Bringing water to life

Supporting the lives of people and the places

they love for generations to come

Annual Report and Accounts 2025

Contents

Strategic Report

Pennon at a glance 1

Group highlights 2

Our sector – a changing landscape 4

Delivering on our priorities 6

The markets in which we operate 7

Chair’s letter 8

Our CEO review 10

WaterShare 15

2020 – 2025 K7 timeline 16

Outlook for K8 (2025 – 2030) – ‘We’re doing this’ 18

Embarking on K8: Our largest ever investment programme 19

Our business model 20

Pennon, a business that listens and acts: Stakeholder engagement

overview 22

Our people and culture 32

Our operational review

Building water resources, improving water quality 40

Tackling storm overflows and pollutions 44

Driving environmental gains 48

Supporting affordability, delivering for customers 52

Our operational KPIs 56

Our financial KPIs 59

CFO’s Review 61

Risk management 70

Viability statement 80

Our integrated approach to ESG 82

Our ESG performance 83

Shaping our ESG approach 84

Net Zero – our promise to the planet 88

Sustainability reporting 91

Task Force on Climate-related Financial Disclosures (TCFD)

and Task-Force on Nature-related Financial Disclosures (TNFD) 94

Non-financial and sustainability information sheet 126

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:

Net Zero plan

Modern slavery statement

ESG Databook 2025

Gender and Ethnicity Pay Gap Report 2025

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

Governance

Governance at a glance 128

Chair’s introduction 130

Our Board

The Board

132

Pennon Executive Board 134

Monitoring purpose and culture 135

Board leadership 136

Division of responsibilities 137

An effective Board 138

Key activities of the Board 140

How the Board engages with stakeholders 142

Composition, succession and evaluation 145

Our s172(1) statement 146

Nomination Committee report 148

Audit Committee report 151

Audit, risk and internal control 156

ESG Committee report 158

Health and Safety Committee report 161

Remuneration Committee report 163

Directors’ Remuneration report 166

Directors’ report 184

Financial Statements

Independent auditor’s report 188

Financial statements 194

Notes to the financial statements 200

Other Information

Alternative performance measures 248

Five-year financial summary 252

Glossary 253

Shareholder information 254

Cover photo credits/captions:

1. Alderney Water Treatment Works:

investing to improve your drinking

water services

2. Storm tank 47 at Lifton

3. Granular Activated Carbon (GAC)

at Littlehempston water treatment

works

4. Smart meter

Our locations

Key:

Water services

Wastewater services

Water retail services

Renewable energy generation

Fife – Solar and battery energy

storage system

Aberdeenshire – Solar

Cumbria – Solar

Buckinghamshire – Solar

Our businesses

All figures as at 31 March 2025, other than population and litres of drinking water per day, which are as at 31 March 2024, as shown in South West Water’s

Annual Performance Report and Regulatory Reporting 2024- version 2 (January 2025) and SES Water Annual Performance report 2024.

South West Water

c.1.8m

population served

c.480m litres

of drinking water per day

Supplying Cornwall, Devon and

small areas of Dorset andSomerset

c.25,300km

of sewers in the

South West region

Bournemouth Water

c.0.5 m

population served

c.160m litres

of drinking water per day

Supplying parts of Dorset,

Hampshire and Wiltshire

Acquired in 2015

Bristol Water

c.1.2m

population served

c.280m litres

of drinking water per day

Supplying the city of Bristol and

surroundings

Acquired in 2021

SES Water

c.0.8m

population served

c.160m litres

of drinking water per day

Supplying parts of Surrey,

Kent and South London

Acquired in 2024

Isles of Scilly

c.2,100

population served

c.700k litres

of drinking water per day

Assumed responsibility in2020

Pennon Water Services

c.95,000

customer accounts

4.8

out of 5 Trustpilot score

Water 2 Business

5.0

out of 5 Trustpilot score

SES Business water

c.15,000

customers accounts

Pennon Power

135 GWh

of future annual power

generation

Enough electricity to power

40%

of operations

Pennon is an environmental infrastructure group

focused on the UK water sector. Our team of c.4,000

brilliant colleagues work around the clock to deliver

over 1 billion litres of water to 4.3 million people

every day.

£100,000

awarded to 55 different charities

and groups by the South West

Water neighbourhood fund

c.8,000

children taught in 141 lessons

using South West Water

education resources

c.23,000

customers moved onto social

tariffs in 2024/25

£124m

of financial support provided to

customers since 2020

c.4,000

brilliant colleagues

0.24

Lost Time Injury Frequency Rate

for employees and agency staff

has reduced for the fourth year

in a row

reservoirs

Water treatment works

655

Wastewater treatment works

Operations Customers Communities People

Pennon at a glance

1Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Revenue

£1,047.8m

(2023/24: £907.8m)

Benefiting from

acquisitions of SES

Group highlights

Building water

resources,

improving

water quality

Group capital

investment

£652.5m

(2023/24: £649.5m)

Investing to deliver

on our commitments

Strong water resources

position, with over

90%

full

Supply Demand Balance

Index

100%

with industry-leading water

quality metrics

Water quality (CRI score)

1.19

for SWB region. 2024 saw our best

performance achieved during the

five-year regulatory period

SES Top performer for water

quality

Tackling storm

overflows and

pollutions

Industry-leading internal

sewer flooding

c.40%

reduction in network pollution

incidents over K7

Our provisional score of

for the EPA rating for 2024

calendar year

Spills reduced by

despite wettest hydrological year

on record

Bathing beach releases

during the bathing season

down by

20%

since 2020

RCV – Water

Group^

£5,983.1m

(2023/24: £5,536.0m)

reflects regulatory

true-ups identified

in the PR24 FD,

inflation, and

additional accelerated

investment and

expenditure

Financial highlights

Operational highlights

Cumulative ODIs achieved c.70%

Water Group

Gearing^

61.8%

(2023/24: 64.4%)

increased capital

expenditure and

reduced operating

cash flows

Return on

regulated equity

(RORE)^ (%)

6.0%

(2023/24: 7.6%)

Strong financing

performance, offset by

increased investment,

cost pressures, and

ODI performance

^ Measures with this symbol are defined in the Alternative Performance Measure (APMs) as outlined on pages 248 to 251.

2 Annual Report and Accounts 2025 Pennon Group plc

Driving

environmental

gains

Phosphorous reduction of

c.80%

phosphorous reduction

across 37 sites

RNAGs improving from

19% to 12%

over 2024/25

Award-winning catchment

management programme

c.144,000

hectares improved since April

2015, c.21.000 hectares more than

our March 2025 target

389,306

trees planted

Underlying

EBITDA^

£335.6m

(2023/24: 338.3m)

Steady EBITDA

with efficiency

initiatives

offsetting cost

inflation

Earnings per share

Underlying^

(10.3) pence

(2023/24 (restated):

5.1 pence)

Statutory

(16.1) pence

(2023/24 (restated):

(2.9) pence)

(Loss)/profit before tax

Underlying^

£(35.1m)

(2023/24: £16.8m profit)

Statutory

£(72.7m)

(2023/24: £9.1m loss)

Depreciation and interest have

increased as a result of the

increased capital investment

Dividend per

31.57 pence

(2023/24 (restated):

36.67 pence)

Rebased, following

Rights Issue

Supporting

affordability,

deliveringfor

customers

Average

on basket of industry

customer measures

4.8

Trustpilot score for PWS

Affordability

100%

(Meeting our pledge for zero in

water poverty)

£124m

of financial support

^ Measures with this symbol are defined in the Alternative Performance Measure (APMs) as outlined on pages 248 to 251.

3Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our sector – a changing landscape

This year has been pivotal for the sector

This has been a year in which many of the foundations, have been under

review, with a new Government, new legislation, a sector wide commission,

and a price review. In short, there has never been a more important time

to be part of the sector, whether you are an investor, a customer or a

water company.

Price Review (2025-2030)

The latest price review PR24 (2025-2030) has heralded a reset, unlocking

record levels of investment with over £100 billion over the next five years

across the sector. This includes a fourfold increase in spending on new

infrastructure and resources. By 2030, it’s expected that this investment in

critical infrastructure will deliver tangible improvements for customers and

the environment, right across the UK. This will see the sector producing

enough supply of water to meet the needs of nearly three million people, with

nine new reservoirs and nine large scale water transfer schemes, delivering

the lowest leakage levels since privatisation and reducing spills from storm

overflows by over 45% from 2021 levels. Customers and communities will also

continue to benefit from world class drinking water.

At the heart of Pennon’s plans is a £3.2 billion

investment programme

which drives forward our four strategic priorities across all regions we

serve: ensuring resilient water supplies and excellent drinking water quality;

improving water quality by reducing pollution levels and the reliance on

storm overflows; driving net zero and environmental gain; and delivering for

customers whilst keeping bills increases affordable. Our plans are ambitious

and as a result South West Water was one of only two plans recognised by

Ofwat as ‘outstanding’ with the funding and scope of work largely supported,

setting us up to deliver for the long-term. This is the third price review in a

row that the South West Water plan has achieved the top rating from Ofwat,

something no other company has achieved. SES Water’s plan is also set to

deliver improvements for customers and communities.

New legislation

The Water (Special Measures) Act, passed in February 2025 is an important

step in strengthening the power of water industry regulators, with Ofwat now

consulting on the detailed implementation. At a principle level, we always

strive to maintain constructive working relationships with government and

our regulators. It is what the public expects from us. Any proposed changes

should therefore support good governance, leadership, and delivery in the

public interest, and as a publicly listed business, we welcome this.

Independent Water Commission

The Cunliffe Review, led by former Bank of England deputy governor Sir

Jon Cunliffe, aims to fundamentally reform the UK’s water sector regulatory

framework. Its primary purpose is to address the challenges facing the

sector, including climate change, environmental pressures, public trust,

and affordability, with a move towards a more integrated, outcomes-

focused approach to water regulation, rather than what many say today is a

fragmented, process-driven one. The recommendations will form the basis of

further legislation to attract long-term investment, environmental outcomes

and support for customers and communities, injecting billions of pounds

into the economy, speeding up delivery on infrastructure to support house

building and addressing water scarcity for the longer term, and requiring

c.£300 billion investment by 2050.

Drawing upon a panel of experts from across the regulatory, environment,

health, engineering, customer, investor and economic sectors, its aim is

to establish a new partnership between government, water companies,

customers, investors, and all those who enjoy our waters and work to protect

our environment.

We agree that in a transforming sector, regulation should also reset, building

on what has been achieved to date. As a sector providing critical national

infrastructure, we believe we should be governed in the same way as other

utilities, making a strong case for a more investable, resilient and predictable

sector, and in unlocking long term capital at fair rates. We stand ready to

implement what is required.

Championing customers, regions and communities

We also believe we have much to contribute as a listed business with a model

that advocates strong governance. As a Group, our regions are distinctive,

largely rural and boast some of the UK’s most unique natural environments.

We also serve key urban centres from Bristol to Exeter, Plymouth and Poole,

and through SES serve Gatwick Airport, which plays a significant role in the

UK’s economic growth.

We recognise there is much for the sector to benefit from in championing the

customer voice, through transparency and fairness. Our unique Watershare+

model, which gives customers a stake and a say in their local water company,

is a leading example of accountable and customer centric ownership and will

remain at the centre of our purpose.

1. At forecast outturn prices.

4 Annual Report and Accounts 2025 Pennon Group plc

Our regulators and policy makers

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, 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.

Natural England

Natural England is the government’s advisor on the natural

environment, with the aim of protecting and improving the

natural 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.

OFGEM

Ofgem is Great Britain’s independent energy regulator. They work

to protect energy consumers, especially vulnerable people, by

ensuring they are treated fairly and benefit from a cleaner, greener

environment. They are responsible for:

• working with government, industry and consumer groups to

deliver a net-zero economy, at the lowest cost to consumers;

• stamping out sharp and bad practice, ensuring fair treatment for

all consumers, especially the vulnerable;

• enabling competition and innovation, which drives down prices

and results in new products and services for consumers.

5Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Delivering on our priorities

Serving more customers and communities across

our regions

• Ongoing delivery of our acquisition strategy through

expanding our footprint in the UK Water sector

• Synergies from Bristol Water are now delivered with strong

progress made in delivering benefits from the

SES acquisition

Reset and rebased for K8

• Robust balance sheet, with Water Group gearing at 61.8%

and Pennon Group gearing of 64.3%

• We have continued to invest record levels in our asset

base, with £652.5m in the current year as we focus on the

things that matter most

• Our strong investment grade credit ratings, secured

in the year, place us well for funding our ongoing

investment programme

• We have progressed £76m annualised efficiencies of our

targeted £86m efficiencies, resetting our cost base and

integrating Bristol and SES into our Group

Delivering on our four strategic priorities

• We have reshaped our business to establish four business

units, focused on Water Services, Wastewater Services,

Pennon Power and Retail Services, toalign delivery with

our four strategic priorities

• Our reshaping of the Group aligns our operating model

with our four strategic priorities, allowing us to focus on

delivering on our customers’ priorities

• We are also bolstering front line staff, and ensuring we have

a best-in-class customer service platform to serve

our customers

Strong Platform secured for the future

• Return to profitability, with reset revenue and efficient

cost base

• Successful water efficiency in 2024/25 supports customer

affordability as tariffs increase

• Supported by sustainable supply chain through our

delivery partners – our ‘Amplify’ delivery alliance

2024/25 saw a resilient close to the K7

regulatory period. With preparation underway

to make sure we are ready for delivery in K8.

6 Annual Report and Accounts 2025 Pennon Group plc

The markets in which we operate

Household water sector

The provision of safe drinking water and sanitation of wastewater is fundamental to society and to the economy. At

the same time, the provision of these essential services must respect the management of the natural environment,

and it should be consistent with the overall objectives for the management of the nation’s water upon which there are

many competing demands. It should be efficient and not impose unnecessary or unjustified cost on the consumers

who pay for these essential services.

The water industry was privatised in 1989 with the objective of increasing efficiency and attracting the significant

investment needed to meet EU environmental standards. There have been improvements since privatisation

of the water industry. Drinking water and sanitation standards are world leading. Environmental monitoring and

transparency in England and Wales have increased. There has been roughly £236 billion of capital investment since

privatisation with 2023/24 capital investment over double the annual levels in the years immediately before the sector

was privatised.

Pennon is a FTSE listed business, with a strategy focused on the UK water sector, underpinned by delivering long

term value creation for stakeholders. With a history and heritage built up over many years, we continue to learn,

innovate and grow, organically and through acquisition, as the only consolidator investing in the sector today.

Over the past 10 years we have been growing and learning, with our acquisitions enabling us to unlock benefits for

customers. Pennon’s acquisition of Bournemouth Water in 2015 has unlocked investment in two new water treatment

works to supply 85% of the local population.

2020 saw the successful adoption of the Isles of Scilly, with customers benefiting from first time water and sewage.

We followed this with the acquisition of Bristol Water in 2021. This year we announced we are resurrecting plans for

Cheddar 2, a strategic reservoir that will not only benefit customers in and around Bristol but across the wider south

west. Most recently, we acquired Sutton and East Surrey Group, securing its financial resilience to serve customers.

Our investors have been supportive throughout, helping us to invest to grow and innovate. Many of our shareholders

are ordinary people, relying on us for their pension funds, or investments, our employees and, unique to Pennon, our

customers. WaterShare+ is a UK first, demonstrating how a socially responsible model can successfully develop in

a monopoly market. With c.80,000 customers as shareholders, this is nearly five times the number of institutional

shareholders. Customers have all the voting rights this affords, whether holding us to account at quarterly public

meetings, or attending the AGM, their voice is always the loudest.

Non-household retail sector

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

country to choose their retailer. The non-household market operates through a controlled portal operated by market

operator services limited. This is required due to the separation of the wholesale and retail arms of water businesses.

Pennon supported the development of the Business-to-Business market, establishing Pennon Water Services. We

now have c.15% market share along with Water2business, and SES Business Water, delivering excellent customer

service in England and Scotland, and with Trustpilot scores that rivel that of John Lewis and Amazon.

Pennon Power

Pennon Power is entirely owned by the Pennon Group, which will generate clean energy. Pennon Power was

established to support delivering on the Group’s Net zero commitments and to provide finance protection from

energy price volatility, whilst providing sustainable financial returns.

The energy market is regulated by the independent energy regulator Ofgem.

To date Pennon Power has acquired four projects in the UK, and once operational the projects will generate enough

electricity to power c.50,000 homes.

Along with our renewable energy investments at Pennon Power, we are also investing to accelerate 2030 net

zero commitments.

7Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Chair’s letter

David Sproul

Pennon Chair

Read more about David on pages

132 to 133

“We have a strong

foundation and a

clear purpose”

It is a privilege to be writing to you for the first time as Chair of your

company. There has never been a more important or consequential time

to join this sector given the intense focus of a new Government, the Water

(Special Measures) Act, the independent Commission on the Water Sector

Regulatory system and the continuing public and media attention.

With our clear purpose to bring water to life, by supporting the lives of people

and the places they love for generations to come, our strong governance

model, and our unique positioning, focused on growth, the Board and I firmly

believe that Pennon possesses the critical insights and strategic initiatives

necessary to secure the long term success and sustainability of the business.

We look forward to working in partnership with Government and the

Commission to achieve the changes necessary.

I’m confident that, looking forward, you will see the benefit of our investment

and growth plans, increasing innovation, improving environmental

performance and offering better services for customers, as Pennon looks to

build on the momentum we announced this year, with a determined record

£3.2 billion

to invest in the regions to 2030.

Following my appointment as Chair in July 2024, I took time to familiarise

myself with the Group’s operations and the strengths of the business, and

have concluded that a strong foundation exists upon which we can build and

transform our performance to achieve a successful future with South West

Water and the newly acquired Sutton and East Surrey Water, embarking on a

new five-year regulatory cycle.

Over the course of my first year I have met many employees as part of my

corporate induction. The passion and dedication of those I have met to

deliver essential services for customers has been unwavering, as has the

leadership of the Group, led by Susan and the Executive Team. I want to

thank everyone I have met for their honesty, as I have asked everyone I have

met, what do we do well, and what we can do better.

Supporting our c.4000 employees has to be at the heart of what we do. If

our employees feel supported and engaged, then everything else follows. It’s

not always been easy for them, given they live and work in the regions we

support, and when the sector headlines have been challenging.

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

in our Section 172(1) statement on pages 146 to 147.

1. At forecast outturn prices.

8 Annual Report and Accounts 2025 Pennon Group plc

I have also spent time talking to investors and our regulators. There is more

alignment, than difference. We all recognise that the long-term success of

our Company and the sector is intrinsically linked to the health of the natural

environment, our financial health and supporting customers. That’s why the

Board will be extending its pledge to support customer affordability to 2030,

and with a £200m support package.

I’d like to recognise the support from our investors, and debt providers

for endorsing our fully underwritten rights issue in January 2025, used

to maintain our robust balance sheet resilience, and fund investments in

our water businesses across a range of transformational projects. With a

rebased dividend per share, growing in absolute terms, by CPIH (Consumer

Price Index with Housing costs), coupled with c.34% organic RCV growth

projections to 2030, we believe this represents an attractive combination of

underlying asset growth and income.

I also want to thank the Board for their warm welcome. I am committed

to leading an effective Board that works in a constructive way with the

Executive team, to deliver on our strategy and drive long term sustainable

growth, and that creates value for all our stakeholders. This year’s Board

evaluation has reinforced that the Board is operating effectively, and we will

continue to evolve the way we can work better together.

I would like to extend my thanks to Gill Rider who stepped down from the

Board as Group Chair on 24 July 2024, and Claire Ighodaro CBE who retired

from the Company's Board of Directors and as Chair of the Remuneration

Committee with effect from 31 December 2024. On behalf of all the Pennon

Directors I would like to thank them both for their dedication, wise counsel

and contribution over the years. We all wish them well for the future.

I’m delighted to have welcomed Andrea Blance as the incoming Chair of the

Remuneration Committee, with her significant experience, Dorothy Burwell

will also transition to take on the role of Chair of the ESG Committee from

Iain Evans. Over the course of the next year, Iain will retire from the Board as

Senior Independent Director, and we have already started the process for his

successor. Until then, I am indebted to Iain for his continuing wise counsel

and significant knowledge of the sector.

I am confident that we can deliver the commitments we have made over the

next regulatory period for all our stakeholders. We will continue to take care

of one of life’s essentials for our customers and to support the communities

in which we operate. Never has our role been more important, with continued

investment, more innovation and better services to come.

David Sproul

Chairman

3 June 2025

Q&A with our new Chair

Q: What attracted you to join Pennon Group and

what were your first impressions?

What Pennon does matters and this next period is going to

be truly consequential for the sector and the Group. The

opportunity to join the Board and help shape how we respond

to the opportunities ahead of us and the challenges the

sector faces was one I could not turn down.

Q: What have been the key highlights for the

Board this year?

It’s been a very active year for the Board but three highlights

would be the successful rights issue, working with Susan

and her executive on the planning for delivery of the AMP

8 plans and the Board site visit to our new Alderney Water

treatment plant.

Q: What are the key priorities for the Board in

2025/26?

The Board has a particular focus on ensuring the £3.2 billion

of investments now committed deliver the improved

performance outcomes expected; this is particularly in the

waste business to reduce pollutions incidents and storm

overflows and in the water business to reduce leakages.

“There has never been a more

important time to make a positive

contribution to the sector and society.

What Pennon does for customer,

communities and the environment

really matters.”

9Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our CEO’s review

Susan Davy

Pennon Chief Executive Officer

Read more about Susan on pages 132 to 133

pillars of governance are supporting rectifications we have identified through

delivery on action plans as we await any findings. Through rightsizing, we are

focused on having more of our colleagues on the front line having increased

these teams by c.35%. This puts us in a good position as we head into K8.

Having received outstanding/good assessments for our SWW and SES

respective business plans, we are well positioned to deliver on our plans for

K8, with another period of significant growth.

With our robust deployment of capital, our growing footprint gives us a

strong platform for delivery, and we were pleased to receive fast tracked

clearance from the CMA in June 2024 for our acquisition of SES. Having

integrated Bristol, we are well progressed with the SES integration, using our

well-established integration blueprint.

Our capital delivery supply chain partnership ‘Amplify’ has already been

stood up, delivering on over 1,000 schemes, representing one third of the

£3.2 billion earmarked for investment to 2030. Expenditure for K8 was

accelerated, and by April 2025 we had invested c.£85 million (c.£65 million

to March 2025), kick starting our plans to reduce spills from storm overflows,

investing in water treatment enhancements and improving services to

customers. Once again, we have had record investment in 2024/25 at

£652.5 million, aligned with the step change run rate required for K8.

Of course, it’s not what we do but how we do it that also matters. Our

operations across the Group need a reliable and efficient power supply and

we are investing to increase renewable energy provision through Pennon

Power, supporting resilience and our Science Based Target Initiative

underpinning our Net Zero ambitions.

Financially, we have good liquidity and a strong balance sheet having raised

£1.3 billion in 2024/25 following the rights issue earlier this year, coupled with

debt capital market funding. We have encouraged customers to use less

water, and for 2024/25 that has impacted our revenues. Coupled with the

financing costs of accelerated capital investment, we have reported a loss

this year. This is a point of inflection into K8, where we will see a return to

profitability. We have driven cost base efficiencies to offset inflation increases

and rightsized and rightshaped the business, with cumulative efficiency

benefits of c.£76 million.

As part of our reshaping and reset, following the rights issue, we have reset

the dividend policy for 2024/25, growing the dividend in line with inflation

from a re-based position.

Ending K7 resiliently, reshaped and reset in 2024/25,

secured a strong platform for the future

I’m pleased to share my Chief Executive’s Review for 2024/25, highlighting

key aspects from the year, as we conclude the K7 (2020-2025) five-year

delivery period and make a strong start on our new K8 (2025-2030)

deliveryperiod.

As a group focused on UK water, with a growing geographical footprint,

we are rightly being challenged to do more for customers today and invest

morefor the future.

We are doing both.

I want to start by saying the fundamentals for the business are robust,

andour performance for 2024/25 reflects the reset and reshaping we have

done ahead of K8, in what has been a challenging year.

We have successfully closed out the K7 regulatory period to 2025, having

delivered higher than allowed base regulatory returns and consistently been

a top quartile performer against stretching regulatory outcome performance

metrics. The solid operational performance, across all parts of the Group,

whether you are a South West Water (SWW), Bristol Water (BW) or Sutton

and East Surrey (SES) customer was recognised in Ofwat’s Water Company

Performance Report in 2024. Alongside this, our Business to Business

Retailers Pennon Water Services and W2B are consistently securing top

ratings from Trustpilot.

We have worked diligently this year to support the affordability of bills with

customers. Having held off increasing bills for over a decade, with continuing

record investment we have had to make a tough decision and put the bills up

for customers in the coming year in 2025/26, which is why we have focused

on metering, water efficiency and financial support for those who need it

most during 2024/25.

Of course, there are also areas where we need to improve our performance,

which is one of the reasons we have also reshaped the group with clear

business lines, aligned to our four strategic priorities, building water

resources and improving water quality, tackling storm overflows and

pollutions, driving environmental gains and supporting affordability and

delivering for customers. I now have in place Managing Directors leading key

delivery aspects for waste water, drinking water, retail services and renewable

energy. This new structure ensures there is a direct line of sight into the

business and the systems, processes and governance. Having considered the

ongoing sector wide and company specific investigations, the refreshed

10 Annual Report and Accounts 2025 Pennon Group plc

“We have ended this year in a resilient

position, giving us a strong platform

for delivery”

Q&A with our CEO

Q: What has been the stand out for this year?

Our customer and community roadshows are always a personal

highlight for me. I get to speak to thousands of customers regularly.

From questions about storm overflows to hosepipe bans, bonuses

and dividends to bills and everything in between, they are always

challenging conversations. For me, it’s all about building trust and

changing perceptions, one conversation at a time. We also have

a fantastic customer panel as part of Watershare+, with panel

members representing the views of customers from across all

regions. They are really good at holding my executive team and I to

account for making sure we are walking in our customers shoes.

Of course, we could not do anything without the support of

our brilliant teams. I’m a firm believer that if we want to deliver

for customers, our investments have to be in people too. I am

extremely proud of my c.4,000 brilliant colleagues, and what we do

to support training and skills. From our apprenticeship programmes,

graduate schemes and our award-winning HomeSafe programme,

it’s right we support everyone to be the best they can be. It’s also

the reason I was honoured to take on the role as President of

the Institute of water this year, celebrating its 80

year, marking

decades of developing people and the sector. It's right we celebrate

the past and present and inspire the future.

Q: How do you reflect on the environmental

performance?

Running a water company, is effectively running a water recycling

system for the region. Every day we work with and are reliant

on the natural environment, so when things do go wrong, as can

happen from time to time with critical infrastructure, the impact on

customers, communities and the environment can be devastating.

Our teams have worked really hard in reducing pollutions to homes,

businesses and land. We’re now the best performing company at

tackling flooding to homes and businesses, with a 68% reduction

over the past 5 years and a c.14% reduction this year. For five years

running we have not had a category 1 incident with some of the

lowest absolute levels of serious pollutions across the sector.

1. At forecast outturn prices

Now, you won’t see this reflected in our EPA performance, as that

focus on pollutions to watercourses, and that is where we need to

improve our performance, and I’ll be the first to say we still need

to do more. We anticipate the EPA for 2024 categorising SWW

with a 2 star performance. Beneath the headlines there is progress

on tackling water pollutions, with those arising from our networks

reducing by 40% over this regulatory delivery period. Let’s be clear

though, one pollution is one pollution too many.

We have got a 15-year programme to reduce the use of storm

overflows, it’s going to take time, but we’re out of the blocks. We’re

only one of only five companies to reduce spills in 2024, and for

bathing waters, we have seen a reduction by c.20% since 2020,

maintaining our 100% bathing water quality on a like-for-like basis

for the fourth year in a row.

Q: Do you think you have got the priorities right for

the business?

I can answer this one with an emphatic yes, and it’s not just

my view, it’s a shared view from customers, regulators and

our shareholders.

In setting the four priorities as part of our business plan for

SWW and SES, we embarked on our largest ever direct customer

engagement, gathering the views and feedback of over 250,000

customers and 1,000 stakeholders, and based on the all the things

customers told us they care about most.

I believe it’s the reason why Ofwat gave us the green light to

make our largest ever investment of £3.2 billion and rated our

plan as outstanding, for the third consecutive price review,

because we could demonstrate what it would do for customers

and communities.

It also the reason that we were able to successfully execute our

rights issue, with supportive investors, a strong balance sheet and

good liquidity, we’re positioned well for the future as invest to build

new reservoirs, fix storm overflows, power our net zero ambitions

and deliver improved services for customers.

11Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our CEO’s review continued

Protecting water quality and enhancing water resilience

The top priority for our customers is safe clean drinking water, across Bristol,

Bournemouth, Devon, Cornwall, the Isles of Scilly, and now with the recently

acquired Sutton and East Surrey region.

We have been investing to enhance resilience and protect water quality.

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

Water and our supply chain partners. Blackpool pit has been fully operational

during 2024/25, coupled with construction completing at the new treatment

works at Rialton. That means for Cornwall we have supplemented resources

available for use cumulatively since 2022 by 34%, with 4% extra delivery

this year, having delivered the 30% uplift for Devon in 2023/24. Whilst there

are rising concerns nationally about water resources, after the driest start

to spring 2025 in 69 years, we have already learnt more about managing

through drought than most, given the 1 in 200 year drought we experienced

in the South West in 2022. Simply put, we have invested and innovated

to break the cycle of drought, repurposing disused mines and quarries as

mini reservoirs and building network recharge schemes. As a result, with

the scenarios we have modelled, we do not anticipate restrictions to supply

across our regions this summer.

There are always two sides to the coin. Reducing demand is also

fundamental to future resilience alongside tackling our own production

losses and leakage from our network. Across K7, we have reduced leakage

by 13% in SWW, 1% in Bristol and 19% in SES. Whilst we narrowly missed

the stretching leakage targets for 2024/25 for SWW and Bristol the in-year

leakage results for 2024/25 were a 9% and 4% improvement respectively on

the prior year. In SES leakage reduced by 3% meeting our 2024/25 target.

Our sector leading demand reduction schemes have focused on supporting

customers to use less and save money. Leading with our ‘Water is Precious’

water efficiency campaign we are targeting both residents and visitors. In

Cornwall residents were given £10 off their bills for delivering a 5% reduction

in use. We are also trialling several firsts for the region with progressive

tariff trials (seasonal and progressive), early results are showing demand

reductions from between 2% and 9%.

Whilst we are focused on protecting water resources, safe, clean drinking

water remains customers’ number one priority and we continue to make

good progress in rolling out our successful Quality First culture and training

programme in Bristol, with plans to extend to SES. The incident last year

in Brixham, highlights just how important it is that customers can have

confidence in their water supply. For eight weeks in the summer, teams

worked tirelessly to return safe clean drinking water to the people and

businesses in and around Brixham in Devon. Over 800 brilliant colleagues

and supply chain partners supported customers during that period, flushing

over 30km of network 27 times, and installing UV and filtration equipment to

ensure the supply could be restored as quickly and safely as possible. I would

like to thank customers for their incredible patience, and their kindness to

colleagues who were working on the ground at all hours. We continue to work

with the Drinking Water Inspectorate on the lessons learned from that incident.

Our underlying water quality is improving. With SES the top performer in the

industry, and SWW the top performer for water and sewerage companies,

we are confident that we can do even more as we share best practice.

For Bournemouth customers, we continue to make good progress, using

state of the art off site build techniques for our new water treatment works

at Alderney and Knapp Mill which will supply 85% of the Bournemouth

population. In Devon and Cornwall, we are on track to finalise improvements

at Stithians, Saint Cleer, Restormel and Littlehempston with tactical

investments in Bristol delivered in 2024/25, ahead of significant investment in

K8, showing improvements on last year’s performance.

Making progress on what matters most to customers,

delivering on our four priorities

We remain resolutely focused on our customer’s key priorities, areas we

know they truly value. With record levels of investment in 2024/25, we are

focused on tackling the use of storm overflows at our beaches and reducing

pollutions, protecting water quality and enhancing resilience, driving

environmental gains and supporting our customers in making sure their bills

are as affordable as they can be, whilst delivering improved services.

Reducing pollutions and tackling the use of storm overflows

We rely upon the natural environment to deliver for customers and

communities, and our achievements this year have been delivered against a

backdrop of some challenging weather conditions; rainfall in 2024 was similar

to last year, itself 11% higher than average, and a record wet year. These

two years of exceptional rainfall resulted in higher groundwater levels c.14%

above normal levels.

Despite the exceptionally wet weather, we have made progress on waste

water measures. Our approach has been two-fold, prioritising reducing

pollutions to homes, businesses and land, alongside tackling pollutions to

watercourses, given we look after a third of the nation’s bathing waters. The

number of homes and businesses impacted by internal sewer floodings to

homes and businesses fell again this year by 14%, and over the five years

since 2020 have reduced by 68%. External sewer floodings have also fallen

by 11%, and 24% since 2020 respectively, supported by a 30% reduction in

sewer collapses (37% in 2024/25) and reducing sewer blockages through

our planned cleansing programme. We are the best performing company at

tackling flooding to homes and businesses, and a top quartile performer for

reducing pollutions to land.

For the impacts on watercourses, having made sure all our storm overflow

monitors were installed at the end of 2022, we are equally focused on

delivering against our 15-year programme to 2040 to reduce the use of

the storm overflows. Despite the exceptional rainfall and groundwater

levels, we were one of only five companies to reduce spills in 2024, and

for bathing waters, we have seen a reduction of 20% since 2020, consistent

with last year. Our K7 WaterFit interventions are delivering ongoing benefits

preventing c.15,000 spills and two thirds of our top spillers from last year

have been resolved.

With critical national infrastructure, and a network length that could wrap

around the circumference of the world, occasionally things go wrong,

it is how we respond and how we strive to eliminate those occurrences

that matters.

Overall pollution incidents to watercourses have marginally fallen year-on-

year, and whilst I am very disappointed that the level of incidents has not

reduced further, and the number of more serious incidents in 2024 has risen

from two to four, there has been progress, with pollutions from our thousands

of kilometres of network reduced by 40% since 2020, having installed

thousands of network monitors that are allowing us to predict, avoid and

alleviate incidents.

As we close the period, we are anticipating the EA’s Environmental

Performance Assessment, which measures 4% of all pollutions, and

specifically those which impact watercourses, to maintain a 2-star rating

for South West Water. In order for us to improve our rating, we must

reduce the number of watercourse pollutions, and our recently published

pollution incident reduction plan sets out how we will achieve this. We have

a plan to get to EPA 4 star – we have been enacting it – and our regulatory

settlement for the outstanding plan means we need to achieve this for the

2028 assessment.

12 Annual Report and Accounts 2025 Pennon Group plc

Driving environmental gains

We have improved river water quality at 37 sites, with an 80% reduction

in phosphorus, and improved the RNAGS over K7 from 19% to 12%. Our

award-winning catchment management programme, delivering c.144,000

hectares of improvements, 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. The activities range from building ponds,

improving farm tracks, slurry storage as well as planting trees and buffer

strips to catch and filter water.

With our commitment to Net Zero, our investment in Pennon Power has

continued with over half of our targeted capacity already under construction

at three sites across Fife, Aberdeenshire and Cumbria, with one further site

where we have appointed preferred partners. Returns for these assets, post

energisation on an unlevered basis are between 7-9%, and on a levered basis

between 11-15%. With PV construction for Fife completed, energisation is

expected in June 2025, having secured revised grid connection timings.

Supporting affordability, delivering for customers

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

as possible and supporting those who find themselves struggling with

affordability. By focusing on efficiency, we have kept bills as low as possible

over the last decade to 2025, with increases below headline inflation over

that period. We are supporting more customers than ever before with

over 150,000 across the group benefiting from our support frameworks.

By unlocking over £124 million of financial support we have increased

affordability to 100% for customers in South West and Bristol, having met our

pledge of having zero customers in water poverty by March 2025. Alongside

supporting customers we have also supported 55 charities through our

neighbourhood fund.

That said, with the significant investment we will be making, bills are rising by

on average c.28% in 2025/26 for SWW customers, with the average water and

sewerage bill now being c.£1.85 per day. Water bills for customers in Bristol

and SES are set to rise by 5% and 3% respectively. We know customers

are worried about the necessary bill increases to support investments. The

majority of the funding will come from shareholders and debt providers,

meaning that customers will pay around a third. At the same time, we will

support those who need it most with a £200 million support package,

building on our 100% affordable bill pledge. We have continued to support

our vulnerable customers through our priority services register to ensure

they have our support when they need it.

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

and will extend this scheme to SES customers for the first time. Through

WaterShare+, we are demonstrating how a socially responsible model can

successfully develop in a monopoly market. Listening to our customers,

in 2020 we launched our first WaterShare+ share issuance. Sharing

financial outperformance arising from delivery on our regulatory plans, we

have offered money off bills or share ownership. So far we have c.80,000

customers who have become shareholders through the two issuances we

have had. This equates to nearly four times the number of institutional

shareholders. Customers have all the voting rights this affords, whether

holding us to account at quarterly public meetings, or attending the AGM,

their voice is always the loudest. At the AGM in July, we will be seeking

authority to launch a third issuance, distributing the funds set aside for this

purpose following the rights issue earlier this year, and in doing so inviting

customers of SES to participate for the first time.

One aspect I enjoy most about the scheme is the ability for me to meet

so many of my customers. I have met over 1,000 customers through our

customer roadshow campaign and the WaterShare meetings.

Key to building trust is reducing complaints and with Bristol recognised as

a top performer for complaints and customer service, we see opportunities

for improving across the Group, with South West reducing complaints by 7%

last year.

We continue to support customers to use less and save more with our

progressive charges trials, underpinned by our smart metering programme.

Record investment and growth

Record investment in K7 – with £652m in 2024/25, at the run

rate for K8.

Investment reflects the ongoing focus on transitioning to K8, as well as

delivering the final regulatory commitments for K7. With more resilient

waterresources, excellent progress on our state of the art water treatment

works in Bournemouth and 100% water quality at bathing waters, our

investment is delivering benefits as we have closed out the regulatory

period.We have accelerated K8 investment, which coupled with our strategy

of consolidation in the UK water sector, has resulted in RCV^ growth of 75%

over K7.

Investment in Pennon Power of c.£41 million reflects the construction at

three sites as the four site build programme accelerates.

Point of inflection for 2024/25

We have reset and reshaped ahead of K8.

Firstly, our successful water demand customer initiatives, helping customers

to use less and save more, has meant that on a like-for-like basis, across the

wholesale water businesses we have seen lower revenues, resulting in a loss

before tax on both an underlying^ and statutory basis. Regulatory revenue

mechanisms are in place to protect future recovery.

Secondly, having delivered £76 million of cumulative annualised efficiency

savings in 2024/25 as we reshape the Group and integrate SES, towards our

targeted annualised savings of c.£86 million in K8, this is an important base

from which to deliver the K8 business plans.

Thirdly, having ramped up capital expenditure during K7, we are delivering at

the required K8 run rate, with the supply chain alliance ‘Amplify’ in place.

Our Return on Regulated Equity^ for SWW is relatively strong, at 10.4% on a

nominal basis, and 6.0% on a real notional WaterShare basis (10.3% and 5.9%

including Bristol). We are delivering for investors as well as customers, with

robust relative performance on common ODIs, with overall cumulative ODI

performance at c.70%. SES, with a reshaped balance sheet, will increase its

performance in K8.

And finally, we have retained and grown our profitable sector leading B2B

retailers PWS and Water2Business. They are both improving profit before tax

against the prior year, with c.15% market share, delivering excellent customer

service in England and Scotland, and with Trustpilot scores that rival that of

John Lewis and Amazon.

Underpinning all our activities is a robust funding position, with total water

group RCV gearing^ of 61.8%. 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.

A sustainable future in the UK water sector

We share the Government’s ambition for a step-change in environmental

performance, and to drive economic growth and our significant investment

plans for K8 will help us to achieve this.

13Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Standing ready to implement new legislation,

government review

This has also been a year in which many of the foundations, underpinning

effective regulation, have been under review, with a new Government, new

legislation and a renewed focus on the sector. The Water (Special Measures)

Act, passed in February has been an important first step, strengthening

the power of water industry regulators, with Ofwat now consulting on the

supporting rules. We have responded and await the outcome. As a principle,

we always strive to ensure we maintain constructive working relationships

with government and our regulators. It is what the public expects from

us. However, to effectively regulate a transforming sector, we recognise

that regulation should also reset. As a sector providing critical national

infrastructure, we do believe we should be governed in the same way as

other utilities, making a strong case for a more investable, resilient and

predictable sector, and in unlocking long term capital at fair rates. We stand

ready to implement what is required and continue to contribute to the

independent Water Commission’s review of water.

Our people

With a history and heritage built up over many years, we continue to learn,

innovate and grow, Everyone who works at Pennon is fiercely proud of our

heritage in the water sector, with generations of fathers, sons, mothers and

daughters, who have dedicated their lives to water, and I am extremely proud

of our brilliant teams.

Our c.4,000 talented colleagues don’t just bring water to life every day; we

drive economic growth, and break down barriers to opportunity, supporting

livelihoods in the areas we serve. As one of the largest private employers in

the South West, and across the Group, leadership is all about making this

a great place to work, and a safe place to work. Our most recent employee

engagement scores were the highest we have ever had, and health and

safety engagement is consistently our best scoring area. Our health and

safety track record has improved for the past five years, as we focus on

making sure everyone who works for us and with us, goes home safe every

single day, through our HomeSafe culture programme, and with our lowest

ever LTIFR rate, which has halved over the last five years.

Our partnerships with the wider supply chain and our ‘Amplify’ alliance

morethan doubles our workforce and plays a critical role in the regions

too. As a living wage employer, we continue to invest in skills and jobs,

and the only water company recognised by the Government as a top

100apprenticeship employer, with our earn and learn approach and as a

member of the 5% club with platinum status. With our 680 apprenticeship

and graduate placements we are well on with our own target of 1,000 by

2030. With organisations like the Institute of Water, we are focused on

making sure we have the talent and trained colleagues we need across the

sector for our record investment and delivery.

I’d personally like to thank my brilliant colleagues who serve our communities

24/7 and are a credit to the business.

Our CEO’s review continued

1. At forecast outturn prices

^ Measures with this symbol are defined in the Alternative Performance Measure (APMs) as outlined on pages 248 to 251.

Strong platform for the future

The fundamentals for the business are robust for a sustainable future.

Our growing footprint puts us on a strong platform for delivery. We have

good liquidity, having delivered higher than base allowed regulatory returns

and consistently been a top quartile performer against our regulatory

outcome performance. Following the successful oversubscribed rights issue

earlier this year, we have a strong balance sheet.

In summary, whilst there is always more to do, we have successfully closed

out this regulatory period to 2025.

As we look ahead, we are set to invest a record level of £3.2 billion

2030, having achieved a sector leading plan in SWW for three consecutive

price reviews. With Managing Directors now in place for Water Services,

Wastewater Services, Pennon Power and Retail Services, we are reshaping

the Group aligned to the new model, with more resources and capabilities,

on the front line, supported by expert corporate functions, ensuring we are

well positioned to deliver our outstanding business plan for K8, and another

period of significant growth.

Finally, it’s not what we do but how we do it that matters, walking in the shoes

of our customers and the regions we serve, living our values, and as we bring

together customers and communities.

Susan Davy

Pennon Chief Executive Officer

3 June 2025

14 Annual Report and Accounts 2025 Pennon Group plc

Building a deeper relationship with customers

through our pioneering WaterShare+ scheme,

giving customers both a say and a stake in

the business, has been an important and

innovative step in advancing a new type of

social contract with our customers, and one we

are very proud of.

Sharing our success with customers is at the

heart of WaterShare+. Put simply, when we

deliver, customers also benefit.

WaterShare

2020

September 2020

•

WaterShare+ launched as part

of our business plan to 2025

• First Issuance to 35,000

customers or £20 credit

to their bills

2021

September 2021

• First customer AGM

2023

February 2023

• Second issuance – including

Bristol Customers

2025

•

Date of third issuance

Timeline

The WaterShare Panel

Alongside customers having the opportunity to attend company AGMs, the independent WaterShare+ Panel

performs a vital role, they directly represent customers, meeting with the water businesses to challenge on

performance, champion customer concerns, and provide assurance on our performance reporting.

Third Issuance

In early 2025 we launched our rights issue entitling shareholders to subscribe for 13 new ordinary shares for

every 20 existing ordinary shares held. This meant that many WaterShare+ Shareholders would only be entitled

to fractional entitlements to shares under the rights issue, rather than the right to subscribe for any additional

new ordinary shares. Therefore, the Board agreed that to the extent net proceeds arising from the sale of

fractional entitlements under the rights issue and proceeds from the rump sale were retained and accrued for the

benefit of the Company, these amounts will be applied (subject to receiving the requisite shareholder approval

in due course) towards offering those WaterShare+ Shareholders who, because of the rights issue ratio, will not

be entitled to subscribe for any new ordinary shares, the opportunity to receive a single further ordinary share in

recognition of their not being able to participate in the rights issue.

Innovative approach, first of it kind

The basis of WaterShare+ is

• Innovative voluntary mechanism for sharing regulatory

outperformance with South West Water customers,

endorsed by Ofwat

• Making the interests of customers and investors

more aligned

• WaterShare+ share scheme ensures no dilution of

existing shareholdings and voting rights in Pennon

15Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

April 2020

Isles of Scilly

South West Water was appointed as licensee and began operating the water

and sewerage services on the Isles of Scilly.

July 2020

Sale of Viridor, our former waste management business

The Board oversaw the successful and significant milestone in the evolution

of Pennon, enacting a strategic review, having consulted with our largest

institutional shareholders and acting in the best interests of all shareholders.

We announced the proposed transaction to dispose of Viridor Limited for

£4.2 billion on 18 March 2020, and this sale completed on 8 July 2020.

August 2020

Mayflower water treatment works, serving Plymouth,

entered operation

September 2020

Launch of WaterShare+ scheme

As part of our New Deal K7 business plan, we launched our innovative

WaterShare+ scheme, sharing £20 million of outperformance with customers,

and giving them not only a say in what we do, but a stake too.

March 2021

Restructuring of Pennon company debt

Following the disposal of Viridor, £1.1 billion principal debt was repaid. The

significant majority of these borrowings were originally drawn to fund the

investment phase of Viridor.

May 2021

Green recovery investment

Following a detailed assessment by Regulators, Ofwat published their draft

green economic recovery decisions accelerating investment for customer

priorities, outlining additional environmental investment for South West

Water’s Green Recovery Initiative over the period to 2025, with no impact to

customer bills in K7. Our Green Recovery Initiative, developed with customers

and stakeholders, proposed a set of schemes benefiting our region, delivering

significant benefits for customers, society and the environment.

June 2021

Acquisition of Bristol Water

Acquired 100% of the issued share capital of Bristol Water Holdings UK

Limited and its subsidiaries, including Bristol Water plc from its indirect

shareholders: infrastructure funds advised by iCON Infrastructure LLP

(80% of the shares); and ITOCHU Corporation (20%) for an equity value of

£425 million. At the same time, Pennon also announced a return of capital

to shareholders, consisting of a Special Dividend and a share buy-back

programme.

COVID-19

2020/21 was undoubtedly a challenging year for us, and for everyone

who worked within and supported the Group. The human tragedy of

loss of life as a result of the pandemic, the disruption and difficulties

experienced across society, and the economic impact will weigh heavy

on us all for generations to come.

Susan and our Executive Leadership team, who led the Group through

the pandemic from the front, demonstrated what it takes to be resilient,

agile and above all, compassionate. With an unwavering responsibility

for our critical infrastructure, we continued to deliver essential services

to our customers and communities. This was due to the dedication of

our talented and hardworking employees.

2020-2025 K7 timeline

2020

2021

2022

2023

March 2022

Purchase Hawks Tor reservoir

As part of our continued investment in water resilience, we purchased the

reservoir on Bodmin Moor in Cornwall.

April 2022

Launch of WaterFit

We launched WaterFit, our plan for healthy rivers and seas, focused on the

protection of our 860 miles of coastline and rivers in the South West.

November 2022

“Stop the Drop”

South West Water announced a first of its kind customer incentive scheme,

asking everyone in Cornwall to come together to help recharge reservoir

levels. “Stop the Drop” saw customers offered a financial incentive to

encourage them to reduce consumption in exchange for a rebate on their

bill. 2022 saw historically low levels of rainfall in the South West, meaning

significant pressure was placed on water resources in parts of the region.

September 2021

Launch of new Graduate Management Programme

We set a commitment to recruit 100 new graduates on a structured two-year

programme of training, work experience and career development by 2025.

February 2023

Second issuance of our WaterShare+ scheme

As part of the scheme, certain customers were able to elect to receive a

Pennon share as an alternative to receiving a £13 credit on their bill. In excess

of 35,000 customer shares were purchased for this second offer.

16 Annual Report and Accounts 2025 Pennon Group plc

2024

2025

February 2023

Licence and statutory transfer of Bristol Water

The licence change and statutory transfer completed on 1 February 2023,

bringing Bristol Water under the South West Water licence.

March 2023

Launch of WaterFit Live

An interactive digital system which shares with customers the status of

their local bathing waters and whether there is any impact from a storm

overflow. WaterFit Live was another milestone in our progress to protect the

environment by reducing storm overflows, enhanced monitoring, providing

clear and transparent reporting for our customers and increasing our

investment to improve performance.

May 2023

Acquisition of solar photovoltaic site in Dunfermline

First site acquired by Pennon Power Limited, expected to produce c.40 GWh

for acquisition and build costs of c.£35 million, with additional opportunity for

a 60 MW battery storage capacity totalling c.£25 million.

July 2023

Acquisition of Renewable Energy Generation Projects

Acquisition of three further renewable energy generation projects, which

are located at sites in Buckinghamshire, Aberdeenshire and Cumbria, and

expected to generate over 95 GWh of electricity on an annual basis from

solar PV.

October 2023

Submission of Business Plans to Ofwat for SWW and

SES Water

January 2024

Equity raise

Successful completion of the equity capital raise of new ordinary shares. The

Equity Capital Raise in total comprised 24,657,535 New Ordinary Shares and

raised gross proceeds of £180 million, to support the SES Group acquisition.

January 2024

Acquisition of Sutton and East Surrey Water

Acquired 100% of the issued capital of Sumisho Osaka Gas Water UK

Limited, the holding company of Sutton and East Surrey Water plc and

certain other ancillary businesses, for £89 million from Sumitomo Corporation

and Osaka Gas.

February to April 2024

“Save every drop”

Launch of our “Save Every Drop” campaign to communicate the importance

of water-efficiency to consumers, businesses and tourists.

March 2024

Blackpool pit fully operational

July 2024

Ofwat’s Draft Determinations for SWW and SES Water

‘Top-rated’ Business Plans. Ofwat assessed the SWW plan as "outstanding",

and the SES plan as "good".

See page 18 for further detail.

July/August 2024

£2.5 billion EMTN Programme launched and inaugural

bond issuance

Launch of our £2.5 billion Euro Medium Term Note Programme, and

inaugural issuance of £400m bond; the programme will allow us to issue

benchmark sized debt tranches over the forthcoming five year period.

September 2024

New water abstraction and treatment works at Rialton

completed

December 2024

£250m public bond issuance through our

EMTN programme

Ofwat’s Final Determinations for SWW and SES Water

See page 18 for further detail.

January 2025

Acceptance of Ofwat’s Final Determinations for SWW and

SES Water

See page 18 for further detail.

February 2025

Successful completion of £490 million Rights Issue

A capital raise of £490 million by way of a fully underwritten rights issue of

185,928,002 New Ordinary Shares at 264 pence per New Ordinary Share

on the basis of 13 New Ordinary Shares for every 20 Existing Ordinary

Shares. The purpose of the Rights Issue was to enable Pennon, as part of a

comprehensive financing package, to deliver the step change in investment

required through the K8 period to March 2030, whilst ensuring appropriate

and sustainable gearing is maintained throughout.

17Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Outlook for K8 (2025 – 2030) –

‘We’re doing this’

To view these documents see:

https://www.pennon-group.

co.uk/investor-information/

price-review-pr24

About PR 24

The 2024 ‘Price Review’ (“PR24”) for water companies in England and

Wales was a process led by Ofwat to determine prices for the period

2025-2030. As part of this process all companies worked with their

customers to produce a business plan for 2025-2030, setting out what

they intend to deliver for customers and the environment. Alongside

our peers, we submitted our five-year business plans to Ofwat on

2 October 2023.

We listened to customers and stakeholders across our regions,

and worked closely with our WaterShare+ Customer Panel to

develop a plan that reflected the priorities of our customers and

the environment.

Ofwat assessed the SWW plan as "outstanding", earning a 30bps

reward on the cost of equity, and the SES plan as "good" earning a

5bps reward. This reflected the quality of the plans, including the

balance of cost and service proposals and their affordability.

South West Water are the only company to achieve the top ranking

from Ofwat for all three price reviews.

The four strategic priorities of our plan

• Building water resources, improving water quality – In the face

of changing weather patterns and a growing population, we are

determined to continue to transform how we protect and secure

water resources with unrivalled water quality across the region that

will last for generations.

• Tackling storm overflows and pollutions – By 2030, a full

decade ahead of governmental mandates, we pledge to have

tackled the use of storm overflows at our bathing and shellfish

waters. Our approach blends nature-based and engineering

solutions, coupled with a comprehensive water monitoring and

sampling programme, to rebuild trust in our communities.

• Driving environmental gains – By 2030, we’re committed to

achieving Net Zero, proving our dedication to minimising our

impact on the planet. We’ll invest in climate-independent water

sources, water reuse, and enhanced transfer networks. We will

repurpose brown field sites, build new reservoirs, and amplify our

water resources significantly.

• Supporting affordability, delivering for customers – We are

tackling monumental industry challenges, and we are delivering on

our promises, all rooted in what our customers deem important. We

recognise that some customers face affordability challenges due to

the cost-of-living crisis, so our plan incorporates multiple solutions

and extensive assistance.

For the RNS see:

https://www.pennon-group.

co.uk/investor-information/

price-review-pr24

Final Determination and beyond

On 19 December 2024, Ofwat published their Final Determination on

company business plans.

After careful consideration, we chose to accept both the SWW and SES

Final Determinations. Given the close alignment of our plans, and the

material improvements made by Ofwat following the Draft Determination,

we concluded that this was in the interests of all our stakeholders.

Our acceptance of the Final Determination allows us to move forward

with our £3.2 billion

investment programme, focused on our four

strategic priorities.

We are targeting outperformance of K8 plans that will give headroom

for our delivery. Previous regulatory periods have seen Return on

Regulated Equity (RORE^) delivery of 6-8% in K7 and 11-12% in K6.

Taking into consideration our plan, we are targeting c.7% RORE^

returns in K8, compared to the base return of 5.1% and within Ofwat’s

upper range of 10.1.%.

2023

2 October 2023

• Submission of five-year

Business Plans to Ofwat

5 October 2023

•

Trading Statement PR24

• Spotlight presentation

23 November 2023

• Half year results 2023/24

2024

21 May 2024

• Full year results 2023/24

11 July 2024

• Ofwat publish Draft

Determinations

28 August 2024

• Draft Determination

consultation closes

27 November 2024

•

Half year results 2024/25

19 December 2024

• Ofwat publish Final

Determinations

2025

29 January 2025

• Acceptance of Final

Determinations

• Launch of successful Pennon

rights issue

1 April 2025

•

End of K7 / Start of K8 five-year

price review periods

3 June 2025

• Full year results 2024/25

Timeline

18 Annual Report and Accounts 2025 Pennon Group plc

Embarking on K8:

Our largest ever investment programme

Our business plans for 2025-

2030 were designed to deliver

our customers and stakeholders

requirements and to respond to

the needs of the communities

we serve

Our plans set out our largest ever investment programme: targeting a step

change in investment for customers, regulators and stakeholders, delivering

improvements across all our areas and driving growth for our investors. At

the heart of our plans is a £3.2 billion

investment programme which drives

forward our four strategic priorities: ensuring resilient water supplies and

excellent drinking water quality; improving water quality in our rivers and

seas through reducing pollutions and the reliance on storm overflows; net

zero and environmental gains; and delivering for customers while keeping

bills affordable for all.

We have already ramped up our investment, building on our strong

track record of delivery through a focus on efficiency and performance

improvement. With plans well under way to deliver £86 million of annualised

efficiencies through operational transformation and integration, and our

business restructured to align with our priorities, we are well placed for the

challenges ahead.

New investment over the regulatory period of £3.2 billion

will be financed by

investors and customers, with roughly two thirds of funding from investors

and one third from customers. We have a robust and comprehensive

financing strategy, with both debt and equity investor funding.

£3.2bn

investment programme

Water businesses totex allowance

97%

of Business Plan

Revenue allowance

100%

of levels requested

Growth of

34% in RCV

(nominal growth by 2030)

Tackling the biggest challenges head on

Our capital investment of £3.2 billion

across the regions we serve includes our base maintenance programme alongside an extensive enhancement programme,

focused on delivering against our four priorities. The key deliverables of our plan include:

Our four priorities Planned investments over the K8 period

Building water

resources,

improving

water quality

• Upgrading one third of the water treatment works across our regions

• Renewing or replacing c.440km of water mains across our regions

• Lead pipes replacement for 38,000 customers, targeting 170 nurseries, schools and colleges in the SES region

• New strategic reservoir with Cheddar 2 in Bristol and a water re-use plant in Poole

• Reducing leakage by 19% in the South West region, and 14% in the Bristol and SES regions

Tackling

storm

overflows and

pollutions

• 291 overflow improvements – 100% of storm overflows at bathing waters addressed

• Adding over 250,000m

of storage to capture rainfall and reduce overflows – 62% reduction targeted from 2023/24 levels

• Removing rainwater draining into our sewerage network by a volume equivalent to over 350 hectares

• Upgrading over 200km of our sewer network

Driving

environmental

gains

• 10% reduction in the amount of phosphorous entering rivers – improving water quality

• A new independent environmental advisory panel – to ensure we are focused on putting the environment first

Supporting

affordability,

delivering for

customers

• SMART metering installations for 1/3 of our customer base

• Largest ever package of support to help those struggling to pay – doubling to £200 million

• Expanding WaterShare+ through a third issuance incorporating SES customers

• Improved digital and self-service offerings for customers – opening our data to communities

1. In forecast outturn prices.

19Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our business model

Our robust business model

and strong operational

structure

Key strengths

and resources

we rely on

Quality of the services

weprovide

Read more on pages 28 to 31

Water Services

Ensuring an available and

sufficient provision of raw

water is critical to ensuring

a continuous supply to our

customers.

Wastewater Services

We treat wastewater to a high

standard at our wastewater

treatment works before

returning treated wastewater

to the environment, safely.

Pennon Power

We are building a portfolio of

renewable energy projects to

secure c.50% of the Group’s

energy.

Retail Services

We manage an extensive

network to deliver

uninterrupted supplies to

our customers while keeping

customers’ bills affordable.

Reshaped structure into our four

clear business units

Generating

value for our

stakeholders

Be the

21Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Pennon, a business that listens and acts:

Stakeholder engagement overview

We believe the best decisions are made when everyone has a voice. That’s why we maintain regular,

open dialogue with our stakeholders, from customers and community groups, to regulators and

environmental partners. These conversations are not a formality, they are a vital part of how we

shape our strategy, make decisions, and deliver meaningful outcomes. By listening closely to what

matters to our stakeholders, we can respond effectively, and ensure our actions deliver real value to

the communities we serve.

Customers

Who they are

Our businesses supply water and wastewater

services to 4.3 million residents across the

South West and Sutton and East Surrey regions.

We also support an additional 10 million people

who visit the South West each year – making

our services vital to both residents and

tourists. Nationally, we serve 210,000 business

customers across England through our non-

household businesses.

Key highlights

We hosted

roadshows across Devon and Cornwall, engaging with

over 1,000 customers

Through the WaterShare+ scheme

80,000

of our customers are now shareholders

Our approach is built on trust, transparency, and long-term relationships.

Whether it’s through formal panels, market research, community events, or

one-to-one meetings, we stay connected, because strong relationships result

in better outcomes.

The insights we gain directly influences everything we do, from Board

decisions to strategy and social purpose. For more on how stakeholder

voices shape our governance, see Section 172(1) on pages 146 to 147.

Why we engage

The best way to serve our customers is to listen to them. Engagement gives

us insights into customer views, needs and ambitions. This enables us to

improve our services.

Whether it’s a phone call, a doorstep conversation, or a community drop-in,

every interaction helps us understand what matters most to the people we

serve. From this contact, we know what customer key concerns and priorities

are, and the sense of urgency there is about improving the network, and the

impact it has on the environment they love.

We know that trust is earned through action. That’s why we’re committed to

listening carefully and responding meaningfully, so our customers feel heard,

respected, and supported.

Away from the frontline of customer service, we also know that broader

engagement is crucial. We visit schools to inspire the next generation about

the water cycle, meet one-to-one with customers who need extra support,

and host public events where customers can ask questions directly.

We also engage with the Consumer Council for Water (CCW), which provides

an independent voice for water consumers in England and Wales.

How we engage

Our customer contact and support centres focus on continuous improvement

to deliver excellent service to customers. We’re proud to hold the BSI ISO 22458

Kitemark for Vulnerability and Inclusive Service, recognising our commitment to

supporting all customers. We use customer feedback to drive improvements.

The WaterShare+ Customer Advisory Panel is an important part of our

customer engagement. The panel of independent customer, business and

social representatives is strengthened by expert advice from representatives

of the Consumer Council for Water, the Environment Agency and Natural

England. Thanks to the WaterShare+ scheme, 80,000 of our customers are

now shareholders, giving them a stake and a say in how we operate.

To provide transparent data for customers, our WaterFit Live interactive

map displays near real-time storm overflow activations. This helps customers

make informed decisions about whether and where to enter the water, while

also showing where we’re investing in improvements.

We hold regular customer roadshows and local drop-in events, which brings

experts from around the business into communities to listen, learn, and act

on local concerns.

Across our regions we run an extensive customer research programme with

surveys delivered by independent research agencies. The surveys help us

identify what matters most to customers and where our efforts should be

focused in future. We ensure that research reaches harder to reach and

vulnerable customers from our Priority Services Register (PSR).

We also use research to understand customer needs in specific areas. For

example, we undertook a series of interviews with customers to explore their

responses to our new bill design. Their thoughts and suggestions helped to

make the bill as user-friendly as possible.

22 Annual Report and Accounts 2025 Pennon Group plc

We engage customers on complex topics, including a series of focus groups

to gather views on the Isles of Scilly investment programme.

Last year, we ran five Youth Boards across our regions, giving young people

a voice in how we manage water and respond to incidents. Their ideas are

helping shape our future.

After an incident, we survey affected customers to help improve our

approach to future incidents. After the water quality incident in Brixham,

we commissioned independent research projects both during and after the

event. This helped us to gather as much insight from customers as possible.

This research is fundamental to our evolution as an organisation.

We run three online panels with almost 10,000 customers. Using these

panels on a regular basis allows us to understand how views change over

time. More recently, we surveyed our panels to understand customers’

perspective on affordability.

We undertake evaluation projects with customers to inform our work.

Currently, customers are evaluating our progressive charges pilot project,

and our lead-free Bristol project.

In April 2024 we launched water-saving campaigns using the slogans ‘Water

is Precious’ and ‘Every Drop Counts’. The campaigns were rolled out across

Devon and Cornwall to encourage customers to think about saving water,

with the overall aim of reducing demand for drinking water.

The campaign started with a targeted message to the Colliford area supply

zone with a challenge to save 5% across the community, along with a

leaky loo campaign across other targeted areas. A supporting multimedia

campaign was launched using billboards, radio, print adverts and digital. The

full campaign ran from April 2024 to September 2024.

In the South West, demand for water escalates each summer as the annual

influx of tourists vastly increases the population. To raise awareness of the

need to conserve water, we launched a five-week campaign thanking tourists

for using less water, helping protect resources during peak season.

Key Challenges and how we are responding

The provision of clean, safe drinking water is the number one priority for our

customers. We are focused on building new resources, investing to upgrade

infrastructure and reducing leakage.

We are helping to reduce pollution and protect water quality in bathing waters.

We have been running a trial programme of water sampling and monitoring to

build customer trust. Our WaterFit Live maps now share the near real-time status

of overflows in the region, including those on rivers. Wealso respond to customer

concerns through face-to-face events in coastal communities. We have been

working with event organisers to help ensure safe and enjoyable water-based

events, throughout the year as well as festive swims.

We are committed to being a socially responsible business. We aim to achieve

net zero by 2030. We focus on key environmental projects, including peatland

restoration, renewable energy generation and energy efficiency at our sites. We

are also creating an independent WaterFit environmental advisory board.

With the ongoing cost-of-living crisis and implementation of bill increases,

affordability has been a major focus for us. We do all we can to keep bills

affordable and support those who need it. We’re focused on maintaining

zerowater poverty to 2030, ensuring fair pricing and the acceleration

ofsmart metering.

Outcomes, achievements and actions

Through the roadshows we visited 24 locations across the South West,

supported by 140 colleagues engaging over 1,000 customers.

This, together with our Youth Boards gave us a unique insight into how

ourexisting and future customers feel about the services we offer and

thetopics that are of interest to them.

The youth board gave us a unique insight into what our future customers

think of the services we offer and how we can better engage them in areas

they have indicated are important to them.

Customer roadshows

In 2024/25 we hosted 24 roadshows, 16 in Devon and 8 in

Cornwall. 140 of our talented colleagues offered their expertise to

over 1,000 customers who attended these events.

The roadshows present localised information boards about water

and wastewater services, explaining what we are currently doing

and what we have planned up to 2030. Customers can talk to

experts from throughout the business, and ask questions.

The roadshows focus on our four strategic priorities:

• Investing in Water Quality and Water Resilience

• Tackling Storm Overflows and Pollution

• Delivering for Customers and Addressing Affordability

• Reaching Net Zero and Enhancing Environmental Gains

At the Looe Roadshow in January 2025 we displayed a new

storm overflow model, which demonstrates how the sewer system

operates. This gives customers a better understanding about the

journey of wastewater.

93 customers attended the Budleigh Salterton Roadshow at

the Venture Hall on 2 April 2024, while 30 customers attended

the Newquay Roadshow on 11 September 2024 at Mount Wise

Community Centre. At this event, we were joined by MyCoast who

were showcasing their first-of-its kind app, created in partnership

with the RNLI, to revolutionise the way we interact with our

coastlines. South West Water provides the water quality data for

the app.

Customer Feedback

“There was a variety of departments

and enthusiastic staff talking about their

area of work”

“A brilliant idea, you need to do more of

these roadshows to educated people and

give vital information about our most

important resource, water, as we need it

to survive.”

23Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Communities

Who they are

We deliver services that are crucial to daily life,

which means we are not just a utility provider,

we’re part of the fabric of local communities.

Our teams live and work where we serve, so

we’re closely connected to the people and

places that make each community unique.

We work with community groups to ensure

people have a voice in shaping services that

matter to them.

Key highlights

Our education programme delivered

212

lessons on the water cycle, sewer misuse, plastic

pollution and water efficiency to

3,000

children and young people

Our Awesome Water programme has reached

34,000

people across the South West

Why we engage

We are woven into the everyday lives of communities across the region.

By listening regularly and responding with care, we can better understand

local needs and deliver services that protect water, support wellbeing, and

safeguard the environment today and for generations to come.

Our charitable donations and community funds support hundreds of amazing

causes, from water conservation to education and environmental restoration,

making a real difference to peoples’ lives and the places they love.

Our education programme inspires future champions across the region to

learn about the value of water in fun and interactive ways.

Our outreach teams work directly in the communities we serve, offering

support to those who need it most and having honest conversations about

the environmental challenges we face together.

We don’t just talk about sustainability, we act on it. For over a decade, we

have partnered with local organisations to deliver nature-based solutions,

including working with farmers to adopt sustainable practices and planting

trees to protect water quality.

We have also restored vital peatlands to boost biodiversity and reduce runoff

into rivers and streams. Our charity partnerships open up access to lakes and

reservoirs, offering health and recreational benefits to thousands of people.

How we engage

Our Stakeholder Forum has brought together over 1,000 stakeholders from

across the region to review and develop plans with us.

Our ‘Wheels of Engagement’ van, painted by a local artist, has become a familiar

sight across the region. With over 50 visits, we can respond quickly to local needs,

whether it’s a planned event or a live incident, giving us the flexibility to engage

quickly when a particular need arises. We have engaged face-to-face with over

1,000 people in this way.

In the SES Water region we have delivered 30 community events, with a

customer reach of 100,000. We also supported other key events in this area.

We use a mix of print, digital and social media campaigns to reach people where

they are. Campaigns like ‘Thank you for using less water’ and ‘Every Drop Counts’

have helped raise awareness about water conservation, whilst targeted social

media has supported customers through the cost-of-living crisis and bill rises, by

sharing financial support options.

Our Awesome Water team attended 16 event days across the South West,

reaching over 34,000 people. These events bring water education to life,

covering sewer misuse, water efficiency and the water cycle in fun and family-

friendly ways.

Now in its fourth year, the South West Water Neighbourhood Fund awarded

£100,000 to 55 different charities and groups in the year, helping over 40,000

people across the South West. SES Water donated £20,000 to its three charity

partners. Through South West Water’s Water Saving Community Fund, 21

projects received £55,772 in funding, saving an estimated 2.7 million litres of

water annually.

Bristol Water’s Together for Good programme awards £500 a month to

a local charity or community group, for projects that make a difference to

the community.

Stakeholder engagement overview continued

24 Annual Report and Accounts 2025 Pennon Group plc

We recently launched the new £5 million Better Futures programme to support

water customers and communities across Devon, Cornwall, Bristol, Bournemouth,

Isles of Scilly and Sutton and East Surrey. Better Futures provides hardship

grants to families and supports community groups focused on physical activities,

education, health and wellbeing and positive environmental outcomes. This

builds on our £200 million customer support package, ensuring help reaches

those who need it most.

We also host a Conservation and Recreation Forum twice a year, working with

partners like South West Lakes Trust to improve access to our land and water

sites for recreation and wellbeing.

Key Challenges and how we are responding

The South West region is home to over one-third of the nation’s designated

bathing waters. We’re committed to protecting these special places, and for

the last three years, 100% of designated bathing waters in the region where

we operate have met all of the stringent standards set for bathing water, with

98% rated as having ‘Excellent’ or ‘Good’ water quality status.

We have successfully concluded pilot studies into water quality on the

River Dart, which has successfully supported the designation of four new

inland bathing waters. These designations mark a significant step forward

in improving access to safe, clean rivers for recreation and community

wellbeing.

Each year, over two million visitors visit our 40 inland lakes and reservoirs.

We remain committed to keeping these special places open and accessible,

supporting health, recreation, and a deeper connection with nature for local

communities.

Outcomes, achievements and actions

Through our Community Programme we have delivered £329,247 in funding

across 36 funding periods, supporting 198 local projects and positively

impacting the lives of over 83,000 people.

Our ‘Wheel of Engagement’ engagement programme was designed to bring

our teams directly into communities. This flexible, on-the-ground approach

enabled us to host 50 pop-up events throughout the year, including rapid

responses to live incidents.

At the time of print, this programme has been short-listed for Customer

Initiative of the Year at the 2045/25 Water Industry Awards, a recognition of

our commitment to meaningful, community-first engagement.

CREWW

We are also looking at longer-term challenges through theCentre

for Resilience in Environment, Water and Waste (CREWW), a

25-year research partnership between South WestWater and the

University of Exeter (UoE).

CREWW extends the many years of collaboration between the two

organisations including our sector-leading catchment management

programme, Upstream Thinking (first pioneered in 2006).

CREWW brings subject matter experts from SWW and UoE,

combining 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 better

services for our customers, the region and the environment.

The research facility is underpinned by £21 million of capital

and research investment by South West Water. It is the first

water sector partnership to receive UK Research Partnership

Investment Fund (UKRPIF) support, and the largest RPIF-

sponsored project in the South West.

Since the centre opened in March 2024, the research programme

has expanded to tackle a wider range of current andfuture issues.

The cutting-edge CREWW facilities allow us to understand our

environment more fully, including the presence of emerging

contaminants and micro-pollutants.

Over 3.5 years, a £1.1 million research study led by leading

environmental biologist and (eco) toxicologist Professor Charles

Tyler will establish the composition of discharges and monitor

environmental/ecological impacts on the environment.

We have invested £500,000 into modelling and computer science

research, backed by expertise from the University’s world-

renowned Centre for Water Systems. These research projects will

model groundwater, identifying which parts of the wastewater

network are most at risk of groundwater infiltration, which is a

crucial factor in storm overflow operation. The project is led by

Professor Akbar Javadi and Dr James Webber.

A second project led by Professor Raziyeh Farmani and Professor

Ed Keedwell uses Artificial Intelligence to improve ourability to

locate the remaining lead pipes within our distribution network

accurately, and to replace them quickly.

CREWW is home to dedicated state-of-the-art microplastics

laboratory. The priority is to enhance knowledge and

understanding of microplastics in SWW operations, be that in the

water we abstract, treat and supply as drinking water, or when we

collect, treat and return to the environment.

The project teams work closely alongside a multi-disciplinary

team of experts from South West Water. The CREWW partnership

is delivering for customers and the environment.

25Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Stakeholder engagement overview continued

Why we engage

Our employees are our greatest asset. We believe that when employees are

heard, supported, and empowered, they thrive, and so does our business.

We engage with colleagues at every level through two-way dialogue,

feedback channels, and regular communication. This helps us understand

what matters most to them and make meaningful improvements based on

their feedback.

We regularly connect with our teams on topics such as:

• Health, safety, and wellbeing

• Organisational culture and values

• Diversity, equity, and inclusion

• Training, development, and career growth

We use a range of tools to stay connected, including pulse surveys, listening

sessions, employee forums and trade union representation.

How we engage

Great place to work

We have enhanced our use of the Great Place To Work (GPTW) platform.

We have introduced regular pulse surveys alongside the full survey, which

during the year gave colleagues additional opportunities to share feedback.

We continue to work hard to keep engaging and supporting our colleagues

to enable them to bring their best to work, and to ensure we are creating the

best work environment as well as supporting them appropriately.

Listening and acting on employees’ views

We take our responsibility to listen, to understand and support our

employees seriously. Our s172(1) statement on pages 146 to 147 outlines how

employee interests are considered in our decision making.

Speak Up

Our Speak Up whistleblowing policy continued to operate throughout

the year, and remains a vital channel for open, safe and transparent

communication, helping us build a culture of trust. Employees are able to

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

157 in the Corporate Governance report.

Additionally, we have introduced new ‘open door’ channels that allow

employees to ask questions and share ideas directly with senior leaders

fostering a culture of openness and accessibility. This new approach brings

together several employee communication channels and encourages

employees and senior leaders to keep connecting more.

Be The Future Forum

We ensure 100% employee representation, either through the Be The Future

Forum or collective bargaining agreements with our Trade Union partners

GMB and Unite in our operational teams.

Employee training programmes

We’re committed to helping our people grow. Last year, we delivered over

25,000 training days across the group for our colleagues – an average of

nearly seven days per employee.

We undertake high-quality training and development to support all our

colleagues and enable them to undertake their jobs professionally and safely.

All our training places health and safety at its core to ensure all colleagues go

home safe at the end of every day.

Our award winning apprenticeship and graduate programmes are developing

the next generation of water professionals.

Performance and progression

Regular one-to-ones, appraisals, and performance reviews ensure colleagues

are supported in their roles and have clear pathways for development.

People

Who they are

Nearly 4,000 people work across the Group

and brands, in corporate and operational roles.

They are the heart of our business, delivering

essential water and wastewater services and

ensuring clean, safe drinking water for our

customers 24/7.

Key highlights

Strong focus on PR24

Engaging all our colleagues and ensuring we are all

focused on delivering for our customers, today and in

the future

Launching a new Pennon Podcast

Listening to our colleagues and regularly updating our

internal communications

We delivered 25,000

training days across the group for our colleagues

Viva Engage, our internal

communications platform

now used by over 2,000 employees

26 Annual Report and Accounts 2025 Pennon Group plc

Internal communication activities

We’re always evolving how we communicate. Our key activities include:

• Big Chat video calls with the CEO and the Executive team are held

regularly, and focus on topical business issues and employee highlights.

In response to employee feedback, we have broadened the group of

speakers, involving colleagues from all areas and levels across the

company.

• Viva Engage, our internal communications platform is growing in

popularity, now used by over 2,000 employees.

• Toolbox talks and breakfast meetings with frontline teams that work

tirelessly around the clock, supported by our senior leaders and designed

to ensure two-way dialogue with operational teams.

• WaterWorks, our monthly dashboard, keeps everyone informed on

performance and progress on delivering for our customers, communities

and the environment, so that all employees across the Group are regularly

updated on these critical areas.

Launching our new

podcast: The Pennon Pod

During the year we launched our brand-new internal podcast, The

Pennon Pod, which was created as a result of feedback through

the Pulse surveys. Our People told us that they would like to hear

more about the values and what they mean, and told us that they

would like a range of ways to get information about our business.

The first three episodes were based on each of our values.

In the first episode of The Pennon Pod, we got under the skin of

what it means to Be ‘Rock Solid’ and two colleagues, our Group

Director of External Relations, and our People Services Advisor,

were invited to tell explain what this value means to them and

how they live it to deliver great business results. They were joined

by a very special guest, British athlete, World Champion and

two-time Olympian, Derek Redmond, who shared how he used the

behaviours and sentiment of ‘Be Rock Solid’ to achieve success.

In the second episode we explored what it means to bring your

best self to work and how our best self evolves for all of us,

throughout our changing careers. Special guest, former Royal

Marines Commando and Invictus Games Medallist, JJ Chalmers

hosted a discussion with our Instrument Maintenance Technician

for South West Water, to get under the skin of our value, ‘Be You’.

They covered some unexpected similarities between their military

experience and life at Pennon, from the importance of playing

a part in building a successful team, supporting each other and

recognising that diversity makes us stronger.

In the third episode futurist Tracy Follows, sat down with two

Pennon colleagues to explore the concept of 'Be the Future’.

As one of our values, ‘Be the Future’ represents the importance

of foresight, curiosity adaptability and innovation in today's

rapidly changing world. They delved into how ‘Be the future’

can be applied in our lives and day-to-day roles. They covered

everything from why personal development and continuous

learning is more vital than ever in 2025, to how learning from our

failures is crucial for progress, personally and as an organisation.

The key takeaways from the pod included the need for a culture

of innovation and collaboration within the company, the value of

experimentation, and a bold approach to professional growth.

Key challenges and how we are responding

We proactively recognise and address 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 is key, with we continue to invest

through our HomeSafe programme. See page 35 for further detail on this.

We support diversity and inclusion through our employee networks and

ensure we provide equal opportunities for all through our recruitment

processes.

We are focused on future skills. We’re investing in apprenticeships,

internships, and graduate schemes to build a skilled, resilient workforce.

Employee survey feedback is addressed by enhancing Group

communications and employee pay and bonuses.

Outcomes, achievements and actions

Our goal is zero workplace accidents, and we continue to prioritise safety and

wellbeing.

We are pleased to see our mean gender pay gap reduce significantly during

the year to less than 4%, but our goal is to work to eliminate any gap.

By investing in developing future talented and skilled employees and

maintaining our focus on driving innovation, we are seeking to use new

technologies and ways of working to address future challenges and enhance

our services for customers.

27Pennon Group plc Annual Report and Accounts 2025

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Suppliers

Who they are

As a large organisation we work with a large and

diverse supply chain. Our supply chain partners

are essential to delivering safe, efficient, and

sustainable operations, bringing innovation,

expertise, and resilience to every part of our

business.

Key highlights

£3.2bn

2025-2030 infrastructure plan

over 1,000

schemes already underway

Why we engage

We know that strong partnerships are key to meeting future challenges

and delivering long-term value. By working collaboratively with strategic

suppliers, we can deliver major investment programmes, drive innovation, and

ensure our operations remain resilient and future-ready.

We’re committed to working with partners who share our values, standards,

and behaviours. Through our structured approach, rationalising and

segmenting our supply base into strategic, key, preferred or transactional

relationships, we have tailored our engagement with each supply chain

partner to maximise value and impact.

As a signatory to the EU Skills Accord, we support skills development and

investment throughout the supply chain. And through our ESG and Net Zero

strategies we engage our supply chain to better understand and reduce our

collective environmental impact

How we engage

Our capital delivery supply chain partnership “Amplify” is now stood up and

is delivering on over 1,000 schemes, representing one third of the £3.2 billion

earmarked for investment to 2030.

To help deliver these projects, Amplify’s main construction partners,

following a highly competitive tendering process, are working alongside

a range of consultancy organisations. Project management, design and

cost consultancy is now being used to deliver the optimum spend through

standardising specifications, streamlining requirements for efficiency and

building supply resilience.

Supplier reviews and audits continue to deliver opportunities for innovation,

testing and improvements.

The Code of Conduct for Supply Chain Partners has been established, and all

new suppliers are brought on board using the framework.

Formal contracts and framework agreements are utilised to generate robust

cost effective and market-tested procurement.

E-procurement and Risk Management platforms are being used to monitor

the suppliers, flag risks in advance to the teams and ensure suppliers remain

compliant.

Alongside, we engage with neighbouring water companies like Wessex Water

through the Western Procurement Hub, collaboratively procure goods and

services to derive the best value as well as to share best practices.

Key Challenges and how we are responding

Meeting the environmental challenges of today, and tomorrow, requires

a shift in how we think about infrastructure. That’s why we’re embracing

a ‘nature-first’ approach, prioritising solutions that work with the natural

environment rather than against it. We’re embedding nature-based thinking

into the heart of our supply chain strategy.

To deliver this, we’re securing the best talent and expertise from our

partners, those who share our vision for a greener, more resilient future. Our

mobilisation board is already overseeing the delivery of current schemes,

ensuring that nature-based principles are integrated from the outset.

We also continue to minimise the risk of supplier failure or insolvency

through rigorous due diligence and proactive risk management,

strengthening resilience and ensuring long-term delivery capability.

Outcomes, achievements and actions

We have identified opportunities to collate smaller areas of spend across

our regions, bringing under central management in order to improve value,

enhance service quality and reduce risk.

Our data driven approach to tendering ensures that procurement decisions

are market-tested for both value and performance. This helps us deliver

current schemes efficiently while maintaining high standards.

To strengthen supply chain resilience, we’re actively mapping upstream

supplier networks, giving us greater visibility and control over potential risks

and dependencies.

Building on the success of Amplify, we are now expanding the outcomes of

Amplify across a broader range of supply chain goods and services, as we

look to embed collaboration, innovation, and sustainability into every layer of

delivery.

Stakeholder engagement overview continued

1. In forecast outturn prices

28 Annual Report and Accounts 2025 Pennon Group plc

Investors

Who they are

We have a broad and diverse investor base,

including institutional equity investors, retail

investors, many of which are customers, and a

range of debt providers.

Around 50% of Pennon’s shares are held by

UK-based investors including individuals,

pension funds, and charities.

Our diverse debt portfolio includes institutional

debt investors, lessors and bank debt.

Key highlights

c. 80,000

customers are shareholders under WaterShare+

over a third

of the Group’s c.4,000 employees are shareholders

Read about our Capital Markets Day on page 144.

Why we engage

As a publicly listed company, access to capital and debt markets is vital to

fund our growth and sustained long-term performance of our business. To

maintain investor confidence, we ensure our shareholders and lenders have a

clear understanding of our strategy, ambition, performance, and culture.

We provide regular updates on financial and non-financial performance,

including environmental, social and governance (ESG) progress, reflecting

the growing importance of sustainable investment.

We also maintain a proactive and transparent dialogue with our debt

investors, keeping them informed on credit metrics, long-term funding

strategies, and ESG initiatives. This approach strengthens investor

confidence and ensures ongoing access to a broad range of debt capital

markets.

How we engage

We run an extensive investor relations programme to ensure that all investor-

related stakeholders are informed of our business, its strategy and prospects.

• Regular engagement via our investor relations team, and regular meetings

with our CEO, CFO, and Chair

• Half year and full year results presentations, followed by Q&A sessions and

roadshows to meet with investors

• Group and one-to-one meetings with UK and global investors

• Capital markets events to share strategic updates and sector insights

• Site visits to showcase to investors our operations and regional impact

• Ongoing engagement with debt investors through regular meetings and

investor conferences

• Annual General Meeting (AGM), where retail shareholders can ask

questions directly to the Board and we also engage with investor

representative bodies including proxy agencies

• Engagement with investor representative bodies, including proxy agencies

Through our unique WaterShare+ scheme, customers can become

shareholders in Pennon Group, giving them a stake and a say in their water

company. We also work closely with the independent WaterShare+ Customer

Advisory Panel to ensure we continuously engage with our customer-

shareholders.

Key Challenges and how we are responding

In today’s evolving investment landscape, transparency, trust, and long-

term value creation are more important than ever. Over the past year, we

have responded to several key challenges by deepening our engagement

and strengthening our communication with investors, this included; the

announcement of our £2.5 billion EMTN programme, with significant

investor engagement for both the initial issuance and subsequent issuance;

the communication of our share rights issue and acceptance of the Final

Determinations covering the regulatory period to 2030. Alongside the

comprehensive investor prospectus, an investor presentation was held,

where we explained the rationale and future confidence for the issuance, as

well as significant engagement with our shareholders; we hosted a capital

markets day in region (more detail can be found on page 144). Members of the

Remuneration Committee met with the Company’s top shareholders as part of

our Remuneration Policy consultation.

Outcomes, achievements and actions

Our sustained investor engagement throughout 2024/25 has played a vital

role in ensuring investors understand our investment case. Through open and

transparent communication, we have provided investors with clear visibility into

our strategy, performance, and financial resilience.

The Treasury team undertook an extensive programme of engagement,

holding 148 meetings with banking partners and 84 meetings with investors,

targeting group sessions and targeted bilateral discussions.

During 2024/25, the management team met with 84% of our institutional

investors (based on issued share capital), holding over 160 meetings and calls

with existing and prospective investors.

29Pennon Group plc Annual Report and Accounts 2025

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Stakeholder engagement overview 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).

Key highlights

May 2024

We hosted officials from Defra in Plymouth, sharing

the work we are doing with local Government and

landowners in our region to sustainably store water and

manage flood risk.

Summer 2024

Ofwat awarded South West Water the top “outstanding”

business plan status for the third price review in a row.

No other company can match this track record.

29 January 2025

We confirmed our decision to accept Ofwat’s PR24 Final

Determination.

27 February 2025

The Independent Water Commission launched their

eight week Call for Evidence on the Water Regulatory

System.

Why we engage

Engaging with our regulators is fundamental to maintaining our licence to

operate and delivering long-term value. Through open and constructive dialogue,

we ensure our plans are aligned with national priorities, meet compliance

obligations, and reflect the needs of the people and places we serve.

The regulatory landscape is evolving, around environmental performance,

affordability, and governance, and our engagement aims to help shape future

policy in the interests of our customers.

We work to ensure that regulation supports innovation, enables long-term

investment, and holds the sector to account in a way that is fair, transparent,

and focused on outcomes. Engaging early and often is essential to build a

regulatory framework that is fit for the future, supporting both public trust

and sustainable growth.

How we engage

We take a proactive and collaborative approach to regulatory engagement.

This includes regular meetings and open dialogue to ensure customer voices

and environmental needs are reflected in our plans.

We submit detailed action plans, performance reports, and compliance

reviews to our regulators, ensuring transparency across key metrics such

as leakage, customer service, and investment delivery. We participate in

industry consultations and working groups, helping to shape new and

emerging regulations. Joint site visits and inspections provide further

opportunities to review progress and performance in real time.

Key Challenges and how we are responding

The water sector is facing a period of significant transformation, driven by

environmental pressures, technological advances, and rising expectations

from customers. Issues such as water quality, drought resilience, pollution,

and affordability are becoming more urgent, particularly in the context of

changing weather patterns, growth, and pressures on household incomes.

In response, we are working closely with our regulators as the regulatory

framework evolves to meet these challenges. This includes contributing to

the Government’s comprehensive review of water regulation, led by Sir Jon

Cunliffe and conducted through the Independent Water Commission, whose

recommendations are expected in summer 2025.

We are also responding to HM Treasury’s Action Plan, which calls on

regulators to support economic growth and housing. With over 80,000 new

homes planned across our regions, we are investing early in infrastructure

to support this growth, including storm overflow upgrades and sustainable

bioresources solutions.

In parallel, we are engaging with Ofwat on its evolving expectations around

executive pay, dividends, and performance-linked incentives. We support

the principle that rewards should be clearly linked to delivery for customers

and the environment, and we are aligning our governance and reporting

accordingly. We are also exploring innovative tariff structures that better

reflect customer usage and affordability, while supporting long-term

investment in resilience and sustainability.

Major infrastructure projects such as the Cheddar 2 and Mendip reservoirs,

and the Poole water resource scheme, delivered in partnership with Wessex

Water, demonstrate our commitment to long-term, nature-based solutions.

These efforts are underpinned by strengthened governance, improved

data transparency, and a clear focus on delivering sustainable outcomes in

partnership with our regulators.

Outcomes, achievements and actions

Our engagement is shaping a regulatory framework that supports innovation,

sustainability, and long-term value for customers. Over the past year, we

have finalised our robust and forward-looking PR24 business plan; improved

our collaboration around environmental improvement programmes such as

storm overflow reduction and the adoption of nature-based solutions; and

we have continued to align with regulatory expectations on governance,

risk management, and customer outcomes. We also submitted our formal

response to the Government’s Independent Water Commission on 23 April,

setting out our views on how regulation must evolve to support a resilient,

customer-focused, and environmentally responsible water sector.

30 Annual Report and Accounts 2025 Pennon Group plc

Policy makers

Who they are

Policy makers play a central role in shaping

the legislative and regulatory environment in

which we operate. We engage with national and

regional stakeholders, forming relationships

that are essential to ensuring that water policy

reflects the needs of customers, communities,

and the environment.

We maintain open and transparent relationships with a broad spectrum

of policy makers, from central government departments, such as the

Department for Environment, Food & Rural Affairs (Defra), through to local

authorities, local MPs, and parliamentary committees. While local MPs

advocate for their constituents, central government sets national water

priorities and policy directly and through regulatory bodies such as Ofwat

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 our best to ensure that Pennon’s values are heard across the

political divide.

In addition, as a FTSE-listed business, we also collaborate with third parties

such as the Confederation of British Industry (CBI) and Chambers of

Commerce, to ensure that the voice of business is heard in national policy

discussions.

Why we engage

Following the significant political shift at the July 2024 General Election, and

in an increasingly politicised operating environment, it is more important than

ever to engage both new and longstanding stakeholders.

As one of the largest employers and businesses in the Greater South West,

we have a responsibility to support the local economy and growth in our

region, whilst upgrading and improving our assets, so that stakeholders have

confidence in our plans.

How we engage

We engage with national political stakeholders through Select Committees,

All Party Parliamentary Groups, and other forum focused on the environment,

renewable energy, skills and regional growth, so that Pennon's story is at the

forefront of the minds of policymakers. Our membership of Water UK enables

us to contribute to national policy development and sustainable water

service delivery.

We host regular meetings with MPs, including site visits and constituency-

based meetings, as well as events in Westminster. We also contribute to

roundtable debates and provide briefings MPs and ministers ahead of

parliamentary discussions, helping shape the narrative from the outset.

We also respond to government consultations, such as the proposed reforms

to the National Planning Policy Framework and the Independent Water

Commission's Review into the Water Sector.

Key Challenges and how we are responding

In the wake of the 2024 General Election, we have proactively built

relationships with new and returning MPs, helping them understand our

business and regional impact. Stakeholders have been interested to hear

from us on a range of topics, including customer bills, investment plans and

environmental initiatives.

We respond promptly to enquiries we from local MPs and councillors. We

proactively facilitate site visits for them to see firsthand our work in their

constituencies, demonstrating investment in infrastructure and how we

are upgrading our network to protect and enhance water quality and the

environment. Policy makers are also regularly invited to join our customer

roadshow events, where we explain the work we have been doing in their

area.

Outcomes, achievements and actions

Since the General Election in July 2024, we have extensively engaged with

new and re-elected MPs, supporting around 500 day-to-day enquiries on

casework issues and providing educational briefings on the water cycle and

our investment plans. Our CEO has held one-on-one meetings with MPs in

Westminster, whilst our wider team has hosted site visits across the region.

These efforts have strengthened relationships, supported MPs in their

communications with constituents, and helped build a positive narrative

around Pennon’s infrastructure improvements aligned with the current

parliamentary term.

31Pennon Group plc Annual Report and Accounts 2025

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Our people and culture

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 and 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 fully recognise

that the levels of external scrutiny on the water industry have increased

significantly in recent years, and this is felt by our colleagues personally as

they carry a heightened level of responsibility. Despite these pressures, we

are delighted that our colleagues are even more determined to provide high

quality services to our customers and the wider environment.

Over the past ten 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 provisions,

as well as poor public transport and communication connections.

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.

Prepared for PR24

We are reshaping the Group, aligned to our four strategic priorities, focusing

on having more colleagues on the front line, and ensuring we are in a good

position as we move into the new year and business planning cycle. Our

strategic priorities are our drumbeat internally, ensuring we can deliver

commitments externally, and delivering the things that matter most to

customers.

We have been working hard throughout the last year to align our teams

within South West Water, Bournemouth Water, Bristol Water and the newly

acquired Sutton and East Surrey Water, and within the respective non-core

water business to ensure we are well placed to successfully deliver the

challenges within PR24.

Our exciting business plan, which has been approved by our regulators,

will see us create upwards of 2,000 new jobs as part of a wider £3.2 billion

investment planned across the Group. Our business plan was built around

our Group 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 our region 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 being 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.

Embedding our new Group Values

Last year, we launched our new group values: Be You, Be Rock Solid

and Be the Future. These values serve as guiding principles that

shape our interactions with customers, communities and each other.

They give us a framework for how we should engage as a team,

and help us build a foundation for growth and trust, and a positive

workplace environment.

Over this past year, we have worked hard to embed these values,

using them as a tool to align our teams as we prepare the business

for AMP8 and to deliver on our strategic priorities. Some examples

of this include:

• Launching the ‘Pennon Pod’ – encouraging open and engaging

discussions on what our values mean to individuals across

the business

• Colleague Roadshows – holding face to face events for

colleagues to interactively engage with the new values

• ‘Be You’ Photo competition – encouraging colleagues to

share their authentic selves whether that be in or outside

of the workplace

We are proud to witness our values

in action in the workplace every day.

Because of this, we have launched a

new set of internal colleague awards.

The Values the ‘You Rock’ Awards.

This is a new recognition scheme

that aims to shine a light on the

best of Pennon, highlighting those

who truly embody our values and

demonstrate the best behaviours for

our colleagues, customers

and communities.

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.

1. In forecast outturn prices.

32 Annual Report and Accounts 2025 Pennon Group plc

Enhancing the organisation culture

After launching our new Group Values last year and working hard with

colleagues across all our business units to fully roll them out during this year,

we are now well placed to deliver our PR24 plans aligned with our Group

Values. Our Values are seen as the guiding principles by all colleagues in how

we undertake our activities.

We have sought to embed our values to deliver real behavioural change

and incorporate them in all business activities from recruitment, induction,

performance management and communications to reward, recognition and

reporting. Setting the tone from the top has been key to ensuring that these

principles are reflected across the company and the Group.

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

prepare us for 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 the 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 by 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 135

on how the Board monitors culture.

Talent development

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

employees and to build and recognise 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.

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. We are delighted to be the only water company that has been

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

10% of our employees undertaking apprenticeships or on a formal structured

graduate programme. Achieving Platinum status demonstrates our long-

term commitment to investing in structured apprenticeship and graduate

programmes for our employees.

Colleagues at our Pynes Water Network Training Centre

33Pennon Group plc Annual Report and Accounts 2025

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Our people and culture continued

Apprenticeships

We have a long-standing commitment to apprenticeships, as they are an

effective way to recruit and develop high quality talented employees. After

setting a target in 2020 to support 1,000 apprenticeships by 2030, we are

delighted to report we are ahead of schedule and have supported 663

and currently have 368 live on programme. 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 graduate programme in 2021 and setting a long-term

commitment to recruit 200 graduates on a structured two-year development

programme by 2030, we are again ahead of schedule.

Since the launch, the graduate programme has recruited 105 talented

graduates, with 56% being female and almost 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 learn 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, including topics such as personal impact

and purpose-led leadership, and skills areas such as coaching and mentoring,

inclusive leadership, and building high-performing teams.

