for Net Zero, providing a resilient water

supply and protecting and enhancing the environment, could be at risk if one agenda imposes

more stringent regulation, thus presenting a misalignment in the pace with which preferably

holistic actions can be delivered relative to actions that benefit a single more stringent agenda. In

some cases, new/enhanced policies and regulations pose a risk due to increasing costs to Pennon

or increasing Pennon’s carbon footprint, in other cases the absence of policies and regulation

pose arisk due to potential that costs incurred by Pennon may not be recovered through the

regulatorysystem.

Some examples include:

• More stringent environmental regulation being imposed in response to the climate adaptation

and nature positive agenda, including the pace with which requirements are being imposed.

• Reduced abstraction allowances and increased compensation flows into our rivers being

imposed (see our ‘drought’ physical risk).

• Increased environmental ambition by other stakeholders to replace lost coastal habitat and

manage coastal erosion (see our ‘rising sea levels’ physical risk).

• Changes to carbon accounting methodologies and scope boundaries, including switch to

location-based GHG accounting methodology instead of market-based accounting (e.g.

disincentivising power purchase agreements (PPAs) for renewable energy).

• Use of modular desalination to ensure drought resilience at pace, but leading to increased

energy consumption.

• Enhanced requirements which increase Pennon’s energy and carbon footprint e.g. phosphorus

removal, UV disinfection, reducing combined sewer overflows in cases where the scale and pace

required disadvantages nature-based solutions.

• Regulation in contradiction to achieve overall Net Zero goals, and regulatory system providing

limited incentives for wider Net Zero action outside of the regulated water business.

Balancing trade-offs from actions to address different agendas in policy and

regulation:

Current actions:

• Horizon scanning to identify emerging/changing regulation.

• Stakeholder engagement/public relations management.

• Net Zero programme.

• Engaging with regulators to explain the climate change impacts of new regulation.

• Working with others in the sector to clarify carbon accounting approaches.

• Widely engaged with around 200,000 customers and stakeholders over the past two

years in developing PR24 business plan. These engagement activities will continue across

theregion.

• Working with our WaterShare+ Customer Advisory Panel gives us an opportunity to

continuously engage our customers and share our work on sustainability and resilience.

• Adaptive planning approach within WRMP24 and DWMP23, including high, moderate,

andlow environmental ambition.

• Considering options which Pennon can take outside of the regulatory framework

(e.g.offsite investment in renewable energy).

• Ofwat innovation fund being explored to provide additional investment to support

Pennon’s ambitious objectives.

• Establishment of the Centre for Resilience in Environment, Water and Waste (CREWW)

tocollaborate with academia and tackle challenges facing water sector.

Future actions:

• Pursuing opportunities through our Upstream Thinking programme which includes

nature-recovery programmes across our region and other nature-based solutions where

these are acceptable under the regulation.

• Investment in innovation/ research and development, and investment in enhancements

toresilience to key climate risks.

• Considering applying an internal carbon price to consider full costs and benefits

ofdecisions.

• Public value assessments in decision-making (balancing trade-offs of different agendas,

and contradictions in the regulatory framework).

• Seeking opportunities for additional funding, making the investment case based on

corewater company activities.

• Future climate adaptation planning and transition planning.

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex)

due to changes to regulation, for example costs related

to installation and operation of new process equipment to

meet enhanced regulations. Some of these costs could be

recoverable through the regulatory system. Increased energy

and material use to meet increased regulatory requirements

has potential to increase our footprint through operational

andembodied carbon.

Impacts of the unmitigated risk:

If we fail to balance regulatory requirements, we could face

reduced ODI rewards/ increased ODI penalties (affecting our

revenue). Public perception of how we balance trade-offs could

result in negative impacts on our reputation (see our see our

‘Negative public and stakeholder’ relations risk).

Some of our assets could incur obsolescence and

impairment if they are driving high carbon emissions or poor

environmentaloutcomes.

87Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Climate transition risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon of risk

Short and medium term

In the short term the risk is more focused on funding

to achieve Net Zero, over the medium and long term

the risk will increasingly focus on funding to enable

adaptation to climate change.

Current risk rating

Last year’s risk rating

Regulatory funding risk for achieving Pennon’s goals for operational Net Zero by 2030

andadapting to climate change : Risk that the investment required to transition to operational

Net Zero by 2030, and investment to proactively adapt to climate change in the time period

targeted by Pennon, is not allowed under the regulatory framework.