Throughout 2024/25, we delivered 25,000 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. To further enhance the support

we provide our people, we have embedded health and wellbeing into our

HomeSafe strategy. This will provide extra emphasis on occupational health,

physical and mental health, and overall wellbeing.

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.

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 of 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 over 100 active 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 an active 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.

• EAP Helpline: Our Employee Assistance Programme (EAP) provides

extensive advice and support for employees and family members, and we

intend to further boost awareness and utilisation of the services offered.

Our 2024 cohort of graduates

34 Annual Report and Accounts 2025 Pennon Group plc

HomeSafe, the Group’s flagship health and safety programme

Ensuring our people go home safe to their families safely every day is an

utmost priority. Our HomeSafe programme continues to focus on the three

key areas of Visible Safety Leadership, Accountability and Data Driven

Targeted Interventions. Relentless focus on and driving consistency in these

areas has seen the Group’s Lost Time Injury Frequency Rate (employees and

agency, excluding contractors), the Group’s primary measure of health and

safety performance, continue to reduce, and this year achieve the original

HomeSafe strategic target of 0.25. This year has seen the fourth year in a row

of reduction in LTIFR, down to 0.22 in September 2024, and 0.24 at 31 March

2025, compared to0.30 at 31 March 2024.

The three areas we focused on:

1. Visible Safety Leadership:

• The third year of HomeSafe Live events

i. Six conferences across Devon, Cornwall, Bournemouth and Bristol,

sponsored by the Senior Management Team from all departments.

Over 1,000 employees attended fun, engaging sessions focused

on the “Mind Safety” principles connecting day to day behaviours

tosafety outcomes.

ii. Leaders owning HomeSafe, celebrating success with the intention

ofencouraging others to develop good practice and behaviours.

iii. Leaders hosted safety ‘stand-downs’ to discuss recent events and

immediate lessons to be adopted.

iv. An expansion of the successful ‘12 days of Christmas’ campaign

into a full 24 day advent calendar where each day for 24 days,

ateam from across all Group companies and supply chain partners

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:

• Implementing an index HomeSafe scorecard with a 70% performance

bias on lead activities, driving up performance against these areas and

embedding these behaviours as the ‘way we work’.

• Empowered decision making on risk management and investment into

the front line teams to identify hazards and solutions, and deliver these

locally at pace to improve the working environment.

3. Used 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.

Additionally, this year we have driven increased focus on our ‘Site Pride’

initiative, encouraging teams across the Group, including Tier 1 and 2

contractors, to meet the minimum standards of their workplaces to achieve

aBronze, Silver or Gold Site Pride award. Through a league table approach

we have introduced healthy ‘competition’ between teams to drive up

standards in their work environment, instilling local pride and creating and

maintaining clean, healthy and safe work environments that will ultimately

lead to higher engagement and fewer injuries. 45 individual sites have

achieved an award to date with a similar number in flight and due to

beassessed in the coming year.

As we prepare for AMP8, HomeSafe has also been embedded within Amplify,

our engineering partnership between SWW and our supply chain, leveraging

theskills, experiences and innovation opportunities from across a wide

rangeof organisations.

While we have delivered year-on-year improvements, we continue to

recognise that HomeSafe is not a project that will be completed. It continues

to be the way we work and how we deliver on our commitments to

customers, communities and the environment. Our roadmap to HomeSafe

2025 has delivered its original objective. HomeSafe is truly embedded within

the Group, and to build on this success we have evolved HomeSafe again,

focusing on four key cornerstones that will drive continued improvements in

Occupational Safety while increasing focus and improvements in health and

wellbeing. The plan to 2030 has been developed with significant input from

across the whole Group and will see HomeSafe remain at the core of how we

deliver for our customers, stakeholders and the environment, expanding the

remit to ensure we support our people to be the best version of themselves

and that everyone goes home safe every day.

Occupational Safety: focusing on

the Individual

Process Safety: focusing on the high

consequence processes within our water

and wastewater treatment process.

Occupational Health and Wellbeing:

focusing on physical and mental health

Security: focusing on physical and

personnel security

35Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our people and culture continued

Equity, Diversity and Inclusion (ED&I)

As one of the largest employers in the region, we have a responsibility to

promote social mobility, address inequality and drive inclusivity.

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.

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 performer 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.

REACH Development Programme

Gender Diversity dashboard

Pennon is one of only a few businesses in the UK to have both a female Chief Executive Officer and a female Chief Financial Officer. The following

dashboard shows a breakdown of gender diversity across the Group.

2024/25

Gender – Board Gender – Senior Management

Gender – Employees

Male: 3

Female: 4

43%

57%

Male: 31

Female: 18

63%

37%

Male: 2,696

Female: 1,213

69%

31%

For more information see page 171.

1. Pennon Executive Board and their direct reports (with substantive roles).

36 Annual Report and Accounts 2025 Pennon Group plc

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. We are both a signatory to the Armed Forces Covenant and a

Disability Confident Employer.

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 receiving high numbers of applications from ethnically diverse applicants

and women into what is still a male-dominated industry.

Last year, 30% of job applicants were female and 31% 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.

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 sitting on the overall ED&I Steering Group to ensure

collaboration across the whole ED&I agenda and driving communication

between the groups.

We operate a flexible bank holiday policy, 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.

Inclusion Week at Pennon – September 2024

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.

We operate a 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 this

entails. Throughout the year we piloted a Reciprocal Mentoring scheme,

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 run 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 three years we have supported

25 placements ranging from summer internships to one-year placements.

Following successful completion of their internships, most students returned

to university to complete their degrees. We are pleased that many of

our interns have already secured a permanent position on our graduate

programme or have gone direct into other business roles. This important

scheme not only offers Black students an opportunity to understand our

business but also enables us to improve the levels of ethnic diversity across

our industry.

37Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our people and culture continued

Our gender and ethnicity pay gap

In recent years, the composition of Pennon Group has further evolved with

the acquisitions of both Bristol Water plc and SES Water, 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 significantly

reduced during the year to 3.92% from 8.51%, and sits lower than the national

average of 13.1%. Our median gender pay gap has seen a decrease of over

3% to 11.1%, indicative of a shift in the representation of women, notable

within the upper quartiles, where we have seen an uplift to 28% 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 11.7%. 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 added this year.

After increasing our commitment to apprentice and graduate recruitment,

and having set new targets, we are delighted to have 10% of our employees

on these schemes.

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.

Company Induction Event

38 Annual Report and Accounts 2025 Pennon Group plc

Storm Darragh, December 2024

Storm Darragh was one of the worst storms to hit the West

Country in decades. The Met Office issued an extremely rare red

weather warning across areas of the South West. The storm was

more widely spread than initially forecast, with high winds causing

numerous power outages. To minimise the impact of the event

on the operation of our assets, our services and the environment,

150 colleagues stood up to support during the event, minimising

the impact both to our customer’s water supply and the local

environment.

Colleagues Unite for Customers

Over the past year, we have faced a number of unprecedented operational challenges. These challenges have shone a light on the resilience, capabilities and

passion of our employees.

Christmas swims

Every year communities across our region celebrate the festive

season with organised sea swims on Christmas Eve, Christmas

Day, Boxing Day, New Year’s Eve and New Years Day. These

events are increasingly popular and a huge event in the calendar

year for customers across Devon and Cornwall.

Our teams are passionate about ensuring our infrastructure

supports these celebrations and that we plan to reduce the

likelihood of combined sewer overflow activity affecting these

events. Given the time of year and likely weather, this can be

challenging, with mitigation plans needed to ensure no releases

from storm overflows impact on planned swims.

It is therefore testament to the planning, commitment and hard

work of our people that none of the swims were cancelled due

to our infrastructure. From the operational and environmental

monitoring teams working in challenging conditions on the

front line, to the teams behind our external response and event

handling, it was a team effort to ensure these events went ahead

and communities were engaged and kept informed as required.

Being rock solid

They say that in the most challenging of times, you see the very

best in people, and that’s exactly what happens when an incident

occurs. We saw this last year in and around the communities of

Brixham when a boil water notice was issued following a very rare

outbreak of Cryptosporidium.

From the hundreds of network technicians, engineers, water

quality scientists , and contractors who worked tirelessly on

rotation, around the clock, to the many volunteers from across

the Group who gave up weekends and evenings to man water

bottle stations and hold drop-in sessions, we saw our values in

action. Everyone from across the Group stepped up and leaned

in. We also sought advice from the most brilliant of minds, from

around the world, in the UK, and in the sector.

Of course, none of this excuses what happened and for the

distress and inconvenience to customers and businesses, as we

cleaned and tested more than 30,000 kilometres of the pipework,

flushed the network almost 30 times, carried out ice-pigging, the

installation of filters and UV, and the relaying of new pipework,

over eight weeks.

39Pennon Group plc Annual Report and Accounts 2025

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Building water resources,

improving water quality

Our purpose is rooted in the sustainable stewardship of water, a resource vital to communities and

ecosystems, now and for generations to come. We have delivered meaningful steps to strengthen

water resilience, protect water quality, and deliver lasting value through innovation, collaboration,

and targeted action across our regions.

Regulated water

South West Water

c.1.8 million

population served

c.480 million litres

of drinking water per day

Bristol Water

c.1.2 million

population served

c.280 million litres

of drinking water per day

Bournemouth Water

c.0.5 million

population served

c.160 million litres

of drinking water per day

SES Water

c.0.8 million

population served

c160 million litres

of drinking water per day

Our operational review

We are making progress in the areas that matter most, focusing on our four strategic priorities and delivering for

customers, communities and the environment.

40 Annual Report and Accounts 2025 Pennon Group plc

A resilient supply of clean drinking water is our customers'

number one priority. We have made significant strides

in enhancing our water infrastructure, ensuring that we

are equipped to meet the challenges of climate change

and population growth, and delivering against stringent

regulatory standards. From repurposing disused

mines and quarries to deploying advanced treatment

technologies, we are focused on securing reliable, high-

quality water supplies for all.

Water Quality and Resilience

Clean, safe, reliable drinking water

Delivering high-quality tap water is central to our purpose. We proudly serve

4.3 million customers across Bristol, Bournemouth, Devon, Cornwall, Sutton,

East Surrey, the Isles of Scilly, and parts of Dorset.

Customers consistently rank safe, clean water as their top priority. That’s

why we’re embedding our Quality First culture across all operations, already

delivering results in Bristol and now expanding to SES Water to ensure

consistent standards.

The water quality incident in Brixham serves as a powerful reminder of the

importance of maintaining public confidence. Over eight weeks, around 800

of our people and supply chain partners worked tirelessly to restore safe

drinking water to the community. This included flushing more than 30km

of network 27 times and installing advanced UV and filtration systems. We

are working closely with the Drinking Water Inspectorate to ensure that all

lessons are captured and applied across our operations.

Overall, water quality performance continues to improve. SES Water is

currently the top-performing company in the sector, while South West Water

leads among water and sewerage companies, a reflection of our focus on

continuous improvement and knowledge sharing.

In Bournemouth, we are making excellent progress on two major

infrastructure projects, Alderney and Knapp Mill, which will together supply

85% of the local population. These schemes are being delivered using

modern offsite construction techniques, helping to reduce disruption,

improve efficiency, and deliver long-term value. Across Devon and

Cornwall, upgrades at Stithians, Saint Cleer, Restormal, and Littlehempston

are progressing well, while targeted improvements in Bristol have been

successfully completed in 2024/25.

These investments are not only improving performance today, they are

laying the foundation for the next phase of our long-term strategy. As we

look ahead to the 2025 to 2030 investment period, we are building on this

momentum to deliver even greater resilience, reliability, and quality for the

communities we serve.

Capital investment in water services in

2024/25 of

£346.7m

delivering a resilient, sustainable, and high-

quality water service across our regions.

Alderney upgrade

Investing to improve your drinking water services

The Alderney Water Treatment Works supplies high-quality drinking

water to 375,000 people, nearly 85% of homes and businesses in

Bournemouth.

Constructed over 100 years ago, Alderney has played a vital role

in delivering clean, safe water for generations. It is now nearing the

completion of a major transformation to meet the highest water quality

standards for the future.

Investing for the future

Local people want a reliable source of high-quality water that’s

resilient to climate change and environmentally responsible. We are

transforming Alderney to ensure it continues to deliver exceptional

water quality.

With a £115 million investment, we are delivering significant

improvements:

• Enhancing water quality for 375,000 people

• Increasing resilience to extreme weather and climate change

• Creating around 200 jobs in the local supply chain

• Introducing ozone treatment and advanced ceramic membrane

filtration to reduce carbon emissions and improve efficiency

This multi-year upgrade has only been possible due to the financial

support and resources provided by being part of a larger group.

An innovative approach

Water quality in the area can be affected by naturally occurring

dissolved organic carbon (DOC) in the River Avon, particularly after

heavy rainfall. While harmless, DOC can affect the appearance of tap

water and fall short of the aesthetic standards we aim to deliver.

To address this, ozone is injected into the water to break down DOC

before it passes through a fine ceramic membrane filter that removes

bacteria and viruses.

Ceramic filters were first used at our Mayflower works in Plymouth—

the UK’s first to adopt this technology. At Alderney, we’ve refined the

design further. Unlike Mayflower, where ozone is used to clean the

membranes, at Alderney it forms part of the treatment process itself,

dosed at very low levels to enhance membrane performance and

throughput.

We have retrofitted this innovative technology into the existing works.

The modular design of the ozone and ceramic membrane units allowed

groundworks to proceed at Alderney while the units were built offsite

in Inverness—an approach that improved efficiency and reduced

disruption.

41Pennon Group plc Annual Report and Accounts 2025

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Our operational review continued

Investing to secure resilience, nowand into the future

Building water resources

We have continued to make major strides in strengthening the resilience of

our water supplies and safeguarding water quality across our regions.

In response to growing national concerns about water scarcity, particularly

following the dry spring, we have drawn on our experience managing

extreme drought conditions in 2022 to inform a smarter, more resilient

approach. As we have re-purposed former disused mines and quarries

into localised storage assets, and developed innovative network recharge

schemes, we have reshaped how we manage water in a changing climate.

Thanks to this work, we are confident in our supply outlook for summer 2025,

with no restrictions anticipated across our regions under the scenarios we

have modelled.

Reducing demand is equally critical to long-term resilience. We have made

strong progress in cutting water losses from our own operations and across

the wider network. Over the 2020-25 regulatory period leakage has been

reduced by 13% in South West Water, 19% in SES Water, and 1% in Bristol

Water, and whilst we have narrowly missed our 2024/25 leakage targets in

some areas, the reductions build resilience and support the environment.

Supply Schemes

With Blackpool Pit now fully operational, and construction completed at

the new abstraction and treatment works at Porth Rialton, we continue to

enhance supply resilience across the South West.

We have supplemented capacity in Cornwall by 4% this year, with c.34%

greater resource availability achieved since 2022, alongside the 30% uplift

resource availability in Devon. Overall, water resource levels exceeded our

90% target at 31 March 2025 across Devon and Cornwall, and we achieved

100% supply demand balance index for the first time in the 2023/24 EPA.

In Bristol, supply levels remain in surplus – and we continue to deliver our

long-term plans including investment in Cheddar 2 Reservoir, which will

support resources across the wider South West region.

And whilst SES Water does not have large-scale infrastructure projects

underway, we are investing in smarter, more sustainable supply-side

improvements as part of contributing to regional resilience.

Compliance Risk Index (CRI)

The Compliance Risk Index score as reported by the Drinking Water

Inspectorate (DWI) measures water quality compliance.

In 2024/25 we continued with our ‘Quality First’ transformation programme

across our South West Water (SWB) region (Devon, Cornwall, Isles of

Scilly and Bournemouth) and Bristol region, with continued investment

in advanced treatment technologies, including ceramic membranes and

granular activated carbon.

SWB performance continues to improve, delivering industry upper quartile

performance in calendar year 2024 with a CRI of 1.19. Performance is the best

achieved in K7, reducing 67% over this period. 51,000 customers in West

Cornwall have benefited from advanced granular activated carbon (GAC)

and UV disinfection this year, improving the taste and smell of supplies and

increasing the resilience of the disinfection processes at our Stithians water

treatment works.

Bristol saw a significant improvement in CRI this year at 2.82, compared with

7.05 in 2023, with customers benefiting from enhanced maintenance and

improved process operations during the year.

SES Water maintained their excellent track record delivering industry leading

performance in 2024 with a compliance risk index (CRI) of 0.00.

Water Quality Upgrades

In Bournemouth we have made strong progress in our investment in

Alderney and Knapp Mill treatment works. These upgrades to existing works

will deliver state-of-the-art treatment to customers in the region.

At Alderney, construction of advanced ceramic membrane microfiltration

and GAC has been completed. Commissioning will commence once the final

power connection is in place.

Similar investment is nearing completion at Littlehempston, where

upgrades will benefit 193,000 customers across Torbay and South

Devon. This includes the installation of advanced filtration and disinfection

systems to enhance water quality and ensure compliance with the highest

regulatory standards.

An additional 500 lead supply pipes were also replaced as part of our long-

term strategy to reduce consumers exposure to lead across the group.

Collectively, these projects form part of our wider commitment to

modernising our treatment infrastructure and delivering consistently

high-quality drinking water across all our regions.

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 1.87 per 1,000 population, have increased

slightly compared to last year, despite a record level of flushing in our

extensive network of pipes with c.300 network areas being flushed in

the period. There is a natural lag in this activity showing in improved

performance, however early indications in the first quarter of 2025 are that

the work has been effective with a reduction in the number of consumers

reporting discolouration of their supplies.

Bristol Water has also seen a slight increase in the volume of contacts

received to 0.95 per 1,000 population in 2024, a large number of which

related to customers’ own plumbing, although this was also impacted by

the increased public awareness following the increase in media attention

concerning water quality.

SES Water continues to be upper quartile in the sector for its performance,

with 0.58 contacts per 1,000 population.

Reducing leakage and supply interruptions

Leakage

We recognise that preventing water loss through leakage, whether from our

network or our customers’ pipes, is a major concern for all. That’s why we are

committed to ongoing efforts to reduce it.

In 2024/25, we identified and repaired a record number of leaks, supported

by investments in pressure management, metering, and customer-side

repairs. We ramped up detection efforts using satellite technology and leak

detection dogs, while managing network pressure to reduce pipe stress.

Targeting trunk main losses and helping customers fix private leaks, which

account for up to a third of total leakage, has strengthened both resilience

and environmental protection.

SES met its target of 21.6 ml/day, continuing to lead the industry in leakage

reduction. Whilst we narrowly missed the stretching leakage targets for

2024/25 for SWB and Bristol, the in-year leakage results for 2024/25 were an

9% and 4% improvement respectively on the prior year.

42 Annual Report and Accounts 2025 Pennon Group plc

Impressively, SES has remained at or below the maximum allowed level of

leakage every year since targets were introduced over 20 years ago. This

success is driven by SES Water’s smart network technology, enabling near

real-time leak detection and cutting leakage run times by up to 40%. SES is

also the first UK water company to deploy this technology across its entire

network, aiming to more than halve leakage by 2045.

Looking ahead, we continue to enhance our capabilities. We are focused on

enhanced data and monitoring, including the installation of further acoustic

loggers to enable faster and more accurate leak detection. In parallel, our key

mains replacement programme is making good progress and will play a vital

role in strengthening the resilience of our networks.

Minimising customer supply interruptions

The value of an 'always on' supply is often most recognised when it’s not

there. We know how vital our services are, and we’re committed to delivering

resilient, reliable water for all.

2024/25 performance has been shaped by a small number of large impact

events. Despite this, 75% of our supply interruption incidents had no or

minimal impact on customers.

In the South West, the average number of minutes lost per customer due

to supply interruptions was 14 minutes and 44 seconds. A key contributor

to these interruptions was third-party damage to our water network. To

address this, we are actively engaging with contractors and landowners to

raise awareness of the impact such incidents have on our customers and to

promote better preventative practices.

In Bristol, the average supply interruption duration was 7 minutes and

21 seconds. Two events, in Nailsea and Meare, accounted for 3 minutes

and 9 seconds of this total, with the Nailsea incident the result of third

party damage. Excluding this, the adjusted performance would have been

4 minutes and 13 seconds, placing it within the target range.

For SES Water, despite a strong underlying performance, two events affected

the overall result. A sinkhole in Godstone and a water quality incident at

Cheam led to a combined supply interruption of 26 minutes and 37 seconds.

Without these two unusual events, SES Water’s full year performance would

have been less than 1 minute, reflecting its typically high standards of service

in this area.

Managing demand and ensuring efficiency

Per capita consumption (PCC)

To help customers use water wisely and reduce per capita consumption

(PCC), we run targeted water efficiency schemes, building on past successes.

Our ‘Water is Precious’ campaign supports both residents and visitors to use

less and save more. In 2024/25:

• We conducted water audits in customer’s homes, to identify opportunities

to reduce water usage, fix leaky loos and identify other sources of internal

water losses. Leakbots helped customers identify internal leaks.

• For non-households, we conducted water efficiency audits, with leaks

located and repaired. We also offered incentives to water retailers to

conduct water efficiency schemes with customers.

Our Water Efficiency Fund offers £75,000 in support for charities and

community groups, helping to fund projects that save water and reduce

costs. We educate young people and communities on using water more

efficiently, and during the year reached 8,000 children through 144 school

lessons and engaged a further 3,000 at community events across the

South West. We also attended 40 community events in Bristol with our

“Every Drip Every Drop” campaign. Our websites contain information on

how to save water for our customers with opportunities to order free water

saving devices.

In South West Water, we have continued our wider programmes that support

water efficiency, including installing 62,000 meters through our North

Devon smart metering programme, as part of our 'Smarter, Healthier Home'

Green Recovery programme. This programme is now complete, and we will

learn from this and have started to roll out smart meters across our wider

geographies from 1 April 2025.

We’re continuing our progressive charging trials across our regions.

These trials aim to balance affordability with incentives for water efficiency.

In Cornwall, households received a £10 bill credit for reducing water use

by 5%, directly rewarding conservation. Our “Smart Saver” trial links

progressive tariffs with smart meters, providing better usage insights and

aligning charges with consumption. We have also introduced seasonal

tariffs, including rising block and peak seasonal rates. These are the first

trials of their kind in the region, with early results showing demand

reductions of 2% to 9%.

Water availability

Perceptions of water security are shifting, especially after the dry start

to spring, which has raised national concerns about water resources.

However, we are in a strong position thanks to the lessons learned from the

2022 drought – and the significant investments we’ve made since. These

include repurposing disused mines and quarries into mini reservoirs, such

as Hawks Tor and, more recently, Blackpool Pit, as well as enhancements

to our network, pumped storage capacity, and the construction of the new

treatment works at Rialton.

Maintaining asset health

Unplanned outages

Water treatment unplanned outage provides a means of assessing the

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 2.09% for 2024 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, performance for the year achieved target with 1.57% unplanned

outages. A multi-year programme is ongoing to reduce future risks through

the replacement of relevant assets.

The incident at the Cheam water treatment works in December impacted the

position for SES Water, with 4.01% unplanned outages, compared with 0.81%

in the prior year. Underlying performance was strong, and work is continuing

to invest and maintain assets to strengthen asset performance and resilience.

Mains repairs

When our water mains are damaged or fail, it is vital that repairs are carried

out quickly to prevent water loss and ensure customers remain in supply.

South West Water’s performance in 2024/25 was 127.5 repairs per 1,000km

of mains, which has slightly increased. However, we have achieved our

mains repairs target for the year, meaning we have met the target every

year during this five-year AMP period. This consistent performance reflects

our continued investment in network calming initiatives, such as pressure

management, to reduce the frequency of mains failures. We have also made

targeted investments to replace poor-performing sections of pipe, helping to

improve long-term reliability.

Bristol Water’s performance remained strong, with 121.0 repairs per 1,000km

of mains, however this is above the agreed regulatory target.

SES Water’s level of mains repairs improved compared to last year, with a

performance of 61.9 repairs per 1,000km of mains, however, this remains

above the target for the year.

43Pennon Group plc Annual Report and Accounts 2025

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Tackling storm overflows

and pollutions

We maintain and operate over 25,000km of sewers in the South

Westregion, removing waste from the homes and businesses.

Tackling storm overflow spills and reducing pollutions is of

utmost importance to us, ensuring we protect the environment

and respond to the concerns of our customers and communities.

We have implemented a programme of proactive interventions,

informed by extensive data and AI to ensure we are identifying

and fixing issues quickly, as well as improving the health of

our network.

Our operational review continued

44 Annual Report and Accounts 2025 Pennon Group plc

Tackling storm overflows and reducing pollutions is critical to delivering

on our commitments to customers and the environment. We reduced both

storm overflow spills and pollutions in 2024, despite it being the wettest

hydrological year on record, with rainfall similar to 2023, itself a record year.

Exceptionally high ground water resultant from two years of high rainfall also

led to high ground water levels, meaning that water cannot drain naturally

and instead entered our sewers and continued to place pressure on our

wastewater infrastructure.

We have seen improvements in our operations, and in the resilience of our

networks, reflecting our focused investment and we continue to drive a

programme of works to improve our treatment works and pumping stations.

Sewer flooding and networks

We understand how distressing it is for sewage to flood a customer's home

or business and we have been prioritising reducing pollutions to homes,

businesses and properties. We are proud of our track record on reducing

internal and external sewer flooding and in 2024/25 we have seen fewer

customers impacted, with internal flooding incidents falling 14%, and external

flooding incidents falling by 11%. With a 68% reduction since 2020, internal

sewer flooding incidents are now 0.63 per 10,000 connections against a

target of 1.34. This means that for every year of this regulatory period we

have been sector-leading in this common metric. Our external sewer flooding

performance has also improved by 24% since 2020, however we are above

the targeted 1,123, at 1,465 incidents in the current year, but we are a top

quartile performer in this area.

We continue to target further resilience in our networks with both sewer

collapses and sewer blockages outperforming the targets set. Sewer

collapses are down 37% this year, from a peak seen in the previous year,

and the our prioritised sewer cleansing programme should deliver multiple

benefits across both our pollution and flooding targets going forward.

We are also working hard to identify any illegal flows in the network that may

contribute both to storm overflow spills and flooding incidents, and working

with third parties to remove them.

one of only five companies to see a reduction in

the year.

The role of storm overflows

This is an important discussion as there’s nothing more important

than water – it’s essential for life, health and the planet.

Our 655 wastewater treatment works, over 1,302 pumping stations

and over 25,000km of network, enough to stretch around the world,

are designed with overflows to prevent the backing up of sewage into

homes and businesses. These assets are largely interspersed in and

around the coastline, reflecting where customers live and businesses

operate in our region.

This sewerage system developed over many years, takes not just

sewage but also rainwater from roads, driveways and fields. In periods

of prolonged or heavy rainfall, the sewers can become overloaded and

the overflows act as a safety release mechanism.

Drainage responsibilities

Private drainage, highways drainage, rural run-off and river flooding all

contribute to overloading our network and systems.

As well as rainfall, groundwater infiltration is a factor. There are times

and locations where groundwater levels can become higher than

sewers causing groundwater to enter the sewer. In the South West

this can also occur in coastal areas due to sea water infiltration (tidal

ingress). As a result of tidal ingress some storm overflows operate for

longer periods, due to sea water flowing in and out past the monitor

with the rise and fall of the tide.

Storm overflows can discharge through misuse of the system. Wet

wipes are the leading cause of sewers blocking, mixing with oils and

greases to form environmentally harmful “fatbergs”. We all have a part

to play in improving how we use our sewer system.

Key:

Drain

Roof drain

Storm drain

Combined sewer in wet weather surface run-off from roads

and buildings is combined with wastewater in the sewer

Storm tanks fill up if the volume is more than the treatment

works can process it is stored in storm tanks until it can

be treated

Combined storm overflow are used once the storm tanks are

full to prevent the flooding of homes, gardens, roads

and businesses

Water quality sensors will monitor river health and the

impact of overflow spills in near real time, as part of our K8

investment programme

Tackling storm overflow spills is a priority,

focusing on those areas that are most important

to our communities. We have delivered 100%

bathing water compliance for the fourth year

in a row, and while 2024 was the wettest

hydrological year on record, spills reduced by

45Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our operational review continued

Bathing Waters

Given we look after a third of Britain’s beaches, this has been a key priority.

We have delivered all of our bathing water investments over this regulatory

period and, for the fourth year in a row, have achieved 100% of bathing

waters meeting the more stringent quality standards (for existing bathing

waters where South West Water hasassets that can impact on water quality).

In our region, we know our customers’ priority is beautiful beaches, and we

are proud that we have reduced spills at bathing waters by c.20% since 2020.

In addition, SWW supported the application for six newly designated bathing

waters across the region which were assessed for the first time in 2024.

Three of the six sites achieved the standards with two achieving excellent

status. We have undertaken detailed investigations at all sites, which show

that these bathing waters are more affected by bacterial sources upstream

of our assets, and that the impact of South West Water assets is limited.

Nonetheless, we have identified improvements which are planned across all

three sites by.

Storm Overflows

Storm overflows are used in wet weather as a ‘release valve’ on the network

to avoid flooding to homes and businesses. Despite the accumulation of

the sixth wettest year in 2023 and seventh wettest year in 2024 we have

still achieved an overall c.4% reduction in spills since 2023 which reflects

the positive progression on ourstorm overflow reduction plans within our

WaterFit programme.

SWW was one of only five companies to reduce spills between 2023 and

2024 even though the South West region has experienced more rainfall

than other parts of the country (up to 70% more in some cases). With over

half ourstorm overflows affecting bathing, shellfish or high amenity waters

andso much to protect; we know we need to be industry-leading in this

area, and that isour ambition. So we are focused on delivering against our

15-year programme to 2040, but with all bathing beaches being targeted

first by 2030.

To support this, we have invested in enhanced Event Duration Monitoring

(EDM), we were among the first to achieve 100% coverage and have the

second highest EDM operability in the country with 94% of our EDMs

recording all year round. We also monitor overflows at a higher standard than

required by our permits and other companies with most of our EDMs scan

levels every 10 seconds, far exceeding the 15-minute minimum regulatory

requirement. While this may result in higher reported spill numbers compared

to companies using less frequent monitoring, it enables faster detection and

response to protect our rivers and beaches.

Our infrastructure has worked exceptionally hard to manage the increased

rainfall and groundwater infiltration. If conditions had been typical, spill

numbers would have been even lower. We recognise there is more to

do, particularly at higher-spilling sites, and we are continuing targeted

interventions as we move into the next regulatory period (K8).

Our WaterFit programme has delivered this year:

• Installed over 4,600m

of storm storage across 19 sites so when

flows exceed treatment capacity they can be stored and treated later,

avoiding discharges

• Prevented groundwater infiltration at 120 sites re-lining 36km of

sewer, sealing of over 1,300 manholes and surveying over 83km of

targeted sewers

• Reduced phosphorus and ammonia impact on watercourses at 29 sites

costing and completed our final bathing water improvement scheme at

Malborough treatment works

• Completed major upgrades and design work at seven pumping stations,

making the network more reliable and ensuring all flows arrive at

Wastewater Treatment Works (WWTW) to be treated

• Rehabilitated rising mains, including two major mains in Exmouth

preventing bursts and pollution incidents adjacent to the Bathing Waters.

This investment at our bathing waters alongside investment to address our

highest spilling overflows has already delivered results, with spills reduced

at two thirds of our top 20 spilling overflows. Our 2025 to 2030 investment

will maintain the focus on addressing spills at bathing beaches, shellfish

waters, and high-spilling sites by 2030. As we do this, we are embedding a

Green First approach, prioritising nature-based solutions such as sustainable

drainage systems, wetlands, and natural attenuation to reduce pressure on

the sewer network and improve water quality.

Pollution Incidents

Pollution incidents to watercourses continue to be an area of challenge, with

the number of incidents remaining elevated impacted by high rainfall and

groundwater levels. Our interventions, particularly in the second half of the

year, have nevertheless resulted in a marginal improvement year-on-year.

Our targeted investment in c.12,000 sewer depth monitors enables us to

better predict where issues may arise, and uses AI to respond proactively

in advance of rather than after a incident arising. This has allowed us to

maintain the c.40% reduction in incidents on our network achieved since

2020. A higher proportion of incidents have occurred at pumping stations

and treatment works, and to reduce pollutions going forward, our focus is

now on ensuring they are resilient to weather and flows.

We continue to record zero Category 1 pollutions, the most serious category

of pollutions, having not had any Category 1 pollutions since 2018. However,

we are disappointed by the increase in Category 2 incidents to four for the

year. Two of these occurred in Exmouth, where a rising main failure led

to temporary discharges, which reoccurred during repair works. Although

the environmental impact was limited and short-lived, these incidents

underscore the critical need for continued investment in asset resilience and

the importance of rapid, effective response measures.

Reducing pollution is priority for the next regulatory period. In April 2025,

we published our Pollution Incident Reduction Plan, which outlines the

actions we are taking to further reduce emissions from our network. We

also recognise that the pollutions metric largely measures those emissions

from the network that impact watercourses, in our region and topography,

where we are close to rivers and seas, this is more important and of greater

likelihood than for other regions, where the impact of emissions from

networks are less likely to reach watercourses. When all emissions including

flooding to houses and properties are considered, We perform relatively well

against our peers, with one of the lowest number of these emissions per km.

Numeric compliance

When returning wastewater to the environment we need to ensure this is of

the right quality to avoid harming the environment. Numeric permits place

measurable conditions on the final effluent discharged to the environment

and measure compliance with these conditions. Our performance of 98.1%

was below the target for this year, but reflects an improvement on 2023,

with a halving of the number of failures. We have enhanced our action plans

across our treatment works, including working closely with the Environment

Agency, with regular reviews taking place.

46 Annual Report and Accounts 2025 Pennon Group plc

Rilla Mill

We achieved this massive 93% spill reduction by tackling

multiple problems at once. This included installing a new inlet

screen and balance tank at the WWTW, lining sewers to reduce

ground water infiltration, and sealing manholes to reduce

rainfall runoff entering sewers. Rilla Mill was our fifth highest

spiller in 2023 but is now spilling less than 20 times per year.

Duloe

Duloe was our highest spiller in 2023 but upgrades to the storm

weir and additional treatment capacity means spills have been

reduced by 46% in 2024.

Stibb Cross and Langtree

The overflows at Stibb Cross and Langtree WWTW were among

our highest spillers but by using CCTV cameras to investigate

1,500 metres of sewers, we identified and removed sources of

infiltration, lining over 650 metres of sewers.

Tackling spills – making a difference

Our focus on reducing spills means we are reviewing every overflow and targeting our efforts where they make the most positive impact.

93%

spill reduction

in 2024

46%

spill reduction

in 2024

50%

spill reduction

in 2024

Environment Performance Assessment (EPA)

The Environmental Performance Assessment (EPA) is the Environment

Agency’s annual review of water companies’ environmental performance,

with an overall rating of up to four stars based on a range of key indicators.

As we close the regulatory period, we are anticipating a two-star rating for

South West Water for the 2024 calendar year (aligned with the 2024/25

financial year), consistent with previous years. While this remains below

our target of four stars, we have made progress in several areas. Numeric

compliance failures have halved, we have consistently met sludge

compliance standards, and the supply/demand balance metric achieved a

perfect score of 100 for the second consecutive year.

Pollution incidents remain our most significant challenge. The EPA currently

measures only around 4% of all pollution incidents, largely those that reach

watercourses. To improve our rating, we must reduce these watercourse-

related pollutions. Our recently published Pollution Incident Reduction Plan

sets out the actions we are taking to achieve this.

The Environment Agency is currently consulting on changes to the EPA

framework from 2026. As this is a critical measure for the sector, we have

submitted detailed feedback. In particular, we have highlighted that while

the EPA is widely regarded as the key benchmark for environmental

performance, it does not currently reflect the full range of emissions from

wastewater networks and assets.

For example, internal and external sewer flooding, which can have significant

public health and amenity impacts, are not included in the EPA despite

their relevance to environmental and customer outcomes. We believe the

EPA should evolve to provide a more rounded and representative view

of environmental performance, one that drives meaningful improvements

across the sector.

47Pennon Group plc Annual Report and Accounts 2025

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Driving environmental gains

Pennon is proud to be at the forefront of environmental

infrastructure, delivering sustainable outcomes for our customers,

communities, and ecosystems.

With our operations deeply connected to the natural water

cycle, protecting and enhancing the environment is central to

our success.

Our strategy focuses on measurable action, long-term investment,

and innovation to improve river and sea water quality, boost

biodiversity, and accelerate progress toward Net Zero.

Our operational review continued

48 Annual Report and Accounts 2025 Pennon Group plc

Working with the natural environment

The regions we serve are home to some of the UK’s most treasured natural

assets, 157 bathing waters, 860 miles of coastline, four national parks, and ten

National Landscapes. From the cliffs, beaches and moorlands of the South

West to the chalk streams and ancient woodlands in the South East, these

diverse landscapes, habitats, and species are under increasing pressures

from climate change and human impact.

Across the regions we serve, land use and environmental pressures are

placing increasing strain on rivers, wetlands, and coastal ecosystems. For

example, in the South West, over 70% of the land is agricultural, shaping

the health of our catchments and the quality of our water. And with one in

six species now at risk of extinction, urgent action is needed to protect and

restore nature.

As a business rooted in the regions we serve, we have a responsibility to act.

Our environmental leadership is focused on restoring habitats, improving

rivers, supporting sustainable land use, and investing in nature-based

solutions that build resilience and protect the places people love. Our

customers expect this of us, nine in ten believe it’s important we lead on the

environment, and we are delivering on that promise.

Enhancing the Natural Environment

A healthy environment is important for our region, particularly in the face

of climate change, ecological decline and greater recreational use of rivers

and seas. Nature and the environment are priorities for us, as we look to work

with natural processes to provide sustainable solutions for the challenges

we face. Putting water quality and nature recovery at the heart of what we

do, working with partners means we can create climate resilient places

and infrastructure.

Investing in the health of our rivers

Over 2020 to 2025 we have made significant progress in enhancing water

quality and reducing environmental pressures, with RNAGS improving

from 19% to 12%. Through phosphorus reduction schemes and investment

in treatment infrastructure, we have improved river water quality at 37

sites, achieving an 80% reduction in phosphorus concentrations. These

improvements have contributed to healthier ecosystems and more resilient

river catchments.

389,306

trees, reaching our 2025 target a year

early, an important milestone in our

nature-based approach to removing

carbon from the atmosphere

We are committed to supporting the natural

environment. From restoring habitats to

investing in clean energy, we are helping to

build climate resilience and protect the places

people love. Since 2019, we have planted

Safeguarding water

resources in our Drinking

Water Protected Areas

Our Upstream Thinking programme has delivered catchment

management in the Meldon reservoir drinking water protected

area to address specific water quality risks from dissolved organic

carbon (DOC), total organic carbon, and manganese, which were

attributed to degrading and eroding peatland.

Employing Nature Based Solutions (NBS) with peatland

restoration, we can mitigate water quality risks and improve

biodiversity for the benefit of SSSIs and S41 NERC habitats

withinthe drinking water protected area safeguard zone.

Working with the South West Peatland Partnership (SWPP)

weidentified areas of heavily modified and degrading peatland

inthe catchment that were contributing to the DOC and

Manganese concentrations in the reservoir. Innovative restoration

techniques including blocking drainage and erosion channels

with wooden leaky dams, and locally sourced Dartmoor wool

bunds are helping to re-wet and restore the natural function of

the peatland. The result interrupts the pollution pathways by

preventing peatland decay whilst also creating a mosaic of bog

habitats wherewildlife can thrive with enhanced protection from

the effects ofclimate change.

49Pennon Group plc Annual Report and Accounts 2025

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Our operational review continued

We have trialled phosphorus removal technologies like I-Phyc and Electro-

Coagulation, gaining valuable insights despite their early-stage development.

A standout success has been our use of low-carbon Reactive Media Reed

Beds, such as at Wilmington, which improves water quality and biodiversity

without the need for chemical dosing.

These initiatives support our Water Framework Directive goals and reaffirm

our commitment to restoring river ecology. Looking ahead, we’re continuing

to invest in the health of our rivers by upgrading treatment works to further

reduce phosphorus discharges by an additional 10%. These upgrades will

build on the progress already made, helping to deliver cleaner, healthier

rivers for wildlife and communities alike.

Upstream Thinking – to safeguard our water quality

Rivers supply 90% of our drinking water, and through our award-winning

Upstream Thinking programme, we have improved 80% of drinking water

catchments working with our partners – Cornwall Wildlife Trust, Devon

Wildlife Trust, Natural England, the Farming and Wildlife Advisory Group,

South West Lakes Trust, and Westcountry Rivers Trust. Since 2010 we have

worked with our partners, farmers and landowners to enhance water quality,

biodiversity, and climate resilience.

In 2024/25 alone, we delivered 17,387 hectares of catchment improvements,

bringing the total to 144,120 hectares, exceeding our 2025 target. We have

restored 2,124 hectares of peatland and planted over 389,000 trees since

2019, hitting our tree-planting goal a year early.

Our work tackles pollutants such as nutrients, pesticides, and antibiotics

through practical measures like pond creation, buffer strips, and improved

slurry storage. These efforts support cleaner water, better wastewater

dilution, and natural flood management.

Looking ahead, we’re expanding into new drinking water catchments, aiming

to manage an additional 12,500 hectares by 2030, raising our total target to

146,500 hectares.

Enhancing Biodiversity Across Our Estate

Our diverse land holdings, ranging from moorlands and reservoirs to

forests and urban sites, include ecologically important areas like Special

Areas of Conservation (SACs) and County Wildlife Sites (CWSs), and 1,251

hectares of Sites of Special Scientific Interest (SSSIs), 88.5% of which are in

favourable condition.

We have restored former industrial sites such as Park Pit and Stannon into

vibrant heathlands and reservoirs, while opening access to 40 lakes for

education and recreation. We are also re-naturalising rivers and watercourses

to support species like fish, eels, and beavers, and ensuring our operations

deliver measurable biodiversity gains.

Collaborating for Regional nature recovery

We actively support regional climate and nature recovery through

partnerships, including local nature and catchment groups, and our Let’s Talk

Water forum, which fosters collaboration and shared planning.

Our delivery partners are key to achieving environmental and biodiversity

improvements across the South West. Looking ahead, we are expanding

our nature recovery programme. This includes launching a new Nature

Recovery Fund to support local initiatives, planting a further 300,000 trees,

and launching our 1,000 ponds initiative to create new habitats and improve

water retention across the landscape.

Safeguarding Sensitive Habitats and Preventing

Biodiversity Loss

To protect the South West’s most sensitive habitats, we focus on

freshwater sites designated as SSSIs, SACs, SPAs, or CWSs. In 2024/25,

as in the previous three years, there were no pollution events at these

locations, supporting our commitment to the Government’s Environmental

Improvement Plan and its goal to improve all SSSIs within the next decade.

Preventing the

spread of Invasive

Non-Native Species

The Natural Resources Team working in collaboration with the

Environment Agency, South West Lakes Trust, Angling Trust

and other stakeholders have overseen the installation of the first

known biosecurity hubs at two new reservoirs in 2024/25. Our

biosecurity facilities include watercraft washdowns, SUP inflation

points, angling dip (disinfection) tanks, boot scrubs, drying racks,

and novel invasive species awareness features.

The purpose of these facilities is to engage the public and raise

awareness of the threat that invasive non-native species (INNS)

present to biodiversity deterioration in our region and beyond.

Supporting the GB Non-native Species Secretariat (NNSS) with

their ‘Check, Clean, Dry’ awareness campaign, we aim to highlight

and mitigate one of the NNSS priority pathways of spread for

INNS from angling and watercraft.

Most aquatic INNS have no known method of eradication, so

preventing their spread is imperative to protect water supply

operations, recreational activities, and biodiversity.

Invasive non-native species continue to present risks to our

operational activity and to the habitats and species of the region.

As a responsible business and landowner we are legally required

to take ongoing action to control their presence and potential

spread. We continue to take a leading role with partners and

regulators in surveying, monitoring and controlling the presence

of INNS across the region and sharing our experience and

best practice.

50 Annual Report and Accounts 2025 Pennon Group plc

We are also addressing the threat of invasive non-native species (INNS),

which pose significant risks to native species and our infrastructure.

Biosecurity measures have been installed at key sites, awareness signage

is now in place at 125 locations, and new watercraft washdowns have been

introduced at Stithians and Tamar Lakes reservoirs. These actions form part

of our broader strategy to prevent biodiversity deterioration and protect the

region’s unique natural heritage.

Climate change adaptation

We’re evolving how we work to meet the growing challenges of climate

change, such as more intense rainfall, hotter summers, and rising sea levels,

by embedding resilience into our infrastructure and planning.

We assess climate risks across our operations, using these insights to guide

investment and ensure our assets are future-ready. We're working with

landowners and farmers to restore wetlands and improve soil health, drawing

on learning from the Ofwat Innovation-funded Water Net Gain project, which

explores how nature-based solutions such as smart ponds, can deliver

multiple environmental benefits and climate resilience.

Our approach combines natural and engineered solutions to support flood

mitigation, carbon capture, and biodiversity. We’re also helping communities

adapt by promoting sustainable behaviours and raising awareness, building a

resilient future for people, nature, and generations to come.

Net Zero

Our commitment to Net Zero by 2030 goes hand in hand with climate

adaptation. We are cutting emissions through renewable energy, low-carbon

infrastructure, and operational efficiency, we have already reduced our

carbon footprint by 45% since 2020/21 in South West Water and Bristol

Water businesses.

Pennon Power Limited, a subsidiary of Pennon Group plc, has been

established to deliver our renewable energy ambitions and support our

broader Net Zero strategy. Pennon Power plays a central role in achieving

Net Zero by driving investment in clean energy, enhancing energy resilience,

and reducing exposure to energy market fluctuations, while also delivering

sustainable financial returns and contributing to overall Group profitability.

Pennon Power has three renewable energy sites in construction. Fife

is preparing to enter commissioning, and the Aberdeenshire project

construction continues in line with the project programme. The Fife project

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 and

the Aberdeenshire project is a 15MWp solar farm. The annual generation

from Fife will more than double the size of the Group’s renewable energy

portfolio. The project in Fife is being commissioned during Q1 2025/26,

with Aberdeenshire entering commissioning in Q2 2025/26. We have also

commenced construction on a third site in Cumbria which will have a

capacity of 34MWp once complete. This is due to be operational by the end

of the 2025/26. We are also soon to conclude contracts to build the fourth

site in Buckinghamshire. Construction of this site is expected to commence

in Q3 2025/26, with a build programme lasting approximately one year. Once

all four sites are operational, Pennon Power will generate enough electricity

each year to power c.50,000 homes.

Beyond grid-scale projects, Pennon Power is advancing ‘behind the meter’

development opportunities, focused on supplying renewable energy direct

to operational sites within the Group. This will support Net Zero as well as

protect against fluctuations in energy prices.

We are also innovating across our supply chain, having trialled low-carbon

materials and processes to reduce embedded emissions. As we look to

2030, we will continue to decarbonise our operations, reducing nitrous oxide

emissions and repurposing methane. We will also invest in bioresource

energy recovery, using waste to power our own operations, and supporting

our supply chain in adopting low-carbon materials and techniques.

Dunfermline

The solar site is built on the former opencast coal mine

atRosebank Mains, which ceased production in 2009.

It has more than 77,000 solar panels, 18 battery units and more

than 25 km of cabling.

It will generate c.40 GWh annually, equivalent to powering 15,000

homes in the UK or offsetting the equivalent of 9% ofannual

consumption in the group.

2022

September

• Trading Statement, announcing Investment

in Renewable Energy Generation

December

• First site visit to Fife

2023

• Project due diligence and ground condition

verification of previous coalmine

June

• Completed acquisition ofDunfermline

Solar Limited

2024

February

• Signed EPC Construction Contracts

August

• Construction Commencement

2025

April

• Mechanical Completion

June

• Energisation and commercial operations

51Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Tackling affordability means focusing on two core priorities:

driving efficiency to keep bills as low as possible, and providing

meaningful support to those who need it most.

Over the past decade, we have kept bill increases below inflation,

while expanding support to over 150,000 customers. By unlocking

£124 million in financial aid, we met our pledge to eliminate water

poverty in South West and Bristol by March 2025.

Supporting affordability,

delivering for customers

Our operational review continued

52 Annual Report and Accounts 2025 Pennon Group plc

Addressing Affordability and

Delivering for Customers

Keeping bills affordable

Affordability begins with delivering high-quality services at the lowest

sustainable cost. Over the past decade, we’ve kept bill increases below

headline inflation by focusing on operational efficiency and customer service

excellence. We resolve over 90% of customer queries at first contact, helping

to reduce administrative costs and improve satisfaction.

Our WaterShare+ scheme and progressive tariffs reward customers for using

less water, directly linking conservation with lower bills. These efforts are

supported by ongoing investment in technology, including a new billing and

customer experience platform and the rollout of smart meters. These tools

allow us to personalise services, improve efficiency, and help customers

better understand and manage their water use.

Despite these efforts, 2025/26 brings a necessary increase in bills, around

28% for South West Water customers, raising the average daily cost to

approximately £1.85. This rise supports critical infrastructure investment, but

customers will only fund about a third of the cost, with the remainder covered

by shareholders and debt providers. To mitigate the impact, we are launching

a £200 million support package.

Eradicating water poverty

In 2019, we made a bold pledge to eradicate water poverty and ensure that

every customer has an affordable bill by 2025, defined as spending no more

than 5% of disposable income on water. We made this commitment five years

ahead of the industry-wide target for South West Water and Bournemouth

Water, and a similar target was also set for Bristol Water in 2020.

Amid the ongoing cost-of-living crisis, we have significantly expanded our

affordability measures, unlocking over £124 million in financial support and

helping more than 150,000 customers across our regions.

As a result, 100% of households served by South West Water and

Bournemouth Water (up from 98% the previous year) and 100% of Bristol

Water customers have been independently assessed as having an affordable

bill. This success reflects the strength of our affordability toolkit, which

includes discounted tariffs, payment support, water efficiency support,

benefits entitlement checks, and the proactive identification of customers in

need through advanced data modelling and auto-enrolment.

Helping customers

understand our bills

Our plans for K8 involve a £3.2 billion investment programme

to improve services and infrastructure. Whilst two-thirds of this

investment is funded upfront by investors, customers will fund

around one-third of this investment, which means bills will increase.

We recognise that this comes at a difficult time, following a

prolonged cost of living crisis and increased scrutiny of our sector.

That’s why we have taken time to ensure we communicate to our

customers around the bill increases, both why they are necessary,

and what customers can do if they are financially vulnerable.

To ensure we engage with customers in a clear and effective

way, we have based our messaging on customer research and

feedback, as well as ensuring we consider other ways in which

customers can reduce their bill. As a result, we have focused

on two elements; re-designing our existing bills to make them

simpler and clearer; and providing a bill insert that explains what

we will be delivering over the five-year period.

Our bill design was informed by customer research, and

developed using behavioural science to:

• make it easier for customers to understand what they oweand

how to pay;

• highlight to metered customers the benefit of reduced

waterusage;

• drive awareness of Priority Services Register (PSR) and

affordability schemes; and

• reduce complaints about ‘balance enquiry’.

We obtained feedback from customers on the proposed bill

and also engaged with the Consumer Council for Water andthe

WaterShare+ Independent Panel. The research provided

incredibly positive feedback, particularly in the areasof clarity,

functionality, and user experience:

• the majority of customers found the new design visually

appealing, highlighting the use of pastel colours visual aids,

andclearer sections to make the bill easier to understand.

• many respondents appreciated features such as the prominent

display of the account balance and breakdown of charges,

which helped them navigate the bill more effectively.

• metered customers valued the inclusion of comparative data

that helped them gauge their water consumption. Explanations

like the practical equivalents for water usage (e.g. bathtubs)

were also well-received as they added clarity.

We are supporting more customers than

ever before with over

150,000

across the Group benefiting from our financial

support framework

Our operational review continued

As providers of essential services, we play a

vital role in the health and economic wellbeing

of our communities, and we are committed to

delivering excellent customer experiences while

keeping bills affordable. Our household and

business contact centres focus on providing

seamless, end-to-end support.

53Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Whilst SES Water does not currently measure affordability using this

methodology, we are working to extend this approach across the group.

Looking ahead, we aim to lift a further 5,000 customers out of water poverty

in the coming year. This will be achieved by enhancing our affordability

toolkit and strengthening partnerships with local councils and debt support

organisations to better identify and assist those in need.

We are also investing in long-term community resilience through our

£5 million Better Futures programme. This initiative provides hardship grants

to individuals and supports community groups that promote wellbeing,

education, and positive environmental outcomes, ensuring that support

reaches both households and the wider communities they belong to.

Innovative Tariff Trials

We are developing new tariff structures that promote fairness

and sustainability.

Our Seasonal Tariff Trial charges higher rates during the summer and lower

rates in the winter to encourage conservation during peak demand, and

our Smart Saver Tariff, introduced in April 2024 uses a tiered pricing model

for smart meter customers where initial water usage is charged at a lower

rate, and higher usage is progressively more expensive. Early results show

a 1.9% reduction in daily water use and increased customer trust in South

West Water.

Smart metering is a key enabler of these innovations. In 2024, we completed

the Green Recovery programme, installing over 60,000 smart meters in

North Devon. This initiative is now being scaled across the South West. Smart

meters provide real-time usage data, helping customers track consumption,

detect leaks, and manage their bills more effectively.

More information is available at: South West Water Smart Metering

https://preproductionv12.southwestwater.co.uk/household/your-account/

smart-meter.

Supporting vulnerable customers

We are committed to ensuring that all our customers, specially those in

vulnerable circumstances, receive the support they need. Our Priority

Services Register (PSR) plays a central role in this, offering tailored

assistance to customers who may require extra help due to age, ill health,

disability, or other personal circumstances.

We make it easy for customers to register for the PSR, ensuring that those

who need help reading their bills, understanding their account, or accessing

services can do so with ease. We also work closely with other utility providers

to share relevant data, helping to identify and register customers who may

benefit from additional support. For those who rely on a constant water

supply for medical or personal needs, we ensure that appropriate help is

available during any service interruptions, and across all regions, we are

performing at or above our performance commitment levels for PSR services.

Recognising the importance of these services, we also measure customer

satisfaction with our PSR offering each year. In the most recent results,

South West Water achieved a satisfaction score of 93%, and Bristol Water

scored 78%, both exceeding our targets. These results reflect the value our

customers place on the PSR and the effectiveness of the support we provide.

Whilst SES Water does not currently publish customer satisfaction

data specifically for its PSR, a comprehensive PSR programme is in

place, including support for customers with health, mobility, or

communication needs.

We are continuing to expand and align our PSR services across the group,

including expanding outreach efforts and ensuring that all customers have

access to the support they need.

Our operational review continued

Progressive charging trials

In April 2024 we began a series of Progressive Charging trials. These

trials are informed by extensive customer feedback, with input from

over 250,000 customers. The concept of ‘Progressive Charges’ is

seen as a crucial tool to incentivise water efficiency and make bills

more affordable and are being conducted across various regions and

customer types, with four small-scale tariff trials launched in 2024/25.

The design process for these tariff trials took two years and involved

modelling different tariff proposals against actual customer data. The

process was developed with the support of the Consumer Council for

Water and in consultation with Ofwat. To engage customers in the

right way we partnered with Behavioural Insight experts to develop

our communication approach pre, during and post the trials. Selected

customers are supported by a dedicated team, offering home audits

and interventions to save water and money. The trials include various

tariff systems, such as the Summer Peak Tariff and the Seasonal Tariff,

which offer reduced water rates for customers with AMI Smart Meters.

The evaluation framework for the trials assesses the impact on

customer behaviour and opinion across five areas: consumption,

affordability, perceptions of fairness, customer experience,

and reputation.

Initial findings from the Smart Saver programme’s six-month

quantitative evaluation show that the trial group reduced their daily

water use by 1.9%, with higher users reducing their usage by 9.5%. The

evidence suggests that household water use is responsive to price

signals provided by the Smart Saver tariff.

We are continuing to gather important evidence to guide future tariff

design, aiming to learn, evolve, and enable wider roll-out in AMP8. This

is a key component of our affordability strategy and encouraging water

efficiency through innovative tariff solutions.

“The work being undertaken across the

Pennon Group companies to develop and

examine new progressive methods of

charging for their services is genuinely

industry leading. The four innovative tariff

trials currently underway reflect the extent

of the Pennon ambition to embed at the

heart of its relationship with customers

andcommunities how collectively we

shouldpay for our essential water services...

Theearly evidence from the trials is

revealing both the benefits and challenges

ofthese tariff innovations and good progress

is beingmade.”

Dr. Scott Reid

Director, ICS Consulting

54 Annual Report and Accounts 2025 Pennon Group plc

Pennon Water Services (PWS)

PWS reported a strong financial performance for the year and continued

to deliver operationally for its business customers, offering a range of

attractive tariffs and value-added services, while also delivering year-on-year

improvements in its revenue, EBITDA and profit before tax and customer

service metrics.

Serving its customers

PWS maintained its focus upon high quality customer interactions, resulting

in a Trustpilot score 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 4.96 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 92,000 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 yielded almost a 10%

reduction in its volume of complaints year-on-year.

Financial performance and growth

Revenue increased by 8%, from £234 million in 2023/24 to £253 million in

2024/25. This was a direct result of continued customer growth and low

customer attrition despite a reduction in customer consumption in our

incumbent areas.

EBITDA and profit before tax grew by 2.7% and 14.9% 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 a high quality of services to maintain a stable market share of

c.6% in England and Wales. The market share for the UK is 5.1% including

Scotland, serving over 153,000 business accounts (c.95,000 customers)

in total.

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.10% (5,190 megalitres) in

the current year.

As a result, PWS has taken its cumulative position since the market opened

to c.56,000 megalitres, the equivalent of c. 22,330 Olympic-sized swimming

pools. New contracts in the year included Samworth Brothers, BMW (UK),

Weetabix and Campus Villages.

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 Bourne

Leisure, Princes Foods, Rolls Royce and Unilever.

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 5

out of 5 during the year, the highest of all water retailers and the only retailer

to achieve this score. 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.£0.8 million of associated companies’ profit after tax to

the Group’s results, supported by the addition of c.2,000 new customers.

During the year Water2Business were proud to announce achievement of

carbon neutrality in line with the Department for Environment, Food and

Rural Affairs (DEFRA) guidelines; helping to combat climate change and

sustain our environment through reducing emissions and offsetting through

tree planting projects across the Southwest of England.

SES Business Water

SES Business Water (“SES BW”) provides water and wastewater retail

services to non-residential customers across the UK, whilst delivering year-

on-year improvements in revenue.

Serving its customers

Improvements across customer service have manifested in several key

areas; complaints have reduced by over 20%; Consumer Council for water

complaints saw one of the lowest years we have had since inception;

first contact resolution, shows a 50% improvement year-on-year; and

abandonment rates are consistently low.

This is against a backdrop of consciously cleansing the business portfolio,

which naturally drives increased contact into the business. The objective

being to improve our overall customer journey and to help support

customers more efficiently.

This is testament to the hard work of each colleague whom, has a positive

touchpoint with our valued customers.

Financial performance and growth

SES BW’s revenue increased by 1.8% from £66.4 million in 2023/24 to

£67.9 million in 2024/25. SES BW adopted a strategic decision in 2024/25 of

“no growth", with the aim of stabilising the underlying business operations

and releasing less profitable customers within the portfolio. Thus, enabling

the business to concentrate efforts on improving business operations, driving

cash recoveries and extending its customer lifetime value. The increase in

revenue was primarily driven by wholesale price increases.

Whilst the business took a “no growth” strategy during the 2024/25 year

the business has won news business with the likes of Stadia Group Ltd and

Gosforth Park Hotels Group, to help replenish some of the lost contracts

through attrition. We have also extended the lifetime value of some of our

key renewals with the likes of Klarent Group, Avery Healthcare, DO & Co

Event and Airline Catering Group.

Outlook

SES BW has undergone significant changes in the last 18 months including

the acquisition of the business by Pennon, alongside some key management

changes, with the key drivers to stabilise the business.

The short to medium term objectives are to continue building on the

stabilisation of the business, whilst investing in some key areas around

people, systems, key projects and automation of some operational activities.

The outcome of those objectives is to strengthen its core activities, create

a sustainable platform to deliver a more effective and efficient service for its

customers. SES BW will have a continued focus on its cash management and

improvement in customer service activities.

Business Retail

55Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our operational KPIs

Building water resources, improving water quality

Asset health is essential for ensuring a robust supply of water to our customers. Mains repairs performance has improved again for SWB and BRL, ensuring that we have

met targets in these regions. For SES, mains repairs narrowly missed the regulatory target of 59.0. Both SWB and Bristol Water met the unplanned outage target of 2.34,

while SES Water’s performance was impacted by a single event at Cheam water treatment works in December 2024, despite strong underlying performance.

Water quality (CRI score)

The Compliance Risk Index (CRI) is the Drinking Water Inspectorate’s (DWI)

measure of water quality. In 2024/25 we continued with our ‘Quality First’

transformation programme across our SWB region (consisting of South

West Water and Bournemouth Water) as well as the Bristol Water region,

which is subject to separate cost and performance reporting to Ofwat. For

the SWB region, 2024 saw our best performance achieved during the five-

year regulatory period and we were within the regulatory deadband of 2.00.

This was due to a number of factors, especially improved tank cleaning and

maintenance. Bristol Water also achieved its best performance in the five-

year period, having adopted and applied the ‘Quality First‘ programme, with

enhanced mains flushing, tank inspection and cleaning, alongside staff training.

SES Water continued to deliver excellent performance in the 2024 calendar

year and has been industry leading over each of the last three years.

Supply interruptions (Duration per property per year)

Performance across the Group is often impacted by colder weather and third-

party damage. Despite a relatively stable underlying performance, specific

events of scale have contributed to levels of supply interruptions in both SWB

and Bristol Water that exceed our KPIs. For SES Water, which has a track

record of achieving its target in respect of this metric, a sink hole in Godstone

and a water quality event at Cheam, impacted a number of customers. Without

these unusual events, SES Water’s performance would have been less than

one minute. While essential repairs were completed and water was restored,

alternative water supply provisions were offered, including bottled water

stations and utilisation of our priority services register, to ensure vulnerable

people received bottled water to their homes.

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.

We saw an increase in contacts in SWB following media reporting, despite

over 300 areas flushed in 2024. There is a natural lag in this showing in

improved performance, which we expect going forward. In addition to this lag,

there was a general increased concern surrounding drinking water quality

from increased public attention.

Bristol Water has also seen a slight increase in the volume of contacts

received, a large number of which related to customers’ own plumbing, but

this was also impacted by the increased public awareness following the

increase in media attention concerning water quality.

SES Water’s taste, smell and colour contact performance remains in the top

quartile for the industry.

Leakage (3-year average – Megalitres per day)

Reducing leaks is a critical component of ensuring a sustainable

water supply.

Across K7, we have reduced leakage by 13% in SWW, 1% in Bristol and 19% in

SES. Whist we narrowly missed the stretching leakage targets for 2024/25 for

SWW and Bristol Water the in-year leakage results for 2024/25 were an 9%,

4% improvement respectively on the prior year. In SES leakage reduced by

3% meeting our 2024/25 target.

South West Water (SWB)

Bristol Water

SES Water

00:03:36

00.03:51

00:26:37

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

00:14:44

00:09:18

00:08:42

00:09:24

00:08:03

00:07:21

South West Water (SWB)

Bristol Water

SES Water

1.19

3.02

2.39

7.05

4.60

2.82

0.01

0.00

2022

2023

024

2022

2023

024

2022

2023

024

South West Water (SWB)

Bristol Water

SES Water

0.58

0.64

0.58

2022

2023

024

2022

2023

024

2022

2023

024

1.87

1.66

1.51

0.82

1.21

0.95

South West Water (SWB)

Bristol Water

SES Water

21.5

23.0

21.2

112.8

107.1

113.0

37.6

37.0

38.5

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

Unplanned outages (%) Mains repairs (Number of repairs per 1,000km)

South West Water (SWB)

Bristol Water

SES Water

2.09

1.15

0.70

2.58

6.27

1.57

0.81

0.93

4.01

2022

2023

024

2022

2023

024

2022

2023

024

South West Water (SWB)

Bristol Water

SES Water

127.5

134.6

141.1

124.8

170.8

121.0

63.8

101.5

61.9

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

Note: Non-financial KPIs are calculated on financial year basis, with the exception of; Water quality; Taste, smell and colour; unplanned outages; Pollution incidents; and Numeric

compliance, which are calculated on a calendar year basis.

56 Annual Report and Accounts 2025 Pennon Group plc

Pollution incidents (Number of wastewater incidents)

Category 1-3 pollutions is our most challenging area. The start of 2024 was

impacted by the continuation of exceptional wet weather in 2023/24. The

number of pollution incidents during Winter 2024 has been lower than the

previous exceptional Winter. Performance in the final quarter of 2024 saw

less than half the number of incidents as the previous year. We continued

to develop and implement our Pollution Incidents Reduction Plan (PIRP),

with our plans published in March 2025. We know there is more to do and

we continue to target a further step change in performance. The final value

is subject to the standard finalisation processes ahead of publication in the

Annual Performance Report.

Numeric Compliance (%)

We measure the compliance of our discharges against our permits.

Around half of our wastewater treatment works, and a small number of

water treatment works, have permits with measurable numeric conditions

governing the final effluent discharged to the environment.

Performance in this area has improved year-on-year with incidents halving

in 2024. Following issues experienced in Summer 2023, we enhanced our

action plans across our treatment works, including regular reviews with the

Environment Agency taking place. We know there is more to do in this area

and continue to update our improvement plans.

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. We have exceeded our targets for

each year of the 2020 to 2025 period.

Environmental Performance Assessment

A combination of a basket of measures, the EPA is the Environment

Agency’s assessment of environmental performance. Whilst still under the

Environment Agency process for finalisation, our performance this year

results in a provisional 2 star rating.

Tackling storm overflows and pollutions

189

194

108

2022

2023

024

South West Water

98.10%

96.19%

99.40%

2022

2023

024

South West Water

144,120

126,733

111,515

2022/23

2023/24

2024/25

South West Water

2022/23

2023/24

2024/25 (provisional)

South West Water

Sewer flooding is a key area that significantly impacts on customers. In 2024/25 we maintained our industry-leading internal sewer flooding performance and

have delivered a further reduction in both internal and external flooding incidents, despite the prolonged periods of significant rainfall and high groundwater

levels at the start of the year.

These measures reflect service impacts to our customers as well as being a lead indicator of asset health. Our performance in respect of sewer collapses has

improved again and we have met this target of 13.99, in each of the five years of the regulatory period. Blockages have remained broadly stable, meeting the

target of 6,500 again this year.

Internal sewer flooding (Incidents per 10,000

sewer connections)

External sewer flooding (Number of incidents)

0.63

0.74

0.63

2022/23

2023/24

2024/25

South West Water

1,465

1,578

1,816

2022/23

2023/24

2024/25

South West Water

Sewer collapses (Incidents per 1,000km) Sewer blockages (Number)

6,445

6,448

7,149

2022/23

2023/24

2024/25

South West Water

7.54

11.42

9.93

2022/23

2023/24

2024/25

South West Water

Driving environmental gains

57Pennon Group plc Annual Report and Accounts 2025

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 in SWB and Bristol Water. At SWB there are over

125,000 customers registered for PSR. This follows significant increases

in each year of the regulatory period. All regions have outperformed the

common industry measures again this year.

Customer Measure of Experience (C-MeX)

C-MeX is Ofwat’s measure of customer experience both for those customers

who directly contact us as well those surveyed around their perception of

our brands. Bristol performance has been consistently strong throughout the

period, and we see opportunity to share best practise across the Group.

Supporting affordability, delivering for customers

South West

Water

in ranking

Bristol

Water

in ranking

SES

Water

in ranking

South West

Water

in ranking

Bristol

Water

in ranking

SES

Water

in ranking

South West Water (SWB)

Bristol Water

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

Customer affordability (%)

We have targeted 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 and

which is improving year-on-year. Both SWB and Bristol Water have achieved

100.0% of customers finding their bill affordable. SES does not have a similar

affordability measure in K7.

Developer Measure of Experience (D-MeX)

D-MeX is Ofwat’s measure of service experience for developers which

directly compares us with our peers. Across the 2020 to 2025 period, each of

South West Water, Bristol Water and SES Water have seen broadly improving

trends in performance in this metric.

South West Water (SWB)

Bristol Water

100.0

98.0

96.3

100.0

2022/23

2023/24

2024/25

2022/23

2023/24

2024/25

Bathing waters

South West Water has over 860 miles of coastline to protect, representing

over one third of England’s coastal bathing waters. For 2024, we have also

successfully added six designated river bathing waters, with now a total

of 157 designated bathing waters in the region (151 like-for-like). The vast

majority of these, including all coastal bathing waters impacted by South

West Water assets, meet stringent EA classifications, with over 90% classified

as ‘good’ or ‘excellent’.

Average Spills

Our WaterFit programme is focused on protecting rivers and seas. During

2024, the average number of spills reduced, despite intense rainfall and high

groundwater levels. South West Water was only one of five water companies

to see such a reduction. South West Water has made interventions at a

number of sites during the year to help achieve this reduction. For example,

investments at Rilla Mill near Liskeard have helped achieve a 93% reduction

in the number of spills year-on-year. Our investment programme is also

targeting reductions in those locations that matter most to our customers,

our beaches, where on average spills are six in the bathing season.

100

Good/Excellent (%)

Met standards (%)

South West Water

2024

2023

2022

41.3

43.4

28.5

2022

2023

2024

South West Water

Our KPIs – non-financial metrics continued

58 Annual Report and Accounts 2025 Pennon Group plc

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 248 to 251.

Our performance in 2024/25

Commentary on performance is set out in the Pennon Chief Financial Officer’s

report on pages 61 to 69.

Link to remuneration, bonus/LTIP

LTIP performance measure.

2022/23

2023/24

024/25

South West Water (SWB)

Bristol Water

2020/21

2021/22

6.0

5.1

7.6

8.0

5.2

8.2

7.8

6.3

4.2

Our financial KPIs

^ Measures with this symbol are defined in the Alternative Performance Measures (APMs) as outlined on pages 248 to 251.

1. For further information on the relevance to Executive Directors’ remuneration see page 166.

2. Cumulative K7 measure.

Regulatory

Regulatory Capital Value (RCV)^ (£m)

Why is this KPI important to us?

Regulatory Capital Value (RCV) has been developed for regulatory purposes

and is primarily used in setting price limits. RCV is widely used by the

investment community as a proxy for the market value of the regulated

business and forms part of covenant debt limits, as explained in our

Alternative Performance Measures on pages 248 to 251.

Our performance in 2024/25

Commentary on performance is set out in the Pennon Chief Financial

Officer’s report on pages 61 to 69.

Link to remuneration, bonus/LTIP

N/a

Gearing^ (%)

Why is this KPI important to us?

The regulated gearing is calculated as year end net debt as a proportion

of RCV (based on RCV including the adjustment for the IFRS16 leases as

explained in our Alternative Performance Measures on pages 248 to 251).

Our performance in 2024/25

Commentary on performance is set out in the Pennon Chief Financial

Officer’s report on pages 61 to 69.

Link to remuneration, bonus/LTIP

N/a

2022/23

2023/24

2024/25

South West Water (SWB)

SES

Water Group

2020/21

2021/22

5,618

365

5,983

5,189

4,002

645

334

3,623

3,377

586

298

551

271

347

5,536

2022/23

2023/24

2024/25

South West Water (SWB)

SES

Water Group

2020/21

2021/22

62.0

59.3

61.8

63.5

60.70

69.04

63.67

67.16

68.16

78.7

64.4

59Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Statutory

Basic 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 248 to 251.

Our performance throughout 2024/25

Commentary on performance is set out in the Pennon Chief Financial

Officer’s report on pages 61 to 69.

Link to remuneration, bonus/LTIP

N/a.

Dividend per share (pence)

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 throughout 2024/25

Commentary on performance is set out in the Pennon Chief Financial

Officer’s report on pages 61 to 69.

Link to remuneration, bonus/LTIP

LTIP sustainable dividend measure.

2022/23

2023/24

2024/25

Dividend per share

EBITDA dividend cover^ (times)

2020/21

2021/22

31.57

2.5x

36.67

35.31

2.8x

3.8x

31.84

17.97

3.7x

2.7x

2022/23

2023/24

2024/25

2020/21

2021/22

(16.1)

(10.3)

(2.9)

5.1

7.3

6.0

44.3

10.2

4.0

21.1

26.4 42.1

nil

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

+393.0p

statutory EPS on

discontinued operations

Our KPIs – financial metrics continued

(Loss)/profit before tax (£m)

Why is this KPI important to us?

(Loss)/profit before tax is a key measure of the Group’s financial performance

after deducting all operating and finance costs. Underlying (loss)/profit before tax

is measured to exclude any distorting non-underlying items, as explained in our

Alternative Performance Measures on pages 248 to 251.

Our performance throughout 2024/25

Commentary on performance is set out in the Pennon Chief Financial Officer’s

report on pages 61 to 69.

Link to remuneration, bonus/LTIP

Underlying Profit before tax Annual bonus performance measure.

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

(72.7)

(35.1)

(9.1)

(8.5)

16.8

143.5

127.7

132.1

157.0

200.3

16.8

+£1,650.4m

statutory profit on

discontinued operations

2022/23

2023/24

2024/25

2020/21

2021/22

^ Measures with this symbol are defined in the Alternative Performance Measures

(APMs) as outlined on pages 248 to 251.

1. The comparative period figures have been restated and adjusted for the bonus

factor of 1.21 to reflect the bonus element of the February 2025 rights issue, in

accordance with IAS 33 Earnings per Share.

60 Annual Report and Accounts 2025 Pennon Group plc

This financial year has been a year

of transition as we close out K7 and

prepare for K8 – ensuring a resilient

balance sheet for the growth ahead

Our CFO’s review

Laura Flowerdew

Pennon Chief

Financial Officer

Read more about Laura on pages

132 to 133

Financial highlights of the year

Revenue

£1,047.8m

(2023/24: £907.8m)

Benefiting from acquisition of SES

Underlying EBITDA^

£335.6m

(2023/24: £338.3m)

Steady EBITDA despite ongoing cost pressures

Underlying loss before tax^

£35.1m

(2023/24: £16.8m underlying profit before tax)

Impacted by lower customer demand, higher depreciation and interest

from capital investment

Loss before tax

£72.7m

(2023/24: £9.1m loss before tax)

One off costs relating to restructure and water quality incident

Capital investment^

£652.5m

(2023/24: £649.5m)

Investing to deliver on our commitments

Water Group gearing^

61.8%

Benefiting from Rights Issue, increasing financial resilience

K7 Watershare RORE^

Outperformance across K7

Taking on the role of CFO at this point in the regulatory cycle is always

challenging, and the 2024/25 financial year has proven a period of transition.

I started the role on the day we received our Draft Determination for K8

and with uncertainty for the sector through ongoing public scrutiny and

regulatory change, it has been a tough year for the business.

Our 2024/25 financial results were in line with expectations, reflecting the

challenges seen across the UK water sector, as well as a relentless focus

from our teams to meet the commitments we have made to customers and

stakeholders, whilst investing in our assets to protect the environment and

meet the expectations of the public.

Our underlying loss before tax^ of £35.1 million for the year (2023/24:

underlying profit of £16.8 million), resulted from lower regulated revenue

impacted by lower customer demand in Devon and Cornwall, driven by

customer efficiency initiatives. Cost pressures have been seen as we strive

to deliver against our regulatory targets. SES Group was acquired in January

2024, and this reflects the first full year in which SES has been incorporated

into the results of the Group.

Depreciation and interest have increased as a result of the increased

capital investment we have seen in the current and previous years. These

investments have been reconciled into RCV as the K7 period ends, with a

step-up in revenue associated with the allowed returns on such investments

commencing from the 2025/26 financial year.

The Group’s statutory loss before tax of £72.7 million for the year

(2023/24: £9.1 million loss) includes non-underlying items of £37.6 million

(2023/24: £25.9 million), the majority of which related to costs in relation

to the cryptosporidium water quality incident and costs in connection

with restructuring and reshaping actions. The statutory loss after tax of

£56.8 million (2023/24: £8.5 million) incorporates the associated tax credit on

these results.

We were pleased to receive an ‘outstanding’ assessment for South West

Water’s Business Plan. In their Final Determination received in December

2024, Ofwat allowed 100% of the revenues requested in our Business Plan,

and improved both the cost of capital and risk mitigations through cost

adjustment mechanisms, compared with July’s Draft Determination. We

believe that the Final Determination provides a strong base for the business

to deliver against its strategic priorities and confirmed we would accept that

Determination in late January.

It is critical that we deliver on our strategic priorities, but that we also deliver

the required outcomes and our capital programme as efficiently as possible.

^ Measures with this symbol are defined in the Alternative Performance Measure

(APMs) as outlined on pages 248 to 251.

61Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

As such, in this period of transition from K7 to K8, we have continued to

progress our efficiency programme, which targets annualised run rate

savings of £86 million. In the 2024/25 financial year, we have focused on

reshaping and realigning the business to ensure we are ready to deliver on

the strategic priorities we have set for the next regulatory period.

With this in mind, we have restructured the business around our four

business units, as well as continued with our programme of integration and

transformation to ensure effective, efficient delivery. We have also invested in

a number of measures to transform our underlying operational performance.

In addition to the restructure, we have continued to deliver our

transformation and integration programmes. Synergies delivered through

our acquisitions of Bristol Water and SES Water have delivered savings of

c.£20 million and c.£9 million, respectively. Combined with base efficiency

of c.£47 million we have delivered c.£76 million of the expected annualised

savings of c.£86 million for K8. These actions have resulted in non-underlying

costs^ of £15.8 million in the current year, but will provide a more effective

and efficient delivery as we head into the next regulatory period.

We have continued to invest record levels of capital to deliver enhancements

and benefits for the environment and our customers. Our group wide

capital investment^ of £652.5 million reflects £610.2 million of investment

in our water businesses as we focus on delivering on our K7 commitments

and transition to K8. Key investments, such as our new treatment works

at Alderney and Knapp Mill, have progressed at pace, whilst our continued

focus on the environment, through investment in our WaterFit and storm

overflow programmes, have also driven capital investment in the year. Our

programme to increase our water resources and strengthen our resilience to

drought has also continued, leading to a 34% increase in water resources in

Cornwall since the drought, as well as a 30% increase in Devon, positioning

us well as we experience an exceptionally dry spring period across the UK.

Our current rate of investment aligns with that required to deliver our K8

programme of £3.2 billion

and which will deliver 34% growth in our regulatory

asset base to 2030. To support this growth, ensuring a strong and resilient

balance sheet has been a key focus. The completion of the £490 million fully

underwritten rights issue in February 2025 was core to this; with over 93%

of shareholders taking up their rights and the rump placing being more than

four times over-subscribed, we are grateful to all those shareholders who

supported the issuance. With the proceeds received, we close the K7 period

with a water group gearing of 61.8%, well within our renewed gearing policy

of 55-65% and within our anticipated range of 60-65% to 2030 for our Water

Group. At 31 March 2025, SWW’s net debt/forecast shadow RCV gearing

ratio^ was 62.0% (31 March 2024: 63.5%), reflecting the benefit of the equity

injection following the rights issue, notwithstanding continued record levels

of capital expenditure and reduced operating cash flows.

Debt funding is also fundamental to our growth; during the year we secured

strong investment grade credit ratings for South West Water Limited and

ratings were uplifted for SES Group as a result of recognition from the ratings

agency of the stronger balance sheet support provided by SES being part of

the Pennon Group. These credit ratings have allowed us to secure funding

through private placements, the public bond markets, lease financing and

wider bilateral lending. Overall, we have raised £1.3 billion in debt and equity

funding to the end of the year, as well as ensuring our EMTN programme,

launched in July 2024, provides an efficient and flexible way to fund our

ongoing funding and liquidity needs over the next five years.

We continue to outperform the regulatory cost of equity. Our RORE^ across

the K7 period reflects a 6% real return to shareholders, outperforming the

equity return allowed by Ofwat of 4.19% as a result of strong financing

performance across the five-year cycle, partially offset by increased

investment, cost pressures including higher power costs than allowed, and

ODI performance.

Q&A with our new CFO

Q: What has been your key highlight for

this year?

A: The Rights Issue has been the highlight for me; support from

93% of our shareholder base for this funding step provides a

vital component of delivering on the 34% growth trajectory we

see over the K8 period.

I was delighted it was so well supported and believe it allows us to

maintain a resilient balance sheet to support investment for the

environment, customers and communities.

Q: What are your key priorities in 2025/26?

A: 2025/26 marks the start of the next regulatory period; with a

Business Plan that has been prepared and scrutinised for more

than two years, it has been a long time in the making.

I am now looking forward to moving into the delivery period;

supporting the business to implement our plans efficiently and

effectively, and working with our Amplify delivery partnership to

grow our asset base.

Q: How will your investment programme make a

difference to the business?

A: Our £3.2 billion investment programme is based on the priorities

of our customers and communities, as well as ensuring we

protect the natural environment around us. Having spent

18 months in a customer facing role, I recognise that the

expectations of our local communities have increased, and

it is vital that we respond to this, particularly in terms of our

wastewater network.

I am excited that with our reduced gearing, and a strong

balance sheet we will be able to invest in our infrastructure

over the next five years, ensuring that we reduce storm overflow

spills, upgrade water treatment works across our region, and

deliver other improvements to our core services whilst protecting

the environment.

1. At forecast outturn prices.

^ Measures with this symbol are defined in the Alternative Performance Measure

(APMs) as outlined on pages 248 to 251.

Our CFO’s review continued

62 Annual Report and Accounts 2025 Pennon Group plc

Revenue – (£m)

Underlying EBITDA^ – (£m)

2023/24

Revenue

2024/25 SESSWB Inflation

and tariff

movements

SWB water

efficiency

and customer

demand

PWS

tariff and new

contracts

PWS water

efficiency

and customer

demand

Other 2024/25

Revenue

907.8

21.9

(19.4)

23.0

(4.6)

4.0

1,047.8

932.7

115.1

2023/24

EBITDA

Full year

effect

of SES

SWW

revenue

impacts

Cost

inflation

Investment

in new

technology

Increased

front line

activity

Operational

efficiencies

2024/25

EBTDA

338.3

21.6

2.5

(15.7)

16.0

(9.5)

335.6

(17.6)

Group performance – summary

Revenue Underlying EBITDA

2024/25 2023/24 2024/25 2023/24

SWW 737.7 729.8 308.6 332.5

SES Water 82.8 16.0 29.6 3.3

Total Water 820.5 745.8 338.2 335.8

Retail 320.3 253.5 7.5 7.7

Other 12.8 11.8 (10.1) (5.2)

Intra-group (105.8) (103.3) – –

Group 1,047.8 907.8 335.6 338.3

SES was acquired on 10 January 2024 and has contributed to the Group

financial results since that date. It largely comprises the regulated water

company, Sutton and East Surrey Water plc (‘SES Water’), along with non-

regulated businesses including SES Business Water, a non-household retail

business. The year to 31 March 2025 will be the first year where Pennon's

results will include a full year of SES results; the 2023/24 financial year

incorporated results from the date of acquisition only.

The Group’s revenue for 2024/25 was £1,047.8 million (2023/24: £907.8 million).

Water revenue increased by £74.7 million (10.0%), as a result of the full

year contribution from SES Water of £82.8 million (2023/24: three months’

contribution of £16.0 million). Revenue from South West Water (including

Bristol and Bournemouth) was broadly flat year-on-year, as tariff increases

were offset by lower customer demand in the first half of the year from

South West Water customers, in response to our water efficiency

campaigns and activities.

Non-household retail revenue increased by £66.8 million to £320.3 million,

with new contracts outside South West Water’s regions contributing

c.£14.9 million to this increase alongside the full year impact of the SES BW

acquisition. SES BW has contributed £67.9 million of revenue in the year

(2023/24: three months’ contribution of £19.7 million).

Overall, the Group’s underlying EBITDA^ has decreased 0.8% from

£338.3 million to £335.6 million, with full year contribution from SES of

£26.9 million (2023/24: three months’ contribution of £3.6 million), leading

to £23.3 million year-on-year benefit to underlying EBITDA^, offset by a

£23.9 million reduction in underlying EBITDA^ from South West Water, given

flat revenue and increasing cost pressures.

Further details of the performance of the Group are outlined in the segmental

analysis in note 5 of the financial statements on pages 210 to 211.

Cash collections across the Group have remained robust during the financial

year. Expected credit loss charges for 2024/25 of £9.7 million for the Group

(0.9% of revenue) are in line with previous levels (2023/24: 0.8%).

The Group reported a statutory loss before tax of £72.7 million (2023/24:

loss of £9.1 million) after non-underlying costs^ of £37.6 million

(2023/24: £25.9 million). The Group recognised an underlying loss before

tax^ of £35.1 million (2023/24: profit of £16.8 million), with SES Water and SES

Business Water contributing an underlying loss before tax of £8.0 million

(2023/24: £2.5 million). Group underlying loss before tax on a like-for-like

basis (excluding SES) was £27.1 million (2023/24: profit of £19.3 million).

63Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

CFO’s review continued

Segmental performance – non-household retail

Pennon Water Services (PWS)

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 has fallen within our underlying water region; however,

year-on-year revenue, EBITDA and profit before tax have continued to grow

throughout 2024/25 aided by winning new contracts on a national basis.

The overall impact on revenues for Pennon Water Services, including the

impact of new contract wins and tariff increases across the UK water market,

is an increase of c.8% compared to the prior year. The business continued to

maintain its focus on targeting high quality, sustainable customers who will

benefit from the value-added services that form part of PWS’ differentiated

service proposition. New business wins contributed £13.9 million of additional

revenue compared to the prior 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 and at a

rate below the increase in revenues. As a result, the business has increased

its underlying EBITDA by c.2.7% to £7.6 million (2023/24: £7.4 million). This

strong performance has resulted in the business reporting a profit before tax

of £5.4 million (2023/24: £4.7 million), an increase of 14.9%.

SES Business Water

SES Business Water’s revenue for 2024/25 was £67.9 million during the year,

with underlying EBITDA at £(0.1) million.

Segmental performance – Other

The Other segment comprises the result of Pennon Group plc company and

other Group businesses, including the recently acquired ancillary businesses

of SES. The Other segment contributed an underlying loss^ before tax of

£3.3 million in the year (2023/24: profit before tax of £0.1 million) with non-

underlying costs of £1.5 million (2023/24: £0.7 million) associated with the

closure of SES Home Services, a business providing plumbing services on a

retail and business to business basis. This business was loss making and on

31 March 2025, it was announced that the business would be closed.

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 as the financial performance improves as it

has gained scale, we have recognised £0.8 million of profit after tax in our

2024/25 results (2023/24: £0.7 million), an increase of 14%.

South West Water (Water): £325.2m

South West Water (Wastewater): £263.5m

SES Water: £21.5m

Pennon Power: £40.7m

Other: £1.6m

£652.5m

TOTAL

Major categories of Capital expenditure

(£m)

^ Measures with this symbol are defined in the Alternative Performance Measures

(APMs) as outlined on pages 248 to 251).

1. A measure of the mean average interest rate payable on net debt associated with

South West Water Limited’s group of companies, which excludes interest costs not

directly associated with net debt.

2. Pennon Water Services (PWS) – 80:20 joint venture with South Staffordshire.

Segmental performance – Water businesses

South West Water

South West Water’s revenue for 2024/25 was £737.7 million

(2023/24: £729.8 million). The revenue growth of £7.9 million has been

explained previously.

Underlying operating costs^ of £429.1 million (2023/24: £397.3 million)

have increased year-on-year by £31.8 million. This reflects the impact of

inflationary pressures, the cost of implementing the new digital customer

services platform and a focus on delivering key finance commitments.

These were partially offset by lower wholesale commodity power costs and

efficiency savings.

South West Water’s underlying EBITDA^ reduced by 7.2% to £308.6 million.

Underlying operating profit has decreased by 17.5% reflecting the weakened

EBITDA performance, and an increase in the depreciation charges of

£5.9 million compared to last year, in line with our record, capital

investment programme.

Net finance costs of £170.6 million (2023/24: £155.5 million), reflect an

effective interest rate of 5.4%

(2023/24: 5.6%) The year-on-year increase of

£15.1 million was as a result of higher debt, funding the capital programme.

South West Water’s statutory loss before tax was £62.7 million

(2023/24: loss of £1.0 million) after non-underlying costs of £32.4 million

(2023/24: £15.6 million).

South West Water’s capital expenditure was £588.7 million

(2023/24: £582.9 million), a continuation of the increase in investment level

from 2023/24. We have invested c.£2 billion over the K7 period, both in the

underlying PR19 programme, but also in additional programmes, including

WaterFit and storm overflow reductions, investing more in our wastewater

infrastructure; Green recovery, delivering smarter, healthier homes in our

regions; and water resources, increasing our resilience to climate change

and drought. Further investment during a year of high rain fall has enabled a

reduction in pollutions and spillages despite being the wettest hydrological

year on record, as we drive operational improvements in support of our focus

on protecting the natural environment, on which we rely.

SES Water

SES Water’s revenue for 2024/25 was £82.8 million of revenue in the

year (2023/24: £16.0 million from date of acquisition), and reducing costs

on an annualised basis, leading to an improved EBITDA margin for the

2024/25 year.

SES Water capital investment of £21.5 million has focused on network

resilience and metering, continuing its focus on smart networks and ensuring

resilient supply of drinking water.

Following the Rights Issue in February 2025, £330.0 million of equity was

passed down to South West Water and £50.0 million of equity was injected

into SES Water to ensure appropriate gearing in each water business.

64 Annual Report and Accounts 2025 Pennon Group plc

2024/25Non debt

related / other

Interest

Captialised

interest

Interest

receivable

Bond

issuances and

other new debt

Rate

decreases

SES

Full Year

Impact

2023/24

150.2

16.1

(21.3)

47.3

(3.4)

(9.2)

4.7

184.4

Total interest charge (£m)

• £15.8 million of costs in connection with restructuring and reshaping

actions

• £0.8 million of acquisition-related costs in relation to Pennon Power and SES.

The non-underlying^ charges in the year give rise to a net tax credit of

£8.9 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 2024/25 tax credit for the Group was £15.9 million (2023/24:

credit of £0.6 million). On an underlying^ basis, the net tax credit for 2024/25

for the Group of £7.0 million (2023/24: charge of £4.3 million) consisted of:

• Current tax charge of £0.8 million, reflecting an effective tax charge rate of

2.3% (2023/24: credit of £0.6 million, 3.6%). 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, 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.

• Deferred tax credit of £7.8 million (2023/24: charge of £4.9 million). This

primarily reflects a current year deferred tax credit in relation to tax losses

carried forward for utilisation in later periods, partially offset by a 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.

There was also a non-underlying^ current tax credit in the year of £0.5 million

(2023/24: £nil) and a deferred tax credit in the year of £8.4 million

(2023/24: £4.9 million) relating to the non-underlying items. This related to

losses carried forward for utilisation in later years.

Given the Group’s continued capital investment programme and full

expensing deductions together with 50% first year allowances on long life

assets and integral features, the Group does not expect to generate taxable

profits for the foreseeable future, and therefore does not expect to make any

corporation tax payments in the immediate future.

Group finance costs (net)

The increase of £34.2 million resulted from; £47.3 million from new and

renewed debt facilities, the full year impact of financing SES Group

(£16.1 million), offset by lower inflation and interest rates (£21.3 million),

increased interest receivable as a result of the Rights Issue (£3.4 million) and

higher levels of capitalised interest as we continue to invest record levels of

capital in our water businesses (£9.2 million).

The Group continues to efficiently secure funding 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.

Acquisition accounting

As part of the requirements of acquisition accounting, we have finalised

the fair values of the acquired balance sheet of SES Water. The provisional

values reported in the Group’s results to 31 March 2024 have been revised to

reflect a £0.4 million decrease in the fair value of the acquired property, plant

and equipment, including the network infrastructure, the fair value of SES

Water’s debt portfolio, and the deferred tax liabilities with a corresponding

increase in Goodwill. The majority of the value is attributed to the SES Water

business, recognising the strategic alignment of our acquisition with our

other water companies.

Goodwill arising from the acquisition of £16.0 million, based on these 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.

Non-underlying items

Non-underlying items^ for 2024/25 were a net charge before tax of

£37.6 million (2023/24: net charge of £25.9 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:

• £21.0 million of costs in relation to the Brixham water quality incident

which includes enhanced customer compensation, provision of bottled

water over an eight-week period, and extensive interventions to clean and

filter the network

Earnings per share (basic and diluted)

The earnings per share calculations reflect an increase in weighted average

shares due to the rights issue in February 2025. The Group has recorded a

statutory loss per share of 16.1 pence per share for the year ended 31 March

2025 (2023/24: loss of 2.9 pence per share). This includes a net non-

underlying^ charge before tax of £37.6 million (2023/24: £25.9 million) and a

net non-underlying tax credit of £7.9 million (2023/24: charge of £4.9 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 2024/25 of (10.3) pence (2023/24: 5.1 pence).

Basic and diluted earnings per share figures and the weighted average

number of shares for the comparative period have been restated and

adjusted for the bonus factor of 1.21 to reflect the bonus element of the

February 2025 rights issue, in accordance with IAS 33 Earnings per Share.

Amounts as originally stated at 31 March 2024 were (3.6)p basic and diluted

earnings per share, 6.2p basic and diluted adjusted earnings per share.

65Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

CFO’s review continued

Movement in Net debt

Pennon Group – summarised net debt flow

(£m)

2024/25

flows

Net debt excluding other non-cash indebtedness 1 April (3,684.8)

Opening balance 1 April (restated) (3,844.8)

Cash generated from operations 233.6

Corporation tax received 3.0

Net interest paid (132.0)

Capital investment (666.7)

Proceeds from Rights Issue 491.0

Share Issue transaction costs (15.4)

Ordinary dividends paid (126.9)

Non-cash index-linked accretion (33.4)

Other movements

13.4

Closing balance 31 March excluding other non-cash

indebtedness (4,078.2)

Net debt excluding fair value uplifts 31 March (3,936.2)

The Group’s cash flow from operating activities for 2024/25 was

£233.6 million (2023/24: £261.7 million). This recognises robust cash

collection in the period, whilst we remain focused on supporting customers

through a range of affordability measures where they may financially

vulnerable. Operating cash flows continue to reflect the lower levels of

underlying profitability, impacted by lower customer demand and cost

pressures from inflation and delivering on our operational performance

commitments.

Net interest payments were £132.0 million (2023/24: £109.1 million) with the

higher payment in 2024/25 driven by increased debt consequent on our

ongoing record levels of capital investment, partially offset by lower inflation

and interest rates.

Capital investment has resulted in an increase in capital expenditure cash

outflows of £68.6 million to £666.7 million (2023/24: £598.1 million). This

includes c.£32.2 million (2023/24: £49.0 million) of cash outlay for the

investment in Pennon Power.

Sustainable net debt

We completed an equity rights issue in order to ensure we maintain financial

discipline with the leverage and capital structure for the Group. Proceeds

from the rights issue, net of associated expenses, were £475.6 million.

Other significant movements in net debt in 2024/25 include payment

of our interim and final dividends for 2023/24 totalling £126.9 million

(interim and final dividends for 2022/23: £111.7 million) and £33.4 million

(2023/24: £46.8 million) of non-cash indexation on our loan instruments.

The Group’s net debt^ at 31 March 2025 was £4,078.2 million (31 March

2024 (restated): £3,810.5 million). This includes acquisition-related fair value

adjustments of £109.8 million (31 March 2024: £125.7 million) which are

released over the life of the related debt instruments and other non-cash

accounting adjustments of £32.2 million (31 March 2024: £35.2 million). The

Group’s net debt position excluding these adjustments is £3,936.2 million

(31 March 2024 (restated): £3,684.8 million).

Robust liquidity and flexible funding strategy

Group debt

at 31 March 2025 (£m) Gross debt Net debt

Pennon Group Plc 247.2 202.2

Water Group 4,107.1 3,698.3

SWW 3,815.9 3,481.7

SES Water 291.2 216.6

Other Group companies 155.9 133.6

Intercompany borrowing eliminations (97.9) (97.9)

Total adjusted group (excluding FV

and non-cash indebtedness) 4,412.3 3,936.2

Non-cash indebtedness 142.0 142.0

Total Group 4,554.3 4,078.2

As at 31 March 2025, the Group had £1,036.1 million of cash and committed

facilities (31 March 2024: £601.4 million). This consists of cash and cash

deposits of £476.1 million (31 March 2024: £171.4 million), including

£58.2 million (31 March 2024: £37.4 million) of restricted funds representing

deposits with lessors against future lease obligations, and £560.0 million

(31 March 2024: £430.0 million) of undrawn committed facilities.

Since 31 March 2024, the Group has secured c.£1,140 million of new debt,

through its diverse portfolio of debt, consisting of:

• £300 million in US private placements with an average maturity of 15

years

• £650 million through our inaugural public bond issuances under our

EMTN

programme

• £65 million of new term loans and leasing with an average maturity of 6

years

• £125 million of new and renewed revolving credit facilities.

These issuances signal the move to more benchmark-sized transactions in

both the private placement and public bond markets as the scale of capital

expenditure and ongoing refinancing grows. The bond followed the launch

of our £2.5 billion EMTN programme, which allows us to issue funding across

the forthcoming regulatory period to fund the growth in the business and

improvement in services reflected in our Business Plan.

Resulting from the changes above and drawing of new debt during the

year, South West Water gross debt at 31 March 2025 was £3,815.9 million

(31 March 2024: £3,287.8 million). The debt has a maturity of up to 32 years

with a weighted average maturity of 14 years.

South West Water

net debt at 31 March 2025 is a mix of fixed/swapped

(£2,460.7 million, 71%), floating (£243.7 million, 7%) and index-linked

borrowings (£777.3 million, 22%), which reflects our diverse debt portfolio and

compares to a 2024 industry average of fixed/swapped 32%, floating 12% and

index-linked 56%. Where appropriate, derivatives are used to fix the rate on

floating rate debt.

At 31 March 2025, South West Water’s net debt to RCV ratio

stood at 62.0%

(31 March 2024: 63.5%). This is due to increased capital investment and

reduced in period operating cash flows.

South West Water’s cost of finance, with an effective interest rate in 2024/25

of 5.4% (2023/24: 5.6%), continues to benefit from the diverse portfolio

ofdebt.

SES Water’s net debt portfolio predominantly reflects index linked and fixed

rate debt, based on the legacy portfolio acquired at the date of acquisition.

Subsequent to the equity injections in 2024/25, SES Water’s gearing levels

relative to RCV have reduced to 59.3%, with recognition from Ofwat of their

improving financial resilience as a result of Pennon’s ownership.

The effective interest rate on the SES debt book is 7.2% (adjusted for the

March injection of equity). As a material component of this debt book is

index linked, it is anticipated this rate will decrease as UK inflation rates

reduce. In addition, over time, as the legacy debt matures, we anticipate it

will also benefit from being part of the diverse debt portfolio and hedging

strategy employed by the wider Group.

1. Includes unwind of fair value adjustments and other non cash indebtedness.

2. Carrying value of fair value acquisition adjustments to net debt as at 31 March

2025 – £29.3 million Bournemouth Water, £71.0 million Bristol Water and SES Water

£9.5 million.

3. Euro Medium Term Note.

4. Based on South West Water Group, including Bristol Water excl. SES.

66 Annual Report and Accounts 2025 Pennon Group plc

5. UK water position as at 31 March 2024 as per published Annual Performance Reports – weighted average

6. Based on South West Water group including Bristol Water net debt/shadow RCV.

^ Measures with this symbol are defined in the alternative performance measures section of the annual report on pages 248 to 251.

Index-linked: £777.3m

Floating: £243.7m

Fixed: £2,460.7m

£3,481.7m

TOTAL

South West Water Net Debt Structure (£m)

Return on Regulated Equity^

During K7 we continued to deliver South West Water RORE performance of

6.0% cumulatively, with Bristol achieving 5.1% cumulatively, equating to c.£

146.0 million of outperformance. This consists of c.£344.0 million financing

outperformance (inclusive of the benefit from tax allowances), net of

c.£140.0 million totex^ overspend, and c.£58.0 million ODI net penalty impact.

This has enabled the funding of additional capital investment initiatives as

noted above.

WaterShare RORE South West Water Bristol Water SES Water

Base return 4.0% 4.5% 4.1%

Financing 4.2% 1.2% (1.9%)

Totex (1.6%) 0.6% 4.5%

ODI (0.6%) (1.2%) (2.5%)

Cumulative RORE 6.0% 5.1% 4.2%

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 2024/25 has

continued to be dominated by pollutions underperformance, partly mitigated

by areas of outperformance such as internal sewer flooding, catchment

management and bathing waters. As a consequence, South West Water has

incurred a penalty of c.£19 million (2023/24: penalty c.£12.1 million). 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. 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.£4 million (2023/24: penalty of c.£1.7 million). ODI performance for SES

is on track to achieve c.52% of its ODIs and has resulted in a net financial

penalty of c.£2 million.

Across K7, South West Water has created c.£910 million of value for the

Group from base returns, RORE outperformance and the growth in RCV

over the five year period. The South West Water Board has taken a prudent

approach to its dividend payments in making distributions to Pennon Group

and as result c.£200 million has been distributed in K7 to date. This results in

over £710 million of retained value (including dividends declared but not yet

paid of £45 million) in South West Water, which the South West Water Board

will consider as K7 closes.

Fair Tax Mark

We are proud to have been awarded

the Fair Tax Mark for the seventh

year in a row in October 2024.

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.

Strong investment grade ratings

During the first half of the year the Group, through South West Water,

has achieved two strong credit ratings with Moody’s and Fitch. We were

pleased that despite the sector wide downgrade by Moody’s due to ongoing

regulatory risk, and the impact of the Determinations on the wider sector, our

credit rating remained unchanged subsequent to the Final Determination. We

were also pleased that SES Water’s credit rating was upgraded by Moody’s in

November, in recognition of the benefit gained from being part of the wider

Pennon Group and its resilient balance sheet.

South West Water launched its EMTN programme in July 2024, establishing

a programme for access to the debt capital markets. This included the

first public ratings for South West Water ahead of the appointee licence

requirement for two ratings by April 2025. Following the Final determination

outcome, both rating agencies have reaffirmed the rating, maintaining the

Baa1 (negative) and BBB+ (Stable) ratings.

The Group maintains its commitment to maintaining strong investment

grade ratings across the water businesses and has showed significant

commitment through the January 2025 equity raise to support this.

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.

Following its acquisition, SES Water continues to maintain its current Group

structure whilst it operates under its own regulatory licence.

Funding for other parts of the Group, including PWS and Pennon Power,

ispredominantly provided by Pennon. Pennon will continue to use funds

tosupport the Group’s ongoing operations as appropriate.

Creating economic value in the regulated business

Regulatory Capital Value (RCV)^

31 March 2025

SWW 4,900.1

BRL 717.7

SWB 5,617.8

SES 365.3

Water Group 5,983.1

Total Water Business RCV of £5,983.1 million includes the benefit of

regulatory reconciliation items in the PR24 Final Determination, inflation

of 3.4% at March 2025, as well as additional accelerated investment and

expenditure to drive outcomes in 2024/25.

67Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

CFO’s review continued

Employment taxes: £63m

Business rates: £35m

Corporation tax: £(3)m

Environmental payments: £23m

Fuel excise duty: £1m

Other: £5m

£124m

TOTAL

Total Tax Contribution

UK Corporation Tax receipts from HMRC in the year were £3 million

(2023/24: £3 million receipts) in relation to over-payments made in prior

years. There were no payments due in respect of 2024/25 or 2023/24

astheGroup has generated tax losses in both years.

Payments to the Environment Agency and other regulatory bodies totalled

£23 million (2023/24: £20 million). This reduces profit before tax.

Fuel excise duty of £1 million (2023/24: £1 million) related to transport costs.

This reduces profit before tax.

VAT repayments of £176 million (2023/24: £144 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 and the company is now included

alongside all other waste water companies. 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 later in 2025. 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 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.

On 2 February 2024, summons were received by South West Water Limited

from the EA in relation to alleged non permitted discharges at 7 locations

with a total of 30 charges. The EA have since withdrawn 6 of these charges

relating to 1 site. At a hearing on 14 November 2024, South West Water

pleaded guilty to 5 of the charges and the sentencing hearing for all 24

charges will take place in the third quarter of 2025 with judgement following

at a later date.

On 15 May 2024, cryptosporidium was detected in South West Water’s

water network and, in response, boil water notices were issued for certain

customers in the Brixham area that were lifted in a phased manner

completing on 8 July 2024. South West Water continues to assist the

Drinking Water Inspectorate in their ongoing investigation, the outcome of

which is not known at this time.

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.

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

• 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 2024/25 – borne/collected

The Group’s total tax contribution (TTC) for 2024/25 amounted to

£124 million (excluding £176 million of VAT receipts) (2023/24: £100 million

excluding £144 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 £63 million (2023/24: £52 million) including

employees’ Pay As You Earn (PAYE) and total NICs. The total includes PAYE

of £5 million (2023/24: £5 million) on pension payments made by the Group

pension scheme. A net amount of £44 million (2023/24: £37 million) was

collected on behalf of the authorities for employee payroll taxes.

Business rates of £35 million (2023/24: £30 million) were paid to local

authorities. This is a direct cost to the Group and reduces profit before tax.

68 Annual Report and Accounts 2025 Pennon Group plc

Pensions

At 31 March 2025, the overall Group surplus on retirement obligations

was£31.2 million (31 March 2024: £26.6 million).

The increase in the overall Group surplus in 2024/25 of £4.6 million is

largely from the Pennon Group Pension Scheme (PGPS), recognised in

other comprehensive income. Total liabilities have reduced by c.£101 million,

largely due to changes in the financial assumptions driven by the increase in

the discount rate. Total assets have reduced by c.£96 million, driven by the

reduction in the value of assets from the prior year. 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 were limited to the continuing administration

expenses. The next triennial valuation of PGPS isin progress and is expected

to conclude in March 2026. The Group pension surplus includes a net

surplus of c.£9 million (31 March 2024: c.£9 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 trustee of WCPS continues to

work through the process to wind up the Bristol Water section of WCPS

which Is expected to take place during 2025/26 and has indicated its

intention to return the surplus to the Company.

The net surplus of c.£3 million (31 March 2024: c.£3 million) 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 and

has commenced the process to wind up the scheme. 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

80,000 customers are now also shareholders.

In January 2025 the Board announced our dividend policy to 2030

of growing the base dividend in line with CPIH. As a result, they have

recommended a final dividend of 19.43 pence per share for the year ended

31 March 2025. Together with the interim dividend of 12.14 pence per share

paid on 4 April 2025 this gives a total dividend per share for the year of

31.57 pence. Proposed dividends per share for the 2024 comparative period

have been restated and adjusted for the bonus factor of 1.21 to reflect the

bonus element of the February 2025 rights issue, in accordance with IAS 33

Earnings per Share. Pennon offers shareholders the opportunity to invest

their dividend in a Dividend Reinvestment Plan (DRIP).

The proposed total dividend for 2024/25 is increased by 5.4% year on year

to £133.7 million (2023/24: £126.9 million adjusted for £2.4 million fines). This

reflects an increase in line with CPIH on the 2023/24 dividend adjusted to

remove the £2.4 million one off deduction in respect of the fine from the

Environmental Agency paid by SWW. Current year dividends are covered

2.5 times by underlying EBITDA^ (2023/24: 2.7 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

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 with respect to the UK environmental infrastructure.

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 contributing towards

Group profitability.

To date c.£145 million has been committed to build four assets, and once

all four sites are operational, Pennon Power will generate enough electricity

each year to power c.50,000 homes.

Of this overall commitment, we have incurred total costs of c.£100 million to

date, relating to project acquisition and construction costs incurred to date.

Our first project at Fife is expected to commence energy generation in June

2026, with Aberdeenshire and Cumbria sites energising in the second half of

the financial year 2025/26. Buckinghamshire will commence construction in

2025/26 and is expected to energise in 2026/27.

Financial outlook

Looking to 2025/26 we expect revenue to increase with regulated revenues

for the Water Group reset to align with the impact of both the Final

Determination and inflation. This leads to an expected increase in Water

Group revenues by £180-£240 million. Non-household retail revenues

will also increase by c.20 to 25%, in line with sector wide tariff increases.

Following energisation, we anticipate receiving first revenues from Pennon

Power on the Fife project in Q2 2025/26.

We expect total operating costs across the regulated Water Group to be

broadly stable, as upward cost pressures from inflation and operational

delivery will be offset by anticipated benefits from our ongoing operational

efficiency and transformation programme. Total Group operating costs are

expected to increase as a result of wholesale costs relating to the non-

household retail business outside our region increasing aligned with wider

water tariff increases.

The step change in revenue, aligned with the cost movements set out, are

expected to result in underlying EBITDA^ increasing in 2025/26 by around

two thirds compared with 2024/25.

Depreciation and amortisation charges are expected to increase by c.5-10%

as a result of our continued K8 Water Group capital investment programme,

and from projects for Pennon Power once commissioned.

Similarly, expected debt requirements to support our record levels of capital

investment, both from the full year effect of current year financing and into

2025/26, are expected to increase net finance costs at a Water Group and

therefore Group level, leading to an increase in net financing costs for the

Group of £25 to 35 million.

Overall capital expenditure is expected to increase in 2025/26, as required

under our capital programme for K8 delivery, and the associated front-loaded

profile to ensure early benefits delivered to customers and communities

across our regions. The build-out of our Pennon Power renewable energy

sites will continue across the year. This is expected to lead to Group capital

expenditure in the range of £710 million to £740 million.

We remain in a strong position from a liquidity perspective with additional

facilities already raised during the year, the successful Rights Issue in

2025/26, and with further programmes planned, supported by our strong

investment grade credit ratings.

The Group’s RCV^ is expected to increase in line with K8 business plan levels

of investment. We target a RORE^ over K8 of 7% delivered through totex and

financing efficiencies, coupled with strong operational performance. In 2025/26

we expect outperformance to be focused on financing and cost efficiencies, with

a target to achieve a neutral ODI^ position in terms of financial reward or penalty.

Laura Flowerdew

Pennon Chief Financial Officer

3 June 2025

1. All guidance measured on an underlying basis.

^ Measures with this symbol are defined in the alternative performance measures

section of the annual report on pages 248 to 251.

69Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

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 expectations.

Business units committees and steering groups

Managing Directors have established committees and steering

groups that asses, monitor and review risks to feed into the overall

Pennon Executive Reviews.

Compliance Committee

Risk Management Responsibilities

• Performs deep-dive reviews on risk areas relating to data and

substantive submissions.

Key Assurance Activities

•

Reviewing, scrutinising and approving data submissions.

• Escalating material issues and risks to the Executive Committee.

• Ensuring the completion of actions to mitigate any 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 deep-dive reviews on specific 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 – within the business units

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

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

Following the CMA’s clearance for the acquisition of Sutton and East Surrey

(SES) and the subsequent organisational reshaping of the Group, a consistent

risk management framework has been established across the Group’s regulated

and non-regulated activities, as well as support and other enabling functions.

Principal and emerging risks are reviewed by both the Pennon Board and the

Pennon Executive throughout the year and are considered in 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, regulatory 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.

70 Annual Report and Accounts 2025 Pennon Group plc

ABCD

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 pages 158 to 160.

As the owner of water and wastewater companies, 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 94 to 125.

Regulated water and wastewater 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, both South West Water and SES engage 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, Jacobs, 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 ISO 45001

accreditation of its Occupational Health and Safety Management System.

Management of South West Water and SES Water within

the Group’s risk management framework

Pennon manages its risks in such a way that South West Water and SES

Water, as regulated companies, are 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 and SES Water.

Pennon’s risk management and internal control frameworks ensure that

it does not take any action that would cause South West Water or SES

Water to breach licence obligations. Further, the Group’s governance

and management structures mean that there is full understanding and

consideration of South West Water’s and SES 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 and SES Water assurance

that they are not exposed as a result of activities elsewhere within the Group.

Risk

mitigation

Risk

appetite and

identification

Oversight

Risk

monitoring

andreporting

Risk

management

71Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Horizon scanning and notable emerging risks

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:

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 artificial

intelligence and learning deployed

within operational processes develops

faster than Government regulations

andstandards

• Operating

performance

• Medium

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

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

• Medium

term

Water sector reform

Comment Risk category Time horizon

Reviews of the water industry

commissioned by the Government,

theCunliffe Review and the Correy

review, could result in significant

changes to approach, regulation,

and to institutional arrangements

• Law,

regulation

and finance

• Short-

Medium

term

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:

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 from 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.

Risk continued

72 Annual Report and Accounts 2025 Pennon Group plc

Principal risks and uncertainties

During the year there have been continued sector specific and broader

geopolitical developments that have created an environment of continued

heightened risk and uncertainty. Notwithstanding that from a regulatory

perspective there is certainty as a result of the PR24 Final Determination,

there remains continued focus on the financeability of the broader sector

as well as ongoing government-commissioned reviews of the sector, the

impact of global trade wars and of the continued war in Ukraine impacting

operational costs and energy prices.

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.

What is PFAS?

PFAS (per and poly fluoroakyl substances) is a chemical family

consisting of at least 5,000 individual substances that are emerging

contaminants, and as such our scientific understanding continues to

evolve, alongside our understanding of how they can be managed.

All are chemically very strong and gives them properties such as

chemical and thermal resistance, but also makes them extremely hard

to break down and therefore they are persistent in the environment;

they are sometimes known as “forever chemicals” because of this.

Scientific information that has developed over the past few years has

lead regulators to review and update approaches for managing risks to

human health and the environment. The EA is undertaking surveillance

of PFAS and SWW is also monitoring them. The DWI is engaged with

the sector also and issued guidance in March 2025 that provides a

margin of safety in advance of further research emerging. South West

Water complies with this guidance and is working with Government

and regulators regarding this, across drinking water supplies, effluent

discharges and biosolids.

What are we doing about it

CREWW Microplastics Research

CREWW is home to dedicated state-of-the-art microplastics laboratory,

representing an initial investment of £1.4 million and collaborating

with the University of Exeter's world leading academics. The priority

is to enhance knowledge and understanding of microplastics in SWW

operations, be that in the water we abstract, treat and supply as

drinking water, or when we collect, treat and return to the environment.

The current programme of research which began in autumn 2023 is

focused in three main areas;

• Microplastics in sewage sludge – the aim is to investigate novel

techniques and optimisation opportunities for the measurement

of microplastics in final sludge. Improved methods will streamline

calculation of how much is received by the environment. Further

research in this project will include the effect of different sludge

treatment processes on microplastics content e.g. anaerobic

digestion vs lime stabilisation.

• Toxicology of microplastics in soils – to understand what the

potential ‘safe’ or ‘acceptable’ levels of microplastics for UK habitats

and how the activities of the water sector are contributing. Further

investigation will study methods for reducing microplastics in sludge.

• Future Fibres – plastics in the fashion industry – the global fashion

and textiles industry is a major source of water pollution with an

estimated 20% of the world’s industrial water pollution emanates

from textile processing. The Future Fibers programme is a

programme studying the development of real time, digital monitoring

tools to track microfibres and textiles waste through the wastewater

system.

Internal Research

Our internal innovation activities around microplastics are also research

based, we are contributing to two UKWIR research projects;

• Advance Thermal Conversion technologies – to understand the

levels of technical and commercial readiness and their ability to

suitably treat specific substances in biosolids.

• Microplastics Generated within Wastewater Treatment Works –

being delivered as part of the national Chemicals Investigation

Programme. This project will investigate the level of plastics

generated by the breakdown of plastic components at Wastewater

Treatment Works.

• Performing deep dive reviews into key risk areas.

• Through the Audit Committee, confirming 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 risk of failure to receive CMA approval for the acquisition of Sutton

and East Surrey has been removed as a principal risk following approval

being received from the CMA.

These principal risks have also been considered in preparing the viability

statement on pages 80 to 81.

73Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

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 to 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 deferred 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

2, 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

Inability to attract and retain staff with the skills to deliver the Group’s strategy

Business systems and

capital investment

1, 2, 3,4

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 control or cyber attack results in a breach of the

Group’s assets, systems and data

For information on climate-related and nature-related risks impact see pages 94 to 125.

Key for pages 74 to 79 – 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

Risk continued

74 Annual Report and Accounts 2025 Pennon Group plc

Law regulation and finance

Principal risk

Changes in

Governmentpolicy

Changes in Government

policy and direction may

fundamentally impact

our ability to deliver the

Group’s strategic priorities,

impacting shareholder

value.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Mitigation

We actively engage and respond to policy consultations and the Group regularly

and proactively engages with MPs, government departments and other political

stakeholders, both directly and via Water UK. This includes highlighting the impact

that our proposed capital investment of £3.2 billion 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 and to ensure we

engage and respond accordingly.

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

Changes to regulatory

frameworks may impact

on the deliverability and

affordability of the Group’s

priorities, which can impact

shareholder value.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Mitigation

The Pennon Group has a well established and experienced strategy and regulatory

function. Regular meetings take place with regulators and we have comprehensive

and robust response processes.

We announced our acceptance of Ofwat’s Final Determination for PR24 in January

2025, and a robust governance framework remains in place over the AMP8 period.

Appetite

We accept that regulatory frameworks evolve, which creates both risks and

opportunities. We seek to minimise the potential risks by targeting changes which

align with our long term strategy.

Net risk/

Direction

of travel

Principal risk

Non-compliance with

lawsand regulations

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.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

T P

Nature related influence

T P

Mitigation

The Group operates within comprehensive and mature frameworks, which include

second line compliance functions, to ensure compliance with permit and other

requirements of Ofwat, the Environment Agency and other relevant regulators.

These frameworks are reviewed and assured to try and ensure the Group remains

compliant with the increasingly complex legal and regulatory landscape. The

control framework continues to be enhanced with the embedding of a dedicated

internal Environmental Permit Assurance Team, which conducted 213 site visits in

the year.

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. This has been enhanced this

year through the creation and roll out of a new Code of Conduct and interactive

eLearning module which is mandatory for all employees.

The Group operates a confidential whistleblowing process. This is overseen by

the Executive-led Ethics Management Committee. To underpin our commitment

to continuous improvement, we have led on the creation of a Water Industry

Whistleblowing Best Practice Forum consisting of 12 water and waste companies

across England and Wales.

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 and operational issues ongoing.

Appetite

The Group aims to maintain the highest standards of compliance.

Net risk/

Direction

of travel

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

75Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Law regulation and finance

Principal risk

Inability to secure

sufficient finance and

funding, within our debt

covenants, to meet

ongoing commitments

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.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

T P

Nature related influence

T P

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.

In February 2025, the Group completed a Rights Issue to secure £490 million

of gross equity proceeds, to support the financial resilience and balance sheet

strength of the Group as it enters into a period of significant growth over the next

five years.

Since March 2024 over £1,400 million has been secured through the Group’s

Sustainable Financing Framework.

The Group retains £977.9 million of cash and committed facilities as at

31 March 2025.

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

A significant health and

safety event could result

in financial penalties,

significant legal costs and

damage to the Group’s

reputation.

Strategic impact

Strategic priorities

1, 2

Climate change influence

Nature related influence

Mitigation

The Group has developed HomeSafe 2030 to ensure our plans and strategy are fit

for the future and deliver continued improvements throughout AMP8.

Established health and safety training, procedures and reporting systems are

complimented by 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.

Continual integration of H&S initiatives and processes across Group. Establishing

best practice, through collaboration and alignment, Full implementation of HomeSafe

across SES will take place from April onwards under the evolved strategy.

During the year South West Water successfully maintained ISO 45001

accreditation of its Occupational Health and Safety Management System and the

Group’s year-on-year lost time injury frequency rate (LTIFR) has reduced again.

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 deferred

pension scheme deficit

increase

The Group could be called

upon to increase funding

to reduce the deficit,

impacting our cost base.

Strategic impact

Strategic priorities

Climate change influence

N/A

Nature related influence

N/A

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 2025 the Group’s pension schemes remained in surplus of

£31.2 million. 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

Risk continued

76 Annual Report and Accounts 2025 Pennon Group plc

Market and economic conditions

Principal risk

Macroeconomic near

term risks impacting on

inflation, interest rates and

power prices

Significant changes in

inflation, interest rates and

power prices could increase

the Group’s near term

costbase.

Strategic impact

Strategic priorities

3, 4

Climate change influence

Nature related influence

Mitigation

The macroeconomic position remains volatile, with rising gilt yields, continued

high inflation and ongoing global conflicts.

The Group maintains a manageable debt maturity profile and diverse funding

mix with c.20% index-linked which is continuously monitored. Additionally, a

significant proportion of the Group’s power prices have been hedged for the next

24 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 five-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

An inability to secure,

produce or supply clean

drinking water could result

in financial penalties,

regulatory enforcement

and damage to the Group’s

reputation.

Strategic impact

Strategic priorities

Climate change influence

T P

Nature related influence

T P

Mitigation

The Group continues to diversify its water resource capacity and the resilience

of its network and assets, informed by key plans including the Water Resources

Management Plan and drought plans. As a result of this investment, with the

scenarios we have modelled, we do not anticipate restrictions to supply across

our regions this summer. Furthermore, delivery of phase 1 of the desalination

project is expected during 2025/26, 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 has a low tolerance for any event which impacts on our ability to

supply clean drinking water which meets the demands of our customers 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

An inability to improve

wastewater could result

in adverse environment

impacts, financial penalties,

regulatory enforcement

and damage to the Group’s

reputation.

Strategic impact

Strategic priorities

2, 3

Climate change influence

T P

Nature related influence

T P

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 and clear accountabilities under the recently

appointed Managing Director for Wastewater Services ensure there is a

greater performance focus and regular reporting on pollution, storm overflow

and numeric compliance, further supported by the establishment of a Permit

Compliance Assurance function.

Despite this progress high rainfall in 2024 and ongoing groundwater levels

resulting in increased wastewater flows has 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

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

77Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Operating Performance

Principal risk

Failure to provide excellent

service or meet the

needs and expectations

of our customers and

communities

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.

Strategic impact

Strategic priorities

Climate change influence

T P

Nature related influence

T P

Mitigation

The Group continues to enhance and invest in its customer services teams,

expanding the channels by which it can interact with and support household and

business customers.

The Group offers a range of schemes and tariffs to support customers with

affordability challenges with a £200 million support package to 2030.

During the year both South West and Bristol Water successfully achieved

kitemark certification to the vulnerable customer ISO 22458 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 and SES. Both Pennon Water

Services and Water2Business continue to maintain high customer satisfaction

scores, with ratings of 4.8 and 4.9 out of 5 respectively on Trustpilot. Further

improvement is required for SES BW.

Appetite

The Group continually seeks to engage with and improve satisfaction levels

amongst customers and wider stakeholders.

Net risk/

Direction

of travel

Principal risk

Inability to attract and

retain staff with the skills

required to deliver the

Group’s strategy

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.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

Nature related influence

Mitigation

The demands for high quality skills and expertise across the Group remains high,

mirroring the national and regional skills demands for our industry.

The introduction of the Water Special Measures Act, could impact the attraction

and retention in comparison to other sectors.

The Group’s People strategy, aligned to the 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

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 and concerns,

and obtain feedback. We undertake employee pulse surveys throughout the

year, conduct Big Chats for all employees to hear from our Executive, 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 meetings, breakfast meetings and toolbox talks which take place every day

across the Group, 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

Risk continued

78 Annual Report and Accounts 2025 Pennon Group plc

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

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.

Strategic impact

Strategic priorities

1, 2, 3,4

Climate change influence

T P

Nature related influence

T P

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, Tier 1 and Tier 2

contractors has been completed.

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

control or cyber attack

results in a breach of the

Group’s assets, systems

and data

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.

Strategic impact

Strategic priorities

1, 2, 3, 4

Climate change influence

N/A

Nature related influence

N/A

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

advent of Artificial Intelligence also increases the complexity of our data and

technology environment.

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 and communications, to raise

awareness amongst staff. South West Water continues to hold the ISO 27001

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

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

79Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

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 Group by identifying, managing, avoiding or

mitigating risks which may impact viability.

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, with the new aquisition of SES Water

adding to water business, 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 70 to 79 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

should be increased to seven years, previously five years, which recognises

both the longer-term visibility in the regulatory environment of the Water

business and the corporate activity, including acquisitions and other non-

regulated investments, undertaken by Pennon. This period gives visibility

beyond the current regulatory AMP, testing the long term viability of the

business.

Risks

The Board considers the preventative and risk management actions in place

and the potential impact of the principal risks (as detailed on pages 70 to 79)

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 £1,036.1 million of

cash and committed facilities as at 31 March 2025.

The Group has a mixture of fixed, floating and index-linked debt financing

with a weighted average maturity of non-current debt, being 14 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:

• Incident management.

• Cyber security.

• Wastewater processes and controls.

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 70 to 79, individual sensitivities (shown in the table below) have

been identified. These sensitivities, which are individually ascribed a value

with reference to risk weighting, factoring in the likelihood of occurrence and

financial impact, were applied collectively to the baseline financial forecast

which uses the Group’s annual budget for 2025/26 and longer-term strategic

business plan through to March 2032, based on the Final Determination for

the first five years.

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 94 to 125. 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.

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

Whilst we have seem greater stability in the regulatory framework post PR24 Price Review, there are

still significant changes expected in the water sector over the next few years.

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 incident

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.

80 Annual Report and Accounts 2025 Pennon Group plc

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 seven-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.

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 seven-year assessment period has been

modelled. This scenario builds on the factors above and additionally

assumes all the Group’s principal risks occurring 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

seven-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 151 to 157, 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 seven-year period, the

period considered to be appropriate by the Board in connection with the UK

Corporate Governance Code.

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

Whilst the Group has robust processes to retain and develop staff, viability testing considers the

impact of increasing costs including staff related costs.

L: Insufficient capacity and resilience of the supply

chain to support the delivery of the Group’s

operational and capital programmes in AMP8.

Supply chain capacity shortages will impact on the costs required to deliver on the programme,

which, whilst specific cost protections exist in the regulatory framework against construction costs,

have been considered as part of the sensitivity testing.

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.

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.£108.5 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.

81Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

UN Sustainable Development Goals (SDGs)

We actively engage with the UN Sustainable Development Goals (SDGs) to

shape our ESG approach and evaluate our impact on global sustainability

outcomes. As we set new ESG targets for 2025–2030, we have mapped each

target to the SDGs it most directly supports, ensuring our strategy aligns

with international priorities. Our most significant contribution continues to

be to SDG 6: Clean Water and Sanitation, which reflects our core purpose

as a water and wastewater services provider. This commitment is further

reinforced through our Double Materiality Assessment, which ensures our

targets focus on the ESG topics most material to both our stakeholders and

our business.

UN Global Compact

In support of the SDGs, we became a signatory of the UN Global Compact

last year, joining the world’s largest corporate sustainability initiative.

We are currently preparing our first Communication on Progress (CoP),

which outlines how we are upholding the Compact’s Ten Principles across

human rights, labour, environment, and anti-corruption. This step further

strengthens our ESG governance and accountability, embedding these core

principles across our operations and reporting. As part of this commitment,

we will report annually on our progress, reinforcing our ambition to lead with

integrity, build trust, and enhance transparency.

Our integrated approach to Environmental,

Social and Governance (ESG)

We are pleased with the progress made towards our ESG targets. As these current targets reach

their conclusion, we are reflecting on our progress, assessing our impact, and shaping the next

phase of sustainability ambition. Our ESG approach has delivered long-term value for our customers,

communities, and the environment, whilst ensuring that sustainability remains embedded at the

heart of our business.

This year, we have also conducted a Double Materiality Assessment (DMA) to refresh our understanding of the most important ESG topics to our stakeholders,

both in terms of their impact on our business and on our influence on the wider world. This process sets the foundation for ambitious targets relevant to our

stakeholders, to take us to 2030 and beyond.

Throughout this transition period, our commitment to environmental stewardship, social responsibility, and strong governance remains unwavering. We continue

to drive progress across climate action, resilience, and nature, while supporting our colleagues, customers, and communities.

With a strong governance framework and on our core values guiding us, we are building our approach to keep Pennon at the forefront of sustainability

leadership in our industry.

ESG Capitals

Creating value through our ESG approach

Everything we do is connected to our six capitals mapped below, which serve as a foundation for informed decision-making and long-term value creation.

Our integrated approach to the capitals framework and E, S and G drives sustainable outcomes across all areas of our business.

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

82 Annual Report and Accounts 2025 Pennon Group plc

Our ESG performance

Material issue and associated target Annual performance against target 2025 Target SDG

Net Zero

% energy usage from renewable generation

13%

Reducing greenhouse gas emissions

70%

Freshwater stewardship

Reduce water use within our operational sites 10Ml

Biodiversity

Tree planting (cumulative) 250,000

Customer and community engagement

Increase our community investment by 10% each year 30%

Diversity and skills

% Female representation 33%

Increase REACH recruitment (excludingBristolWater)

10%

Achieve 5% club status

Gold Accreditation

Health, safety and wellbeing

Number of LTIs across the group

Great Place to Work employee survey

Maintain

Trust and transparency

ESG Rating (Sustainalytics Management Score) 80

Fair Tax Mark accreditation

Maintain

% of active institutional investors met or offered to meet

75%

Sustainable finance

New funding raised through Sustainable Financing Framework % 75%

Supply chain

Supplier payment days (average) 30 days

% of key and strategic suppliers that have established

anESGpolicyorequivalent

100%

Key:

Achieved

Not Achieved

1. 2025 target for ‘Number of LTIs across the group’ uplifted from 11 to 14, to account for SES Water’s inclusion in the group target. However, Pennon has met its strategic goal of less

than 0.25 LTIFR by 2025.

In 2024/25, we made significant strides in delivering our ESG commitments,

achieving 13 out of 16 of our 2025 ESG targets, with significant progress

on the remaining three, reflecting our continued dedication to being a

responsible business. Notable achievements this year include reducing our

Scope 2 GHG emissions by over 70%, exceeding our tree planting targets by

over 100,000 trees and delivering over £1 million in additional community

investment through our social programmes across the group. Our renewable

energy generation target also remains a key pillar of our long-term strategy

and we are on track to exceed the 13% target next year, supporting our

journey toward our 50% renewable electricity self-generation by 2030

(see page 87).

Following our acquisition of SES Water, the Group’s structure has evolved,

which has influenced performance against some people-related targets,

specifically female representation and Lost Time Injuries (LTIs). Despite

these changes, our commitment to our people remains unwavering. Looking

ahead, we have set more ambitious, inclusive, and normalised targets for

2030, which can be found on page 87, reinforcing our focus on our people

and our long-term impact as an organisation.

83Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Shaping our ESG approach

Our Double Materiality Assessment (DMA)

Purpose & Scope

Our 2021/22 materiality assessment engaged stakeholders to shape our ESG approach and targets up to 2025. We have now built on this approach to conduct

our refreshed assessment to meet stakeholders’ expectations and adhere to both financial and impact materiality principles in-line with best practice. By

applying a double materiality lens, we are assessing both the impact of material topics to Pennon and our wider environmental and social impact on these topics.

This will ensure that our future ESG approach looking ahead to 2030 and beyond is ambitious, relevant, and aligned with the evolving regulatory and global

sustainability trends today.

2021/22 Materiality Assessment Priorities

Key Topic Area 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.

Our 2025-2030 Business Plan emphasises customer engagement in identifying priorities to enhance customer satisfaction, community wellbeing, and

environmental sustainability. This process has involved gathering feedback on effective approaches and timelines for meeting statutory requirements. Insights

from customers and stakeholders have been instrumental in shaping our investment and service enhancement plans, with a focus on prioritising impactful

initiatives.

This feedback, combined with our wider stakeholders’ engagement and assessments of business and external risks, guided the review of our material issues, re-

affirming our alignment with key concerns. While the importance of certain issues has evolved, we remain committed to addressing high-priority topics.

Methodology

In the absence of UK-specific guidance under the forthcoming UK

Sustainability Reporting Standards (UK SRS), we conducted our DMA using

the European Sustainability Reporting Standards (ESRS) topic structure.

This ensures alignment with current best practice and enhances consistency

and comparability across our sector and beyond. Our aim is to bring greater

transparency to how we identify and prioritise key environmental, social

and governance (ESG) issues, risks and opportunities, both in terms of their

financial relevance to Pennon Group and our impact on people and the

environment.

Our approach built on our 2025-2030 Business Plan and sought to improve

upon our previous materiality assessment by adopting a more robust,

evidence-based methodology. We began with a comprehensive review of

internal documentation and existing strategy to frame our understanding of

relevant ESG topics.

We then engaged a broad and diverse group of stakeholders, including

customers, investors, employees, community representatives, suppliers,

senior leaders and Board members, through a combination of surveys and

targeted interviews conducted from October 2024. This dual approach

enabled us to capture both quantitative and qualitative perspectives on the

topics that matter most.

Stakeholders were asked to evaluate each ESG topic from two dimensions:

• Impact materiality – how significantly Pennon Group affects people and

the environment through its activities

• Financial materiality – how significantly these topics may affect our

business operations or financial performance

Respondents also identified their top five priority topics, offering further

insights into expectations and areas for strategic focus.

The resulting data was combined into a materiality matrix, categorising

topics into priority tiers based on their significance from both a financial

and impact perspective. These findings are now being used to inform our

sustainability strategy, supported our 2025-2030 ESG target-setting, and will

help shape future disclosures in line with evolving regulatory and stakeholder

expectations.

Stakeholder Engagement

To ensure a balanced and representative view of material ESG issues, we

engaged a broad range of internal and external stakeholders throughout our

assessment process.

Interview Participants: Customers, investors, executives, and board members.

Survey Participants: Customers, investors, executives, board members,

community groups, suppliers, and employees.

This inclusive engagement approach provided a strong foundation for

assessing both financial and impact materiality. It ensured that the outcomes

of the assessment reflect stakeholder priorities, while also aligning with the

expectations of evolving sustainability reporting standards.

The insights gathered through this process will directly inform the next

phase of our ESG strategy, helping to guide our ambition, shape strategic

focus areas, and support the development of measurable, stakeholder-driven

targets for 2030 and beyond.

84 Annual Report and Accounts 2025 Pennon Group plc

The results of our double materiality assessment reaffirm the priority ESG issues identified in our 2021/22 assessment and align strongly with the four strategic

priorities that underpin our 2025-2030 Business Plan. This alignment highlights the consistency and relevance of the issues that matter most to both our

stakeholders and our business. Topics such as water pollution, regulation and compliance, disclosure and reporting, water use, and climate change adaptation

emerged as top priorities, reflecting the unique responsibilities and risks faced by our sector. These core areas closely align with our longstanding focus on net

zero, freshwater stewardship, and building trust through transparency. The sustained importance of these issues strengthens our confidence in the direction of

our ESG strategy and our ongoing commitments and actions as we look ahead to 2030 and beyond.

Key

1 Water pollution 10 Management of relationships with suppliers 19 Working conditions

2 Regulation and compliance 11 Climate change mitigation 20 Responsible marketing practises

3 Disclosure and reporting 12 Waste 21 Adequate wages

4 Water use 13 Equal treatment and opportunities for all 22 Circular economy

5 Climate change adaptation 14 Secure employment 23 Measures against violence and harassment in the workplace

6 Energy 15 Corporate culture 24 Gender equality and equal pay

7 Biodiversity 16 Social dialogue 25 Air pollution

8 Health & Safety 17 Training and skills development 26 Forced labour

9 Affected Communities 18 Corruption and bribery 27 Child labour

Financial materiality

2.00

1.50

2.50

3.00

3.50

4.00

4.50

5.00

Impact materiality

11/12

Our Double Materiality Assessment (DMA) Results

The following Materiality Matrix presents the quantitative results of our double materiality assessment (DMA), highlighting the ESG topics that stakeholders

consider most material. The matrix visualises each topic based on two dimensions: impact materiality (Y-axis), reflecting the significance of Pennon Group’s

impact on people and the environment, and financial materiality (X-axis), indicating the potential influence of each topic on our business operations and financial

performance. Topics are colour-coded and listed below by Environmental, Social, and Governance (E, S, G) themes to provide a clear and structured view of our

priority areas.

85Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Our Transition Plans

At Pennon, we recognise the need to transition to a low-carbon economy in

alignment with the goals of the Paris Agreement and a 1.5°C future, to help

protect our beautiful environment across the Great South West and beyond.

As a leading provider of the UK’s clean water and wastewater services, we

are committed to delivering a resilient and sustainable future. Our near-term

GHG targets were validated and approved by the Science Based Targets

Initiative (SBTi) in May 2024, and we are now focused on delivering against

these ambitious targets.

Science Based 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.

Shaping our ESG approach continued

External benchmarking

Our ESG approach continues to drive positive change, embedding sustainability at the core of our business. This commitment is reflected in our leading

performance across key ESG assessments, improving our scores across these key assessments as an industry leader for ESG.

This year, we achieved our highest-ever scores in both CDP’s Climate and Water assessments, securing A- ratings for both with inclusion on the

prestigious CDP A-list, a first for Pennon Group.

Our Sustainalytics assessment achieved our highest-ever management score of 84.5, exceeding target (80) and resulting in an improved ESG risk rating of

11.7 (‘low risk’), placing Pennon Group 2

out of 50 Water Utilities globally, and earning us Sustainalytics ‘ESG Top Rated’ industry badge for 2025.

Additionally, our GRESB Public Disclosure Assessment score of 93 cements our leadership position, achieving the top score amongst our industry peers.

These results reflect our unwavering commitment to sustainability, strong governance, and proactive risk management, demonstrating our leadership in

ESG performance across the industry.

Latest external assessment scores (as of 31 March 2025):

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.

11.7

ESG Risk

(Previous rating: 12.0)

84.5

ESG Rating

(Previous rating: 82.5)

A-

CDP Climate Change

(Previous rating: B)

A-

CDP Water security

(Previous rating: B)

3.8/5

FTSE4Good ESG Score

(Previous rating: 3.7/5)

Prime (B+)

ISS corporate rating

(Previous rating: Prime, B+)

A (93)

GRESB Infrastructure

Public Disclosure

(Previous rating: A (83))

MSCI ESG Indexes

(Previous rating: AA)

Corporate

Sustainability

Assessment (CSA)

(Previous rating: 46)

Through extensive engagement, research and feedback from customers, our

plan for change over the next five years puts ‘Net Zero and environmental

gains’ as one of our four key strategic priorities as a business. Our Transition

Plan builds on this priority, with our plans for achieving Net Zero focused on

three actionable pillars:

• Sustainable Living;

• Championing Renewables; and

• Reversing Carbon.

At Pennon, we are working beyond our regulatory commitments to consider

the Transition Plan Taskforce’s (TPT) guidance for Climate Transition Plans

in our annual reporting, and remain committed to building on our transition

plans as we continue making progress towards net zero.

Further information on climate-related Governance and Metrics & Targets

in-line with TPT guidance can be found within our TCFD statement on pages

94 to 125.

86 Annual Report and Accounts 2025 Pennon Group plc

ESG Targets 2025 - 2030

Building on our Double Materiality Assessment’s (DMA) priority topics, we have developed ESG targets for 2025-2030 to align with our DMA findings and

drive performance in areas not currently covered by existing regulatory commitments. This approach ensures that we continue to deliver against stakeholder

expectations across all our key topic areas. These targets have also been shaped by a combination of ESG best practice and insights from our external ESG

benchmark assessments, such as CDP and Sustainalytics.

Our refreshed targets are clear, measurable, and embedded within our governance framework, with a strong focus on driving performance where it matters most

to our stakeholders:

2025-2030 Targets:

ESG 2025-2030 Target

Unit 2026 2030 UN SDG

% Renewable Electricity

Self-Generated

% 16.1 50

% Reduction in GHG Emissions –

Scope 1 and 2 (SBT verified)

%4961

Tree Planting (cumulative) # 400,000 500,000

Peatland Restoration (cumulative) Ha 5,000 5,184

Customer Affordability % 95 100

Increase in Social Impact from our

Community Investment

% Baseline 10

% Diversity of Workforce

%3335

5% Club Accreditation Status Grade Platinum Platinum

Glassdoor Score (average) # 3.2 3.8

Lost Time Injury Frequency

Rate (LTIFR)

Number/

100khrs

0.2 0.13

ESG Rating (Sustainalytics) Industry

Percentile

Top 10% Top 10%

Funding raised through Sustainable

Financing Framework

£m 400 2,000

ESG Criteria included in % of

Tender Evaluations

% 75 100

Supply Chain Sustainability

School Membership Grade

Grade Silver Gold

1. Full ESG target definitions are available to view at www.pennon-group.co.uk/sustainability

2. Measured against South West Water’s 2020/21 grid import requirements for usage.

3. The Group commits to reduce absolute scope 1 and scope 2 GHG emissions 68% by 2032/33 from a 2021/22 base year.

4. Our % Diversity of Workforce target is a combined measure of Female and REACH representation across our workforce, with internal targets for each business unit to drive

performance against our group position.

Supply Chain Sustainability School (SCSS)

In March 2025, we proudly became a partner of the Supply Chain Sustainability School (SCSS), reinforcing our commitment to

upskilling our supply chain and colleagues across key sustainability topics. This partnership provides access to industry-leading

training and resources, enabling our teams and suppliers to deepen their understanding of environmental, social, and governance

(ESG) principles, enhance sustainable procurement practices, and drive positive change across our operations. By working

collaboratively with SCSS, we are empowering our supply chain to meet higher sustainability standards, supporting our ESG

targets for 2025-2030.

87Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Sustainable living

Our three-pillar strategy remains unchanged

• 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.

Progress against our three-pillar strategy

• During 2024/25 our South West and Bournemouth Water business

successfully achieved re-certification to the Energy Management Systems

Standard ISO 50001.

• As well as maintaining compliance with our ISO 50001 the Pennon Group

also ensured continuing compliance with the UK Government ESOS

(Energy Savings Opportunity Scheme) by submitting our ESOS Phase 3

Energy Action Plans to the Government via the MESOS online portal.

• We have also been continually investing in maintaining our pumping

assets in their optimum condition. Our programme of pump efficiency

testing, pump repair and replacement concentrated on our larger drinking

water pumps during 2024/25. We carried out extensive refurbishment

of pumps at our Littlehempston water treatment works and Newbridge

pumping station, amongst other sites.

• Elsewhere we embarked on a major project to replace some of our largest

process blowers at our Brokenbury wastewater treatment works in

Torquay with brand new and much more efficient machines.

• At our Countess Wear (Exeter) wastewater treatment works we have now

completed our initial monitoring trial to measure the nitrous oxide (N

emissions from the onsite processes. We are currently assessing the

results. At the same site, the results of our initial trial to measure fugitive

escapes of methane (CH

) emissions showed no detectable leakage.

• We are continuing to fuel our wastewater back-up generators with HVO

(Hydrotreated Vegetable Oil). Made from waste oil, HVO is a much lower

carbon alternative to the previous diesel fossil-fuel.

• Our planned transition away from fossil fuelled vehicles towards electric

vehicles continues, with over 160 of our company cars and 59 of our

company vans now fully electric.

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 2024/25 we have continued to make progress

towards our goal of decarbonising our operational activities.

Championing renewables

Our three-pillar strategy remains unchanged

• 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.

Progress against our three-pillar strategy

• South West Water (including Bournemouth Water) and SES Water have

continued to source 100% renewable electricity (since 2022), representing

over 87% of the Group's electricity consumption. We decided to delay

switching Bristol Water to 100% renewable electricity for 2024/25 due to

the cost of Renewable Energy Certificates, investing the money directly

into renewable energy projects instead.

• During 2024/25 we have added to our portfolio of onsite renewable

electricity by installing new Solar PV schemes at our Lowermoor WTW,

Hill Barton STW and Fluxton STW sites, as well as having a number of

further sites in construction.

• Although not part of our regulated water businesses, the Pennon Group’s

commercial energy company Pennon Power has continued delivery

throughout the year with three sites in construction, and the first site in

Fife to be energised in June 2025. This remains a major step towards

meeting the Group’s ambitions to own and control its own renewable

energy assets.

1 2

88 Annual Report and Accounts 2025 Pennon Group plc

Progress in the year

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

for the South West Water and Bristol Water parts of our business.

Science Based Targets

As a Group we have committed to near-term Science Based Targets

(SBTs), giving us Scope 1, 2 and 3 emissions reduction targets to aim for by

2032/33. Our targets were validated and approved by the Science Based

Targets Initiative in May 2024, and our focus is now on delivering against

those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 are set out below. These apply to the whole Pennon Group

excluding SES for now, and we aim to add SES to our SBTs in due course.

Action we take in achieving the Group’s SBTs can also help support our

regulated water and wastewater businesses, as well as our greenhouse gas

and embodied carbon performance commitments.

• The Group commits to a 68% reduction in absolute scope 1 and

market-based scope 2 emissions 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, 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

FY 2027/28.

• 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

94 to 125.

Reversing carbon emissions

Our three-pillar strategy remains unchanged

• 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.

Progress against our three-pillar strategy

• 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 2024/25 our Upstream Thinking programme planted 81,482 trees to

once again exceed our annual target of 50,000 trees. In total the 389,306

trees now planted for AMP7 are expected to store an estimated 23,500

tCO

e during the next 30 years.

• We have restored 489.5 hectares of peatland, bringing our total area of

restoration to 2,151.8 hectares between 2020-2025.

• Looking forward, we are increasing adoption of nature-based solutions in

delivery of our PR24 Business Plan in 2025-2030 for the multiple benefits

they provide for the environment. In a period of rapid regulatory change

and emerging nature markets, we continue to collaborate with regulators

and partners to investigate opportunities for nature-based carbon

sequestration, including the development of science-based carbon codes

for soil, hedgerows, saltmarsh and seagrass.

89Pennon Group plc Annual Report and Accounts 2025

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Net Zero – our promise to the planet continued

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 2024/25 performance is presented below.

Net Zero target

2024/25

Performance

2023/24

Target

2025

Target

2030

Target

% Energy usage from

renewable generation 7.14% 8% 13% 50%

Reducing GHG emissions (%)* 70.68% 68% 70% 100%

* Scope 2 market-based emissions only.

These figures have been externally assured by Jacobs.

GHG emissions

Scope 2 market-based GHG emissions have reduced from 91,330 tCO

to 26,780 tCO

e thisyear from our 2020/21 baseline, equating to a 70.68%

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%.

Full details of our 2024/25 GHG emissions are provided in our SECR report

from page 91.

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 a

significant proportion of our Group’s total emissions. We are committed

to reducing all sources of our carbon emissions, which is why we have

developed a bespoke embodied carbon performance commitment to support

our carbon reduction 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 tools and techniques for whole life carbon

accounting, as well as in developing strategies to help drive down our

emissions from our capital investment programme.

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 accelerate 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.

Renewable energy

We remain on target to generate 50% of the electricity we use through our

own renewable electricity generation by 2030, measured against South West

Water's 2020/21 grid electricity import requirements including onsite Solar

PV, grid connected Solar PV, wind power, hydroelectricity and energy from

our bioresources.

We have achieved 7.14% energy generated from renewables from our South

West Water and Bristol Water parts of the business, whilst across the wider

Group our percentage renewable energy generation is 6.44%.

During 2024/25 we completed and commissioned three additional onsite

Solar PV installations at Lowermoor WTW, Hill Barton STW and Fluxton STW

and we have more Solar PV in our pipeline of projects under construction.

Overall, our installed renewable energy capacity now totals 18.8MW including

connected private wire assets.

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 of Pennon Group plc, was formed

as an entity to deliver on this element of the Net Zero strategy.

To date, investment of c.£145 million has been approved for 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meet its target.

Please refer to the operational review for Driving environmental gains for

progress on these projects.

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.

Pennon Power continues to identify further acquisition targets and

anticipates making further investments once the Dunfermline project

isfullyoperational.

Process and fugitive emissions

Process and fugitive emissions, mainly in the form of methane (CH

) and

nitrous oxide (N

O), arise from our wastewater treatment processes. It is a

challenge to accurately measure process emissions and this often means

establishing a baseline to monitor changes in N

O emissions can be difficult.

Measuring and monitoring is the first step; without it, we cannot establish

the efficacy of N

O reduction initiatives. We have been piloting an innovative

O monitoring technology at one of our largest wastewater treatment

sites, Countess Wear in Exeter. This pioneering initiative will enable us to

benchmark N

O at this site that provides wastewater treatment services

to around 10% of our total regional population. Our monitoring activity has

demonstrated that seasonal variability in N

O emissions over the course

of the year requires us to take a long-term approach to the monitoring.

Alongside this we have also commenced with a separate trial to directly

measure fugitive emissions of CH

at the same site. These initial trials will

inform our future strategy for directly measuring and reducing process and

fugitive greenhouse gas emissions.

Transition plan

Through our established strategies, plans and policies, we are preparing

for a changing climate and lower carbon economy. Our annual Taskforce

on Climate-related Financial Disclosures (TCFD) response on pages

94 to 125 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.

For further information on nature-related disclosures, please see our

Taskforce on Nature-related Financial Disclosures (TNFD) on pages

94 to 125.

Our Promise to the Planet operational emissions Net Zero scope includes

Scope 1 & 2 (market based) GHG emissions and the following Scope 3

activities: outsourced activities, power transmission & distribution, business

travel, and grey fleet (private vehicles used on Company business).

90 Annual Report and Accounts 2025 Pennon Group plc

Sustainability reporting

Streamlined Energy and Carbon Report (SECR)

Pennon Group emissions now includes SES Water. Following the acquisition, SES emissions were reported separately and only reflected the period post

acquisition. As a result, scope 1 and 2 emissions have increased to reflect this, but we continue to target improvements across all of our regions.

Pennon Group plc GHG emissions

2024/25 2023/24

market based location based market based location based

Scope 1 GHG emissions by source (tCO

Direct emissions from burning of fossil fuels 8,859 8,859 5,467 5,467

Process and fugitive emissions 14,562 14,562 16,170 16,170

Transport: Company owned or leased vehicles 6,382 6,382 5,100 5,100

Total Scope 1 GHG emissions (tCO

e) 29,803 29,803 26,737 26,737

Scope 2 GHG emissions (tCO

e) 26,975 89,432 25,662 83,575

Total gross Scope 1 & 2 GHG emissions (tCO

e) 56,778 119,235 52,399 110,312

Scope 3 GHG emissions

(estimated)

299,297 299,297 316,295 316,295

Total gross Scope 1, 2 & 3 GHG emissions (tCO

356,076 418,533 368,694 426,607

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 (1,837) 00

Total annual net GHG emissions (tCO

356,076 416,696 368,694 426,607

Energy consumption used to calculate Scope 1 and 2 GHG emissions (MWh) (see

Energy usage section) 535,621 535,621 459,736 459,736

GHG emissions intensity measure: tCO

e (gross Scope 1+2/£100,000 revenue)

5.4 11.4 6.0 12.7

Biogenic GHG emissions outside of Scopes (tCO

e) 2,871 2,871 3,076 3,076

Notes:

Pennon Group plc total Scope 1 (29,803 tCO

e), Scope 2 market-based (26,975 tCO

e), Scope 2 location-based (89,432 tCO

e) GHG emissions, market-based GHG emissions intensity

measure (5.4 tCO

e) (gross Scope 1 + 2/£100,000 revenue), and location-based GHG emissions intensity measure (11.4 tCO

e) (gross Scope 1 + 2/£100,000 revenue). These figures

have been independently assured by Jacobs.

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 2024/25 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 (CH

), nitrous oxide (N

O), and the

fluorinated gases (HFC, PFC, SF

) 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/reportsandpresentations

2. Estimated GHG emissions for relevant Scope 3 categories calculated for 2024/25 are provided in our ESG Databook available on our website: www.pennon-group.co.uk/

reportsandpresentations

3. Based on relevant Group revenue for 2024/25.

4. 2023/24 figures are reported excluding SES Water, with SES Water’s SECR figures reported separately within the 2023/24 Annual Report and Accounts.

5. 2023/24 Scope 3 category 5 GHG emissions have been restated to correctly account for waste generated in operations.

91Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Operational Pennon Group plc GHG emissions by business

South West Water Bristol Water SES Water Group total

Scope 1 GHG emissions (tCO

e) 19,373 8,691 895 29,803

Scope 2 GHG emissions (market based) (tCO

e) 503 25,900 2 26,975

Total gross Scope 1 & Scope 2 GHG emissions (tCO

e) 19,876 34,592 897 56,778

Operational intensity measure (kgCO

e/Ml) – Water

30.68 358.82 32.19 n/a

Operational intensity measure (kgCO

e/Ml) – Wastewater

120.29 n/a n/a n/a

1. Group total includes 1,414 tCO

e (total gross scope 1 & 2 GHG emissions) from Pennon Water Services and Group shared services.

2. For ‘Water’ measure Ml = measured water into supply.

3. For ‘Wastewater’ measure Ml = full measured flow treatment.

Change in GHG emissions

Operational Scope 1 and 2 emissions (market-based) for the Group increased

by c. 8% from 2023/24. This is largely due to SES Water being included in the

Group figures for the first time this year which has led to an increase in our

Scope 1 emissions from vehicle transport as their transport fleet was included

in our emissions for the first time as well as their emissions from the burning

of diesel fuel for standby generation to ensure operational resilience at their

sites. The revenue-based intensity metric has continued to reduce for the

Group and the “market-based” value now stands at 5.4 tCO

e/£100,000

turnover compared to a value of 6 tCO

e/£100,000 turnover 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 2024/25 activity data for the Group. The

estimated Scope 3 GHG emissions for 2024/25 for the Group are 299,297

tCO

e compared to the equivalent figure in 2023/24 of 316,295 tCO

SES Water’s Scope 3 activities have been calculated and reported within the

Group figures for the first time.

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 2024 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 Jacobs. 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 535,621 MWh of energy in

2024/25, compared to 484,374 MWh in 2023/24. This increase in energy has

been driven by the inclusion of SES Water in the Group’s figures for the first

time. When excluding SES Water, our energy usage has gone down since

the previous year due to the more favourable weather conditions which

meant we were able to reduce our strategic water pumping program this

year, reducing the amount of energy used to pump water, as reservoirs were

recharged using natural means. 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.

Sustainability reporting continued

92 Annual Report and Accounts 2025 Pennon Group plc

Energy usage

2024/25 (MWh) 2023/24 (MWh)

Methodology

Imported grid electricity

431,305 404,426

Metered data except some NHHM supply which is estimated by

electricity supplier

Imported private wire electricity (renewable) 6,138 5,804 Metered data

Self-supplied renewable electricity 10,841 10,656 Metered data

Self-supplied heat 6,625 7,068

Estimated that 60% of heat generated by sewage gas CHP is

beneficially used, the rest (40%) is released to atmosphere

Natural gas

43,018 25,407 Metered data – from billing (some element of estimates)

Liquid fuels (for stationary applications)

6,739 6,375

Estimated based on fuel use/spend data. Reported totals

calculatedbased on raw data provided by the supplier

Energy used by fleet transport

30,955 24,639 Estimated based on fuel use/spend and mileage data

Total energy usage

535,621 484,374

Intensity measure: MWh/£100,000 revenue

51.17 55.53

Energy usage data notes:

1. Total energy usage (535,621 MWh) by has been independently assured by Jacobs.

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 2024/25.

4. Energy consumption used to calculate Scope 1 and 2 GHG emissions.

5. 2023/24 figures are reported excluding SES Water, with SES Water’s SECR figures reported separately within the 2023/24 Annual Report and Accounts.

Energy efficiency action taken

Our energy efficiency interventions during 2024/25 are estimated to have avoided around c.3 GWh of additional energy use, or around 0.6% of our total energy

consumption (excluding transport). We have focused this year on a metering program across our energy consuming assets to prioritise our work for the next

Asset Management Period (AMP) according to where interventions would be best optimised for energy consumption along with improving the resilience of our

sites across the water and wastewater businesses in the Group. We have yet again taken steps this year to focus on testing, repairing or replacing our largest

rotating operational assets across the Group. We have been modernising and refurbishing our rotating assets, including the deployment of more efficient

aeration equipment in the form of new blowers (air compressors) at our Brokenbury wastewater treatment works and pump refurbishments across several sites.

93Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Task Force on Climate-related Financial

Disclosures (TCFD) and Task Force on

Nature-related Financial Disclosures (TNFD)

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 depend on the natural environment to deliver essential services to

customers and communities. We therefore need to address the challenges

posed by climate change, the nature emergency, and the transition to

NetZero.

We operate in a changing environment where the impacts of climate change

and biodiversity loss are increasingly evident. To remain resilient, we monitor

environmental risks, assess their implications, and embed these insights

into our strategic planning and investment decisions. Our disclosures under

the TCFD and TNFD frameworks reflect our commitment to transparency,

accountability, and continuous improvement.

Our regulated water business is the focus of our TCFD and TNFD

disclosures, with most 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 sixth year of TCFD reporting and

the below shows our progress and consistency to the recommendations

including the additional TCFD guidance (2021 Annex).

In alignment with the FCA listing rule 6.6.6(8) we have taken into

account available knowledge and guidance concerning the listing

rule and climate-related risks to develop our TCFD disclosure,

which is consistent to the TCFD framework. Pennon has

addressed the 11 recommended disclosures and have considered

the 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. Our disclosure refers to several plans, reports and data – all of

which is supplementary information beyond our disclosures.

TNFD Recommendations

The TNFD published their final framework in September 2023. This is our

fourth year of voluntarily reporting against the TNFD framework. We continue

to integrate TNFD into our TCFD disclosures, recognising the substantial

overlap and synergies 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. There is further work to do

on the recommended TNFD disclosures, and we are continuing to monitor the

inclusion of nature risks in the UK sustainability disclosure requirements.

Developments in 2024/2025

The year has been marked by unprecedented weather patterns,

characterised by above–average rainfall and frequent storms, resulting in

extreme precipitation and high winds.

As weather extremes intensify, so too does the risk of water contamination

and disruption to essential services. We are proactively addressing these

challenges by reinforcing our infrastructure, enhancing monitoring systems,

and strengthening our rapid response capabilities.

Recent weather events underscore the importance of building climate

change resilience and preparedness, and have afforded us valuable insights

into our capacity to withstand such occurrences. We are using these insights

to inform our physical climate risk assessment and adaptive strategies.

Progress is detailed in our Climate Adaptation Report, recently published

as part of the UK government’s adaptation reporting cycle, and which will

feed into the next UK Climate Change Risk Assessment (available https://

www.southwestwater.co.uk/siteassets/documents/environment/climate-

change-adaptation-report_2024.pdf.).

Our Climate Adaptation Report identified that we have made adaptation

progress in all areas. Whilst we are recognised as industry leaders

in managing sewer flooding risk, the increased intensity of rainfall is

contributing to a rise in wider surface water and fluvial flooding risks.

These challenges, combined with heightened customer and regulatory

expectations, mean we need to go further to manage the impacts of extreme

weather, including the risks to storm overflows and sewer flooding. This is a

key area of focus for us, our customers, and other stakeholders.

Over the past year our acquisition of SES Water has been finalised, and we

are integrating SES Water into our Group-wide risk management approach

and strategic planning.

In December 2024 Ofwat approved our business plan to invest £3.2 billion

across 2025-2030, focusing on four priorities – water quality and resilience,

storm overflows and pollution, Net Zero and environmental gains, and

addressing customer affordability. Importantly, this will ensure we can

strengthen our climate and nature resilience.

Our TCFD and TNFD disclosure reflects our updated current and future

actions to mitigate climate and nature risks and realise related opportunities.

We are focused on delivering for our stakeholders. We are continuing to

embed climate change resilience, sustainability, and nature-positive practices

into decision-making within our business, as well as managing 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 global capacity and supply chain

constraints, to deliver both affordability and fairness for our customers.

As a Group, we maintain strong reporting with the CDP (Carbon Disclosure

Project), presenting our efforts to combat climate change and our GHG

emissions since 2013. Our GHG emissions reduction continues to improve,

reported through our CDP Climate Change submission in which we received

an ‘A-’ rating in 2024 for both climate change and water security. You can

read our GHG emissions performance on page 91.

94 Annual Report and Accounts 2025 Pennon Group plc

Overview of Progress

Governance

Our governance around climate-related and nature-related risks and opportunities

2024/25 progress

• 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 and nature risks and opportunities, such as our ESG Committee which provides strategic oversight of environmental

performance and sustainability.

• We continue to incorporate carbon values into our investment decision-making, and we continue to incentivise our Executives to deliver through

performance-linked targets tied to customer and environmental outcomes.

Strategy

The actual and potential impacts of climate-related and nature-related risks and opportunities on our business, strategy, and financial planning

2024/25 progress

• 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.

• Climate change resilience and nature recovery are central to our Business Plan 2025-2030.

• We have updated our Environmental Policy this year (January 2025): Group Environment Policy. This can be found here: https://www.pennon-group.co.uk/

sites/default/files/attachments/pdf/group-environment-policy.pdf

• Overall ownership and responsibility for climate strategy is held by the chair of the organisation’s ESG Committee. Implementation of this Environmental

Policy is the direct responsibility of the Board and senior management, and indirectly, all Directors, employees and contractors working for the organisation.

Risk Management

The processes we use to identify, assess, and manage climate-related and nature-related risks and opportunities

2024/25 progress

• We have reviewed how climate change, Net Zero, and the nature emergency impact and influence our principal risks and inform our strategic

risk management.

Metrics and Targets

The metrics and targets we use to assess and manage the relevant climate-related and nature-related risks and opportunities

2024/25 progress

• We have continued to monitor key metrics linked to selected climate and nature 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 through regular reporting and

governance oversight.

• We have undertaken analysis to quantify key physical climate change risks, including identifying assets vulnerable to coastal flooding, as well as actively

monitoring proposed coastal flooding defence schemes, to assess where our infrastructure may remain exposed.

95Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Pennon Group 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-related

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 has been

enhanced for AMP8 with performance commitments that now include biodiversity.

Audit Committee

Meetings and composition: Meets

at least four times annually. Attended

by the members of the Committee

and other regular attendees at the

invitation of the Committee.

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 pages 151 to 157.

ESG Committee

Meetings and composition: Meets

four times annually. Attended by the

members of Pennon Board, CEO, CFO,

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 ESG

targets and goals. The Sustainable

Financing reporting and monitoring is

reported to the Committee for onward

submission to the Board. Further

information on pages 158 to 160.

Nomination Committee

Meetings and composition: Meets

four 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 pages

148 to 150.

Climate-related and Nature-related Governance

TCFD/TNFD Recommendation: Disclose the organisation’s governance around climate-related and nature-related risks

and opportunities.

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 rests with the Pennon Group Board,

which regularly reviews principal risks as part of its risk management processes.

The Board considers 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/divestitures.

Several Board Committees support this oversight: The ESG Committee provides strategic direction and monitors environmental performance and climate-

related matters. The Audit Committee oversees risk management and internal controls. The Remuneration Committee ensures incentives are aligned with the

delivery of sustainability and environmental goals. The Nomination Committee supports Board composition and succession planning, including consideration

of ESG and climate-related expertise. The Health and Safety Committee monitors operational resilience and asset health, including how health, safety, and

environmental risks are managed across the Group.

As a UN Global Compact signatory, we embed its principles on human rights, labour, environment, environment, and anti-corruption into our ESG approach and

report progress annually.

We recognise that climate change, the nature emergency, and the transition to Net Zero influence several of the Group’s principal risks (see our Principal Risks

report on pages 70 to 79). Principal risks are reviewed as part of our audit governance processes.

Each of our regulated water companies has its own Board, which reports to the Pennon Group Board and oversees climate- and nature-related risks within its

operations. New Board members, such as the new Chair who joined last year, are briefed on key climate- and nature-related risks, for example through site visits

and strategic discussions . For more information see our Corporate Governance report pages 128 to 187.

96 Annual Report and Accounts 2025 Pennon Group plc

Remuneration Committee

Attendance: Meets four 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 pages 163 to 183.

Health and Safety Committee

Attendance: Meets two times annually. Attended by the Chair,

CEO, CFO, 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 Health and Safety reporting and performance.

Further information on pages 161 to 162.

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. Over the past year we have reorganised our

business into four business units: Clean Water, Wastewater, Pennon Power,

and Retail; all supported by our Corporate Functions. Management within

each business unit are responsible for owning, managing, and assessing

climate-related and nature-related risks in their business units – including

risks related to water resources, wastewater, regulation, procurement,

engineering, natural resources/biodiversity, and finance. Risk is identified

and categorised within each business unit prior to being formally passed

onto senior management responsible for those business units. Each business

function and department maintains a risk register, and management

escalates risks to the Executive teams through meetings 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 broader environmental performance including targets that align with the

Group’s climate and sustainability ambitions.

Pennon Executive Committee (PEx)

Attendance: CEO, CFO, Pennon General Counsel & Company Secretary,

Chief People Officer, Chief Strategy and Regulation officer, Managing

Directors for the Business Units, Chief Engineering Officer.

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 PEx, including Business unit senior

leadershipteams.

Strategy

TCFD/TNFD Recommendation: 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 118. 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 70.

We have identified impacts over short (0-10 years), medium

(10-25 years) and long term (25 years and beyond) horizons (the

rationale behind these time horizons is presented on page 118).

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 our scenario analysis, exploring

the potential range of impacts and our strategic responses under

plausible contrasting climate scenarios (see page 120).

97Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

Physical climate risks

Key impacts identified on our operations and customers

Key physical climaterisk

Increasing frequency and intensity of droughts

– risks to water supply and impacts on the

overall water cycle.

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.

• Demand for environment protection impacts the availability of water for sustainable abstraction.

Water companies’ legal obligations and our environmental ambition to protect, restore and

enhance the environment is increasingly challenging with increased frequency and severity of

droughts.

• Saline intrusion as lower groundwater levels reduce the natural pressure that keeps seawater at

bay, exacerbated by rising sea levels (see ‘Rising sea levels’ risk).

• Decreased intake raw water quality (see ‘risks to raw water quality and treatment’ risk).

• Impacts on wastewater networks from lower flows of surface water into the network, such as less

storm overflow volumes but increased risk of sediment build up.

• Prolonged low water levels increasing the spread of invasive non-native species (INNS), as

stressed native ecosystems become more vulnerable and INNS exploit newly available habitats.

Key physical climaterisk

Gradual and significant increasing average and

hightemperatures – risks to raw 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

• Increased catchment erosion leads to decreased water quality (odour, discolouration, dissolved

organics, microbes) requiring additional resources and cost to remove pathogens from drinking

water or ensure water quality meets regulatory standards at WTWs.

• Increased microbe propagation and survivability affecting treatment processes.

• Algal blooms, triggered by catchment erosion and 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.

98 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities through PR24 investments

Primary financial and reputational impacts to

ourbusiness

Current actions:

Strategic Planning and Regional Collaboration

•

Publication and delivery of the 2024 Water Resource Management Plan, setting out long-term

strategies for sustainable supply.

• Active participation in regional water resource management through water resource groups: West

Country Water and Environment and Water Resources South East.

• Enhanced drought planning, including preparation for more extreme events using stochastic and

multi-year drought analysis to test system performance under prolonged dry conditions.

Infrastructure Investment and Supply Resilience

• Repurposed disused mines and quarries to create new water storage capacity.

• Enhancements to the distribution system to remove bottlenecks and support peak demand.

• Implementation of Abstraction Incentive Mechanism (AIM) schemes to promote sustainable

abstraction practices.

Innovation and Efficiency

•

LeakBot trials underway at households to help reduce leakage levels across the network.

• Participation in the Ofwat Innovation Project, Water Net Gain, focused on piloting smart ponds to

provide localised water storage solutions.

Planned or future actions:

Strategic Planning and Regional Collaboration

•

Development of the Water Resources Management Plan 2029, including new water supply and

demand reduction options.

Infrastructure Investment and Supply Resilience

•

Commencement of the Cheddar 2 reservoir, a major new storage scheme to benefit the entire

South West region.

• Poole Reuse: A strategic reuse project that will pump treated wastewater from Poole to a new

advanced treatment facility before discharging into the River Stour, in order to support water

supply and the environment in Bournemouth.

• Increased water grid connectivity to improve resilience in areas such as Roadford and Colliford.

Innovation and Efficiency

•

Continued development of desalination schemes to enhance drought management, including

progressing feasibility studies across Cornwall and the Isles of Scilly.

Impacts from mitigating the risk:

Proactive investment in drought resilience, including

storage, leakage reduction, and desalination, supports

long-term water security, reduces service disruption,

and protects environmental flows during prolonged

dry periods.

Impacts of the unmitigated risk:

Failure to mitigate drought risk could lead to

water supply shortfalls, infrastructure damage,

environmental degradation, and regulatory non-

compliance, with significant financial, operational,

and reputational consequences.

Current actions:

Nature-Based Solutions and Catchment Management

•

Exceeding Upstream Thinking catchment management targets, delivering benefits for water

quality, wildlife, water resources, and peatland restoration.

• Implementation of an INNS (Invasive Non-Native Species) programme, with two South West Water

sites upgraded from bronze to silver in the AQUA biodiversity accreditation scheme.

• Embedded our ‘Green First’ approach into all decision-making, promoting the use of nature-based

solutions wherever possible.

Innovation and Research

•

Ongoing innovation through the Centre for Resilience in Environment, Water and Waste (CREWW),

a purpose-built research facility supporting cross-sector collaboration and applied research.

Infrastructure and Operational Resilience

•

Upgraded treatment works, including the rollout of state-of-the-art treatment technologies

designed to make our sites and assets more resilient to future challenges, including the rebuilding

of two strategically important treatment works in the Bournemouth Water region.

• Maintained robust health and safety practices and management across operations, to support

operational resilience and workforce protection in the face of increasing climate-related physical risks.

Planned or future actions:

Infrastructure and Operational Resilience

• Continued modernisation and upgrade of treatment infrastructure, ensuring they are future

proofed against climate risks.

Innovation and Research

•

Continued innovation through cross-sector collaboration via the CREWW research programme,

supporting long-term resilience and environmental outcomes.

Impacts from mitigating the risk:

We could incur increased expenditure (Capex and

Opex) for water treatment, 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 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.

99Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Physical Climate Risks continued

Key impacts identified on our operations and customers

Key physical climaterisk

Increasing frequency of heavy rainfall and

floods – risks to sewer flooding

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.

Key physical climaterisk

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).

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

100 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts

to our business

Current actions:

Strategic Planning and Collaboration

•

Development of the National Storm Overflows Plan, setting out plans to reduce storm overflows and

supporting national-level strategy, transparency, and alignment.

• Development of Pollution Incident Reduction Plan (PIRP) to identify and address pollution risk.

• Catchment Systems Thinking Co-operative (CaSTCo) project with CREWW, exploring how nature-based

solutions can reduce surface water inputs to combined sewer networks.

Network Resilience and Pollution Reduction

• Achieved 100% storm overflow monitoring, enabling better oversight and real-time response.

• Investment in WaterFit Plans, reducing storm overflow with a focus on beaches and high-amenity areas

improving water quality and restoring habitats.

• Proactive sewer investigations, cleaning, and repair, combined with network improvements, to prevent

flooding and reduce failure risk.

• Implementing sustainable solutions, such as surface water separation to reduce pressure on the sewerage

network, and phosphorus removal schemes to support river health.

• Partnership flood schemes, including work at Countess Wear Wastewater Treatment Works (Exeter).

Nature-Based and Community Solutions

•

Catchment management through Upstream and Downstream Thinking, supporting water quality and flood

resilience, working with local partners and communities in 15 catchments.

• Collaborative work to achieve designated inland bathing waters in the South West – a first for the region.

Innovation and Risk Mapping

•

Developing a Groundwater Infiltration Risk Map with CREWW, incorporating climate change scenario modelling.

Planned or future actions:

Strategic Planning and Collaboration

• Commencing the next cycle of our Drainage and Wastewater Management Plan (DWMP), in collaboration

with stakeholders and flood risk management organisations, to address shared responsibilities for surface

water flooding and drainage.

• Ongoing and regular updates to the Pollution Incident Reduction Plan (PIRP) to reflect new risks and

performance data.

Network Resilience and Pollution Reduction

•

Expanded investment to address storm overflows at beaches and shellfish waters, including storm storage,

sewer separation, and other infrastructure upgrades as part of our £3.2 billion Business Plan

• Continued improvements to incident management to reduce pollution and service disruption.

Nature-Based and Community Solutions

•

Assessing storm overflow solutions using the ‘Green First’ principle, prioritising nature-based approaches.

• Expanding the Upstream Thinking initiative to further enhance catchment-scale water quality and resilience.

• Promoting improved understanding that the number of combined sewer overflows (CSOs) does not directly

equate to environmental or human health impact.

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.

Current actions:

Climate-Informed Risk Assessment and Planning

• Five-yearly asset flood risk assessments incorporating the latest UK Climate Projections to inform Shoreline

Management Plans to work collaboratively with other land holders on shared solutions.

• Drainage and Wastewater Management Plan (DWMP) supports long-term resilience planning.

Operational Resilience and Asset Protection

• Deployment of Operational Response and Recovery Plans to manage flood risks and ensure service

continuity.

• Enhanced flood resilience across coastal assets, including targeted defences against saline intrusion

(e.g.Otter Basin).

• Delivery of partnership flood schemes, such as Countess Wear WWTW in Exeter, to strengthen

regionalprotection.

Customer and Community Support

• Prioritised support for vulnerable customers during extreme weather events.

• Ongoing engagement with coastal erosion risk management authorities.

Planned or future actions:

Strengthening Coastal and Water Resource Resilience

•

Expansion of saline intrusion protection to additional at-risk sites.

• Desalination programme to replace ‘at risk’ sources such as Isles of Scilly boreholes.

Collaborative Planning and Adaptation

• Continued collaboration with risk management authorities to inform and evolve 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.

101Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Physical Climate Risks continued

Key impacts identified on our operations and customers

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 (also see ‘risks to raw water quality and

treatment’risk).

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

102 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Current actions:

Operational Resilience and Incident Management

•

Improved operational and incident response across our South West Water and Bournemouth

regions to minimise the impact of power failures.

• Continued investment in control room operations and alternative water supply teams to ensure

service continuity.

• Severe and cold weather protocols and winter preparedness activities on operational assets to

reduce disruption, protect critical infrastructure, and prioritise support for vulnerable customers

during extreme conditions.

• Regular sector-wide coordination through Water UK Platinum Incident Management and National

Incident Management calls.

Energy Resilience and Diversification

• Power resilience visualisation tool developed to assess vulnerability to national energy outages

and drive targeted investment in resilience.

• Diversified energy supply, including onsite renewable energy generation, to reduce reliance on the

national grid.

• Use of sludge to generate energy, powering parts of operations and enhancing energy

self-sufficiency.

• Backup power systems at treatment plants to manage energy supply interruptions.

• Standby generator roll-out programme, with a switch from diesel to Hydrotreated Vegetable Oil

(HVO) for lower carbon emissions.

Collaboration and Supply Chain Resilience

• Working with energy providers and other stakeholders to enhance regional resilience.

• Mutual aid agreements in place to manage competing demands during emergency events.

• Supply chain resilience initiatives, including a new commercial framework to diversify suppliers for

critical items like treatment chemicals and HVO.

• Development of a Business Continuity and Visualisation Tool with Water UK and other

companies to support operational decisions and reduce customer impacts, especially for

vulnerable populations.

Planned or future actions:

Strategic Planning and Climate Adaptation

•

Future climate adaptation and transition planning, ensuring long-term resilience to evolving

climate risks.

Operational Resilience and Incident Management

•

Continual improvement of operational and incident response, incorporating lessons learned from

past events and building on the appointment of a new incident management team.

• Continued collaboration with Water UK and industry groups to strengthen regional and national

resilience to power outages.

Energy Resilience and Innovation

•

Further investment in renewable energy generation and backup power infrastructure to enhance

energy security.

• Investment in mobile Granulated Activated Carbon (GAC) units, to allow us to respond to

climate related raw water quality issues, ensuring that we can continue to treat water through

weather extremes.

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.

103Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Transition Risks continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon

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: Prioritising different regulatory goals can result in undesired

climate impacts. Rapid changes in policies and regulations can misalign holistic actions with

stringent agendas, posing risks to Pennon. Some examples include:

• Stricter environmental regulations for climate adaptation and nature-positive agendas, with

reduced abstraction allowances and increased river compensation flows (see our ‘drought’

physical risk)

• Increased environmental ambition to restore coastal habitat and manage erosion. (see our ‘rising

sea levels’ physical risk).

• Changes to carbon accounting methodologies and scope boundaries, such as using location-

based instead of market-based GHG accounting (e.g. disincentivising power purchase

agreements (PPAs) for renewable energy).

• Increased energy demand and subsequent carbon footprint due to the use of modular

desalination to ensure drought resilience at pace, and enhanced treatment requirements (e.g.

phosphorus removal, UV disinfection, reducing combined sewer overflows in cases where the

scale and pace required disadvantages nature-based solutions);

• Regulation contradicting Net Zero goals, with limited incentives for broader actions outside the

regulated water business.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

104 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts

to our business

Current actions:

•

Horizon scanning for new regulations.

• Engaging with stakeholders and maintaining public relations.

• Net Zero programme.

• Tracking small outperformance through the voluntary ODI under the Green Recovery Initiative.

• Establishment of science-based targets (SBTi) for carbon reduction.

• Communicating the impact of regulations on climate risks to regulators.

• Clarifying carbon accounting with sector partners.

• Engaging with customers via WaterShare+ Customer Advisory Panel.

• Adaptive planning approach within WRMP24 and DWMP23.

• Considering actions which Pennon can take outside of the regulatory framework (e.g. offsite investment in

renewable energy).

• Seeking and implementing Ofwat innovation-funded projects for additional investment.

• Establishment of the Centre for Resilience in Environment, Water and Waste (CREWW) to collaborate with

academia on water sector challenges.

Future actions:

•

Upstream Thinking programme for nature recovery and nature-based solutions.

• Investment in innovation, R&D and climate resilience.

• Consideration of internal carbon pricing.

• Public value assessments in decision-making.

• Seeking opportunities for additional funding within and outside the regulatory system.

• Future climate adaptation and transition planning.

• Engaging with WaterUK and contributing as a reviewer for industry-wide developments.

• Review of ESG priorities considering the new materiality assessment.

Impacts from mitigating the risk:

Regulatory changes may increase Opex and

Capex for new equipment installation and

operation. Some costs might be recoverable

through the regulatory system. Increased

energy and material use could raise our

carbon footprint.

Impacts of the unmitigated risk:

Failing to balance regulatory requirements

could reduce ODI rewards and increase

penalties, impacting revenue. Negative public

perception could harm our reputation. High

carbon emissions or poor environmental

outcomes may lead to asset obsolescence

and impairment.

105Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Transition Risks continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Policy, Regulation and Legal Risks

Relevant time horizon

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

Achieving operational Net Zero by 2030 and delivering timely climate adaptation may be affected

by evolving regulatory expectations and the pace of funding approvals. Emerging requirements may

not be fully reflected in regulatory cycles, creating uncertainty around future investment pathways

and delivery timelines.

Type as defined by TCFD

Technology Risks

Relevant time horizon

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 to

enable Pennon’s transition to Net Zero operational carbon by 2030, causing delays and high costs.

Examples include:

• Workforce and supply chain availability to design low-carbon solutions affected by geopolitical

events and macro-economic conditions.

• Technology and infrastructure capacity for Pennon’s renewable energy projects.

• 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, with risks around recovering costs through the

regulatory system.

• Larger-than-expected innovation needed to reduce process emissions, risking unsuccessful R&D

investments and suboptimal decisions.

• Readiness and performance uncertainty of nature-based solutions.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

106 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Managing regulatory funding risk:

Current actions:

Strategic Integration

• Climate and multi-capital considerations embedded in business planning to align with long-term

sustainability goals.

• Climate objectives regularly reviewed to ensure they remain ambitious, achievable, and responsive

to evolving policy and regulatory landscapes.

• Our Green First Approach used to underpin value-driven decision-making, promoting nature-

based and best-value solutions that deliver environmental and social benefits.

Engagement and Collaboration

• Maintaining dialogue with regulators, customers, and stakeholders to foster alignment on climate

goals and co-develop solutions that support a low-carbon transition.

• Monitoring regulatory developments to identify opportunities for strategic alignment and early

adoption of climate-related initiatives.

Innovation and Delivery

• Evaluating and prioritising carbon reduction and bioresource initiatives based on long-term value

creation, operational efficiency, and environmental impact.

• Cultivating partnerships with industry leaders, research institutions, and technology providers to

accelerate the development and deployment of sustainable solutions.

• Advancing initiatives – such as those of Pennon Power – showcasing a commitment to climate

action that goes beyond compliance and regulatory expectations.

• Leveraging Power Purchase Agreements (PPAs) to ensure reliable access to renewable energy,

enhance energy security, and reduce exposure to market volatility.

Impacts from mitigating the risk:

Strategic investment in carbon reduction and climate

resilience, both within and beyond the regulated

business, supports long-term value creation,

operational efficiency, and stakeholder confidence.

Enhanced engagement with regulators and

stakeholders strengthens alignment and may unlock

new opportunities for innovation and revenue growth

(see our ‘Products and Services’ climate opportunity).

Impacts of the unmitigated risk:

Delaying or underinvesting in climate action could limit

our ability to meet performance targets, potentially

affecting outcome delivery incentives (ODIs). It

may also lead to increased long-term operational

and customer costs, reputational challenges, and

reduced asset performance due to physical climate

risks. Proactive investment today helps avoid these

future impacts and positions us as a climate-resilient

leader (see our ‘Negative public and stakeholder’ and

‘Customer affordability’ reputation risks).

Managing capacity constraints:

Current actions:

• Continuing to enhance capacity through training and recruitment, collaboration with partners and

financial planning.

• Establishment of the Pennon Innovation Committee, which is a network across Pennon working

alongside CREWW, promoting innovation opportunities and preparing Ofwat innovation applications.

Managing supply chain and infrastructure limitations:

Current actions:

Enabling Infrastructure and Capacity

• Collaborating with infrastructure providers, regulators, and Government to encourage investment

that expands network capacity.

• Enhancing internal capacity and increasing operational efficiency to reduce reliance on external

suppliers for renewable energy.

Expanding Renewable Energy Access

•

Developing Pennon Power to provide renewable energy from outside the South West region,

supporting broader decarbonisation goals.

Future actions:

Strengthening Supply Chain Resilience

•

Diversifying suppliers to enhance resilience and reduce exposure to supply disruptions.

• Developing procurement strategies to secure key technologies and expertise critical to climate and

energy objectives.

Reducing Network Dependency

• Exploring decentralised solutions such as onsite battery storage to reduce reliance on external

networkcapacity.

Impacts from mitigating the risk:

Increased Opex to build capacity and access skills and

technology, some of which can be recoverable through

the regulatory system.

Impacts of the unmitigated risk:

Increased Opex and Capex due to delays and

high resource demand; unsuccessful technology

investments leading to increased costs; penalties and

reputational damage if targets are missed and limited

ability to reduce carbon emissions (See our “Policy and

Regulation” transition risk).

107Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Transition Risks continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Market Risks

Relevant time horizon

Short and medium term

In the short term the risk is primarily driven by

limited supply of renewable energy and low-

carbon materials (due to past under investment

in infrastructure and materials across the UK and

beyond), over the medium term the risk will be

increasingly driven by high demand for renewable

energy and low-carbon materials.

Current risk rating

Last year’s risk rating

Increased costs of energy and materials due to the transition to Net Zero, impacts of climate

change, and wider factors: Costs are rising due to the Net Zero transition, climate change impacts,

geopolitical events, and macro-economic conditions like high inflation. Examples include:

• Electricity prices, especially for 100% renewable energy, reached record highs in recent years due

to market volatility. While prices have since eased, the experience highlights the need for long-

term energy resilience and investment in self-supply.

• Increased prices for liquid fuels and gas.

• Higher costs for chemicals and construction materials (e.g. cement, steel) due to rising energy

prices and carbon reduction measures.

• Increased prices for renewable electricity technologies due to high demand and limited supply.

• Increased energy demand due to the acquisition of companies reliant on groundwater (e.g. SES).

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

108 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Managing cost of energy:

Current actions:

Renewable Energy & Supply Resilience

• Generate renewable energy and explore additional options and power purchase agreements

(PPAs).

• Championing upscaling of renewables across our regions.

• Acquisition of renewable energy projects to support energy resilience and stabilise costs.

Efficiency & Cost Management

• Increasing efficiency to reduce energy demand (e.g. enhance energy efficiency, reduce leakage –

see our ‘resource efficiency’ opportunity).

• Electricity price hedging.

• Secure long-term contracts for renewable electricity to manage price volatility.

• Accounting for cost recovery mechanism allowed by Ofwat for energy pricing.

Future actions:

Transition to Low-Carbon Energy

• Switch to alternative fuels, eliminating fossil fuels where possible.

• Investing in solar PV sites and innovative renewable projects (e.g. floating solar)

• Support Government and wider sectors actions to increase energy security and supply of low-

carbon energy.

Smarter Energy Use

•

Changing operational practices to reduce energy use and costs (e.g. off-peak electricity pricing).

• Exploring low-energy options (e.g. nature-based solutions).

Managing cost of input materials:

Current actions:

Smarter Procurement & Cost Management

• Implement cost-reducing procurement strategies (e.g. competitive pricing).

• Use whole life carbon tools to understand costs of high-carbon materials.

Supply chain resilience

• Enhanced supply chain resilience by diversifying and expanding suppliers to increase

competitiveness and reduce costs.

Future actions:

Resource Efficiency & Innovation

•

Increase efficiency to reduce material use and consumption.

• Innovate with different chemicals and materials (e.g. using excavated materials and

recyclingwaste).

Impacts from mitigating the risk:

Increased Opex and Capex for renewable energy and

low-carbon materials, some recoverable through the

regulatory system with potential ROI (see our ‘energy

source’ and ‘markets’ climate opportunities).

Impacts of the unmitigated risk:

Increased Opex and Capex due to higher

energy and material costs; limited ability to

reduce carbon emissions.

109Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

TCFD and TNFD continued

Transition Risks continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Reputational Risks

Relevant time horizon

Short and medium term

In the short term customers and stakeholders

are primarily concerned about impacts on water

quality and aquatic environments. Over time it is

likely that customers and stakeholders will have

higher concern for carbon emissions and other

sustainability objectives.

Current risk rating

Last year’s risk rating

Negative public and stakeholder relations due to Pennon failing to be a seen as a leader

in environmental sustainability: Negative perception from the public/stakeholders/regulators,

possibly linked to a major climate-related incident/event/failure. Some examples include:

• Public concern about climate-induced pollution events and sewer overflows.

• Concern about the environmental impact of abstraction and wastewater discharge.

• Public/media focus on high-energy activities like desalination over carbon reduction efforts.

• Shifts in stakeholder/customer expectations related to carbon and climate.

• Potential negative perceptions related to development of renewable energy projects, such as

impacts on biodiversity.

• Stakeholder and customer dissatisfaction if Pennon fails to meet Net Zero commitments.

Type as defined by TCFD

Reputational Risks

Relevant time horizon

Short and medium term

The need for additional investment to meet the

Net Zero and climate adaptation challenges will

likely continue to impact across the medium term,

particularly if global climate action is slow and the

physical impacts are greater.

Current risk rating

Last year’s risk rating

Customer affordability and fairness concerns for achieving Net Zero and adapting to climate

change: Affordability for customers and questions around fairness could become challenging,

added to the end of the Government contribution to water and wastewater bills. This risk includes:

• Large climate change investments may cause customer and stakeholder dissatisfaction.

• Fairness issues, especially for residents in high-impact areas like Cornwall and Devon.

• Misalignment among Government departments and regulators requiring increased investment.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

110 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Managing public and stakeholder relations:

Current actions:

Environmental Leadership & Climate Action

• Investing in environmental performance and risk reduction, delivering Net Zero and nature

programmes (e.g. WINEP, Biodiversity Strategy).

• Developing renewable energy projects (e.g. repurposing a disused coal mine).

• Committing to global sustainability standards (e.g. UNGC, SBTi).

Stakeholder Engagement & Strategic Thinking

• Engaging customers and communities (e.g. PR24, Nature Recovery, education programmes).

• Applying the ‘6 capitals’ framework to guide sustainable decision-making.

• Collaborating with research partners (e.g. CREWW) to drive innovation.

Future actions:

Climate Commitment & Policy Evolution

• Continue delivering on our ‘Promise to the Planet’ to reach Net Zero.

• Enhance sustainability policies and practices, including ESG materiality assessment.

Customer & Community Engagement

•

Strengthen customer and community engagement.

• Expand the Watershare+ Scheme to reach one in every 10 households.

Impacts from mitigating the risk:

Potential increased Opex to manage stakeholder

relations.

Impacts of the unmitigated risk:

Negative public perception impacting reputation

(see also our ‘Challenges balancing trade-offs’ policy

transition risk).

Managing customer affordability:

Current actions:

Supporting Customers and Communities

• Support programmes and social tariffs for customers struggling to pay bills, including working with

regulators and policymakers on initiatives such as a national single social tariff.

• WaterShare+ engagement scheme to encourage customers to become shareholders, involved in

the company’s decisions.

• Board’s pledge of zero customers in water poverty by 2030.

Delivering Efficient, Long-Term Investment

• Driving efficient investment programmes over the long term whilst ensuring bills reflect value for

money.

• Phased investment in climate adaptation and Net Zero over time to reduce pressures on bills.

• Engaging with customers, stakeholders, regulators, and Government to explain investment needs.

Innovating for Affordability and Resilience

• Exploring cost-reduction actions and innovative tariffs, such as our Smart Saver tariff and seasonal

tariffs supporting water efficiency whilst keeping bills low.

Future actions:

Customer Engagement

•

Further encourage customers to have a stake and a say in the company through WaterShare+.

Innovating for Efficiency and Fairness

• Ongoing programme to introduce innovative and progressive charges.

• Rolling out smart meters to support water efficiency.

Impacts from mitigating the risk:

Potential increase to Opex to manage public

perception.

Impacts of the unmitigated risk:

Negative public perception impacting reputation

and potential penalties for not supporting

vulnerablecustomers.

111Pennon Group plc Annual Report and Accounts 2025

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TCFD and TNFD continued

Climate-related Opportunities

Key impacts identified on our operations and customers

Type as defined by TCFD

Resilience

Relevant time horizon

Short and medium term

Enhancing resilience to climate change and extreme

weather events is of high relevance today, with

increasing likelihood and magnitude of risk over

each horizon.

Current opportunity rating

Last year’s opportunity rating

Enhancing resilience across Pennon’s operations, asset base, and supply chain to avoid

costs and enhance value: Opportunity to invest in enhancing resilience across Pennon’s business

and supply chain, in some cases saving costs (e.g. avoided damage to assets, avoided losses in

revenue, avoided penalties on ODIs and GSS) and enhancing Group reputation and value. Some

examples include:

• Investing in climate change adaptation (e.g. drought and flood prevention) to avoid customer

disruption and asset damage.

• Enhancing supply chain resilience by diversifying suppliers and investing in buffers/storage for

critical resources.

Type as defined by TCFD

Energy Source

Relevant time horizon

Short and medium term

This opportunity is of high relevance to meet our

2030 Net Zero target, with continued relevance into

the medium and long term due to increasing market

risks to energy pricing and resilience of energy

supply as physical risks increase in magnitude and

likelihood over each horizon.

Current opportunity rating

Last year’s opportunity rating

Reducing carbon and enhancing energy resilience and revenue by using and generating

renewable energy: Opportunities to lower carbon emissions by using renewable energy and

opportunities to invest in renewable energy generation which can lower our carbon emissions,

enhance our energy resilience (e.g. less reliance on energy suppliers), and enhance our revenue

through sale of renewable energy.

Some examples include:

• Generating renewable energy on Pennon’s sites and through partnerships (e.g. PPAs,

bioresources, solar and wind energy).

• Switching fuels to lower-carbon sources.

Type as defined by TCFD

Markets

Relevant time horizon

Short and medium term

In the short term the opportunity is more focused

on financing to achieve Net Zero and current

physical risks; over the medium and long term the

opportunity will increasingly focus on environmental

targets and climate change resilience to long-term

challenges.

Current opportunity rating

Last year’s opportunity rating

Generating value and reducing our financing costs through sustainable financing: Opportunity

to reduce our cost of finance and avoid cost increases through access to sustainable financing and

generation of green financial assets. Our Sustainable Finance Framework is part of our strategy

for taking action on climate change, and our approach is evolving as policy and markets change

and information becomes available. We are exploring the implications for our business, including

regulatory developments such as the EU Taxonomy/UK Green Taxonomy.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

112 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Enhancing Pennon’s resilience:

Current actions:

Building Resilience and Adapting to Climate Risk

• Diversify water sources (e.g. desalination, repurposing quarries/mines) and pursuing new reservoir

capacity.

• Plan for company resilience and climate risk assessment and adaptation.

• Investments in response and recovery to operational disruption.