Managing regulatory funding risk:

Current actions:

• Business planning and integration of carbon and multi-capitals into decision-making

frameworks.

• Engagement with regulators and customers and stakeholders.

• Public campaigns/awareness of investment need for climate action including TCFD

programme.

• Exploring options to ensure a return on investment for some climate-related actions.

• Demonstrating/communicating that operational Net Zero 2030 for the water sector

isahelpful milestone on the way to Government’s goal for Net Zero 2050.

• Pennon Power funded by Pennon Group balance sheet outside of regulatory funding.

• Exploring options which Pennon can take outside of the regulated water businesses

(e.g. offsite investment in renewable energy, enhancing revenue through water resource

schemes for other companies).

• Horizon scanning for opportunities to achieve Net Zero goals under available regulatory

funding mechanisms.

Future actions:

• Explore options for third-party funding or partnerships for climate action.

• Potential for Pennon to review climate change objectives if they are not supported by

regulators and Government.

• Bioresources investment plan (pending funding).

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex)

totake actions outside of the regulated water business, and

to enhance engagement with regulators and stakeholders.

There is potential for us to increase our revenue through some

actions. See our ‘Products and Services’ climate opportunity.

Impacts of the unmitigated risk:

If we cannot proactively invest in carbon reduction and climate

resilience we could face reduced ODI rewards/ increased ODI

penalties (affecting our revenue).

Increased costs to our customers in the long-term would

negatively impact our reputation (see our ‘Negative public and

stakeholder relations’ and ‘Customer affordability’ reputation

risks).

Some of our assets could deteriorate and face impairment due

to physical impacts from climate change.

We may be limited in our ability to reduce our carbon emissions

due to funding constraints.

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

88 Annual Report and Accounts 2024 « Pennon Group plc

Climate transition risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon of risk

Short and medium term

In the short term the risk is more focused on funding

to achieve Net Zero, over the medium and long term

the risk will increasingly focus on funding to enable

adaptation to climate change.

Current risk rating

Last year’s risk rating

Regulatory funding risk for achieving Pennon’s goals for operational Net Zero by 2030

andadapting to climate change : Risk that the investment required to transition to operational

Net Zero by 2030, and investment to proactively adapt to climate change in the time period

targeted by Pennon, is not allowed under the regulatory framework.

Managing regulatory funding risk:

Current actions:

• Business planning and integration of carbon and multi-capitals into decision-making

frameworks.

• Engagement with regulators and customers and stakeholders.

• Public campaigns/awareness of investment need for climate action including TCFD

programme.

• Exploring options to ensure a return on investment for some climate-related actions.

• Demonstrating/communicating that operational Net Zero 2030 for the water sector

isahelpful milestone on the way to Government’s goal for Net Zero 2050.

• Pennon Power funded by Pennon Group balance sheet outside of regulatory funding.

• Exploring options which Pennon can take outside of the regulated water businesses

(e.g. offsite investment in renewable energy, enhancing revenue through water resource

schemes for other companies).

• Horizon scanning for opportunities to achieve Net Zero goals under available regulatory

funding mechanisms.

Future actions:

• Explore options for third-party funding or partnerships for climate action.

• Potential for Pennon to review climate change objectives if they are not supported by

regulators and Government.

• Bioresources investment plan (pending funding).

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and Opex)

totake actions outside of the regulated water business, and

to enhance engagement with regulators and stakeholders.

There is potential for us to increase our revenue through some

actions. See our ‘Products and Services’ climate opportunity.

Impacts of the unmitigated risk:

If we cannot proactively invest in carbon reduction and climate

resilience we could face reduced ODI rewards/ increased ODI

penalties (affecting our revenue).

Increased costs to our customers in the long-term would

negatively impact our reputation (see our ‘Negative public and

stakeholder relations’ and ‘Customer affordability’ reputation

risks).

Some of our assets could deteriorate and face impairment due

to physical impacts from climate change.

We may be limited in our ability to reduce our carbon emissions

due to funding constraints.

89Pennon Group plc » Annual Report and Accounts 2024

Strategic report Governance Financial statements Other information

Climate Transition Risks continued

Key impacts identified on our operations and customers Examples of our actions to mitigate risks and realise opportunities Primary financial and reputational impacts to our business

Type as defined by TCFD

Technology Risks

Relevant time horizon of risk

Short and medium term

In the short term the risk is primarily driven by

limited supply and readiness of technology and

resources (due to past underinvestment in skills

development and infrastructure across the UK and

beyond, particularly in the South West); over the

medium term the risk will be increasingly driven

byhigh demand for technology and resources.