• Upgrade and modernise infrastructure.

Advancing Renewable Energy and Sustainability

• Generation of renewable energy and explore additional options and power purchase agreements

(PPAs) (see our ‘market’ transition risk).

Future actions:

Enhancing Climate Resilience

• Actions to adapt to climate change (e.g. enhancing drought resilience) and to mitigate climate

risks.

• Investing in desalination plant in Cornwall by 2025 to promote climate resilient water resources during

periods ofdrought.

Integrating Nature-Based and Sustainable Solutions

• Incorporate nature-based solutions to improve drainage and reduce reliance on storm overflows.

Impacts from realising opportunities:

Opportunity to reduce costs (Opex), enhance

reputation and increase revenue through improved

performance (reduction in penalties or increased

rewards).

Achieving this will involve strengthening our

infrastructure and enhancing our ability to adapt

to changing conditions. These efforts will require

coordinated planning and resource allocation, and

may involve engagement with regulatory frameworks.

As we implement climate resilience initiatives, we will

also need to carefully manage their associated carbon

footprint.

Using renewable energy:

Current actions:

Renewable Energy Strategy

• Renewable energy procurement strategy.

• Supply contract for 100% renewable energy for South West Water.

• Exploring additional options and power purchase agreements (PPAs).

Onsite Renewable Generation

• Generation of renewable energy.

• Investment in generating renewable energy.

Targeted Carbon Reduction and Net Zero Delivery

• Net Zero programme.

• Prioritising investments for highest carbon reduction and return on investment.

Future actions:

Innovation and Low-Carbon Technologies

•

Trials of low-carbon fuels.

• Innovation programme (e.g. energy recovery from sewers).

• Use of energy recovered from bioresources to power our operations.

Strategic Partnerships

•

Engagement with partners for PPAs.

• Establishing arrangements to co-fund renewable energy investments.

Impacts from realising opportunity:

Investing in renewable energy supports our transition

to a lower-carbon future and strengthens long-term

operational resilience (see our ‘market’ transition risk

and ‘market’ opportunity).

These initiatives can also create new revenue streams

through the sale of renewable energy. As we expand

our generation capacity, we will continue to manage

the environmental footprint associated with these

activities.

Sustainable finance:

Current actions:

Sustainability Embedded into Financial Decision-Making

• Our sustainable financing framework aligned with investment decisions and environmental and

ESG.

• Sustainable finance market requirements reviewed to ensure alignment with evolving expectations

from regulators, investors, and stakeholders.

Future actions:

Advancing Sustainable Finance

•

Establishing commercial and legal arrangements for green financial assets and credits.

• Preparing for future disclosure and ESG initiatives, including alignment with frameworks such as

the EU/UK Taxonomy, TNFD, ISSB, and Transition Plan Taskforce (TPT).

• Exploring third-party funding opportunities to support sustainability-led projects and unlock

investment opportunities.

Impacts from realising opportunity:

By embedding sustainability into our financial

practices, we strengthen our position as a forward-

looking, responsible business. These actions open

up opportunities to attract values-aligned investors,

access innovative funding mechanisms, and

demonstrate leadership in climate and nature-related

transparency, enhancing trust and long-term resilience

(see our ‘reputation’ transition risks).

113Pennon Group plc Annual Report and Accounts 2025

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TCFD and TNFD continued

Climate-related Opportunities continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Resource Efficiency

Relevant time horizon

Short and medium term

In the short and medium term, investment in

resource efficiency is central to many of our options

and decisions in our business plan and WRMP’s

best value plan. This will enhance our resilience, our

ability to meet our environmental and our Net Zero

targets, and reduce our Opex over the medium and

long term.

Current opportunity rating

Last year’s opportunity rating

Saving water, energy, materials, and carbon by enhancing efficiency, using low-carbon and

nature-based solutions, and reducing emissions across Pennon’s supply chain: Opportunities

to invest in enhancing efficiency and reduce wastage of water, energy, and materials, opportunities

to use low-carbon construction, and nature-based solutions, and opportunity to work with suppliers

to reduce their carbon footprints and enhance their sustainability. Some examples include:

• Leakage reduction, water efficiency, smart metering, rainwater harvesting, and incentivising

customers to use less water.

• Enhancing efficiency of process equipment buildings and transport to reduce energy and

chemical use.

• Using low-carbon construction materials and local sourcing.

• Employing technology like Real Time Control in sewers to avoid high-carbon interventions

(seealso our ‘technology’ risk).

• Constructing wetlands and sustainable drainage systems (SuDS).

• Investing in marine carbon opportunities, peatland restoration, tree planting and soil and

grassland activities.

• Working with suppliers to reduce their carbon footprint and enhance their sustainability.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

114 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Enhancing water efficiency:

Current actions:

Empowering Customers and Communities

• Customer education and outreach.

• Supporting community water-saving projects like the Heathfield Allotment Trust.

• Offering free leak fixes for eligible customers.

Leveraging Smart Technology and Data

• Installing AMI smart meters for direct water usage data.

• Addressing water leaks using smart meter data.

Driving Sustainable Water and Land Use

• Demand management and water efficiency programmes, including PCC (per capita consumption)

and leakage reductions.

• Farm water efficiency and resilience project – 1,000 pond nature-based solutions.

• Incorporation of carbon values into capital planning and decision making.

Future actions:

Empowering Customers to Use Water Wisely

•

Incentivising customers to use less water.

• Supporting customer affordability through efficiency schemes and metered tariffs.

• Promoting rainwater harvesting as a sustainable water source.

Enhancing Monitoring and Control Capabilities

•

Extending real-time monitoring and control to improve system responsiveness and efficiency.

Enhancing process, building, and transport efficiency:

Current actions:

Improving Operational and Energy Efficiency

•

Enhancing process efficiency through smarter operations, energy-conscious building practices,

and low-emission transport solutions.

• Energy efficiency programmes for buildings.

• Efficient building requirements in leases.

Reducing Emissions Through Smarter Mobility

• Reducing travel needs through remote monitoring.

• Procuring/leasing efficient vehicles.

Future actions:

Driving Innovation and Operational Excellence

• Investments in innovation for efficiency.

• Enhancing operational practices (e.g. real-time monitoring).

• Partnerships with suppliers and outsourcing specific operations to improve efficiency and

flexibility.

Promoting Low-Carbon Mobility

• Encouraging employee carpooling.

• Light-weighting vehicles to reduce emissions and improve fuel efficiency.

Using low-carbon solutions:

Current actions:

Embedding Carbon Considerations into Decision-Making

•

Implementing capital carbon accounting.

• Implementing carbon values in decision making.

Future actions:

Decarbonising Supply Chains and Materials

•

Engaging the supply chain for low-carbon solutions.

• Collaborations with suppliers to reduce embodied carbon.

• Procurement strategies that incorporate ESG criteria.

• Innovation programmes focused on alternative, low-carbon materials.

We can reduce our carbon footprint and Opex

through resource efficiency, but it requires significant

investment in monitoring, metering, and capital

projects. Some costs may be recoverable through the

regulatory system.

We will need to manage the carbon footprint

associated with actions to realise resource

efficiency opportunities.

115Pennon Group plc Annual Report and Accounts 2025

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Climate-related Opportunities continued

Key impacts identified on our operations and customers

Type as defined by TCFD

Products and services

Relevant time horizon

Short, medium and long term

Opportunity in the short, medium, and long term

to enhance Pennon’s revenue through delivery

of Strategic Water Resource and bioresources

schemes.

Current opportunity rating

Last year’s opportunity rating

Enhancing revenue through providing resilient water solutions, bioresources, and expertise

to other water companies: Opportunities to invest in water resources schemes linked to

climate change, bioresources opportunities which align with the transition to Net Zero, and other

opportunities to enhance our revenues.

Some examples include:

• Delivering strategic resource options (SROs) and resilient water solutions for other water

companies e.g. modular desalination technology.

• Selling expertise and technologies for water efficiency and leakage reduction.

• Selling bioresources (e.g. biogas, nutrients, sludge etc).

• Selling expertise in bioresources to other companies.

Key

Risk ratings Risk Trend

High Medium Low Increasing Stable Decreasing

TCFD and TNFD continued

116 Annual Report and Accounts 2025 Pennon Group plc

Examples of our actions to mitigate risks and realise opportunities

Primary financial and reputational impacts to

ourbusiness

Advancing Net Zero Leadership and Learning

•

Net Zero programme with a focus on embodied carbon initiatives.

• Learning from other companies in the UK and internationally to adopt best practices and

accelerate progress.

Using nature-based solutions:

Current actions:

Integration of Nature-Based Solutions

• Practising catchment management to improve water quality, biodiversity, and ecosystem health

through landscape-scale interventions.

• Embedding natural capital and valuing carbon in decision making.

• Investing in innovation and piloting.

Future actions:

Nature-Based Solutions Through Collaboration

• Partnering with stakeholders (e.g. landowners) to co-develop and deliver NBS.

• Collaborations with the supply chain to integrate Green First and nature-based approaches into

projects and operations.

• Learning from other companies in the UK and internationally to adopt best practices and

accelerate impact.

• Launching the Nature Recovery Fund to support initiatives that restore and enhance natural

ecosystems.

Reducing supply chain carbon:

Current actions:

• Engaging with suppliers to drive climate action across the value chain, with a commitment of 60%

of suppliers to have science-based targets by the end of March 2028.

Future actions:

Embedding Sustainability into Procurement Practices

• Procurement strategies with ESG criteria to ensure suppliers align with environmental and social

standards.

• Establishing life cycle assessment requirements for suppliers to evaluate and reduce carbon

impacts across product and service lifecycles.

Strengthening Supply Chain Resilience and Learning

• Diversifying the supply chain and sourcing locally where possible.

• Learning from other companies in the UK and internationally to adopt best practices in supply

chain decarbonisation.

Delivering water resource schemes and bioresources opportunities:

Current actions:

Advancing Strategic Water Resource Planning and Collaboration

• Preparatory work on three Strategic Water Resource schemes to secure long-term water

resilience.

• Engagement with other water companies, regulators, and stakeholders to coordinate planning and

delivery of regional solutions.

• Establishing commercial and legal arrangements for Strategic Resource Options (SROs) and the

sale of bioresources.

Driving Innovation in Resource and Technology Deployment

•

Business plan includes opportunity related to pyrolysis for bioresources, supporting circular

economy and carbon reduction.

• Roll out of new technology in the region to enhance efficiency and sustainability.

Future actions:

Building Public Support and Driving Innovation

• Engagement with customers to build support (e.g. social licence).

• Innovation and R&D in collaboration with CREWW.

Impacts from realising the opportunity

Potential revenue increase through SROs and

bioresources sales, requiring significant investment

(Opex and Capex). Some costs may be recoverable

through the regulatory system. We will need to manage

the carbon footprint of SRO and bioresources schemes.

117Pennon Group plc Annual Report and Accounts 2025

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TCFD and TNFD continued

Short, medium and long-term horizons

In determining our strategy, we have processes in place for identifying, assessing, and responding to climate-related risks and opportunities. In shaping the

strategy, we consider short, medium, and long-term horizons.

Short-term – 1 to 10 years

Over this horizon we define key targets (operational, financial, sustainability) and we consider changing regulatory frameworks and emerging Government

policies. We develop business plans every five years, defining our actions and investments over this period. Operational risks are planned and budgeted for

over this time frame and planning begins during this period for the next regulatory period. Our operational Net Zero 2030 commitment falls within this time

horizon, as well as the price reviews in 2029 (PR29) and 2034 (PR34). Transition risks and opportunities are likely to have the largest impacts to our business

across this period, with physical risks projected to increase over time.

Medium-term – 10 to 25 years

Our WRMP and DWMP strategic plans consider requirements up to 25 years. Major projects and operational plans will be renewed and managed over this

time frame to ensure projects meet the correct regulatory period plans. Our 2045 total Net Zero target falls within this horizon, as well as the UK’s 2050 Net

Zero target, which will continue to present emerging policy and market changes. Transition risks and physical risks will both impact our business across this

period to varying levels, depending on global GHG emissions and the Net Zero pathway taken by the UK and globally.

Long-term – 25 years and beyond

Typically for longer-term strategic direction, risk, and resilience planning. Investment requirements for our long-life assets are considered, such as mains pipes

and reservoirs. Current projections are that by the end of this century the planet will have warmed by up to 3°C, however there is much uncertainty related to

the effectiveness of global climate change mitigation. Physical climate risks are likely to have the largest impacts to our business over this time horizon.

Climate scenario analysis

Scenarios

In alignment with the TCFD guidance, we have assessed the risks and

opportunities associated with climate change and the transition to a Net Zero

climate-resilient economy. We have used plausible contrasting scenarios to

explore the potential range of impacts in the future and in turn the possible range

in our strategic responses required to mitigate risks and build adaptive capacity

in an uncertain future.

Our physical risk scenarios are informed by the IPCC’s Representative

Concentration Pathways (RCPs) from the IPCC’s 5

assessment (2014), including

a high and a low emissions scenario, which are also used as the basis for planning

by Ofwat as part of the PR24 methodology. The IPCC’s 6

Assessment report

was released in 2023, and in it the IPCC has adopted new climate scenarios

know as Shared Socioeconomic Scenarios (SSPs). However, Pennon has

continued to use the RCP scenarios due to these being mandated by Ofwat’s

PR24 methodology.

Our transition scenarios are informed by high and low levels of socio-economic

drivers surrounding policy ambition, the speed at which policy is implemented, and

the pace of technological advancement. In 2024 we updated our transition risk

assessment to adopt scenarios developed by the Network for Greening the Financial

System (NGFS). These transition scenarios have become widely adopted in the UK.

The two Network for Greening the Financial System (NGFS) transition scenarios

used are: (1) Orderly transition, aligned to the NGFS Net Zero 2050 and (2) Hot

house world aligned to the NGFS Current Policies. The NGFS Net Zero 2050 aligns

closely with the IEA Net Zero 2050 scenario. We have selected these contrasting

scenarios as they span a range of possible futures, and present different challenges

and opportunities for our business.

The NGFS Disorderly Transition Scenario has also been considered, but our view is

that negative impacts for our Group are more significant under the NGFS Current

Policies Scenario, so it has been the focus of our scenario analysis to provide a stress

test of our resilience.

We will continue to re-visit our scenario analysis in future, including considering the

merit in selecting additional scenarios.

Our scenarios can be defined as follows:

Key assumptions

For our scenario analysis, the following

assumptions for all scenarios were

made:

• Scenarios focus on the UK policy

and regulatory context and are semi-

independent of global action and

temperature pathways.

• It is assumed that the current high energy

prices remain high throughout this decade.

• The Government’s ambition around

environmental protection and conservation

remains high, regardless of the pace of

transition.

• No significant change to Pennon Group’s

business activities.

• Population in our region increases by

0.4 million by 2050, overall water demand

remains unchanged from today (due to

leakage reduction and water efficiency

measures), and overall volume of

wastewater treated remains unchanged

from today (due to actions taken to reduce

surface water flows to sewers).

RCP2.6

: Lower Physical Impacts

An approximate 2°C warming scenario by the

year 2100 – corresponding to a low emissions

‘optimistic’ scenario.

1.5 degree scenario: NGFS Net Zero 2050

A scenario which sees the UK as a global leader

with strong policies and actions to mitigate

climate, aligned with the Paris Agreement.

Policy ambition

1.5ºC

Government policy

Immediate and smooth

Technology change

Fast change

RCP8.5

: High Physical Impacts

An approximate 4°C warming scenario by the year 2100

– corresponding to a high emissions ‘business-as-usual’

scenario, which is appropriate to use when considering

high risks.

3-degree scenario: NGFS Current Policies

A scenario which sees the UK make incremental progress

to mitigate climate change, but assumes no major policy

changes and results in missing the targets of the Paris

Agreement.

Policy ambition

3ºC+

Government policy

None – current policies

Technology change

Slow change

Physical climate risk scenarios

Climate Transition risk scenarios

1. The IPCC’s Representative Concentration Pathways from the IPCC’s 5

assessment (2014)

118 Annual Report and Accounts 2025 Pennon Group plc

Physical Climate Risks –

Scenario Analysis

Approach taken

The Group undertook qualitative scenario analysis in 2021 considering the

financial implications of physical climate risks for South West Water under

two climate scenarios based on the IPCC’s Representative Concentration

Pathway (RCP) scenarios. Potential material financial impacts were

considered over the 10-year horizon to 2030, aligning with the Group’s

regulatory financial viability testing. Material impacts on our business and

strategy were considered over the time horizon to 2050, aligning with a

medium-term view of climate change impacts before uncertainty increases

beyond 2050. Since 2021 we have extended our analysis to cover Bristol

Water, and we look to include SES Water as we update our scenario analysis

in future e.g. when Ofwat updates the physical risk scenarios used in

business planning. This year we have revised our scenario analysis based on

changes over the past year, using the same physical climate scenarios as the

previous years.

Impacts

This section discusses impacts under both of the physical climate risk

scenarios (RCP2.6 and RCP8.5).

• Climate resilience will require increased expenditure and investment.

The most significant financial impacts for the Group are on our

expenditures (Opex and Capex), to mitigate against future climate

risks by increasing capacity for water supply infrastructure; managing

drought conditions and water demand; improving water and wastewater

treatment and odour management; reducing storm overflow discharges;

improving operational resilience to flooding, saline intrusion and storms;

and enhancing our Upstream and Downstream Thinking programmes.

These financial impacts would be significantly greater under the higher

emissions scenario over the long-term horizon as they will require higher

levels of adaptive capacity, although adaptive planning will seek to

minimise this impact by identifying low-regret options under both high

and low emissions scenarios to inform investment decisions. These costs

could be recoverable through the regulatory system.

• Investments in our natural capital will be central to climate

adaptation. Within the water industry, healthy and functioning

ecosystems are critical for resilient operations. Therefore, the risks to

Pennon’s infrastructure are affected by risks to the natural environment.

Accordingly, increased expenditures (Opex and Capex) include heavy

investment in our natural capital schemes, catchment management,

partnerships, and research and development in this area, as well as

implementing our comprehensive Biodiversity Strategy and Environment

Plan 2050. Our ‘Green First’ framework prioritises nature-based solutions

to improve climate adaptation and resilience.

• Climate impacts will affect our ability to meet performance

commitments and objectives. The Group could also be impacted

financially by Outcome Delivery Incentive (ODIs) penalties and rewards

due to potential failure to achieve performance commitments as part of

the regulatory framework, further resulting in negative impacts to our

reputation. This impact is more likely under the higher emissions scenario

over the long-term horizon due to higher projected magnitude of climate

impacts and frequency of extreme weather events.

• Investment required is high, but the cost of inaction is much higher.

Our risk assessment clearly shows long-term significant risks if the

impacts of climate change are not mitigated. Pennon Group operates over

£8 billion of assets, the majority of which relate to water and wastewater

and will be impacted by climate change in some way. The drought in 2022

cost the Group around £20 million, and following this we have invested

to enhance resilience. The unmitigated risk would result in additional

expenditure (Opex and Capex) to recover from service interruptions and

repair or replace deteriorated assets. The unmitigated risk would result in

more frequent and greater ODI penalties. Although some of this will be our

expenditure, wider flood protection investments will be required by others

to protect wide-ranging coastal assets.

• Impacts are worse with every bit of additional warming. We

would experience these impacts for extreme events over all time

horizons, however these impacts would increase over each horizon

as extreme weather events increase in frequency and magnitude and

are compounded by higher average temperatures and drier summer

conditions. This trend is more pronounced for the higher emissions

scenario, particularly over the long-term horizon, where temperature

increases are projected to accelerate.

Our strategic response

Our strategy for managing physical climate risks and financial impacts is

underpinned by the following principles in order to maintain and improve our

Group’s performance to the year 2050:

• Adapt to climate change

• Enhance resilience

• Innovate

• Become more efficient

• Collaborate

• Balance investment over time

This will require significant action and investment by our Group, as well

as action by our supply chain partners and wider actors (e.g. Government

agencies, local authorities, and major land owners in our regions).

Longer-term investment, as outlined in our strategic plans, will be needed

to manage future risks to acceptable/tolerable levels. The long-term risk

is significant and will require additional investment to mitigate their effect.

To achieve this, regulatory and Government support within their policy

frameworks will be needed.

In the South West of England, the combined characteristics of low population

density, high coastline to land area ratio, and tourism-based seasonal

flux on water demand present a unique set of challenges. Through the

years, by innovating, investing, and adapting, we have achieved industry-

leading results in many areas of the business. Our extensive programme

of environmental improvement with Upstream and Downstream Thinking

catchment management has resulted in some of the finest bathing waters

in Europe. This has been instrumental for us to tackle these challenges and

meet the expectations of our customers. Having seen record visitors to our

region following the COVID-19 pandemic, it is expected further investment

will be required to continue building on the progress made by Pennon Group

to protect the environment and our bathing waters.

Our strategic responses within our WRMP24 and DWMP23 for delivering

reliable, efficient, and high-quality drinking water and wastewater services is

driven by best-value adaptive planning, as per Ofwat’s methodology for PR24.

This means that, using the same physical scenarios analysed here (RCP2.6

and RCP8.5), our WRMP24 has developed adaptive investment programmes

which: 1) fulfil immediate and most probable future needs; 2) respond to

external pressures in the future with alternative investment options that

are triggered under specific conditions; 3) identify low and least-regret

investments that enable future options or return benefits under the broadest

range of potential futures. Subsequently, our strategies for mitigating

climate risks and building adaptive capacity are similar under the high and

low emissions scenario in the short and medium term, however, additional

options will be required under the RCP8.5 scenario, or options may need to

be implemented earlier than the RCP2.6 scenario over the long term. Climate

change adaptation is a continual, evolving and iterative process, we regularly

review our adaptation progress, and like we did during the 2022 drought,

we learn from the challenges we have faced to inform our future adaptation

actions. As part of our adaptive planning approach, we have predefined

trigger points and decision points to implement strategies of the appropriate

pathway sufficiently early, so that we can have a proactive and more resilient

response to climate change, including greater opportunity to implement

nature-based solutions – rather than more costly reactive approaches which

may have higher operational and embodied carbon.

119Pennon Group plc Annual Report and Accounts 2025

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TCFD and TNFD continued

Impacts on financial planning

Compared to today, overall our revenue is unlikely to be impacted

significantly by climate change as we operate in a regulated environment

funded through Price Reviews, although impacts could be felt on annual

revenue recovery. However, there is a higher risk of reduced regulatory

rewards and increased penalties (ODIs) due to climate change. Our operating

costs are likely to increase compared to today due to climate change, and

additional capital investment will be required to build climate resilience. The

value of our assets and our cost of capital would remain relatively unchanged

compared to today if we continue to enhance our resilience.

Climate Transition Risks – Scenario

Analysis

Approach taken

The Group undertook qualitative scenario analysis in 2022, considering the

financial implications of transition climate risks and opportunities under

the two transition scenarios described earlier. The assessment considered

impacts to the year 2030; this time horizon was selected as it aligns with our

operational Net Zero target and there is much uncertainty beyond this time

with regards to changes to policy, technology, markets, and public opinion.

In 2024 we updated our scenario analysis to consider the NGFS scenarios

described earlier.

This year we have revised our scenario analysis based on changes over the

past year.

Impacts – NGFS Current Policies scenario

This scenario provides a challenging context for meeting our 2030

operational Net Zero target. In this scenario we have identified the following

main impacts for our business:

• The cost to our business of achieving our 2030 Net Zero target rises,

and there is less ability to recover costs through the regulatory

pricing system. This is compounded by the readiness and higher costs

for access to low-carbon technologies and related skills (due to the

UK’s under-investment in this scenario), and increased costs related

to both our own renewable energy generation, and the purchasing of

green electricity from external suppliers (where demand is likely to

outstripsupply).

• The current UK policies might not be sufficient enough to deliver the

necessary carbon emission reductions. As such this could impact our

business transition through increased higher costs from the reliance on

carbon-intensive energy and internal combustion engine vehicles.

• Meeting our 2030 target requires greater use of carbon offsets.

The enabling environment for decarbonisation is weaker and costs are

higher, which leads to slower progress in emissions reductions across our

business. As a result, the residual emissions that need to be offset rise,

which adds to our costs.

• Environmental targets require additional energy use. New guidance

on targets for both nutrients and storm overflows will require a significant

increase in energy use and associated capital and operational carbon.

While nature-based solutions will form part of the solution (our Green First

Principle), there will be significant reliance on engineered solutions due

to potential inflexibility in regulation and deadlines to improve outcomes.

Theincreased energy and carbon use compounds impacts above.

• Reputational risks are significant and require careful management.

Some of our customers and stakeholders may have differing priorities and

preferences for actions to meet our 2030 target, for example regarding

the increased use of carbon offsets. Some may be highly sensitive to

affordability, and increasingly scrutinise our investment choices.

• Opportunities are lower than the Net Zero 2050 Transition scenario.

Opportunities for our business remain, however, they are in general more

limited, and with lower returns than in the Net Zero 2050 Transition

scenario. Increasing efficiency of energy and resource use, and pursuing

low-carbon energy alternatives are the primary opportunities and can help

to offset some of the additional energy and carbon costs. There is also an

opportunity to clearly identify and communicate the synergies between

environmental objectives and the transition to a Net Zero business in

order to increase support from customers, stakeholders, and regulators.

Impacts on financial planning

Compared to today, overall our revenue is unlikely to be impacted

significantly in this scenario, but also our non-water revenue is less able to

grow. Our costs to achieve operational Net Zero may increase relative to

our current plans, however, early investment in decarbonising the business

to meet the 2030 target remains more cost-effective in the long term (post

2030), and reduces the risk to our Group and our customers from measures

such as carbon pricing, as well safeguarding our reputation on environment

and climate change. The value of our assets and our cost of capital would

remain relatively unchanged compared to today.

Impacts – NGFS Net Zero 2050 Scenario

This scenario is more favourable to our business and to the UK’s Net Zero

goals, as it creates a more supportive enabling environment to achieve our

2030 operational Net Zero target. However this may present challenges

balancing trade-offs between the agendas of Net Zero and environmental

gains, water quality and climate resilience, environmental protection,

addressing customer affordability, and other objectives. In this scenario we

have identified the following main impacts for our business:

• Cost to our business of achieving our 2030 Net Zero target is

lower than the NGFS Current Policies Transition scenario. There is

much greater regulatory support in order to support the step change in

investment required, with an increase in costs which can be recovered

through customers’ bills. The maturity of technology and associated

business models progresses rapidly, and helps to drive down costs across

many areas, including in renewables, resource efficiency, and demand-side

measures. Greater R&D programmes with gated investment and piloting

will minimise technology investment risks compared to the Current

Policies Transition scenario, where strategies could be more reactive than

proactive.

• Access to the skills and resources needed is costly. There is very

high demand for low-carbon technologies, skills, and expertise across

the economy in this scenario, which significantly outpaces supply (partly

due to the UK’s past under-investment and the time required to develop

supply chains). This adds to our costs associated with decarbonisation,

and risks delaying key projects.

• Environmental targets require additional energy use. This impact

is the same as the Current Policies Transition scenario, however the

regulatory environment may be more favourable for nature-based

solutions (NBS) which can also sequester carbon, as there may be more

stringent carbon management requirements, and carbon markets would

also be stronger and provide more incentives for NBS.

• Enhanced support to low-income customers may be needed. Fairness

in the distribution of the costs of the UK’s transition to Net Zero is a key

concern among stakeholders. Increased support to some customers may

be required, and our investments will need to be carefully planned and

phased to ensure they are efficient and avoid sudden price impacts.

• Opportunities are higher than the Current Policies Transition

scenario. The more favourable enabling environment means that our

opportunities are enhanced in this scenario, and they are easier to realise.

There are particular opportunities to further invest and innovate on

energy and resource efficiency, and to attract further investment through

sustainable finance opportunities.

Impacts on financial planning

Compared to today, overall our revenue is unlikely to be impacted

significantly in this scenario, but our non-water revenue has greater potential

to grow. Our costs to achieve Net Zero may remain largely unchanged

compared to today. The value of our assets may increase as we decarbonise

and enhance our natural capital, and our cost of capital may decrease

compared to today.

120 Annual Report and Accounts 2025 Pennon Group plc

Our Strategic Response

Although there are important differences in the impacts between the

different transition scenarios, there are a number of common elements which

will require us to implement a common strategic response. The relative

importance of each, and specific elements within the response, will vary

across the two scenarios, but we have identified six key focus areas which

will enhance resilience to transition risks, and better position the Group to

take advantage of opportunities:

• Investing in efficiency. Under both scenarios, significant carbon savings

and performance improvements can be achieved by driving greater

efficiency across our operations. This includes energy efficiency (for

example, more efficient pumping to reduces water losses), as well as

optimising processes, reducing waste, and deploying smart technologies

to improve the performance of our water supply and transmission

systems. Many of these opportunities will reduce costs. We are currently

investing in programmes to streamline operations, enhance resource

efficiency, reduce energy use and carbon across our operations. This will

accelerate our progress toward operational Net Zero and help manage the

cost of the transition.

• Enhancing our resilience. We will continue to invest in building resilience

across our operations to address climate-related and transition risks.

This includes generating more of our own renewable energy to reduce

exposure to energy price volatility and to enhance our options for energy

supply, which is favourable under both scenarios, We are strengthening

our ability to respond to physical climate impacts such as flooding and

drought – by improving the robustness of our infrastructure, increasing

water storage and supply flexibility, and integrating adaptive technologies

and nature-based solutions.

• Enhancing our access to green economy resources. Across both

scenarios there will be a shortage of skills and resources across key areas

of the green economy that we will need to support our transition. To

manage this we will diversify our supply chain of low-carbon suppliers,

and invest in a programme of internal capacity-building to ensure access

to the skills needed. We will also work with partners across the industry

and engage with peers, regulators, and Government to enable rapid

investment in the skills and capacity needed to support Net Zero.

• Engage on environmental targets and trade-offs. New ambitious

targets on nutrients and storm overflows will require increased energy

use and new infrastructure, and subsequently higher operational and

capital carbon. There is a trade-off between action to meet these targets

and action on decarbonisation, with implications for the balance between

nature-based, and engineering solutions. We will engage in ongoing

consultations on environmental targets and strategies for meeting

them, and seek clear guidance on managing different trade-offs. We will

advocate for policies which enable flexibility and time to scale up nature-

based solutions so we can maximise co-benefits for our customers and

the environment.

• Enhance our stakeholder and customer engagement. There are

significant reputational risks associated with both scenarios, although

the balance of concerns will vary. We will develop plans for enhanced

programmes of engagement and communication with our customers and

stakeholders, in particular focusing on explaining the costs and benefits

of the investments we are making, potential trade-offs and synergies

between Net Zero and other environmental targets, and affordability.

• Pursue opportunities to deliver more value for customers and

shareholders. We will continue to pursue opportunities to reduce costs

and enhance sustainability. This includes reducing our financing costs

through our sustainable finance framework, investing in our environmental

programme which includes restoring ecosystems to capture carbon,

and working with partners and suppliers to enhance our resilience and

reduce emissions across our supply chain. We will also continue to

explore opportunities to enhance our revenue through water resource

options, selling renewable energy, and markets for bioresources and

natural capital.

Statement of resilience

There are clear impacts on our business under different climate scenarios,

in particular:

• Higher costs in the short term to meet our operational Net Zero target by

2030 under the Current Policies Transition scenario;

• Higher costs in the short, medium, and long term under the RCP8.5 Higher

Physical Impacts scenario.

Several of the strategic responses outlined above are already included in our

strategic plans and business plan, and we have confidence that our Group

has a range of strategic options to manage the impacts, can take advantage

of opportunities, and will remain resilient under the different climate

scenarios considered. Further analysis, including quantitative analysis, is

planned going forward to enhance Pennon’s confidence related to resilience

both in terms of our strategy and our business model.

There will be the requirement to invest more to improve our resilience to

climate change and deliver Net Zero. Assets are likely to require additional

protection, and planning for new assets will require a greater level of

embedded climate resilience. Significant action and investment will be

required by our Group, as well as action by our supply chain partners and

wider actors (e.g. Government, local authorities, major landowners/users, and

other providers of infrastructure and services).

121Pennon Group plc Annual Report and Accounts 2025

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TCFD and TNFD continued

Nature-related financial risks and

opportunities – Strategy

Our most material nature-related impacts and dependencies for our direct

operations are in the freshwater, land, and atmosphere biomes. We rely

on water supply from the environment, and we recycle water back to the

environment from our wastewater treatment facilities. We also discharge

treated biosolids to land, and emit gasses to the atmosphere in our treatment

processes.

Our ESG Capitals framework tracks a wide range of metrics to manage

our multi-capitals performance, and our materiality assessment has been

fundamental in helping inform and update our future ESG targets. By taking

all of the capitals into consideration when planning for the future, we will

deliver more sustainable outcomes and make decisions based on what

matters most.

Our business planning and financial planning are underpinned by a series of

environmental strategies, plans and commitments that interlink up to 2050.

Key examples include:

• Growing Nature to 2035: our strategy for nature recovery, sets out the

key activities that we will take to support nature recovery and biodiversity

on our land, in our everyday operations and beyond. There are three

principles in the strategy: 1) Protect the best – take action to protect the

valuable biodiversity that we have on our landholdings, 2) Restore and

enhance the rest – take action across our landholdings and assets to

enhance biodiversity in the everyday management of our sites, and 3)

Beyond our landholdings – work in partnership with others across the

region, taking a catchment approach to deliver biodiversity enhancement

and nature recovery. These principles align with the LEAP process

advocated by the TNFD, by taking a site approach (locate), formulating

plans to monitor those sites via undertaking biodiversity baselines and

natural capital assessments (evaluate), and creating management plans

(assess) with actions to work across the estate with own staff (e.g. Nature

Safe) and external partners, to improve the biodiversity condition. The

outputs of these plans will enable Pennon to prepare to respond to and

report on material nature-related issues. Our biodiversity strategy aligns

fully with our PR24 Business Plan.

• Our ‘Green First’ Framework, published May 2023, sets out our approach

to utilise NBS and natural flood management wherever possible and

practicable to do so. As such, our planning assumptions are based

on achieving 50% reduction in surface water flow entering sewers,

through nature-based solutions and a minimum removal of 10% of

impermeablesurfaces.

• The launch of WaterFit in 2022 is our plan for healthy rivers and seas as

part of c.£100 million of investment to 2025 focused on the protection of

our 860 miles of coastline and rivers in the South West. This includes an

additional c.£45 million reinvestment of out-performance.

• Our catchment management initiative, Upstream Thinking, applies natural

solutions to reduce agricultural impact on biodiversity and water quality.

It does so whilst supporting farmers and the rural economy, by providing

long-term resilience to climate change, by: installing waterside fencing,

building ponds, improving farm tracks, increasing slurry storage and

planting trees and buffer strips to catch and filter water.

• In early 2024, our Board approved a pilot programme of bespoke,

evidence-based “Natural Catchment Management Plans” (NCMPs) at

selected catchments in Devon and Cornwall. These will create a blueprint

for all bathing water catchments from this year onwards, primarily in

relation to bathing water quality issues.

• In preparation for Asset Management Period AMP8, our Tier 1 suppliers

were tested for their ability to deliver NBS for wastewater and drinking

water. In March 2025, we became a partner of the Supply Chain

Sustainability School (SCSS), reinforcing our commitment to upskilling

our supply chain and colleagues across key sustainability topics, including

climate and nature. This partnership provides access to industry-leading

training and resources, enabling our teams and suppliers to deepen

their understanding of key topics, and drive positive change across our

operations. By working collaboratively with SCSS, we are empowering

our supply chain to meet higher sustainability standards as we move into

AMP8.

• South West Water has renewed its commitment to improving the

management of natural assets and resources by re-signing the Catchment

Management Declaration. The declaration promotes collaborative, cross-

sector working in order to better manage water resources.

• We have used remote-sensing technology to determine a baseline

condition assessment of habitats on our landholdings. This information will

be used to help us target positive biodiversity interventions.

• We are investing in research on new and emerging risks such as

microplastics, invasive freshwater mussel species, and on the sustainable

management of sludge applied to land.

Going forward:

• The new Biodiversity Performance Commitment requires all water

companies to set out their plans for delivering measurable biodiversity

enhancement units measured using the Defra Natural England

biodiversity metric. These will be achieved as a result of the actions that

we will deliver under our nature plans and strategies across the areas we

serve.

• We are creating a ‘Nature Safe Framework’ to support our employees and

contractors across operational sites to understand and protect nature – in

alignment with our Biodiversity Strategy. We are in the scoping phase and

envisage this framework to be analogous to our ‘Home Safe Framework’

related to employee health and safety.

• Over the next year we will continue to develop our approach to

embedding nature-risk and opportunity management across our business,

including conducting materiality ratings of the ecosystem services that we

depend on

Risk Management

TCFD/TNFD Recommendation: Disclose how the organisation identifies,

assesses, and manages climate-related and nature-related risks.

The Group’s risk management framework is explained in detail on pages 70

to 79, including the methodology for assessing risks.

The Group is continuing to integrate climate-related and nature-related

risk management within the Group’s overall risk management process.

Climate-related and nature-related risks and opportunities are assessed

using the same methodology as other business risks. In the past few years

we have undertaken specific work to identify and assess climate-related

risks and opportunities, and we are moving towards this risk identification

and assessment being integrated within business subsidiaries/functions.

We have the processes in place to enable this integration, and a key area

we are continuing to work on is raising awareness and competency so that

the key people across our subsidiaries/business functions can effectively

identify climate-related and nature-related risks, like they do with other risks

(in many cases, climate and nature risks are an amplifier or additional driver

to risks we have already identified, rather than presenting novel risks). For

the past three years we have convened workshops with senior management

from across business functions to re-visit and re-assess climate-related risks

and actions, and management will take forward the responsibility to integrate

climate risks into risk registers owned by each business subsidiary/function.

Furthering our progress, the Group has identified several principal risks

which are impacted or influenced by physical and transitional climate and

nature risks and opportunities, and as such we are increasingly cognisant

that climate and nature risk management is integral to the performance and

resilience of our business and strategy. The link between climate-related and

nature-related risks and opportunities on our principal risks is summarised in

the table over the page.

We recognise the evolving landscape of climate-related and nature-related

risk which is reflected in the changing regulatory frameworks, customer

expectations and Government policies that are inherent to our operating

context.

122 Annual Report and Accounts 2025 Pennon Group plc

This is particularly true for climate change, nature, and Net Zero where new

policies and technologies are rapidly emerging, and markets are rapidly

changing.

For the climate-related risks that have been identified, a desired ‘target’ net

risk level is documented within the Group’s risk framework. This target risk

level or tolerance level reflects the acceptable level of risk by the Group and

also stands as a target and equitable measure for alleviatory measures to

approach the risk going forward. We seek to minimise risks on operational

activities within the regulatory environment. Climate-related risks are

approached with a minimal level of appetite, and this is subject to Board

approval where all appetite levels are established.

Environmental compliance requirements are high, so our risk appetite

for environmental impacts is low. Where there is no risk to regulatory

compliance, we are willing to take more risks to innovate e.g. NBS.

The appropriate action then follows from the level of difference between the

net risk and the desired risk appetite. Actions to manage risks cover four

response types:

• Tolerate: where decisions are taken to tolerate a risk, subject to ongoing

monitoring. An example is climate-related risks where uncertainty is high

and therefore we might decide to monitor risks until such time as it may

be necessary to take further action.

• Treat: where actions are taken to manage and reduce risks, such as

implementing operational measures in our drought plan or capital

investments to enhance our resilience to droughts.

• Transfer: used where possible to transfer risks to other organisations –

such as through insurance or through contracting out responsibilities.

We recognise it is not possible to fully transfer risks, rather this approach

helps to reduce our exposure. For example, reducing our exposure to the

impacts of flooding through flood insurance.

• Terminate: where decisions are taken to stop activities so that we are not

exposed to particular risks. For example, we may decide not to undertake

a capital project if risks cannot be effectively mitigated – for example due

to high costs for energy, materials, and specialist resources related to Net

Zero or climate adaptation.

Actions to mitigate risks are allocated to action owners and progress is

monitored through the risk review process.

Climate-related and nature-related risks impact and

influence our principal risks

Below we outline our principal risks which are impacted or influenced by

climate-related and nature-related risks and opportunities, including where

our response to these principal risks needs to consider nature recovery,

climate change, and Net Zero. The climate and nature emergency are

amplifying our principal risks.

Physical Risks Transition Risks

Our

Principal

Risks

Law, Regulation and Finance

Changes in Government policy

Changes in regulatory frameworks and requirements

Non-compliance with laws and regulations

Inability to secure sufficient finance and funding, within our debt covenants, to meet ongoing commitments

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

Macro-economic near-term risks impacting on inflation, interest rates and power prices

Operational performance

Failure to secure, treat and supply clean drinking water

Failure to improve wastewater performance results in environmental commitments not being delivered

Failure to provide excellent service or meet the needs and expectations of our customers and communities

Inability to attract and retain staff with the skills to deliver the Group’s strategy

Business Systems and Capital

Insufficient capacity and resilience of the supply chain to deliver the Group’s operational and capital programme

Inadequate technological security results in a breach of the Group’s assets, systems, and data

We recognise how climate-related and nature-related risks are impacting our principal risks and/or how our response to these risks needs to

consider climate resilience, nature, and Net Zero

Key

Climate

change

influence

Nature

influence

123Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Metrics and targets

TCFD/TNFD Recommendation: Disclose the metrics and targets used to assess and manage relevant climate-related and nature-related risks and

opportunities where such information is material.

We are continuing to enhance the metrics we use to quantify key climate and nature risks and to monitor progress towards managing risks and achieving our

targeted objectives.

We continue to disclose comprehensive data relating to our GHG emissions and energy consumption (SECR report on pages 91 - 93). We report on all

Scope 3 categories which are relevant and material to our business (ESG Databook). Our SASB disclosures can be found in the ESG Databook. We report on

progress against our ODIs, performance commitments and WINEP delivery in our Annual Performance Report. All material data for TCFD compliance is in the

TCFDreport.

The Group is committed to improving its sustainability, climate change, and nature-related disclosures and will continue to enhance this over the coming years.

Some metrics relate only to South West Water (SWW) including Bournemouth Water, Bristol Water (BW), or SES Water (SESW).

Description of the metric Metric for 2023/24 Metric for 2024/25 Related Targets

GHG emissions Scope 1, 2 (market based), and 3 GHG

emissions (in tCO

e).

368,265

356,076 • Operational Net Zero by 2030 (SWW, BW, SES).

• We have met our target to reduce operational GHG

emissions by 70% by 2025 (Scope 2 market-based)

(tCO

e) (SWW & BW).

• We have met our target to reduce operational GHG

emissions by 70% by 2025 (Scope 2 market-based)

(tCO

e) (SWW & BW).

• The Group commits to reduce absolute scope 1 and

scope 2 GHG emissions by 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

2027/28. The Group commits to increase annual

sourcing of renewable electricity to 100% by 2030.

GHG Reduction from the baseline year 2021

(Scope 2 market-based) (tCO

e).

71.9% 70.68%

Carbon intensity of our water services

in tonnes of CO

e per megalitre of water

supplied to customers.

38.8 SWW

358.5 BW

30.68 SWW

358.82 BW

32.19 SESW

Carbon intensity of our business in tonnes

of CO

e per £100k of our revenue based on

Scope 1 and 2 GHG emissions.

6.0 5.4

Reduce scope 1 and 2 GHG emissions by

68% by 2032/33 from a 2021/22 base year

(science-based target).

51%

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% by 2032/33 from a 2021/22 base year

(science-based target).

(9%)

60% of suppliers by emissions covering

purchased goods and services, capital

goods and upstream transportation and

distribution will have science-based targets

by 2027/28 (science-based target).

35.23%

The Group commits to increase annual

sourcing of renewable electricity to 100%

by 2030 (science-based target).

85%

Climate-and/or

nature-related

Transition

risks

Selected

metrics for

some material

risks

Risk of increased energy costs: Proportion

of our operational expenditure on electricity

(%).

c.21% 14.6% • Generate 50% of the electricity we use through our

own renewable energy generation by 2030, measured

against SWW’s 2020/21 grid import requirements

forusage.

Transition risks in our supply chain:

proportion of our key and strategic

suppliers who have evidenced they are

working towards a Net Zero target.

51% 80% • Met: 100% of our key and strategic suppliers have

evidenced an ESG policy or equivalent by 2025.

• 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% by 2032/33

from a 2021/22 base year.

• 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 2027/28.

Risk of customer affordability in achieving

Net Zero and adapting to climate change:

our customer affordability measure.

98.1% SWW

100% BW

100% SWW

100% BW

91.6% SESW

• Zero customers in water poverty by 2030.

• Maintain zero customers in water poverty by 2050.

• Over 100,000 customers supported via social tariffs by

2030. (SWW)

• We are planning to improve our WaterShare+ scheme

uptake to 1 in every 10 households by 2030. (SWW).

1. 2023/24 GHG accounting did not include SESW.

2. Renewable Energy Guarantees of Origin (REGOs) are purchased for all of SWW & SESW electricity consumption but not BW, hence BW is more GHG intensive.

TCFD and TNFD continued

124 Annual Report and Accounts 2025 Pennon Group plc

Description of the metric Metric for 2023/24 Metric for 2024/25 Related Targets

Climate-and/or

nature-related

Physical risks

Selected metrics

for some material

risks

Proportion (%) of customers currently at

risk of severe restrictions in a 1-in-200-

year drought.

7.6% 0% • Our 2050 target is to achieve 0% of customers at

risk of severe restrictions in a 1-in-500-year drought,

aligning with Government planning guidance.

Proportion (%) of customers at risk of

sewer flooding in 2050 in a 1-in-50-year

storm.

9.77% 10.18% • Our long-term target is to reduce this metric to zero,

assuming funding is provided to achieve this through

the regulatory system.

Number of major sites/assets at high risk

of coastal flooding and erosion.

36 36 • Our long-term target is to achieve 0 of our key sites/

assets at high risk, assuming funding is provided to

achieve this through the regulatory system.

Annual average number of spills from

each storm overflow (number per calendar

year).

43 41.3

• Reduce spills to an average of 20 per year from each

storm overflow by 2025.

• Zero harm to rivers and seas by 2030.

Climate-and/or

nature-related

opportunities

Selected metric

for some material

opportunities

Enhancing our energy resilience and

reducing our carbon emissions with

renewable energy: Amount of renewable

energy we have generated (MWh).

34,480 32,496

• Generate 50% of the electricity we use through our

own renewable energy generation by 2030, measured

against South West Water’s 2020/21 grid import

requirements for usage.

Proportion of our energy use which came

from energy we generated ourselves (%)

7.5% 7.14%

Reducing our financing costs through

sustainable finance: proportion of new

finance under our sustainable finance

framework during the year.

100% 100% • We have exceeded our target of 75% of new finance to

be raised via sustainable financing framework by 2025.

• Raise a further £2 billion of funding through our

Sustainable Financing Framework by 2030.

Biodiversity enhancement (ha)

(cumulative)

126,733 144,120

• Plant over 500,000 trees by 2030 (cumulative).

• We’re targeting to deliver at least 10% biodiversity net

gain.

Capital

deployment

Selected metrics

for material capital

investments

Investment (£) earmarked for our

renewable energy generation capital

plansto 2030.

£160m £160m

• Generate 50% of the electricity we use through our

own renewable energy generation by 2030, measured

against South West Water’s 2020/21 grid import

requirements for usage.

Remuneration Proportion of our management incentive

schemes linked to ESG outcomes,

including climate change

20% 27.4% Further information is provided in the remuneration

report.

Internal carbon

value

Value of carbon used in business cases

and whole life carbon assessments

(£/tCO

£252/tCO

Sensitivity

testing:

Low: £126/

tCO

High: £378/

tCO

£294/tCO

Sensitivity

testing:

Low: £147/

tCO

High: £442/

tCO

1. Does not include energy used in transport.

2. Reported in line with our 2025 ESG Target scope.

Our Net Zero carbon commitments will provide a step change to how we run our business and look to manage the risks of climate change, an update on our

progress during the last year is found on pages 88 to 90.

Further detail on our progress with driving environmental gains is provided on page 48 to 51.

125Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Non-financial and sustainability

information statement

Read more Related Policies

Climate and

environment

Our ambition is to become Net Zero by 2030. To achieve this, our Net Zero

strategy is built around three key pillars – Sustainable Living, championing

renewables, Reversing Carbon Emissions. To deliver on our carbon ambition, and

reduce our climate-related risks, we continue to innovate and look for ways to

decarbonise our operations, working with partners and supply chain.

• Approach to ESG –

page 82.

• Our Task Force

on Climate related

Financial Disclosures

– pages 94 to 125.

• Net Zero – pages 88

to 90.

• Biodiversity policy.

• Water management

policy.

• Environmental policy.

People

As a purpose led business, we recognise that the best way to deliver for

customers is to focus on our people to enable them to deliver their best. We

continue to foster a culture built on our purpose and one that reflects our values

and business plans. We operate a safety-first mindset to working across the

business with our HomeSafe health and safety approach which is embedded

in the day-to-day working culture of our business. We encourage continuous

learning and development, providing opportunities for all employees. We are

building a diverse and inclusive workforce.

• Our people and

culture – pages 32

to 39.

• Health, safety and

security policy.

• Code of Conduct.

• Workplace policy.

• Diversity, respect and

inclusion policy.

• Board diversity policy.

Social

matters

We work closely with our customers, communities and partners on the things that

matter most to them and have regular engagement with them. Supporting our

customers is a priority. Not only providing safe, clean drinking water, but supporting

them financially when it matters most. We aim to keep our bills low and have since

2020 provided financial support.

Our approach to community relations and investment enables strong and clear

governance, making positive community investments which create value, and

benefits both the community and the business. Our Neighbourhood Fund is about

supporting our local community. We’re funding projects that support the wellbeing of

people, the environment and communities across the South West and Bournemouth.

Our Together for Good fund provides similar community support for Bristol

communities.

• Stakeholder

engagement –

Customers page 22

and Communities

page 24.

• Supporting

affordability,

delivering for

customers – pages

52 to 54.

• S172(1) – pages

146 to 147.

• Community relations and

investment policy.

Human

rights

We are committed to promoting and maintaining the highest level of ethical

standards in relation to how we do business. We uphold internationally

recognised human rights standards in all our operations consistently throughout

the Group. Our policies help prevent and address any human rights impacts

on our business activities and relationships. We ensure all of our partners and

suppliers comply with our policies, which include our new revised Code of

Conduct (launched in February 2025) and Anti-Modern Slavery and Human

Rights Policy. Our Modern Slavery Statement identifies the activities we conduct

annually and our Code of Conduct for Supply Chain Partners further aligns our

supply chain to the standards we expect of ourselves and others.

• Modern Slavery

Statement – foot of

homepage at www.

pennon- group.co.uk

• Anti-Modern Slavery and

Human Rights.

• New revised Code of

Conduct

• Code of Conduct for

Supply Chain Partners

Anti-

corruption

One of our guiding principles is to act fairly and responsibly in everything that we do.

We are committed to promoting and maintain the highest level of ethical standards

in relation to how we do business. We have a zero-tolerance approach to financial

crime and corruption and have effective systems in place to counter them.

Anyone that works with or for the Group must comply with our consolidated

anti-financial crime policy and is encouraged to report any breaches to Group

Legal Compliance or through the Pennon whistleblowing reporting Speak Up

portal which is provided by a third party to enable completely anonymous

reporting of concerns.

• Code of Conduct –

page 156.

• Anti-financial crime

and corruption –

page 156.

• Whistleblowing Policy.

• Anti-Financial

Crime Policy

• New revised Code

of Conduct

• Gifts and Hospitality

Policy.

126 Annual Report and Accounts 2025 Pennon Group plc

Due diligence processes Policy outcomes Principal risks KPIs

• Governance framework in

place led by the Board and its

Committees.

• External assurance.

• External ESG benchmarking.

• Minimising our impact on the

environment.

• Meeting our regulatory

commitments.

• Net Zero 2030 ambition.

• Failure to secure, treat and supply clean

drinking water.

• Failure to improve wastewater performance,

resulting in environmental commitments not

being delivered.

• Insufficient capacity and resilience of the

supply chain to support the delivery of the

Group’s operational and capital programmes

in K8.

• % energy usage

from renewable

energy generation.

• % reduction in GHG

emissions (Scope

2 market-based

emissions only)

• Tree planting.

• Biodiversity.

(Hectares)

• Regular all colleague Great

Place to Work surveys.

• Health and Safety Steering

Group overseeing targets,

performance monitoring and

interventions.

• Employee representative

groups, including RISE and

Trade Unions relations.

• Change the Race Ratio.

• Reduced workplace accidents

and improved employee wellness.

• Board diversity target

achievements.

• Sustainability target.

• Code of Conduct compliance.

• Non-compliance or occurrence of an avoidable

health and safety incident.

• Difficulty in recruiting and retaining staff

with the skills required to deliver the Group’s

strategy.

• LTI number.

• GPTW

accreditation.

• % REACH

recruitment.

• % female

employees.

• 5% Club

achievement.

• Community engagement plan

in place led by the Regulatory

and Customer teams.

• Having a positive impact on

our local communities through

our business activities and

investments.

• Foster an environment

that encourages employee

engagement with communities

and provides opportunities for

volunteering and establishing

community partnerships.

• Failure to provide excellent service or meet

the needs and expectations of our customers

and communities.

• £ community

investment.

• C-MeX.

• % priority services

– customer

satisfaction.

• Modern Slavery Statement

www. pennon-group.co.uk

• An open dialogue with our

stakeholders on human rights

issues.

• Non-compliance with Laws and Regulations. • % of instances of

modern slavery

detected in Pennon

or supply chain.

• Ethics Management Committee.

• Speak Up portal.

• Gifts and Hospitality and

Conflicts of Interest procedures.

• Group-wide anti-financial crime

mandatory training contained in

new interactive Code of Conduct

module.

• Supplier due diligence process.

• Seeking to prevent, detect and

report financial crime, including

instances of bribery and

corruption.

• Maintaining an ethical approach

to business and adhering to our

Code of Conduct.

• Non-compliance with Laws and Regulations. • Number of cases

reported through

Speak Up portal.

The following information and the sections referenced, represent our non-financial and sustainability information statement which is required by section 414CA

and 414CB of the Companies Act 2006. The table below outlines our policies under the sections defined under the non-financial and sustainability information

statement, as well as where further information in this report can be found. A full list of the Group’s policies, including our business model on page 20, can be

found online at https://www.pennon-group.co.uk/about-us/policies.

Approval of the Strategic Report

Our strategic report on pages 1 to 127 has been reviewed and approved by

the Board.

Andrew Garard

Pennon General Counsel and Company Secretary

3 June 2025

127Pennon Group plc Annual Report and Accounts 2025

Strategic report Governance Financial statements Other information

Governance at a glance

Highlights

Board changes

• David Sproul was appointed to the Board as an Independent Non-

Executive Director on 1 July 2024 and assumed the role of Pennon

Chair after the 2024 AGM on 24 July 2024.

• Gill Rider stepped down from the Board as Group Chair on

24 July2024.

• Steve Buck stepped down from the Board as Group Chief

FinancialOfficer on 11 July 2024.

• Laura Flowerdew was appointed to the Board as Pennon Chief

Financial Officer on 11 July 2024.

• Claire Ighodaro stepped down from the Board on

31 December2024.

• Andrea Blance was appointed to the Board as Chair of the

Remuneration Committee on 8 April 2025.

Read more on David, Laura and Andrea’s experience in their biographies

on pages 132 to133

In numbers

top ten best performer in FTSE 250 Women Leaders

Review, and 8

in the utility sector.

92.5%

The Company received valid acceptances

representing approximately 92.5% of the total

numberof shares issued pursuant to the fully

underwritten Rights issue.

Key focus areas for the Board in

2024/25

• Customer affordability.

• Delivery of capital projects.

• PR24.

• AMP8 readiness.

• Investment programmes.

• Storm overflows and eliminating pollutions.

• Water quality and resilience.

• Rights issue.

• Incident management.

See pages 138 to 139 for more information.

Compliance with the UK Corporate

Governance Code 2018 and

otherrequirements

Pennon firmly believes that good corporate governance is essential to enable

us to deliver our purpose for all of our stakeholders and it remains a top

priority for the Board. We are committed to the principles of the 2018 UK

Corporate Governance Code (the Code), which is published on the Financial

Reporting Council (FRC) website. For the year ended 31 March 2025, we were

compliant with all provisions of the Code with theexception of Provision 24,

which is explained further on page 151.

1. Board leadership and Company purpose Page

A: Board of Directors 132 to 133

B: Purpose, values, strategy and culture 135

C: Resource and control framework 136

D: Stakeholder engagement 142 to 144

E: Workforce policies and practices 139

2. Division of responsibilities

F: Role of the Chair 137

G: Division of responsibilities 137

H: Role of the Non-Executive Directors 137

I: Board policies, processes, information, time and resources 138 to 139

3. Composition, succession and evaluation

J: Appointments to the Board 145

K: Board skills, experience and knowledge 129

L: Board evaluation 150

4. Audit, risk and internal control

M: Independence and effectiveness of internal and external auditors 155

N: Fair, balanced and understandable assessment 155

O: Risk and internal control 156

5. Remuneration

P: Alignment to purpose, values and long-term success 167

Q: Remuneration policy 166

R: Independent judgement and discretion 163 to 165

128 Annual Report and Accounts 2025 Pennon Group plc

Meeting attendance during the year and Board skills matrix

Position Chair Non-Executive Directors Executive Directors

Member

David

Sproul

Iain

Evans

Jon

Butterworth

Loraine

Woodhouse

Dorothy

Burwell

Claire

Ighodaro

Andrea

Blance

Susan

Davy

Laura

Flowerdew

Steve

Buck

Attendance

5/6 6/6 6/6 6/6 6/6 4/6 0/6 6/6 5/6 1/6

Skills

Water sector

Regulation

Finance and Accounting

Strategy

Transformation

Health, safety and wellbeing

ESG incl. climate change

Enterprise Risk Management

Data, technology and digital

People

Governance

Remuneration

1. Appointed 1 July 2024

2. Resigned 31 December 2024

3. Appointed 8 April 2025

4. Appointed 11 July 2024

5. Resigned 11 July 2024

Board meetings

There were six scheduled Board meetings during the year with a number of ad hoc meetings taking

place when necessary.

2024

2025

May July September November January March

Board and

Committee meetings

AGM, Board and

Committee meetings

Board and

Committee meetings

Board and

Committee meetings

Board meetings Board and

Committee meetings

Board gender diversity Board ethnic diversity Board tenure Board independence

Male: 43%

Female: 57%

Ethnic minority: 14%

White: 86%

0 - 3 years: 4 directors

3 - 5 years: 1 director

5+ years: 2 directors

Independent: 5

Non-independent: 2

As of 31 March 2025

129Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Chair’s introduction

The Board reaffirms its commitment

to maintaining effective corporate

governance and integrity that enable

us to deliver for the long-term benefit

of all our stakeholders.

David Sproul

Pennon Chair

Dear Shareholder

I am very pleased to introduce, on behalf of the Board, the Pennon Group

Corporate Governance Report for 2025, which sets out our governance

practices and processes, and how we applied the principles of the UK

Corporate Governance Code 2018 (the Code) throughout the year. The

report covers our key focus areas and achievements during 2024/25 and

explains how the Board continues to operate effectively and efficiently and

tosupport the Group’s strategy.

Review of the year

We continue to operate to the highest standards of corporate governance.

Strong governance remains central to the successful management of the

Group, providing the framework we need to deliver our strategy, fulfil our

purpose, create value for all our stakeholders and continuously develop

ourbusiness.

The table on page 128 will help you to navigate our reporting and evaluate

our performance against the Principles of the Code. As we explain below, we

also have processes and procedures in place to safeguard the independence

of decision-making by the Board of South West Water.

More information on the Board’s activities can be found on pages 140 to 141

and information on our PR24 framework can be found on pages 18 to 19.

130 Annual Report and Accounts 2025 Pennon Group plc

Changes to the Board

There were a number of changes to the Board during the year. I joined the

Board as Non-Executive Director on 1 July 2024. Gill Rider retired from the

Board on 24 July 2024, after which I assumed the role of Chair.

Steve Buck stepped down from the Board in July 2024 as Group Chief

Financial Officer for personal reasons, and we were very pleased to appoint

Laura Flowerdew as his successor. Laura was previously the Chief Customer

and Digital Officer of Pennon Group. She brings a strong understanding of

our business, significant leadership experience and is well equipped for this

new role.

Claire Ighodaro retired from the Board and as Chair of the Remuneration

Committee in December 2024, and we are pleased to appoint Andrea Blance

as her successor in April 2025. Andrea brings extensive risk and regulation

expertise gained within the financial services sector and works with

businesses to develop customer focused commercial strategies.

Laura’s, Andrea’s and my biographies can be found on pages 132 to 133.

Promoting diversity

Diversity and inclusion (D&I) continued to be a top priority for the Board and

the Group during the year. Our Board composition is substantially ahead of

the diversity targets suggested by the Parker Review and the FTSE Women

Leaders Review and Pennon is one of the rare FTSE-listed entities where

women on the Board outnumber their male counterparts. During the year,

wewere incredibly proud to achieve third position for best performers in

Women on Boards within the entire FTSE 250.

Our commitment to diversity is also reflected right across the business;

our widespread commitment and focused drive to recruit talent from all

backgrounds has the heartfelt support of our strong and diverse leadership

team. More information on our D&I initiatives can be found on page 36 and

inthe Nomination Report on page 149.

Engaging with our stakeholders

Engaging with all our stakeholders has never been more essential,

particularly in view of the national and global issues we are facing.

All companies in the water sector face much scrutiny around their

environmental impacts, so it is vital that we listen to and respond to

ourstakeholders’ views. We make sure to carefully consider all decisions

andtheir likely impacts on our stakeholders.

Engagement with customers is of particular interest to the Board and as part

of the PR24 process, we were delighted that Lord Matthew Taylor, Chair of

the WaterShare+ panel, and Peaches Golding OBE, Chair of the Bristol Water

Challenge Group, regularly attended Board meetings to provide feedback

from their discussions with our customers as part of their work withthe

WaterShare+ panel. Further information on the important work of the

WaterShare+ panel can be found on page 15.

We continue to foster an open and transparent feedback culture within the

business. All colleagues have the opportunity to share feedback with the

Executive team and Board in several ways, including the Big Chat initiative,

our Great Place to Work survey and our Employee Forum RISE.

You can read more on how we engage with our stakeholders on pages 142

to144 and in our Section 172(1) statement on page 146.

Culture

As a Board we pay particular attention to our Group’s culture, ensuring it is

fully aligned with our shared purpose, values, and strategy. We continue

to monitor these essential properties and receive regular reports from

management on the work being done to ensure their continuous

improvement. During the year, the Board were delighted to see the

development of the Group’s values, which reflect the views of our

widerstakeholders and culture.

Role of the Board and its effectiveness

It is my view that the Board continues to be highly effective with a deep

understanding of the opportunities available to us and the threats facing

the business. The results of this year’s Board and Committee performance

reviews support this view: see page 150 for further detail. We keep all

identified threats to the future success of the business under constant

review. Please see our risk report on pages 70 to 79 for a description of

therisks we identify and review.

Board independence – Pennon and South West Water

In accordance with Ofwat’s principles on board leadership, transparency and

governance, the Group maintains separate boards for Pennon, South West

Water and SES.

Our system of governance remains appropriate and effective, while continuing

to support the delivery of our strategy.

Our Board and Committee framework also allows us to remain efficient in

our decision-making processes. The South West Water and SES Boards

convene on the same day as each Pennon Board meeting and consider all

key relevant issues. This arrangement allows full operational oversight and

governance by the boards over the Group’s water interests, while the Pennon

Board continues to focus on strategic forward-looking matters for the Group

as a whole.

Looking ahead

I would like to take this opportunity to thank my Board colleagues, the

management team and our wider workforce for their outstanding work

overthe year just gone.

The Board will continue to focus on delivering against our strategic priorities

in the year ahead, ensuring the wellbeing of our workforce as we build on the

work of the last year in creating a successful and sustainable business.

David Sproul

Pennon Chair

3 June 2025

131Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Our Board

Working responsibly together

1. David Sproul

Pennon Chair

Date of Appointment to the Board: David was appointed to the Board on

1 July2024 and became Pennon Chair on 24 July 2024.

Current external appointments: Chair of Starling Bank Limited and

Non-Executive Director on Safanad Limited. David is also a senior adviser to

Bridgepoint Europe, and he sits on the Board of Governors as chair designate

ofUniversity of Hertfordshire.

Skills and experience: David is a Chartered Accountant who has spent the

majority of his career in professional services with Deloitte and prior to that,

Andersen, serving a diverse range of UK and international clients.

He concluded his executive career at Deloitte in summer 2021 as Global Deputy

CEO having previously been elected for two terms as Senior Partner and Chief

Executive of Deloitte UK and Northwest Europe from 2011 to 2019. During his

leadership, the firm became the largest and most profitable professional services

firm globally and in the UK, driven in part by significant investments in technology

services, as well as differentiating itself as the Audit quality leader with a strong

inclusive culture.

2. Susan Davy

Pennon Chief Executive Officer

Date of Appointment to the Board: Susan was appointed to the Board as

Pennon Chief Executive Officer on 31 July 2020, having previously served as

ChiefFinancial Officer since 2015.

Current external appointments: Senior Independent Non-Executive Director

and Audit Chair of Restore Plc, President and Director of the Institute of Water,

Director of Water UK, Director of CREWW (Centre for Resilience in Environment,

Water and Waste) and was previously a member of the A4S Accounting for

Sustainability CFO leadership network.

Skills and experience: Susan brings extensive industry knowledge, backed by

strong financial and regulatory expertise, which has been key to shaping and

delivering Pennon’s strategy. This includes value-enhancing acquisitions such

as Bournemouth Water, Bristol Water, Sutton and East Surrey Group, along with

the successful disposal of Viridor. With over 28 years of experience in the listed

utilities sector, Susan has held several senior positions in the water industry,

including at Kelda Group plc. Her experience with FTSE-listed companies,

combined with deep operational and corporate and financial knowledge,

addsvaluable diversity to Pennon’s leadership.

Committee key for board:

Audit Committee

ESG Committee

Health & Safety Committee

Nomination Committee

Remuneration Committee

Committee Chair

132 Annual Report and Accounts 2025 Pennon Group plc

Board members who stepped down in 2024/25:

Steve Buck: stepped down from the Board on 11 July 2024

Gill Rider: stepped down from the Board on 24 July 2024

Claire Ighodaro: stepped down from the Board on

31 December2024

3. Laura Flowerdew

Pennon Chief Financial Officer

Date of Appointment to the Board: Laura was appointed Pennon Chief Financial

Officer of Pennon Group in July 2024.

Current external appointments: None

Skills and experience: Laura was appointed Chief Financial Officer of Pennon

Group in July 2024. Laura held previous positions as Chief Customer and Digital

Officer of Pennon Group and Chief Financial Officer of Bristol Water plc from

October 2018. Laura previously worked in a number of senior executive positions

in UK utilities, international natural resources and listed companies, including

Anglo American plc, De Beers, Tribal Group plc and Bristol Energy. Prior to that

she worked with Deloitte and trained with Arthur Andersen. She is a Fellow of

theInstitute of Chartered Accountants for England and Wales.

4. Iain Evans CBE

Senior Independent Director

Date of Appointment to the Board: Iain was appointed to the Board as

Independent Non-Executive Director on 1 September 2018 and became

SeniorIndependent Director on 1 September 2023.

Current external appointments: Iain is a Non-Executive Director of

Bologna Topco Limited and HSM Advisory Limited and continues to act as an

independentcorporate strategy consultant.

Skills and experience: Iain has 40 years of global experience in advising

companies and governments on issues of complex corporate strategy. In 1983, he

co-founded L.E.K. Consulting in London and built it into one of the world’s largest

and most respected corporate strategy consulting firms, with a global footprint

and active in a wide range of industries. Iain was appointed as a Non-Executive

Director of Welsh Water plc in 1989, and served on the board for nearly ten years,

including five years as Chair.

5. Jon Butterworth MBE

Independent Non-Executive Director

Date of Appointment to the Board: Jon was appointed to the Board as

Independent Non-Executive Director on 8 July 2020.

Current external appointments: Chief Executive Officer at National Gas. Jon

is also president of the Pipeline Industries Guild and a director of E.Tapp & Co

Limited, Shopfittings Manchester Limited and TMA Property Limited.

Skills and experience: Jon has a distinguished track record and an immense

depth of experience and knowledge within the utility sector, having begun his

career over 40 years ago as an apprentice at British Gas. Jon was previously

Managing Director of National Grid Ventures, driving growth across a range of

commercial ventures outside the regulated energy sector in the UK and the US.

He has also been managing director of Northwest Gas, global Environment and

Sustainability manager of Transco, National Operations Director of National Grid,

Group Safety, Resilience and Environmental director of National Grid plc and

formerly Chief Executive Officer of National Grid Ventures. Jon is an ex-Chair of

the CORGI board, an ex-ambassador of the HM Young Offenders Programme and

trustee of the National Gas Museum Trust.

6. Loraine Woodhouse

Independent Non-Executive Director

Date of Appointment to the Board: Loraine was appointed to the Board as

Independent Non-Executive Director on 1 December 2022.

Current external appointments: Senior Independent Director and Chair of

theAudit Committee for the British Land Company plc, Non-Executive Director

forAssociated British Foods plc and a Trustee and Audit Committee member at

the Zoological Society London.

Skills and experience: Loraine is an experienced finance executive, with her

experience focused in the retail and consumer sector, and more recently in real

estate and infrastructure through her roles with Intu Properties plc and British

Land Company plc.

Loraine was the Chief Financial Officer of Halfords Group plc until June 2022,

before which she spent five years in executive and senior finance roles within

the John Lewis Partnership, including Waitrose. Prior to that, Loraine was Chief

Financial Officer of Hobbs, Finance Director of Capital Shopping Centres Limited

(subsequently Intu Properties plc) and Finance Director of Costa Coffee Limited.

7. Dorothy Burwell

Independent Non-Executive Director

Date of Appointment to the Board: Dorothy was appointed to the Board as

Independent Non-Executive Director on 1 December 2022.

Current external appointments: Partner and Global Partnership Board member

of FGS Global and Non-Executive Director at Post Holdings Inc.

Skills and experience: Dorothy has over 20 years’ experience in banking and

communications, specialising in natural resources and advising clients around

issues of sustainability, strategy, and corporate communications. She is well

known for driving substantive diversity and inclusion agendas. Between 2002 and

2006, Dorothy held analyst and senior roles at Goldman Sachs in the investment

banking division, in both London and New York, as well as in the firmwide

Strategy Group, where she focused on proprietary mergers and acquisitions and

new business development. Dorothy graduated from the Florida Agricultural

and Mechanical University, USA with a Bachelor and Master of Business

Administration, Finance and Management.

8. Andrea Blance

Independent Non-Executive Director

Date of Appointment to the Board: Andrea was appointed to the Board as an

Independent Non-Executive Director on 8 April 2025.

Current external appointments: Non-Executive Director and Risk Committee

Chair at Aviva plc.

Skills and experience: Andrea brings extensive risk and regulation expertise

gained within the financial services sector and works with businesses to develop

customer focused commercial strategies.

Andrea spent her executive career at Legal & General Group plc where she held

a range of senior leadership roles including Group Chief Risk Officer and Strategy

& Marketing Director. More recently, Andrea has been Risk Committee Chair

at Hargreaves Lansdown plc, Senior Independent Director and Remuneration

Committee Chair of Vanquis Banking Group plc, Senior Independent Director

andAudit Committee Chair of ReAssure plc, and Risk Committee Chair of

ScottishWidows plc and Lloyds Banking Group Insurance.

9. Andrew Garard

Pennon General Counsel and Company Secretary

Date of Appointment to the Board: Andrew was appointed to the Board as

Pennon General Counsel and Company Secretary on 1 December 2022.

Current external appointments: Non-Executive Director at Zinc Media Group

plc, where he is chair of the Remuneration Committee, co-founder and Chair of

theBoard of Trustees of the Social Mobility Business Partnership.

Skills and experience: Andrew is a very experienced General Counsel, having

joined from Meggitt plc, where he was Group General Counsel and Director

of Corporate Affairs, and a member of the group executive responsible for

legal, commercial, trade compliance, government relations, ethics and contract

management. Previously, he was Group General Counsel and Company Secretary

at ITV plc where he was a member of the executive board and led a global team

responsible for legal and business affairs, secretariat, compliance, insurance, health

& safety, rights management and corporate responsibility. Prior to this, hewas

Group General Counsel and Company Secretary at Cable & Wireless plc and

Global Head of Legal at Reuters Group plc.

133Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Our Board continued

Pennon Executive Board

1. Susan Davy

Pennon Chief Executive Officer

See biography on pages 132 to 133

2. Laura Flowerdew

Pennon Chief Financial Officer

See biography on page 132 to 133

3. Andrew Garard

Pennon General Counsel and Company Secretary

See biography on page 132 to 133

4. Adele Barker

Pennon Chief People Officer

Adele joined the Group in 2017 and was appointed as Pennon Chief People

Officer in 2020. Adele’s role is to lead and execute the Group’s People strategy

and Health and Safety strategy, and lead on Corporate Affairs. In addition, Adele

isacting Manager Director, Retail Services.

Her background includes senior executive roles and HR leadership across Utilities,

banking and retail, including British Gas, Orange and Marks & Spencer.

5. Richard Price

Managing Director of Wastewater Services for South West Water

Richard was appointed Managing Director, Wastewater Services in July 2024.

Previously, he held the position of Group Chief Engineering Director from

1 September 2022, having joined Bristol Water in February 2018.

Richard is a Chartered Civil Engineer and Fellow of the Institution of Civil

Engineers and Institute of Water. Richard has over 30 years’ experience

engineering, constructing and operating water and wastewater infrastructure,

having previously held senior roles at other water companies. Richard was

instrumental in the transformation of Bristol Water as Chief Operating Officer.

Heis passionate about safety and customer excellence, embedding leading

practices whilst transforming operating and delivery functions.

Richard is also a director of Pelican Business Services (the trading name of

BristolWessex Billing Services Limited), a joint venture, providing combined

billingservices to Bristol Water and Wessex Water customers.

6. David Harris

Managing Director of Water Services

David joined the Group as Group Drought and Resilience Director in 2022.

He was appointed as Managing Director, Water Services (National) in July 2024.

With over 25 years of executive experience, he has successfully led the

performance and growth of large infrastructure businesses, in both the regulated

water market and the competitive energy market in Australia. David brings

experience from his time leading one of Australia’s largest and fully vertically

integrated water companies through the worst droughts in the country’s history,

ensuring a constant supply of water and the building of additional water resources.

7. Paul Ringham

Managing Director of Pennon Power

Paul joined the Group as Managing Director of Pennon Power, the newly

formedrenewable energy division, in September 2024.

Paul qualified as an accountant at Coopers & Lybrand and is a member of the

Institute of Chartered Accountants of England and Wales. Earlier in his career,

Paul was the Director of Corporate Finance for BT plc and later became the

Commercial Director of BT Global Services, the group’s international division. In

2014, Paul joined Viridor Waste Management Limited as Commercial Director and

worked closely with the Pennon Executive team during the sale of the business

to the US global investment company, 148 Kohlberg Kravis Roberts & Co (“KKR”)

in 2020. He then spent 24 months working with KKR to restructure the business.

Following the completion of this divestment program, Paul worked with the

newowner of Viridor’s landfill and landfill gas division to develop its renewable

energy strategy.

8. Graham Murphy

Chief Engineering Officer

Graham joined South West Water in 1991 and has held a number of positions

within engineering, operations and HR. He was appointed to his current role as

Chief Engineering Officer in July 2024 and has full responsibility for the timely and

efficient delivery of the South West Water’s capital investment programme. Prior

to joining South West Water, he undertook a variety of operational management

roles within British Gas.

Sarah Williams

Chief Strategy and Regulation Officer

Sarah Williams, Chief Strategy and Regulation Officer was also a member of the

Pennon Executive Board during 2024/25.

134 Annual Report and Accounts 2025 Pennon Group plc

Monitoring purpose and culture

Our purpose

Bringing water to life – supporting the

lives of people and the places they love

forgenerations to come.

Our values:

Be the

Purpose, values and culture

As a purpose-led business, committed to the effective stewardship of the

environment and our communities, we are shaped by our values and culture.

We are a dedicated business, working 24 hours a day, 365 days a year to

deliver our essential water services for our customers. We know that it’s not

only what we do, but how we do it that is really important for our customers,

communities and ourselves. That’s why we will keep our focus on living our

values across Pennon, every day.

We want our values and our behaviours to be the golden thread across

Pennon Group – all businesses within our Group to have the same values

andtherefore the same way of being.

Our values were developed after intensive involvement and listening sessions

with the Pennon Executive Board, the larger leadership group, colleague

organisations such as the employee forum, and comprehensive colleague

listening groups.

How the Board monitors culture

The Board plays a vital role in monitoring and assessing the culture of the Group and its alignment with its purpose, values and strategy.

During the year, the Board considered a number of areas that helped them to assess the development of the Group’s culture.

Area assessed How the Board monitors the culture

Employee

engagement

Great Place to Work survey – The Board reviews the results and feedback from the quarterly employee engagement survey and

monitors how the areas of employees’ focus are being addressed.

Big Chat – The Executive team engages with all employees on all business topics and ensures that their views and opinions are shared

with the Board.

Workforce policies

and practices

The Board formally reviews the Group’s workforce policies and practices to ensure these remain consistent with the Group’s Purpose

and Values and support the Group’s long-term sustainable success.

Gender and ethnicity pay gap – The Board monitors the culture on gender and ethnicity pay through review, assessment, and approval

of the Gender and ethnicity pay gap report.

Diversity and inclusion – The Nomination Committee monitors diversity and inclusion through regular updates and the Board fosters

the Group ‘s culture on diversity and inclusion through the review and approval of the Group Diversity, Respect and Inclusion policy.

General pay conditions – The Board ensures that reward and pay arrangements support a culture that is transparent, fair, and

consistent to ensure that employees’ trust is maintained and that talent is attracted and retained.

Whistleblowing

Speak Up – Employees raise concerns anonymously without fear of reprisal. Any significant concerns, following formal investigation, are

shared with the Audit Committee through the Ethics Management Committee and ultimately shared with the Board.

Health & Safety

HomeSafe – This is monitored through regular updates on safety initiatives adopted for the achievement of the Group’s 2025 strategic

plan to be health and safety leaders in the water sector.

Lost time injuries – Further updates on efforts to reduce injuries of our staff across all Group companies are assessed at the Health and

Safety Committee and a reduction in the lost time injury frequency rate from 0.30 to 0.24 (employees and agency staff) was recorded in

2024/25, compared to the previous year.

Remuneration

The Remuneration Committee is regularly provided with feedback from shareholder consultations and customer engagement which

helps the Committee and the Board to monitor the culture on wider workforce pay, and executive and CEO remuneration.

The Committee reviews and approves the wider workforce Group Reward Framework and relevant policies, and ensures that incentives

and rewards align with culture.

CEO pay ratio – The Board ensures that the CEO pay ratio is fair, balancing stakeholder expectations while rewarding leadership success.

135Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Board leadership

Governance structure and framework

Board Committees

The terms of reference for each Committee are agreed by Board and can be found at https://www.pennon-group.co.uk/about-us/board-committees.

Pennon Chief Executive Officer and Pennon Executive Board (“PEx”)

Responsible for defining and driving the business priorities that will achieve delivery of the Group’s strategy and ensuring, to the extent of the authority

delegated by the Board, the proper and prudent management of Group resources to create and maximise shareholder value while protecting the interests

of the wider stakeholder group. Chaired by the Pennon Chief Executive Officer, the Pennon Executive Board meets regularly to receive reports from the

management committees and to review and refine recommendations to be presented to the Board.

Disclosure Committee

Draws up and maintains procedures, systems and controls for the

identification, treatment and disclosure of inside information and for

complying with other disclosure obligations falling on the Group.

Monitors compliance with the disclosure procedures and keeps the

adequacy of those procedures under review.

Ethics Management Committee

Oversees the ethics culture of the Group and its commitment to ethical

business and integrity, including the creation, maintenance and execution of

the Group’s approach to anti-financial crime, modern slavery, whistleblowing

and grievances.

Audit Committee

Ensures the quality and

integrity of the Group’s

financial reporting,

assesses the application

ofaccounting policies

given underlying

standards, probes and

tests the accounting

judgements made in

preparing financial

reporting and evaluates

whether the presentation

of the Group’s activities

is fair, balanced and

understandable.

Reviews and challenges

the ongoing effectiveness

of the internal control

environment and the

scope and adequacy of risk

management processes

across the Group.

Audit Committee Report

pages 151 to 157

ESG Committee

Ensures robust

scrutinyof key aspects

of environmental,

social and governance

(ESG) performance

and oversees Pennon’s

performance against its

ESG strategyand strategic

sustainability objectives.

ESG Committee Report

pages 158 to 160

Nomination Committee

Regularly reviews the

structure, size and

composition (including

the skills, knowledge,

independence, diversity

and experience required)

of the Board, comparing to

its current position and the

skills and expertise needed

in the future.

Nomination Committee

Report pages 148 to 150

Health and Safety

Committee

Provides a ‘review

andchallenge’ function

to support the Board

and theExecutive on

all matters connected

to health and safety

including thedeployment

of the health and safety

strategy, resilience

andprocesssafety.

Health and Safety

Committee Report

pages161 to 162

Remuneration Committee

Ensures remuneration is

aligned with the Group’s

strategy and reflects the

values of the Group.

Advises the Board

on the framework of

executive remuneration

for the Group and for

thewiderworkforce.

Remuneration Committee

Report pages 163 to 165

Pennon Group plc – Board Of Directors

The role of the Board is to promote the long-term success of the Group, generating value for all its stakeholders, including its shareholders, customers,

employees and the communities which it serves, by providing effective leadership and direction to the business as a whole.

It sets the Group’s strategy and sustainability strategy, having regard to stakeholders, while maintaining a balanced approach to risk within a framework

of effective controls. It has also established the Group’s purpose and values and monitors culture to ensure alignment. Its sets the tone and approach to

corporate governance and is responsible for the overall financial performance of the Group.

136 Annual Report and Accounts 2025 Pennon Group plc

Division of responsibilities

Pennon Chair: David Sproul

• Leading the Board and promoting a strong culture of openness

and debate to facilitate constructive Board relations and effective

contribution from all Non-Executive Directors.

• Promoting the highest standards of integrity and probity

and ensuring the Board holds itself to standards of good and

effectivegovernance.

• Managing Board composition, performance, and succession

planning, ensuring the Board continues to have the skill set

andtraining it requires.

• Setting the agenda and ensuring the timely dissemination of

information to the Board to ensure all relevant information is

provided in a timely manner before constructive discussion

anddecision making.

• Representing the high standards and values of the Group and ensuring

the views of all stakeholders are understood and considered.

• Facilitating an open relationship with the Pennon Chief Executive

Officer by providing advice, support, and guidance.

Non-Executive Directors: Jon Butterworth, Loraine

Woodhouse, Dorothy Burwell, Andrea Blance

• Critically reviewing the strategies, operational performance and

financial reporting proposed for the Group.

• Evaluating proposals from management and constructively

challenging its recommendations.

• Contributing to corporate accountability and good governance

through being active members of the Committees of the Board.

• Playing a key role in succession planning of the Board and the

annual Board and Committee evaluations.

Pennon Chief Executive Officer: Susan Davy

• Managing the Group and providing executive leadership.

• Developing, proposing and implementing the Group strategy

asagreed by the Board and in line with the strategic framework.

• Leading on all regulatory and policy decisions.

• Leading the Group in accordance with the decisions of the Board.

• Ensuring financial and operational leadership.

• Coordinating with the Chair on important and strategic issues of

thegroup and providing input to the Board’s agenda.

• Contributing to succession planning and implementing the

organisational structure.

• Leading on acquisitions, disposals, and business development.

• Developing and managing relations with all stakeholders.

Pennon General Counsel and Company Secretary:

AndrewGarard

• Supports the Chair, CEO and the Board in ensuring all policies,

processes, information, and resources are in order to ensure the

Board can operate effectively and efficiently.

• Advises and keeps the Board updated on any changes to Listing

and Transparency Rules and best corporate governance practices.

• Facilitates a comprehensive induction for newly appointed directors

that is tailored to the Group’s industry and strategy.

• Co-ordinates the annual Board and Committee evaluations in

conjunction with the Chair and CEO.

• Provides advice and services to all Directors, as needed.

Senior Independent Director: Iain Evans

• Assisting the Chair with shareholder communications and being

anadditional point of contact for shareholders.

• Being available to other Non-Executive Directors if they have

concerns that are not satisfactorily resolved by the Chair.

• Ensuring an annual performance evaluation of the Chair, with the

support of the other Non-Executive Directors, and ensuring effective

succession planning for the Board.

Pennon Chief Financial Officer: Laura Flowerdew

• Managing the Group’s financial affairs and supporting the Pennon

Chief Executive in providing executive leadership and implementing

the Group strategy.

• Reporting accurate and detailed financial information to the Board

on performance and developments across the business.

• Managing and balancing relationships with areas of the Group,

such as investor relations, finance and treasury, as well as external

stakeholders, such as investors, lenders andPension Trustees.

There is a clear separation of responsibilities between the Chair and the Pennon Chief Executive

Officer, divided between managing the Board and the business, while maintaining a close

working relationship.

All Directors are equally accountable for the proper stewardship of the Group’s affairs and have specific roles, which include those set out below:

137Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

An effective Board

How the Board operates

The Pennon Board, in discharging its duties, has a clear strategy for growth

and ensures that its aims and objectives align with the Group’s purpose

and values which have been carefully considered. The Board maintains the

highest standards of governance alongside taking decisions to ensure the

long-term sustainability of the Group.

Thanks to the diverse skillset, independence of thinking and experience of

the directors, decisions reached by the Board are fair, focused and balanced

and they demonstrate that constructive debate has occurred.

All possible outcomes for the mutual benefit of our shareholders, customers,

employees, and the communities we serve are at the heart of the Board

decision making process.

The governance framework for the Board is clearly documented

in the Pennon Group plc Articles of Association, Division of

Responsibilities, Schedule of Matters Reserved to the Board and

Terms of Reference for each Committee, which are all available

on our website.

The culture of the Board is one of openness and constructive dialogue

withthe senior management team. Regular and effective flow of information

between the Non-Executive Directors and senior management, both in

and out of the Boardroom, ensures that there is good understanding of the

Group’s business. Further information on the effectiveness of the Board is

detailed in the 2025 Board performance review on page 150. As detailed on

page 137, there is a clear division of responsibilities between the roles ofthe

Chair and Pennon Chief Executive Officer; however, to ensure that their

responsibilities are discharged effectively, there is consistent communication

on all areas of the business between them.

The Board held six scheduled meetings during the year. Directors’

attendance at scheduled Board meetings held during the year is set out

on page 129. Additional unscheduled Board meetings were held when

circumstances required the Board to meet at short notice. The Board

alsoapproved a number of matters during the year by written resolution.

Agendas for each scheduled Board and Committee meeting are prepared in

advance and are aligned with the annual Board and Committee programmes.

For each scheduled Board meeting there are a number of standing

items such as the monthly performance reports from the Pennon Chief

Executive Officer and Pennon Chief Financial Officer, operational reports,

deep dives, and legal and governance updates. All matters are given due

consideration by the Board and are reviewed at the appropriate point in

the regulatory andfinancial cycles. Flexibility is retained in the programmes

to include additional items requested by the Board, Committees, or senior

management. The key activities of the Board can be found on pages 140 to

141 and the keyactivities of the Committees during the year can be found in

theCommittee Reports.

Directors are provided with papers at least five business days in advance

of each Board or Committee meeting and meeting packs are provided on

asecure Board portal.

The Pennon Chair has calls with each of the Non-Executive Directors in

advance of each scheduled Board meeting to discuss the papers and the

business of the meeting. If a Director is unable to attend a meeting because

of exceptional circumstances, they will continue to receive all the material for

the meeting and have an opportunity to have a briefing discussion with the

Chair in advance. Feedback is provided to the Directors unable to attend on

the decisions taken at the meeting.

Non-Executive Directors communicate directly with senior management

between Board and Committee meetings, where required. Members of the

Pennon Executive Board also present at the annual strategy Board meeting

and at other times during the year on their areas of responsibility, along with

members of their teams.

During the year, the Chair had catch-ups with the Pennon Chief Executive

Officer and regular catchups with the Pennon General Counsel, and

Company Secretary and Pennon Chief Financial Officer.

Meetings of the Non-Executive Directors, without the presence of the

Executive Directors, are scheduled in the Board’s annual programme. During

the year, Non-Executive Directors met without the Executive Directors after

every Board meeting. These meetings provide the Non-Executive Directors

with the opportunity to share experiences and discuss wider business topics,

fostering debate in Board and Committee meetings and strengthening

working relationships.

Schedule of Matters Reserved to the Board

The Board maintains oversight of the areas material to the delivery of the

Group’s strategy and purpose, and acts as the main governing body for

the purpose of oversight of the Group, with additional supervision of the

regulated business of South West Water provided by South West Water’s

Board. The Board undertakes an annual review of the Matters Reserved to

the Board, with the latest review taking place in November 2023.

Committees

In accordance with the Code, the Board delegates certain responsibilities

to its core committees, which monitor various subject matters in depth and

gain greater understanding in detail. The Committees’ responsibilities and

mode of operation are guided by their respective terms of reference which

have been agreed by the Board and are summarised on the Committee

Report pages. In addition, each committee considers its calendar of business

at every meeting to ensure responsibilities continually remain clear. Each

Committee Chair provides an update on matters discussed at each Board

meeting, reporting on decisions taken, and where appropriate provides a

recommendation to the Board on matters requiring its approval. The reports

from each committee of the Board can be found on pages 148 to 165.

Strategy

The Board recognises its responsibility to create and oversee the framework

for the delivery of the Group’s strategic model, ensuring that the strategy and

purpose continually deliver for our stakeholders. At the meetings the Board

receive presentations from Managing Directors and senior management,

deep diving into the performance of each business unit, including reviews

into the financial outlook and opportunities for growth.

Pennon Executive Board

The Pennon Executive Board meet on a monthly basis and is responsible

for executing the Group’s strategy and the day-to-day management of the

Group’s operations. Responsibilities and processes are designed to ensure

effective management and oversight of Group affairs. Governance policies

and terms of references are reviewed in accordance with the demands

of the business, changing regulation and emerging best practice. The

Pennon Executive Board is led by the Pennon Chief Executive Officer. The

biographies of the Executive Board can be found on page 134.

138 Annual Report and Accounts 2025 Pennon Group plc

Workforce engagement

The Board has decided, at this time, not to adopt any of the three specific

employee engagement methods referred to in the UK Code. Instead, our

chosen method is to adopt a more enhanced approach which includes

the periodic ‘Great Place to Work’ engagement survey (including related

management feedback sessions) and continuous employee feedback

through our own in-house forums, such as the ‘Big Chat’, hosted on a

fortnightly basis by the Executive team. These forums not only give

employees access to important up-to-date information on key business

events; they also provide the opportunity to hear from the Directors, give

feedback and ask questions. The Board believes Pennon’s chosen approach

is an effective way of communicating with employees and gathering essential

feedback from across the business. This empowers the Board to consider the

interests of all employees in its discussions and decision-making. You can

find further information on employee engagement on pages 26 to 27.

Stakeholder engagement

In delivering our strategy and ensuring the sustainable, long-term success

of the Group, the Board places utmost importance on the interests of our

stakeholders in its decision-making process. Further details on how the

Board has fulfilled its duties under section 172(1) of the Companies Act 2006,

to consider all stakeholders in its discussions and decisions and that each

decision reached is in line with the Group’s purpose and culture, is set out on

pages 146 to 147; and an explanation as to how we engaged with ourdifferent

stakeholders during the year can be found on pages 142 to 144.

Workforce policies and Practices Conflicts of interest

In accordance with the Directors’ interest provision of the Companies Act

2006 and the Company’s Articles of Association, the Board has in place a

procedure for the consideration and authorisation of Directors’ conflicts or

possible conflicts with the Group’s interests. The Board considers this has

operated effectively during the year. Each Director has a duty under the

Companies Act 2006 to avoid a situation in which they have or may have a

direct or indirect interest that conflicts or might conflict with the interests

ofthe Group.

This duty is in addition to the duty owed to the Group to disclose to the

Board any interest in a transaction or arrangement under consideration by

the Group. A register of Directors’ conflicts is maintained and reviewed at

each Board meeting. Authorised conflicts disclosed on the register currently

involve cross-directorships with Pennon Water Services Limited and the

trustee board of the Group’s defined benefit pension scheme.

Whistleblowing

The Board maintains overall responsibility for the Group’s Whistleblowing

Policy (the Policy). The Policy provides a clear procedure for employees and

suppliers to report concerns, through the Speak Up service, either to their

line manager or through a third-party whistleblowing hotline. The Policy

is well communicated to employees across the Group. All whistleblowing

cases are investigated by the Ethics Management Committee. The Board,

through the Audit Committee, receives yearly whistleblowing updates which

set out any whistleblowing issues raised during the period and interim

updates on any significant matters. The updates provided are anonymous

and summarise the result of any investigation. The Board is satisfied that the

Policy and the work of the Ethics Management Committee remain effective.

139Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Key activities of the Board

In 2024/25, the Board considered a wide range of matters. The key activities that were carried out

by the Board during the year, together with an indication of the stakeholders affected and whose

interests the Board considered in its discussions and decision-making, are set out below.

Area Activity Outcome Stakeholders considered

See

page(s)

Strategic

2025 Rights Issue

Reviewed and approved the 2025

Rights Issue.

The proceeds of the Rights Issue

will form part of a comprehensive

financing package to deliver step

change investment in AMP8.

62 and 238

PR24 Business Plan

Accepted the Final Determination.

Investments will benefit our

customers, the environment

and community.

18 to 19

Delivery of capital programme

Reviewed and approved the delivery

of capital programme in line with the

framework model for capital delivery.

Successfully deliver the capital

programme for the benefit of all

stakeholders and foster long term

relationships with our suppliers.

Operational

ODI improvements

Monitored our ODI improvements

to meet regulatory requirements,

ongoing regulatory/innovation

initiatives were monitored via ESG

andHealth and Safety reports and

plans were adapted where needed.

Successful regulatory outcomes,

safe customer and employee

experience, enhancing day to

dayoperations.

40 to 54

Storm overflows and pollutions

Reviewed and assessed measures

tackling storm overflows at bathing

waters and reduced spill rates across

our sites and within our communities.

Delivery against our objective to

ensure continuous supply of safe

and clean water to our customers.

44 to 47

Water quality and resilience

Approved projects to upgrade

treatment works and expand

reservoircapacity across the regions.

Successfully maintain bathing water

quality all year round. Reduction in

pollution levels to industry-leading

low levels.

40 to 43

Key to stakeholder groups

Customers People Policy makers Environment

Investors Suppliers Regulators Communities

Inform

The agenda for each meeting is discussed and agreed in advance

with the Pennon Chair in conjunction with the Pennon Chief Executive

Officer and Pennon General Counsel and Company Secretary, along

with the matters arising from the previous meeting.

Senior leaders and management prepare written reports for the Board

meetings, based on the annual calendar of business, as well as deep-

dive presentations on key areas of the business, to inform and make

recommendations for the Board’s consideration. In addition, regular

performance reports are shared with the Board to ensure members

arecontinuously informed.

Approve and action

The Board will consider

matters and agree and

approve actions to

take forward.

Recommend and consider

Recommendations and deep

dives from senior leaders as

well as external advisors to

facilitate decision-making

and account for stakeholder

impact are presented to the

Board for consideration.

140 Annual Report and Accounts 2025 Pennon Group plc

Financial

2023/24 Annual Report

and Accounts

Reviewed and authorised the Annual

Report and Accounts.

Delivery against objectives to return

capital where appropriate.

Final dividend payment/AGM

Approved the final dividend and held

the Annual General Meeting.

The payment of a final dividend and

the holding of a successful Annual

General Meeting.

Environmental

Net Zero strategy plan, green

recovery investment programs

Implementation and alignment of

plans with our strategic priorities

byengaging in, for example:

• Investments in bathing waters

to reduce releases from

stormoverflows.

• Desalination project being

undertaken to secure long term

water security in the region.

Accelerate delivery of our Net Zero

plans to achieve a more sustainable

future for all.

88 to 90

Pennon Power

Continued to support the construction

of the four renewable energy

generation projects acquired during

2023/24. Construction has started on

three of the four sites and will start

on the fourth site in Q3 2025/26.

Including these projects, the Group

remains on target to generate 50%

of the electricity we use through our

own renewable electricity generation

by 2030, measured against South

West Water’s 2020/21 grid electricity

importrequirements.

Foster our commitment to the long

term sustainable growth of the

UK’s environmental infrastructure

and increase the Groups energy

securityand resilience.

Social

Supporting customers

on low income

Monitored customer service levels and

plans to deliver improved diversity mix

and adapted where needed.

Continued alignment of plans

to achieve ever more stringent

targetsas well as greater

public/regulatory scrutiny.

52 to 54

Investments in job opportunities

and apprenticeships for

localcommunities

Reviewed and approved investments

for the benefit of the communities.

Create job opportunities and

improve the careers of our

peopleand retain talent.

Risk

Mitigation of key risks

Ongoing focus on key risks, with deep

dives at Audit Committee meetings.

Continued alignment of plans to

ensure appropriate risk mitigation.

Deep dive on cyber security risk

Reviewed our information security

systems and assessed mitigating

measures to avoid cyber-attacks.

Continued protection of sensitive

data of our customers and our

people and ensured business

preparedness to tackle this risk.

Compliance, Governance, Legal and Regulatory

Regular updates on Corporate

Governance and key legal

developments during the year.

Continued alignment of plans to

ensure appropriate compliance/best

governance practice.

138

141Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

How the Board engages with stakeholders

Our section 172(1) statement describes in more detail how the Board

considers the interests of all our stakeholders when carrying out its duties.

Pennon is committed to ensuring that its decision-making process takes

into account the interests of all key stakeholders, including our shareholders,

customers, communities, people, suppliers and investors. Our directors take

their duties under this section seriously and carefully consider the long-term

impact of their decisions.

In fulfilling their duties, our Board engage with stakeholders through a variety

of channels to understand their views and priorities. This includes direct

engagement with customers, employee feedback mechanisms, consultations

with regulators, and community outreach programs. By integrating these

perspectives into our decision-making, we aim to create value for both

our shareholders and society, while also ensuring the sustainable use

andprotection of our water resources.

Engaging with our customers

and communities

The WaterShare+ customer meetings are an opportunity for our customers

to provide direct feedback to our independent WaterShare+ Advisory Panel,

who, in turn, provide direct feedback to our Board.

The Pennon Chief Executive Officer’s monthly report, which is presented to

the Board and discussed at every meeting, included updates on customer

engagement sessions conducted as part of the PR24 Business plan process.

The WaterShare+ scheme was developed in direct response to feedback

from our customers who said they would like to share in the success of

the Group, alongside giving them a greater say in our business. The first

WaterShare+ scheme was launched in 2020 and returned £20 million to

customers as a reduction of £20 on their bill. Eligible customers had the

option of choosing a minimum of £20 in Pennon shares. In November 2022,

the second WaterShare+ scheme was launched and returned c.£20 million

to customers of South West Water (including Bournemouth Water) and for

the first time, customers of Bristol Water. Eligible customers could choose

between a £13 reduction on their bill or to opt for a shareholding in the

Pennon Group. The WaterShare+ customer meetings are an opportunity for

our customers to provide direct feedback to our independent WaterShare+

Advisory Panel, who, in turn, provide direct feedback to our Board.

Engaging with our people

The Board receives regular updates on our people from the Pennon Chief

Executive Officer and Pennon Chief People Officer at its meetings. Feedback

from the Great Place to Work survey was provided to the Board to ensure

that the decisions made consider employee interests and include what is of

priority to our people. Further details on the engagement with our people

canbe found on pages 32 to 39.

The Board understands the role the Group has to play in creating a more sustainable South West

and UK as a whole. We are committed to carrying out our business in a responsible way and to

continuously improving how we provide all our services for the benefit of all our stakeholders.

Engaging with our shareholders

and investors

Shareholders are one of our key stakeholder groups and we continued to

manage a comprehensive engagement programme with them throughout

the year.

Members of the management team met with 84% of our institutional

investors (based on issued share capital) during 2024/25, holding over

160 meetings and calls with current and prospective investors, through

roadshows, events and conferences in London.

Pennon Group has a stable shareholder register, of which around half are

UK-based investors. Institutions hold the majority of our issued share capital,

with the remainder largely held by retail investors.

The AGM is an opportunity for our shareholders to meet the Board

andreceive updates on the Group. This year’s AGM is to be held on

Thursday 24 July 2025 at 10am and will be convened as a physical meeting.

Shareholders who wish to pose questions to the Board should submit their

questions, in writing, in advance of the AGM; these can be submitted to

companysecretarial@pennon-group.co.uk.

Full details of the resolutions being tabled for shareholder approval can be

found in the Notice of Meeting on our website. The voting results of each

AGM are fully disclosed to the London Stock Exchange and are available

onour website.

Engaging with our regulators

and policy makers

The Board receives regular updates on our regulators and policy makers.

TheBoard, through the Pennon Chair, Pennon Chief Executive Officer and

Pennon Chief Financial Officer proactively engages with our regulators,

particularly Ofwat and the Environmental Agency, and Government, both

at a local and national level, including sharing platforms with local MPs at

constituency meetings, and face-to-face discussions with Defra throughout

the year.

In February 2025 the Pennon Chief Executive Officer attended the EFRA

Select Committee to discuss South West Water’s financial performance,

environmental performance, service delivery and consumer satisfaction

aspart of the ‘reforming the water sector’ inquiry.

The Pennon Chief Executive Officer holds regular 1-2-1 meetings with

regional MPs in Westminster to discuss strategic and overarching issues

around performance and our plans for investment.

142 Annual Report and Accounts 2025 Pennon Group plc

Engaging with environmental

organisations

The Board regularly receives updates at meetings through the Pennon Chief

Executive Officer on our engagement with environmental organisations,

particularly Defra, DWI and Water UK. The Pennon Chief Executive Officer

and the Executive Team hosted site visits from the Minister for Water

and Flooding, facilitating discussion on the strategic issues of particular

importance in the South West.

As we head into AMP8 and reflect on what was achieved in AMP7, Pennon

is committed to continued engagement with the Environmental Agency,

with Alan Lovell and Mark Rice attending the South West Water March

Board meeting to give valuable insights on the future approach of the

Environmental Agency.

The CEO gave updates to the Board on engagements and collaborations

with Water UK, and its Board, ensuring that the water industry’s position

on increased investments to improve the sector for the benefit of our

stakeholders, remains a key government focus.

Engaging with our suppliers

The Board receives updates at Board meetings on our engagement with

suppliers that is conducted through formal Request for Proposal processes

and periodic supplier review meetings to ensure that our suppliers deliver

outcomes that benefit all our stakeholders.

The Board is regularly informed and involved through the stages of tender

processes which are undertaken to ensure that suitable and experienced

suppliers are contracted to deliver our capital projects, particularly the

execution of Pennon Power projects during the year.

During the year, the Board received updates from the Pennon Chief

Executive Officer on our engagement with the Cabinet Office on the drafting

of the Procurement Act 2023 which is geared towards making procurement

simpler, quicker and more transparent given the criticality of supply chain in

the future delivery of our business.

The Executive team are actively engaging the wider industry supply

chain directly and indirectly through organisations such as British Water,

Future Water and the Civil Engineering Contractors Association to both

understand and influence emerging trends and mobilise the best suppliers

and innovation for the benefit of the Group. Updates are regularly provided

to the Board.

2024

May

• Announcement of 2023/24 Results

• 2023/24 London Roadshow

June

• 2023/24 PCIM Roadshow

• Investor Forum Group Meeting

August

• Dublin Roadshow

September

• Citi European Utilities Field Trip

• Morgan Stanley Utilities Conference

November

• Announcement of half year 2024/25 Results

• Half year 2024/25 London Roadshow

December

• Half year 2024/25 PCIM Roadshow

• LAPFF Conference

2025

January

• Citi European Utilities Conference

• Bernstein Société Générale Virtual Roadshow

• Announcement of FD Acceptance, Rights Issue and Dividends

February

• Barclays UK Water Splash Conference

March

• Capital Markets Day

Shareholder and investor

engagement calendar

143Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

We hosted c.30

external attendees

including equity and

debt investors as

well as our sell-side

analysts, visiting a

range of operational

sites throughout the

day, with over 100

additional attendees

joining online to view

our live Q&A.

On Thursday 13 March 2025, we hosted

ourCapital Markets Event in Exeter, Devon.

Theevent was hosted by Susan Davy, Pennon

Chief Executive Officer and Laura Flowerdew,

Pennon Chief Financial Officer, and provided

an insight into a range of topics including

thedelivery of our plans for K8.

The event was an opportunity to showcase

ouroperational sites alongside some of our

areas of innovation as we bring our largest

everinvestment plans to life.

Presentation slides outlining the key areas

oftheevent are available https://www.pennon-

group.co.uk/sites/default/files/attachments/pdf/

j529-cmd-pres-final-120325.pdf.

Operational site visits:

• State-of-the-art Network Training Centre at

our Pynes Water Treatment Works in Exeter,

which supports a number of drinking water

improvement projects and training courses

forour staff, supply chain partners and other

water companies.

• Sidmouth Wastewater Treatment Works

whichserves the main settlements of Sidmouth,

Sidbury and Bows with a population of c.14,400

which increases to c.200,000 over the summer.

• The Ham Pumping Station – flows from the

catchment are conveyed at The Ham before

being transferred to Sidmouth Treatment Works.

Capital Markets Event

A vision towards a sustainable future – delivering for customers

“I was struck by the

scope and breadth of

initiatives underway at

Pennon, and the energy

and commitment of all

themembers of the

teamthat we met.”

Debt investor

“A very

insightful day.”

Sell-side analyst

“For me the test of

successfor an event like

this is whether I discovered

things I didn’t know, and

whether I went away

thinkingdifferently about

thecompany. It was a yes to

both of these, and so I think

it was a great success.”

Equity investor

How the Board engages with stakeholders continued

144 Annual Report and Accounts 2025 Pennon Group plc

Composition, succession and evaluation

Training and development

In fulfilment of the Directors’ duties, the Board has been supported by the

advice and services of the Company Secretary and other functions of the

business. An established procedure whereby Directors can seek independent

professional advice at the Group’s expense to fulfil their duties is in place.

The Company Secretary is responsible for ensuring that the Board operates

in accordance with the governance framework and that information flows

effectively between the Directors and the Committees and between senior

management and Non-Executive Directors.

The training needs of Directors are reviewed as part of the Board’s

performance review process each year. Training may include attendance

at external courses organised by professional advisors and internal

presentations from senior management.

During the year, updates were provided to the Board and Committees via

the Pennon General Counsel and Company Secretary and/or the Group’s

external advisors. These included updates on mandatory reporting and

recent legal or governance changes. Specifically, the Board received

updateson the Water (Special Measures) Act and Directors Duties

under the Companies Act 2006.

Board Inductions

On their date of appointment to the Board, all new directors receive

a comprehensive and tailored induction programme coordinated by

the Pennon General Counsel and Company Secretary. Our induction

programmes include one-to-one meetings with each of the executive team

and visits across our various sites.

Pennon Board composition, independence,

andexperience

As at the date of this report, our Board comprises the Pennon Chair, five

Non-Executive Directors, two Pennon Executive Directors and the Pennon

General Counsel and Company Secretary. As at 31 March 2025, female

representation on the Board was at 57%, exceeding the Board’s target of 33%

and the target of the FTSE Women Leaders Review and the Listing Rules.

All of the Non-Executive Directors are considered by the Board to be

independent and are subject to re-election each year. All the Non-Executive

Directors are considered to have the appropriate skills, experience in their

respective disciplines and personality to bring independent and objective

judgement to the Board’s deliberations. Their biographies on pages 132 to

133 demonstrate collectively a broad range of business, financial and other

relevant experience.

Loraine Woodhouse is Chair of the Audit Committee and, in accordance with

the UK Code and FCA Disclosure Guidance and Transparency Rule 7.1.1A,

has recent and relevant financial experience and competence in accounting

and auditing (as set out in her biography on pages 132 to 133). The Board

is satisfied that the Audit Committee has financial literacy and competence

relevant to the sector in which the Group operates.

Time Commitment

All Non-Executive Directors are required to devote sufficient time to

meet their Board responsibilities and demonstrate commitment to their

role. During the year, the Nomination Committee considered the time

commitment of all the Non-Executive Directors and was satisfied that

therequired time dedicated by each of them remains appropriate.

External appointments

All Directors are required to consult with the Chair and obtain Board

approval before taking on any additional appointments. Executive Directors

are not permitted to take on more than one non-executive directorship

of a FTSE 100 company or other significant appointment. As part of the

selection process for any new Board candidates, any significant external

timecommitments are considered before an appointment is agreed.

Susan Davy continued as a Non-Executive Director of Restore plc and

Chair of Water UK throughout 2024/25. The Board is of the opinion that

the experience gained from external appointments provides additional

anddifferent business experience and a fresh insight into the role of an

Executive Director.

Further information on the other business commitments of the Pennon Chair

and Pennon’s Non-Executive Directors is on pages 132 to 133.

Board Performance Review

The Board undertakes a formal and rigorous review of its

performance and that of its Committees and Directors each year.

Having carried out an externally facilitated evaluation in 2023,

this year the evaluation was carried out by means of an internally

facilitated online questionnaire, prepared by the Pennon General

Counsel and Company Secretary in consultation with the CEO

and Chair. Further information on the outcomes from the 2024

Board performance review and the recommendations from the

2025 review can be found on pages 150.

145Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Section 172(1) statement

Board information

All Board papers contain a s.172 information section to enable the

Board to consider stakeholder interests as part of their discussions

anddecision-making.

Our Board directly and indirectly engages with our stakeholders.

Readmore on pages 142 to 144.

Board strategic discussion

s.172 factors are considered in the Board’s discussions on strategy,

including how they underpin the Group’s long-term success.

The Group’s culture helps ensure there is proper consideration of

the impact of Board decisions on our stakeholders and the Board

considers the quality of information it has received and seeks

assurance where appropriate.

Board decision

Outcomes of each Board decision are assessed and further

engagement with stakeholders is undertaken, where appropriate.

As a result of the Board’s engagement, the necessary actions

aretaken.

All of the Board’s decisions are considered against the importance of acting in a sustainable, ethical and collaborative way, understanding the views of our

different stakeholders and weighing their competing interests, whilst being mindful of the regulatory obligations owed by Pennon Group’s regulated subsidiaries.

Our Board leads and sets the tone by carefully noting the priorities of our stakeholders during its discussions and when it takes decisions. We also know the

importance of continually assessing the long-term impacts of our decisions, not only at Board level, but across the Group; this is embedded as part of our

culture. This helps us live our purpose and our values as a responsible, trusted and sustainable business acting in a way which benefits all our stakeholders as

much as possible. Properly understanding the impact of what we are doing has become part of how we operate, and it permeates everything we do at Pennon.

Each Director has a duty under section 172 (1) of the Companies Act (s.172), to act in a way they consider, in good faith, would be most likely to promote the

success of the Group for the benefit of members and stakeholders as a whole, and in doing so, must have regard to a range of broader issues. Therefore,

inperforming their duties during the year, the Directors had regard to the each of the s.172 matters set out below:

s.172 duties Read more Pages

The long-term

consequences

ofourdecisions

Strategic report 1 to 127

Our business model 20 to 21

Principal risks 70

Sustainability reporting 91

Our integrated

approach to ESG

Viability statement 80 to 81

Key activities

of the Board

140 to 141

The interests of

ouremployees

Strategic report 1 to 127

Investing in our people 32

How we listen 22

Diversity, equity

and Inclusion

Whistleblowing policy

and speak up

157

Purpose and culture

Our values

135

The importance of

havingexcellent

business relationships

with suppliers,

customers and anyone

else who weimpact

Our operational review 40 to 55

How we listen 22

How the Board engages

with stakeholders

142 to 144

The impacts our

operations have

onourcommunities

andourenvironment

Our approach to ESG

and Net Zero

84 to 90

TCFD and TFND

disclosures

94 to 125

ESG Committee report 158 to 160

Ensuring we maintain

our reputation for the

highest standards of

business conduct

Non-Financial

Information Statement

126

Purpose and

culture Our Values

135

Modern Slavery 1

Anti-financial

crime framework

156

Whistleblowing policy

and speak up

157

The need to act

fairly between

ourshareholders

Stakeholder

Engagement

142 to 144

Voting at the AGM 142

How the Board fulfils its s.172 duty

To be able to fulfil its s.172 duty when making decisions, the Board is

supported in carefully considering all relevant factors to ensure the

long-term success of the Group.

146 Annual Report and Accounts 2025 Pennon Group plc

Key strategic decisions considered by the Board

Below are some of the key strategic issues considered, and decisions made, by the Board during the year and an explanation of how the Board considered the

matters in Section 172(1) (a) – (f) when taking those decisions and how they link to our strategy.

Key decision Board discussion and s.172 considerations Outcome

Link to

strategy

Rights Issue In making their decision, the directors considered the impact of the acquisition on all of our

stakeholders, and in particular:

Our Investors

The long-term success of the Company was a big focus of this decision, but so too were the

shareholders. The fact that it was a fully pre-emptive rights issue allowed all shareholders to

participate, including retail shareholders, and this was an important part of the decision to

proceed in this way.

Our People

The Board considered how the rights issue would impact our people and the shares they held

through employee share schemes. Virtual and in-person drop in sessions were arranged to help

answer queries and give our people the confidence to make an informed decision.

Our Customers

This decision, which improved the liquidity position of the business, enhanced the confidence

of suppliers and customers regarding the strength of the balance sheet and the Company’s

resilience, with the Company having the necessary funds to support the investment package

todeliver improved services for our Customers.

In January 2025

the Board agreed to

undertake a fully pre-

emptive rights issue as

part of a comprehensive

financing package, to

deliver the step change

in investment required

through the K8 period

toMarch 2030

Pennon Power Foster our commitment to the long term sustainable growth of the UK’s environmental

infrastructure and increase the Groups energy security and resilience.

Our Environment and Communities

Our Pennon Power projects would see Pennon generating low-cost and low-carbon electricity

which would reduce carbon emissions. In addition, the zero carbon electricity generated will

power many homes across the UK and foster a sustainable future.

Our Customers

Reduced operating costs thanks to renewable energy generation, would have a positive impact

on customer bills.

In 2024/25, the Board

continued to support and

approve the construction

of the four renewable

energy generation

projects acquired

during2023/24.

Acceptance

of the Final

Determination

As part of their considerations, the Board discussed the £2.8 billion investment plan, which

involves engaging 250,000 of our stakeholders over a three-year period. The investment will

be across a range of transformational projects that are focused on areas like tackling the use

of storm overflows, bolstering water resources through a new reservoir in the South West, and

expanding our programme of nature recovery.

Our People

The Board considered the impact of the Final Determination on the workforce. Around 2,000

jobs will be created, providing local people with rewarding careers in their home region, either

directly employed by South West Water or within the wider supply chain.

Our Customers

The Board considered the relationship between the cost of the scheme, the impact on bills, and

the need to ensure that these remain affordable for customers, particularly in the cost-of-living

crisis. The Board judged that the impact of the four priorities within the plan would boost water

resources for customers across the region.

Our Environment

The Board considered the impact of the plan on the environment, and the need to ensure

that investments create a sustainable future and accelerate net zero and environmental gains

through creation of climate-independent water sources, and restoration schemes to boost

natural habitats and nurture healthier rivers and seas.

Our Regulators

As part of their discussions, the Board engaged and considered our regulators and was pleased

to accept Ofwat’s Final Determination for South West Water (SWW) and Sutton and East Surrey

(SES), following respective outstanding and good/standard business plan assessments.

Following Ofwat’s PR24

Final Determinations

in December 2024 in

respect of the K8 period

(2025-2030) for the

water businesses within

the Group (SWW and

SES), in January 2025

Pennon accepted Ofwat’s

Final Determination.

Interim

dividend

declaration

As part of their discussion, the Board considered our stakeholders and the importance of

dividends for the long-term success of the Company.

Our Investors

The Board considered investor expectations and the considerations of investors who view

dividend payments as an important element of their investment at Pennon.

Our People and Customers

The Board considered the benefit to those employees and customers who participate in the

Company’s share schemes and WaterShare+ scheme respectively.

In November 2024,

theBoard approved the

payment of an interim

dividend of 14.69p per

ordinary share

Strategic Priorities

Water Quality and

Resilience

Storm Overflows and

Pollutions

Net Zero and

Environmental Gains

Addressing Affordability and

Delivering for our Customers

147Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Nomination Committee report

The Nominations Committee

is a cornerstone of corporate

governance, safeguarding the

Board’s integrity and effectiveness.

David Sproul

Chair of the Nomination Committee

Committee

members

Date of appointment

to Nomination

Committee Attendance

David Sproul (Chair)

July 2024

Gill Rider

September 2012

Iain Evans September 2018

Jon Butterworth July 2010

Dorothy Burwell December 2022

Loraine Woodhouse December 2022

Claire Ighodaro

July 2020

Andrea Blance April 2025

From 8 April 2025 Andrea Blance will be a member of the Nomination Committee

1. Appointed 1 July 2024

2. Resigned 24 July 2024

3. Resigned 31 December 2024

The Committee’s focus for 2024/25

• Ensured that the Board has the appropriate mix of skills, experience and

diversity and oversaw the effectiveness of the Board’s succession plan.

• Continuously reviewed the development and evolution of the Executive

leadership team and succession planning.

• Conducted the annual review of Board effectiveness and Board composition.

• Oversaw the annual review and approval of the Group policy on Diversity,

Respect and Inclusion and the Group’s progress on diversity in line with

the Parker Review, including the outcome of the FTSE Women Leaders

Review and the Group’s position on Gender and Ethnicity Pay.

• Review the Group’s policy on Diversity, Respect and Inclusion

(see www.pennon-group.co.uk/about-us/governance-and-remuneration),

including gender, and the progress against objectives.

• Review membership of the Board Committees.

Dear Shareholder

I am pleased to present the Nomination Committee’s (the Committee)

report for the year ended 31 March 2025, and my first as Chair. This year,

theCommittee oversaw a number of planned changes to the Board, including

the retirement of our previous Chair, Dr Gill Rider. It has been a great privilege

to have taken on the role from Gill following her careful stewardship over

many years, and at a pivotal point in Pennon’s strategy. We also enacted our

internal succession plan, appointing Laura Flowerdew to the role of Chief

Financial Officer. Laura was perfectly placed to take on the role, with a strong

understanding of the Group, having been Chief Customer and Digital Officer

and previously Chief Financial Officer at Bristol Water.

A key focus for the Committee in 2024/25 has been in building

complementary bench strength to the Board, as Claire Ighodaro retired

atthe end of December 2024. We thank Claire for her dedication and wise

counsel, and were delighted to welcome Andrea Blance as Remuneration

Chair, bringing extensive risk and regulation expertise. Andrea will join us

from 8 April 2025. We were supported during this search by the Lygon

Group, experts in Board Advisory and Executive search, and with no

previousassociation with the company.

Finally, as we look ahead in 2025, we will be bidding farewell to Iain Evans, Senior

Independent Director and Chair of ESG, as he plans to retire. Having joined

the Group in 2018, Iain has been a valued Board colleague. In preparation for

this, we have appointed Heidrick and Struggles, as independent consultants,

following a robust procurement process, to support the Nomination

Committee with this appointment.

The Committee held three scheduled meetings during the year and also held

a number of ad-hoc meetings, in person and by Teams call, to fulfil the duties

set out in its terms of reference.

Only the members of the Committee are entitled to attend the Committee

meetings, but other regular invitees to Committee meetings during the year

included the Pennon Chief Executive Officer, the Pennon General Counsel

and Company Secretary and the Pennon Chief People Officer. Committee

members are also excluded from participating when their own positions

areunder discussion.

David Sproul

Chair of the Nomination Committee

3 June 2025

Role of the Nomination Committee

• Regularly review the structure, size and composition (including skills,

knowledge, independence, diversity and experience) required of

theBoard.

• Consider succession planning for the Board and senior management,

overseeing the development of a diverse pipeline.

• Identify and nominate candidates to fill Board vacancies.

• Assist in the annual Board evaluation process to assess performance

andeffectiveness of the Board and its Committees.

• Evaluate the balance of skills, knowledge, independence, diversity and

experience on the Board.

• Review the leadership needs of the Group, both executive and non-

executive, with a view to ensuring the continued success of the Group.

148 Annual Report and Accounts 2025 Pennon Group plc

Board diversity

Building a diverse and inclusive culture is a strategic imperative for Pennon.

The Committee maintains its strong interest in the Group’s progress in

championing diversity, whether in relation to gender, ethnicity, or social

mobility, and regularly reviews the demographics of the workforce as well

asthe leadership.

We believe having a diverse mix of minds has helped to deliver a step

change in our culture, as a more caring and considerate business that

placessignificant focus on wellbeing.

As of 31 March 2025, female representation on the Board stood at 57%. In

the 2025 edition of the FTSE Women Leaders Report, Pennon emerges as

a leader, proudly showcasing its commitment to diversity, and ranked as 3

in the FTSE 250 for representation on boards, for the second year running.

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. Despite progress across the FTSE, Pennon

is still one of only a few businesses in the UK to have both a female Chief

ExecutiveOfficer and Chief Financial Officer.

The Group is an advocate of Sir John Parker’s review of ethnic board

diversity, meeting the external targets required of a responsible and inclusive

business ahead of the required dates. For the second year running, in line

with our commitment to the Change the Race Ratio campaign, we have also

voluntarily published our ethnicity pay gap of 11.72% (mean). The Committee

will continue to monitor pay gaps. Building our representation across the

Group is a focus, given the area we serve has lower representation than

the national average, where ethnic representation is 6%. Our Group ethnic

diversity has increased slightly in the year to 3.4%.

Board Diversity, Respect and Inclusion Policy

The Board requires the Committee to review and monitor compliance with

the Board’s Diversity, Respect and Inclusion Policy and report on the targets,

achievement against those targets and overall compliance in the Annual

Report each year. The Policy was reviewed in March 2025.

The Board’s diversity and inclusion policy confirms that the Board is

committed to the search for Board candidates being conducted, and

appointments made, on merit, against objective criteria whilst promoting

diversity of gender, social and ethnic backgrounds.

In this context, the Board will endeavour to achieve and maintain:

a. A minimum of 33% female representation on the Board.

b. One Board member as a minimum who is racially or ethnically diverse.

c. A minimum of 33% female representation on the Group’s senior

management team.

d. Satisfying itself that plans for orderly succession of appointments to

the Board and to senior management maintain an appropriate balance

of skills and experience within the Group and on the Board and ensure

progressive refreshing of the Board.

The approach to Group-wide diversity is detailed on page 36 and is also fully

applicable to our Remuneration, Audit and Nomination Committees; and as

each Committee is composed of members of the Board, the Board’s Diversity,

Respect and Inclusion Policy detailed above similarly applies. I can confirm

we currently exceed the Policy targets.

Colleagues including our Board and leadership are asked to provide

personal information for the purposes of monitoring equality and for

statutory reporting purposes, including the FCA diversity disclosures and

gender and ethnicity pay gap report. This is collected during recruitment

and on-boarding and colleagues are asked to periodically review and

update as necessary. Information is stored on the Group’s HR management

system, including the data used to populate the table below. Employees are

encouraged to provide information on a voluntary basis.

FCA diversity disclosure table

The Committee is pleased to report against the FCA’s new diversity

disclosure requirements, as set out in the table below. At Pennon ‘executive

management’ is defined as the Pennon Executive Board. The figures in the

table are stated as at 31 March 2025 and have been calculated based on

diversity data provided upon employment.

Talent management and succession planning

The Committee, supported by the Group Chief People Officer, regularly

reviews both the executive and non-executive leadership as part of its

standing agenda, reviewing both short and long-term skills requirements,

opportunities for positive support to minority groups, and early identification

of high potential. In line with our commitment to Change the Race Ratio, we

have renewed stretching targets to develop diversity in our leadership levels

below Executive Committee level, and the Committee will continue to review

progress on this important goal. As part of the regular reports received by

the Committee, rates of participation analysed by many characteristics are

provided, noting however that this is also subject to employees’ willingness

todisclose certain characteristics or sensitive information.

The ethnic representation of our Board and leadership

Number of

Board members % of the Board

Number of senior

Board positions

(CEO, CFO, SID, Chair)

Number in executive

management

% of executive

management

White, British or other White (incl. minority white groups) 7 88 4 8 100

Mixed/Multiple Ethnic Groups – – – – –

Asian/Asian British – – – – –

Black/African/Caribbean/Black British 1 12 – – –

Other ethnic group including Arab – – – – –

Not specified/prefer not to disclose – – – – –

The gender representation of our Board and leadership

Number of

Board members % of the Board

Number of senior

Board positions

(CEO, CFO, SID, Chair)

Number in executive

management

% of executive

management

Men 3 43 2 4 50

Women 4 57 2 4 50

Other categories – – – – –

Not specified/prefer not to disclose – – – – –

149Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Nomination Committee report continued

Board performance review

The Board undertakes a formal and rigorous review of its performance

and that of its Committees and Directors each year. This ensures that

they continue to operate effectively and are identifying opportunities for

improvement and best practice, as well as helping to inform future agenda

items and areas of focus.

2025 Board performance review

This year the evaluation was carried out in March 2025 via questionnaires

created internally by the Group General Counsel and Company Secretary in

consultation with the CEO and Chair.

The questionnaires focused on the ongoing effectiveness of the Board

during the year in setting the Group’s strategy for the next AMP, the Board

dynamics, ensuring that the Board has a clear understanding of the views of

its shareholders and other stakeholders, ensuring the Board takes the lead

in promoting a strong health and safety culture throughout the Group, and

ensuring the Board has an appropriate level of focus on risk appetite and the

internal control framework, and ensuring that the processes are in place to

identify risk.

The review concluded that:

• There is an appropriate current focus on the Group’s operational

performance with the agenda developing to reflect the current

stakeholder environment.

Action Points (“AP”)/Recommendations from Board

evaluations in 2023 and 2024 Update on Recommendation/Proposed Approach

Continue efforts to give the Board as much time as possible with the pack

prior to Board meetings with five working days plus a weekend the aim.

The majority of Board and Committee papers are sent to the Company

Secretarial team 5-7 working days prior to the meeting to allow for papers to

be reviewed, and the meeting packs to be circulated in advance to Board and

Committee members in the timescales set.

More work is needed on making the Board papers more “NED friendly”,

Theyneed to be shorter, avoid repetition, and be transparent in terms of

sign-posting the key facts. An executive summary should always appear,

andit needs to be made plain what the Board is being asked to do: note;

discuss; agree and signal where most attention is requested.

A new Board paper template has been introduced which contains a purpose

and an executive summary in order to provide succinct details for the Board’s

consideration upfront. Papers are reviewed by the Company Secretarial

team to ensure appropriate length. Whilst the new format has been adopted,

the Secretarial team will strive to ensure that relevant issues are sufficiently

clear. Executives have been reminded of the standard required and the

ChiefExecutive and Company Secretary will drive further improvements.

Ensure that critical areas of Board oversight, for example, health and safety,

are given the time they need.

Agendas have been reviewed. Health and safety matters are included as a

standing item on every Board agenda and the Health and Safety Committee

provide an update to the Board on their work.

The experience and skills required for Board succession should ideally reflect

infrastructure experience.

The Nominations Committee will factor in to further recruitment of the

diversity of skills required.

The Board should consider further succession planning for key Executive roles. This will be key focus of the Nominations Committee for the coming year.

The Board should be reassured about the strength and succession potential

of the Senior Management Team around the CEO.

Executive succession planning is considered by the Nomination Committee

and further opportunities will be available to meet leaders who report to

theExecutive.

More site visits to be arranged. The Chair had added site and location visits to the 2025 and 2026 calendar.

Consider whether the Group has the people resources that it will need

todeliver.

HR are supporting organisational development activity across all areas of

theGroup.

Industry seminars and events to be highlighted. The Corporate Affairs updates will contain these details going forwards.

Analyst’s notes to be sent to the NEDs. The Company’s Investor Relations team will circulate analyst’s notes.

Key financial updates/announcements to be sent to the NEDs to give

appropriate time for review and input.

The Company’s Investor Relations team will ensure this is done.

Progress on the up-weighting of the Group’s principal controls to be shared

with the Board.

This is a focus for the Audit Committee.

The linkage on KPIs to strategic delivery to be highlighted. The KPI metrics are under review by the Chair, CEO and CFO.

More engagement with regulators, key stakeholders and the

“outside in” perspective.

The Chair has built these events into the 2025 and 2026 calendars.

The Remuneration Committee is facing conflicting priorities from

stakeholders and must stay focused on doing the right thing.

The Committee regularly consults with investors, regulators and advisors to

ensure that relevant inputs are considered and factored into pay structures.

2024 Board performance review

Last years Board evaluation was carried out in March 2024 via an online

questionnaire created internally by the Pennon General Counsel and

Company Secretary in consultation with the Chair.

The evaluation identified several recommendations and action points, an

update on the outcomes of each action are set out below:

• The Board dynamics are developing but work well, with open, effective

debate and appropriate challenge and good meeting preparation. There

is good support for the Executive and a feeling the Board functions best

when being totally transparent about the challenges the organisation

isfacing.

• The Board Committees are well run and have sufficient independent

membership to ensure that they can make high quality decisions that

address the diverse customer and stakeholder needs of the Group.

The 2025 Board and Committee performance reviews identified several

recommendations and action points for the Board to consider, which

werepresented to the Board for discussion at its meeting in May 2025.

An update on the outcomes of the Board’s discussions of the 2025 Board

and Committee performance reviews will be provided in the 2025/26 Annual

Report and Accounts.

150 Annual Report and Accounts 2025 Pennon Group plc

Audit Committee report

Committee

members

Date of appointment

to Audit Committee Attendance

Loraine Woodhouse December 2022

Iain Evans September 2023

Claire Ighodaro

September 2019

Andrea Blance

April 2025

1. Resigned 31 December 2024

2. Appointed 8 April 2025

For the period between Claire Ighodaro stepping down to the appointment

of Andrea Blance, the committee composition was not in compliance with

Provision 24, however for meetings during the relevant period another

independent Non-Executive Director was in attendance along with the

Chair, to ensure all decisions were made with the correct oversight of

thecompany’s control, governance and risk management.

Role of the Audit Committee

• Ensure the quality and integrity of the Group’s financial and

regulatoryreporting.

• Monitor and review the effectiveness of the internal control environment.

• Challenge the scope and adequacy of the Group’s risk

managementprocesses.

• Review the Group’s policies on Risk Management, Treasury, Tax and the

Delegated Authorities Schedule.

• Monitor the independence, effectiveness and remuneration of the

externalauditor.

The Committee’s focus for 2024/25

• Ensure the 2024/25 Annual Report and Accounts are fair, balanced

andunderstandable.

• In-depth review of the key financial reporting judgements.

• Oversight of the transition of the Group External Audit to PwC.

• Ensuring readiness for UK Corporate Governance Code reforms.

• Stewardship of the Assurance Framework and Data Assurance Plan.

• Oversight of cyber security risks, priorities and planned actions.

• Risk ”deep-dive” in key focus areas.

• Approval of revised Internal Audit Charter.

Dear Shareholder

On behalf of the Board, I am pleased to present the Audit Committee’s

report for the year ended 31 March 2025. This report is intended to provide

shareholders with an insight into the work of the Audit Committee (‘the

Committee’) together with details of how the Committee has discharged its

responsibilities throughout the year and overseen the process of assurance

over the integrity of the 2024/25 Annual Report and Accounts (‘the 2024/25

AnnualReport’).

We have focused on the following key priority areas:

• Ensuring the quality and integrity of the Group’s financial reporting

through the assessment of accounting policy application given underlying

standards, challenging management through the review of accounting

judgements made in preparing financial reporting, and the Committee’s

assessment of whether the financial reporting of the Group is presented

ina fair, balanced and understandable manner.

• Ensuring the 2025 Annual Report is aligned with the requirements of and

guidance from regulators, and that all matters reported on, and disclosed,

meet the needs of our various stakeholders.

• Oversight of the transition of the Group External Audit to PwC following

the tender of the External Audit in 2023/24.

• Monitoring and reviewing the ongoing effectiveness of the Group’s risk

management and internal control environment, including the effectiveness

and independence of the Internal Audit function.

• Challenging the scope and adequacy of risk management processes

across the Group. In doing this, we monitor the expression of the Group’s

risk appetite and undertake “deep dive” reviews of higher risk areas.

• Approval of revised internal audit charter.

The Committee uses its collective expertise, with input from the External

Auditor, to provide a robust challenge to the approach and judgements made

by management in the treatment of financial matters and their resulting

disclosures within the financial statements. PwC were appointed External

Auditors for the current financial year following a competitive tender process

in 2023/24. We welcome the fresh perspectives and insight that they will

bring in their first year audit, to ensure a robust and effective audit of our

financial results.

The Audit Committee is focused

on ensuring sound financial and

risk management to support the

Group’sstrategy.

Loraine Woodhouse

Chair of the Audit Committee

151Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Audit Committee report continued

One of our key roles is to advise the Board that we are satisfied that the

2024/25 Annual Report is fair, balanced and understandable and that it

provides the information necessary for shareholders to assess the Group’s

position, trends in performance, business model and strategy. In doing so,

we ensure that management’s disclosures reflect the supporting detail, or

challenge them to explain and justify their explanation and, if necessary, re-

present the information. As part of fulfilling these commitments, we carefully

consider the key financial reporting judgements of management as set out

on page 154. Significant matters considered by the Committee both during

the year and in relation to the year end financial statements are laid out in

this report. TheExternal Auditor supports this process in the course of the

statutory audit.

The Committee discharges its responsibilities throughout the year in

accordance with a schedule of business reflecting the annual external

reporting cycle of the Group, allowing for appropriate consideration at the

right point. This scheduling also allows for consideration on an ad-hoc basis

of events as they have arisen.

The Committee formally considers the effectiveness of the Group’s risk

management and internal control systems. This is achieved through

updates on the operation of risk management processes during the year

and the outcomes of key assurance activities, including from the Group’s

independent Internal Audit function. Additionally, the Audit Committee

undertakes risk deep dives focused on aspects of the Group’s principal risks.

During 2024/25, the Audit Committee has performed risk deep dives on the

following areas:

• Incident management

• Cyber security

• Wastewater processes and controls.

More detail on our risk management processes, principal risks and their

associated mitigation can be found on pages 70 to 79.

The Audit Committee has also been actively engaged and received regular

updates during the year on the Group’s preparations for meeting the

enhanced requirements set out within the 2024 UK Corporate Governance

Code, in particular those aspects in respect of Audit, Risk and Internal

Control. Good progress has been made with the initial phase focused on

financial reporting related processes and controls. The scope of these

preparations during 2025/26 will expand to cover non-financial elements

alongside the financial reporting related processes and controls.

Alongside this focus on our risk processes, we formally reviewed the output

of the Group’s financial resilience and health assessments throughout the

year: with the receipt of the Final Determination providing greater clarity

on the next five years, as well as the Rights Issue completed in period, this

activity was critical for the long term success and viability of the business.

The Audit Committee considers a 18-month ‘look forward’ period through

ourassessment of the Group’s going concern status, and over a period

of seven years to assess the Group’s continuing viability. This viability

assessment has considered a range of financial projections arising from

the current challenging and complex external environment with ongoing

uncertainties in relation to economic growth, inflation prospects and the

impact of the PR24 Final Determination on our water businesses. These are

modelled through internal scenarios around the deployment of Group cash

reserves across the full scope of the Group. The Group now uses a seven-

year viability assessment period, appropriate for an acquisitive group, which

in the current year aligns with the confidence provided through the PR24

Final Determination for our water businesses, given the visibility of future

cash flows it brings to our regulated businesses. Our viability statement is

reported on pages 80 to 81.

Throughout the year, the Group has remained focused on delivering a

resilient performance in UK water, despite a difficult period of cost inflation

and scrutiny of the water industry as a whole, as we execute our growth

strategy of utilising both organic and acquisitive levers to drive long-term

sustainable growth. We are focused on delivering sustainable results for all

stakeholders.

Finally, I would like to thank Claire for her significant contribution to the

Committee over the years, and I’m delighted to welcome Andrea Blance

tothe Committee following her recent appointment.

Loraine Woodhouse

Chair of the Audit Committee

3 June 2025

152 Annual Report and Accounts 2025 Pennon Group plc

Audit Committee composition

All members of the Committee are Independent Non-Executive Directors of the Board. In accordance with the UK Code, the Board is satisfied that Loraine

Woodhouse and Claire Ighodaro, both of whom served on the Committee during the year under review, have recent and relevant financial experience and,

inaccordance with FCA Rule 7.1.1A R of the FCA’s Disclosure Guidance and Transparency Rules, have competence in accounting or auditing.

Only members of the Committee have the right to attend Committee meetings. Other regular attendees at meetings, at the invitation of the Committee, include

the Chair of the Board, the Pennon Chief Executive Officer, the Pennon Chief Financial Officer, the Pennon General Counsel and Company Secretary, Director of

Risk and Assurance, Group Financial Controller and the External Auditors.

The Committee regularly holds private discussions with the External Auditor without management present. Further, the Committee Chair regularly

communicates with the Pennon Chief Financial Officer, the External Auditor and with Committee members outside of the meetings to better understand any

issues or areas of concern.

Matters of significance for 2024/25

Financial reporting • Reviewed and discussed reports from management on the financial statements, considered management’s significant

accounting judgements and the policies being applied, and assessed the findings of the statutory audit in respect of

the integrity of the financial reporting of full, half-year results and a subsequent interim review to support the rights

issue of the results to November 2024.

• Reviewed the internal assessment of going concern and longer-term viability on behalf of the Board.

• Reviewed in detail the 2024/25 Annual Report and advised the Board that the presentation of the 2024/25 Annual

Report is fair, balanced and understandable in accordance with reporting requirements, including the consideration of

climate risk in the preparation of the financial statements, and recommended the Board gives approval for publication.

External auditor • Oversaw the 2024/25 statutory audit, including the key audit risks and level of materiality applied by the Externalauditor.

• Agreed the statutory audit fee for the year ending 31 March 2025.

• Reviewed and approved the non-audit services and related fees provided by the External Auditor for 2024/25.

Internal controls and risk

management

• Reviewed the effectiveness of the Group’s risk management framework and its integration into Board and

CommitteeReporting.

• Reviewed the Group’s Risk Appetite Statement prior to making a recommendation to the Board.

• Monitored fraud reporting and incidents of whistleblowing, including a review of the Group’s whistleblowing processes

and procedures and reporting to the Board on this.

• Reviewed the Group risk register as part of the Annual Report process and considered appropriate areas of focus and

prioritisation for the internal audit work programme for the financial year.

• Carried out deep dives at Committee meetings on principal risk areas.

• Approved the revised Internal Audit Charter in line with latest guidance and updated standards.

• Reviewed updated Legal Compliance Policies to progress for approval.

Governance

• Considered and approved Group accounting policies and judgements used in the preparation of the financial statements,

including any required alignments of Bristol Water’s and SES’s accounting policies.

• Reviewed and considered internal financial policies.

• Confirmed compliance with the UK Corporate Governance Code.

• Held regular meetings with the external auditor without members of management being present.

• Reviewed updates on the Group’s preparations for the UK Corporate Governance Code reforms.

153Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Audit Committee report continued

Regarding monitoring of the integrity of the financial statements, which is a key responsibility of the Committee identified in the UK Code, the significant

areasof judgement considered in relation to the financial statements for the year ended 31 March 2025 are set out in the following table, together with details

of how each matter was addressed by the Committee. At the Committee’s meetings throughout the year, the Committee and the external auditor discussed the

significant matters arising in respect of financial reporting, together with the areas of particular audit focus, as reported on in the independent auditor’s report on

pages 188 to 193. In addition to the significant matters set out in the table below, the Committee considered presentational disclosure matters including the use

of non-underlying performance metrics, and ensuring a fair presentation of statutory and non-statutory performance and financial measures.

During the year, the Committee’s areas of focus included:

Area of focus How the matter was addressed by the Committee

Revenue recognition Given the nature of the Group’s revenue, the key areas of income statement judgement for South West Water, Pennon

Water Services and SES Water continue to be in respect of revenue recognition relating to income from water services.

The Committee undertook a deep dive into the measured income accrual to ensure a robust and accurate position in the

current year, as well as a further streamlining of the methodologies and judgements applied. The Committee continues

to scrutinise the track record of accuracy by comparing actual outturns with accruals at previous year ends to form a

judgement about the quality of decision making and to ensure any learnings are further embedded in the calculation

toimprove accuracy going forward. The Committee also closely considered the work in respect of these areas at year

end by the external auditor as well as reviewing disclosures around revenue recognition accounting policies.

Bad and doubtful debts Regular updates on progress against debt collection targets and other contractual payments due are received by the

Board. Performance is monitored regularly across the Group against historical standards and compared to the track

records of other companies in the relevant sectors. The Committee was particularly mindful of the ongoing impacts of

affordability on the assessment of expected credit losses in determining the bad debt provision, noting the significant

increases in inflation arising from macroeconomic developments. At the year end, the external auditor reported on the

work it had performed, which, together with the detailed analysis reported, enabled the Committee to conclude that

management’s assessment of the year-end position and its provisions for expected credit losses were reasonable.

Going concern basis for the

preparation of the financial

statements and viability

statement

A report from the Pennon Chief Financial Officer on the financial performance of the Group, including forward-looking

estimates of covenant compliance and funding levels under different scenarios, including inflationary scenarios, is

provided to the Committee on a periodic basis. Rolling seven-year strategy projections, and the resultant headroom

relative to borrowings, are also regularly reviewed by the Committee, including the application of scenarios to enable

theCommittee to better understand the potential range of outcomes.

At the end of each six-month period the Committee receives for consideration a report focusing on the Group’s liquidity

over the 15-month period from the date of signing of either the Annual Report or half-year results. The Committee also

reviewed a report on the Group’s financial viability over an appropriate period, in connection with the UK Corporate

Governance Code’s requirement for a viability statement to be given by the Board. 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 should be increased to seven years, previously

five years, which recognises both the longer-term visibility in the regulatory environment of the Water business and

the corporate activity, including acquisitions and other non-regulated investments, undertaken by Pennon. Similarly,

this report also considered the viability of the Group, taking into account the potential manifestation of other adverse

events modelled from the Group’s principal risks and resultant sensitivity scenarios. Consideration of these reports and

constructive challenge on the findings of the reports, including the scenario testing carried out by management, has

enabled the Committee to form its assessment and satisfy itself that it remains appropriate for the Group to continue

to adopt the going concern basis of accounting in the preparation of the financial statements and in addition advise

theBoard on providing the viability statement set out on pages 80 to 81.

In addition to the matters above, the Committee also reviewed and considered communications from the Financial Reporting Council (FRC) in respect of

their Corporate Reporting Review (CRR) team’s review of the annual accounts, strategic reports and directors’ reports for compliance with relevant reporting

requirements. The FRC did not raise any questions or queries on the Annual Report for 2023/24, however, they did note a number of matters which were

considered in the preparation of the 2025 Annual Report and, where relevant, updates have been reflected in the current reporting period.

The Audit Committee notes that the FRC’s review was based on the 2023/24 Annual Report and Accounts and does not benefit from detailed knowledge

of our business or an understanding of the underlying transactions entered into. It is, however, conducted by staff of the FRC who have an understanding of

the relevant legal and accounting framework. We also note that the FRC provides no assurance that the annual report and accounts is correct in all material

respects; the FRC’s role is not to verify the information provided but to consider compliance with reporting requirements. The FRC’s letters are written on

the basis that the FRC (which includes the FRC’s officers, employees and agents) accepts no liability for reliance on them by the company or any third party,

including but not limited to investors and shareholders.

154 Annual Report and Accounts 2025 Pennon Group plc

Statutory auditor appointment for the year ending

31 March 2025

The 2024/25 year end audit has been PwC’s first year in office as auditor,

they were appointed after the committee conducted a formal tender process

in February 2024, as reported by the committee in the 2023/24 Annual Report.

Effectiveness of the external audit process

Receiving high-quality and effective audit services is of paramount

importance to the Committee. We continue to carefully monitor the

effectiveness of our External Auditor as well as their independence, while

recognising there is a need to use our External Auditor’s firm for certain

non-audit services. We have full regard to the FRC’s Ethical Standard and

ensure that our procedures and safeguards meet these standards.

The External Auditor produced a detailed audit planning report in

preparation for the year-end financial statements, which has assisted the

auditor in delivering the timely audit of the Group’s Annual Report and which

was shared with, and discussed by, the Committee in advance. As this was

the first year of appointment, the External Auditor also prepared a transition

plan, which included monitoring of the 2023/24 Audit process as well as

additional work in the current year to enable them to provide their audit

opinion on the 2024/25 Annual Report.

The effectiveness review of the External Auditor is considered as part

of the Committee’s annual performance evaluation, which also examines

the relationship and communications between the Committee and the

external auditor. Given this reflects the first year of the External Auditor’s

appointment, the evaluation will take place in due course, after completion

ofthe current year audit.

The Committee Chair has also met privately with the External Auditor to

discuss key matters on a number of occasions.

Auditor independence

The Committee regards independence of the External Auditor as

absolutely crucial in safeguarding the integrity of the audit process and

takes responsibility for ensuring the three-way relationship between the

Committee, the External Auditor and management remains appropriate.

The External Auditor reported on its independence during the year, and

again since the year end, confirming to the Committee that, based on its

assessment, it was independent of the Group.

Provision of non-audit services

The Committee adopts a robust policy for the engagement of the External

Auditor’s firm for non-audit work. The Committee receives a regular report

covering the auditor’s fees including details of non-audit fees incurred.

Recurrent fees typically relate to agreed procedures regarding annual

regulatory reporting obligations to Ofwat: work which is most efficiently

and effectively performed by the statutory auditor. The Committee’s policy

isfor non-audit fees not to exceed 70% of the audit fee for statutory work

and for the Committee Chair to approve all non-audit work performed by

thestatutory auditor.

The Committee carefully reviews non-audit work proposed for the statutory

auditor, taking into consideration whether it was necessary for the auditor’s

firm to carry out such work, and only grants approval for the firm’s appointment

if it was satisfied that the auditor’s independence and objectivity would be

safeguarded. If another accounting firm could provide the required cost-effective

level of experience and expertise in respect of the non-audit services, then

such firm would be chosen in preference to the External Auditor.

The level of non-audit fees payable to the External Auditor for the past

year is exceptionally not within the Group’s 70% non-audit fee limit, due to

fees payable in respect of the Rights Issue which were not excluded from

theassessment.

The Pennon Chief Financial Officer regularly reports to the Committee on

the extent of services provided to the Company by the External Auditor

and the level of fees paid. The fees paid to the External Auditor’s firm for

non-audit services and for audit services are set out in note 7 to the financial

statements on page 213.

Statement of compliance with CMA order

The Group complies with the Statutory Audit Services for Large Companies

Market Investigation (Mandatory Use of Competitive Tender Processes and

Audit Committee Responsibilities) Order 2014.

Internal audit

The internal audit activities of the Group are a key part of its internal control

and risk management framework. At Group level there is a long-standing and

effective centralised internal audit service which supports the Committee in

delivering its responsibilities and has continued to operate effectively. The

internal audit charter was updated during the year to reflect the requirements

of the new Global Internal Audit Standards. The Group Internal Audit Plan is set

on a rolling six-month basis and was approved in March 2024 and September

2024, following a thorough review to ensure it provided adequate coverage

over the Group’s key risks for the year ahead and was sufficiently flexible to

respond to emerging risks. In developing the plan, account is taken of the

principal risks, the activities to be undertaken by the External Auditor, and

theGroup’s annual and ongoing risk management reviews. This approach

seeks to ensure that there is a programme of internal and external audit

reviews focused on identified key risk areas throughout the Group.

The Group Director of Risk and Assurance reported regularly through

the year to the Committee on the outcomes and findings of internal audit

activity. There were regular discussions, correspondence and private

meetings between the Director of Risk and Assurance and the Committee

Chair. The Committee continues to monitor the performance of the internal

audit function as part of its annual assessment of the effectiveness of the

function. As required by IIA standards, the next cyclical external review

ofthe internal audit function will take place before the end of 2026/27

(thelast having been undertaken in 2021/22).

Fair, balanced and understandable assessment

To enable the Committee to advise the Board in making its statement

that it considered the Company’s Annual Report to be fair, balanced and

understandable (FBU) on page 187, the Committee applied a detailed FBU

review framework that takes account of the Group’s well-documented

verification process undertaken by management in conjunction with the

preparation of the 2025 Annual Report. This was in addition to the formal

process carried out by the External Auditor to enable the preparation of

theindependent auditor’s report, which is set out on pages 188 to 193.

In preparing and finalising the 2024/25 Annual Report, the Committee

considered a report on the actions taken by management in accordance

with the FBU process and an FBU assessment undertaken by the Pennon

Executive. This assisted the Committee in carrying out its own assessment

and being able to advise the Board that it considered that the Annual Report

taken as a whole is fair, balanced and understandable and provides the

information necessary for shareholders to assess the Company’s position,

performance, business model and strategy.

Looking forward

During the forthcoming year, the Committee will remain focused on the key

areas of responsibility delegated to it by the Board, ensuring that standards

of good governance are maintained and that appropriate assurance is

obtained across all areas of the business. Particular focus will be given to

the Group’s principal risks, internal control environment and approach to

financial reporting, noting the start of the new regulatory period, Special

Measures Bill and ongoing volatility in the global economy. Developments

in reporting responsibilities, including those recommended by the Task

Force on Climate-related Financial Disclosures (TCFD), the consideration

of climate risk in preparation of the financial statements and the changes in

the UK Corporate Governance Code, including the pending requirements of

Provision 29, will be considered throughout the year.

155Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Audit, risk and internal control

Risk management and the Group’s system of

internalcontrol

The Board is responsible for maintaining the Group’s system of internal

control to safeguard shareholders’ investments and the Group’s assets

and for reviewing its effectiveness. The system is designed to manage

rather than eliminate the risk of failure to achieve business objectives and

can only provide reasonable and not absolute assurance against material

misstatement or loss. An ongoing process for identifying, evaluating and

managing the significant risks faced by the Group has been in place

throughout the year and up to the date of the approval of this Annual

Reportand Accounts and was last reviewed by the Board at its meeting

inMarch 2025.

The Group’s system of internal control is consistent with the Financial

Reporting Council’s (FRC) ‘Guidance on Risk Management, Internal Control

and Related Financial and Business Reporting’ (FRC Internal Control Guidance).

The Board confirms it applies procedures in accordance with the UK

Corporate Governance Code and the FRC Internal Control Guidance, which

bring together elements of best practice for risk management and internal

control by companies. The Board’s risk framework described on pages 70

to 79 of the Strategic Report provides for the identification of key risks,

including ESG risks, in relation to the achievement of the business objectives

of the Group, monitoring of such risks and ongoing and annual evaluation of

the overall process. Details of the key risks affecting the Group are set out in

the Strategic Report on pages 1 to 127.

Key performance indicators are in place to enable the Board to measure

the Group’s ESG performance on pages 83 to 87 and a number of these are

linked to remuneration incentives on page 167.

The Audit Committee reviews the group’s internal control systems and

receives updates on the findings of internal audit’s investigations at every

meeting, During the year, work has been undertaken to document the

operation of existing internal controls over financial reporting. Internal control

systems over financial reporting are the responsibility of the CFO, with the

support of the financial control team and the internal audit team. During

the year the internal controls over financial reporting were reviewed with

refreshed risk and control matrices produced.

Confirmation that the controls and processes are being adhered to is

theresponsibility of managers but is continually tested by the work of the

internal audit team as part of its annual plan of work, which the Committee

approves each year.

As part of the review evaluating the system of risk management and internal

control under the Group risk management policy, all Executive Directors and

senior managers are required to certify on an annual basis that they have

effective controls in place to manage risks and to operate in compliance

withlegislation and Group procedures.

We have assessed the internal control systems alongside our own view

arising from the ongoing regulatory investigations into operational aspects.

Noting where we have had non-compliances, we have action plans in

place and have continued to assess this during the year, and we have

supplemented this with other aspects of investigation and remediation

asrequired.

The Group’s processes and policies serve to ensure that a culture of effective

control and risk management is embedded throughout the Group and that

the Group is able to react appropriately to new risks as they arise. New and

emerging risks are identified in further detail in the risk management section

on pages 70 to 79.

Code of Conduct and policies

The Code of Conduct and related policies set out Pennon’s commitment

to promoting and maintaining the highest ethical standards. Areas covered

in the Code of Conduct and related policies include our impact on the

environment and our communities, our workplace, and our business conduct.

The Code of Conduct sets out the values and principles by which we

operate and provides a framework for ethical business practices. It is further

supported by several policies that guide our workforce and suppliers, so that

we can identify and deal with suspected wrongdoing, fraud or malpractice,

maintain the highest standards of compliance, and apply consistently high

standards of ethics. We aim to maintain a culture that fosters the reporting

ofany concerns, and trust and confidence that we will act upon them.

Our Code of Conduct and other key compliance policies can be found here:

https://www.pennon-group.co.uk/about-us/policies

Anti-financial crime policy

The anti-financial crime policy outlines the requirements of Group companies

to comply with relevant legislation, ethical standards and best practice on

preventing financial crime (including acts of bribery, fraud, money laundering

and tax evasion) and provides information and guidance to those working for

and on the Group’s behalf on how to spot ‘red flags’ that could indicate a risk

of financial crime.

The policy is at the heart of the new Pennon Code of Conduct published in

February 2025. The Code of Conduct was launched to employees together

with a bespoke interactive e-learning module which steps employees

through different financial crime scenarios asking the learner to identify

red flags which are set out in the policy. The training is mandatory for all

employees and is delivered through the Group’s learning management

platform to track completion. Employees will be obligated to complete an

annual refresher, and the course is part of the induction of all new employees

irrespective of job function or part of the Group.

The Group Legal Compliance function ensures compliance with the policy

and Code of Conduct in line with our risk-based approach by conducting ad

hoc checks on completion of the mandatory training set out above, providing

specific training to areas of potential higher risk as part of our Bribery and

Fraud Risk Assessment programme (e.g. Procurement and Commercial &

Estates), and carrying out detailed investigations into allegations of potential

wrongdoing (whistleblows) received from employees, customers and suppliers.

The potential consequences for colleagues and the Group itself are clearly

set out in the policy as are the processes for raising concerns. Any breaches

or failure to adhere to the Group’s strict standards of integrity and honesty

will be subject to disciplinary action, up to and including dismissal from

the Group. All employees are required to report any circumstances or any

suspicions of fraud, bribery, corruption or other irregularities, either to a line

manager or by using the Group’s confidential whistleblowing service Speak Up.

The Legal Compliance team (in conjunction with the Internal Audit function

and Group Tax team) created a revised financial crime risk assessment

framework in April 2024. This was delivered in 2024/25 and included:

• Combined business-wide bribery and fraud risk assessment process which

included a training session on the law governing financial crime and a risk

assessment completion workshop

• Tax evasion risk assessment

The framework is complemented by the regular review of corporate policies

relating to financial crime prevention. In addition to the Code of Conduct, a

new simplified Gifts and Hospitality policy was introduced and approved by

the Board at their September meeting.

Allegations of financial crime are reported to the Audit Committee together

with investigation outcomes and details of any action taken, which are

disclosed to our external auditors. There were no confirmed cases of

bribery,corruption, fraud, or business ethics violations during the year.

156 Annual Report and Accounts 2025 Pennon Group plc

Training and communications

Our comprehensive programme of training and internal communications

continues with targeted messaging and interactive training sessions. This

programme addresses the business’s key compliance risk areas and has

been designed to increase resilience, heighten awareness, and promote

a culture of doing the right thing. From 2024, colleagues are required to

complete refresher compliance training (focused on the Code of Conduct

which signposts to all Group policies) on a yearly basis to ensure that

continuous knowledge and understanding of our policies is maintained.

Whistleblowing policy – Speak Up

The Speak Up service encourages employees and our suppliers to

raise concerns about suspected wrongdoing or unlawful or unethical

conduct, explains how any such concerns should be raised and ensures

that employees and suppliers are able to do so without fear of reprisal.

Thewhistleblowing policy specifically encourages the reporting of:

• Endangering someone’s health and safety

• Anything that is against the law

• Stealing or fraud

• Corrupt or dishonest activity

• Damage to the environment

• Covering up wrongdoing

• Abuse of authority

• Intentionally misreporting to a regulatory body

• Bullying, harassment and/or victimisation

• Tax evasion or the facilitation of tax evasion.

The Speak Up service comprises telephone and web-based reporting

channels operated for Pennon by independent provider NAVEX Global.

Following receipt of a report, the allegation will be triaged to assess if

theissue is a personal grievance or has a wider public interest element,

and an investigation started promptly if in the public interest to do

so. Theinvestigation process is overseen by the Ethics Management

Committee and will be undertaken fairly, impartially, and thoroughly

by appropriately trained investigators, with strict confidentiality being

maintained at all stagesof the investigation.

After each investigation, a confidential review is undertaken to

identify anylessons learnt, or organisational improvements or training

requirements. Other improvements identified are always acted upon, while

ensuring the paramount requirement of operating a whistleblowing process

that protects the identity of individuals and the independence and integrity

of the process. Our whistleblowing process is designed to support our staff,

reflect shared responsibility, promote a positive culture and provide unique

insights, and is central to our system of checks and balances.

To emphasise our commitment to transparency and continuous

improvement, we have led on the creation of a Water Industry

Whistleblowing Best Practice Forum consisting of 12 water and waste

companies across England and Wales.

157Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

ESG Committee report

The ESG Committee (the Committee)

supports the Group’s ongoing

commitment to environmental

stewardship, social responsibility,

and strong governance, ensuring that

sustainability remains embedded

across the group.

Iain Evans

Chair of the ESG Committee

Committee

members

Date of appointment

to ESG Committee Attendance

Iain Evans (Chair) September 2018

Gill Rider

September 2012

David Sproul

July 2024

Jon Butterworth July 2020

Dorothy Burwell December 2022

Susan Davy March 2018

Laura Flowerdew

July 2024

Steve Buck

November 2023

Andrea Blance

April 2025

From the 1 April 2025 Dorothy Burwell will be Chair of the ESG Committee

and membership will be Jon Butterworth, Loraine Woodhouse, Susan Davy

and Laura Flowerdew.

1. Resigned 24 July 2024

2. Appointed 1 July 2024

3. Appointed 11 July 2024

4. Resigned 11 July 2024

5. Appointed 8 April 2025

Role of the ESG Committee

• Review the policies, management, initiatives and performance of

theGroup with respect to the environment, workplace policies, Group

governance and corporate policies relating to responsible and ethical

business practices, the role of the Group in society and customer service

and engagement.

• Review the overarching environmental performance of the business,

ensuring a focus on key areas of improvement.

• Review the actions of the Group to determine the suitability of the

workplace environmental policies and practices of key suppliers

andcontractors.

• Review the extent and effectiveness of the Group’s external reporting

of sustainability performance and its participation in relevant external

benchmarking indices.

• Regularly report to the Board.

• Advise the Audit Committee of any material non-financial risks.

The key successes of the Committee’s focus for 2024/25

• Achieved 13 out of 16 of our ESG targets for 2025.

• Successful integration of all entities into our group ESG targets, where

practically applicable.

• Refreshed our materiality assessment, following double materiality

principles in line with best practice to complete our first Double

Materiality Assessment (DMA).

• Established new ESG targets for 2025-2030 informed by the outputs

ofour DMA.

• Enhanced our social strategy informed by a deep dive into our

SocialPerformance.

• Continued to successfully integrate ESG principles across the group, with

a strong focus on our supply chain leading to an exciting partnership

with the Supply Chain Sustainability School.

• Achieved inclusion on the CDP A-List for climate and water for the first

time as a group, highlighting our improved environmental performance.

• Achieved our highest Sustainalytics score, with a management score of

84.5 and an overall ESG risk rating of 11.7 placing us second out of 50

water utilities assessed.

• Successful progress made against our four priorities for 2024/25, including

greenhouse gas emissions reductions and water quality and resilience.

• Continued development of our TCFD and TNFD reporting, including

key physical and transition risks, and scenario analysis, aligned with

theClimate Adaptation Report published in January 2025.

• Reviewed our ESG reporting and assessments in line with incoming

legislation – including UK Sustainability Reporting Standards (UK SRS).

158 Annual Report and Accounts 2025 Pennon Group plc

Dear Shareholder

I am pleased to report on the ESG Committee’s activities and achievements

during 2024/25. I continue to be supported by an experienced Committee

who focus on governing our ESG activity and disclosures and ensuring we

continue to be a responsible business, as well as on creating a long-term

positive impact on both the environment and all of our stakeholders, and

I’d like to thank them personally for their work and input this year. I am also

delighted to be handing over the ESG Committee Chair to Dorothy Burwell,

who I have no doubt will continue to drive our ESG strategy into the future.

Our approach to ESG ensures that everything we do supports our

commitment to providing environmental stewardship and supporting

our local communities and customers. A broad range of ESG topics were

considered by the Committee during the year while fulfilling its duties in

accordance with our latest terms of reference and governance structures.

The Committee closely monitored its wide range of ESG measures, targets

and environmental KPIs alongside compliance and assurance activities,

which showed strong performance throughout the year. This performance

has been underlined by our continued improvement in ESG benchmark

scores, achieving industry leading scores in key assessments such as

CDPand Sustainalytics.

A strategic leadership approach has been implemented to address areas

of improvement, particularly across renewable energy generation, storm

overflows, pollution, and water quality. Remediation activities are currently

underway to ensure continued improvements in performance for 2025/26.

Our strong progress on existing regulatory commitments and group ESG

targets to 2025 has been further identified in “Our Integrated Approach

to ESG” on pages 82 to 87, and the key focus areas for the Committee

in2025/2026 are noted in the “Focus areas for 2025/26” below.

As we conclude our 2025 ESG targets, this year has provided a valuable

opportunity to reflect on our performance and shape our future ambitions.

The Double Materiality Assessment (DMA) conducted in alignment with

bestpractice has provided critical insights into stakeholder views, building

on our four strategic priorities as a business. This assessment has formed the

foundation of our next phase of ambitious ESG targets, spanning 2025-2030.

These refreshed targets take into account our ever-changing environment

and ensure focus on the highest-priority issues for our stakeholders, driving

performance above and beyond our current regulatory commitments. As we

enter this next chapter, we remain committed to driving our performance

against these targets, driving long-term value for our stakeholders and

environment, and enhancing our sustainability performance across the Group.

Following on from our supply chain deep dive in 2023/24, we remain

committed to ensuring that ESG principles are inherent within the Group

activities and across our supply chain. Driven by our ESG improvement

programme, we are partnering with the Supply Chain Sustainability

School (SCSS) to upskill both suppliers and internal colleagues across

all sustainability-related topics. This is part of our wider commitment to

continue endorsing the assessment of supplier ESG measures against

stakeholder, regulatory, and investor requirements to ensure alignment

withour sustainability ambitions activities.

In line with our TCFD requirements, we have disclosed climate-related

financial information on pages 94 to 125. These disclosures evidence our

strategy to reduce emissions within our operations to achieve our Net Zero

commitments. The Committee oversaw our climate-related governance,

with climate change management treated as one of the group’s principal

risks. The Committee has also continued to oversee TCFD and TNFD

recommendations, including key physical and transition risks and scenario

analysis, aligned with the Climate Adaptation Report published for South

West Water in January 2025.

This Annual Report provides an integrated assessment to show how a

responsible approach to sustainability helps us to balance the immediate and

longer-term needs of society with the delivery of sustained commercial success.

ESG performance

The ESG Committee continues to provide assessment and oversight of

the group entities’ performance against sustainability-related targets that

are core to the successful delivery of its five-year business plan. This is

consistent with Ofwat’s requirement for independent governance of the

regulated business.

As of 31 March 2025, Pennon has achieved 13 out of 16 ESG targets,

representing strong progress against our challenging ESG goals. Whilst

we continue to consistently outperform in our greenhouse gas reductions,

renewable energy generation as a proportion of total usage is lower than

our target for the year. This is due to increased energy usage driven by

reinforced pumping and treatment in response to extreme wet weather

throughout the year, however we continue to invest in solar generation

with our first investment in Pennon Power expected to commence

energygeneration in June 2025.

As detailed above, we have now set ambitious ESG targets to drive sustainable

outcomes for the period 2025-2030. These have been disclosed on pages

86 to 87.

Enhanced reporting and assurance

As a key topic identified in this year’s Double Materiality Assessment, we

continue to evolve our ESG reporting and disclosures with our integrated

reporting found throughout our Annual Report and Accounts, alongside a

refreshed ESG Data Book to drive transparency throughout our ESG data.

Our SASB disclosures can now be found within our ESG Data Book which

isavailable to view at www.pennon-group.co.uk/sustainability.

Pennon’s ESG reporting is integrated throughout the strategic report and

specifically in the following sections:

Section Page

Chair’s letter 8

Our CEO’s review 10

Our business model 20

Stakeholder engagement overview 22

Our people and culture 32

Our Operational review 40

Key performance indicators 56

Our ESG performance 83

Governance performance 138

Other related reporting including our Gender Pay Gap report, Climate

Change Adaptation Report and Net Zero plan can be found on our website

www.pennon-group.co.uk/sustainability.

Pennon’s ESG performance and reporting is now assured by Jacobs, an

independent consultancy with expertise in technical assurance for the utility

sector. Jacobs uses a controls-based approach, assessing the processes,

systems, and governance frameworks that underpin ESG data to ensure

accuracy, consistency, and reliability. The assurance statement can be

foundon our website at www.pennon-group.co.uk/sustainability.

Certain disclosures within this Annual Report that relate to the sustainability

performance of South West Water and Bristol Water have also been subject

to an independent audit of regulatory data conducted by Jacobs.

159Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

ESG Committee Report continued

Jacobs are engaged to independently audit South West Water’s and

BristolWater’s technical (non-financial) data relating to our Outcome

DeliveryIncentives published in their Annual Performance Reports (APRs);.

This includes all regulatory targets, including a suite of environmental

performance indicators. This year, Turner and Townsend have conducted

an independent audit of other non-financial data, also included in the APR.

This includes all South West Water regulatory targets, including the suite

of environmental performance indicators. Jacobs provide a report on this

audit within South West Water’s APR. Following the acquisition of SES Water,

Mott Macdonald have continued to provide independent assurance over

the technical (non-financial) data across information published in the APR,

including regulatory targets and performance.

As we enter the new regulatory period to 2030, we are reassessing our

assurance requirements and will retender for technical (non-financial) audit

activities to be consistent across all of the Group companies and regions.

Benchmarking

It’s important to us to ensure we are regularly benchmarked against the

expected industry standards. This ensures we are continuing to provide

up to date disclosure for our stakeholders. Certain leading indices assess

companies on their disclosures relating to stringent environmental, social

and governance criteria, and their capacity to capitalise on the benefits of

responsible business practice. Pennon is a constituent within the FTSE4Good

Index, Sustainalytics, CDP Climate and Water, GRESB, S&P Global CSA, and a

number of other leading external ESG assessments.

Our latest external assessment scores as of 31 March 2025, included on page

86, show our improved performance across all assessments, building on our

status as an ESG leader within our industry.

Focus areas for 2025/26

• Embed and progress against our refreshed ESG targets for 2025-2030.

• Develop our Social approach to embed social value within our

communityinvestment.

• Continue to review our ESG assessments in line with incoming legislation

– UK Sustainability Reporting Standards (UK SRS).

• Development of supply chain improvements, embedding benefits through

our partnership with the Supply Chain Sustainability School (SCSS).

• Formalise our group’s Climate Transition Plan aligned to a 1.5 degree

increase in global temperatures.

• Engage in diverse deep dive sessions across the ESG areas.

• Continued integration of ESG across the entire Group.

• Review of external ESG benchmarking to refocus reporting to channels

used most by our stakeholders.

Iain Evans

ESG Committee Chair

3 June 2025

160 Annual Report and Accounts 2025 Pennon Group plc

Health and Safety Committee report

The Health and Safety Committee

(the Committee) promotes a culture

of safety within the Group.

Jon Butterworth

Chair of the Health and Safety Committee

Committee

members

Date of appointment

to Health and Safety

Committee Attendance

Jon Butterworth (Chair) November 2020

Iain Evans November 2020

Dorothy Burwell December 2022

Susan Davy November 2020

Laura Flowerdew July 2024

From April 2025 membership of the Health and Safety Committee will be Jon

Butterworth, Iain Evans, Loraine Woodhouse, Susan Davy and Laura Flowerdew.

The Committee’s focus for 2024/25

During the year, the Committee considered a wide range of matters in the

course of fulfilling its duties in accordance with its terms of reference:

• Half yearly comprehensive reviews of the Group’s Health &

Safetyperformance.

• A review of the tactical interventions to deliver in year improvements in

incident reduction.

• A review of the HomeSafe 2025 strategy and evolution to

HomeSafe2030.

• A review and challenge of high potential near-miss events to ensure

themes are identified and pragmatic solutions implemented.

• Visiting operational sites to engage with front-line colleagues and the

wider Health and Safety teams.

Dear Shareholder

I am pleased to provide an update on the Health & Safety (H&S) Committee’s

activities during the year.

At Pennon we are passionate about health and safety. Everyone is

empowered to take responsibility for both safety and wellbeing, feeling

able to call out anything that makes us better. Safety is about taking

accountability and brave leadership, which leads to the journey of a world-

class culture. The Board are particularly proud of our Pennon Water Services

division who, for the fifth year, have had no lost time injuries.

HomeSafe, our flagship initiative to drive enduring and sustained change –

has played a pivotal role across Pennon. Our dedicated Board Committee,

focused purely on Health and Safety, ensures the Board continues to support

our HomeSafe strategy and the Group’s vision that everyone goes home

safe every day. We continue to strive to improve our health and safety

performance, and leadership from the top is critical. The Board has dedicated

time to visit operational sites, discuss and review performance, offer support,

encourage learning, and meet department and site leaders and employees

from across the business.

The Board recognises the improvements across the Group through

HomeSafe and supports the evolution of the strategy to drive improvements

across all aspects of health, safety and wellbeing through to 2030.

I was delighted that the Committee was able to support the HomeSafe live

event this year and visit multiple operational sites. The event, which changed

formats from previous years, was brought to life with engaging workshops

delivered over six days at six different venues within the South West. The

interactive workshops had core health and wellbeing messages featured

throughout and allowed employees to engage directly with senior leadership.

Importantly, the Committee reviews deep dives of High Potential

Incidentswith a particular focus on lessons learned, getting to the

rootcause,encouraging a learning mindset. These reviews highlight the

improvements in culture, leadership and accountability through open

andhonest investigations seeking to learn and improve whilst deliver

pragmatic solutions.

Role of the Health and Safety Committee

• Review and challenge to support the Board and Executive on all matters

connected to Health and Safety.

• Review the extent and effectiveness of the Group’s reporting of health and

safety performance and compare to external benchmarks.

• Regularly report to the Board.

• Advise the Audit Committee of any material non-financial risks.

161Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Health and Safety Committee Report continued

Health and Safety Committee composition

All Board members are attendees and served throughout the year, with support

from the Pennon Chief People Officer and Pennon’s Health and Safety Director.

Reporting

In addition to the regular Board report by the Pennon Chief Executive Officer,

detailed performance is reviewed quarterly by the Executive team, and

six-monthly by this Committee, focusing on performance, benchmarking,

and lead activities such as leadership and engagement, hazard rectification,

assethealth, critical safety controls and working environment.

Engagement through all levels of the organisation has demonstrably

increased and has supported the incremental improvements, and once

again seen the lowest ever Lost Time Injury Frequency Rate (LTIFR),

for employees and agency, excluding contractors, achieving the original

HomeSafe ambition of 0.25.

The evolution of HomeSafe will continue to drive improvements and will be

regularly reviewed to ensure it drives us towards our 2030 aims, and beyond.

The Committee will continue to review and challenge plans and performance

to support our HomeSafe ambitions.

Jon Butterworth

Chair of the Health and Safety Committee

3 June 2025

HomeSafe strategy

The Group’s flagship Health and

Safety programme, HomeSafe,

continues to provide the framework

for driving significant improvements

in all health and safety activities and

impacts. Theevolution of HomeSafe

is an important progression to deliver

continuous improvement throughout

AMP8, and is focused on the four

cornerstones of:

Occupational Safety: focusing on

theIndividual

Process Safety: focusing on the high

consequence processes within our water

and wastewater treatment process.

Occupational Health and Wellbeing:

focusing on physical and mental health

Security: focusing on physical and

personnel security

Read more on page 35.

162 Annual Report and Accounts 2025 Pennon Group plc

Remuneration Committee report

Evolving

remuneration

in a changing

environment.

Andrea Blance

Chair of the Remuneration Committee

Committee

members

Date of appointment

to Remuneration

Committee Attendance

Andrea Blance (Chair)

April 2025 –

Claire Ighodaro

July 2020

Iain Evans

September 2018

Dorothy Burwell December 2022

Loraine Woodhouse

December 2022

1. Andrea Blance was appointed to the Board as Remuneration Committee Chair on

8 April 2025.

2. Claire Ighodaro resigned from the Board as at 31 December 2024.

3. Iain Evans acted as Chair of the Committee for the March meeting.

4. Loraine Woodhouse stepped down from the Remuneration Committee on

1 April 2025.

Role of the Remuneration Committee

• Ensure remuneration is aligned with the Group’s strategy and reflects the

values of the Group.

• Determine the Remuneration Policy to ensure it remains appropriate,

considering shareholders’ views and best practice and supports attraction,

retention and motivation of Executive Directors.

• Advise the Board on the framework of executive remuneration for

the Group.

• Set the remuneration level for the Chair, the Executive Directors and

senior executives of the Group and review the remuneration arrangements

of the wider workforce.

• Approve the design and determine the targets for any performance-

related pay schemes.

• Determine the appropriate outturn of any incentive arrangements.

The Committee’s focus for 2024/25

• Considered the remuneration and terms of engagement of the Executive

Directors, senior executives and Chair of the Group and the remuneration

of the wider workforce.

• Considered the appropriate long-term incentive arrangements

for the Group over the next 3-5 years engaging with stakeholders

asappropriate.

• Determined targets that remain stretching, relevant to the

Group’s strategy and values and reflect best practice and

widerstakeholders’ views.

Dear Shareholder

I joined Pennon in April 2025 as the new Chair of the Remuneration

Committee and I am pleased to present our 2025 Remuneration Report to

all of our stakeholders. I would like to start by thanking the previous Chair,

Claire Ighodaro, for her careful and thoughtful leadership of the Committee

until she retired in December 2024 and Iain Evans for stepping in as interim

Chairbefore I joined.

Long term stewardship is at the heart of our strategy. Our values and

culture shape how we act in a way that supports the interests of our various

stakeholders. This applies at all levels of the organisation, including the

activity of the Remuneration Committee.

All of our stakeholders – investors, employees, our customers, the

communities in which we operate and the environment – have a shared

interest in ensuring water companies are performance driven, sustainable,

financially resilient, mindful of our impact on the environment and able to

make the substantial capital investment required in infrastructure in order

toensure the long-term viability of the sector.

With this in mind it is essential that the approach to executive pay is able

toattract and retain the high-quality talent required to a lead large, complex,

infrastructure organisation, by incentivising and fairly rewarding management

teams for the outcomes achieved. These principles underpin our approach to

executive remuneration.

External context

This has been a year in which many of the foundations underpinning

effective regulation of the water sector have been under review, with a new

Government, new legislation and a renewed focus on the transformation

of the sector. The Water (Special Measures) Act, passed in February 2025,

has strengthened the power of water industry regulators, with Ofwat now

consulting on supporting rules to prohibit performance-related pay across

our regulated businesses in certain circumstances. We await the outcome

ofthis consultation.

As a principle, we always strive to ensure we maintain constructive working

relationships with the Government and our regulators. As a responsible

business, we fully support the legislation and want to work constructively

with Ofwat to ensure that everyone can have the clarity required to enact

the requirements of the Act in full. That said, we are mindful that the Act

willfundamentally change how incentives are operated by water companies

in comparison to other sectors and FTSE listed businesses more generally.

It is also fair to acknowledge that as with any critical national infrastructure,

from time-to-time things do not always go to plan – and whilst we should

not reward failure, alignment of performance related pay with the long-term

stewardship of the assets and delivery for customers and the environment

isparamount.

163Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Remuneration Committee Report continued

Business Context

Following Ofwat’s Final Determination in December 2024, in which South

West Water’s business plan was recognised as ’outstanding’ for the third

consecutive price review, Pennon accepted the determinations for SWW

andSES. In the period to 2030 we are increasing capital investment from

c.£1.9bn to a record £3.2bn, to be distributed across a range of transformation

projects focused on areas such as tackling storm overflows, bolstering

water resources with a new reservoir in the South West, and expanding

our programme of nature recovery. Supporting affordability for customers

remains key.

We also recently completed a comprehensive financing package to

support investment and drive outcomes for customers, communities and

the environment, whilst also maintaining total dividend with a sustainable

CPIH linked growth policy to 2030. Coupled with the 34% organic growth

projections in Regulatory Capital Value in the period to 2030, this represents

an attractive combination of underlying asset growth and income to

ourshareholders.

This is a critical phase for the Group, as we seek to deliver what matters

most to our stakeholders and in transforming the water sector in a period of

unprecedented and well-documented challenges. During such a period it is

crucial that we are able to attract, retain and motivate our extremely strong

team of senior leaders in order to drive delivery of our transformational

business plan.

Assessment of full year performance in the round

In respect of our 2023/24 annual bonus scheme, where it was agreed that

Executives would not take a bonus payment, Ofwat commented on the

weighting and selection of metrics related to customers, communities and

the environment and the extent to which outcomes were linked to financial

and broader Pennon Group performance. Conversely, Ofwat considered the

SWW and SES scheme constructs to be robust.

Given this feedback, we have re-positioned the Pennon annual bonus for

2024/25 to create a clearer link to the performance of SWW and SES. In

proportion, the annual bonus scheme is 90% water business (70% SWW,

20% SES) and 10% Pennon Group. This continues to be consistent with

the existing remuneration policy, with financial, customer and environment

measures embedded in these schemes. In all relevant cases objectives are

based on achievement of stretching business plan targets, agreed with

Ofwatas part of K7.

Based on a formulaic assessment of performance, the outturns for the

2024/25 bonus would be 42.4% of maximum. Overall we are delivering

for investors as well as customers – with robust relative performance

on common ODIs, with overall cumulative ODI performance at 70%.

Underpinning all of our activities is a robust funding position, with Pennon

Group gearing at 64.3%, and total water group RCV gearing at 61.8%. 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.

The boil water notice in May 2024 for Brixham customers, was considered by

the Committee in the forgoing of the 2023/24 annual bonus by all members

of the executive team.

The Water (Special Measures) Act was passed in February 2025, and the

Actwill be applicable to 2024/25 annual bonuses. Whilst Ofwat has initiated

aconsultation on how bonuses may be prohibited, this is ongoing.

In light of the ongoing consultation by Ofwat on how the Water

(Special Measures) Act will be operated in practice, the Committee has

noted the formulaic outturn of the 2024/25 annual bonus. However, no

payments will be made to the Executives until there is further clarity on

the new legislation framework to assess performance and the additional

performance criteria that need to be achieved before a bonus can be

paid. Once the final rules have been published, the Committee will review

outcomes and determine the best course of action including whether an

element of this award should be delivered as long-term shares as part of

afuture incentive framework with additional conditions.

In relation to the Long-Term Incentive Plan awarded in 2022, Ofwat has

indicated that it is not their intention for the Act to retrospectively apply

to this award. This award was linked to a combination of financial and

customer related metrics. Shareholders will be aware that in response to

Ofwat feedback, the 2023 LTIP awards included additional goals relating

toWater Quality.

At the sector wide Select Committee in January 2025, EFRA Committee

members challenged the absence of metrics relating to affordability and

theapproach to vulnerable customers in incentive arrangements. Given this,

we have included these metrics within the basket of measures relating to

customer experience. Details of performance against all LTIP measures is

setout on page 176.

The vesting level for the 2022 LTIP award is 41.1% and will be awarded as

shares and not paid for by customers. Although this award vests in 2025, all

vested shares are subject to a further two-year holding period and therefore

awards are not eligible for release until 2027. The formulaic outcome was

reviewed in the context of overall performance using the Committee’s

longstanding holistic performance review framework. Overall, the Committee

concluded that the outcomes represented a fair reflection of performance

over the period.

The stretching performance targets ensured vesting was dependent on

strong delivery, and where the targets had not been achieved, this was

already reflected in the performance assessment. In addition, the Committee

noted that for the first two years of the performance period, the CEO did not

receive any bonus payments, therefore the final vesting level was deemed

to be proportionate. Using Ofwat’s draft prohibition framework, we have

assessed the award against customer, environmental, financial resilience

andcriminal liability matters, concluding that the EA prosecutions in 2024,

aswell as the Brixham incident had already been recognised in the forgoing

of annual bonuses in 2023/24.

In addition to the incentive arrangements, performance alignment is

also provided by shareholding requirements. The CEO has a significant

shareholding in the Company, at 324% of salary. During the year the

CEO acquired 118,939 shares in support of the Group’s Rights Issue.

TheCommittee is satisfied that the CEO continues to be aligned to the

long-term sustainable performance of the business and the experience

ofourshareholders, exceeding the 200% shareholding guideline.

During the year Steve Buck stepped down from the Board. Details of

remuneration arrangements agreed by the Committee on departure are

setout on page 177.

Market context and review of arrangements

Over the past year the Remuneration Committee has been considering how

best to evolve remuneration arrangements, seeking views from investors

and a range of stakeholders to ensure we can continue to motivate, retain

and attract talent. The focus has been on ensuring remuneration supports

stewardship and sustainability of the business, aligned with longer-term

objectives of our customers, and in complying with the relevant legislation.

Our principles around performance related pay are grounded in the

Investment Association’s guidance. We believe that performance related pay

is necessary to attract and retain talent. Equally when combined with long

term stewardship of critical national infrastructure, it can support economic

growth and stability.

Over the past year we have debated a number of alternative solutions to

how pay can be structured in the future. We have also had initial discussions

with our major shareholders to test and challenge our thinking. Although this

review process is ongoing, we have debated how remuneration can help to

rebuild trust in the sector by supporting long-term stewardship and aligning

remuneration with execution of the long-term strategy.

164 Annual Report and Accounts 2025 Pennon Group plc

It is also recognised that despite being amongst the largest FTSE 250

companies when ranked by market capitalisation (c.30 May 2025), pay

forthe CEO is around the bottom 10% of the group. This is not a credible or

sustainable position. The misalignment of CEO pay became very apparent

when we were recruiting the CFO, as many credible external candidates

hadpay expectations that exceeded the pay levels for our CEO.

Having sought initial feedback, we intend to consult with stakeholders in

thecoming months. This review will cover all elements of pay for 2025/26.

Our current expectation is that we will put forward a revised policy for

approval by shareholders in due course, once proposals are finalised,

withpotential application for 2025/26 subject to shareholder approval.

Wider workforce remuneration

We are committed to ensuring remuneration for our front-line colleagues is

competitive, understanding that this is the right priority when the financial

landscape is challenging. We are proud that we have been an accredited

Living Wage Foundation payer since 2021, and in practice we had aligned our

pay rates to these recommended levels for some time prior to accreditation.

The 2025 pay award reflects a competitive award which continues to focus

on front line roles with an increased valued at 3.9% inclusive of one day

additional holiday for the majority of colleagues. We are proud that our

employees will earn a minimum of £13.10 per hour, exceeding the real living

wage by almost £1,000 annually, underscoring our dedication to being an

employer of choice.

Our Group Reward Principles continue to reflect the broader strategy,

evolving composition of the Group and recent years acquisition activity

which has expanded our workforce across multiple locations. Key areas of

focus included the embedding of the Group Values, strengthening wellbeing

and incorporating greater employee flexibility through work patterns or

choices of lifestyle benefits. We also offer highly competitive retirement

benefits to our colleagues, and enhanced life assurance protection.

We also took time to reflect on our variable pay for colleagues, linking

any variable pay to our Group Values, and ensuring clear line of sight

between their objectives and the Group strategy, our customers and

theircommunities. For senior managers there is a continued focus to build

colleagues shareholding in the business through any variable pay outcomes.

Our HMRC-approved share schemes continue to be popular with c.40%

ofcolleagues participating in either the ShareSave or Share Incentive Plan.

We have once again provided expanded disclosure on our approach for the

wider workforce, and this is set out on page 168.

Summary

The sector is being faced with unprecedented challenges, and we have

sought to be measured and pragmatic as we navigate this period of change.

The main body of the report provides further details on our key decisions,

including our decision to pause the awarding of the annual bonus for 2024/25.

We recognise that the challenges faced by the sector may require a rethink

to how Pennon approaches executive pay in the future, and therefore we will

continue to review our approach in remaining mindful of evolving guidance

from Ofwat. To the extent that structural changes are proposed we intend

to consult with our major shareholders regarding any changes in the next

few months.

Andrea Blance

Chair of the Remuneration Committee

3 June 2025

165Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

How will the Water (Special Measures) Act Impact Pennon?

The new Act gives Ofwat the power to prohibit performance-related pay for executives of regulated water companies that fail to meet specific standards. We will

abide by the new legislation and associated guidance when operating variable incentives in future years.

Ofwat have not yet published final guidance on how the Act will be implemented in practice. Naturally the Committee is keen to ensure that the Group complies

with the legislation and our regulatory requirements.

For 2024/25, we have assessed the bonus performance outcome for the year, but no bonus has been paid to either executive director. The final outcome for the

year will only be determined once Ofwat have published their final rules and guidance. If paid, it will not be paid for by customers.

In relation to the 2022 LTIP, the targets were set at the time of grant, before the new legislation was enacted. The Committee has taken steps to ensure that the

vesting outcome and overall pay levels over the last three years fairly reflect performance over the period, noting that the award will be held for a further two

years, and will not be paid for by customers.

In the longer-term the Act will fundamentally change how incentives are operated by water companies in comparison to other sectors.

Why have you not set performance targets for the coming year?

During a recent early-stage consultation regarding potential structural changes, a number of shareholders provided valuable feedback regarding performance

metrics for incentives. We will take these comments into account when refining our proposals.

Once targets have been finalised, we intend to re-engage with investors and Ofwat. We also plan for finalised targets to be published on our website for

full transparency.

For the 2024 LTIP, unfortunately we have not been able to finalise targets for this award. Although we had originally intended to finalise these during H1 of

2024/25, the election of a new Government followed by the prospect of new legislation and evolving guidance from Ofwat, made it impossible to set targets

withcertainty that any scorecard would be acceptable under the new regime. Ofwat has confirmed that any 2024 LTIP is likely to be within the remit of the

Water (Special Measures) Act. Therefore our intention is that any scorecard that is applied to the 2025 LTIP awards will also be applied to the 2024 LTIP award.

Although the performance criteria and weightings for incentives have not been finalised, it should be noted that as a regulated business, there are clear

targets that have already been set as part of our stretching business plan. These will form the basis for any performance conditions used for incentive purposes.

What are the areas of focus for the ongoing remuneration review?

This is a critical phase for the Group, as we seek to deliver what matters most to our stakeholders, transforming the water sector in a period of unprecedented

and well-documented challenges. During such a period it is crucial that we are able to retain and motivate our extremely strong team of senior leaders in order

to drive delivery of our transformational business plan.

The Water (Special Measures) Act will fundamentally change how incentives are operated by water companies in comparison to other sectors. The Committee

is also acutely aware of the need for external stakeholders to have trust and transparency in the way remuneration is determined in the water sector.

In this context we think a fresh perspective on pay is required to respond to the new regulations and challenges in the sector. Overall the intention is to support

greater long-term stewardship.

Over the past year we have debated a number of innovative alternative solutions. To date, we have consulted with a number of our major shareholders, to test

and challenge our thinking and over the coming months will continue our discussions with key stakeholders.

Although initial feedback from shareholders regarding the direction of travel has been positive, we are not yet in a position to put forward a new Remuneration

Policy at the forthcoming AGM. Instead, we intend to continue this review in the coming months. It is our intention to take the necessary time to appropriately

consult with key stakeholders prior to any major changes in approach.

The ongoing review process will cover all elements of pay for 2025/26 including the operation of incentive plans for the coming year. In order to ensure

remuneration is considered in a holistic manner, the CEO salary for 2025/26 will also be considered as part of this broader review process.

Directors’ Remuneration report

166 Annual Report and Accounts 2025 Pennon Group plc

At a glance

What is the structure of executive pay?

Year 1 Year 2 Year 3 Year 4 Year 5

Base salary

Benefits

Retirement benefits – 10% of salary

Bonus: up to 125% of salary, up to 50% in cash

50% deferred into shares for three years

LTIP: subject to three-year performance period Subject to a two-year holding period

Shareholding guideline: Executive Directors are expected to build up a shareholding equivalent to 200% of salary

What safeguards are in place?

Robust performance

conditions

Variable pay linked to

a rounded assessment

of performance against

stretching targets

Review framework

Holistic review of

performance to consider if

formulaic incentive outcomes

are fair and appropriate

Deferral and holding

periods

Bonus (50%) and LTIP

awards are deferred for a

further period to provide

long-term alignment

Malus and clawback

Provisions in place for

variable pay to safeguard

against payments for failure

How did we perform?

Vesting 2022

LTIP measures

2024/25

bonus measures

What were the remuneration outturns for 2024/25?

£803k

£410k

£186k

aura Flowerdew CFO

Susan Davy CEO

Fixed pay Bonus (cash) Bonus (shares) LTIP

Performance highlights

Record investment in our

asset base…

£666.7m

…including investment

in renewable energy

generation of

£40.7m

Group Liquidity in excess of

£1bn

Underlying EBITDA

£335.6m

despite ongoing

costpressures

c.40%

reduction in network

pollution incidents over K7

100%

bathing water quality for

the fourth consecutive year

100%

affordability – meeting our

pledge in water poverty

RORE: 33%

Sustainable dividend: 33%

Customer experience: 33%

SWW: 70%

SES: 20%

Pennon Power: 5%

PWS: 5%

Performance outcome

= Not Applicable

No payments have yet been

approved until further clarity on

how Ofwat will apply new legislation

Performance outcome

= 41.1% of max

Legacy LTIP award – granted

before new legislation and

guidance developed

167Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Annual report on remuneration

Oversight of Remuneration for the Wider Workforce

The Remuneration Committee considers oversight of remuneration for

the wider workforce as a key element of its remit and considers this when

making decisions regarding remuneration for the Executive Directors.

The Committee reviews a report on employee remuneration twice a year,

either through a pay dashboard, which contains information on elements of

financial and non-financial reward, the wider labour market, demographics

and pay statistics across the organisation or through a subject specific paper.

This detail provides important context to ensure that a consistent approach

is adopted across the Group workforce including the Executive Directors.

Developments in the financial and non-financial elements of the employee

proposition are reviewed regularly, as well as share scheme participation

and emerging reward trends. The Committee reflects on the position of our

gender and ethnicity pay. Feedback to the Committee from employees is

through ‘Be The Future’ forum – our employee engagement forum through

the Senior Leaders on matters concerning remuneration arrangements.

Our Reward Strategy and Approach for the

WiderWorkforce

Our well-established People Strategy across the Group is centred

aroundtalented people doing great things for customers and each other

and creating the best place to work. The Reward strategy and framework

which was established in 2019 was reviewed and updated during 2023/24.

The framework reflects our changed Group composition, our latest business

strategy and plans, and changing employee expectations. The Group values

(see page 169) are incorporated. The framework will continue to set our

approach for future developments in the reward landscape for colleagues.

Pennon’s Group Reward Strategy continues to have three aims:

Aim 1

Ensure reward decisions will support:

• Our business strategy for delivering to customers

and communities, and promoting long-term

sustainable growth

• Our People strategy and values

• Our alignment to stakeholder expectations

(e.g. investors and regulators)

Aim 2

Ensure the reward package offered

toemployees is:

• Designed and delivered fairly

• Set up to enable the business to attract and retain

the talent that it needs to be successful

• Supports employee engagement and motivation

• Allows employees to share in Group success

Aim 3

Clearly communicate to relevant

stakeholders our employee reward and

recognition principles and framework

Rewarding our colleagues

Salary increases for wider workforce

As in 2024, we have focused our pay spend on those colleagues who

haveneeded most support during the ongoing increases to cost-of-living.