Current risk rating

Last year’s risk rating

Capacity and readiness of technology and resources to achieve Net Zero before other

sectors and the wider UK: Risks that skills, technology, resources, and infrastructure are not

ready and available to enable Pennon’s transition to Net Zero operational carbon by 2030, resulting

in delays and in some cases resulting in Pennon paying high costs to access resources. Some

examples include:

• Availability and capacity of Pennon’s workforce and supply chain to procure and design

low-carbon solutions (which is compounded by wider risks, such as geopolitical events and

macroeconomic conditions such as high inflation).

• Availability and capacity of technology and infrastructure, particularly in the South West of

England, to enable development of Pennon’s renewable energy projects and other Net Zero

programme activities.

• High demand for resources and technologies from others causing delays and increasing costs

forPennon (e.g. demand for expertise, batteries, electric vehicles).

• Unsuccessful investment in new technologies/approaches, or technology which is then

superseded, including risks around recovering costs through the regulatory system.

• Innovation required to reduce process emissions is of larger scale than originally understood,

amplifying the risk of potential unsuccessful R&D Investments, and the risk of taking investment

decisions which in future turn out to be suboptimal / high-regret.

• Readiness of some nature-based solutions for implementation and some uncertainty in

performance of nature-based solutions.

Managing capacity constraints in Pennon:

Current actions:

• Continual enhancement of capacity within Pennon (e.g. training, recruiting key skills).

• Collaboration with supply chain partners (e.g. consultants, technology providers,

contractors).

• Collaboration with stakeholders (e.g. academia, environmental groups in the South West).

• Collaboration with other water companies and across the sector to develop standard

approaches and enhance capacity.

• Nature-based solutions capacity enhanced through Pennon’s Green First Framework

andBiodiversity Strategy.

Future actions:

• Prioritising actions/solutions which are low-regret/ flexible e.g. nature-based solutions

• Piloting options/technology before scaling.

Managing supply chain and infrastructure limitations:

Current actions:

• Horizon scanning to identify emerging limitations and risks.

• Engagement with key suppliers and partners and enhancing collaboration with partners

and stakeholders.

• Engaging with infrastructure providers, regulators, and Government to encourage

investment to enable network capacity.

• Enhancing capacity within Pennon to reduce reliance on suppliers.

• Purchasing renewable electricity and development of Pennon Power to provide renewable

energy from outside of the South West region.

Future actions:

• Procurement strategies for key technologies/expertise.

• Enhancing supply chain resilience (e.g. diversification of suppliers).

• Exploring options which are less reliant on network capacity (e.g. onsite battery storage).

Managing costs to transition:

Current actions:

• Seek to fund investment through the regulatory process (business planning and

pricereviews).

• Investment in innovation to reduce costs of low-carbon technology.

Future actions:

• Increasing efficiency to reduce costs (see our ‘resource efficiency’ transition opportunity).

• Recovering some costs from retired assets (e.g. selling used equipment).

• Explore partnership opportunities (e.g. PPAs).

Managing research and development investment:

Current action:

• R&D programme with gated investment (e.g. piloting before scaling up).

• Horizon scanning to identify emerging technology and risks.

• Procurement strategies to reduce costs (e.g. competitive tendering, joint ventures).

• Learning from others in the water sector in UK and internationally.

• Engagement with regulators and community to test acceptability of strategies and

schemes and seek to build support for innovation culture and understanding across

regulators and government.

Future action:

• Prioritising solutions that are low-regret, particularly nature-based solutions through

piloting technology before scaling.

Impacts from mitigating the risk:

We could incur increased expenditure (Opex) to build capacity

across our company and supply chain, and increased costs

to access skills and technology to meet our targeted timeline.

Some of these costs could be recoverable through the

regulatory system.

Impacts of the unmitigated risk:

We could incur increased expenditure (Capex and Opex) due

to delays with implementing solutions to reduce operational

carbon emissions, and due to high demand for resources.

Unsuccessful investment in new technologies could also result

in increased expenditure.

We could incur penalties and/or negative impacts to our

reputation if delays in technology and resources mean we do

not meet our targets and/or Net Zero programme (see our

‘Negative public and stakeholder relations’ risk).

We may be limited in our ability to reduce our carbon emissions.

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

90 Annual Report and Accounts 2024 « Pennon Group plc