The 2025 pay award continues to focus on front line roles with an average

increase valued at 3.9% inclusive of one day additional holiday for the

majority of front line colleagues. We are proud that our employees will earn

a minimum of £13.10 per hour (with the exception of apprentices who are

on a formal training plan), which not only aligns with, but exceeds the real

living wage by almost £1,000 annually, underscoring our dedication to being

an employer of choice. For colleagues covered by collective pay bargaining,

theaward remains subject to ballot.

We will continue to evaluate work patterns for the mutual benefit of

customers, colleagues and operational needs during 2025/26.

Wider workforce bonus arrangements

All colleagues across the Group are eligible to participate in variable pay

schemes. Senior bonus arrangements follow the model applied to the

Executive Directors for their annual bonus incentive. For the wider workforce,

variable pay has been aligned with the Group Values, and has stretching

targets which support delivery of our Business Plan for 2025-2030, focusing

on water quality and resilience, storm overflows and pollution, our net zero

agenda and customer service and affordability. The scheme maintains a

measure for our imperative of all colleagues going HomeSafe each and

everyday.

Financial wellbeing and wider benefits

We offer a comprehensive range of benefits which have been extended

over the past few years to include the roll out of a financial well-being

and education partner for colleagues and their families. This includes an

ill-health income protection policy which has provided support to a number

ofcolleagues in 2024/25. We continue to operate a range of discounts,

greeninitiatives and services to enhance our employee proposition.

Saving for the future

We know that our colleagues value our responsible approach to pension

contributions. We are pleased that despite the ongoing cost-of-living

increases, 93% of colleagues continue to participate in the defined

contribution schemes.

Our ShareSave scheme was again opened for applications in 2024,

continuing to support our belief that employees should have a stake and say

in the business. The ShareSave sits alongside our evergreen Share Incentive

Plan providing employees with monthly share purchase from pre-tax salary.

The 2024 ShareSave scheme received strong support from our colleagues,

with over 36% of colleagues joining the scheme, and we extended this and

the Share Incentive Plan (SIP) to our colleagues in South East and Surrey

Water. We have also seen ongoing growth in participation in the SIP this

yearof over 6%

Living Wage Foundation

We continue to pay above the Living Wage Foundation rates for all roles

excluding those colleagues who are on our apprenticeship arrangements.

Our accreditation as a Living Wage Foundation employer has been

maintained since 2021. We continue to focus our pay spend on lower

paidroles.

Wider workforce remuneration overview

In accordance with the 2018 UK Corporate Governance Code, the

Committeereviews the level of information provided on pay matters in the

wider organisation. The Wider Workforce papers provide the Remuneration

Committee with an overview of the approach to pay across the Group,

supplemented with topic specific papers:

• Helps support the Committee in reviewing workforce remuneration

andrelated policies which continually evolves to provide greater insight.

• Provides an overview of pay arrangements across the business and key

statistics on pay in different areas of the business.

• Updates on progress on our Reward Strategy implementation.

• Has oversight of the wider remuneration landscape to provide external

context and industry specifics to inform on our benefits.

• Provides information on workforce demographics, gender pay, pay ratios,

pension and benefits and incentive outcomes in different areas.

The Committee intends to keep the content of the overview under review to

ensure it remains suitable.

168 Annual Report and Accounts 2025 Pennon Group plc

Our Group People Strategy

We have an approved people strategy which

outlines our priorities and aspirations.

The role of reward underpins our people strategy, proactively

supporting our ambition to be an employer of choice, able to retain

toptalent and drive business success, rather than a stand-alone

strategic element.

1. Culture

2. Attracting & retaining talent

3. Training & competence

4. Compliance & process

5. Organisational Design

6. Leadership & Succession

Total Reward

Our people strategy is supported by our reward principles, which deliver our overall total

reward framework:

Talented

people doing

great things

For our customers

and one another

Total Reward

Base pay Variable pay

&allowances

Saving for

thefuture

Benefits

Our values

Underpinned by our

Pennonvalues

Supported by reward strategy

& governance, job evaluation &

benchmarking, systems & data

Support the delivery of

Pennon people strategy

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 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.

169Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Our Reward framework supports our People Strategy

Pillar Highlights

Base pay

The Group’s overarching principles for basic pay are as follows:

• Base pay should reflect the level of skills, responsibilities and accountabilities of the job, plus the market and region in which the business

areaoperates.

• We should maintain a market competitive edge to attract and retain talent. Market benchmarking against recognised surveys isconducted regularly.

• We should maintain our status as an accredited Real Living Wage Employer, guaranteeing base pay at or above the Living Wage Foundation rates.

• We should review pay annually with any resulting award being subject to affordability and business performance.

• We should engage with Be The Future Forum, the WaterShare Customer Panel and Recognised Trade Unions on pay decisions.

• We should undertake equal pay and gender/ethnicity pay analysis from time to time to ensure we comply with current equality legislation and

provide equal total reward opportunities for roles of equal value.

Variable

pay

The Group operates variable pay schemes, including annual bonus and incentive arrangements and all employees and temporary workers are eligible to

participate. Throughout variable pay schemes, there is strong correlation in the targets, which align the whole organisation on goals linked to customer,

communities and the environment. The maximum bonus levels are based on seniority and level of responsibility. At leadership level a portion of the

bonus is deferred into shares for three years.

Long-term incentive share awards are available to senior executives and Executive Directors, consistent with market practice. Our front-line teams

receive overtime, call-out and standby payments, ensuring that when workloads are high, employees are fairly compensated. We remain mindful of

the need to balance working hours, customer demand and available resource against the health, safety, wellbeing of our colleagues and following a

successful pilot earlier in the year, our overarching principles on variable pay are as follows:

• Provide every colleague with the opportunity to earn an element of variable reward using appropriate mechanisms for different colleague

populations, as agreed by each business area.

• Have clear communication on rationale, purpose, performance measures, pay-out calculation and other rules for the variable pay schemes, to ensure

colleagues fully understand their total reward opportunities.

• Ensure the performance measures included in the balanced scorecard are aligned to our business strategy, values and take into consideration the

views of shareholders, customers, regulators and other key stakeholders.

• Encourage colleagues to have share ownership delivered through variable pay.

• Remuneration Committee or relevant Executive Committee can apply appropriate discretion to bonus outturn, considering the ‘how’ as well as

the‘what’.

Saving for

thefuture

We offer highly competitive retirement benefits to our employees, which include additional life assurance protection. Membership of the Group pension

scheme remains high with a 93% participation rate in our Defined Contribution (DC) scheme. As part of our Saving for the Future, all employees

can participate in our HM Revenue and Customs-approved ShareSave and Share Incentive Plan, with a strong emphasis on employee buy-in and

ownership. We invited our South East and Surrey colleagues into our schemes in 2024. Not only do our share schemes provide a mechanism for

sharingin the long-term success of the Group but mean that colleagues and customers have a say and stake in the business.

Our overarching principles on Saving for the Future are as follows:

• Provide every colleague with the opportunity to build up share ownership.

• Clearly communicate and promote the existing share schemes to ensure maximum participation.

• Ongoing exploration of HMRC-approved tax advantaged share scheme opportunities for broader offerings.

• Provide every colleague with the access to our Defined Contribution pension scheme with the choice of employee/employer contribution levels.

• Provide company matching in our Defined Contribution pension scheme to further support our colleagues saving for retirement.

• Provide access to a fully interactive pension administrative platform and drop-in sessions to ensure employees understand the offering and

implications to make informed decisions.

• Comply with the government required pension enrolment requirements.

Benefits

We operate a range of benefits of which the majority are available to all colleagues. These are selected for their ability to enable colleagues to get

thebest value from their salary such as discounts, to ensure a work life balance which supports both family life and outside interests through generous

holiday entitlements or those designed to bring financial security such as income protection or life assurance. A range of advisory services are available

to support colleagues on occasions where additional support is needed, including financial support, health and wellbeing, legal advice and a range

of employee-led support groups. From time to time, there may be necessary exceptions that apply to our core benefits, reflecting TUPE transfers

orpreserved contractual benefits. The principles for our benefits are as follows:

• Operate a set of core Group-wide benefits for all colleagues, and a wide range of other additional offerings to enable colleagues to select the most

appropriate benefits tailored to their needs.

• Ongoing evaluation of the effectiveness of the benefits offering, ensuring we take full advantage of our Group-wide purchasing power with benefits

providers, and we are aligned with our Fair Tax Strategy and HMRC guidelines.

• Actively engage with employees to understand their needs to continue shaping our benefits proposition.

• Adopt technology to enable easy access to our benefits from home or work.

• Continue to focus on developing our wellbeing and flexible working provisions and explore additional benefits provision opportunities to support our

broader ESG agenda (e.g. green voluntary benefits, volunteering days etc).

170 Annual Report and Accounts 2025 Pennon Group plc

Gender and Ethnicity pay reporting

We recognise our duty to contribute positively to society by cultivating an

environment that promotes social mobility, prioritises diversity and inclusion,

and ensures equitable treatment for all employees. Our aspiration is to

become the Employer of Choice across our region, where trust is paramount,

and every individual is valued for their contributions. Transparency lies at

the heart of our commitment to diversity and inclusion. Reporting serves as

a vital instrument in our journey towards openness, allowing us to candidly

assess the gender and ethnic diversity of our workforce. Moreover, it

enables us to share the proactive measures we have implemented and will

continue to pursue to enhance diversity across all levels and roles within

our organisation. We understand that fostering an inclusive workplace is

imperative not only for attracting talent but also for retaining our valued

colleagues and because it is the right thing to do.

During 2022/23, in line with our Change the Race Ratio commitments, we

voluntarily published our Ethnicity Pay Gap data for the first time. The results

reflect our journey in building representation of ethnic minority groups and

gender diversity across Pennon, noting that the South West, where a large

proportion of our business is based, has a lower diversity mix than other parts

of the UK. Our ethnicity pay gap is 11.72%. Across the Group we have been

working hard to attract a greater number of ethnically diverse candidates to

apply for job vacancies, and we offer dedicated support to new employees

through our graduate programme and support the 10,000 Black Interns

Programme. We will continue to work to progress our diversity actions

tobuild greater representation.

Our Group gender pay gap has reduced from 8.5% to 3.9%. This reflects the

improvements we have made in increasing representation of females in the

upper quartile from 16.9% in 2018 to 28% in 2024, and the ongoing focus on

creating an environment for women to thrive and develop their careers.

During the year we have been recognised for our progression in gender

equality by external bodies. Our placement in the FTSE 250 Women Leaders

Review reflected our high participation of female Board members resulting in

Pennon ranking third for Women on Boards in the FTSE 250.

We are committed to deliver on our ambitions to build diversity and inclusion

across the Group and the water industry.

Our Group Values

Our Group values were launched in 2023 and underpin our Reward

Strategy as well as our culture and will be reflected in individual and team

remuneration, recognising and rewarding colleagues who showcase the

Group values helping us to deliver what matters most to our customers

andcommunities in the regions we serve.

Colleague engagement

RISE was renamed ‘Be The Future’ forum in 2024, reflecting the Group

values. The forum has now been in place for three years, providing a two-way

dialogue for all colleagues across the Group. This is regularly attended by

senior leadership including the Pennon Chief Executive Officer, South West

Water Director of People and Culture, the Pennon Chief People Officer and

other members of the senior leadership. The forum is an established group

provoking healthy debate and discussion on areas that matter to employees

including reward. Representation is strong, with membership aligned to

business areas to ensure that the issues that matter the most are raised.

This group continues to be a key source of dialogue and employee views

for shaping future reward developments. The Committee is kept informed

ofthemes and feedback from their forum discussions.

We hold regular meetings with the recognised trades union representatives,

keeping them informed of business developments and the People Strategy

and recognising their role for colleague feedback and the insights they can

provide on behalf of their members on a wide range of topics. Across the

Group we consult on the pay of all colleagues. This will either be through the

collective bargaining agreement in place with recognised trades unions or

through our ‘Be The Future’ forum for those outside of these arrangements.

HomeSafe

Making sure our colleagues and contractors get home safe every day is

fundamentally more important than remuneration. However, how we measure

our performance, reward colleagues living by our values and the culture we

create has a direct influence on the health and safety of each other and we

will continue to support this important initiative through our wider workforce

remuneration principals and Executive Remuneration policy.

171Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

How our remuneration approach meets Section 40 of the UK Corporate Governance Code

Clarity – remuneration arrangements should be transparent and promote

effective engagement with shareholders and the workforce.

The Committee seeks to promote transparent disclosure of remuneration

arrangements, with full details of executive remuneration provided within

theRemuneration Report each year. Incentive outcomes and the performance

levels achieved against pre-set targets are clear.

Consistent frameworks for annual incentives are used throughout all

levelsof the organisation, providing clarity of performance levels expected.

The Committee welcomes dialogue on remuneration arrangements, with

shareholders, our WaterShare+ Advisory panel and our colleagues either

through our ‘Be The Future’ forum or other employee forums.

Simplicity – remuneration structures should avoid complexity and their

rationale and operation should be easy to understand.

The remuneration arrangements in place are simple, comprising base

pay, pension, benefits, short-term and long-term incentive awards and

infundamental construct remain consistent over time. Performance ranges

where applicable are straightforward in nature. Maximum remuneration levels

are set within the policy.

Risk – remuneration arrangements should ensure reputational and other

risks from excessive rewards, and behavioural risks that can arise from

target-based incentive plans, are identified and mitigated.

Remuneration arrangements are carefully considered by the Committee,

toensure they reflect our values and those of a responsible business.

Long-term sustainable performance is central to our delivery for all stakeholders

and this is reflected in our long-term incentive plan, balancing both financial

resilience and customer and environmental standards. Allincentive payments

are scrutinised by the Committee and levels of reward positioned so that

excess is avoided. The provisions for malus and clawback are in place across

allleadership schemes.

Predictability – the range of possible values of rewards to individual

directors and any other limits or discretions should be identified and

explained at the time of approving the policy.

The Remuneration Policy sets the maximum levels for variable remuneration

and for retirement benefits and other benefits, these are aligned to the wider

organisation. All incentive payments are carefully scrutinised by the Committee

using a discretion framework to assess audited results and making adjustment

as appropriate when considering wider performance outcomes.

Proportionality – the link between individual awards, the delivery of

strategy and the long-term performance of the company should be clear.

Outcomes should not reward poor performance.

Careful consideration is given to the stretching targets that are selected, taking

into account the long-term strategy of the Group and the expectations of all

ourstakeholders.

Alignment to culture – incentive schemes should drive behaviours

consistent with company purpose, values and strategy.

Delivery for customers, communities, the environment and all stakeholders

is at the forefront of our incentive arrangements. The Committee receives

regular information on remuneration outcomes and arrangements for the

widerworkforce, employee engagement and interacts with colleagues

acrossthe business.

Statement of consideration of employment conditions elsewhere

in the Company

In setting executive remuneration, the Committee takes account of

employment market conditions and the pay and benefits differentials

across the Group. The Committee considers annual summary

reports of employee remuneration and the terms and conditions

of employment within each operating company and has regard to

these when considering remuneration for the Executive Directors

and senior management. As part of this assessment the Committee

considers various metrics including data on the ratio between

CEO and all-employee pay, gender pay statistics and measures

ofemployeeengagement.

The Board engaged on remuneration matters with the wider workforce,

through many mechanisms including the employee ‘Be The Future’

forum and the Big Chat and Open Door communications, on which

more can be read on pages 26 to 27.

Statement of consideration of shareholder views

In developing the current Remuneration Policy, the Committee took

into account general good governance, best practice and evolving

shareholder views. We regularly engage with major shareholders to

understand their views on executive pay, and their feedback informs

our decision-making and the approach set out in our Policy.

As detailed on pages 164 to 165 to the extent that a further review of

the Policy is initiated later in the year, the Committee would continue to

engage with our major stakeholders as appropriate.

172 Annual Report and Accounts 2025 Pennon Group plc

Single total figure of remuneration table (audited)

Current Executive Directors Former Executive Director

Susan Davy (£000) Laura Flowerdew

(£000) Steve Buck

(£000)

2024/25 2023/24 2024/25 2024/25 2023/24

Base salary 511 492 319 138 164

Benefits

50 21 14 5 6

Pension

51 49 32 14 16

Total fixed pay

612 562 365 157 186

Annual Bonus (cash)

Nil Nil Nil Nil Nil

Annual Bonus (deferred shares)

Nil Nil Nil Nil Nil

LTIP – deferred reinvestment of shares

5,6

191 250 45 Nil Nil

Total fixed, variable and deferred remuneration 803 812 410 157 186

Total variable pay (actual) 191 250 45 Nil Nil

Total variable pay (cash) Nil Nil Nil Nil Nil

Re-investment into the business

314 61 5 Nil 15

1. Remuneration for Laura Flowerdew relates to the period from her appointment on 11 July 2024 until 31 March 2025. The LTIP figure disclosed for Laura Flowerdew includes the

LTIP 2022 award which was granted before she became an Executive Director.

2. Remuneration for Steve Buck relates to the period 1 April 2024 until he stepped down from his role and left the Group on 11 July 2024. For 2023/24, remuneration relates to the

period from his appointment on 27 November 2023 until 31 March 2024.

3. Benefits comprise a car allowance, fuel allowance, medical insurance, and income protection. Of the amount disclosed for the CEO, £28k relates to prior years’ fuel allowance which

was incorrectly underpaid since appointment as CEO in 2020.

4. See page 177 for further information on retirement benefits.

5. For 2024/25, the 2022 LTIP has been valued based on the average share price during the three-month period to 31 March 2025 of 431p, together with an estimate of the accrued

dividends payable on the vesting shares. In line with the plan rules, this award has been adjusted to reflect the rights issue. None of the award value is due to share price appreciation.

6. For 2023/24, the 2021 LTIP has been restated to reflect the adjusted share price upon vest based of 459.4p. This value includes accrued dividends over the vesting period. These

LTIP awards are subject to a two-year holding period.

7. In light of the ongoing consultation by Ofwat on how the Water (Special Measures) Act will be operated in practice, the Committee has noted, but not approved, the formulaic

outturn of the 2024/25 annual bonus. No payments will be made to the Executives until there is further clarity on the new legislation framework to assess performance. Once the

final rules have been published, the Committee will review outcomes and the best course of action, with further disclosure provided in due course.

8. This represents the re-investment made by the Executives, the 2024/25 figure relates to the rights issue in January 2025. Susan Davy re-invested and acquired 93,382 ordinary

shares at 264p per share, and then tail-swallowed to acquire a further 25,557 ordinary shares. Laura Flowerdew re-invested and acquired 1,732 ordinary shares at a price of 264p per

share. For 2023/24 the figure relates to the equity raise in January 2024 where Susan Davy made a personal investment of £61k, and Steve Buck made a personal investment of £15k.

Notes to the single figure table

Fixed pay

In order to ensure that the remuneration is considered in a holistic way, as noted in the Chair’s statement, salary for the CEO for 2025/26 will be considered as

part of the broader review of remuneration.

The current CFO was appointed with a plan for structured and phased salary increases. The salary from 1 April 2025 is £475k. This is just under the salary of her

predecessor, and broadly aligned with FTSE 250 practice. The Committee considered sector practice and market pay levels observed during the recruitment

process, as well as Laura’s knowledge of the sector, and is of the view that her salary is appropriately positioned.

Retirement benefits for both Executive Directors have been set at 10% of salary since appointment, which is aligned to the rate available to the majority of the

wider workforce. Further detail on pension arrangements is set out on page 177.

Variable pay

In line with our previous approach, following guidance from Ofwat, all performance-related pay for Executive Directors is funded to the Group level and therefore

not funded by customers. In assessing performance for full year 2025, we have been mindful of the ongoing Water (Special Measures) Act, and the likely triggers

for prohibition.

173Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Annual bonus outturn for 2024/25

Consistent with prior years, the bonus is based on a rounded assessment of performance. In line with regulatory guidance, over 60% of the bonus is linked to

delivery of stretching objectives in relation to our customers, communities and the environment. The bonus includes a profit measure which ensures that the

Company maintains a focus on financial resilience, enabling us to invest in the future and deliver robust and sustainable performance for all of our stakeholders.

Given the direct Ofwat feedback, we have re-positioned the Pennon annual bonus for 2024/25 to create a clearer link to the performance of SWW and SES. In

proportion, the annual bonus scheme is 90% water business (70% SWW, 20% SES) and 10% Pennon Group. This continues to be consistent with the existing

remuneration policy, with financial, customer and environment measures embedded in these schemes. In all relevant cases objectives are based on achievement

of stretching business plan targets, agreed with Ofwat as part of K7.

The performance under the different elements of the bonus, including performance against the scorecard for each area of the business is summarised in the

tables below. As shown by the tables, the formulaic outcome from the annual bonus is 42.4% of maximum.

Overall, we are delivering for investors as well as customers – with robust relative performance on common ODIs, with overall cumulative ODI performance at

70%. Underpinning all of our activities is a robust funding position, with Pennon Group gearing at 64%, and total water group RCV gearing of 61%. 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. The boil water

notice in May 2024 for Brixham customers was already taken into account by the Committee in the foregoing of the 2023/24 annual bonus by all members of

the executive team.

Consistent with our normal approach, the Committee also undertook a holistic assessment of performance in order to determine whether the formulaic outturn

remains appropriate in the context of broader performance. The review considers performance from a number of different perspectives. The Committee also

considered the outcome against best practice principles developed in collaboration with sector peers, as well as draft guidance relating to the operation of the

Water (Special Measures) Act. The framework used in this assessment is summarised below:

Holistic performance assessment

Culture and conduct

Focus on significant health and

safety, culture and operational events

Alignment with customers,

communities and the environment

Including customer experience,

water quality and resilience, pollution

incidents/EPA and emissions reduction

Consideration of external

environment

Including the shareholder, employee

and wider stakeholder experience

Input from other Board Committees

Including ESG and Health and Safety

Committees, HR, Compliance, Internal

Audit andWaterShare plus panel

Broader financial, operating and strategic performance

Including impact of exceptional and one-off events

Sector best practice principles and regulatory guidance

Assessment versus best practice principles developed by sector

Formulaic

outcome

Determination

of performance

outcome

The Water (Special Measures) Act was passed in February 2025, and the Act will be applicable to 2024/25 bonuses. While Ofwat have initiated a consultation

on when bonuses may be prohibited, this is ongoing and final guidance is yet to be published. The Ofwat guidance is expected to set out specific additional

performance criteria that will need to be met in order to determine whether a bonus can be paid in respect of the year. As the finalised guidance on how the

Water (Special Measures) Act will be operated in practice is yet to be published, the Committee is unable to conclude on whether necessary performance

criteria have been achieved. While the Committee has noted the current formulaic out turn of the 2024/25 annual bonus, and disclosed these in the interests

of full transparency, no payments will be made to the Executives until there is further clarity on the new legislation framework to assess performance. Once the

final rules have been published, the Committee will review outcomes and determine if and how any award is delivered and potential interaction with any future

incentive framework.

As noted in the 2023/24 Annual Report and Accounts, the Committee determined that no bonus would be paid to Executive Directors (consistent with

management’s recommendation) and the Chief Executive Officer waived her entitlement to the bonus for 2022/23 and funds of an equivalent value were

diverted into the next WaterShare+ issuance.

In the interests of transparency, the tables below provide the current formulaic outcomes.

Summary of annual performance outcomes

Pennon Power PWS SWW SES Total

Weighting 5% 5% 70% 20% 100%

Outturn 75.0% 82.6% 38.7% 37.5%

Total 3.8% 4.1% 27.1% 7.5% 42.4%

Measure Weighting Target Actual Outcome

Pennon Power 5%

Delivery against

milestone events

Review of delivery against

milestones considered to

warrant an outturn of 75%

for this element

3.8%

1. Project milestones included construction completed at Dunfermline, two sites under construction and one site with preferred bidder.

174 Annual Report and Accounts 2025 Pennon Group plc

Measure Sub-Weighting Target Actual Outcome

SWW (70%) 27.1%

Financial resilience – PBT 30% £46m (£35m) 0.0%

Basket of Measures 28% See overleaf 16.2%

EPA 7% 4* 2* 0.0%

Cat 1-2 5% 2 (A) 4 (R) 0.0%

Cat 1-3 5% 89 189 0.0%

Water Resources 3% 90% 93.3% 3.0%

Enabling Biodiversity 3% 14,000 ha 17,487 ha 3.0%

Bathing water quality 4% 98-100% 100% 4.0%

Social & Governance 15% 12.5%

Sustainalytics 80 84.5

Fair Tax Maintain Maintain

Sustainable Financing 75% 100%

Health and Safety – LTIFR 0.25 0.24

GHG Emissions 70% 70%

Renewable Generation 13% 8%

SWW Total 38.7%

1,3

Measure Sub-Weighting Target Actual Outcome

SES (20%) 7.5%

High Quality Water 12.5% 11.9%

CRI (95%) 2.0 0 11.9%

Water softening (2.5%) 0.0 10.4 0%

Taste Smell & Colour (2.5%) 0.5 0.58 0%

Customer Experience 12.5% 0.6%

CMeX (80%) 9th 14th 0%

DMeX (15%) 9th 12th 0%

First Contact Resolution (5%) 90.0 90.7 0.6%

Leakage Reduction (Ml/d) 12.5% 22.1 21.5 12.5%

Supply interruptions 12.5% 5m0s 26m16s 0.0%

Mains Repairs (/000km) 12.5% 59.0 62.5 0.0%

Unplanned Outage 12.5% 2.34 4.07 0.0%

PCC Reduction (l/p/d) 12.5% 139.2 147.6 0.0%

Affordability 12.5% 12.5%

PSR (80%) 7.0% 15.5% 10.0%

Social Tariff (15%) 25,000 25,379 1.9%

Voids (5%) 2.2 2.02 0.6%

SES Total 37.5%

2,3

Measure Sub-Weighting Target Actual Outcome

PWS (5%) 4.1%

PBT 16.7%

Threshold -2%, Max 5%,

£4.9m target £5.4m 16.7%

Debt Reduction 16.7%

101% cash collection over

billing p.a. & reduction of

DSO days from 70 days

101% cash collection and

DSO days of 68 16.7%

Revenue 16.7%

Annual growth target of

>7% £252.4m (8% growth) 16.7%

MPS 5% Upper Quartile, target 92 Achieved 94.5 5.0%

CCW Written Complaints 5%

Upper Quartile, 100%

response within 10 days Achieved, 100% 5.0%

Trustpilot score 5% 4.8 Achieved 4.85 5.0%

Abandoned rates 5% Target performance of <8% Achieved 5% 5.0%

Written complaints 5%

Target performance, target

260 Not Achieved, 295 0.0%

Revenue Attrition (% of 2023/24) 5% Below 2.5% Not Achieved, 2.9% 0.0%

% Meter Readings per month average 5% Target performance of 92% Not Achieved, 91% 0.0%

Basket of Measures with binary

achievement 15%

Social & Governance

section of SWW 5/6 Achieved 12.5%

PWS Total 82.6%

1. The definitions of these key ODI measures are contained within the SWW Annual Performance Report and with ESG measures in the ESG playbook.

2. The definitions of these key ODI measures are contained within the SES Annual Performance Report.

3. All water metrics will be validated and out-turns ratified prior to any decision to award in line with the regulator.

175Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Basket of Measures for SWW SWW BRL

Target Actual Target Actual

CMeX 9th 15th 9th 5th

PSR Reach 7.0% 13.10% 7.0% 10.6%

Leakage (3-year) (Ml/d) 105.6 112-114 32.1 38.3

PCC (3-year) (l/p/d) 136.9 148.7 139.5 146.8

Supply interruptions 5m0s 14m23s 5m0s 7m23s

CRI 2.0 1.17 1.5 2.82

Mains repairs (/000km) 134.6 127.7 130.7 118.7

Unplanned outage 2.34% 2.11% 2.34% 1.22%

Internal Flooding (/no/10,000properties) 1.34 0.6

Sewer collapses (/no/10,000km) 13.99 6.81

Numeric Compliance 98% (A) 98%

Measures Achieved 7/11 4/8

Total 16.2%

Achieved

Not achieved

Long-term incentive outturn for 2024/25 (audited)

Ofwat have indicated that it is not their intention for the Water (Special Measures) Act to retrospectively apply to the 2022 LTIP award. However, using Ofwat’s

draft prohibition framework, we have assessed the award against consumer, environmental, financial resilience and criminal liability matters, concluding that the

EA prosecutions in 2024, as well as the Brixham incident had already been recognised in the forgoing of annual bonuses in 2023/24. LTIP awards are funded at

the Group level and are therefore not funded by customers.

The 2022 LTIP award was subject to performance related targets relating to RORE, sustainable dividends and a basket of customer measures. At the sector

wide Select Committee in January 2025, EFRA Committee members challenged the absence of metrics relating to affordability and the approach to vulnerable

customers in incentive arrangements. Given this, we have included these metrics within the basket of measures relating to customer experience. The 2022 LTIP

is the last award not to include water quality metrics, which were introduced in 2023 in order to further align with Ofwat guidance.

The table below provides an overview of performance against the targets set:

Measures

Threshold

(25% of maximum)

Maximum

(100% of maximum) Achievement

Vesting Outcome

(% of maximum)

RORE

(33% of award) 6% 8% 6.6% 15.9%

Sustainable dividend measure

(33%of award) 2.6 3.6 2.64 9.4%

Basket of Customer Measures

(33% of award)

C-MeX SWW (11.5%) 11th 1st 14th 0%

C-MeX BRL(3.8%) 11th 1st 5th 3.3%

R-MeX SWW (2.2%) 9th 1st 7th 1.2%

R-MeX BRL (0.7%) 9th 1st 10th 0%

D-MeX SWW (2.2%) 9th 1st 10th 0%

D-MeX BRL (0.7%) 9th 1st 6th 0.5%

MPS SWW (2.2%) 9th 1st 5th 1.9%

MPS BRL(0.7%) 9th 1st 5th 0.6%

Trustpilot Score (3.0%) 4.5 5.0 4.8 2.1%

Affordability – PSR Reach SWW (2.2%)

7% 10% 13.1% 2.2%

Affordability – PSR Reach BRL (0.7%)

7% 10% 10.6% 0.7%

Affordability – % water poverty SWW

(2.2%)

98% 100% 100% 2.2%

Affordability – % water poverty BRL

(0.7%)

98% 100% 100% 0.7%

Overall vesting outcome 41.1%

1. For below-threshold performance for any of the performance conditions, 0% vests in respect of that performance condition.

2. Straight-line vesting between points.

3. For the relative measures, 25% vesting for threshold performance, 85% vesting for upper-quartile performance and maximum vesting for market leading performance. Straight-line

vesting between these points. For these relative metrics, 75% is based on South West Water performance with the balance based on Bristol Water.

4. As noted above, affordability metrics were added to the performance framework to reflect feedback from EFRA Committee members. Without the addition of these metrics, the

formulaic outturn would have been 37.1% of maximum.

176 Annual Report and Accounts 2025 Pennon Group plc

Assessment of overall performance

Vesting of the award is subject to an ‘underpin’ relating to overall Group performance. Consistent with the approach described for the annual bonus, the

Committee utilises a holistic performance assessment framework to support this review which considers performance from a number of different perspectives.

For the 2022 award, the following factors were noted, and in addition the Committee noted that it had been agreed that the annual bonus would not be taken in

2023 and 2024 in response to in year performance and external factors:

• The progress made against customer related metrics in K7 across the Group as recognised in Ofwat’s Water Company Performance Report in 2024 and

performance against the stretching business plan.

• Record investment in K7 – with £647 million in 2024/25, at the run rate for K8 and RCV growth of 75% over K7.

• A robust funding position, with Pennon Group gearing at 64%, and total water group RCV gearing at 61%.

• The water businesses are supporting more customers than ever before with over 140,000 across the group benefiting from the support tariffs. By unlocking

over £124m of financial support the water businesses have increased affordability to 100% for customers in the South West and Bristol – meeting their pledge

of having zero customers in water poverty by March 2025.

• A reduction of complaints, with Bristol recognised as a top performer for complaints and customer service, with opportunities to improve across the Group –

with South West reducing complaints by 7% over 2024/25.

• The Return of Regulated Equity for SWW and Bristol Water businesses are relatively strong, at 10.4% on a nominal basis, and 6.0% on a real notional

WaterShare basis.

Overall, the Committee was satisfied that the vesting outcome of 41.1% of maximum represented a fair reflection of overall Group performance over the last

threeyears.

Vested awards granted to Executive Directors will not be released in 2025. Instead, awards will remain subject a two-year holding period to ensure participants

remain invested in the longer-term performance of the business. Awards are also subject to malus and clawback provisions. Consistent with guidance provided

by Ofwat, these awards to Executive Directors are funded at the Group level, rather than being recharged to the individual water companies, and will therefore

not be funded by customers.

Retirement benefits and entitlements (audited)

Details of the Directors’ pension entitlements and pension-related benefits during the year are as follows. Effective from 1 August 2020, the maximum pension

contribution made by the Company is 10% of salary.

Company contributions

to defined contribution

arrangements

(£000)

Cash allowances in

lieuofpension

(£000)

Total value for

the year

(£000)

Age and date

ofretirement

(for pension purposes)

Susan Davy 10 41 51 65 (17 May 2034)

Laura Flowerdew 32 Nil 32 65 (5 February 2041)

Steve Buck 3 11 14 65 (16 February 2034)

Executive Directors are eligible to join the Defined Contribution Company Pension Scheme.

Arrangements for the Outgoing Pennon Chief Financial Officer (audited)

Steve Buck stepped down from the Board as Chief Financial Officer in July 2024. All remuneration arrangements relating to Steve Buck’s departure were

consistent with the Directors’ Remuneration Policy (‘Policy’) and the Company’s incentive plan rules.

Steve received a payment in lieu of notice (in respect of salary) for his contractual notice period (£488.8k). This entitlement was reduced by £122k, following

application of the mitigation clause. In addition to standard benefits, he was entitled to legal support and relocation costs.

As disclosed in last year’s report, under the terms of his appointment Steve received a buy-out in respect of incentives pertaining to his previous employment,

which lapsed on joining Pennon. Steve received a total of £417k (delivered as cash (£355k) and shares (£62k)) in respect of buy-out awards due in July 2024.

An additional £81k lapsed following the application of the mitigation clause. All other buy-out awards lapsed in full.

Entitlement to the LTIP award granted during 2023/24 will be pro-rated for time and will remain subject to performance assessed at the end of the performance

period. The award remains subject to the two-year post-vesting holding period and remains subject to malus and clawback. Steve was not eligible for an annual

bonus for 2024/25 and no LTIP was granted in respect of the year.

Steve is also subject to the post-employment shareholding requirement.

177Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Non-Executive Directors’ remuneration

Single figure of remuneration (audited)

2024/25 2023/24

Fees

(£000)

Taxable benefits

(£000)

Total fees

(£000)

Fees

(£000)

Taxable benefits

(£000)

Total fees

(£000)

Gill Rider

83 0 83 240 0 240

David Sproul

187 0 187 –––

Iain Evans

93 0 93 85 0 85

Claire Ighodaro

61 0 61 78 0 78

Jon Butterworth 73 0 73 70 0 70

Loraine Woodhouse 84 0 84 74 0 74

Dorothy Burwell 67 0 67 65 0 65

1. Gill Rider resigned from the Board on 24 July 2024.

2. David Sproul was appointed to the Board as Chair Designate on 1 July 2024 and assumed the role as Chair on 24 July 2024.

3. Iain Evans was appointed as Senior Independent Director 1 September 2023.

4. Claire Ighodaro resigned from the Board on 31 December 2024.

Non-Executive Directors’ fees and benefits

During the year, the fees for Non-Executive Directors were reviewed and increased with effect from 1 April 2025. Non-Executive fees were increased by 3.2%

which is below the average increase awarded to the wider workforce which is valued around 3.9%, inclusive of additional holiday allowance, depending on pay

level, with some receiving above this to maintain our real living wage commitment. The table below sets out the fee structure in full.

Non-Executive Director fees

Set at a market level to attract Non-Executive

Directors who have appropriate experience and

skills to assist in determining the Group’s strategy.

From 1 April 2025 From 1 April 2024

Chair fee

£300,000 £249,455

Basic Non-Executive Director fee £69,280 £67,132

Additional fees

Senior Independent Director £11,445 £11,090

Chair of Audit Committee £17,162 £16,630

Chair of Remuneration Committee £14,887 £14,425

Chair of ESG Committee £14,887 £14,425

Chair of Health and Safety Committee £5.722 £5,545

1. When appropriate for the efficient carrying out of duties, the Chair is provided with a driver and a vehicle. The Chair is entitled to expenses on the same basis as for other

Non-Executive Directors. The new Chair was appointed at the same fee level as the outgoing Chair, with a commitment to align the fees with similar sized FTSE listed businesses

from 1 April 2025 and taking into account the time commitment associated with the role.

Directors’ service contracts and letters of appointment

The dates of Directors’ service contracts and letters of appointment and details of the unexpired term are shown below.

Executive Directors Date of appointment Notice period

Susan Davy 31 July 2020 12 months

Laura Flowerdew 11 July 2024 12 months

Non-Executive Directors Date of initial letter of appointment Expiry date of appointment

David Sproul 1 July 2024 30 June 2027

Iain Evans 16 June 2018 31 August 2027

Jon Butterworth 1 August 2020 31 July 2026

Loraine Woodhouse 1 December 2022 30 November 2025

Dorothy Burwell 1 December 2022 30 November 2025

Andrea Blance 8 April 2025 7 April 2028

The policy is for Executive Directors’ service contracts to provide for 12 months’ notice from either side. The contract has a normal retirement age of 67, except

where otherwise agreed by both the Executive Director and the Company.

The policy is for Non-Executive Directors’ letters of appointment to contain a three-month notice period from either side. All Non-Executive Directors are

subject to annual re-election and letters of appointment are for an initial three-year term.

Copies of Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are available for inspection at the Company’s

registered office.

The dates of Directors’ service contracts and letters of appointment and details of the unexpired term are shown above.

Outside appointments

Executive Directors may accept one board appointment in another company. Board approval must be sought before accepting an appointment. Fees may be

retained by the Director. Susan Davy remained a Non-Executive Director of Restore plc throughout 2024/25. Laura Flowerdew does not hold any additional

appointments. No other outside company appointments are held by the Executive Directors other than with industry bodies or governmental or quasi-

governmental agencies.

178 Annual Report and Accounts 2025 Pennon Group plc

Additional contextual information

Historical TSR

The graph below shows the value, over the 10-year period ended on 31 March 2025, of £100 invested in Pennon Group on 1 April 2015 compared with the value

of £100 invested in the FTSE 250 Index. The FTSE 250 Index is a broad equity market index of which the Company was a constituent until the end of the period.

Total shareholder return – since April 2015

31 March 2015 31 March 2016 31 March 2017 31 March 2018 31 March 2019 31 March 2020 31 March 2021 31 March 2022 31 March 2023 31 March 2024

31 March 2025

100

150

200

250

Pennon Group FTSE 250

Historical Chief Executive Officer remuneration

As the Company did not have a Chief Executive Officer until 1 January 2016, the table below provides historical single figure information in the form of the

average remuneration of the Executive Directors for years up to and including 2014/15. Their remuneration was considered to be the most appropriate to use as

they were the most senior executives in the Company.

From 2015/16 onwards the Chief Executive Officer’s remuneration for the year is shown.

2015/16

2016/17 2017/18 2018/19 2019/20 2020/21 2020/21

2021/22 2022/23

2023/24

2024/2025

Chris

Loughlin

Chris

Loughlin

Chris

Loughlin

Chris

Loughlin

Chris

Loughlin

Chris

Loughlin

Susan

Davy

Susan

Davy

Susan

Davy

Susan

Davy

Susan

Davy

Single figure ofremuneration

(£000) 1,119 1,318 1,153 1,351 2,135 1,337 1,930 1,527 543 812 803

Annual bonus pay-out

(% of maximum) 84.0 84.0 87.0 91.0 78.0 79.2 78.1 30.7 0.0 0.0 -

LTIP vesting

(% of maximum) 37.9 20.4 0.0 32.0 86.6 89.9 89.9 88.2 0.0 60.2 41.1

1. Pennon Chief Executive Officer for the year, including remuneration received between 1 April 2015 and 31 December 2015 when in position as Chief Executive of South West Water.

2. Chris Loughlin stepped down as Chief Executive Officer on 31 July 2020 and was succeeded by Susan Davy. Consistent with the single figure, the figures for Susan Davy relate

to the whole of 2020/21, including the portion of the year when she was Chief Financial Officer. The LTIP award for Chris Loughlin was pro-rated to reflect service within the

performance period.

3. For 2022/23, Susan Davy recommended that her bonus and 2020 LTIP were forgone. An equivalent value was diverted for a future issuance under the Company’s

WaterShare+scheme.

4. For 2023/24, in recognition of the current external environment, the Committee determined that no bonus would be paid to Executive Directors in respect of the year. This was

consistent with management’s recommendation for a zero bonus outturn. The single remuneration figure has been adjusted from the figure published in the 2023/24 remuneration

and the actual valuation of Susan Davy’s 2021 LTIP award based on the adjusted price on the date of vesting, being 459.41p.

5. For 2024/25, in light of the ongoing consultation by Ofwat on how the Water (Special Measures) Act will be operated in practice, the Committee has noted the formulaic outturn of

the 2024/25 annual bonus. No payments will be made until there is further clarity on the new legislation framework to assess performance.

179Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Percentage Change in Directors’ Remuneration

Percentage Change 2020/21 Percentage Change 2021/22 Percentage Change 2022/23 Percentage Change 2023/24 Percentage Change 2024/25

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

fees Benefits Bonus

Executive Directors

Susan Davy

11% 0% 35% 4% -23% -58% 0% -27% -100% 3.5% 0% 0% 0% 134.4% 0%

Laura Flowerdew

–––––––––––––––

Steve Buck

–––––––––––––––

Non-Executive Directors

Gill Rider

126%––28%––3%––3.5%–––––

Iain Evans

4%––1%––3%––12%––10.3% – –

Claire Ighodaro

97%––9%––3%––3.5%–––––

Jon Butterworth – – – 35% – – 3% – – 3.5% – – 4%––

Loraine

Woodhouse

–––––––––25%––13.4% – –

Dorothy Burwell –––––––––3.5% – – 4%––

All employees

Pennon Group plc -12% 3.1% 11% 3% -28% -11% 4% -30% -73% 12.8% -39% -3.4% 7.1% 33.8% -70.8%

UK employees 1% 5.7% 18% 2% -19% -14% 4% -20% -45% 6% -21% -2.2% 4.2% 29.3% 78.8%

1. Susan Davy’s benefits increased for 2024/25 due to a correction of her fuel allowance as referenced under the single figure table on page 173.

2. Laura Flowerdew was appointed to the Board as Chief Financial Officer on 11 July 2024.

3. Steve Buck stepped down from the Board and his role as Chief Financial Officer on 11 July 2024. Comparison is based on full-year equivalent.

4. The percentage change for 2020/21 for Gill Rider reflects her appointment as Chair and increase in fees, and for Claire Ighodaro a combination of change of role to Remuneration

Committee Chair and her first full year on the Board.

5. Iain Evans was appointed as Senior Independent Director effective 1 September 2023 leading to an increase in fees.

6. Loraine Woodhouse was appointed as Chair of Audit Committee 1 September 2023 leading to an increase in fees. Comparison is based on full-year equivalent for 2022/23.

Relative importance of spend on pay

2023/24

(£ million)

2024/25

(£ million)

Percentage

Change

Overall expenditure on pay

114.8 140.3 22.2%

Distributions to ordinary shareholders 111.7 126.9 13.6%

Purchase of property, plant, and equipment (cash flow) 598.1 666.7 11.5%

1. Excludes non-underlying items

The above table illustrates the relative importance of spend on pay compared with distributions to equity holders. The purchase of property, plant, and

equipment (PPE), as per the Cash Flow Statement (purchase of PPE and intangible assets less proceeds from sale of PPE), has also been included as this was

the most significant outgoing for the Company in the past financial year.

Chief Executive Officer pay ratio

Our CEO pay ratio stands at 19:1 for the median employee for 2024/25. The ratio is slightly lower than in 2023/24 due to differences in the LTIP as the only

variable pay element for the CEO. It continues at this lower level than the ratio in preceding years, partially due to our strategy of developing pay for front line

roles including our commitment to paying above the Real Living Wage, which has led to an increase in median pay.

Year Method 25

percentile (P25) pay ratio Median (P50) pay ratio 75

percentile (P75) pay ratio

2024/25 A 26:1 19:1 15:1

2023/24 A 27:1 21:1 16:1

2022/23

A 20:1 16:1 12:1

2021/22

A 59:1 44:1 36:1

2020/21 A 95:1 69:1 55:1

2019/20 A 87:1 68:1 50:1

1. For 2022/23, the CEO recommended that her bonus and 2020 LTIP award were forgone. An amount of the equivalent value was to be diverted into a future issuance under the

Company’s WaterShare+ scheme. The CEO pay ratio for this year therefore does not include any variable incentive pay.

2. The CEO ratio for 2021/22 is lower than previous years, partially due to the lower salary and pension benefit received by Susan Davy, compared to her predecessor. The total single

figure used in the ratio in 2020/21 was a combined total single figure pro-rated to reflect the change in CEO mid-year.

Option A has been used for the calculations as it is the most statistically accurate approach. The employees at the lower quartile, median and upper quartile

(P25, P50 and P75 respectively) have been determined based on a calculation of total remuneration for the financial year 1 April 2024 to 31 March 2025. The

calculations were performed at the end of 2024/25.

Base salary for part-time employees and new joiners within the applicable period has been converted to full-time equivalents for the purpose of the calculations.

The 2023/24 single figure has been updated as a result of reflecting the actual valuation of the closing share price on the first date of vesting of the LTIP award

and the Rights Issue adjustment on the number of shares.

For 2024/25 the total remuneration for the employees identified at P25, P50 and P75 is £31,002, £41,392 and £53,977 respectively. The base salary of 2024/25

for the employees identified at P25, P50 and P75 is £24,124, £25,299 and £50,016 respectively. Further detail on our approach to pay in the wider organisation is

set out on page 168. As the Committee spends a considerable amount of time on matters relating to remuneration arrangements for the wider workforce, we are

comfortable that the median pay ratio is consistent with our wider policies on pay, reward and progression and reward for the Group as a whole.

180 Annual Report and Accounts 2025 Pennon Group plc

Share awards and shareholding disclosures

Share awards granted during 2024/25 (audited)

The table below sets out details of share awards made in the year to Executive Directors.

Executive Director Type Basis of award Face value £000

Percentage vesting at threshold

performance

Performance/restricted period

end date

Susan Davy

LTIP – conditional

award

150% of salary

767

25% of maximum

17 July 2027

Laura Flowerdew 637 17 July 2027

Susan Davy

Deferred Bonus Shares

– nil cost options

50% of bonus awarded

n/a n/a

Laura Flowerdew 0

LTIP awards were calculated using the share price of £6.46 for all participants, being the average closing price over the five dealing days preceding the normal

date of grant for the 2024 LTIP, which was 17 July 2024. LTIP awards are also subject to an additional two-year holding period. For the 2024 LTIP, unfortunately

we have not been able to finalise the targets for this award. Although we had originally intended to finalise these during H1 of 2024/25, the election of a new

Government followed by the prospect of new legislation and evolving guidance from Ofwat made it impossible to set targets with certainty that any scorecard

would be acceptable under the new regime. Therefore our intention is that any scorecard applied to the 2025 LTIP award will also be applied to the 2024 LTIP

award. There were no deferred bonus awards granted during 2024/25 as in recognition of the external environment, the Committee determined that no bonus

would be paid for 2023/24 to Executive Directors in respect of the year. This was consistent with management’s recommendation for a zero bonus outturn.

In line with the plan rules, all outstanding LTIP awards have been adjusted to reflect the rights issue.

Directors’ shareholding and interest in shares (audited)

The Remuneration Committee believes that the interests of Executive Directors and senior management should be closely aligned with the interests of shareholders.

To support this the Committee operates shareholding guidelines of 200% of salary for both the Chief Executive Officer and Chief Financial Officer. Deferred bonuses and

LTIP awards subject to a holding period only may count towards the guidelines on a net-of-tax basis. Shareholding requirements are noted on page 167.

On 29 January 2024 the Group announced a Rights Issue to raise additional capital. Susan Davy re-invested and acquired 93,382 ordinary shares (bought at

264p per share) and tail-swallowed to acquire a further 25,557 shares, taking her shareholding to in excess of 300% of salary. Laura Flowerdew re-invested and

acquired 1,732 ordinary shares (bought at 264p per share).

The beneficial interests of the Executive Directors in the ordinary shares of the Company as at 31 March 2025 and 31 March 2024 together with their

shareholding guideline obligation and interest are shown in the table below.

Share interests

(including

connected parties)

at 31 March 2025

Share interests

(including

connected parties)

at 31 March 2024

Vested LTIP

awards in

holding period

Deferred bonus

SAYE

Performance

shares (subject

to performance

conditions)

Shareholding

guideline

Shareholding

guideline met?

Susan Davy 367,591 189,940 54,430 9,233 2,744 282,415 200% Yes

Laura Flowerdew

3,200 273 Nil 2,380 3,819 156,858 200% No

Steve Buck

10,986 2,054 Nil 13,249 Nil 19,841 200% No

1. These shares awards are not subject to further performance criteria and may therefore count towards the guideline on a net-of-tax basis.

2. Laura Flowerdew was appointed on 11 July 2024. It is therefore expected that her shareholding will be built up over the course of her tenure.

3. Performance shares for Steve Buck have been pro-rated to reflect service during the performance period.

Since 1 April 2025, 223 additional ordinary shares and 68 additional ordinary shares have been acquired respectively by Susan Davy and Laura Flowerdew as a result

of their direct participation in the Company’s Share Incentive Plan and reinvestment of dividends under that Plan via the Dividend Reinvestment Plan (DRIP). There

have been no other changes in the beneficial or non-beneficial interests of the above Directors in the ordinary shares of the Company between 1 April 2025 and

24 May 2025.

181Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Director’s Remuneration Report continued

Non-Executive Directors’ shareholding (audited)

The beneficial interests of the Non-Executive Directors, including the beneficial interests of their spouses, civil partners, children, and stepchildren, in the

ordinary shares of the Company are shown in the table below.

Director Shares held at 31 March 2025 Shares held at 31 March 2024

Gill Rider 4,554 4,554

David Sproul – –

Iain Evans – –

Claire Ighodaro – –

Jon Butterworth 2,054 2,054

Loraine Woodhouse 3,389 2,054

Dorothy Burwell 3,389 2,054

There have been no changes in the beneficial interests or the non-beneficial interests of the above Directors in the ordinary shares of the Company between

1 April 2025 and 1 May 2025.

There is no formal shareholding guideline for the Non-Executive Directors; however, they are encouraged to purchase shares in the Company.

Shareholder dilution

The Company can satisfy awards under its share plans with new issue shares or shares issued from treasury up to a maximum of 10% of its issued share capital

in a rolling 10-year period to employees under its share plans. Within this 10% limit the Company can only issue (as newly issued shares or from treasury) 5% of

its issued share capital to satisfy awards under discretionary or executive plans. The percentage of shares awarded within these guidelines and the headroom

remaining available as at 31 March 2025 is as set out below:

Awarded Headroom Total

Discretionary schemes 0.88% 4.12% 5%

All schemes 2.32% 7.68% 10%

Details of Directors’ share awards (audited)

The following table provides the outstanding share interests of Director’s granted under the share schemes.

Year of grant

Options

outstanding as at

31 March 2024 Granted in year Lapsed in year Exercised in year

Options

outstanding as at

31 March 2025

Exercise price

Earliest nominal

exercise date

Susan Davy July 2019 LTIP

80,994 80,994 – 03/07/2024

June 2021 Deferred Bonus Plan 12,661 12,661 – 29/06/2024

July 2021 Sharesave 2,047 2,047 – 879p 01/09/2024

July 2021 LTIP

62,456 8,026 54,430 30/06/2026

June 2022 LTIP

68,668 87,366 12/06/2027

July 2022 Deferred Bonus Plan

9,233 9,233 18/07/2025

July 2023 LTIP

103,253 131,368 20/07/2028

July 2024 Sharesave

2,217 2,744 405p 01/09/2027

July 2024 LTIP

– 118,720 151,047 17/07/2029

Laura Flowerdew June 2022 LTIP

16,191 20,599 12/06/2027

July 2022 Sharesave

869 1,075 668p 01/11/2025

July 2023 LTIP

24,604 31,303 20/07/2028

July 2023 Deferred Bonus Plan

2,380 2,380 17/07/2026

July 2024 Sharesave

2,217 2,744 405p 01/09/2027

July 2024 LTIP

– 98,684 125,555 08/02/2029

Steve Buck February 2024 LTIP

98,711 78,870 19,841 08/02/2027

July 2024 Deferred Bonus Plan

– 13,249 13,249 11/07/2025

1. The performance measures applicable to the LTIP awards are detailed in the Annual Report in the year of grant, or subsequently on the Company’s website if the performance

measures are finalised after the Annual Report.

2. The CEO recommended that her 2020 LTIP award was forgone.

3. The performance criteria applicable to the 2024 LTIP award have not been disclosed yet, these will be detailed on the Company’s website once agreed.

4. Awards are subject to an additional two-year holding period

5. In line with the plan rules, all outstanding LTIP awards have been adjusted to reflect the rights issue.

6. Sharesave awards were adjusted to reflect the rights issue.

7. Participants of live Deferred Bonus Plan awards had any additional shares that arose from the rights issue issued as ordinary shares.

182 Annual Report and Accounts 2025 Pennon Group plc

Malus and Clawback

Malus and Clawback provisions are embedded in the employment contracts of Executive Directors and relevant scheme documentation.

Malus and clawback provisions apply to all incentive awards. These provisions enable awards to either be forfeited prior to delivery, repaid or made subject

to further conditions where the Committee considers it appropriate in the event of any significant adverse circumstances. For awards granted under the term

of this policy, the circumstances in which Malus and Clawback may be applied include a financial misstatement, error in calculation, material failure of risk

management, serious reputational damage, serious corporate failure or misconduct.

In respect of the annual bonus, clawback may be applied for the period of three years following determination of the cash bonus. Under the LTIP, Clawback may

be applied until the end of the holding period.

The Committee have not applied any action under the provisions of Malus and Clawback during 2024/25.

The Remuneration Committee and its advisors

Claire Ighodaro, Lorraine Woodhouse, Iain Evans and Dorothy Burwell were members of the Remuneration Committee through the year, with Claire Ighodaro

stepping down on 31 December 2024. Gill Rider (who stepped down on 24 July 2024), David Sproul (who joined on 1 July 2024 and succeeded Gill Rider as

Chair), Jon Butterworth and Susan Davy attend by invitation as required. During the year, the Committee received advice or services which materially assisted

the Committee in the consideration of remuneration matters from Adele Barker (Pennon Chief People Officer) and from Deloitte LLP.

During 2018/19, Deloitte LLP was reappointed directly by the Committee with a refreshed advisory team, following a comprehensive re-tendering process.

Deloitte LLP’s fees in respect of advice which materially assisted the Committee during 2024/25 were £204,050 (arrived at from an hourly rate basis of

charging). During the year, Deloitte LLP also provided broader reward and forensic and regulatory advisory services to the Group. Deloitte LLP is a member

ofthe Remuneration Consultants Group and as such voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK.

The Committee is satisfied that the advice it has received from Deloitte LLP has been objective and independent.

Statement of voting at general meeting

The table below sets out the voting by the Company’s shareholders on the resolutions to approve the Directors’ remuneration report at the 2024 AGM and the

remuneration policy at the 2023 AGM, including votes for, against and withheld.

Annual report on remuneration (2024 AGM)

For % (including votes at the Chair’s discretion) 95.63%

Against % 4.37%

Withheld number 962,723

Remuneration policy (2023 AGM)

For % (including votes at the Chair’s discretion) 93.63%

Against % 6.37%

Withheld number 48,501

A vote withheld is not counted in the calculation of the proportion of votes for and against a resolution.

Directors’ remuneration report compliance

This Directors’ remuneration report has been prepared in accordance with the provisions of the Companies Act 2006 and the Large and Medium-sized

Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (as amended). It also complies with the requirements of the Financial Conduct

Authority’s Listing Rules and the Disclosure and Transparency Rules. The UK Corporate Governance Code also sets out principles of good governance relating

to directors’ remuneration, and this report describes how these principles are applied in practice. The Committee confirms that throughout the financial year

the Company has complied with these governance rules and best practice provisions. The above regulations also require the external auditor to report to

shareholders on the audited information within the annual report on remuneration which is part of the Directors’ remuneration report. The external auditor

isobliged to state whether, in its opinion, the relevant sections have been prepared in accordance with the Companies Act 2006.

The external auditor’s opinion is set out on pages 188 to 193 and the audited sections of the annual report on remuneration are identified in this report.

On behalf of the Board

Andrea Blance

Chair of the Remuneration Committee

3 June 2025

183Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Directors’ report

Andrew Garard

Pennon General Counsel and Company Secretary

Introduction

The Directors present their Annual Report and Accounts for the year ending

31 March 2025. The Directors’ Report comprises this report and the entire

Governance section including the Chair’s Governance Statement. It has been

prepared in accordance with the provisions of the Companies Act 2006

and regulations made under it. In accordance with the Financial Conduct

Authority Listing Rules, the information to be included in the 2024/25 Annual

Report and Accounts, where applicable under Listing Rule 9.8.4, is set out in

this Directors Report. Other information relevant to this Report, and which is

incorporated by reference, can be located as follows:

Information Page Number

Particulars of important events affecting the Company

and/or its subsidiaries which have occurred since the

year end n/a

Likely future developments of the Group 18 to 19

Risk management systems 70 to 79

Certain employee and employee engagement matters as

well as the disclosures below 26 to 27

How the Board have engaged with employees and had

regard for employee interests

26 to 27,

32 to 39 and 142

Business relationships/engagement with suppliers,

customers and others

22 to 31 and

142 to 144

Carbon and greenhouse gas emissions, energy

consumption and energy efficiency action 91 to 93

Financial risk management 206 to 208

Financial instruments

203 to 204 and

222

This Directors’ Report (including pages 128 to 187, which form part of this

report) fulfils the requirements of the corporate governance statement for

the purposes of the FCA’s Disclosure Guidance and Transparency Rules.

Cautionary statement: This Annual Report has been prepared for, and

onlyfor the members of the Company, as a body, and no other persons.

The Company, its directors, employees, agents or advisers do not accept or

assume responsibility to any other person to whom this document is shown

or into whose hands it may come and any such responsibility or liability is

expressly disclaimed. By their nature, the statements concerning the risks

and uncertainties facing the Group in this Annual Report involve uncertainty

since future events and circumstances can cause results and developments

to differ materially from those anticipated. The forward-looking statements

reflect knowledge and information available at the date of preparation of

this Annual Report and the Company undertakes no obligation to update

these forward-looking statements. Nothing in this Annual Report should

beconstrued as a profit forecast.

Corporate

Articles of Association: The Articles of Association may only be amended

by special resolution of the shareholders. The current Articles were adopted

as the Articles of Association of the Company at the conclusion of the 2024

AGM and are available on our website.

Auditors: The External Auditor for the 2024/25 financial year was

PricewaterhouseCoopers LLP. The Independent Auditors’ Report starting

onpage 188 sets out the information contained in the Annual Report which

has been audited by the External Auditor. The Audit Committee considered

the performance and audit fees of the External Auditors and the level of

non-audit work undertaken.

Change of control: No person holds securities in the Company

carrying special rights with regard to control of the Company. All of the

Company’s share schemes contain provisions relating to a change of

control. Outstanding awards and options would normally vest and become

exercisable on a change of control, subject to the satisfaction of any

performance conditions proration for time where appropriate.

There are a number of agreements that take effect, alter or terminate

upon a change of control of the Company following a takeover bid, such

asbank loan agreements, Eurobond documentation, hybrid capital securities

documentation, private placement debt and employees’ share plan. Thismay

result in certain funding agreements being altered or repaid early. The impact

of employees’ share plans is not considered significant.

Other Agreements: There are no agreements between the Company and

its Directors or employees providing for compensation for loss of office or

employment that occurs because of a takeover bid.

Final dividend: The Board recommends a final dividend of 19.43 pence

per ordinary share to be paid on 4 September 2025 to shareholders on the

per share. The aggregate cost of the final dividend will be £91.7 million

and total dividend £133.7 million. The Strategic Report on pages 1 to 127

analyses the Group’s financial results in more detail and sets out other

financialinformation.

Political Contributions: The Company has authority, in accordance

withSection 366 of the Companies Act 2006, to make political donations to

political parties, political organisations and incur political expenditure subject

to limits approved by shareholders. No political donations were made or

political expenditure incurred and no contributions were made to a non-UK

political party (2023/24: nil)

Other Contributions: During the year, the Group provided a total of £64,529

in charitable donations (2023/24: £25,000).

184 Annual Report and Accounts 2025 Pennon Group plc

Directors

Details of the Directors who served in the year and to the date of this Report

can be found on page 129. Biographies for Directors currently in office can be

found on pages 132 to 133 and on our website. During the year, Steve Buck

resigned as a Director of the Company on 11 July 2024, Gill Rider resigned

as a Director of the Company on 24 July 2024, Claire Ighodaro resigned

as Director of the Company on 31 December 2024, Laura Flowerdew was

appointed as a Director of the Company on 11 July 2024 and David Sproul

was appointed as a Director of the Company on 24 July 2024.

The appointment and replacement of Directors is governed by the Articles of

Association, the UK Corporate Governance Code, the Companies Act 2006

and related legislation. The Directors may from time to time appoint one or

more Directors. Any such Director shall hold office only until the next AGM

and shall then be eligible for appointment by the Company’s shareholders

in accordance with the Corporate Governance Code. Subject to annual

shareholder approval, Non-Executive Directors are appointed for an initial

three-year period and annually thereafter. Each Director will retire and

submitthemselves for election at the forthcoming AGM.

Conflicts of Interest: The Board has adopted a Conflicts of Interest Policy.

The Board has considered in detail the current external appointments of the

Directors that may give rise to situational conflicts and, where appropriate,

has authorised potential conflicts. Such authorisation can be reviewed at

anytime but is always subject to annual review.

Purchase of own ordinary shares: Subject to applicable law and the

Company’s Articles of Association, the Directors may exercise all powers

of the Company, including the power to authorise the Issue and/or market

purchase of the Company’s shares (subject to an appropriate authority being

given in general meeting by the shareholders to the Directors). TheArticles

and a schedule of Matters Reserved for the Board can be found on our website.

At the 2024 AGM, the Directors were given the authority to purchase up

to a maximum number of 28,603,969 of the Company’s ordinary shares at

a minimum price of the nominal value of the share and a maximum price of

notmore than the higher of:

i. 5% of the average of the middle market quotations for such ordinary

shares as derived from the London Stock Exchange Daily Official

List for the five business days immediately preceding the day on

which that ordinary share is purchased; and

ii. an amount equal to the higher of the price of the last independent

trade of an ordinary share and the highest current independent bid

for an ordinary share on the trading venue where the purchase is

carried out (the Share Buy-Back Authority).

In the period from 1 April 2024 until 23 May 2025, no further ordinary shares

of 61.05 pence each in Pennon were repurchased using the Share Buy-Back

Authority. All shares purchased under the Share Buy-Back Authority have

been cancelled. Information on transactions in own shares is also publicly

available via the regulatory information service and on Pennon’s website

atwww.pennon-group.co.uk/investor-information/rns-announcements.

No shares were made subject to a lien or charge during the year under

review and up to the date of approval of this Annual Report and Accounts.

Asat 1 April 2025, 5,628 shares were held in treasury, representing 0.001% of

the issued share capital. No treasury shares were re-issued during the year.

Directors’ insurance and indemnities: The Company has maintained

Directors’ and officers’ liability insurance for the benefit of the Company,

theDirectors and its officers throughout the year. The Company has entered

into qualifying third-party indemnity arrangements for the benefit of all its

Directors in a form and scope that complies with the requirements of the

Companies Act 2006, which were in force throughout the year and remain

in force.

Disclosures

Listing Rule 9.8.4 disclosures: There is no information to be disclosed

under Listing Rule (9.8.4R.) The Company has no long-term incentive

arrangements in place under LR 9.4.2R where the only participant is a

Director and the arrangement is established specifically to facilitate, in

unusual circumstances, the recruitment or retention of the individual.

DTR 3.1.2R: Details of the Directors who held office during the year and their

biographical details are set out on pages 132 to 133. The Directors’ interest

in the ordinary shares and options of the Company are disclosed within the

Directors’ Remuneration Report on pages 166 to 183.

Financial Risk Management: The Directors have carried out a robust

assessment of the principal and emerging risks facing the Group, including

in relation to its business model, future performance, solvency and liquidity.

Details of our principal risks and association mitigations are set out on pages

70 to 79. Note 3 to the Financial Statements gives details of the Group’s

financial risk management policies and related exposures. This note is

incorporated by reference and deemed to form part of this Report.

Going Concern: The going concern basis has been adopted in preparing

these financial statements. At 31 March 2025 the Group has access to undrawn

committed funds and cash and cash equivalents totalling £977.9 million,

including cash and other short-term deposits of £417.9 million and

£560.0 million of undrawn facilities. Cash and cash equivalents excludes

£58.2 million of restricted funds deposited with financial institutions

which are available for access, subject to being replaced by an equivalent

valued security. The Group has an expected headroom of £379.6 million

at30 September 2026.

In making their assessment, the Directors reviewed the principal risks and

considered which risks might threaten the Group’s going concern status; to

do this 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 70 to 79, individual sensitivities against these risks

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 2025/26, and longer-term strategic business

plan for the remainder of the going concern period to 30 September 2026.

Therisks and sensitivities include consideration of: legislative impacts

such as change in government policy and non-compliance with laws

and regulations, macro-economic impacts such as inflation and interest

rate increases and operational impacts such as ensuring adequate water

resources and failure of operational assets. 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 a cash outflow of c.£108.5 million – this value is

considered equivalent to an extreme one-off event that could occur by

30 September 2026; the probability of such an event happening is deemed

unlikely. Through this testing, it has been determined that none of the

individual principal risks would in isolation, or in aggregate, compromise the

going concern of the Group over the going concern period. The assessment

has been considered by reviewing the impact on the solvency position as

well as debt and interest covenants. In the combined scenario to ensure that

the Group was able to continue as a going concern, additional mitigations

could be deployed to reduce gearing and increase covenant headroom.

Inthe combined stress test scenario, the Group has sufficient liquidity and

covenant headroom, which reflects that no mitigations would be needed by

the Group. However, if required, additional mitigations could be deployed to

reduce gearing and increase covenant headroom. Examples of mitigations

could 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, and raising additional funding.

185Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

We have considered the Group’s funding position and financial projections,

which take into account a range of possible impacts, including the

refinancing required within and immediately after the going concern

assessment period. Having considered these factors, the Directors have

a reasonable expectation that the Group will meet the requirements of its

covenants and has adequate resources to continue in operational existence

for the period to at least the end of the going concern assessment period of

30 September 2026, and that there are no material uncertainties to disclose.

For this reason, they continue to adopt the going concern basis in preparing

the financial statements.

Data: As part of our business activity, the Group processes large amounts of

personal data. The Group recognises that to enable this use of personal data

it is critical that we continue to build on our approach to applying privacy

in a lawful and ethical way. A programme of work to support this has been

led by our data governance team. The work includes making improvements

to our data governance framework and delivering our data privacy

function. Wehave a number of policies, procedures and tools to support

this. Compliance with these policies is mandatory. All colleagues undergo

regulartraining to remind them of their responsibilities under these policies.

Employment policies and employee involvement

Continuous Improvement: The Group has a culture of continuous

improvement through investment in people at all levels within the Group.

TheGroup is committed to pursuing equality and diversity in all its

employment activities, including recruitment, training, career development

and promotion and ensuring there is no bias or discrimination in the

treatment of people. In particular, applications for employment are welcomed

from persons with disabilities, and special arrangements and adjustments

as necessary are made to ensure that applicants are treated fairly when

attending for interview or for pre-employment aptitude tests. Wherever

possible the opportunity is taken to retrain people who become disabled

during their employment to maintain their employment within the Group.

Policies: The Group has policies in place covering health and safety, equal

opportunities, diversity and inclusion, ethics and employee relations. Further

detail of the contents of the diversity and inclusion policy are set out in

the report of the Nomination Committee on page 149. Also, information

regarding the employee diversity is provided on page 36. The Board’s

activities in relation to assessing and monitoring culture can be found

intheCorporateGovernance Statement on page 135.

Freedom of Association: Pennon respects the right to freedom of

association and employees are consulted regularly about changes which

may affect them either through their trade union appointed representatives

or consultation groups or by means of their elected representatives at the

Employee Engagement Forum. These forums, together with regular meetings

with particular groups of employees, are used to ensure that employees

are kept up to date with the business performance of their employer

and the financial and economic factors affecting the performance of the

Group. The Group also cascades information to all employees to provide

them with important and up-to-date information about key events and to

obtain feedback from them on a monthly basis. Further details of employee

engagement and employment matters relating to the Group are set out on

pages 26 to 27 and 32 to 39 of the Strategic Report.

Share Ownership: The Group encourages share ownership among its

employees by operating an HMRC approved Sharesave Scheme and Share

Incentive Plan. Following shareholder approval at the 2024 AGM, this scheme

and plan were amended to provide for the increased savings limits approved

by the Government. At 31 March 2025, approximately 33% (31 March

2024: 36%) of the Group’s employees were participating in these plans.

Modern Slavery Act: Our people are fundamental to our business, and we

remain committed to and passionate about supporting our staff, customers

and communities to thrive by creating an environment where everyone

can feel safe and supported. We have a clear zero-tolerance approach to

modern slavery and are committed to playing our part in helping eradicate

itby having systems and processes to monitor, assess and reduce the risk

offorced labour and human trafficking.

We remain focused on improving our risk assessment and the widening of

our engagement. We have continued to engage and raise awareness, through

internal training, and by continuing as a member of Slave Free Alliance. We

are part of a utilities sector working group which shares best practice across

our industry. We will continue to work hard to tackle this issue collaboratively

with our partners, employees, suppliers, and peers to evolve our approach

to ensure it remains effective. Our latest Modern Slavery Statement can be

found here: www.pennon-group.co.uk/sites/default/files/attachments/pdf/

pennon-modern-slavery-statement-2023.pdf.

Greenhouse gas emissions: Details of our GHG emissions can be found in

the Strategic Report on pages 91 to 92.

Energy usage: Details of our Energy usage can be found in the Strategic

Report on page 93.

Research and development: Research and development within the Group

involving water and wastewater treatment processes amounted to £1.1 million

during the year (2023/24: £0.6 million).

Overseas branches: The Company has no overseas branches.

Issued Share Capital: Details of the Company’s issued share capital,

consisting of ordinary shares of nominal value 61.05 pence each are set out

in note 33 to the financial statements. All of the issued shares are fully paid

up and quoted on the London Stock Exchange.

On 18 February 2025 the Company issued 185,928,002 Ordinary Shares

of61.05 pence each in the Company following a 13 for 20 Rights Issue.

Moreinformation can be found on page 238.

In addition, the Company issued and allotted 3,386 ordinary shares in the

Company under the terms of the Pennon Sharesave Plan 2024.

Rights: The rights attaching to the Company’s ordinary shares are set out

inthe Articles of Association. There are no securities carrying special rights.

Restrictions: There are no restrictions on the transfer of issued ordinary

shares of the Company or on the exercise of voting rights attached to

them,except:

• where the Company has exercised its right to suspend their voting rights

or to prohibit their transfer following the omission of their holder or any

person interested in them to provide the Company with information

requested by it in accordance with Part 22 of the Companies Act 2006; or

• where their holder is precluded from exercising voting rights by

the Financial Conduct Authority’s Listing Rules or the City Code on

Takeoversand Mergers.

There are no persons with special rights regarding control of the Company.

No shares issued under the employee share schemes have rights with regard

to control of the Company that are not exercisable directly by the employee.

Substantial Shareholders: Details of significant direct or indirect holdings

of securities of the Company are set out in the shareholder analysis on page

254. The Company is not aware of any agreements between shareholders

which may result in restrictions on the transfer of securities or on voting rights.

Director’s Report continued

186 Annual Report and Accounts 2025 Pennon Group plc

Authority to Purchase Own Shares: The Directors also intend to renew the

power to make purchases of the Company’s own shares in issue as set out

above up to an aggregate nominal value of:

i. £96,036,631 (such amount to be reduced by any shares allotted

orrights granted under (ii) below in excess of £96,036,631); and

ii. £192,102,076 by way of a pre-emptive offer (such amount to be

reduced by any shares allotted or rights granted from (i) above),

similar to that approved by shareholders at the 2024 AGM. In

addition, shareholders approved at the 2024 AGM, resolutions giving

the Directors a limited authority to allot shares for cash other than

pro rata to existing shareholders. These resolutions remain valid

until the conclusion of this year’s AGM. Similar resolutions will be

proposed at the 2025 AGM. The Directors have no present intention

to issue ordinary shares other than pursuant to the Company’s

employee share schemes.

iii. The Directors were also given the authority by shareholders at the

2019 AGM to allot a single non-cumulative redeemable preference

share of one penny nominal value (the WaterShare+ Share), the

rights and restrictions in relation to which are set out in Article 5A

of the Company’s Articles of Association. The share was allotted

on20 October 2020.

Statement of Directors’ responsibilities in respect of

thefinancial statements

The directors are responsible for preparing the Annual Report and the

financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements

for eachfinancial year. Under that law the directors have prepared the

group financial statements in accordance with UK-adopted international

accounting standards and the company financial statements in accordance

with United Kingdom Generally Accepted Accounting Practice (United

Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure

Framework”, and applicable law).

Under company law, directors must not approve the financial statements

unless they are satisfied that they give a true and fair view of the state of

affairs of the group and company and of the profit or loss of the group for

that period. In preparing the financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable UK-adopted international accounting standards

have been followed for the group financial statements and United

Kingdom Accounting Standards, comprising FRS 101 have been followed

for the company financial statements, subject to any material departures

disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and

prudent; and

• prepare the financial statements on the going concern basis unless it

isinappropriate to presume that the group and company will continue

inbusiness.

The directors are responsible for safeguarding the assets of the group and

company and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The directors are also responsible for keeping adequate accounting

records that are sufficient to show and explain the Group’s and Company’s

transactions and disclose with reasonable accuracy at any time the financial

position of the Group and Company and enable them to ensure that the

financial statements and the Directors’ Remuneration Report comply

withtheCompanies Act 2006.

The directors are responsible for the maintenance and integrity of the

Company’s website. Legislation in the United Kingdom governing the

preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

Directors’ confirmations

The directors consider that the Annual Report and accounts, taken as a

whole, is fair, balanced and understandable and provides the information

necessary for shareholders to assess the Group’s and Company’s position

andperformance, business model and strategy.

Each of the directors whose names and functions are listed in the

governance report confirm that, to the best of their knowledge:

• the group financial statements, which have been prepared in accordance

with UK-adopted international accounting standards, give a true and fair

view of the assets, liabilities, financial position and loss of the group;

• the company financial statements, which have been prepared in

accordance with United Kingdom Accounting Standards, comprising FRS

101, give a true and fair view of the assets, liabilities and financial position

of the company; and

• the Strategic report includes a fair review of the development and

performance of the business and the position of the group and company,

together with a description of the principal risks and uncertainties that

itfaces.

In the case of each director in office at the date the directors’ report

is approved:

• so far as the director is aware, there is no relevant audit information

of which the group’s and company’s auditors are unaware; and

• they have taken all the steps that they ought to have taken as a director

in order to make themselves aware of any relevant audit information

and to establish that the group’s and company’s auditors are aware

of that information.

The Directors’ Report consisting of pages 171 to 187 was approved by the

Board on 3 June 2025.

By order of the Board

Andrew Garard

Pennon General Counsel and Company Secretary

3 June 2025

187Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Independent auditors’ report to the members

of Pennon Group plc

Report on the audit of the

financialstatements

Opinion

In our opinion:

• Pennon Group plc’s group financial statements and company financial

statements (the “financial statements”) give a true and fair view of the

state of the group’s and of the company’s affairs as at 31 March 2025 and

of the group’s loss and the group’s cash flows for the year then ended;

• the group financial statements have been properly prepared in

accordance with UK-adopted international accounting standards as

applied in accordance with the provisions of the Companies Act 2006;

• the company financial statements have been properly prepared in

accordance with United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards, including FRS 101

“Reduced Disclosure Framework”, and applicable law); and

• the financial statements have been prepared in accordance with the

requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report

and Accounts (the “Annual Report”), which comprise: the Consolidated and

Company balance sheets as at 31 March 2025; the Consolidated statement of

profit or loss, Consolidated statement of comprehensive income, Statements

of changes in equity and Consolidated cash flow statement for the year

then ended; and the notes to the financial statements, comprising material

accounting policy information and other explanatory information.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on

Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under

ISAs (UK) are further described in the Auditors’ responsibilities for the audit

of the financial statements section of our report. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis

forour opinion.

Independence

We remained independent of the group in accordance with the ethical

requirements that are relevant to our audit of the financial statements in the

UK, which includes the FRC’s Ethical Standard, as applicable to listed public

interest entities, and we have fulfilled our other ethical responsibilities in

accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services

prohibited by the FRC’s Ethical Standard were not provided.

Other than those disclosed in Note 7 to the Financial Statements, we

have provided no non-audit services to the company or its controlled

undertakings in the period under audit.

Our audit approach

Context

As part of designing our audit, we determined materiality and assessed

therisks of material misstatement in the consolidated financial statements.

Inparticular, we considered where the directors made subjective judgements;

for example, in respect of significant accounting estimates that involved

making assumptions and considering future events that are inherently

uncertain. As in all of our audits, we also addressed the risk of management

override of internal controls, including among other matters consideration

of whether there was evidence of bias that represented a risk of material

misstatement due to fraud. We tailored the scope of our audit in order

to perform sufficient work to enable us to provide an opinion on the

consolidated and company financial statements as a whole, taking into

account the structure of the Group, the accounting processes and controls,

and the industry in which the Group operates.

Overview

Audit scope

• Following our assessment of the risk of material misstatement of the

consolidated financial statements, we identified five components where

we performed a full scope audit of their complete financial information,

either due to size or risk characteristics.

• We further identified three components where we performed audit

procedures over specific financial statement line items.

• The audit work on all the components as well as audit procedures over

centralised balances, the consolidation and the company was undertaken

by the Group audit team.

Key audit matters

• Revenue recognition in relation to the accrued income for measured water

services (group)

• Valuation of the expected credit loss provision for household customer

trade receivables (group)

• Carrying value of investment in subsidiary undertakings (parent)

Materiality

• Overall group materiality: £10,400,000 based on 1% of Revenue.

• Overall company materiality: £17,900,000 based on 1% of Total assets.

• Performance materiality: £7,800,000 (group) and £13,400,000 (company).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the

risks of material misstatement in the financial statements.

188 Annual Report and Accounts 2025 Pennon Group plc

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current

period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which

had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters,

and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in

forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Key audit matter How our audit addressed the key audit matter

Revenue recognition in relation to the accrued income for

measured water services (group)

The Group’s revenue streams include the provision of water and waste

waterservices.

Revenue from measured water services requires an estimation of the level

of usage/consumption of water and/or wastewater services between the last

meter read date and the balance sheet date. The directors apply judgment

through manual adjustments for factors such as seasonality and operational

data trends regarding consumption, which are adjusted on top of the system

generated information covering volume usage and the last meter reading.

We focused on this area because the manual adjustments are judgmental

and therefore the position adopted is subjective.

Refer to Notes 4 and 5 to the financial statements and the Matters of

significance for 2024/25 section of the Audit committee report.

As part of our audit of the directors’ judgment over the level of manual

adjustments required:

• We have performed walkthrough procedures to understand the process

for calculating the measured water services accrual, with a specific focus

on the directors’ methodology, including reviewing accounting papers

supporting the estimation;

• We reviewed the report produced by the directors’ expert, who were

engaged to review the processes and systems used to calculate the

measured water services accrual;

• We performed lookback procedures over the directors historical

forecasting to assess the accuracy of the manual adjustments applied; and

• We developed an independent range estimate to assess the

reasonableness of the estimate generated by the directors.

Based on our procedures, the conclusion that the level of manual adjustments

applied was reasonable is consistent with the evidence obtained.

Valuation of the expected credit loss provision for household

customer trade receivables (group)

The expected credit loss provision for household customer balances

iscalculated using a combination of system generated information on

historic debt recovery rates and the directors’ judgement of whether manual

adjustments are necessary to reflect the future likely level of future cash

collections where these are expected to not be represented by historic losses.

We focussed on this area because the key assumptions driving whether

manual adjustments are required are subjective and require the directors to

apply judgment. The key assumption related to these manual adjustments

is whether historic level of collections is indicative of the ability to collect

at the same levels in the future. The risk of non-recovery from customers

varies, depending on a number of factors which include, but are not limited to;

increases to future rates, discontinuation of customer support programmes

such as GC50, whether the household customer no longer occupies a property

in the area and the level of expected leakage.

Refer to Notes 4 and 22 to the financial statements and the Matters of

significance for 2024/25 section of the Audit committee report.

As part of our audit of the directors’ judgment over the level of manual

adjustments required:

• We have performed walkthrough procedures to understand the process for

calculating the expected credit loss provision, with a specific focus on the

directors’ methodology for applying manual adjustments;

• We have considered external macroeconomic data such as Real Household

Disposable Income reports, as well as employment, inflation, interest rate

trends and the post balance sheet collections data for April 2025 to assess

the impact on the provision held;

• We developed an independent range estimate to assess the

reasonableness of the estimate generated by the directors; and

• We have understood the nature and relevance of the manual adjustments

posted validating the basis of the adjustment to supporting evidence.

Based on our procedures, the conclusion that the level of manual adjustments

applied was reasonable is consistent with the evidence obtained.

Carrying value of investment in subsidiary undertakings (parent)

Investment in subsidiary undertakings are accounted for at cost less

provisionfor impairment. Investments are tested for impairment if indicators

exist. If such indicators exist, the recoverable amounts of the investments

in subsidiary undertakings are estimated in order to determine the extent

of theimpairment loss, if any. Any such impairment loss is recognised in

theincome statement.

A review for indicators of impairment was performed by the directors,

including considering the latest available forecasts and developments in the

Group during the year. The assessment identified no impairment indicator in

respect of the investment in subsidiary undertakings.

Refer to note 20 to the financial statements.

We evaluated the directors’ determination of whether there were any other

indicators of impairment. Our procedures included:

• comparing the carrying value of investment with the market capitalisation

ofthe Group at 31 March 2025; and

• considering the Group’s current trading performance.

Overall, we found the assessment of the carrying value of investment in

subsidiary undertakings and associated disclosures to be consistent with

theevidence obtained.

189Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Auditors’ report continued

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work

to be able to give an opinion on the financial statements as a whole, taking

into account the structure of the group and the company, the accounting

processes and controls, and the industry in which they operate.

The group financial statements are a consolidation of multiple components

across the UK, comprising the group’s operating businesses and centralised

functions. These components maintain their own accounting records and

controls and report to the head office finance team for consolidation purposes.

In establishing the overall approach to the Group audit, we identified five

components which, in our view, required an audit of their complete financial

information whether due to their size or risk characteristics: including South

West Water and Pennon Water Services as the largest two. We also added

three components to our scope where we performed audit procedures over

specific financial statement line items to ensure sufficient coverage within

the group consolidation. All in-scope component work was performed by the

Group engagement team. The Group consolidation, centralised balances and

financial statement disclosures were audited by the Group audit team.

The impact of climate risk on our audit

In planning our audit, we considered the potential impact of climate change

on the Group’s financial statements. We made enquiries of the directors to

understand the process for assessing climate-related risks and opportunities,

the extent of the potential impact of climate change risk on the Group’s

financial statements and the Group’s preparedness for this. The TCFD

statement describes and explains how climate change could have an impact

on the group’s business. Using our knowledge of the business we considered

whether the risks identified are consistent with our knowledge of the

business and remained alert when performing our audit procedures for any

indicators of the impact of climate risk. Our procedures did not identify any

additional risks of material misstatement, or material inconsistencies between

the financial statements and the other climate related information presented.

Materiality

The scope of our audit was influenced by our application of materiality.

We set certain quantitative thresholds for materiality. These, together with

qualitative considerations, helped us to determine the scope of our audit

and the nature, timing and extent of our audit procedures on the individual

financial statement line items and disclosures and in evaluating the effect

of misstatements, both individually and in aggregate on the financial

statements as a whole.

Based on our professional judgement, we determined materiality for the

financial statements as a whole as follows:

Financial

statements – group

Financial

statements –

company

Overall

materiality

£10,400,000. £17,900,000.

How we

determined it

1% of Revenue 1% of Total assets

Rationale for

benchmark

applied

Based on the

benchmarks included

inthe annual report

andaccounts, revenue

isconsidered a key

metric for the users of the

financial statements that

represents a generally

acceptable auditing

benchmark.

Based on the nature of

the company, trading

is not the entity’s main

function. The company

has transactions that

are there to support

the group in its trading

and so total assets is

considered appropriate

and is a generally

accepted auditing

benchmark.

For each component in the scope of our group audit, we allocated a

materiality that is less than our overall group materiality. The range of

materiality allocated across components was £2,250,000 to £9,450,000.

Certain components were audited to a local statutory audit materiality that

was also less than our overall group materiality.

We use performance materiality to reduce to an appropriately low level the

probability that the aggregate of uncorrected and undetected misstatements

exceeds overall materiality. Specifically, we use performance materiality in

determining the scope of our audit and the nature and extent of our testing

of account balances, classes of transactions and disclosures, for example in

determining sample sizes. Our performance materiality was 75% of overall

materiality, amounting to £7,800,000 for the group financial statements

and£13,400,000 for the company financial statements.

In determining the performance materiality, we considered a number of

factors – the history of misstatements, risk assessment and aggregation

riskand the effectiveness of controls – and concluded that an amount at

theupper end of our normal range was appropriate.

We agreed with the Audit Committee that we would report to them

misstatements identified during our audit above £500,000 (group audit)

and£895,000 (company audit) as well as misstatements below those

amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

Our evaluation of the directors’ assessment of the group’s and the company’s

ability to continue to adopt the going concern basis of accounting included:

• Testing the mathematical integrity of the cash flow forecasts and the

models supporting these forecasts and reconciling them to Board

approved budgets. The directors’ assessment covered the period of

15 months from the date of approval of the Annual Report and Accounts

to September 2026, we focused on this period and also considered the

subsequent six months to March 2027;

190 Annual Report and Accounts 2025 Pennon Group plc

• Understanding the key assumptions the directors have applied in

developing their base case and severe but plausible downside scenarios.

We challenged various aspects of the directors’ base case and downside

scenarios including consideration of other potential downside risks that

were not factored into the directors’ downside scenario;

• Assessing the accuracy of the cash flow forecast prepared in the prior

years so as to obtain assurance of the ability of the directors to prepare

accurate forecasts;

• Obtaining and understanding the terms of the Group’s financing and

available credit facilities and in particular the financial covenants that the

Group is subject to. We have verified the existence of the facilities in place

on which the directors have based their liquidity forecast;

• Reviewing the directors’ analysis of both liquidity and covenant compliance

to ensure there is sufficient liquidity and no forecast covenant breaches

during the going concern period;

• Assessing the extent of mitigating actions that could be taken by the

directors, if necessary, to increase liquidity or to prevent a trigger or

default event arising against the covenants in place;

• Assessing the appropriateness of the disclosures within the financial

statements as disclosed in the accounting policies, relating to goingconcern.

Based on the work we have performed, we have not identified any material

uncertainties relating to events or conditions that, individually or collectively,

may cast significant doubt on the group’s and the company’s ability to

continue as a going concern for a period of at least twelve months from

whenthe financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’

use of the going concern basis of accounting in the preparation of the

financial statements is appropriate.

However, because not all future events or conditions can be predicted, this

conclusion is not a guarantee as to the group’s and the company’s ability to

continue as a going concern.

In relation to the directors’ reporting on how they have applied the UK

Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the financial statements

about whether the directors considered it appropriate to adopt the going

concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to

going concern are described in the relevant sections of this report.

Reporting on other information

The other information comprises all of the information in the Annual

Reportother than the financial statements and our auditors’ report thereon.

The directors are responsible for the other information. Our opinion on the

financial statements does not cover the other information and, accordingly,

we do not express an audit opinion or, except to the extent otherwise

explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is

to read the other information and, in doing so, consider whether the other

information is materially inconsistent with the financial statements or our

knowledge obtained in the audit, or otherwise appears to be materially

misstated. If we identify an apparent material inconsistency or material

misstatement, we are required to perform procedures to conclude whether

there is a material misstatement of the financial statements or a material

misstatement of the other information. If, based on the work we have

performed, we conclude that there is a material misstatement of this other

information, we are required to report that fact. We have nothing to report

based on these responsibilities.

With respect to the Strategic report and Directors’ report, we also considered

whether the disclosures required by the UK Companies Act 2006 have

beenincluded.

Based on our work undertaken in the course of the audit, the Companies

Act2006 requires us also to report certain opinions and matters as

describedbelow.

Strategic report and Directors’ report

In our opinion, based on the work undertaken in the course of the audit, the

information given in the Strategic report and Directors’ report for the year

ended 31 March 2025 is consistent with the financial statements and has

been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the group and company and

their environment obtained in the course of the audit, we did not identify any

material misstatements in the Strategic report and Directors’ report.

Directors’ Remuneration

In our opinion, the part of the Directors’ remuneration report to be audited

has been properly prepared in accordance with the Companies Act 2006.

Corporate governance statement

The Listing Rules require us to review the directors’ statements in relation

to going concern, longer-term viability and that part of the corporate

governance statement relating to the company’s compliance with the

provisions of the UK Corporate Governance Code specified for our review.

Our additional responsibilities with respect to the corporate governance

statement as other information are described in the Reporting on other

information section of this report.

191Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Auditors’ report continued

Based on the work undertaken as part of our audit, we have concluded that

each of the following elements of the corporate governance statement,

included within the Governance section is materially consistent with the

financial statements and our knowledge obtained during the audit, and

wehave nothing material to add or draw attention to in relation to:

• The directors’ confirmation that they have carried out a robust

assessment of the emerging and principal risks;

• The disclosures in the Annual Report that describe those principal risks,

what procedures are in place to identify emerging risks and an explanation

of how these are being managed or mitigated;

• The directors’ statement in the financial statements about whether they

considered it appropriate to adopt the going concern basis of accounting

in preparing them, and their identification of any material uncertainties to

the group’s and company’s ability to continue to do so over a period of at

least twelve months from the date of approval of the financial statements;

• The directors’ explanation as to their assessment of the group’s and

company’s prospects, the period this assessment covers and why the

period is appropriate; and

• The directors’ statement as to whether they have a reasonable

expectation that the company will be able to continue in operation

andmeet its liabilities as they fall due over the period of its assessment,

including any related disclosures drawing attention to any necessary

qualifications or assumptions.

Our review of the directors’ statement regarding the longer-term viability of

the group and company was substantially less in scope than an audit and

only consisted of making inquiries and considering the directors’ process

supporting their statement; checking that the statement is in alignment

with the relevant provisions of the UK Corporate Governance Code;

and considering whether the statement is consistent with the financial

statements and our knowledge and understanding of the group and

company and their environment obtained in the course of the audit.

In addition, based on the work undertaken as part of our audit, we have

concluded that each of the following elements of the corporate governance

statement is materially consistent with the financial statements and our

knowledge obtained during the audit:

• The directors’ statement that they consider the Annual Report, taken as a

whole, is fair, balanced and understandable, and provides the information

necessary for the members to assess the group’s and company’s position,

performance, business model and strategy;

• The section of the Annual Report that describes the review of

effectiveness of risk management and internal control systems; and

• The section of the Annual Report describing the work of the

AuditCommittee.

We have nothing to report in respect of our responsibility to report when

thedirectors’ statement relating to the company’s compliance with the Code

does not properly disclose a departure from a relevant provision of the Code

specified under the Listing Rules for review by the auditors.

Responsibilities for the financial statements and

theaudit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of directors’ responsibilities, the

directors are responsible for the preparation of the financial statements in

accordance with the applicable framework and for being satisfied that they

give a true and fair view. The directors are also responsible for such internal

control as they determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud

or error.

In preparing the financial statements, the directors are responsible for

assessing the group’s and the company’s ability to continue as a going

concern, disclosing, as applicable, matters related to going concern and

usingthe going concern basis of accounting unless the directors either

intend to liquidate the group or the company or to cease operations, or

haveno realistic alternative but to do so.

Auditors’ responsibilities for the audit of the

financialstatements

Our objectives are to obtain reasonable assurance about whether the

financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditors’ report that includes

our opinion. Reasonable assurance is a high level of assurance, but is not a

guarantee that an audit conducted in accordance with ISAs (UK) will always

detect a material misstatement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually or in the aggregate,

they could reasonably be expected to influence the economic decisions of

users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws

and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities,

including fraud. The extent to which our procedures are capable of detecting

irregularities, including fraud, is detailed below.

Based on our understanding of the group and industry, we identified that

the principal risks of non-compliance with laws and regulations related to

Environmental regulations, Ofwat regulations and the FCA Listing rules, and

we considered the extent to which non-compliance might have a material

effect on the financial statements. We also considered those laws and

regulations that have a direct impact on the financial statements such as

Tax legislation and the Companies Act 2006. We evaluated management’s

incentives and opportunities for fraudulent manipulation of the financial

statements (including the risk of override of controls), and determined that

the principal risks were related to posting inappropriate journal entries

that improve financial performance and management bias in significant

accounting estimates and judgements. Audit procedures performed by

theengagement team included:

192 Annual Report and Accounts 2025 Pennon Group plc

• Discussions among the engagement personnel covering the potential

for material misstatements due to error or fraud, the risks associated

with related parties and emphasis on the need to maintain professional

scepticism throughout the engagement;

• Inquiries of the directors and others within the entity, including those

outside of finance, as to their knowledge, awareness and concerns

regarding fraud, or breaches in laws and regulations;

• Identification and testing of journal entries that met our risk criteria, in

particular any journal entries posted with unusual account combinations

that hit our risk criteria and incorporating an element of unpredictability in

the nature, timing and extent of audit procedures performed;

• Testing significant accounting estimates and judgements made by

thedirectors;

• Reading the minutes of the Board meetings to identify any inconsistencies

with other information provided by management;

• Reviewing internal audit reports insofar as they related to the financial

statements; and

• Reviewing legal expense accounts and other correspondence to identify

items which may indicate the existence of material legal claims.

There are inherent limitations in the audit procedures described above.

We are less likely to become aware of instances of non-compliance with

laws and regulations that are not closely related to events and transactions

reflected in the financial statements. Also, the risk of not detecting a material

misstatement due to fraud is higher than the risk of not detecting one

resulting from error, as fraud may involve deliberate concealment by, for

example, forgery or intentional misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain

transactions and balances, possibly using data auditing techniques. However,

it typically involves selecting a limited number of items for testing, rather

than testing complete populations. We will often seek to target particular

items for testing based on their size or risk characteristics. In other cases,

we will use audit sampling to enable us to draw a conclusion about the

population from which the sample is selected.

A further description of our responsibilities for the audit of the

financial statements is located on the FRC’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared for and only for the

company’s members as a body in accordance with Chapter 3 of Part 16 of

theCompanies Act 2006 and for no other purpose. We do not, in giving

these opinions, accept or assume responsibility for any other purpose or to

any other person to whom this report is shown or into whose hands it may

come save where expressly agreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in

ouropinion:

• we have not obtained all the information and explanations we require for

our audit; or

• adequate accounting records have not been kept by the company, or

returns adequate for our audit have not been received from branches

notvisited by us; or

• certain disclosures of directors’ remuneration specified by law are not

made; or

• the company financial statements and the part of the Directors’

remuneration report to be audited are not in agreement with the

accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit Committee, we were appointed

by the members on 24 July 2024 to audit the financial statements for the year

ended 31 March 2025 and subsequent financial periods. This is therefore our

first year of uninterrupted engagement.

Other matter

The company is required by the Financial Conduct Authority Disclosure

Guidance and Transparency Rules to include these financial statements in an

annual financial report prepared under the structured digital format required

by DTR 4.1.15R – 4.1.18R and filed on the National Storage Mechanism of the

Financial Conduct Authority. This auditors’ report provides no assurance

over whether the structured digital format annual financial report has been

prepared in accordance with those requirements.

Colin Bates (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Bristol

3 June 2025

193Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Financial Statements

Consolidated statement of profit or loss

For the year ended 31 March 2025

		Before non-	Non-underlying			Non-underlying
		underlying	items		Before non-	items
		items	(note 6)	Total	underlying items	(note 6)	Total
		2025	2025	2025	2024	2024	2024
	Notes	£m	£m	£m	£m	£m	£m
Revenue	5	1,047.8	–	1,047.8	907.8	–	907.8
Operating costs	7
Employment costs		(151.1)	(11.7)	(162.8)	(114.8)	(0.7)	(115.5)
Raw materials and consumables used**		(51.7)	(0.2)	(51.9)	(37.4)	–	(37.4)
Other operating expenses**		(499.7)	(25.7)	(525.4)	(410.2)	(25.2)	(435.4)
Financial assets impairment		(9.7)	–	(9.7)	(7.1)	–	(7.1)
Earnings before interest, tax, depreciation and amortisation	5	335.6	(37.6)	298.0	338.3	(25.9)	312.4
Depreciation and amortisation	7	(187.1)	–	(187.1)	(172.0)	–	(172.0)
Operating profit/(loss)	5	148.5	(37.6)	110.9	166.3	(25.9)	140.4
Finance income	8	15.0	–	15.0	12.6	–	12.6
Finance costs	8	(199.4)	–	(199.4)	(162.8)	–	(162.8)
Net finance costs	8	(184.4)	–	(184.4)	(150.2)	–	(150.2)
Share of post-tax profit from associated companies	20	0.8	–	0.8	0.7	–	0.7
(Loss)/profit before tax	5	(35.1)	(37.6)	(72.7)	16.8	(25.9)	(9.1)
Taxation credit/(charge)	9	7.0	8.9	15.9	(4.3)	4.9	0.6
(Loss)/profit for the year		(28.1)	(28.7)	(56.8)	12.5	(21.0)	(8.5)
Attributable to:
Ordinary shareholders of the parent				(57.9)			(9.5)
Non-controlling interests				1.1			1.0
Earnings per ordinary share ( p e n c e p e r s h a r e ) *	11
Basic				(16.1)			(2.9)
Diluted				(16.1)			(2.9)

* Earnings per ordinary share restated for 2024, see note 11.

** Raw materials and consumables used and other operating expenses have been restated, see note 2.

The above results were derived from continuing operations.

The notes on pages 200 to 247 form part of these financial statements.

194 Annual Report and Accounts 2025 Pennon Group plc

Consolidated statement of comprehensive income

For the year ended 31 March 2025

		Before non-	Non-underlying			Non-underlying
		underlying	items		Before non-	items
		items	(note 6)	Total	underlying items	(note 6)	Total
		2025	2025	2025	2024	2024	2024
	Notes	£m	£m	£m	£m	£m	£m
(Loss)/profit for the year		(28.1)	(28.7)	(56.8)	12.5	(21.0)	(8.5)
Other comprehensive income/(loss)
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit obligations	30	3.5	–	3.5	(7.7)	–	(7 . 7)
Income tax on items that will not be reclassified	9	(0.9)	–	(0.9)	2.2	–	2.2
Total items that will not be reclassified to profit or loss		2.6	–	2.6	(5.5)	–	(5 . 5)
Items that may be reclassified subsequently
to profit or loss
Loss on cash flow hedging*		(19.7)	–	(19.7)	(34.7)	–	(34.7)
Hedging losses recycled to profit or loss*		15.4	–	15.4	18.3	–	18.3
Income tax on items that may be reclassified	9	2.4	–	2.4	4.1	–	4.1
Total items that may be reclassified subsequently
to profit or loss		(1.9)	–	(1.9)	(12.3)	–	(12.3)
Other comprehensive income/(loss) for the year
net of tax	36	0.7	–	0.7	(17.8)	–	(17.8)
Total comprehensive (loss)/income for the year		(27.4)	(28.7)	(56.1)	(5.3)	(21.0)	(26.3)
Total comprehensive (loss)/income attributable to:
Ordinary shareholders of the parent				(57.2)			(27.3)
Non-controlling interests				1.1			1.0

* Movements on cash flow hedges were presented net in 2024, the presentation has been restated to present as gross, see note 2 for further detail.

The notes on pages 200 to 247 form part of these financial statements.

195Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Financial Statements continued

Consolidated and Company balance sheets

At 31 March 2025

		Group		Company
			Restated*
		2025	2024	2025	2024
	Notes	£m	£m	£m	£m
Assets
Non-current assets
Goodwill	15	179.9	179.9	–	–
Other intangible assets	16	62.2	60.3	–	–
Property, plant and equipment	17	5,849.4	5,374.3	–	0.1
Other non-current assets	19	8.7	8.7	104.6	54.1
Financial assets at fair value through profit	24	0.6	0.9	0.6	0.9
Deferred tax assets	31	–	–	23.6	20.7
Derivative financial instruments	23	22.4	17.4	0.1	0.2
Investments in subsidiary undertakings	20	–	–	1,562.7	1,153.2
Investments in associated companies	20	1.8	1.0	–	–
Retirement benefit assets	30	22.0	26.6	4.0	3.5
		6,147.0	5,669.1	1,695.6	1,232.7
Current assets
Inventories	21	12.8	13.2	–	–
Trade and other receivables	22	391.8	355.4	53.8	151.8
Current tax receivable	27	0.9	6.0	–	–
Derivative financial instruments	23	9.8	23.4	0.7	1.0
Cash and cash equivalents	25	417.9	134.0	45.0	79.2
Restricted funds	25	58.2	37.4	–	–
Retirement benefit assets	30	9.2	–	–	–
		900.6	569.4	99.5	232.0
Liabilities
Current liabilities
Borrowings	28	(257.4)	(240.7)	(51.5)	(8.0)
Financial liabilities at fair value through profit	24	(0.3)	(0.1)	(0.3)	(0.1)
Derivative financial instruments	23	(0.5)	(5.4)	(0.1)	(0.1)
Trade and other payables	26	(331.0)	(346.5)	(19.6)	(11.5)
Current tax liabilities	27	–	–	(1.9)	(3.2)
Provisions	32	(6.8)	–	(0.3)	–
		(596.0)	(592.7)	(73.7)	(22.9)
Net current assets/(liabilities)		304.6	(23.3)	25.8	209.1
Non-current liabilities
Borrowings	28	(4,296.9)	(3,775.5)	(195.6)	(245.6)
Other non-current liabilities	29	(171.3)	(154.9)	–	–
Derivative financial instruments	23	(1.6)	(3.3)	–	–
Deferred tax liabilities	31	(530.6)	(548.4)	–	–
Provisions	32	(0.5)	(1.1)	–	–
		(5,000.9)	(4,483.2)	(195.6)	(245.6)
Net assets/(liabilities)		1,450.7	1,162.6	1,525.8	1,196.2
Shareholders’ equity
Share capital	33	288.1	174.6	288.1	174.6
Share premium account	34	755.0	398.2	755.0	398.2
Capital redemption reserve	35	157.1	157.1	157.1	157.1
Retained earnings and other reserves	36	248.0	431.3	325.6	466.3
Total shareholders’ equity		1,448.2	1,161.2	1,525.8	1,196.2
Non-controlling interests		2.5	1.4	–	–
Total equity		1,450.7	1,162.6	1,525.8	1,196.2

* The 2024 balance sheet has been restated, see note 2 for further detail.

The loss for the year attributable to ordinary shareholders’ equity dealt with in the accounts of the Parent Company is £13.5 million (2024: £34.4 million profit).

The notes on pages 200 to 247 form part of these financial statements. The financial statements on pages 194 to 247 were approved by the Board of Directors

and authorised for issue on 3 June 2025 and were signed on its behalf by:

Laura Flowerdew

Chief Financial Officer

Pennon Group plc

Registered Office: Peninsula House, Rydon Lane, Exeter, Devon, England EX2 7HR. Registered in England Number 02366640.

196 Annual Report and Accounts 2025 Pennon Group plc

Statements of changes in equity

At 31 March 2025

				Retained
		Share	Capital	earnings
	Share	premium	redemption	and other	Non-
	capital	account	reserve	reserves	controlling	Total
	(note 33)	(note 34)	(note 35)	(note 36)	interests	equity
	£m	£m	£m	£m	£m	£m
Group
At 31 March 2023	159.5	237.6	157.1	570.6	0.4	1,125.2
(Loss)/Profit for the year	–	–	–	(9.5)	1.0	(8.5)
Other comprehensive loss for the year	–	–	–	(17.8)	–	(17.8)
Total comprehensive (loss)/income for the year	–	–	–	(27.3)	1.0	(26.3)
Transactions with equity shareholders:
Dividends paid	–	–	–	(111.7)	–	(111.7)
Shares issued	15.1	164.9	–	–	–	180.0
Transaction costs arising on shares issued	–	(4.7)	–	–	–	(4.7)
Adjustment in respect of share-based payments
(net of tax)	–	–	–	1 . 1	–	1 . 1
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	–	–	–	(1.4)	–	(1.4)
Proceeds from shares issued under the Sharesave Scheme	–	0.4	–	–	–	0.4
Total transactions with equity shareholders	15.1	160.6	–	(112.0)	–	63.7
At 31 March 2024	174.6	398.2	157.1	431.3	1.4	1,162.6
(Loss)/Profit for the year	–	–	–	(57.9)	1.1	(56.8)
Other comprehensive income for the year	–	–	–	0.7	–	0.7
Total comprehensive (loss)/income for the year	–	–	–	(57.2)	1.1	(56.1)
Transactions with equity shareholders:
Dividends paid	–	–	–	(126.9)	–	(126.9)
Rights issue*	113.5	377.5	–	–	–	491.0
Transaction costs relating to rights issue	–	(20.5)	–	–	–	(20.5)
Transaction costs arising on shares issued	–	(0.2)	–	–	–	(0.2)
Adjustment in respect of share-based payments
(net of tax)	–	–	–	2.0	–	2.0
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	–	–	–	(1.2)	–	(1.2)
Total transactions with equity shareholders	113.5	356.8	–	(126.1)	–	3 4 4 . 2
At 31 March 2025	288.1	755.0	157.1	248.0	2.5	1,450.7

* On 17 February 2025 the Company completed a rights issue to existing shareholders on the basis of 13 ordinary shares for every 20 fully paid ordinary shares held. As a result,

185,928,002 ordinary shares with an aggregate nominal value of £113.5 million were issued for cash consideration of £491.0m. Transaction costs directly attributable to the rights

issue of £20.5 million were incurred and have been accounted for as a deduction from share premium, cash paid in relation to the transaction costs amounted to £15.4m with the

rest held on the balance sheet as payable.

The notes on pages 200 to 247 form part of these financial statements.

197Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Financial Statements continued

Statements of changes in equity (continued)

For the year ended 31 March 2025

capital

(note 33)

£m

premium

account

(note 34)

£m

Capital

redemption

reserve

(note 35)

£m

Retained

earnings

and other

reserves

(note 36)

£m

Total

equity

£m

Company

At 31 March 2023 159.5 237.6 157.1 545.7 1,099.9

Profit for the year – – – 34.4 34.4

Other comprehensive loss for the year – – – (1.0) (1.0)

Total comprehensive income for the year – – – 33.4 33.4

Transactions with equity shareholders:

Dividends paid – – – (111.7) (111.7)

Shares issued 15.1 164.9 – – 180.0

Transaction costs arising on shares issued – (4.7) – – (4.7)

Adjustment in respect of share-based payments

(net of tax)

–––1.11.1

Charge in respect of share options vesting – – – (2.2) (2.2)

Proceeds from shares issued under the Sharesave Scheme – 0.4 – – 0.4

Total transactions with equity shareholders 15.1 160.6 – (112.8) 62.9

At 31 March 2024 174.6 398.2 157.1 466.3 1,196.2

Loss for the year – – – (13.5) (13.5)

Other comprehensive income for the year – – – 0.3 0.3

Total comprehensive loss for the year – – – (13.2) (13.2)

Transactions with equity shareholders:

Dividends paid – – (126.9) (126.9)

Rights issue* 113.5 377.5 – – 491.0

Transaction costs relating to rights issue – (20.5) – – (20.5)

Transaction costs arising on shares issued –

(0.2) – – (0.2)

Adjustment in respect of share-based payments

(net of tax)

–––1.51.5

Own shares acquired by the Pennon Employee Share Trust in respect of

share options granted – – – (2.1) (2.1)

Total transactions with equity shareholders 113.5 356.8 – (127.5) 342.8

At 31 March 2025 288.1 755.0 157.1 325.6 1,525.8

* On 17 February 2025 the Company completed a rights issue to existing shareholders on the basis of 13 ordinary shares for every 20 fully paid ordinary shares held. As a result,

185,928,002 ordinary shares with an aggregate nominal value of £113.5m were issued for cash consideration of £491.0m. Transaction costs directly attributable to the rights issue of

£20.5m were incurred and have been accounted for as a deduction from share premium.

The notes on pages 200 to 247 form part of these financial statements.

198 Annual Report and Accounts 2025 Pennon Group plc

Consolidated cash flow statement

For the year ended 31 March 2025

		Group
		2025	2024 (restated)
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	37	233.6	261.7
Interest paid	37	(143.1)	(116.2)
Tax received		3.0	3.4
Net cash generated from operating activities		93.5	148.9
Cash flows from investing activities
Interest received		11.1	7.1
Purchase of property, plant and equipment		(663.1)	(555.1)
Acquisition of subsidiaries, net of cash acquired	20, 43	–	(62.7)
Deposit of restricted funds*		(20.8)	(4.3)
Purchase of intangible assets		(5.5)	(43.8)
Proceeds from sale of property, plant and equipment		1.9	0.8
Net cash used in investing activities		(676.4)	(658.0)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		491.0	175.7
Share issue transaction costs		(15.4)	–
Purchase of ordinary shares by the Pennon Employee Share Trust		(1.2)	(1.4)
Proceeds from new borrowing		920.0	574.5
Repayment of borrowings		(328.5)	(168.7)
Cash inflows from lease financing arrangements		25.0	64.8
Lease principal repayments (including net recoverable VAT paid/recovered)		(97.2)	(22.4)
Dividends paid		(126.9)	(111.7)
Net cash received from financing activities		866.8	510.8
Net increase/(decrease) in cash and cash equivalents		283.9	1.7
Cash and cash equivalents at beginning of the year*	25	134.0	132.3
Cash and cash equivalents at end of the year	25	417.9	134.0

* Cash and cash equivalents has been restated, see note 2 for further detail.

The notes on pages 200 to 247 form part of these financial statements.

199Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements

1. General information

Pennon Group plc is a company registered in the United Kingdom under the

Companies Act 2006. The address of the registered office is given on page

255. Pennon Group’s business is operated through its principal subsidiaries:

South West Water Limited provides water and wastewater services in Devon,

Cornwall and parts of Dorset and Somerset and water only services in parts

of Dorset, Hampshire, Wiltshire and Bristol. Sutton and East Surrey Water plc

(“SES Water”) provides water only services in the South East region. Sutton

and South East Surrey Water Services (“SESWS”) provides water and

wastewater retail services to non-household customer accounts. Pennon

Group is the majority shareholder of Pennon Water Services Limited,

a company providing water and wastewater retail services to non-household

customer accounts across Great Britain. The Company owns a 30% share in

Water 2 Business Limited, a joint venture with Wessex Water, operating in the

same sector as Pennon Water Services Limited and SESWS.

2. Principal accounting policies

The principal accounting policies adopted in the preparation of these

financial statements are set out below. These policies have been consistently

applied to the years presented.

(a) Basis of preparation

The financial statements for the Group have been prepared on the historical

cost accounting basis (except for fair value items, principally acquisitions,

transfers of assets from customers and certain financial instruments as

described in accounting policy notes (b), (u) and (n) respectively) and

in accordance with UK-adopted international accounting standards.

The parent company financial statements have been prepared in accordance

with UK-adopted International Accounting Standards and with the

requirements of the Companies Act 2006. The Company meets the definition

of a qualifying entity as defined in FRS 100 ‘Application of Financial

Reporting Requirements’, accordingly the Company has elected to apply FRS

101 ‘Reduced Disclosure Framework’.

Therefore, the recognition and measurement requirements of United

Kingdom adopted International Financial Reporting Standards have been

applied, with amendments where necessary in order to comply with

Companies Act 2006 and The Large and Medium-sized Companies and

Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) as the

parent company financial statements are Companies Act 2006 accounts.

The following exemptions from the requirements of IFRS have been applied

in the preparation of these financial statements, in accordance with FRS 101:

• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details

of the number and weighted average exercise prices of share options, and

how the fair value of goods or services received was determined).

• IFRS 7, ‘Financial instruments: Disclosures’.

• Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of

valuation techniques and inputs used for fair value measurement of assets

and liabilities).

• Paragraph 38 of IAS 1, 'Presentation of financial statements' – comparative

information requirements in respect of:

• Paragraph 79(a)(iv) of IAS 1,

• Paragraph 73(e) of IAS 16, 'Property, plant and equipment', and

• Paragraph 118(e) of IAS 38, 'Intangible assets' (reconciliations between

the carrying amount at the beginning and end of the period).

• The following paragraphs of IAS 1, ‘Presentation of financial statements’:

• 10(d) (statement of cash flows),

• 16 (statement of compliance with all IFRS),

• 38A (requirement for minimum of two primary statements, including

cash flow statements),

• 38B-D (additional comparative information),

• 111 (statement of cash flows information), and

• 134-136 (capital management disclosures).

• IAS 7, ‘Statement of cash flows’.

• The requirements of paragraphs 88C and 88D of IAS 12 Income Taxes.

• Paragraphs 30 and 31 of IAS 8, ‘Accounting policies, changes in

accounting estimates and errors’ (requirement for the disclosure of

information when an entity has not applied a new IFRS that has been

issued but is not yet effective).

• Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management

compensation).

• The requirements in IAS 24, ‘Related party disclosures’, to disclose related

party transactions entered into between two or more members of a group.

The Company has taken advantage of section 408 of the Companies Act

2006 not to present the parent company profit and loss account. The loss for

the year is disclosed in the Company statement of changes in equity and the

Company balance sheet.

The Group and parent company financial statements are presented in

pounds sterling and all values rounded to the nearest one-hundred thousand

pounds, except when otherwise indicated.

Restatements

In the prior year ‘Cash and cash deposits’ consisted of ‘Cash and cash

equivalents’ and ‘Restricted funds’. As restricted funds do not form part of

cash and cash equivalents has been re-presented in the 2024 balance sheet.

Cash and cash equivalents totalled £134.0 million and Restricted funds £37.4

million at 31 March 2024. An adjustment has also been reflected in the cash

flow statement, the opening and closing values of cash and cash equivalents

in the prior year have been restated to £132.3 million and £134.0 million

respectively from £143.7 million and £145.4 million.

In the prior year ‘Financial liabilities at fair value through profit’ (FVTP)

included a £2.5m current liability and £31.8m non-current liability. These

items relate to an unamortised hedging adjustment following a decision to

de-designate a hedging relationship on a bond in a prior period. The

unamortised hedging adjustment has been reclassified to be shown as part

of borrowings to align with the debt for which the hedge was entered into.

In the prior year purchases of water from wholesalers by SESWS were

presented as raw materials in operating costs, to align with the existing

group presentation this has been reclassified to other operating expenses,

the total being £14.4m.

In the prior year movements on cash flow hedges were presented net in the

statement of comprehensive income, the presentation has been amended to

show the gross values in relation to the loss on cash flow hedging (2024:

£34.7 million) and hedging gains recycled to profit or loss (2024: £18.3

million).

Adjustments to the prior period have been made in relation to the acquisition

of SES as detailed in note 43.

A summary of the principal accounting policies is set out below,

together with an explanation where changes have been made to

previous policies on the adoption of new accounting standards and

interpretations in the year.

Going concern

The going concern basis has been adopted in preparing these financial

statements. At 31 March 2025 the Group has access to undrawn committed

funds and cash and cash equivalents totalling £977.9 million, including cash and

other short-term deposits of £417.9 million and £560.0 million of undrawn

facilities. Cash and cash equivalents excludes £58.2 million of restricted funds

deposited with financial institutions which are available for access, subject to

being replaced by an equivalent valued security. The Group has an expected

headroom of £379.6 million at 30 September 2026.

200 Annual Report and Accounts 2025 Pennon Group plc

2. Principal accounting policies continued

In making their assessment, the Directors reviewed the principal risks and

considered which risks might threaten the Group’s going concern status, to

do this 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 70 to 79, individual sensitivities against these risks 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 2025/26, and longer-term strategic business plan for

the remainder of the going concern period to 30 September 2026. The risks

and sensitivities include consideration of: legislative impacts such as change

in government policy and non-compliance with laws and regulations, macro-

economic impacts such as inflation and interest rate increases and

operational impacts such as ensuring adequate water resources and failure

of operational assets. 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 a cash outflow of c.£108.5 million; this value is considered

equivalent to an extreme one-off event that could occur by 30 September

2026, the probability of such an event happening is deemed unlikely.

Through this testing, it has been determined that none of the individual

principal risks would in isolation, or in aggregate, compromise the going

concern of the Group over the going concern period, the assessment has

been considered by reviewing the impact on the solvency position as well as

debt and interest covenants. In the combined scenario to ensure that the

Group was able to continue as a going concern, additional mitigations could

be deployed to reduce gearing and increase covenant headroom. In the

combined stress test scenario, the group has sufficient liquidity and

covenant headroom which reflects that no mitigations would be needed by

the Group. However, if required additional mitigations could be deployed to

reduce gearing and increase covenant headroom. Examples of mitigations

could 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, and raising additional funding.

We have considered the Group’s funding position and financial projections

which take into account a range of possible impacts, including the

refinancing required within and immediately after the going concern

assessment period. Having considered these factors, the Directors have a

reasonable expectation that that the Group will meet the requirements of its

covenants and has adequate resources to continue in operational existence

for the period to at least the end of the going concern assessment period of

30 September 2026, and that there are no material uncertainties to disclose.

For this reason, they continue to adopt the going concern basis in preparing

the financial statements .

In preparing the financial statements, management has considered the

impact of climate change, taking into account the relevant disclosures

in the Strategic Report, including those made in accordance with the

recommendations of the Taskforce on Climate-related Financial Disclosure.

The expected environmental impact of climate change on the water business

has been modelled noting that the physical risks are increasing. It is likely

that the Group will need to invest to protect certain assets such as sewage

works and pumping stations against sea level inundation and these

considerations form part of the planning process for new capital expenditure.

Longer term investment, outlined in the strategic plans, will be needed to

manage future risks. To achieve this, combined regulatory and government

support within their policy frameworks will be essential. Whilst it is estimated

additional spend will be required to manage future risks, the current available

information and assessment did not identify any risks regarding the

sufficiency of funds available to the Group to support this additional spend or

any risk that would require the useful economic lives of assets to be reduced

in the year or identify the need for impairment that would impact the carrying

values of such assets or have any other impact on the financial statements.

The impact assessments will be continuously updated to reflect the latest

available information on the impact of climate change.

New standards or interpretations which were mandatory for the first time in

the year beginning 1 April 2024 did not have a material impact on the net

assets or results of the Group and the parent company. Existing borrowing

covenants were not impacted by changes in accounting standards.

New standards or interpretations due to be adopted from 1 April 2025 are not

expected to have a material impact on the Group’s and the parent company’s

net assets or results.

(b) Basis of consolidation

The Group financial statements include the results of Pennon Group plc and

its subsidiaries and joint ventures.

The results of subsidiaries and joint ventures are included from the date of

acquisition or incorporation and excluded from the date of disposal. The

results of subsidiaries are consolidated where the Group is exposed to, or has

rights to, variable returns from its involvement with the entity and has the

ability to affect those returns through its power over the entity. The results of

joint ventures are accounted for on an equity basis.

Intra-group trading, loan balances and transactions are eliminated

on consolidation.

The acquisition method of accounting is used to account for the purchase of

subsidiaries. The excess of the value transferred to the seller in return for

control of the acquired business, together with the fair value of any

previously held equity interest in that business over the Group’s share of the

fair value of the identifiable net assets, is recorded as goodwill.

Group revenue is recognised following delivery of performance obligations

and an assessment of when control over the product or service is transferred

to the customer. Revenue is only recognised when collection of

consideration is highly probable.

Revenue is recognised either when the performance obligation in the

contract has been performed (point in time recognition) or ‘over time’ as

the performance obligations to the customer are satisfied. For each obligation

satisfied over time, the Group applies a revenue recognition method that

accurately reflects performance in transferring control of the services to

the customer.

Where a contract with a customer includes more than one performance

obligation, revenue is allocated to each obligation in proportion to a fair value

assessment of the total contract sales value split across the

services provided.

At the inception of a contract the total transaction price is estimated, being

the fair value to which the Group expects to be entitled under the contract,

including any variable consideration. Variable consideration is based on the

most likely outcome of the performance obligations. Revenue excludes value

added tax, trade discounts and revenue arising from transactions between

Group companies.

Water (domestic and non-household retail)

For most of the services provided to domestic customers, contract terms

are implied through statute and regulation in the absence of formal, written

contracts. South West Water and SES Water have a duty under legislation

to provide domestic customers with services regardless of payment and are

not permitted to disconnect domestic customers for non-payment of bills.

Charges are set via the periodic review price-setting process, regulated

by Ofwat.

In respect of ongoing, continuous services to customers, such as the provision

of drinking water and wastewater services, revenue is recognised over time.

Customers with an unmeasured supply are billed at the start of the year for

the full amount of the annual charge but typically take advantage of a choice

of payment arrangements to pay by regular instalments. The performance

obligation has been assessed as standing ready to provide water and sewerage

services when required by our customers, and accordingly revenue is

recognised under IFRS 15 as the stand-ready obligation is fulfilled over time.

201Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

2. Principal accounting policies continued

Customers with a metered supply are sent up to four bills per year, based either

on actual meter readings or estimated usage. For these customers, revenue

includes an estimation of the amount of unbilled usage at the period end.

Payment options for domestic customers include an annual meter payment

plan where customers agree to pay a fixed amount per month which is adjusted

to reflect actual consumption at the end of the year. Revenue is recognised as

water is supplied, based on estimate usage for unbilled elements.

A range of regulated services is offered to property developers and owners who

require connection to the water and sewerage networks or need the networks

to be extended or altered. Typically, these customers pay an estimate of the

charges in advance as a deposit, which is treated as a contract liability and are

billed or refunded the difference between the estimate and actual costs on

completion of the work.

The principle components of these contributions are as follows:

i) Where the performance obligation relates solely to a connection to the

network, revenue is recognised at the point of connection when the

customer is deemed to obtain control.

ii) Where assets are constructed or provided by the Group or assets

transferred to the Group, it is considered that there is an explicit or implied

performance obligation to provide an ongoing water and/or wastewater

service, with the result that revenue is recognised over a time no longer than

the economic life of assets provided by or transferred to the Group.

Pennon Water Services provides specialist retail water and wastewater

services to business customers. It raises bills and recognises revenue

in accordance with its contracts with customers and in line with the

limits established for the non-household periodic price-setting process

where applicable.

Contract assets and liabilities

A trade receivable is recognised when the Group has an unconditional right

to receive consideration in exchange for performance obligations already

fulfilled. A contract asset is recognised when the Group has fulfilled some of

its performance obligations but has not yet obtained an unconditional right

to receive consideration. The amounts for contract assets, when applicable,

are disclosed within note 19 (Other non-current assets) and note 22 (Trade

and other receivables) as appropriate. A contract liability is recognised when

consideration is received in advance of the Group performing its

performance obligations to customers, including, when appropriate, transfers

of assets from customers (per paragraph (u) below). The value of contract

liabilities is disclosed within note 26 (Trade and other payables) and note 29

(Other non-current liabilities) as appropriate.

(d) Segmental reporting

Each of the Group’s business segments provides services which are subject

to risks and returns which are different from those of the other business

segments. The Group’s internal organisation and management structure

and its system of internal financial reporting are based primarily on

business segments. The Group is organised into two operating segments.

The water segment comprises the regulated water and wastewater services

undertaken by South West Water and the regulated water services

undertaken by SES Water. The non-household retail business reflects the

services provided by Pennon Water Services and SESWS. Other components,

including Pennon Group plc, are not reportable segments as they are not

reported to Chief Decision makers. Segmental revenue and results include

transactions between businesses. Inter-segmental transactions are

eliminated on consolidation.

(e) Goodwill

Goodwill arising on consolidation from the acquisition of subsidiary

undertakings represents the excess of the purchase consideration over the

fair value of net assets acquired, less any subsequent impairment charges.

Goodwill is recognised as an asset and reviewed for impairment at least

annually. Any impairment is recognised immediately in the income statement

and is not subsequently reversed. For the purpose of impairment testing,

goodwill acquired in a business combination is allocated to each of the cash

generating units (CGUs) or group of CGUs, that is expected to benefit from

the synergies of the combination. Each unit or group of units to which

goodwill is allocated represents the lowest level within the entity at which the

goodwill is monitored for internal reporting purposes. Goodwill is allocated

and monitored at the reportable operating segment level. Further details are

contained in accounting policy (i).

When a subsidiary undertaking is sold, the profit or loss on disposal is

determined after including the attributable amount of goodwill.

(f) Other intangible assets

Other intangible assets include assets acquired in business combination and

are capitalised at fair value at the date of acquisition. Following initial

recognition, finite life intangible assets are amortised on a straight-line basis

over their estimated useful lives, with the expense charged to the income

statement through operating costs.

(g) Property, plant and equipment

i) Infrastructure assets (being water mains and sewers, impounding

and pumped raw water storage reservoirs, dams, pipelines and sea

outfalls)

Infrastructure assets were included at fair value on transition to IFRS, and

subsequent additions are recorded at cost less accumulated depreciation

and impairment charges. Expenditure to increase capacity or enhance

infrastructure assets is capitalised where it can be reliably measured, and it is

probable that incremental future economic benefits will flow to the Group.

The cost of day-to-day servicing of infrastructure components is recognised

in the income statement as it arises.

Infrastructure assets are depreciated evenly over their useful economic lives,

and are principally:

Dams and impounding reservoirs	100 to 200 years
Water mains	60 to 180 years
Sewers	75 to 150 years

Assets in the course of construction are not depreciated until commissioned.

ii) Other assets (being property, overground plant and equipment)

Other assets are included at cost less accumulated depreciation.

Freehold land is not depreciated. Other assets are depreciated evenly to their

residual value over their estimated economic lives, and are principally:

Land and buildings – freehold	10 to 80 years
buildings
Land and buildings – leasehold	Over the estimated economic lives or the
buildings	lease period, whichever is the shorter
Operational properties	15 to 100 years
Fixed and moveable equipment	4 to 30 years

Assets in the course of construction are not depreciated until commissioned.

The cost of assets includes directly attributable labour and overhead costs

which are incremental to the Group. Borrowing costs directly attributable to the

construction of a qualifying asset (an asset necessarily taking a substantial

period of time to be prepared for its intended use) are capitalised as part of the

asset. Assets transferred from customers are recognised at fair value as set out

in accounting policy (u).

The assets’ residual values and useful lives are reviewed annually.

Gains and losses on disposal are determined by comparing sale proceeds

with carrying amounts. These are included in the statement of profit or loss.

202 Annual Report and Accounts 2025 Pennon Group plc

2. Principal accounting policies continued

(h) Leased assets

All are accounted for by recognising a right-of-use asset and a lease liability

except for:

• Low value assets; and

• Leases with a duration of 12 months or less.

Contracts are initially measured at the present value of contractual payments

due to the lessor over the lease term, with the discount rate determined by

reference to the rate inherent in the lease unless this is not readily

determinable, in which case the Group’s incremental borrowing rate on

commencement of the lease is used. After initial measurement, lease

payments are allocated between the liability and finance cost. The finance

cost is charged to profit and loss over the lease period to produce a constant

periodic rate of interest on the remaining balance of the liability for each

period. The interest element of cash payments in respect of these leases is

included within interest payments in determining net cash generated from

operating activities. The capital element of the cash payment is included

within cash flows from financing activities. Right-of-use assets are amortised

on a straight-line basis over the remaining term of the lease or the remaining

economic life of the asset if shorter.

Assets are included within property, plant and equipment as right-of-use

assets at the present value of the minimum lease payments and are

depreciated over their estimated economic lives or the finance lease period,

whichever is the shorter.

The Group uses sale and leaseback transactions to finance its capital

programme. A sale and leaseback transaction is where the Group sells an

asset and immediately reacquires the use of the asset by entering into a

lease with the buyer. Each transaction is assessed as to whether it meets the

criteria within IFRS 15 ‘Revenue from contracts with customers’ for a sale to

have occurred. If the sale criteria are met a lease liability is recognised, the

associated property, plant and equipment asset is derecognised, and a right-

of-use asset is recognised at the proportion of the carrying value relating to

the right retained. Any gain or loss arising relates to the rights transferred to

the buyer. If the criteria for a sale under IFRS 15 have not been met the asset

is not derecognised and no sale is recorded.

(i) Impairment of non-financial assets

Assets with an indefinite useful life are not subject to amortisation and are

tested annually for impairment, or whenever events or changes in

circumstance indicate that the carrying amount may not be recoverable.

Assets subject to amortisation or depreciation are tested for impairment

whenever events or changes in circumstances indicate that the carrying

amount may not be recoverable.

An impairment loss is recognised for the amount by which an asset’s carrying

amount exceeds its recoverable amount. The recoverable amount is the higher of

an asset’s fair value, less costs to sell, and value-in-use. For the purposes of

assessing impairment, assets are grouped at the lowest levels for which there are

separately identifiable cash flows (CGUs). Value-in-use represents the present

value of projected future cash flows expected to be derived from a CGU,

discounted using a pre-tax discount rate which reflects an assessment of the

market cost of capital of the CGU. Impairments are charged to the income

statement in the year in which they arise.

Non-financial assets other than goodwill that have been impaired are

reviewed for possible reversal of the impairment at each reporting date.

Where a previously impaired asset or CGU’s recoverable amount is in excess

of its carrying amount, previous impairments are reversed to the carrying

value that would have expected to be recognised had the original

impairment not occurred.

(j) Parent company: Investment in subsidiary undertakings

Investments in subsidiary undertakings are initially recorded at cost, being

the fair value of the consideration paid. Subsequently investments are

reviewed for impairment on an individual basis annually or if events or

changes in circumstances indicate that the carrying value may not be fully

recoverable.

(k) Investment in associated companies

Associated companies are entities over which the Group exercises joint

control. Investments in associated companies are accounted for using the

equity method of accounting. Any excess of the cost of acquisition over

the Group’s share of the fair values of the identifiable net assets of the

associated company at the date of acquisition is recognised as goodwill

and is included in the carrying value of the investment in the

associated company.

The carrying value of the Group’s investment is adjusted for the Group’s

share of post-acquisition profits or losses recognised in the income

statement and statement of comprehensive income. Losses of an associated

company in excess of the Group’s interest are not recognised unless the

Group has a legal or constructive obligation to fund those losses.

(l) Inventories

Inventories are stated at the lower of cost and net realisable value. The cost

of finished goods and work in progress includes raw materials and the cost of

bringing stocks to their present location and condition. It excludes borrowing

costs. Net realisable value is the estimated selling price less cost to sell. The

costs of items of inventory are determined using weighted average costs.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and short-term deposits

held at banks. Bank overdrafts are offset against cash balances where

there is a legally enforceable right to offset and there is an intention to

settle the balances on a net basis. Otherwise, overdrafts are included within

current borrowings.

( n) Financial instruments

Financial instruments are recognised and measured in accordance with IFRS

9. The Group classifies its financial instruments in the following categories:

i) Debt instruments at amortised cost

All loans and borrowings are initially recognised at fair value, net of

transaction costs incurred. Following initial recognition, interest-bearing

loans and borrowings are subsequently stated at amortised cost using the

effective interest method. Gains and losses are recognised in the income

statement when instruments are derecognised or impaired. Premia,

discounts and other costs and fees are recognised in the income statement

through amortisation.

Borrowings are classified as current liabilities unless the Group has a right

to defer settlement of the liability for at least 12 months after the balance

sheet date.

ii) Trade receivables

Trade receivables do not carry any interest receivable and are recognised

initially at fair value and subsequently at amortised cost using the effective

interest method, less provision for expected credit losses (ECLs). In

accordance with IFRS 9, each Group entity performs an impairment analysis

at each reporting date to measure the ECLs. Each entity does not track

changes in credit risk but instead recognises a loss allowance based on

lifetime ECLs at each reporting date. Each subsidiary has established a

provision matrix that is based on its historical credit loss experience, adjusted

for forward-looking factors specific to the receivables and the

economic environment .

203Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

2. Principal accounting policies continued

iii) Trade payables

Trade payables are not interest-bearing and are recognised initially at fair

value and subsequently measured at amortised cost using the effective

interest method.

iv) Derivative financial instruments and hedging activities

The Group uses derivative financial instruments, principally interest rate

swaps, cross-currency interest rate swaps and inflation swaps to hedge risks

associated with interest rate and exchange rate fluctuations. Derivative

instruments are initially recognised at fair value on the date the derivative

contract is entered into and subsequently remeasured at fair value for the

reported balance sheet.

The Group designates certain hedging derivatives as either:

• A hedge of a highly probable forecast transaction or change in the cash

flows of a recognised asset or liability (a cash flow hedge); or

• A hedge of the exposure to change in the fair value of a recognised asset

or liability (a fair value hedge).

The gain or loss on remeasurement is recognised in the income statement

except for cash flow hedges which meet the conditions for hedge

accounting, when the portion of the gain or loss on the hedging instrument

which is determined to be an effective hedge is recognised directly in equity,

and the ineffective portion in the income statement. The gains or losses

deferred in equity in this way are subsequently recognised in the income

statement in the same period in which the hedged underlying transaction or

firm commitment is recognised in the income statement.

In order to qualify for hedge accounting, the Group is required to document

in advance the relationship between the item being hedged and the hedging

instrument. The Group is also required to document and demonstrate an

assessment of the relationship between the hedged item and the hedging

instrument which shows that the hedge will be highly effective on an ongoing

basis. This effectiveness testing is reperformed at the end of each reporting

period to ensure that the hedge remains highly effective.

The full fair value of a hedging derivative is apportioned on a straight-line

basis between non-current and current assets and liabilities based on the

remaining maturity of the hedging derivative.

Derivative financial instruments deemed held for trading, which are

not subject to hedge accounting, are classified as a current asset or liability

with any change in fair value recognised immediately in the income

statement.

The Group uses cross-currency swaps for some of its foreign currency

denominated private placement borrowings. The swaps either have the

effect of (i) converting variable rate foreign currency borrowings into fixed

rate sterling borrowings, (ii) converting fixed rate foreign currency

borrowings into fixed rate sterling borrowings, or (iii) converting fixed rate

foreign currency borrowings into floating rate sterling borrowings.

v) Financial instruments at fair value through profit

Financial instruments at fair value through profit reflect the fair value

movement of the hedged risk on a hedged item through a fair value hedging

relationship. The fair values of these financial instruments are initially

recognised on the date the hedging relationship is entered into and

thereafter remeasured at each subsequent balance sheet date. The gain or

loss on remeasurement for the period is recognised in the income statement.

vi) Receivables due from subsidiary undertakings

Amounts owed by subsidiaries are classified and recorded at amortised cost

and reduced by allowances for ECLs. Estimated future credit losses are first

recorded on initial recognition of a receivable and are based on estimated

probability of default. Individual balances are written off when management

deems them not to be collectible.

(o) Taxation including deferred taxation

The tax charge for the year comprises current and deferred taxation. Tax is

recognised in the income statement, except to the extent that it relates to

items recognised in the statement of comprehensive income or directly in

equity. In this case the tax is also recognised in the statement of

comprehensive income or directly in equity as appropriate.

Current tax

The current tax expense or credit for the period is the tax payable on the

current period’s taxable income, based on the applicable income tax rate for

each jurisdiction, adjusted by changes in deferred tax assets and liabilities

attributable to temporary differences and to unused tax losses. The amount

is calculated on the basis of tax laws enacted or substantively enacted at the

balance sheet date. Management periodically evaluates tax items subject to

interpretation and establishes provisions on individual tax items, where in the

judgement of management, the position is uncertain. The Group includes a

number of companies, including the parent company, which are part of a tax

group for certain aspects of the tax legislation. One of these aspects relates

to group relief whereby current tax liabilities can be offset by current tax

losses arising in other companies within the same tax group. Payments for

group relief are included within the current tax disclosures.

Deferred tax

Deferred tax is provided in full on temporary differences between the carrying

amount of assets and liabilities in the financial statements and the tax base,

except where they arise from initial recognition of an asset or liability in a

transaction, other than a business combination, that at the time of the

transaction affects neither accounting nor taxable profit or loss. Deferred tax

assets are recognised only to the extent that it is probable that future taxable

profits will be available against which the assets can be realised. Deferred tax is

determined using the tax rates enacted or substantively enacted at the balance

sheet date and expected to apply when the deferred tax liability is settled or the

deferred tax asset is realised. Deferred tax liabilities are recognised for all

temporary differences, with the following exceptions:

• where the temporary difference arises from the initial recognition of

goodwill or of an asset or liability in a transaction that is not a business

combination and, at the time of the transaction, affects neither the

accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in

subsidiaries, associates and joint ventures where the timing of the reversal

of temporary differences can be controlled and it is probably that the

temporary differences will not reverse in the foreseeable future.

204 Annual Report and Accounts 2025 Pennon Group plc

2. Principal accounting policies continued

Deferred tax assets and liabilities are offset where there is a legally

enforceable right to offset current tax assets and liabilities and where the

deferred tax balances relate to the same taxation authority. Current tax

assets and tax liabilities are offset where the entity has a legally enforceable

right to offset and intends either to settle on a net basis, or to realise the

asset and settle the liability simultaneously.

The group measures its tax balances either based on the most likely amount

or the expected value, depending on which method provides a better

prediction of the resolution of the uncertainty.

(p) Provisions

Provisions are made where there is a present legal or constructive obligation

as a result of a past event and it is probable that there will be an outflow of

economic benefits to settle this obligation and a reliable estimate of this

amount can be made. Where the effect of the time value of money is material

the current amount of a provision is the present value of the expenditures

expected to be required to settle obligations. The unwinding of the discount

to present value is included as notional interest within finance costs.

(q) Share capital and treasury shares

Ordinary shares are classified as equity.

Where the Company purchases the Company’s equity share capital (treasury

shares) the consideration paid, including any directly attributable costs, is

deducted from equity until the shares are cancelled or reissued. Where such

shares are subsequently reissued, any consideration received, net of any

directly attributable transaction costs, is included in equity.

The Group and Company balance sheet includes the shares held by the

Pennon Group plc Employee Benefit Trust relating to employee share-based

payments which have not vested at the balance sheet date. These are shown

as a deduction from shareholders’ equity until such time as they vest.

Share buy-back scheme and tender offer

Shares purchased for cancellation are deducted from retained earnings at

the total consideration paid or payable, including any related expenses.

Where the Group has an irrevocable commitment to purchase shares for

cancellation at the balance sheet date, a liability is recognised in other

creditors based on the share price at the balance sheet date and retained

earnings reduced by the amount of the liability.

Shares purchased and held by the Group (treasury shares) are deducted

from the treasury reserve at the total consideration paid or payable. On

cancellation of treasury shares, the cost is transferred from the treasury

reserve to retained earnings.

When treasury shares are issued at below cost, an amount representing the

difference between the cost of those shares and issue proceeds is

transferred to retained earnings. No gain or loss is recognised in the

consolidated income statement on the purchase, sale, issue or cancellation of

the Group’s own equity instruments.

(r) Dividend distributions

Dividend distributions are recognised as a liability in the financial statements

in the period in which the dividends are approved by the Company’s

shareholders. Interim dividends are recognised when paid, final dividends

when approved by shareholders at the Annual General Meeting.

(s) Employee benefits

i) Retirement benefit obligations

The Group operates defined benefit and defined contribution

pension schemes.

Defined benefit pension schemes

The liability recognised in the balance sheet in respect of defined benefit

pension plans is the present value of the defined benefit obligation at the

end of the year less the fair value of plan assets. If the value of a plan’s assets

exceeds the present value of its obligations, the resulting surplus is only

recognised if the Group has an unconditional right to that surplus.

The defined benefit obligation is calculated by independent actuaries who

advise on the selection of Directors’ best estimates of assumptions, using the

projected unit credit method. The present value of the defined benefit

obligation is determined by discounting the estimated future cash outflows

using interest rates of high-quality corporate bonds, and that have terms to

maturity approximating to the terms of the related pension obligation. The

increase in liabilities of the Group’s defined benefit pension schemes,

expected to arise from employee service in the year, is charged against

operating profit.

Changes in benefits granted by the employer are recognised immediately as

a past service cost in the income statement.

Actuarial gains and losses arising from experience adjustments and changes

in actuarial assumptions are charged or credited to equity in the statement

of comprehensive income in the period in which they arise.

Defined contribution scheme

Costs of the defined contribution pension scheme are charged to the income

statement in the year in which they arise. The Group has no further payment

obligations once the contributions have been paid.

ii) Share-based payment

The Group operates a number of equity-settled, share-based payment

plans for employees. The fair value of the employee services required in

exchange for the grant is recognised as an expense over the vesting period

of the grant.

Fair values are calculated using an appropriate pricing model. Non-market-

based vesting conditions are considered in the assumptions as to the

number of shares which are expected to vest.

(t) Fair values

The fair value of interest rate, inflation and cross currency swaps is based on

the market price to transfer the asset or liability at the balance sheet date in

an ordinary transaction between market participants. The fair values of

short-term deposits, loans and overdrafts with a maturity of less than one

year are assumed to approximate to their book values. In the case of non-

current bank loans and other loans, the fair value of financial liabilities for

disclosure purposes is estimated by discounting the future contractual cash

flows at the current market interest rate available to the Group for similar

financial instruments.

(u) Transfers of assets from customers

Where an item of property, plant and equipment that must be used to

connect customers to the network is received from a customer, or where

cash is received from a customer for the acquisition or construction of such

an item, that asset is recorded and measured on initial recognition at its fair

value. The credit created by the recognition of the asset is recognised as a

contract liability on the balance sheet. The contract liability reduces, and

revenue is recognised in the income statement, as performance obligations

are satisfied. The period over which the credit is recognised depends upon

the nature of the service provided, as determined by the agreement with the

customer. Where the service provided is solely a connection to the network,

the credit is recognised at the point of connection. If the agreement does not

specify a period, revenue is recognised over a period no longer than the

economic life of the transferred asset used to provide the ongoing service.

The fair value of assets on transfer from customers is determined using a

cost valuation approach allowing for depreciation.

205Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

2. Principal accounting policies continued

(v) Foreign exchange

Transactions denominated in foreign currencies are translated at the

exchange rate at the date of the transaction. Monetary assets and liabilities

denominated in a foreign currency are translated at the closing balance

sheet rate. The resulting gain or loss is recognised in the income statement.

(w) Non-underlying items

Non-underlying items are those that in the Directors’ view should be

separately disclosed by virtue of their size, nature or incidence to enable a

full understanding of the Group’s financial performance.

(x) Grants and contributions

Grants and contributions receivable in respect of property, plant and

equipment which provide the customer with ongoing access to the water and

sewerage networks are treated as contract liabilities and released to revenue

over the economic life of those elements of property, plant and equipment.

Grants and contributions receivable in respect of expenses charged against

profits in the year have been included in the income statement.

Government grants are recognised where there is reasonable certainty that

the grant will be received, and all attached conditions will be complied with.

When the grant relates to an expense item, it is recognised on a systematic

basis over the periods that the related costs, for which it is intended to

compensate, are expensed. The income from such grants is presented in the

financial statements as a deduction from the expense to which it relates.

(y) Variable consideration

Variable consideration in connection with the purchase of individual assets

outside of business combinations is recognised as a financial liability at fair

value when the amount of consideration payable is contingent upon future

events that are not within the direct control of the group. Initial recognition of

the financial liability is at fair value. Where the variability of the consideration

is directly linked to the quality or output of the asset received then any

changes in the consideration is recognised by adjusting the carrying amount

of the related asset.

(z) Acquisitions of groups of assets that do not constitute

a business

The identifiable assets and liabilities in acquisitions of groups of assets that

do not constitute a business, are initially measured at amounts specified in

the relevant accounting standards, or determined based on an allocation of

the cost. Details of acquisitions in the prior year meeting this definition can

be found in note 16.

3. Financial risk management

(a) Financial risk factors

The Group’s activities expose it to a variety of financial risks, liquidity risk,

market risk (interest rate and foreign currency risk), credit risk and

inflation risk.

The Group’s treasury function seeks to ensure that sufficient funding is

available to meet foreseeable needs and to maintain reasonable headroom

for contingencies, and manages inflation and interest rate risk.

The principal financial risks faced by the Group relate to liquidity, interest

rate and credit counterparty risk.

These risks and treasury operations are managed by the Pennon Chief

Financial Officer in accordance with policies established by the Board. Major

transactions are individually approved by the Board. Treasury activities are

reported to the Board and are subject to review by internal audit.

Financial instruments are used to raise finance, manage risk, optimise the use

of surplus funds and manage overall interest rate performance. The Group

does not engage in speculative activity.

i) Liquidity risk

The Group actively maintains a mixture of long-term and short-term

committed facilities which are designed to ensure the Group has sufficient

available funds for operations and planned expansions equivalent to at least

one year’s forecast requirements at all times. Details of undrawn committed

facilities and short-term facilities are provided in note 28.

Refinancing risk is managed under a Group policy that requires that no more than

20% of Group net borrowings should mature in any financial year.

The Group and water business have entered into covenants with lenders.

While terms vary, these typically provide for limits on gearing (primarily

based on the water business’s regulatory capital value and unregulated

EBITDA) and interest cover. Existing covenants are not impacted by

subsequent changes to accounting standards.

206 Annual Report and Accounts 2025 Pennon Group plc

3. Financial risk management continued

Contractual undiscounted cash flows, including interest payments, at the balance sheet date were:

	Due within	Due between	Due between	Due over
	1 year	1 and 2 years	2 and 5 years	5 years	Total
	£m	£m	£m	£m	£m
Group
31 March 2025
Non-derivative financial liabilities
Borrowings excluding lease liabilities	164.8	40.5	101.5	3,062.4	3,369.2
Interest payments on borrowings	183.0	160.3	519.1	1,763.7	2,626.1
Lease liabilities including interest	156.1	60.8	297.9	1,095.4	1,610.2
Trade and other payables	284.3	–	–	–	284.3
Derivative contracts
Derivative contracts – net receipts	(6.9)	(5.0)	(14.0)	(5.3)	(31.2)
31 March 2024
Non-derivative financial liabilities
Borrowings excluding lease liabilities (restated, note 2)	186.3	191.0	335.2	2,145.0	2,857.5
Interest payments on borrowings	114.3	101.4	277.8	832.2	1,325.7
Lease liabilities including interest	89.8	153.6	215.5	1,192.6	1,651.5
Trade and other payables (restated, note 43)	335.9	–	–	–	335.9
Derivative contracts
Derivative contracts – net receipts	(19.1)	(6.5)	(9.3)	(3.8)	(38.7)

ii) Market risk

The treasury policy states at least 60% of the Group’s debt should be fixed, this is managed through fixed rate debt and the use of derivatives to ensure these

levels are met. Of the Group’s net borrowings a proportion is RPI index-linked. The interest rate for index-linked debt is based mainly upon an RPI measure; due

to current Ofwat methodology the Group has considered other index linked indices which are also used in determining the amount of revenue from customers

of South West Water. The Group uses a combination of fixed rate, index-linked borrowings and fixed rate interest swaps as cash flow hedges of future variable

interest payments to achieve this policy. The notional principal amounts of the interest rate swaps are used to determine settlement under those swaps and are

not therefore an exposure for the Group. These instruments are analysed in note 23.

The Group has no significant interest-bearing assets upon which the net return fluctuates from market risk. Deposit interest receivable is expected to

largely fluctuate in line with interest payable on floating rate borrowings. Consequently, the Group’s income and cash generated from operations (note 37) are

largely independent of changes in market interest rates.

For 2025 if interest rates on variable net borrowings had been on average 1% higher/lower with all other variables held constant, post-tax profit for the year and

equity would have increased/decreased by £4.0 million (2024 post tax profit for the year and equity would have increased/decreased by £7.6 million), for the

equity sensitivity fair value, with derivative impacts included. This provides an indication of the changes which could be expected and can be multiplied to

support sensitivity analysis, the expected volatility is within the range of 0%-2%.

For 2025 if the indices on index-linked borrowings had been on average 1% higher/lower with all other variables held constant, post-tax profit for the year

and equity would have decreased/increased by £10.0 million (2024 post tax profit for the year and equity would have increased/decreased by £5.5 million).

This provides an indication of the changes which could be expected and can be multiplied to support sensitivity analysis, the expected volatility is within

the range of 0%-2%.

Foreign currency risk occurs at transactional and translation level from borrowings and transactions in foreign currencies. These risks are managed through

forward contracts, which provide certainty over foreign currency risk.

iii) Credit risk

Credit counterparty risk arises from cash and cash equivalents, derivative financial instruments and exposure to customers, including outstanding receivables.

Further information on the credit risk relating to trade and other receivables is given in note 22.

207Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

3. Financial risk management continued

Counterparty risk arises from the investment of surplus funds and from the use of derivative financial instruments. The Board has agreed a policy for managing

such risk which is controlled through credit limits, counterparty approvals, and rigorous monitoring procedures.

The Group has no other significant concentration of credit risk. The Group’s surplus funds are managed by the Group’s treasury function and are usually placed

in short-term fixed interest deposits or the overnight money markets. Deposit counterparties must meet Board approved minimum criteria based on their short-

term credit ratings and therefore be of good credit quality.

iv) Inflation risk

Market inflation has caused inflationary pressures across the Group, the Group has index linked facilities which are predominantly Retail Price Index (RPI) linked.

Inflation risk arises if the indexes increase meaning the Group will either be paying or accreting the inflation, this could put pressure on the gearing or interest

cover ratios.

Inflation risk is mitigated through the index linked nature of our revenues and RCV calculations.

(b) Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders

and benefits for other stakeholders and to maintain an optimal capital structure to minimise the cost of capital.

The Group’s policy is to have a minimum of 12 months pre-funding of projected capital expenditure. At 31 March 2025 the Group had cash and facilities,

including restricted funds, of £1,036 million (2024: £601 million), meeting this objective.

In order to maintain or adjust the capital structure, the Group seeks to maintain a balance of returns to shareholders through dividends and an appropriate

capital structure of debt and equity for each business segment and the Group.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net borrowings divided by total capital. Net borrowings are analysed in

note 38 and calculated as total borrowings less cash and cash equivalents. Total capital is calculated as total shareholders’ equity plus net borrowings. The

Group currently manages a net borrowings position of £4,078.2 million (2024: £3,844.8 million). The gearing ratios at the balance sheet date were:

	2025	2024
	£m	£m
Net borrowings (restated, note 2)	4,078.2	3,844.8
Total equity	1,450.7	1,162.6
Total capital	5,528.9	5,007.4
Gearing ratio	73.6%	76.6%

The water segment is also monitored on the basis of the ratio of its net borrowings to regulatory capital value. Ofwat’s notional gearing target for the K7 (2020-

25) regulatory period is set at 60%. The water segment is also monitored on the basis of the ratio of its net borrowings to regulatory capital value. The table

below reflects water segment gearing that comprises South West Water Limited’s group of companies and SES Water.

	Water
	2025	2024
	£m	£m
Shadow Regulatory Capital Value	5,983.1	5,536.0
Net borrowings	3,698.3	3,567.8
Net borrowings/Shadow Regulatory Capital Value	61.8%	64.4%

The Group has entered into covenants with lenders and, while terms vary, these typically provide for limits on gearing and interest cover. The Group has been in

compliance with its covenants during the year.

The Group uses the following hierarchy for determining the fair value of financial instruments by valuation technique:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,

derived from prices) (level 2)

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The Group’s financial instruments are valued principally using level 2 measures as analysed in note 23.

The fair value of financial instruments not traded in an active market (for example over-the-counter derivatives) is determined by using valuation techniques. A

variety of methods and assumptions are used based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar

instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial

instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

The carrying values, less expected credit losses, of trade receivables and payables are assumed to approximate to their fair values .

208 Annual Report and Accounts 2025 Pennon Group plc

4. Critical accounting judgements and estimates

The Group’s principal accounting policies are set out in note 2. Management

is required to exercise significant judgement and make use of estimates and

assumptions in the application of these policies. Estimates are based on

factors including historical experience and expectations of future events that

management believe to be reasonable. However, given the judgemental

nature of such estimates, actual results could be different from the

assumptions used.

Estimates

Provision for doubtful debts

The Group has a material level of exposure to collection of trade

receivables. Provisions in respect of these balances are calculated with

reference to historical credit loss experience, adjusted for forward-looking

factors which by their nature are subject to uncertainty. Analysis of actual

recovery compared with provisioning levels have not, to date, resulted in

material variances.

Under its regular review procedures at the balance sheet date, the Group

applies a simplified approach in calculating ECLs for trade receivables and

contract assets. Therefore, the Group does not track changes in credit risk

but instead recognises a loss allowance based on lifetime ECLs at each

reporting date. Each subsidiary has established a provision matrix that

is informed by its historical credit loss experience, adjusted for forward-

looking factors specific to the receivables and the economic environment.

The Group's policy is to write-off trade receivables where the expectation of

recovery is considered highly unlikely.

The actual level of debt collected may differ from the estimated levels

of recovery. As at 31 March 2025 the Group’s trade and other receivables

were £509.1 million (2024: £480.7 million), against which £117.3 million (2024:

£125.3 million) had been provided for ECLs (note 22). Whilst the provisions

are considered to be appropriate, changes in estimation basis or in economic

conditions could lead to a change in the level of provisions recorded and

consequently the charge or credit to the Income Statement. In determining

the allowance for ECLs a provisioning matrix is applied to the debt of

customers in Devon, Cornwall and Bournemouth, as set out in note 22. An

increase/decrease in the provision rates for current occupiers of 1% would

lead to an increase/decrease in the level of provision by £1.4 million (2024:

£1.4 million).

Retirement benefit obligations

The Group operates defined benefit pension schemes for which actuarial

valuations are carried out as determined by the trustees at intervals of not

more than three years. The most recent triennial valuation of the main

scheme was as at 31 March 2022, the outcome of which is summarised

in note 30.

The pension cost and liabilities under IAS 19 are assessed in accordance with

Directors’ best estimates using the advice of an independent qualified

actuary and assumptions in the latest actuarial valuation. The assumptions

are based on member data supplied to the actuary and market observations

for interest rates and inflation, supplemented by discussions between

the actuary and management. The mortality assumption uses a scheme-

specific calculation based on CMI 2023 actuarial tables with an allowance for

future longevity improvement. The principal assumptions used to measure

schemes’ liabilities, sensitivities to changes in those assumptions and future

funding obligations are set out in note 30.

Useful economic lives of property, plant and equipment

Calculating the depreciation charge and hence the carrying value for

property, plant and equipment requires estimates to be made on the useful

lives of the assets. The estimates are based on engineering data and the

Group’s experience of similar assets. Asset lives are reviewed annually and

amended where changes are made to assumptions relating to the expected

life of the asset from judgement around usage and performance experience,

technological advancement and other relevant factors. Overall assessments

on the impact of climate change on long life assets have been completed and

will be continuously updated for the latest available information. The most

recent assessment of the impact on climate change, which includes the

potential to mitigate adverse impacts, has not identified any specific impact

on the useful economic lives of long-life assets. Environmental factors and

climate change form part of the planning process for new capital

expenditure, where the Group continues to apply a consistent policy on

capitalisation. The depreciation charge is sensitive to amendments of the

useful economic lives of these assets, a significant change in the estimated

life of these assets could have a material impact on depreciation, this is

therefore noted as a material other estimate.

Judgements

Non-underlying items

In establishing which items are disclosed separately as non-underlying,

to enable a full understanding of the Group’s financial performance,

the Directors exercise their judgement in assessing the size, nature

or incidence of specific items. See note 6 for further details.

Goodwill allocation

Goodwill arising on the acquisition of Surrey and East Sutton Water is

allocated to the group of cash-generating units that are expected to benefit

from the synergies of the combination, the ‘Water CGU’. The Water CGU

comprises the regions of South West Water, Bournemouth Water, Bristol

Water and Surrey and East Sutton Water. The Water CGU operates under

one management structure with functional integration across the operating

segment generating the synergies of the combination. SES operated under

separate management whilst the CMA’s Initial Enforcement Order (IEO) was

in place, however the acquisition was cleared by the CMA in June 2024,

allowing integration to proceed. The recoverable amount is the higher of fair

value, less costs to sell, and value-in-use. Value-in-use represents the

present value of projected future cash flows expected to be derived from a

CGU, discounted using a pre-tax discount rate which reflects an assessment

of the market cost of capital of the CGU. Impairments are charged to the

income statement in the year in which they arise.

Capitalisation of property, plant and equipment

The property, plant and equipment of the Group relates primarily to

infrastructure assets (being water mains and sewers, impounding and

pumped raw water storage reservoirs, dams, pipelines and sea outfalls) as

well as other assets which include fixed plant and operational properties.

Given the nature of these assets, the Group incurs expenditure including

both asset enhancement as well as repairs and maintenance, which involves

judgement in allocation of costs between operating and capital expenditure.

The Group continues to apply a consistent policy and approach on

capitalisation of property, plant and equipment.

Other estimates

Revenue recognition

Management assessed and resolved that the level of estimation for revenue

recognition of accrued revenue relating to water and wastewater should not

be considered critical as the estimates are largely calculated on a systematic

basis. However, management consider the total level of estimation of

accrued revenue relating to water and wastewater to be material and

highlight this as a material other estimate.

209Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

5. Segmental information

Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision-Maker (CODM), which has been

identified as the Pennon Group plc Board. The earnings measures below are used by the Board in making decisions.

The Group is organised into two operating segments. The water segment comprises the regulated water and wastewater services undertaken by South West Water and

the regulated water services undertaken by SES Water. The non-household retail segment (business retail) reflects the services provided by Pennon Water Services and

SESWS. The other segment comprises smaller ancillary business as well as intermediate holding companies not further separated in reports to the Board.

Segment assets include goodwill and other intangible assets, property, plant and equipment, inventories, trade and other receivables and cash and cash

equivalents. Segment liabilities comprise operating liabilities and borrowings and exclude taxation. The other segment liabilities include the Company’s financing

arrangements and Group taxation liabilities. Capital expenditure comprises additions to property, plant and equipment.

		Non-
		household
	Water	retail	Other	Eliminations	Group
	£m	£m	£m	£m	£m
2025
Revenue	820.5	320.3	12.8	(105.8)	1,047.8
Employment Costs	(126.3)	(7.8)	(17.0)	–	(151.1)
Raw materials and consumables used	(48.3)	(0.9)	(2.5)	–	(51.7)
Operating costs	(307.7)	(304.1)	(3.4)	105.8	(509.4)
Operating Profit before depreciation, amortisation and non-underlying items (Underlying EBITDA)	338.2	7.5	(10.1)	–	335.6
Depreciation and amortisation	(184.4)	(0.3)	(2.4)	–	(187.1)
Operating Profit before non-underlying items	153.8	7.2	(12.5)	–	148.5
Finance income	13.1	0.4	18.8	(17.3)	15.0
Finance costs	(202.5)	(3.3)	(10.9)	17.3	(199.4)
Share of post-tax profit from associated companies	–	–	0.8	–	0.8
Loss before tax and non-underlying items	(35.6)	4.3	(3.8)	–	(35.1)
Non-underlying items	(36.1)	–	(1.5)	–	(37.6)
Loss before tax	(71.7)	4.3	(5.3)	–	(72.7)
2024
Revenue	745.8	253.5	11.8	(103.3)	907.8
Employment Costs	(98.6)	(6.2)	(10.0)	–	(114.8)
Raw materials and consumables used	(37.1)	(0.4)	–	–	(37.5)
Operating costs	(274.3)	(239.2)	(7.0)	103.3	(417.2)
Operating Profit before depreciation, amortisation and non-underlying items (Underlying EBITDA)	335.8	7.7	(5.2)	–	338.3
Depreciation and amortisation	(165.9)	(0.8)	(5.3)	–	(172.0)
Operating Profit before non-underlying items	169.9	6.9	(10.5)	–	166.3
Finance income	7.2	0.4	15.6	(10.6)	12.6
Finance costs	(165.3)	(2.4)	(5.7)	10.6	(162.8)
Share of post-tax profit from associated companies	–	–	0.7	–	0.7
Loss before tax and non-underlying items	11.8	4.9	0.1	–	16.8
Non-underlying items	(25.2)	–	(0.7)	–	(25.9)
Loss before tax	(13.4)	4.9	(0.6)	–	(9.1)

1. Intra-segment transactions between and to different segments are under normal market-based commercial terms and conditions. Intra-segment revenue of the other segment is at cost.

		Non-
		household
	Water	retail	Other	Eliminations	Group
	£m	£m	£m	£m	£m
Balance sheet
31 March 2025
Assets (excluding carrying value in associated companies)	6,657.6	105.3	479.0	(204.8)	7,037.1
Carrying value in associated companies	–	–	1 0 . 5	–	1 0 . 5
Total assets	6,657.6	105.3	489.5	(204.8)	7,047.6
Liabilities	(5,327.6)	(115.2)	(358.9)	204.8	(5,596.9)
Net assets	1,330.0	(9.9)	130.6	–	1,450.7
31 March 2024
Assets (excluding carrying value in associated companies)	5,802.3	209.7	432.4	(215.6)	6,228.8
Carrying value in associated companies	–	–	9.7	–	9.7
Total assets (restated, note 43)	5,802.3	209.7	442.1	(215.6)	6,238.5
Liabilities (restated, note 43)	(4,845.6)	(130.6)	(315.3)	215.6	(5,075.9)
Net assets	956.7	79.1	126.8	–	1,162.6

210 Annual Report and Accounts 2025 Pennon Group plc

5. Segmental information continued

Segment liabilities of the water segment comprise of operating liabilities and borrowings. The other segment includes Company only assets and liabilities as well

as Group taxation liabilities and should be considered in conjunction with the eliminations column.

			Non-household	Other and
		Water	retail	eliminations	Group
	Notes	£m	£m	£m	£m
Other information
31 March 2025
Intangible asset additions	16	4.1	2.1	(0.7)	5.5
Amortisation of other intangible assets	7	4.0	0.3	(2.0)	2.3
Capital expenditure (Property, plant and equipment)	17	606.1	–	40.9	647.0
31 March 2024
Intangible asset additions	16	4.2	0.4	40.4	45.0
Amortisation of other intangible assets	7	3.5	0.2	–	3.7
Capital expenditure (Property, plant and equipment)	17	585.6	0.1	18.8	604.5

All revenue is generated in the United Kingdom. The grouping of revenue streams by how they are affected by economic factors, as required by IFRS 15, is as follows:

		Non-household
	Water	retail	Other	Total
Year ended 31 March 2025	£m	£m	£m	£m
Segment revenue – underlying	820.5	320.3	12.8	1,153.6
Inter-segment revenue	(100.6)	(0.2)	(5.0)	(105.8)
Revenue from external customers	719.9	320.1	7.8	1,047.8
Significant service lines
Water	719.9	–	–	719.9
Non-household retail	–	320.1	–	320.1
Other	–	–	7 . 8	7 . 8
	719.9	320.1	7.8	1,047.8
		Non-household
	Water	retail	Other	Total
Year ended 31 March 2024	£m	£m	£m	£m
Segment revenue – underlying	745.8	253.5	11.8	1,011.1
Inter-segment revenue	(91.4)	(0.2)	(11.7)	(103.3)
Revenue from external customers	654.4	253.3	0.1	907.8
Significant service lines
Water	654.4	–	–	654.4
Non-household retail	–	253.3	–	253.3
Other	–	–	0 . 1	0 . 1
	654.4	253.3	0.1	907.8

The Group’s country of domicile is the United Kingdom and this is the country in which it generates the majority of its revenue. The Group’s non-current assets

are all located in the United Kingdom.

211Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

6. Non-underlying items

Non-underlying items are those that in the Directors’ view should be separately disclosed by virtue of their size, nature or incidence to enable a full

understanding of the Group’s financial performance in the year and business trends over time. The presentation of results is consistent with internal

performance monitoring.

		2025	2024
	Notes	£m	£m
Operating costs
Brixham water quality incident 1		(21.0)	–
Restructuring/Transformational costs 2		(15.8)	(13.9)
SES Water Group acquisition costs 3		(0.7)	(9.6)
Renewables Projects acquisition related costs 4		(0.1)	(0.6)
Drought costs 5		–	(1.8)
Earnings before interest, tax, depreciation and amortisation		(37.6)	(25.9)
Net tax credit arising on non-underlying items above 6	9	8.9	4.9
Net non-underlying charge		(28.7)	(21.0)

1. On 15 May 2024 an outbreak of cryptosporidium was detected in the water supply in the Brixham area of Devon, causing South West Water to issue a notice to customers in the

area to boil water before consuming. £21.0 million (2024 £nil) of costs have been incurred which include enhanced customer compensation, provision of bottled water over an

eight-week period, and extensive interventions to clean and filter the network. £0.8m of the costs incurred were employment costs.

2. £15.8 million (2024: £13.9 million) of costs were incurred in connection with the business transformation of the Group, £10.9 million (2024: £0.7 million) of which were employment

costs. These restructuring and transformation costs are one-off in nature and incidence, with the benefits from incurring these costs expected to endure into the future on a

recurring basis. Further costs are not expected to arise in the year ended 31 March 2026.

3. In the year the Group incurred expenses of £0.7 million (2024: £9.6 million) in connection with the acquisition of SES Water Group. Due to the one-off nature and incidence of the

costs they have been classified as non-underlying.

4. Expenses in connection with the strategic review of renewal energy generating investments, not directly attributable to the intangible assets acquired, totalled £0.1 million (2024:

£0.6 million). Due to the one-off nature and incidence of the costs they have been classified as non-underlying.

5. In financial year 2022/23, a combination of elevated demand from increased tourism and record-breaking extremes of prolonged dry and hot weather led to extremely low water

storage levels in the Cornwall region. Drought permits were issued allowing increased extractions, and water-saving measures for the South West Water region were implemented

for the first time since 1995. To ensure the region could be supplied with water over the summer and continuing into 2023, South West Water instigated a series of mitigating

measures and one-off expenditure to address the situation. £1.8 million of specifically identifiable costs were recognised in the first eight months of 2023/24.

6. The net tax credit arising on non-underlying items relates to a deferred tax credit in respect of tax losses carried forwards. The prior year credit reflected a £4.9 million current tax

credit also in respect of transformation losses carried forwards.

212 Annual Report and Accounts 2025 Pennon Group plc

7. Operating costs

			2025	2024
		Notes	£m	£m
Employment costs (underlying)		13	151.1	114.8
Raw materials and consumables*			51.7	37.4
Other operating expenses before non-underlying items include:
Profit on disposal of property, plant and equipment			(1.2)	(0.8)
Short-term/low value asset lease expense			6.2	3.6
Trade receivables impairment		22	9.7	7.1
Depreciation of property, plant and equipment:
•	Owned assets	17	147.7	133.7
•	Under leases	17	37.0	34.6
Amortisation of other intangible assets		16	2.3	3.7
Impairment of assets		17	0.1	–

* Raw materials and consumables used and other operating expenses have been restated, see note 2.

Operating costs include a charge of £37.6 million (2024: £25.9 million) relating to non-underlying items, as detailed in note 6.

Fees payable to the Company’s auditor in the year were:

	2025	2024
	£000	£000
Fees payable to the Company’s auditor and its associates for the audit of parent company and consolidated financial statements	922	465
Fees payable to the Company’s auditor and its associates for other services:
The audit of Company’s subsidiaries	1,511	969
Audit-related assurance services	360	133
Other non-audit services	1,866	111
Total fees	4,659	1,678
Fees payable to the Company’s auditor in respect of Pennon Group pension schemes:
Audit	–	35

A description of the work of the Audit Committee is set out in its report on pages 151 to 155 which includes an explanation of how the auditor’s objectivity and

independence are safeguarded when non-audit services are provided by the auditor’s firm.

8. Net finance costs

			2025			2024
		Finance	Finance		Finance	Finance
		cost	income	Total	cost	income	Total
	Notes	£m	£m	£m	£m	£m	£m
Cost of servicing debt
Bank borrowings and overdrafts		(138.6)	–	(138.6)	(113.0)	–	(113.0)
Interest element of lease payments		(49.9)	–	(49.9)	(44.0)	–	(44.0)
Other finance costs		(10.9)	–	(10.9)	(5.8)	–	( 5 . 8 )
Interest received		–	11.1	11.1	–	7 . 1	7 . 1
Net gains on derivative financial instruments – transfer
from OCI		–	2 . 3	2 . 3	–	3 . 8	3 . 8
		(199.4)	13.4	(186.0)	(162.8)	10.9	(151.9)
Notional interest
Retirement benefit obligations	30	–	1 . 6	1 . 6	–	1 . 7	1 . 7
Net finance costs		(199.4)	15.0	(184.4)	(162.8)	12.6	(150.2)

In addition to the above, finance costs of £27.7 million (2024: £15.5 million) have been capitalised on qualifying assets included in property, plant and equipment,

at an average borrowing rate of 5.7% (2024: 6.4%).

Other finance costs include £1.1 million (2024: £1.1 million) of dividends payable on listed preference shares issued by Bristol Water plc, which are classified as

debt (see note 28).

213Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

9. Taxation

		Non-			Non-
		underlying			underlying
	Before non-	items		Before non-	items
	underlying items	(note 6)	Total	underlying items	(note 6)	Total
	2025	2025	2025	2024	2024	2024
	£m	£m	£m	£m	£m	£m
Analysis of charge/(credit) in year
Current tax charge/(credit)	0.8	(0.5)	0.3	(0.6)	–	(0.6)
Deferred tax (credit)/charge	(7.8)	(8.4)	(16.2)	4.9	(4.9)	–
Tax (credit)/charge for year	(7.0)	(8.9)	(15.9)	4.3	(4.9)	(0.6)

UK corporation tax is calculated at 25% (2024: 25%) of the estimated assessable profit for the year.

UK corporation tax for the Group is stated after a charge relating to prior year current tax of £0.3 million (2024: £0.6 million credit) and a prior year deferred tax

charge of £0.7 million (2024: £nil). These items relate to prior year adjustments in respect of capital allowances claimed in accordance with UK tax legislation

(2024 additional interest deductions).

The tax for the year differs from the theoretical amount which would arise using the standard rate of corporation tax in the UK of 25% (2024: 25%) as follows:

	2025	2024
	£m	£m
Reconciliation of total tax credit
Loss before tax	(72.7)	(9.1)
Loss multiplied by the standard rate of UK corporation tax of 25% (2024: 25%)	(18.2)	(2.3)
Effects of:
Expenses not deductible for tax purposes	0.8	1.6
Associate profits not taxable	(0.2)	(0.2)
Adjustments to tax charge in respect of prior years	1.5	(0.6)
Depreciation charged on non-qualifying assets	1.0	0.9
Adjustment in respect of deferred revenue contributions	(0.7)	–
Other	(0.1)	–
Tax credit for year	(15.9)	(0.6)

	2025	2024
	£m	£m
Reconciliation of current tax credit
Loss before tax	(72.7)	(9.1)
Loss multiplied by the standard rate of UK corporation tax of 25% (2024: 25%)	(18.2)	(2.3)
Effects of:
Relief for capital allowances in place of depreciation	(26.5)	(37.0)
Disallowance of depreciation charged in the accounts	39.6	36.5
Other timing differences	(6.6)	(5.3)
Expenses not deductible for tax purposes	0.8	1.6
Associate profits not taxable	(0.2)	(0.2)
Adjustments to tax charge in respect of prior years	0.3	(0.6)
Depreciation charged on non-qualifying assets	1.0	0.9
Tax losses carried forward	15.9	9.3
Relief for capitalised interest and foreign exchange gains/losses	(5.8)	(3.5)
Current tax charge/(credit) for year	0.3	(0.6)

The Group's current tax charge is lower (2024: lower) than the UK headline rate of 25% (2024: 25%), primarily due to losses generated which are carried forward

to offset against future taxable profit.

The Group benefits from the 100% full expensing and 50% enhanced allowances in respect of qualifying spend relating to certain qualifying assets (largely plant

and machinery). The Group incurs significant capital expenditure each year as it maintains and enhances its assets for the benefit of its customers, communities

and the environment. These enhanced allowances have increased capital allowance claims for the year and contributed significantly to the current tax credit for

the year. There is also a consequently higher deferred tax liability and charge due to the additional capital allowance deductions.

214 Annual Report and Accounts 2025 Pennon Group plc

9. Taxation continued

Certain types of expenditure are not deductible for tax purposes. These types of expenditure are set out in tax legislation. The main category of expenditure not

deductible during the year are acquisition costs relating to the purchase of the SES Group and various renewables businesses, where these are classified as

capital in nature for tax purposes.

Profits from associates and joint ventures are included in the consolidated accounts on an after-tax basis, as such these profits are not taxable in the Group

accounts.

Depreciation charge on non-qualifying assets generates a permanent adjustment which increases the tax charge. Non-qualifying assets are those which do not

qualify for writing down tax allowances including certain fixed assets typically in relation to older buildings and premises where tax relief is not available.

Tax losses generated in the year and carried forward generate a deferred tax rather than current tax credit, hence the adjustment to current tax. When utilised,

the adjustment will be reflected through a movement from deferred to current tax.

Other timing differences relate to the timing of relief for items including pensions, general provisions and financial derivatives. The reduction in the year relates

mainly to additional pension contributions made to fund deficits in the scheme.

Immediate tax relief is available in respect of capitalised interest and foreign exchange gains/losses.

In addition to the amounts recognised in the statement of profit or loss, the following tax charges/(credits) were recognised:

	2025	2024
	£m	£m
Amounts recognised directly in other comprehensive income
Deferred tax charge/(credit) on defined benefit pension schemes	0.9	(2.2)
Deferred tax credit on cash flow hedges	(2.4)	(4.1)
Amounts recognised directly in equity
Deferred tax charge on share-based payments	–	0.1

OECD Pillar 2

On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing the Pillar Two global minimum effective tax rate of 15%. The legislation

implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. Under the legislation, the

group will be required to pay, in the UK, top-up tax on profits of its subsidiaries that are taxed at a Pillar Two effective tax rate of less than 15%. 2024/25 is the first

accounting period where the Group is within scope of the Pillar Two rules. The UK is the only jurisdiction in which the Group operates therefore an assessment of

any potential Pillar Two tax exposure for 2024/25 has been performed focusing solely on the application of the UK domestic top-up tax rules. The assessment

performed by the Group is based on country-by-country reporting principles and financial statements information for 2024/25. Based on that information, the UK is

expected to meet the conditions of the transitional safe harbours such that no top-up tax arises. The Group is continuing to assess the impact of the Pillar Two

income taxes legislation and related updates on its future financial performance.

10. (Loss)/profit of the parent company

	2025	2024
	£m	£m
(Loss)/profit attributable to ordinary shareholders’ equity dealt within the accounts of the parent company	(13.5)	34.4

As permitted by Section 408 of the Companies Act 2006, no statement of profit or loss or statement of comprehensive income is presented for the Company.

11. Earnings per share

Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares

outstanding during the year, excluding those held in the employee share trust (note 36), which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all dilutive potential ordinary shares. The Group has

two types of dilutive potential ordinary shares – those share options granted to employees where the exercise price is less than the average market price of the

Company’s ordinary shares during the year; and the contingently issuable shares under the Group’s Performance and Co-investment Plan, the long-term incentive

plan and the deferred shares element of the Annual Incentive Bonus Plan, based on performance criteria for the vesting of the awards.

Basic and diluted earnings per share figures and the weighted average number of shares for the comparative period have been restated and adjusted for the

bonus factor of 1.21 to reflect the bonus element of the February 2025 rights issue, in accordance with IAS 33 Earnings per Share. Amounts as originally stated at

31 March 2024 were (3.6)p basic and diluted earnings per share, 6.2p basic and diluted adjusted earnings per share and 266.6 million weighted average number

of shares.

Potential ordinary shares, as discussed above, that could dilute basic earnings per share in the future, were not included in the calculation for statutory earnings

per share because they were anti-dilutive for the current year. The weighted average number of shares and earnings used in the calculations are detailed in the

table below.

215Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

11. Earnings per share continued

	2025	2024 (restated)
Number of shares (millions)
For basic earnings per share	360.5	322.5
Effect of dilutive potential ordinary shares from share options	–	–
For diluted earnings per share	360.5	322.5

Basic and diluted earnings per ordinary share

Earnings per ordinary share before non-underlying items and deferred tax are presented as the Directors believe that this measure provides a more useful year-

on-year comparison of business trends and performance. Deferred tax is excluded as the Directors believe it reflects a distortive effect of changes in

corporation tax rates and the level of long-term capital investment. Earnings per share have been calculated as follows:

		2025			2024 (restated)
	(Loss)/profit	Earnings per share		(Loss)/profit	Earnings per share
	after tax			after tax
	£m	Basic p	Diluted p	£m	Basic p	Diluted p
Statutory earnings attributable to ordinary shareholders
of the parent	(57.9)	(16.1)	(16.1)	(9.5)	(2.9)	(2.9)
Deferred tax (credit)/charge before non-underlying items	(7.8)	(2.1)	(2.1)	4.9	1.5	1.5
Non-underlying items (net of tax)	28.6	7.9	7.9	21.0	6.5	6.5
Adjusted earnings	(37.1)	(10.3)	(10.3)	16.4	5.1	5.1

12. Dividends

	2025	2024
	£m	£m
Amounts recognised as distributions to ordinary equity holders in the year
Interim dividend paid for the year ended 31 March 2024 11.60p (restated) (2023: 10.71p restated) per share	40.1	33.9
Final dividend paid for the year ended 31 March 2024 25.07p (restated) (2023: 24.60p restated) per share	86.8	77.8
	126.9	111.7
Proposed dividends
Proposed interim dividend for the year ended 31 March 2025 12.14p (2024: 11.60p restated) per share	42.0	40.2
Proposed final dividend for the year ended 31 March 2025 19.43p (2024: 25.07p restated) per share	91.7	86.7
	133.7	126.9

The proposed interim and final dividends have not been included as liabilities in these financial statements.

The proposed interim dividend for 2025 was paid on 4 April 2025 and the proposed final dividend is subject to approval by shareholders at the AGM.

Proposed dividends per share for the 2024 comparative period have been restated and adjusted for the bonus factor of 1.21 to reflect the bonus element of the

February 2025 rights issue, in accordance with IAS 33 Earnings per Share and as detailed in note 11. The proposed interim dividend for the year ended 31 March

2025 of 14.69p as announced previously has been restated to 12.14p as adjusted by the bonus factor.

13. Employment costs

			2025	2024
		Notes	£m	£m
Wages and salaries			175.5	134.9
Social security costs			17.5	14.2
Pension costs		30	16.2	13.8
Share-based payments		33	2.0	1.1
Total employment costs			211.2	164.0
Charged:
•	Employment costs (excluding non-underlying items)		151.1	114.8
•	Employment costs (non-underlying items)		11.7	0.7
•	Capital schemes – property, plant and equipment		48.1	47.8
•	Research and development		0.3	0.7
Total employment costs			211.2	164.0

Details of Directors’ emoluments are set out in note 14. There are no personnel, other than Directors, who as key management exercise authority and have

responsibility for planning, directing and controlling the activities of the Group. Members of other executive committees assist the Directors in their duties but

do not hold authority to control the activities of the Group.

216 Annual Report and Accounts 2025 Pennon Group plc

13. Employment costs continued

	2025	2024
Employees (average full-time equivalent number)
The average monthly number of employees (including Executive Directors) was:
Water	3,528	3,051
Non-household retail	259	192
Other	123	90
Total	3,910	3,333

14. Directors’ emoluments

		2025	2024
		£000	£000
Executive Directors:
•	Salary	968	895
•	Share-based payments	680	1,103
•	Other emoluments, including payments in lieu of pension provision	121	111
Non-Executive Directors		648	649
		2,417	2,758

More detailed information concerning Directors’ emoluments (including pensions and the highest paid Director) and share interests is shown in the Directors’

remuneration report on pages 166 to 183.

Remuneration of key management personnel

	2025
	£000
Salaries and short-term employee benefits	3,724
Share-based payments	854
	4,578

Key management personnel (KMP) remuneration has been disclosed for the first time in this financial year to align with restructuring into the four new business

units. KMP remuneration comprises all directors and certain senior managers who are members of the executive team.

15. Goodwill

	£m
Cost:
At 1 April 2023	163.9
Acquisition of SES Water Group (restated, note 43)	16.0
At 31 March 2024 (restated)	179.9
At 31 March 2025	179.9
Carrying amount:
At 1 April 2023	163.9
At 31 March 2024 (restated)	179.9
At 31 March 2025	179.9

Goodwill acquired in a business combination is allocated at acquisition to the CGU expected to benefit from that business combination. During the year ended

31 March 2024, the Group acquired the SES Water Group, adding £16.0 million to goodwill (see note 43).

All goodwill represents the water business, therefore this is the lowest level at which goodwill is monitored and tested.

Impairment testing of goodwill

The Group tests goodwill for impairment annually, or more frequently if there are any indications that impairment may have arisen.

Impairment testing is carried out based on the fair value less costs of disposal method. The recoverable amount of the water business segment is assessed

using level 2 fair value hierarchy techniques, with reference to the market value of the water business, using a market-based observable premium, based on

historical water industry merger and acquisition activity, to regulated capital value (RCV) as defined by Ofwat. Costs to sell are calculated using the sale of

Viridor by Pennon in 2020 as an estimate. RCV for the water business is disclosed in note 3, historical water industry transactions provide a range of premia that

could be used in the calculation, for the current financial year applying a premium to RCV was not required to maintain impairment headroom.

The results of tests performed during the year demonstrate significant headroom in the water CGU, and it is judged that no reasonable change in the key

assumptions would cause the carrying amount of the CGUs to exceed the recoverable amount.

217Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

16. Other intangible assets

		Software
	Renewable	development
	Energy	(restated,
	Generation	note 43)	Total
	£m	£m	£m
Cost:
At 1 April 2023	–	22.3	22.3
Arising on acquisitions	–	4 . 2	4 . 2
Additions	40.3	4.7	45.0
Disposals	–	(1.3)	(1.3)
At 31 March 2024	40.3	29.9	70.2
Additions	–	5 . 5	5 . 5
Transfers/reclassifications	–	3 . 6	3 . 6
Disposals	–	–	–
At 31 March 2025	40.3	39.0	79.3
Accumulated amortisation:
At 1 April 2023	–	7 . 4	7 . 4
Charge for year	–	3 . 7	3 . 7
Disposals	–	(1.2)	(1.2)
At 31 March 2024	–	9 . 9	9 . 9
Charge for year	–	2 . 3	2 . 3
Transfers/reclassifications	–	3 . 6	3 . 6
Impairment charge	–	1 . 3	1 . 3
At 31 March 2025	–	17.1	17.1
Carrying amount:
At 1 April 2023	–	14.9	14.9
At 31 March 2024	40.3	20.0	60.3
At 31 March 2025	40.3	21.9	62.2

Additions to intangible assets during the year ended 31 March 2024 included £40.3m as a result of acquiring renewable energy sites with rights to generate

energy in the future. The sites acquired have been accounted for under “asset purchase” accounting as opposed to “business combination” accounting, having

considered the facts and circumstances surrounding the sites acquired. The intangible assets acquired relate to energy generation rights on all four sites

purchased and a battery energy storage system on a single site, these assets will be amortised over periods expected to be between 35 and 45 years in line with

the rights acquired. These assets will be tested for impairment annually until they are available for use.

The carrying values of other intangible assets are reviewed annually or when events or changes in circumstance indicate that the carrying amounts may not be

fully recoverable.

An adjustment has been made to reclassify cost and accumulated depreciation in relation to assets acquired on the acquisition of Bristol Water plc

totalling £3.6m.

218 Annual Report and Accounts 2025 Pennon Group plc

17. Property, plant and equipment

				Fixed and
	Land and	Infrastructure		moveable plant
	buildings	assets		and equipment
	(restated,	(restated,	Operational	(restated,	Construction
	note 43)	note 43)	properties	note 43)	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 31 March 2023	188.8	2,863.3	971.6	2,377.0	290.4	6,691.1
Additions	1.3	65.0	14.3	118.6	405.3	604.5
Arising on acquisition	14.2	268.6	92.2	74.1	5.2	454.3
Assets adopted at fair value	–	10.6	–	–	–	10.6
Disposals	–	(1.4)	–	(3.4)	–	(4.8)
Transfers/reclassifications	1.3	36.7	12.5	82.6	(133.1)	–
At 31 March 2024	205.6	3,242.8	1,090.6	2,648.9	567.8	7,755.7
Additions	1.5	68.3	8.9	99.1	469.2	647.0
Assets adopted at fair value	–	1 7 . 4	–	–	–	1 7 . 4
Disposals	(0.7)	(1.3)	(1.0)	(13.8)	–	( 1 6 . 8 )
Transfers/reclassifications	3.0	40.1	14.6	74.4	(134.1)	(2.0)
At 31 March 2025	209.4	3,367.3	1,113.1	2,808.6	902.9	8,401.3
Accumulated depreciation:
At 31 March 2023	27.3	402.9	332.1	1,451.9	–	2,214.2
Charge for year	4.3	41.0	21.4	105.3	–	172.0
Disposals	–	(1.4)	–	(3.4)	–	(4.8)
At 31 March 2024	31.6	442.5	353.5	1,553.8	–	2,381.4
Charge for year	2.7	49.0	23.9	113.1	–	188.7
Disposals	(0.1)	(1.5)	(0.9)	(13.6)	–	(16.1)
Impairment loss	–	–	–	( 0 . 1 )	–	( 0 . 1 )
Transfers/reclassifications	–	( 8 . 6 )	2 . 2	4 . 4		(2.0)
At 31 March 2025	34.2	481.4	378.7	1,657.6	–	2,551.9
Net book value:
At 31 March 2023	161.5	2,460.4	639.5	925.1	290.4	4,476.9
At 31 March 2024	174.0	2,800.3	737.1	1,095.1	567.8	5,374.3
At 31 March 2025	175.2	2,885.9	734.4	1,151.0	902.9	5,849.4

Of the total depreciation charge of £188.7 million (2024: £172.0 million), £1.6 million (2024: £1.5 million) has been charged to capital projects, £2.4 million (2024:

£2.2 million) has been offset by deferred income and £184.7 million (2024: £168.3 million) has been charged against profits. Asset lives and residual values are

reviewed annually. During the year borrowing costs of £27.7 million (2024: £15.5 million) have been capitalised on qualifying assets, at an average borrowing rate

of 5.7% (2024: 6.4%).

Groups of assets forming cash generating units are reviewed for indicators of impairment. No indicators of impairment were identified during the year.

Asset lives are reviewed annually. No significant changes were required in 2024/25.

An adjustment has been made to reclassify cost and accumulated depreciation in relation to assets acquired on the acquisition of Bristol Water plc

totalling £2.0m.

219Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

17. Property, plant and equipment continued

Assets subject to secured financing arrangements

When the group enters into sale and leaseback arrangements, the accounting for the arrangement depends on whether the transaction meets the criteria within

IFRS 15 for a sale to have occurred. If the sale criteria are met, the associated property, plant and equipment asset is derecognised, and a right-of-use asset is

recognised at the proportion of the carrying value relating to the right retained. If the criteria for a sale under IFRS 15 have not been met the asset is not

derecognised and a liability to make ongoing payments is recognised as part of the leases liability included within borrowings. The table below shows amounts

held within property, plant and equipment for assets subject to these arrangements:

				Fixed and mobile
	Land and	Infrastructure	Operational	plant, vehicles and	Construction
	buildings	assets	properties	computers	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 31 March 2023	4.1	383.9	335.1	384.0	–	1,107.1
Additions	1.2	20.1	1.8	41.7	–	64.8
Arising on acquisition	–	–	–	–	–	–
D i s p o s a l s	–	–	–	–	–	–
At 31 March 2024	5.3	404.0	336.9	425.7	–	1,171.9
Additions	–	22.1	0.8	2.1	–	25.0
Disposals	–	–	–	–	–	–
Transfers/reclassifications	–	–	–	–	–	–
At 31 March 2025	5.3	426.1	337.7	427.8	–	1,196.9
Accumulated depreciation:
At 31 March 2023	0.5	69.8	90.6	189.1	–	350.0
Charge for year	0.1	5.3	5.8	20.8	–	32.0
Disposals	–	–	–	–	–	–
At 31 March 2024	0.6	75.1	96.4	209.9	–	382.0
Charge for year	0.1	6.2	5.8	21.5	–	33.6
Disposals	–	–	–	–	–	–
At 31 March 2025	0.7	81.3	102.2	231.4	–	415.6
Net book amount:
At 31 March 2023	3.6	314.1	244.5	194.9	–	757.1
At 31 March 2024	4.7	328.9	240.5	215.8	–	789.9
At 31 March 2025	4.6	344.8	235.5	196.4	–	781.3

220 Annual Report and Accounts 2025 Pennon Group plc

17. Property, plant and equipment continued

IFRS 16 – Right of Use Assets

Right-of-use assets classifying as leases under IFRS included in property, plant and equipment above were:

				Fixed and mobile
	Land and	Infrastructure	Operational	plant, vehicles and	Construction
	buildings	assets	properties	computers	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 31 March 2023	31.3	–	–	5.0	–	36.3
Additions	0.6	–	–	3.2	5.5	9.3
Arising on acquisition	–	–	–	0.8	–	0.8
Disposals	–	–	–	(0.9)	–	(0.9)
At 31 March 2024	31.9	–	–	8.1	5.5	45.5
Additions	1.0	–	–	2.6	(0.3)	3.3
Disposals	–	–	–	( 0 . 1 )	–	( 0 . 1 )
Transfers/reclassifications	2 . 1	–	–	–	( 2 . 1 )	–
At 31 March 2025	35.0	–	–	10.6	3.1	48.7
Accumulated depreciation:
At 31 March 2023	4.6	–	–	2.7	–	7.3
Charge for year	1.1	–	–	1.5	–	2.6
Disposals	–	–	–	(0.8)	–	(0.8)
At 31 March 2024	5.7	–	–	3.4	–	9.1
Charge for year	1.4	–	–	1.9	–	3.3
Disposals	–	–	–	( 0 . 1 )	–	( 0 . 1 )
At 31 March 2025	7.1	–	–	5.2	–	12.3
Net book amount:
At 31 March 2023	26.7	–	–	2.3	–	29.0
At 31 March 2024	26.2	–	–	4.7	5.5	36.4
At 31 March 2025	27.9	–	–	5.4	3.1	36.4

221Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

18. Financial instruments by category

The accounting policies for financial instruments that have been applied to line items are:

			Fair value	Amortised cost
		Derivatives used	Derivatives used	Debt
		for fair value	for cash flow	instruments at	Trade receivables
		hedging	hedging	amortised cost	and trade payables	Total
	Notes	£m	£m	£m	£m	£m
Group
31 March 2025
Financial assets
Amounts owed by associated companies	19	–	–	8.7	–	8.7
Trade receivables	22	–	–	–	270.0	270.0
Derivative financial instruments	23	0.4	31.8	–	–	32.2
Cash and cash equivalents and restricted funds	25	–	–	476.1	–	476.1
Total		0.4	31.8	484.8	270.0	787.0
Financial liabilities
Borrowings	28	–	–	(4,554.3)	–	(4,554.3)
Derivative financial instruments	23	–	( 2 . 1 )	–	–	( 2 . 1 )
Trade and other payables	26	–	–	–	(281.7)	(281.7)
Total		–	( 2 . 1 )	(4,554.3)	(281.7)	(4,838.1)
31 March 2024
Financial assets
Amounts owed by associated companies	19	–	–	8.7	–	8.7
Trade receivables	22	–	–	–	250.0	250.0
Derivative financial instruments	23	0.3	40.5	–	–	40.8
Cash and cash equivalents and restricted funds	25	–	–	171.4	–	171.4
Total		0.3	40.5	180.1	250.0	470.9
Financial liabilities
Borrowings*	28	–	–	(4,016.2)	–	(4,016.2)
Derivative financial instruments	23	–	(8.7)	–	–	(8.7)
Trade and other payables (restated, note 43)	26	–	–	–	(332.8)	(332.8)
Total		–	(8.7)	(4,016.2)	(332.8)	(4,357.7)

* Restated, see note 2 for further explanation.

19. Other non-current assets

Non-current receivables

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Amounts owed by subsidiary undertakings	–	–	95.9	54.1
Amounts owed by related parties (note 42)	8.7	8.7	8.7	–
	8.7	8.7	104.6	54.1

Non-current receivables were due:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Between 1 and 2 years	–	8.7	12.2	8.0
Over 2 years and less than 5 years	8.7	–	45.3	24.1
Over 5 years	–	–	47.1	22.0
	8.7	8.7	104.6	54.1

The fair values of non-current receivables were:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Amounts owed by subsidiary undertakings	–	–	95.9	54.1
Amounts owed by associates	8.7	8.7	8.7	–
Other receivables	–	–	–	–
	8.7	8.7	104.6	54.1

222 Annual Report and Accounts 2025 Pennon Group plc

19. Other non-current assets continued

The fair values of the above non-current receivables are valued using level 2 measures.

On 31 January 2025 the £8.7m (2024: £8.7m) loan receivable with Water 2 Business Limited (“W2B”) an indirect associate was transferred from Bristol Water

Holdings Limited (“BWH”) to the Company.

20. Investments

Subsidiary undertakings

	£m
Company
At 31 March 2023	1,316.6
Investment in subsidiary undertakings:
SES Water Group acquisition	90.2
SES Water Group share issue	5.0
Pennon Power share acquisition	25.0
Impairment of investment in subsidiary undertakings	(283.6)
At 31 March 2024	1,153.2
Investment in subsidiary undertakings:
SES Water Group share issue	80.0
PIL share issue	1.0
SWW share issue	330.0
Impairment of investment in subsidiary undertakings	(1.5)
At 31 March 2025	1,562.7

There are no indicators of impairment in the current year.

In December 2024 the company subscribed for 1,000,000 new shares in Peninsula Insurance Limited, for consideration of £1,000,000.

On 31 March 2025 the company subscribed for 330,000,000 new shares in South West Water Limited, for consideration of £330,000,000.

On 12 December 2024 the company subscribed for 60,000,000 new shares and on 31 March 2025 for 100,000,000 new shares in Sutton and East Surrey Group

Holdings Limited, for consideration of £30,000,000 and £50,000,000 respectively.

On 31 January 2025 the investment in Water 2 Business Limited (“W2B”), an indirect associate, was transferred from Bristol Water Holdings Limited (“BWH”) to

the Company. Accordingly, the investment in the BWH’s parent company Bristol Water Holdings UK Limited was reduced by £1,500,000.

On 10 January 2024 the Company acquired 100% of the issued share capital of Sumisho Osaka Gas Water UK Limited, which has subsequently been renamed

Sutton and East Surrey Group Holdings Limited (‘SESGHL’). SESGHL is the holding company of the SESGHL Group which comprises Sutton and East Surrey

Water plc (‘SES Water’), a regulated water only company, and certain other ancillary businesses.

On 28 March 2024, the Company subscribed for 10,000,000 new ordinary shares in Sutton and East Surrey Group Holdings Limited, for consideration

of £5,000,000.

On 1 February 2024, the Company subscribed for 25,000 new ordinary shares in its wholly-owned subsidiary undertaking, Pennon Power Limited, for

consideration of £25,000,000.

During the year ended 31 March 2024, the Company received a dividend of £283.6 million from its subsidiary, Viridor Waste 2 Limited, reducing that entity’s net

assets to £nil. Accordingly, the Company impaired its investment in Viridor Waste 2 Limited.

223Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

20. Investments continued

Investment in associates and joint ventures

		Place of
		business/country of
Name of entity	Principal activity	incorporation	% of ownership	Measurement method
Water 2 Business Limited (“W2B”)	National retailer in the non-household market and	England	30%	Equity
	provides retail water services to non-household
	customers
Bristol Wessex Billing Services Limited (“BWBSL”)	Meter reading, billing, debt recovery and customer	England	50%	Equity
	contact management services
Searchlight Collection Limited	Debt collection services	England	50%	Equity

The carrying value of the Group’s share of these investments in associates and joint ventures at 31 March 2025 is £1.8 million (2024: £1.0 million). The Group’s

share of the profits and other comprehensive income of these investments in associates and joint ventures for the year ended 31 March 2025 is £0.8 million

(2024: £0.7 million).

The Group’s joint ventures and associates are all private companies and there are no quoted market prices available for the shares.

Summarised financial

information for the joint ventures and investments in associates is set out below:

Summarised balance sheets

		2025			2024
		£m			£m
	W2B	BWBSL	Searchlight	W2B	BWBSL	Searchlight
Current
Cash and cash equivalents	2.2	1.7	–	–	1 . 3	–
Other current assets	71.3	1.2	0.1	66.9	2.1	0.1
Total current assets	73.5	2.9	0.1	66.9	3.4	0.1
Non-current assets	4.2	–	–	4.9	–	–
		–
Financial liabilities (excluding trade payables)	–	–	–	(1.2)	–	–
Current liabilities (including trade payables)	(42.5)	(2.9)	–	(37.9)	(3.4)	–
Total current liabilities	(42.5)	(2.9)	–	(39.1)	(3.4)	–
Non-current liabilities	(29.4)	–	–	(29.4)	–	–
Net assets	5.8	–	0.1	3.3	–	0.1

Summarised statement of comprehensive income

		2025			2024
		£m			£m
	W2B	BWBSL	Searchlight	W2B	BWBSL	Searchlight
Revenue	327.3	19.7	0.2	278.3	18.5	0.2
Cost of sales and other operating expenses	(321.5)	(19.7)	(0.2)	(273.1)	(18.5)	(0.2)
Interest	(2.1)	–	–	(1.9)	–	–
Pre-tax profit	3 . 7	–	–	3.3	–	–
Taxation charge	(1.1)	–	–	(1.0)	–	–
Total comprehensive income	2.6	–	–	2.3	–	–

The information above reflects the amounts presented in the financial statements of the associates (and not the Group’s share of these amounts) adjusted for

differences in accounting policies between the Group and associates.

W2B’s year end date is 30 June. BWBSL’s and Searchlight’s year ends are 31 March. The

Group's carrying amount of the investments held is £1.8 million (2024: £1.0 million) which comprises 30% of the Group's share of equity of W2B. For BWBSL and

Searchlight, the net equity is £nil (2024: £nil). The Group’s share of profit from associated companies is £0.8 million (2024: £0.7 million) which comprises 30% of

the Group’s share of W2B, restricted by brought forward losses.

21. Inventories

	Group
	2025	2024
	£m	£m
Raw materials and consumables	12.1	11.0
Work in progress	0.3	1.6
Finished goods	0.4	0.6
	12.8	13.2

224 Annual Report and Accounts 2025 Pennon Group plc

22. Trade and other receivables – current

	Group		Company
		2024
		(restated,
	2025	note 43)	2025	2024
	£m	£m	£m	£m
Trade receivables	387.3	375.3	–	–
Less: allowance for expected credit losses in respect of trade receivables	(117.3)	(125.3)	–	–
Net trade receivables	270.0	250.0	–	–
Amounts owed by subsidiary undertakings	–	–	51.2	148.5
Amounts owed by associated companies	0.2	0.2	0.2	–
Other receivables	45.6	40.4	1.5	2.5
Accrued income	57.4	45.5	–	–
Prepayments	18.6	19.3	0.9	0.8
	391.8	355.4	53.8	151.8

Trade receivables include accrued income relating to customers with water budget payment plans.

Accrued income includes £34.8million (2024: £28.3 million) in respect of metered accrual revenue in the retail water business. Metered accrual revenue relates

to performance obligations that have been fully extinguished in providing services to customers prior to the reporting date. Payment in respect of these services

is a matter of time following issuance of invoices.

The Directors consider that the carrying amounts of trade and other receivables approximate to their fair value.

There is no concentration of credit risk in trade receivables. The Group has a large number of customers who are dispersed and there is no significant loss on

trade receivables expected that has not been provided for.

The Group applies the simplified approach in calculating the expected credit losses for trade receivables allowing a provision matrix to be used which is based

on the expected life of trade receivables, default rates for different customer categories within the collection process and forward-looking information.

As at 31 March, an analysis of the ageing of trade receivables is as follows:

	2025	2024
	£m	£m
Group
Not due	64.6	40.9
Past due 1 – 30 days	31.1	45.7
Past due 31 – 120 days	29.3	29.5
More than 120 days	262.3	259.2
	387.3	375.3

The aged trade receivables above are taken directly from aged sales ledger records.

The Group’s operating businesses specifically review separate categories of debt to identify an appropriate allowance for expected credit losses as outlined in

note 2(n) ii). South West Water Limited and SES Water have a duty under legislation to continue to provide domestic customers with services regardless of

payment. Given the different nature of customer demographics within South West Water’s operating area, SES Water’s operating area and the non-household

retail business of PWS and SESWS, different provision matrices are adopted by each business. The provision matrix adopted for household customers in the

most significant operating region of Devon, Cornwall & Bournemouth is outlined in the table below, showing the range of provision rates dependent on phase of

collection. The table also includes the gross debt and provision rates for other customer areas:

			Allowance for		Allowance for
		Trade	expected	Trade	expected
		receivables	credit losses	receivables	credit losses
		2025	2025	2024	2024
		£m	£m	£m	£m
Devon, Cornwall & Bournemouth (household customers)
•	Current occupier < 12 months: 1% - 30%	68.7	0.4	44.8	0.2
•	Current occupier 12 – 24 months: 10% – 60%	12.4	2.9	23.1	3.2
•	Current occupier 24 – 36 months: 15% – 80%	10.9	3.0	11.5	2.8
•	Current occupier > 36 months: 20% – 100%	91.6	39.9	89.2	48.2
•	Previous occupier: 55% – 100%	51.3	32.1	53.3	31.3
Bristol		37.4	17.6	37.8	8.6
SES		54.6	16.7	53.3	16.7
Pennon Water Services (Non-household retail)		50.1	4.7	40.6	14.3
Other		10.3	–	21.7	–
		387.3	117.3	375.3	125.3

225Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

22. Trade and other receivables – current continued

No material expected credit loss provision has been recognised in respect of amounts owed by subsidiary undertakings.

The movement in the allowance for expected credit losses in respect of trade receivables was:

	2025	2024
	£m	£m
At 1 April	125.3	106.5
Arising on acquisition	–	19.8
Provision for expected credit losses	9.7	7.1
Receivables written off during the year as uncollectable	(17.7)	(8.1)
At 31 March	117.3	125.3

Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of

recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and where a failure to make payments on overdue

invoices indicate the debt is unrecoverable.

23. Derivative financial instruments

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Derivatives used for cash flow hedging
Non-current assets	22.3	17.2	–	–
Current assets	9.5	23.3	0.4	1.0
Current liabilities	(0.5)	(5.4)	(0.1)	(0.1)
Non-current liabilities	(1.6)	(3.3)	–	–
Derivatives used for fair value hedging
Non-current assets	0.1	0.2	0.1	0.2
Current assets	0.3	0.1	0.3	0.1

The Group’s financial risks and risk management policies are set out in note 3. The fair value of derivatives is split between current and non-current assets or

liabilities based on the maturity of the cash flows. The ineffective portion recognised in the statement of profit or loss arising from hedging relationships was £nil

(2024: £nil).

A net £4.3 million debit (2024: £16.4 million debit) was recognised in other comprehensive income for cash flow hedges, including a £0.1 million credit (2024:

£0.2 million credit) recognised in profit and loss relating to cash flow hedges previously recognised through other comprehensive income and recorded in the

hedging reserve.

Interest rate swaps, primarily cash flow hedges, and fixed rate borrowings are used to manage the mix of fixed and floating rates to ensure at least 60% of Group

net borrowings are at fixed rate.

At 31 March 2025 the Group had interest rate swaps, to swap from floating to fixed rate, and hedged financial liabilities with a notional value of £636.0 million and a weighted

average maturity of 5.3 years (2024: £939.0 million, with 3.5 years). The weighted average interest rate of the swaps for their nominal amount was 2.92% (2024: 1.85%).

At 31 March 2025 the Group had cross currency swaps and hedged financial liabilities with a notional value of £56.1 million (2024: £64.0 million) and a weighted

average maturity of 4.1 years (2024: 4.5 years). The weighted average interest rate of the swaps for their nominal amount was 5.6% (2024: 5.8%). The swaps are

denominated in USD and EUR to match the underlying currency exposures.

The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risks of the swaps are identical to the hedged risk components.

To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instrument

against the changes in fair value of the hedged item attributable to the hedged risk.

The hedge ineffectiveness can arise from:

• Different interest rate curve applied to discount the hedged item and hedging instrument

• Differences in timing of cash flows of the hedged item and hedging instrument

• The counterparties’ credit risk differently impacting the fair value movements of the hedging instrument and hedged item.

The impact of the hedging instrument on the balance sheet is as follows:

	Notional	Carrying		Change in fair value used for measuring
	amount	amount		ineffectiveness in the period
Group	£m	£m	Line item in the balance sheet	£m
As at 31 March 2025
Interest rate swaps	636.0	27.7	Derivative financial instruments	10.3
RPI swaps	–	–	Derivative financial instruments	(4.6)
Cross currency swaps	56.1	(1.3)	Derivative financial instruments	–
As at 31 March 2024
Interest rate swaps	939.4	38.0	Derivative financial instruments	(14.4)
RPI swaps	300.0	(4.6)	Derivative financial instruments	(0.2)
Cross currency swaps	64.1	(1.3)	Derivative financial instruments	(2.4)

226 Annual Report and Accounts 2025 Pennon Group plc

23. Derivative financial instruments continued

	Notional	Carrying		Change in fair value used for measuring
	amount	amount		ineffectiveness in the period
Company	£m	£m	Line item in the balance sheet	£m
As at 31 March 2025
Cross currency swaps	16.0	0.4	Derivative financial instruments	(0.4)
As at 31 March 2024
Cross currency swaps	24.0	0.8	Derivative financial instruments	(0.3)

Valuation hierarchy

The Group uses the following hierarchy for determining the fair value of financial instruments by valuation technique:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,

derived from prices) (level 2)

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The fair value of financial instruments not traded in an active market (level 2, for example over-the-counter derivatives) is determined by using valuation

techniques. A variety of methods and assumptions are used based on market conditions existing at each balance sheet date. Quoted market prices or dealer

quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the

remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.

The Group’s financial derivatives are valued using level 2 measures:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Assets
Derivatives used for cash flow hedging	31.8	40.5	0.4	0.9
Derivatives used for fair value hedging	0.4	0.3	0.4	0.3
Total assets	32.2	40.8	0.8	1.2
Liabilities
Derivatives used for cash flow hedging	(2.1)	(8.7)	(0.1)	(0.1)
Total liabilities	(2.1)	(8.7)	(0.1)	(0.1)

24. Financial instruments at fair value through profit

	Group		Company
		2024
	2025	(Restated)	2025	2024
	£m	£m	£m	£m
Current liabilities	(0.3)	(0.1)	(0.3)	(0.1)
Non-current assets	0.6	0.9	0.6	0.9

An unamortised hedging adjustment has been reclassified to borrowing in the current year and the prior year restated. See note 2 for further explanation.

Financial instruments at fair value through profit reflect the fair value movement of the hedged risk on the hedged item which had been designated in a fair

value hedging relationship.

25. Cash and cash equivalents and restricted funds

	Group		Company
		2024
	2025	(restated)	2025	2024
	£m	£m	£m	£m
Cash at bank and in hand	166.2	78.8	44.8	29.2
Short-term bank deposits	0.2	50.0	0.2	50.0
Other deposits	251.5	5.2	–	–
Cash and cash equivalents	417.9	134.0	45.0	79.2
Restricted funds	58.2	37.4	–	–
Total	476.1	171.4	45.0	79.2

Cash and cash deposits have been re-presented on the balance sheet to separately disclose cash and cash equivalents and restricted funds. See note 2 for

further explanation.

Group short-term deposits have an average maturity of one working day (2024: one working day).

Group other deposits (including restricted funds) have an average maturity of 14 days (2024: 73 days).

Restricted funds include £46.1 million (2024: £26.0 million) to settle long-term lease liabilities (note 28) and £12.1 million (2024: £11.4 million) held in an instant

access account. Restricted funds are available for access, subject to being replaced by an equivalent valued security.

227Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

26. Trade and other payables – current

	Group		Company
		2024
		(restated,
	2025	Note 43)	2025	2024
	£m	£m	£m	£m
Trade payables	138.8	227.5	0.9	2.6
Contract liabilities	46.7	10.6	–	–
Other tax and social security	2.6	3.1	0.3	0.4
Accruals	54.4	37.4	6.1	7.4
Other payables	88.5	67.9	3.5	1.1
Amounts owed to subsidiary undertakings	–	–	8.8	–
	331.0	346.5	19.6	11.5

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

The movement in the contract liabilities was:

	Group
	2025	2024
Contract liabilities	£m	£m
At 1 April	165.5	159.0
Revenue recognised in the year	(9.9)	(4.8)
Consideration received in advance of completion of performance obligations*	62.4	5.9
Amounts acquired on acquisition	–	5.4
At 31 March	218.0	165.5

The analysis of contract liabilities between current and non-current is:

	Group
	2025	2024
	£m	£m
Current	46.7	10.6
Non-current (note 29)	171.3	154.9
	218.0	165.5

Performance obligations related to the current contract liabilities balance above are expected to be satisfied, and revenue will be recognised, within the financial

year ended 31 March 2026.

* The Group previously presented cash received in advance from customers within trade debtors in the balance sheet and some contributions received from developers in trade

payables. These have been reclassified to contract liabilities in the current year .

228 Annual Report and Accounts 2025 Pennon Group plc

27. Current tax assets/(liabilities)

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Current year debtor/(creditor)	(0.1)	0.4	0.4	(0.4)
Prior year tax items	1.0	5.6	(2.3)	(2.8)
	0.9	6.0	(1.9)	(3.2)

28. Borrowings

	Group		Company
		(restated,
		Note 2, 43)
	2025	2024	2025	2024
	£m	£m	£m	£m
Current
Bank and other loans	222.0	178.3	49.5	–
Private placements	–	8.0	–	8.0
Fixed rate bonds	2.5	2.5	–	–
Amounts owed to subsidiary undertakings	–	–	2.0	–
	224.5	188.8	51.5	8.0
Leases	32.9	51.9	–	–
Total current borrowings	257.4	240.7	51.5	8.0
Non-current
Bank and other loans	506.3	733.5	99.9	148.9
Private placements	841.9	719.1	95.7	96.7
Fixed rate bonds	886.4	241.8	–	–
RPI index-linked bonds	1,030.5	997.4	–	–
Listed preference shares	12.5	12.5	–	–
	3,277.6	2,704.3	195.6	245.6
Leases	1,019.3	1,071.2	–	–
Total non-current borrowings	4,296.9	3,775.5	195.6	245.6
Total borrowings	4,554.3	4,016.2	247.2	253.6

An unamortised hedging adjustment has been reclassified from fair value through profit and loss to borrowings in the current year and the prior year restated,

see note 2 for further information. The unamortised hedging adjustment is included within fixed rate bonds in current and non current borrowings above. The

hedged item was the £150 million bond issued by South West Water Finance Plc in 2010 which matures in July 2040. The hedging relationship was de-

designated in a previous period at which point the fair value amount recognised at that point ceased to be revalued. The fixed financial liability at the point of

de-designation is released to the income statement over the remaining life of the debt.

South West Water Finance Plc issued a £250 million fixed rate bond in December 2024 maturing in 2032 with a cash coupon of 5.75%.

South West Water Finance Plc issued a £400 million fixed rate bond in July 2024 maturing in 2041 with a cash coupon of 6.375%.

South West Water Finance Plc issued a £150 million fixed rate bond in July 2010 maturing in 2040 with a cash coupon of 5.875%.

South West Water Finance Plc issued a £200 million RPI index-linked bond in July 2008 maturing in 2057 with a cash coupon of 1.99%. Bournemouth Water

Limited issued a £65 million RPI index-linked bond in April 2005 maturing in 2033 with a cash coupon of 3.084%. This instrument was transferred to South West

Water Limited in April 2017. Prior to acquisition by Pennon, Bristol Water Plc issued RPI index-linked bonds totalling £91 million maturing in 2032 with a cash

coupon of 3.635%. These were transferred to South West Water Limited in February 2023.

Sutton and East Surrey Water Plc issued a £100 million RPI index-linked bond in March 2001 maturing in 2031 with a cash coupon of 2.874%.

Fair value adjustments of £109.8 million (2024: £125.7 million) in relation to the acquisition of Bournemouth Water Limited, Bristol Water Plc and SES Water have

been allocated to the instruments to which they relate.

The listed preference shares were issued by Bristol Water Plc at £1 in 1992. They are held by external shareholders and are listed on the London Stock

Exchange. Shareholders are entitled to receive dividends at 8.75% per annum on the par value of the shares on a cumulative basis; these dividends are payable

half yearly on 1 April and 1 October. On winding up, the preference shareholders rank ahead of Bristol Water ordinary shareholders and are entitled to receive £1

per share and any dividends accrued but unpaid in respect of their shares. In the event that dividends on the preference shares are in arrears for six months or

more, holders of the preference shares become entitled to vote at general meetings of members. The preference share capital consists of 12,500,000 8.75%

irredeemable cumulative preference shares of £1 each. The preference shares are classified as liabilities in the consolidated balance sheet of the Group and the

related dividends are classified as finance costs.

All bank and other loans and private placement debt (carrying value £1,570.2 million, 2024 £1,637.5 million) require compliance with financial covenants which

relate to gearing and interest cover ratios. The group has complied with these covenants throughout the reporting period. There are no indications that the

group would have difficulties complying with the covenants when they will next be tested.

229Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

28. Borrowings continued

The fair values of borrowings are valued using level 2 measures, unless otherwise stated below, (as set out in note 23) were:

	2025		2024
			Book value
			(restated,
	Book value	Fair value	Note 2,43)	Fair value
	£m	£m	£m	£m
Group
Bank and other loans	222.0	222.0	178.3	178.3
Fixed rate bonds	2.5	–	2.5	–
Private placement	–	–	8.0	8.0
	224.5	222.0	188.8	186.3
Leases	32.9	32.9	51.9	–
Total current borrowings	257.4	254.9	240.7	186.3
Group
Bank and other loans	506.3	556.1	733.5	704.7
Private placements	841.9	842.2	719.1	737.2
Fixed rate bonds (level 1)	781.4	784.0	136.2	145.2
Fixed rate bonds	105.0	61.6	105.6	64.6
RPI index-linked bonds (level 1)	224.6	233.0	216.4	230.5
RPI index-linked bond	805.9	602.2	781.0	658.6
Listed preference shares	12.5	18.5	12.5	20.1
	3,277.6	3,097.6	2,704.3	2,560.9
Leases	1,019.3	1,007.4	1,071.2	–
Total non-current borrowings	4,296.9	4,105.0	3,775.5	2,560.9
Total borrowings	4,554.3	4,359.9	4,016.2	2,747.2

Under IFRS 7 the disclosure of the fair value of leases is not required.

Where market values are not available, fair values of borrowings have been calculated by discounting expected future cash flows at prevailing interest rates.

During the year ended 31 March 2025, as part of an ongoing programme to renew and raise new financing, the group entered into £800 million of new Public Bonds

issuances and Private placements with an average maturity of 13.8 years.

During the year ended 31 March 2024, as part of its ongoing programme to renew and raise new financing, the Group entered into £200 million of new terms loans

and leasing facility arrangements, with an average maturity of 6 years, £300 million private placements with an average maturity of 12 years, £25 million 20-year

private placement and £100 million of new and renewed revolving credit facilities.

The maturity of non-current borrowings, excluding leases, was:

	Group
		(restated,
		Note 43)
	2025	2024
	£m	£m
Between 1 and 2 years	71.8	191.0
Over 2 years and less than 5 years	268.2	335.2
Over 5 years	2,937.6	2,178.1
	3,277.6	2,704.3

The weighted average maturity of non-current borrowings, excluding leases, was 12.3 years (2024: 12.0 years).

230 Annual Report and Accounts 2025 Pennon Group plc

28. Borrowings continued

Undrawn committed borrowing facilities at the balance sheet date were:

	Group
	2025	2024
	£m	£m
Floating rate:
Expiring within 1 year	65.0	50.0
Expiring after 1 year	495.0	380.0
	560.0	430.0

Information on leases

The Group has leases for various assets as shown in note 17.

The maturity of lease liabilities was:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Within 1 year	32.9	51.9	–	–
Over 1 year and less than 5 years	169.8	187.4	–	–
Over 5 years	849.5	883.8	–	–
	1,052.2	1,123.1	–	–

Analysed as:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Current	32.9	51.9	–	–
Non-current	1,019.3	1,071.2	–	–
	1,052.2	1,123.1	–	–

Lease liabilities includes liabilities of £1,007.2 million (2024: £1,086.7 million) that are subject to secured financing arrangements (see note 17) and lease liabilities

under IFRS 16 of £45.0 million (2024: £36.4 million).

The Group does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities are monitored within the Group’s treasury function.

The discount rate used to calculate the lease liabilities above involves estimation. Where the Group cannot readily determine the rate implicit in the lease the

Group uses an estimated incremental borrowing rate (IBR). At 31 March 2025 the range of IBRs used was between 5.1% and 6.9% (2024: between 6.1% and 6.8%)

and the weighted average IBR across all leases was 6.2% (2024: 6.3%). If the weighted average rate used increased or decreased by 10bps, this would result in a

c.0.9% increase or reduction in the present value of lease liabilities recognised at 31 March 2025 (2024: c.1.0%).

The period for repayment of certain leases includes an agreement to deposit with the lessor group amounts equal to the difference between the original

and revised payments due. The accumulated deposits, £46.1 million at 31 March 2025 (2024: £25.9 million), are currently being held to settle the lease

liability subject to rights to release by negotiation with the lessor. The deposits are subject to a registered charge given as security to the lessor for the

balance outstanding.

Cash outflows in respect of leasing relate to principal repayments of £94.3 million (2024: £19.0 million) and interest repayments of £63.0 million (2024: £53.1

million), in addition to inflows from lease financing arrangements of £25.0 million (2024: £64.8 million).

Other information required to be disclosed under IFRS 16 is included in note 17 .

29. Other non-current liabilities

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Contract liabilities	171.3	154.9	–	–
	171.3	154.9	–	–

Non-current contract liabilities relate to consideration received in advance of the Group performing its performance obligations to customers where

performance obligations will not be completed within 12 months of the balance sheet date. The overall movement in total contract liabilities is disclosed in

note 26. Contract liabilities reflect the fair value of assets transferred from customers in the water segment. The majority of the contract liabilities included

above are expected to unwind after five years.

231Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

30. Retirement benefit obligations

During the year the Group operated a number of defined benefit pension schemes and also defined contribution schemes. The principal plan within the Group is

the Pennon Group Pension Scheme (PGPS), which is a funded defined benefit, final salary pension scheme in the UK. Following the acquisition of Bristol Water

and SES, the Group also assumed defined benefit obligations through Bristol Water’s and SES’s membership of Water Companies Pension Scheme (‘WCPS’).

The Group’s pension schemes are established under trust law and comply with all relevant UK legislation. The assets of the Group’s pension schemes are held in

separate trustee administered funds. The trustees of the funds are required to act in the best interest of the funds’ beneficiaries. The appointment of schemes’

trustees is determined by the schemes’ trust documentation. The Group has a policy for the PGPS that one-half of all trustees, other than the Chair, are

nominated by members of the schemes, including pensioners.

Bristol Water’s membership of WCPS is through a separate section of that scheme. The assets of the section are held separately from those of the Group and

are invested by discretionary fund managers appointed by the trustees of the scheme. The employees in the section ceased to earn additional defined benefit

pensions on 31 March 2016. There were no employer contributions to the scheme from that date and from 30 June 2016, with the agreement of the trustees,

deficit contributions also ceased. All eligible employees were offered membership of a stakeholder pension scheme.

In 2018 the trustees of the Bristol Water section of the WCPS purchased a bulk annuity policy to insure the benefits for members of the section. Following this,

the method for valuing the liabilities of the pension scheme has remained the same. However, the scheme assets, in the form of the insurance policy, now

materially match the value of the liabilities. The process to buy up and wind up the scheme is continuing, including discussions regarding the release of the

surplus on completion of this process. SES’s membership of WCPS is through a separate section of that scheme. The assets of the section are held separately

from those of the Group and are invested by discretionary fund managers appointed by the trustees of the scheme. The employees in the section ceased to

earn additional defined benefit pensions on 31 March 2019.

With effect from 31 March 2023 the trustees of the SES section of the WCPS purchased a bulk annuity policy to insure the benefits for members of the section.

Following this the method for valuing the liabilities of the pension scheme has remained the same. However, the scheme assets, in the form of the insurance

policy, now materially match the value of the liabilities.

PGPS is closed to future accrual.

In June 2023, the High Court handed down a decision (Virgin Media Limited v NTL Pension Trustees II Limited and others) which potentially has implications

for the validity of amendments made by schemes, including the PGPS and other Group defined benefit schemes, which were contracted-out on a salary-related

basis between 6 April 1997 and the abolition of contracting-out in 2016. This decision was upheld by the Court of Appeal in August 2024. There is potential for

legislative intervention following industry lobbying efforts that may retrospectively validate certain rule amendments that would otherwise be held void where

the requirements of section 37 were not met. However, the Company has engaged with the relevant Trustee for PGPS and other Group defined benefit schemes

who have confirmed that based on the governance processes in place and reviews of significant deed changes during the period in question, these bodies have

no reason to believe that the relevant requirements were not complied with in relation to the Schemes with regard to the relevant period in question. Given that

there is no indication of non-compliance with the relevant requirements, the PGPS and other Group defined benefit schemes’ valuation as at 31 March 2025

does not reflect potential additional liabilities arising from the Virgin Media case.

Defined contribution schemes

Pension costs for defined contribution schemes were £14.9 million (2024: £12.0 million).

Defined benefit schemes

Assumptions

The principal actuarial assumptions at 31 March were:

	2025	2024
	%	%
Rate of increase in pensionable pay	2.5	2.6
Rate of increase for current and future pensions	2.7	2.8
Rate used to discount schemes’ liabilities and expected return on schemes’ assets	5.8	4.8
Inflation	3.1	3.2

Mortality

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience. The mortality

assumption uses a scheme-specific calculation based on CMI 2023 actuarial tables with an allowance for future longevity improvement.

The average life expectancy in years of a member having retired at age 62 on the balance sheet date is projected as:

	2025	2024
Male	23.8	24.1
Female	26.6	26.8

The average life expectancy in years of a future pensioner retiring at age 62, 20 years after the balance sheet date, is projected as:

	2025	2024
Male	24.9	25.5
Female	27.7	28.3

232 Annual Report and Accounts 2025 Pennon Group plc

30. Retirement benefit obligations continued

The sensitivities regarding the principal assumptions used to measure the schemes’ liabilities are:

	Change in	Impact on
	assumption	schemes’ liabilities
Rate of increase in current and future pensions	+/– 0.5%	+/– 4.4%
Rate used to discount schemes’ liabilities	+/–0.5%	–/+5.6%
Inflation	+/– 0.5%	+/– 4.3%
Life expectancy	+/– 1 year	+/– 3.4%

The sensitivity analysis shows the effect of changes in the principal assumptions used for the measurement of the pension liability. The method used to

calculate the sensitivities is approximate and has been determined taking into account the duration of the liabilities and the overall profile of each scheme’s

membership. This is the same approach as has been adopted in previous years.

The amounts recognised in the balance sheet were:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Present value of financial obligations	(673.3)	(774.2)	(120.5)	(138.0)
Fair value of plan assets	709.7	806.2	124.5	141.5
Surplus of funded plans	36.4	32.0	4.0	3.5
Less: restriction of surplus	(5.2)	(5.4)	–	–
Net asset recognised in the balance sheet	31.2	26.6	4.0	3.5

The movement in the net defined benefit obligation over the accounting period is as follows:

		2025			2024
	Present value	Fair value		Present value	Fair value
	of obligation	of plan assets	Total	of obligation	of plan assets	Total
	£m	£m	£m	£m	£m	£m
At 1 April	(774.2)	800.8	26.6	(719.5)	748.8	29.3
Acquisition SES Water Group	–	–	–	(66.8)	70.1	3.3
Current service cost	(1.0)	(1.4)	(2.4)	(1.2)	(0.6)	(1.8)
Past service cost, curtailments and gains/losses on settlements	–	–	–	(0.2)	–	(0.2)
Interest (expense)/income	(36.0)	37.6	1.6	(33.5)	35.2	1.7
	(37.0)	36.2	(0.8)	(101.7)	104.7	3.0
Remeasurements:
Loss on plan assets excluding amounts included in interest expense	–	(87.9)	(87.9)	–	(13.6)	(13.6)
Gain from change in demographic assumptions	7.2	–	7.2	5.9	–	5.9
Gain from change in financial assumptions	86.3	–	86.3	13.7	–	13.7
Experience (losses)/gains	(2.3)	0.2	(2.1)	(14.9)	1.2	(13.7)
	91.2	(87.7)	3.5	4.7	(12.4)	(7.7)
Contributions:
Employers	0.1	1.8	1.9	–	2 . 0	2 . 0
Payments from plans:
Benefit payments	46.6	(46.6)	–	42.3	(42.3)	–
	46.7	(44.8)	1.9	42.3	(40.3)	2.0
At 31 March	(673.3)	704.5	31.2	(774.2)	800.8	26.6

Recognition of surplus on principal pension scheme

In accordance with IAS 19 ‘Employee Benefits’ the value of the net pension scheme surplus that can be recognised in the balance sheet is restricted to the

present value of economic benefits available in the form of refunds from the scheme or reductions in future contributions. In respect of the Group’s principal

pension scheme, PGPS, the surplus has been recognised as the Group believes that ultimately it has an unconditional right to a refund of any surplus assuming

the full settlement of the plan’s liabilities in a single event, such as a scheme wind up.

Bristol Water

The Group believes that it has an unconditional right to a refund of surplus and that the gross pension surplus can be recognised. This benefit is only available

as a refund as no additional defined pension benefits are being earned. Under UK tax legislation a tax deduction of 25% (2024: 25%) is applied to a refund from

a UK pension scheme, before it is passed to the employer. This tax deduction has been applied to restrict the value of the surplus recognised for this scheme.

The process to buy out and wind up the scheme continues and the Trustee has indicated its intention to return the surplus to the Company. The buy-out of the

section is expected to complete within the next 12 months and therefore the £9.2m surplus relating to the Bristol Water Section has been recognised as a

current asset on the balance sheet.

Sutton and East Surrey Water

The Group believes that it has an unconditional right to a refund of surplus and that the gross pension surplus can be recognised. This benefit is only available

as a refund as no additional defined pension benefits are being earned. Under UK tax legislation a tax deduction of 25% is applied to a refund from a UK pension

scheme, before it is passed to the employer. This tax deduction has been applied to restrict the value of the surplus recognised for this scheme.

233Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

30. Retirement benefit obligations continued

The movement in the Company’s net defined benefit obligation over the accounting period is as follows:

		2025			2024
	Present value	Fair value		Present value	Fair value
	of obligation	of plan assets	Total	of obligation	of plan assets	Total
	£m	£m	£m	£m	£m	£m
At 1 April	(137.9)	141.4	3.5	(139.5)	144.2	4.7
Current service cost	(0.4)	–	(0.4)	(0.4)	–	(0.4)
Interest (expense)/income	(6.5)	6.6	0.1	(6.4)	6.6	0.2
	(6.9)	6.6	(0.3)	(6.8)	6.6	(0.2)
Remeasurements:
Loss on plan assets excluding amounts included in interest expense	–	(16.2)	(16.2)	–	(2.1)	(2.1)
Gain from change in demographic assumptions	1.2	–	1.2	1.1	–	1.1
Gain from change in financial assumptions	15.8	–	15.8	2.8	–	2.8
Experience losses	(0.4)	–	(0.4)	(3.2)	–	( 3 . 2 )
	16.6	(16.2)	0.4	0.7	(2.1)	(1.4)
Contributions:
Employers	–	0 . 4	0 . 4	–	0 . 4	0 . 4
Payments from plans:
Benefit payments	7.7	(7.7)	–	7.7	(7.7)	–
	7.7	(7.3)	0.4	7.7	(7.3)	0.4
At 31 March	(120.5)	124.5	4.0	(137.9)	141.4	3.5

The schemes’ assets relating to the Group were:

		2025			2024
	Quoted	Prices not		Quoted	Prices not
	prices in	quoted in		prices in	quoted in
	active market	active market	Fund	active market	active market	Fund
	£m	£m	%	£m	£m	%
Equities	92.2	–	13	163.7	–	20
Government bonds	16.4	–	2	13.5	–	2
Other bonds	91.7	49.1	20	117.2	55.7	22
Diversified growth	39.1	–	6	38.8	–	5
Property/Infrastructure	42.7	27.8	10	41.2	32.6	9
Insurance linked security	50.0	142.8	27	44.2	165.8	26
LDI investments	114.3	–	16	96.5	–	12
Other (including cash funds)	18.3	20.1	6	10.1	21.5	4
	464.7	239.8	100	525.2	275.6	100

The Company’s share of the schemes’ assets at the balance sheet date was:

		2025			2024
	Quoted	Prices not		Quoted	Prices not
	prices in	quoted in		prices in	quoted in
	active market	active market	Fund	active market	active market	Fund
	£m	£m	%	£m	£m	%
Equities	21.2	–	17	37.7	–	27
Government bonds	3.8	–	3	3.1	–	2
Other bonds	21.1	11.3	26	27.0	12.8	28
Diversified growth	9.0	–	7	8.9	–	6
Property/Infrastructure	9.8	6.4	13	9.5	7.5	12
Insurance linked security	11.5	–	9	10.2	–	7
LDI investments	26.3	–	21	22.3	–	16
Other	4.1	–	4	2.4	–	2
	106.8	17.7	100	121.1	20.3	100

234 Annual Report and Accounts 2025 Pennon Group plc

30. Retirement benefit obligations continued

Through its defined benefit pension plan, the Group is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility	The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a
	deficit. The schemes hold a proportion of growth assets (equities and diversified growth funds) which are expected to outperform corporate bonds
	in the long term, but can give rise to volatility and risk in the short term. As the funding of the schemes improves, an increasing proportion of the
	schemes’ assets are invested in less volatile asset classes such as cash and bonds which more closely reflect market movements in the schemes’
	liabilities. The allocation to growth assets is monitored such that it is suitable with the schemes’ long-term objectives.
Changes in bond	A decrease in corporate bond yields will increase the schemes’ liabilities, although this will be partially offset by an increase in the value of the
yields	schemes’ bond holdings.
Inflation risk	The majority of the schemes’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps
	on the level of inflationary increases are in place to protect against extreme inflation). The scheme uses LDIs (‘Liability Driven Investment Funds’)
	within the asset portfolios to hedge against the value of liabilities changing as a result of movements in long-term interest rates and inflation
	expectations. The structure allows the scheme to both hedge against the risks and retain capital investment in assets that are expected to generate
	higher returns. Whilst LDIs are an integral part of the hedging strategy, risk management and monitoring strategies are in place to ensure that the
	collateral requirements to maintain these structures are closely managed.
Life expectancy	The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in
	the liabilities.

In conjunction with its investment advisers, the trustees have structured the schemes’ investments with the objective of balancing investment returns and levels

of risk. The asset allocation for the main scheme has three principal elements:

• Holding of cash funds and bonds which are expected to be less volatile than most other asset classes and reflects market movements in the

schemes’ liabilities

• A proportion of equities with fund managers having freedom in making investment decisions to maximise returns, and

• Investment of a proportion of the schemes’ assets in alternative asset classes which give the potential for diversification (currently property, insurance linked

securities and diversified growth).

The liabilities of the defined benefit schemes are measured by using the projected unit credit method which is an accrued benefits valuation method in which

the scheme liabilities make allowance for projected increases in pensionable pay.

As funding of our principal pension scheme has improved the investment portfolio has been de-risked through increasing the scheme’s real gilts hedging position

through LDIs (Liability Driven Investments), which are commonly used by UK pension schemes.

The weighted average duration of the defined benefit obligation is 10 to 12 years (2024: 12 to 13 years).

The 2022 triennial actuarial valuation of the principal defined benefit scheme was agreed in 2024 with an actuarial valuation surplus of £7.6 million. No deficit

recovery contributions are required as a result of the 2022 valuation. Additional contributions of £1.8 million were paid into the scheme in respect of scheme

expenses (2024: £2.0 million). The Group monitors funding levels on an annual basis and the Group expects to pay only scheme expenses of around £1.8 million,

during the year ended 31 March 2026.

The last formal actuarial valuation of the Bristol Water section of the WCPS was at 31 March 2017. The last formal valuation of the SES section of the WCPS was

at 31 March 2022.

31. Deferred tax

Deferred tax is provided in full on temporary differences under the liability method using enacted tax rates.

Movements on deferred tax were:

	Group		Company
		(Restated,
		note 43)
	2025	2024	2025	2024
	£m	£m	£m	£m
Liabilities/(assets) at 1 April	548.4	507.0	(20.7)	(18.6)
(Credited)/charged to the income statement	(7.8)	4.9	(3.0)	(0.7)
(Credited)/charged to other comprehensive income	(1.5)	(6.3)	0.1	(0.3)
Charged to equity, including impact of change in tax rate	–	0.1	–	–
Other non-underlying credits in the income statement	(8.5)	(4.9)	–	(1.1)
Amounts relating to acquired operations	–	47.6	–	–
Liabilities/(assets) at 31 March	530.6	548.4	(23.6)	(20.7)

Deferred tax assets have been recognised in respect of all temporary differences where it is probable that these assets will be recovered.

The Group has applied the exception to recognised and disclosing deferred tax related to Pillar Two income taxes.

The majority of the Group’s deferred tax assets and liabilities are expected to be recovered over more than one year. All deferred tax assets and liabilities within

the same jurisdiction are offset where it is appropriate to do so .

235Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

31. Deferred tax continued

The movements in deferred tax assets (after offset) were:

Group

Deferred tax liabilities

			Fair value	Short-term
		Property, plant	adjustments	liabilities	Retirement
		and equipment	(restated,	including	benefit
	Derivatives	depreciation	note 43)	provisions	obligations	Total
	£m	£m	£m	£m	£m	£m
At 31 March 2023	2.9	473.2	94.5	1.5	2.9	575.0
Charged/(credited) to the income statement	0.5	5.8	(5.5)	3.4	2.5	6.7
Credited to other comprehensive income	(4.1)	–	–	–	( 2 . 2 )	( 6 . 3 )
R e c l a s s i f i c a t i o n	4 . 2	–	–	–	–	4 . 2
Transferred in on acquisition of SES	(3.5)	43.3	15.7	–	(0.9)	54.6
At 31 March 2024	–	522.3	104.7	4.9	2.3	634.2
Charged/(credited) to the income statement	–	39.1	0.5	(0.5)	0.7	39.8
Charged to other comprehensive income	–	–	–	–	0.9	0.9
At 31 March 2025	–	561.4	105.2	4.4	3.9	674.9

Deferred tax assets

				Loan
		Share-based		relationship	Fair value
	Derivatives	payments	Tax losses	deficits	adjustment	Total
	£m	£m	£m	£m	£m	£m
At 31 March 2023	–	(1.0)	(27.5)	(8.4)	(31.1)	(68.0)
Underlying charged/(credited) to the income statement	–	0.3	(2.8)	(2.3)	3.0	(1.8)
Non-underlying credit to the income statement	–	–	(4.9)	–	–	(4.9)
Reclassification to deferred tax liabilities	(4.2)	–	–	–	–	( 4 . 2 )
Charged to equity	–	0.1	–	–	–	0.1
Transferred in on acquisition of SES	–	–	(7.0)	–	–	( 7 . 0 )
At 31 March 2024	(4.2)	(0.6)	(42.2)	(10.7)	(28.1)	(85.8)
Charged/(credited) to the income statement	1.1	(0.1)	(51.0)	(0.6)	3.0	(47.6)
Non-underlying credit to the income statement	–	–	(8.5)	–	–	(8.5)
Charged to equity	(2.4)	–	–	–	–	( 2 . 4 )
At 31 March 2025	(5.5)	(0.7)	(101.7)	(11.3)	(25.1)	(144.3)
Net liability
At 31 March 2024						548.4
At 31 March 2025						530.6

Deferred tax assets not recognised

			Tax losses and
		Short-term	non-trade loan
		liabilities	relationship
	Accelerated	including	deficits available
	tax depreciation	provisions	indefinitely	Total
Gross	£m	£m	£m	£m
At 31 March 2023	–	–	–	–
(Credited)/charged to the income statement	–	(0.1)	0.2	0.1
Transferred in on acquisition from SES	0.4	0.3	21.8	22.5
At 31 March 2024	0.4	0.2	22.0	22.6
Origination and reversal of temporary differences in relation	(0.1)	–	11.6	11.5
to SES
At 31 March 2025	0.3	0.2	33.6	34.1

236 Annual Report and Accounts 2025 Pennon Group plc

31. Deferred tax continued

			Tax losses and
		Short-term	non-trade loan
		liabilities	relationship
	Accelerated	including	deficits available
	tax depreciation	provisions	indefinitely	Total
Tax effect	£m	£m	£m	£m
At 31 March 2023	–	–	–	–
Transferred in on acquisition from SES	0.1	–	5.5	5.6
At 31 March 2024	0.1	–	5.5	5.6
Origination and reversal of temporary differences in relation to SES	–	–	2 . 9	2 . 9
At 31 March 2025	0.1	–	8.4	8.5

Following the acquisition of SES Water, the group has acquired temporary differences for which no deferred tax assets are recognised in relation to post 2017

tax losses (£25.5 million), non-trade deficits carried forwards in relation to the UK's corporate interest restriction rules (£8.1 million), fixed assets (£0.3 million)

and provisions (£0.1 million). The group has concluded that it is appropriate to continue not to recognise a deferred tax asset on these temporary differences.

While the Group is in a net deferred tax liability position, the Group consider there is not a right to offset these deferred tax assets against deferred tax liabilities.

In addition, whilst the assets are available indefinitely, there is uncertainty regarding the availability of suitable future taxable profits.

Company

Deferred tax assets

	Retirement
	benefit	Share-based
	obligations	payments	Tax losses	Total
	£m	£m	£m	£m
At 31 March 2023	(1.3)	(0.7)	(16.6)	(18.6)
Charged/(credited) to the income statement	2.5	0.2	(3.4)	(0.7)
Non-underlying credit to the income statement	–	–	(1.1)	(1.1)
Credited to other comprehensive income	(0.3)	–	–	(0.3)
At 31 March 2024	0.9	(0.5)	(21.1)	(20.7)
Credited to the income statement	–	–	(3.0)	(3.0)
Credited to other comprehensive income	0.1	–	–	0.1
At 31 March 2025	1.0	(0.5)	(24.1)	(23.6)

Deferred tax charged/(credited) to equity or other comprehensive income during the year was:

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Remeasurement of defined benefit obligations	0.9	(2.2)	0.1	(0.3)
Cash flow hedges	(2.4)	(4.1)	–	–
Share-based payments	–	0.1	–	–
	(1.5)	(6.2)	0.1	(0.3)

Capital allowances are available when a business incurs qualifying expenditure on capital items such as infrastructure assets. Capital allowances provide tax

relief on these items in place of accounting depreciation which is not tax deductible. Over the period of ownership of an asset, cumulative depreciation and

capital allowances will equalise. Capital allowance rates are set by the UK Government and every business receives the same rate of allowance. Capital allowance

rates typically vary from 3% up to 100%. Depreciation periods vary from 4 to 200 years. Due to the group's continuing capital investment programme,

deductions for capital allowances are expected to exceed depreciation in future years.

The different accounting treatment of property, plant and equipment for tax and accounting purposes means that the taxable income of the Group is not the same as

the profit reported in the financial statements. The adjustments for this are reflected in the current tax reconciliation. In 2023, the Government has introduced

permanent full expensing and 50% first year allowances for certain qualifying expenditure. This provides an increase in current tax relief for the Group with a

consequently higher deferred tax liability and charge due to the additional capital allowance deductions.

Short term temporary differences arise on items such as retirement benefit obligations, derivatives and share based payments because the treatment of such items

are different for tax and accounting purposes. These differences reverse over future years following that in which they arise, as is reflected in the deferred tax charge

in these financial statements. Specifically, retirement benefit obligations will crystallise over the life of the pension scheme and/or the period when spreading applies

(this can be up to three years for spreading purposes), whilst share based payments will crystallise over the remaining life of the share schemes which are up to five

years. Short term liabilities including provisions will typically crystallise in the following year.

The fair value liability relates to the revaluation of tangible fixed assets on the acquisition of Bournemouth Water, Bristol Water and SES Water. The fair value

asset relates to the revaluation of debt on the acquisition of Bournemouth Water and Bristol Water. These items will be released over their remaining life which is

up to 150 years.

Where interest charges or other costs are capitalised in the accounts, tax relief is given either as the charges are incurred or when the costs are taken to the

income statement.

237Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

31. Deferred tax continued

Derivatives reflect the fair value movements on treasury derivatives; these can fluctuate considerably each year. The balance will crystallise when derivative

items are either terminated or mature; the life of these items can be up to ten years.

Tax losses relate to trading losses and non-trade deficits carried forwards in relation to the UK's corporate interest restriction rules. These are available

indefinitely. With respect to both items, these are recognised on the basis the UK Group has taxable temporary differences that are expected to reverse in the

same periods as the unused tax losses and there is a right of offset.

32. Provisions

	Restructuring	Other	Total
	£m	£m	£m
Group
As at 1 April 2023	0.4	–	0.4
Utilised	(0.4)	–	(0.4)
Arising on acquisition (restated, note 43)	–	1 . 1	1 . 1
At 1 April 2024	–	1 . 1	1 . 1
Charge	9.9	0.5	10.4
Utilised	(3.5)	(0.7)	(4.2)
At 31 March 2025	6.4	0.9	7.3

A provision for restructuring of £9.9 million was created in the year in connection with the business transformation of the Group; the majority of the provision

relates to employment costs. This restructuring provision is expected to be utilised within one year. Other provisions include amounts in relation to dilapidations

and onerous contracts, £0.4 million of these provisions are expected to be utilised within one year.

33. Share capital

Allotted, called–up and fully paid

		Number of shares
	Treasury	Ordinary
	shares	shares	£m
Group and Company
At 31 March 2023 ordinary shares of 61.05p each	5,628	261,315,489	159.5
For consideration of £460,000, shares issued under the Company’s Sharesave Scheme	–	72,299	–
Shares issued	–	24,657,535	15.1
At 31 March 2024 ordinary shares of 61.05p each	5,628	286,045,323	174.6
For consideration of £21,000, shares issued under the Company’s Sharesave Scheme	–	3,386	–
Rights issue	–	185,928,002	113.5
At 31 March 2025 ordinary shares of 61.05p each	5,628	471,976,711	288.1

Shares held as treasury shares may be sold or reissued for any of the Company’s share schemes or cancelled.

On 17 February 2025 the Company completed a rights issue to existing shareholders on the basis of 13 ordinary shares for every 20 fully paid ordinary shares held. As

a result, 185,928,002 ordinary shares with an aggregate nominal value of £113.5 million were issued for cash consideration of £491.0 million. Transaction costs directly

attributable to the rights issue of £20.5 million were incurred and have been accounted for as a deduction from share premium.

During the year ended 31 March 2024 the Group issued 24,657,535 new ordinary shares of 61.05 pence each in connection with the acquisition of SES Water Group

(see note 43). The equity capital raise was used to reduce leverage in the enlarged group following the acquisition.

Employee share schemes

The Group operates a number of equity-settled share plans for the benefit of employees. Details of each plan are:

i) Sharesave Scheme

An all-employee savings-related plan is operated that enables employees, including Executive Directors, to invest up to a maximum of £500 per month for three

or five years. These savings can then be used to buy ordinary shares, at a price set at a discount to the market value at the start of the savings period, at the

third or fifth year anniversary of the option being granted. Options expire six months following the exercise date and, except for certain specific circumstances

such as redundancy, lapse if the employee leaves the Group before the option exercise period commences.

238 Annual Report and Accounts 2025 Pennon Group plc

33. Share capital continued

Outstanding options to subscribe for ordinary shares of 61.05 pence each under the Company’s share option schemes are:

	Date granted and	Period when		Thousands of shares in respect of
	subscription price	options normally		which options outstanding at
	fully paid	exercisable		31 March
			2025	2024
3 July 2018	635p	2021 – 2023	–	1
9 July 2019	501p	2022 – 2024	–	69
19 July 2020	750p	2023 – 2025	27	30
6 July 2021	710p	2024 – 2026	53	306
5 July 2022	669p	2025 – 2027	206	302
4 July 2023	536p	2026 – 2028	495	753
2 July 2024	406p	2027 – 2029	1,383	–
			2,164	1,461

The number of shares and, where relevant, the exercise subscription prices above have been adjusted to reflect the impact of the rights issue which took place

on 17 February 2025. The options outstanding at 31 March 2025 have been updated at the time of the rights issue and the options outstanding at 31 March 2024

remain at the pre rights issue value.

The number and weighted average exercise price of Sharesave options are:

	2025	Weighted	2024
		average		Weighted
	Number of	exercise	Number of	average exercise
	ordinary shares	price per share	ordinary shares	price per share
	(thousands)	(p)	(thousands)	(p)
At 1 April	1,461	746	1,462	835
Granted	1,324	406	847	663
Additional options awarded as part of rights issue	493	492	–	–
Forfeited	(789)	543	(617)	828
Exercised	(4)	501	(72)	639
Expired	(321)	645	(159)	859
At 31 March	2,164	472	1,461	746

The weighted average price of the Company’s shares at the date of exercise of Sharesave options during the year was 612 pence (2024: 689 pence). The

options outstanding at 31 March 2025 had a weighted average exercise price of 472 pence (2024: 746 pence) and a weighted average remaining contractual life

of 2.4 years (2024: 2.0 years). The number of exercisable Sharesave options at 31 March 2024 was 2,277 (2024: 1,000) and the weighted average exercise price

of exercisable Sharesave options was 710 pence (2024: 799 pence).

The aggregate fair value of Sharesave options granted during the year was £1.0 million (2024: £0.7 million), determined using the Black-Scholes valuation model.

The significant inputs into the valuation model at the date of issue of the options were:

	2025	2024
Weighted average share price (pence)	564	700
Weighted average exercise price (pence)	406	663
Expected volatility	27%	26%
Expected life	3.5 years	3.4 years
Risk-free rate	5.3%	4.5%
Expected dividend yield	7.8%	6.1%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years and five years periods

depending on the life of the scheme.

ii) Long-term incentive plan (LTIP)

Executive Directors and senior management receive an annual grant of conditional shares. Share awards vest subject to the achievement of specific

performance conditions measured over a performance period of not less than three years. More details concerning LTIPs, including performance conditions,

is shown in the Directors’ remuneration report on pages 176 to 177.

239Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

33. Share capital continued

The number and price of shares in the LTIP are:

	2025	Weighted	2024	Weighted
	Number of	average award	Number of	average award
	ordinary shares	price per share	ordinary shares	price per share
	(thousands)	(p)	(thousands)	(p)
At 1 April	1,122	863	880	990
Granted	603	646	553	714
Additional shares awarded as part of rights issue	470	–
Vested	(133)	753	(125)	784
Lapsed	(84)	1,093	(186)	1,069
At 31 March	1,978	773	1,122	863

The number of shares above have been adjusted to reflect the impact of the rights issue which took place on 17 February 2025. The granted shares outstanding

at 31 March 2025 have been updated at the time of the rights issue and the granted shares outstanding at 31 March 2024 remain at the pre rights issue value.

The awards outstanding at 31 March 2025 had a weighted award price of 773 pence (2024: 863 pence) and a weighted average remaining contractual life of

3.3 years (2024: 3.1 years).

The aggregate fair value of awards granted during the year was £1.3 million (2024: £1.8 million), determined from market value. No option pricing methodology is

applied since the vesting of the shares depends on non-market performance vesting conditions.

iii) Annual Incentive Bonus Plan – deferred shares

Awards under the plan to Executive Directors and senior management involve the release of ordinary shares in the Company to participants. There is no

performance condition since vesting is conditional upon continuous service with the Group for a period of three years from the award. The number and

weighted average price of shares in the Annual Incentive Bonus Plan are:

	2025	Weighted	2024	Weighted
	Number of	average award	Number of	average award
	ordinary shares	price per share	ordinary shares	price per share
	(thousands)	(p)	(thousands)	(p)
At 1 April	217	863	141	1,065
Granted	22	665	124	700
Vested	(45)	(1,141)	(41)	1,079
Lapsed	(86)	(729)	(7)	972
At 31 March	108	803	217	863

The awards outstanding at 31 March 2025 had a weighted average award price of 803 pence (2024: 863 pence) and a weighted average remaining contractual

life of 1.6 years (2024: 1.3 years). The Company’s share price at the date of the awards ranged from 665 pence to 1,141 pence (2024: 700 pence to 1,141 pence).

The aggregate fair value of awards granted during the year was £0.1 million (2024: £0.9 million), determined from market value. No option pricing methodology

is applied since dividends paid on the shares are receivable by the participants in the scheme.

Further details of the plans and options granted to Directors, included above, are shown in the Directors’ remuneration report.

34. Share premium account

	£m
Group and Company
At 31 March 2023	237.6
Shares issued under the Sharesave Scheme	0.4
Other shares issued	164.9
	402.9
Less: Transaction costs arising on share issues	(4.7)
At 31 March 2024	398.2
Rights issue	377.5
	775.7
Less: Transaction costs arising on share issues	(0.2)
Less Transaction costs directly attributable to rights issue	(20.5)
At 31 March 2025	755.0

240 Annual Report and Accounts 2025 Pennon Group plc

35. Capital redemption reserve

The capital redemption reserve represents the redemption of B shares and cancellation of deferred shares arising from a capital return to shareholders

undertaken during 2006, together with the redemption of shares during the years ended 31 March 2023 and 31 March 2022.

	£m
Group and Company
At 1 April 2023	157.1
At 31 March 2024	157.1
At 31 March 2025	157.1

36. Retained earnings and other reserves

	Own	Hedging	Retained
	shares	reserve	earnings	Total
	£m	£m	£m	£m
Group
At 31 March 2023	(3.5)	38.9	535.2	570.6
Loss for the year	–	–	( 9 . 5 )	( 9 . 5 )
Other comprehensive loss for the year	–	(12.3)	(5.5)	(17.8)
Dividends paid relating to 2023	–	–	(111.7)	(111.7)
Credit to equity in respect of share-based payments (net of tax)	–	–	1.1	1.1
Charge in respect of share options vesting	2.2	–	(2.2)	–
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	(1.4)	–	–	(1.4)
At 31 March 2024	(2.7)	26.6	407.4	431.3
Loss for the year	–	–	(57.9)	(57.9)
Other comprehensive (loss)/ income for the year	–	(1.9)	2.6	0.7
Dividends paid relating to 2024	–	–	(126.9)	(126.9)
Credit to equity in respect of share-based payments (net of tax)	–	–	2.0	2.0
Historic reserves transfer	1.8	–	(1.8)	–
Charge in respect of share options vesting	1.4	–	(1.4)	–
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	(1.2)	–	–	(1.2)
At 31 March 2025	(0.7)	24.7	224.0	248.0

The own shares reserve represents the cost of ordinary shares in Pennon Group plc issued to or purchased in the market and held by the Pennon Group plc

Employee Benefit Trust to satisfy awards under the Group’s Annual Incentive Bonus Plan.

The market value of the 127,801 ordinary shares (2024: 162,024 ordinary shares) held by the Trust at 31 March 2025 was £573,000 (2024: £825,000).

	Own	Retained	Total
	shares	earnings	£m
	£m	£m
Company
At 31 March 2023	–	545.7	545.7
Profit for the year	–	34.4	34.4
Other comprehensive loss for the year	–	(1.0)	(1.0)
Dividends paid relating to 2023	–	(111.7)	(111.7)
Credit to equity in respect of share-based payments (net of tax)	–	1.1	1.1
Charge in respect of share options vesting	–	(2.2)	(2.2)
At 31 March 2024	–	466.3	466.3
Loss for the year	–	(13.5)	(13.5)
Other comprehensive income for the year	–	0 . 3	0 . 3
Dividends paid relating to 2024	–	(126.9)	(126.9)
Charge to equity in respect of share-based payments (net of tax)	–	1.5	1.5
Credit in respect of share options vesting	1.4	(1.4)	–
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	(2.1)	–	(2.1)
At 31 March 2025	(0.7)	326.3	325.6

In making decisions about the level of dividends to be proposed the Directors take steps to check that retained earnings include a sufficient amount of realised

profits and are therefore distributable within the requirements of the Companies Act 2006.

241Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

37. Analysis of cash flows given in the statement of cash flows

Reconciliation of profit for the year to cash generated from operations:

Cash generated from operations

	Group
	2025	2024
	£m	£m
(Loss)/profit for the year	(56.8)	(8.5)
Adjustments for:
Share-based payments	2.0	1.2
Profit on disposal of property, plant and equipment	(1.2)	(0.7)
Depreciation charge	184.7	168.2
Amortisation of intangible assets	2.3	3.7
Intangible impairment charge	1.3	–
Share of post-tax profit from associated companies	(0.8)	(0.7)
Finance income	(15.0)	(12.6)
Finance costs	199.4	162.8
Taxation credit	(15.9)	(0.6)
Changes in working capital:
Decrease/(increase) in inventories	0.4	(1.1)
Increase in trade and other receivables	(42.5)	(47.6)
Decrease in trade and other payables	(30.5)	(2.0)
Increase/(decrease) in provisions	6.2	(0.4)
Cash generated from operations	233.6	261.7

Reconciliation of total interest paid:

	Group
	2025	2024
	£m	£m
Interest paid in operating activities	143.1	116.2
Total interest paid	143.1	116.2

38. Net borrowings

	Group		Company
		(restated,
		note 2, 43)
	2025	2024	2025	2024
	£m	£m	£m	£m
Borrowings – current
Bank and other current borrowings*	(224.5)	(188.8)	(51.5)	(8.0)
Lease obligations	(32.9)	(51.9)	–	–
Total current borrowings	(257.4)	(240.7)	(51.5)	(8.0)
Borrowings – non-current
Bank and other non-current borrowings*	(3,265.1)	(2,691.8)	(195.6)	(245.6)
Listed preference shares	(12.5)	(12.5)	–	–
Lease obligations	(1,019.3)	(1,071.2)	–	–
Total non-current borrowings	(4,296.9)	(3,775.5)	(195.6)	(245.6)
Total financing liabilities	(4,554.3)	(4,016.2)	(247.1)	(253.6)
Less:
Cash and cash equivalents	417.9	134.0	45.0	79.2
Restricted funds	58.2	37.4	–	–
Total net borrowings	(4,078.2)	(3,844.8)	(202.1)	(174.4)

242 Annual Report and Accounts 2025 Pennon Group plc

38. Net borrowings continued

The movements in net borrowings during the periods presented were as follows:

Group

		SES Water Group				Net borrowings
	Net borrowings	acquisition		Transfer between		at 31 March
	at 1 April	(restated, note		non-current	Other non-cash	2024
	2023	43)	Cash flows	and current	movements	(restated)
	£m	£m	£m	£m	£m	£m
Bank and other current borrowings	(95.1)	(58.5)	52.9	(88.8)	0.7	(188.8)
Current lease obligations	(32.0)	(0.7)	73.9	(33.8)	(59.3)	(51.9)
Bank and other non-current borrowings	(1,994.9)	(301.7)	(458.7)	88.8	(25.3)	(2,691.8)
Listed preference shares	(12.5)	–	–	–	–	( 1 2 . 5 )
Non-current lease obligations	(1,032.7)	(0.5)	(64.8)	33.8	(7.0)	(1,071.2)
Total financing liabilities	(3,167.2)	(361.4)	(396.7)	–	(90.9)	(4,016.2)
Less:
Cash and cash equivalents	132.2	–	1.8	–	–	134.0
Restricted funds	33.2	–	4.2	–	–	37.4
	(3,001.8)	(361.4)	(390.7)	–	(90.9)	(3,844.8)

The movement in net borrowings for the prior year has been corrected to show the gross cash flows and other non-cash movements relating to lease

obligations whereby interest accrues to and is paid from net borrowings, these amounts were previously shown net within other non-cash movements.

Transfers between non-current and current for these items has also been corrected.

* An unamortised hedging adjustment has been reclassified from fair value through profit and loss to borrowing in the current year (£32.2m) and the prior year restated, see note 2

for further information. This is reflected in Bank and other current borrowings (2025: £2.5m, 2024: £2.5m) and Bank and other non-current borrowings (2025: £29.7m, 2024: £31.8m).

The 1 April 2023 values in the above table also reflect this adjustment to allow for comparison between periods. The total of the unamortised hedging adjustment as at 1 April 2023

was £36.4m reflected in Bank and other current borrowings (£2.4m) and Bank and other non-current borrowings (£34.0m).

	Net borrowings
	at 31 March		Transfer between		Net borrowings
	2024		non-current	Other non-cash	at 31 March
	(restated)	Cash flows	and current	movements	2025
	£m	£m	£m	£m	£m
Bank and other current borrowings	(188.8)	152.0	(190.7)	3.0	(224.5)
Current lease obligations	(51.9)	101.3	(20.4)	(61.9)	(32.9)
Bank and other non-current borrowings	(2,691.8)	(743.5)	190.7	(20.5)	(3,265.1)
Listed preference shares	(12.5)	–	–	–	(12.5)
Non-current lease obligations	(1,071.2)	35.2	20.4	(3.7)	(1,019.3)
Total financing liabilities	(4,016.2)	(455.0)	–	(83.1)	(4,554.3)
Less
Cash and cash equivalents	134.0	283.9	–	–	417.9
Restricted funds	37.4	20.8	–	–	58.2
	(3,844.8)	(150.3)	–	(83.1)	(4,078.2)

Other non-cash movements for the Group in the year ended 31 March 2024 included the increase in borrowings from interest which is rolled into the

amount repayable. Cash flows of £6.0 million in the year ended 31 March 2024 include the cash acquired on acquisition of SES Water Group of £27.5 million

(see note 43).

243Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

39. Subsidiary and joint venture undertakings at 31 March 2025

		Country of incorporation, registration
Principal subsidiary companies	Registered office address	and principal operations
Water
Bristol Water Plc	Bridgwater Road, Bristol, BS13 7AT	England
South West Water Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
South West Water Finance Plc	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
South West Water Customer Services Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Sutton and East Surrey Water Plc	66-74 London Road, Redhill, RH1 1LJ	England
Non-household retail
Pennon Water Services Limited* (1)	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Sutton and East Surrey Water Services Limited	66-74 London Road, Redhill, RH1 1LJ	England
Other Advanced Minerals Limited (1)	66-74 London Road, Redhill, RH1 1LJ	England
Allmat (East Surrey) Limited	66-74 London Road, Redhill, RH1 1LJ	England
Dunfermline Solar Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
East Surrey Holdings Limited	66-74 London Road, Redhill, RH1 1LJ	England
EEB16 Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
EEB17 Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
EEB31 Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Peninsula Insurance Limited* (2)	Level 5, Mill Court, La Charroterie, St Peter Port, GY1 1EJ	Guernsey
Pennon Power Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
SES Business Water Limited	66-74 London Road, Redhill, RH1 1LJ	England
SES Home Services Limited	66-74 London Road, Redhill, RH1 1LJ	England
Sutton and East Surrey Group Holdings Limited*	66-74 London Road, Redhill, RH1 1LJ	England
SESW Holding Company Limited	66-74 London Road, Redhill, RH1 1LJ	England
Surrey Downs Estates Limited	66-74 London Road, Redhill, RH1 1LJ	England
Surrey Downs Property Investment Limited	66-74 London Road, Redhill, RH1 1LJ	England
The Cheam Group Plc	66-74 London Road, Redhill, RH1 1LJ	England
Other trading companies	Registered office address	Country of incorporation
Bristol Water Holdings Limited	Bridgwater Road, Bristol, BS13 7AT	England
Bristol Water Holdings UK Limited*	Bridgwater Road, Bristol, BS13 7AT	England
Dormant companies	Registered office address	Country of incorporation
Avon Valley Water Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Bristol Water Core Holdings Limited (3)	Bridgwater Road, Bristol, BS13 7AT	England
Peninsula Properties (Exeter) Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Peninsula Trustees Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Pennon Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Pennon Defined Contribution Pension Trustee Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Pennon Pension Trustees Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
SES Water Limited	66-74 London Road, Redhill, RH1 1LJ	England
Source for Business Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
South West Water Services Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
SWW Pension Trustees Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
The Calcite Factory B.V (1)	Moezelhavenweg 9, 1043 AM, Amsterdam	Netherlands
The Sutton District Water Plc	66-74 London Road, Redhill, RH1 1LJ	England

The subsidiary undertakings are wholly owned unless stated otherwise and all shares in issue are ordinary shares. All companies above are consolidated in the

Group financial statements.

Joint Ventures and Associates	Registered office address	Country of incorporation	Stake (%)
Bristol Wessex Billing Services Limited	1 Clevedon Walk, Nailsea, Bristol, BS48 1WA	England	50
CREWW Executive Board Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England	50
Searchlight Collections Limited	PO BOX 930 Galmington Office, Galmington Trading Estate,	England	50
	Cornishwa y West, Taunton, Somerset, TA1 9LQ
Water 2 Business Limited	21e Somerset Square, Nailsea, Bristol, United Kingdom, BS48 1RQ	England	30

* Indicates the shares are held directly by Pennon Group plc, the Company.

1. 80% of share capital owned by Pennon Group plc. All shares in issue are ordinary shares.

2. Captive insurance company established with the specific objective of financing risks emanating from within the Group.

3. Dissolved 6 May 2025 .

244 Annual Report and Accounts 2025 Pennon Group plc

39. Subsidiary and joint venture undertakings at 31 March 2024 continued

Subsidiary audit exemption

Pennon Group plc has issued guarantees over the liabilities of the following companies at 31 March 2025 under section 479C of Companies Act 2006 and these

entities are exempt from the requirements of the Act relating to the audit of individual accounts by virtue of section 479A of the Act.

Company	Company number
Bristol Water Holdings Limited	02630760
Bristol Water Holdings UK Limited	04789566
Dunfermline Solar Limited	12683727
EEB16 Limited	10789260
EEB17 Limited	10790759
EEB31 Limited	11780715
East Surrey Holdings Limited	02660370
Pennon Power Limited	00736732
SESW Holding Company Limited	04151446
South West Water Customer Services Limited	07620338
Surrey Downs Estates Limited	02465343
Surrey Downs Property Investment Limited	02783440

40. Contingencies

Contingent liabilities

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Guarantees:
Performance bonds	20.0	13.8	15.0	13.8
	20.0	13.8	15.0	13.8

Guarantees in respect of performance bonds relate to changes to the collateral requirements for the non-household retail business with other wholesalers.

The possibility of the bond being required is remote hence the fair value of the bond is not material.

Other contractual and litigation uncertainties

Ofwat and the Environment Agency (EA) announced an industry-wide investigation into sewage treatment works on 18th November 2021. On 27th June 2022,

as part of its ongoing investigation, Ofwat announced enforcement action against South West Water Limited and the company is now included alongside all

other waste water companies. 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 later in

2025. 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 23rd 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 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.

On 2nd February 2024 summons were received by South West Water Limited from the EA in relation to alleged non permitted discharges at 7 locations with a

total of 30 charges. The EA have since withdrawn 6 of these charges relating to 1 site. At a hearing on 14th November 2024, South West Water pleaded guilty to

5 of the charges and the sentencing hearing for all 24 charges will take place in the third quarter of 2025 with judgment following at a later date.

On 15th May 2024, cryptosporidium was detected in South West Water’s water network and, in response, boil water notices were issued for certain customers in

the Brixham area that were lifted in a phased manner completing on 8th July 2024. South West Water continues to assist the Drinking Water Inspectorate in

their ongoing investigation, the outcome of which is not known at this time.

The Group establishes provisions in connection with contracts and litigation where it has a present legal or constructive obligation as a result of past events and

where it is more likely than not an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Where it is uncertain

that these conditions are met, a contingent liability is disclosed unless the likelihood of the obligation arising is remote or the matter is not deemed material.

245Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Notes to the Financial Statements continued

41. Capital commitments

	Group		Company
	2025	2024	2025	2024
	£m	£m	£m	£m
Contracted but not provided	167.9	211.5	–	–

42. Related party transactions

Group companies entered into the following transactions with associates and joint ventures which were not members of the Group. Bristol Wessex Billing

Services Limited is a joint venture investments of South West Water Limited and Water 2 Business Limited is an associate investment of the Company.

	2025	2024
	£m	£m
Sales of goods and services
Water 2 Business Limited	29.5	19.8
Purchase of goods and services
Bristol Wessex Billing Services Limited	4.1	4.0

Year-end balances

	2025	2024
	£m	£m
Receivables due from related parties
Water 2 Business Limited (including loan receivable of £8.7 million (2024: £8.7 million)	10.9	8.9
Bristol Wessex Billing Services Limited	0.2	–
Payables due to related parties
Bristol Wessex Billing Services Limited	1.6	3.0

The receivables due from related parties are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made,

or are considered necessary, for doubtful debts in respect of these amounts due.

The loans to Water 2 Business Limited are due to be repaid on 28 February 2028 and carry interest at SONIA plus 2.00%.

Company

The following transactions with associates and subsidiaries which were not wholly owned by the Company occurred in the year:

	2025	2024
	£m	£m
Sales of goods and services
Water 2 Business Limited	0.1	–

Year-end balances

	2025	2024
	£m	£m
Receivables due from related parties
Water 2 Business Limited (including loan receivable of £8.7 million (2024: £8.7 million)	8.9	–

On 31 January 2025 the £8.7m (2024: £8.7m) loan receivable with Water 2 Business Limited (“W2B”) an indirect associate was transferred from Bristol Water

Holdings Limited (“BWH”) to the Company.

The loans to Water 2 Business Limited are due to be repaid on 28 February 2028 and carry interest at SONIA plus 2.00%.

43. Acquisition of SES Water Group

On 10 January 2024, the Pennon Group acquired 100% of the issued share capital of Sumisho Osaka Gas Water UK Limited, which has subsequently been

renamed Sutton and East Surrey Group Holdings Limited (‘SESGHL’). SESGHL is the holding company of the SES Water Group which comprises Sutton and

East Surrey Water plc (‘SES Water’), a regulated water only company, and certain other ancillary businesses. The purpose of the acquisition was to expand the

Group’s presence in water supply across Southern England.

The acquisition of SESGHL was reviewed by the Competition and Markets Authority and given full clearance on 14 June 2024. For the year ended 31 March

2024, the SESGHL Group was consolidated into Pennon Group plc’s consolidated financial statements from 10 January 2024 due to management’s assessment

of obtaining control of SESGHL as of that date in accordance with IFRS 10.

The net assets recognised in the 31 March 2024 financial statements were based on a provisional assessment of their fair value. This valuation exercise has now

been finalised. Final Fair values on acquisition are shown in the table below. Corresponding amounts for the financial year ended 31 March 2024 have also been

restated in the balance sheet.

246 Annual Report and Accounts 2025 Pennon Group plc

43. Acquisition of SES Water Group continued

The fair value of trade and other receivables acquired as part of the business combination amounted to £63.1 million with a gross contractual amount of

£82.6 million. At the acquisition date the Group’s best estimate of the contractual cash flows expected not to be collected amounted to £19.5 million.

The Goodwill that arose on acquisition is attributable to the recognition of deferred tax liabilities on fair value gains recognised as part of the acquisition.

None of the goodwill recognised is expected to be deductible for tax purposes. Goodwill has been allocated to the water segment. 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.

The details of the business combination are as follows:

	10 January 2024		10 January 2024
	Adjustments included		Adjustments included
	until 31 March 2024	Adjustments	until 9 January 2025
	£m	£m	£m
Fair value of consideration transferred
Amount settled in cash	90.2	–	90.2
Total consideration transferred	90.2	–	90.2
Fair value of assets and liabilities recognised on acquisition
Property, plant and equipment	441.6	12.7	454.3
Intangible assets	11.6	(7.4)	4.2
Inventories	2.1	–	2.1
Trade and other receivables	61.4	1.7	63.1
Cash and cash equivalents	27.5	–	27.5
Current tax receivable	0.4	–	0.4
Borrowings	(360.1)	(1.3)	(361.4)
Trade and other payables	(65.3)	(5.3)	(70.6)
Retirement benefit obligations	3.3	–	3.3
Deferred tax liabilities	(47.5)	(0.1)	(47.6)
Provisions	(0.4)	(0.7)	(1.1)
Identifiable net assets	74.6	(0.4)	74.2
Goodwill on acquisition	15.6	0.4	16.0
Outflow of cash to acquire subsidiary, net of cash acquired
Consideration for equity settled in cash	90.2	–	90.2
Cash and cash equivalents acquired	(27.5)	–	(27.5)
Net cash outflow on acquisition	62.7	–	62.7

Acquisition related costs

Total acquisition related costs of £10.3 million, including £9.6 million incurred in the prior year, are not included as part of the consideration transferred and were

recognised as an expense in the consolidated income statement within other operating expenses .

247Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Alternative performance measures

Alternative performance measures (APMs) are financial measures used in this report that are not defined by International Financial Reporting Standards (IFRS).

The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group as well

as enhancing the comparability of information between reporting periods.

As the Group defines the APMs they might not be directly comparable to other companies’ APMs. They are not intended to be a substitute for, or superior to,

IFRS measurements. For the year ended 2024/25, the following APMs were added to or amended to those presented previously:

• The APM ‘Effective interest rate’ has been amended to provide a more meaningful insight by removing the impact of non-debt related interest costs in

the net finance costs for effective interest rate calculation. The calculation for closing net debt has also been amended to add back the cash impact of the

Group’s equity injection into South West Water on 31 March 2025, which would otherwise distort the average net debt used in the calculation of the effective

interest rate due to the equity injection being made on the last day of the financial year.

Underlying earnings

Underlying earnings are presented alongside statutory results as the Directors believe they provide a more useful comparison on business trends and

performance. Note 6 in the notes to the financial statements provides more detail on non-underlying items, and a reconciliation of underlying earnings for

thecurrent year and the prior year is as follows:

Non-underlying items

Underlying earnings reconciliation

31 March 2025 Underlying Brixham SES acquisition Renewables acquisition Transformation Statutory results Earnings per share

£m £m £m £m £m £m p

EBITDA (see below) 335.6 (21.0) (0.7) (0.1) (15.8) 298.0

Operating profit/(loss) 148.5 (21.0) (0.7) (0.1) (15.8) 110.9

Loss before tax (35.1) (21.0) (0.7) (0.1) (15.8) (72.7)

Taxation 7.0 5.2 – – 3.7 15.9

Loss after tax (56.8)

Non-controlling interests (1.1)

Loss after tax attributable

to shareholders (57.9) (16.1)

Non-underlying items

Underlying earnings reconciliation

31 March 2024 Underlying Drought costs SES acquisition Renewables acquisition Transformation Statutory results Earnings per share

£m £m £m £m £m £m p

EBITDA (see below) 338.3 (1.8) (9.6) (0.6) (13.9) 312.4

Operating profit/(loss) 166.3 (1.8) (9.6) (0.6) (13.9) 140.4

Profit/(loss) before tax 16.8 (1.8) (9.6) (0.6) (13.9) (9.1)

Taxation (4.3) 0.5 0.9 0.1 3.4 0.6

Loss after tax (8.5)

Non-controlling interests (1.0)

Loss after tax attributable

to shareholders (9.5) (2.9)

Underlying EBITDA

Underlying EBITDA (earnings before interest, tax, depreciation and amortisation and non-underlying items) is used to assess and monitor operational

underlying performance.

248 Annual Report and Accounts 2025 Pennon Group plc

Effective interest rate

A measure of the mean average interest rate payable on net debt associated with South West Water Limited’s group of companies, including Bristol Water plc,

which excludes interest costs not directly associated with net debt. This measure is presented to assess and monitor the relative cost of financing for South

West Water.

2025

£m

2024

(restated)

£m

Net finance costs before non-underlying items (note 8) 184.4 150.2

Remove: net finance income before non-underlying items not associated with South West Water

Limited’s group of companies (13.8) 5.3

Net finance costs before non-underlying items associated with South West Water

Limited’s group of companies 170.6 155.5

Net interest on retirement benefit obligations 1.1 1.4

Capitalised interest 23.1 14.1

Non-debt related interest (4.5) –

Net finance costs for effective interest rate calculation 190.3 171.0

Group net debt (opening) (note 38) 3,844.8 3,001.8

Remove: Unamortised hedging adjustment (34.3) (36.4)

Remove: opening net debt not associated with South West Water Limited’s group of companies* (515.8) (100.1)

Opening net debt for calculation 3,294.7 2,865.3

Group net debt (closing) (note 38)* 4,078.2 3,844.8

Remove: Unamortised hedging adjustment (32.2) (34.3)

Remove: closing net debt not associated with South West Water Limited’s group of companies (564.3) (515.8)

Equity injection on 31 March 2025 330.0 –

Closing net debt for calculation 3,811.7 3,294.7

Average net debt (opening net debt + closing net debt divided by 2) 3,553.2 3,080.0

Effective interest rate (%) 5.4 5.6

* Prior year restatement (see note 28).

Effective cash cost of interest

Effective cash cost of interest is calculated on the same basis as the effective interest cost calculation above, but excludes finance costs that are not paid in

cash, but accrete to the carrying value of debt (principally the inflationary impact of indexation on index-linked debt).

2025

£m

2024

£m

Net finance costs for effective interest rate calculation (as above) 190.3 171.0

Remove non-cash interest accrued (income statement indexation charge) (26.3) (55.5)

Net finance costs for effective cash cost of interest calculation 164.0 115.5

Opening net debt (as above) 3,294.7 2,865.3

Closing net debt (as above) 3,811.7 3,294.7

Average net debt (opening net debt + closing net debt divided by 2) 3,553.2 3,080.0

Effective cash cost of interest (%) 4.6 3.8

249Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Underlying interest cover

Underlying net finance costs (excluding pensions net interest cost) divided by operating profit before non-underlying items.

2025

£m

2024

£m

Net finance costs after non-underlying items (note 8) 184.4 150.2

Net interest on retirement benefit obligations (note 8) 1.6 1.7

Net finance costs for interest cover calculation 186.0 151.9

Operating profit before non-underlying items (see ‘Underlying earnings’ above) 148.5 166.3

Interest cover (times) 0.8 1.1

EBITDA dividend cover

Underlying EBITDA for the Group divided by proposed combined interim and final dividends.

2025

£m

2024

£m

Underlying EBITDA (see ‘Underlying earnings’ above) 335.6 338.3

Proposed dividends (note 12) 133.7 126.9

EBITDA dividend cover (times) 2.5 2.7

Group dividend cover

Proposed dividends divided by profit for the year before non-underlying items and deferred tax.

2025

£m

2024

£m

Proposed dividends (note 12) 133.7 126.9

Loss for the year attributable to ordinary shareholders (57.9) (9.5)

Deferred tax (credit)/charge before non-underlying items (note 9) (7.8) 4.9

Non-underlying items after tax in profit for the year (note 6) 28.7 21.0

Adjusted (loss)/profit for dividend cover calculation (37.0) 16.4

Dividend cover (times) – 0.1

Capital investment

Property, plant and equipment and intangible asset additions. The measure is presented to assess and monitor the total capital investment by the Group.

2025

£m

2024

£m

Additions to property, plant and equipment (note 17) 647.0 604.5

Additions to intangible assets (note 16) 5.5 45.0

Capital investment 652.5 649.5

Capital payments

Payments for property, plant and equipment (PPE) and intangible asset additions, net of proceeds from sale of PPE and intangible assets. The measure is

presented to assess and monitor the net cash spend on PPE and intangible assets.

2025

£m

2024

£m

Cash flow statements: purchase of property, plant and equipment 663.1 555.1

Cash flow statements: purchase of intangible assets 5.5 43.8

Cash flow statements: proceeds from sale of property, plant and equipment (1.9) (0.8)

Capital payments relating to the Group 666.7 598.1

Alternative performance measures continued

250 Annual Report and Accounts 2025 Pennon Group plc

Return on capital employed

The total of underlying operating profit divided by capital employed (net debt plus total equity invested).

2025

£m

2024

(restated)

£m

Capital employed (opening):

Net debt (note 38) 3,844.8 3,001.8

Remove: Unamortised hedging adjustment (34.3) (36.4)

Total equity invested (notes 33, 34, 35) 729.9 554.2

Opening capital employed for return on capital employed calculation 4,540.4 3,519.6

Capital employed (closing):

Net debt (note 38)* 4,078.2 3,844.8

Remove: Unamortised hedging adjustment (32.2) (34.3)

Total equity invested (notes 33, 34, 35) 1,200.2 729.9

Closing capital employed for return on capital employed calculation* 5,246.2 4,540.4

Underlying operating profit (see ‘Underlying earnings’ above) 148.5 166.3

Capital employed for return on capital employed calculation

(opening capital employed + closing capital employed divided by 2)* 4,893.3 4,030.0

Return on capital employed (%) 3.0 4.1

* Prior year restatements (see note 28).

Return on Regulated Equity (RORE)

This is a key regulatory metric which represents the returns to shareholders expressed as a percentage of regulated equity.

Returns are made up of a base return (set by Ofwat, the water business regulator, at c.3.9% and c.4.4% for Bristol Water for the period 2020 to 2025) plus

totex outperformance, financing outperformance and ODI outperformance. Returns are calculated post tax and post sharing (only a proportion of returns are

attributed to shareholders and shown within RORE). The three different types of return calculated and added to the base return are:

• Totex outperformance – totex is defined below and outperformance is the difference between actual reported results for the regulated business compared

tothe Final Determination (Ofwat published document at the start of a regulatory period), in a constant price base

• Financing outperformance – is based on the difference between a company’s actual effective interest rate compared with Ofwat’s allowed cost of debt

• ODI outperformance – the net reward or penalty a company earns based on a number of different key performance indicators, again set in the

FinalDetermination.

Regulated equity is a notional proportion of regulated capital value (RCV) which is set by Ofwat at the start of every five-year regulatory period, adjusted

foractual inflation. For 2020 to 2025, the notional equity proportion is 40.0%.

Further information on this metric can be found in South West Water’s annual performance report and regulatory reporting, published in July each year.

Themost recent can be found at: www.southwestwater.co.uk/about-us/how-are-we-performing.

Totex

Operating costs and capital expenditure of the regulated water and wastewater business (based on the Regulated Accounting Guidelines).

Outcome Delivery Incentives (ODIs)

ODIs are designed to incentivise companies to deliver improvements to service and outcomes based on customers’ priorities and preferences. If a company

exceeds these targets a reward can be earned through future higher revenues. If a company fails to meet them, they can incur a penalty through lower future

allowed revenues.

Regulatory Capital Value (RCV)

RCV has been developed for regulatory purposes and is primarily used in setting price limits.

RCV is widely used by the investment community as a proxy for the market value of the regulated business and forms part of covenant debt limits.

Shadow RCV reflects the addition of anticipated regulatory adjustments which amend RCV at the end of a regulatory period. These changes are accrued

duetoperformance through ODIs, changes in levels of totex expenditure, changes in inflation rates and other regulatory adjustments.

251Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

2025

£m

2024

£m

2023

£m

2022

£m

2021

£m

Income statement

Revenue before non–underlying items 1,047.8 907.8 825.0 792.3 644.6

Operating profit before non–underlying items 148.5 166.3 153.1 237.2 215.3

Net finance costs before non–underlying items (184.4) (150.2) (136.6) (93.7) (58.3)

Share of profit in joint ventures 0.8 0.7 0.3 – –

(Loss)/profit before tax and non–underlying items (35.1) 16.8 16.8 143.5 157.0

Net non–underlying items before tax (37.6) (25.9) (25.3) (15.8) (24.9)

Taxation charge/(credit) 15.9 0.6 8.9 (112.1) (24.8)

(Loss)/profit for the year (56.8) (8.5) 0.4 15.6 107.3

Attributable to:

Ordinary shareholders of the parent (57.9) (9.5) 0.1 15.4 107.5

Perpetual capital security holders – ––––

Non–controlling interests 1.1 1.0 0.3 0.2 (0.2)

Dividends proposed/declared 133.7 126.9 111.7 102.0 91.8

Earnings per ordinary share (basic):

Earnings per share* (16.1p) (2.9p) – 4.0p 21.1p

Deferred tax before non–underlying items* (2.2p) 1.5p (0.2p) 2.1p 1.3p

Non–underlying items (net of tax)* 7.9p 6.5p 6.3p 30.2p 4.0p

Earnings per share before non–underlying and deferred tax* (10.3p) 5.1p 6.0p 36.6p 26.4p

Declared dividends per share* 31.57p 36.67p 35.31p 31.84p 17.97p

* Prior year restatements (see notes 11 and 12).

2025

£m

2024

£m

2023

£m

2022

£m

2021

£m

Capital expenditure

Acquisitions (including investment in joint ventures) – 90.2 – 425.1 –

Property, plant and equipment 647.0 604.5 353.7 237.3 168.3

Intangibles 5.5 45.0 4.6 3.6 0.2

Balance sheet

Non–current assets* 6,125.0 5,669.1 4,743.0 4,527.0 3,277.1

Net current assets/(liabilities) 295.4 (23.3) 87.0 389.5 2,919.1

Non–current liabilities* (4,969.7) (4,483.2) (3,704.8) (3,641.9) (3,211.4)

Net assets 1,450.7 1,162.6 1,125.2 1,274.6 2,984.8

Number of employees (average full time equivalent for year)

Water 3,528 3,051 2,639 2,394 1,745

Non–household retail 259 191 158 177 160

Other businesses 123 90 67 65 82

3,910 3,332 2,864 2,636 1,987

* Prior year restatements (see notes 11 and 12).

Five-year financial summary

252 Annual Report and Accounts 2025 Pennon Group plc

Glossary

C-MeX Customer measure of experience, a mechanism to incentivise water companies to provide an excellent customer experience

for residential customers, across both the retail and wholesale parts of the value chain

CPI Consumer price index, a measure of inflation in a representative sample of retail goods and services using a geometric mean

and excluding e.g. housing costs

CPIH Consumer price index, a measure of inflation in a representative sample of retail goods and services using a geometric mean,

including owner occupiers’ housing costs

CREWW The Centre for Resilience in Environment, Water and Waste, a Pioneering research centre for Resilience in Environment, Water

andWaste, in partnership with Exeter University

D-MeX Developer Measure of Experience, a measure of service experience for developers which directly compares us with our peers

EBITDA Earnings before interest, tax, depreciation and amortisation

EDM Event Duration Monitoring – A regulatory requirement to monitor the frequency and duration of releases from storm overflows

EFRA Environment, Food and Rural Affairs Committee

EPA The EPA is the Environment Agency’s assessment of environmental performance.

ESG Environmental, Social and Governance

Fair Tax Mark An independent certification scheme which recognises organisations that demonstrate they are paying the right amount

of corporation tax at the right time

GHG Greenhouse gases

GRESB The GRESB Foundation is an independent, not-for-profit organisation that sets global standards for assessing the ESG performance

of real estate, infrastructure and other assets

HomeSafe Our health & safety improvement programme

IEA International Energy Agency

IPCC The Intergovernmental Panel on Climate Change

Jacobs Jacobs U.K. Limited, an independent management consultancy specialising in technical assurance in the utility sector

K7 The 2020 to 2025 regulatory price review period

K8 The 2026 to 2030 regulatory price review period

KPI Key Performance Indicator, our measures of business performance against the key targets monitored by Board and Pennon Executive

LGBTQ+ Acronym for Lesbian, gay, bisexual, transgender, and queer plus

LTIFR Lost Time Injury Frequency Rate

MOSL The market operator for the non-household retail market in England

ODI Outcome Delivery Incentives, many of which are common across all water companies while others are bespoke to South West Water

Ofwat The Water Services Regulation Authority, or Ofwat, is the body responsible for economic regulation of the privatised water and

sewerage industry in England and Wales

PR24 The 2024 ‘Price Review’ for water companies in England and Wales was a process led by Ofwat to determine prices for the period

2025-2030

RCV RCV is the financial base used by Ofwat to allow a rate of return and set prices at each Periodic Review

RNAGS Reason for Not Achieving Good Status

ROCE Return On Capital Employed

RORE Return On Regulated Equity

RPI Retail Price Index, a measure of inflation in a representative sample of retail goods and services using an arithmetic mean

STEM Science, Technology, Engineering and Mathematics

Sustainable Financing

Framework

The way we link financial impacts with sustainability impacts; the Framework aligns with the Green Bond Principles, the Social Bond

Principles and the Green Loan Principles

SWB South West Water – Refers to the combined company across all five regions (South West (Devon & Cornwall), Bristol, Bournemouth

& Isles of Scilly)

SWW South West Water – Refers to the four regions Devon, Cornwall, Bournemouth & Isles of Scilly

TCFD Task force on climate-related financial disclosures

TCND Task force on nature-related financial disclosures

Totex total expenditure

TUPE Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended

UKWIR UK Water Industry Research

Water Group South West Water including Bristol Water and SES Water

WaterShare The programme through which we shared the benefits of outperformance against our 2015-20 business plan targets with

watercustomers

WaterShare+ The enhanced benefit sharing mechanism introduced for water customers under our 2020-25 New Deal business plan

WaterShare+

Advisory Panel

Established to protect the interests of our customers. The Panel provides an independent review of our business plan commitments

and Board pledges

WTW Water Treatment Works – that part of a waterworks that is used to filter or condition water for the purpose of rendering water

acceptable for human consumption or hygienic use

WWTW Waste Water Treatment Works – We use this term, rather than sewage treatment works, to describe the facilities which return used

water to a condition where it can safely be discharged to environmental waters.

253Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

Shareholder information

Financial calendar, including Dividend Reinvestment Plan (DRIP) alternative

Financial year end 31 March 2025

Full Year Results 2024/25 3 June 2025

Annual Report and Accounts Published June 2025

Annual General Meeting 2025 24 July 2025

Ordinary shares quoted ex-dividend 24 July 2025*

Record date for final dividend 25 July 2025*

Final date for receipt of DRIP applications 8 August 2025*

Final dividend payment date 4 September 2025*

Trading Statement September 2025

Half Year Results 2025/26 November 2025

* Subject to obtaining shareholder approval at the 2025 Annual General Meeting.

Shareholder analysis at 31 March 2025

Number of holding of shares

Number of

shareholders

% of total

shareholders

% of ordinary

1-100 2,450 17.66 0.02

101-1,000 6,228 44.90 0.62

1,001-5,000 4,155 29.96 1.88

5,001-50,000 762 5.49 1.77

50,001-100,000 61 0.44 0.94

100,001+ 214 1.54 94.78

13,870

Number of

accounts

% of total

accounts

% of total

Individuals 13,203 95.2 3.9

Companies 579 4.2 85.7

Trust companies (pension funds etc.) 2––

Banks and nominees 86 0.6 10.4

13,870

Major Shareholders as at 31 March 2025

Shareholder

Shareholding in

Pennon Group plc

% of issued

share capital

Lazard Asset Management 42,386,915 8.98

KBI Global Investors 35,443,292 7.51

Impax Asset Management 27,567,981 5.84

Pictet Asset Management 21,903,395 4.64

ClearBridge Investments 19,902,892 4.22

BlackRock Advisors (UK) 18,673,048 3.96

Schroder Investment Management 18,387,407 3.90

Vanguard Group 17,153,809 3.63

Legal & General Investment Management 16,011,373 3.39

As at 23 May 2025, the Company has been notified of the following holdings of voting rights in the ordinary share capital of the Company: Impax Asset

Management on 29 April 2025 of 23,581,545 shares (4.99%). The percentage of voting rights detailed above was calculated at the time of the relevant

disclosures were made in accordance with Rule 5 of the Disclosure Guidance and Transparency Rules.

254 Annual Report and Accounts 2025 Pennon Group plc

Registrar

All enquiries concerning shareholdings including notification of change

ofaddress, loss of a share certificate or dividend payments should be made

to the Company’s registrar, MUFG Corporate Markets Limited, who can be

contacted asfollows:

MUFG Corporate Markets Limited

Pennon Group Share Register

Central Square

29 Wellington Street

Leeds

LS1 4DL

Telephone: 0371 664 9234 (calls are charged at standard geographic

rateand will vary by provider).

Lines are open 8.30am-5.30pm Monday-Friday, excluding public holidays

inEngland and Wales.

Overseas telephone: +44 371 664 9234

(calls outside the United Kingdom will be charged at the applicable

international rate).

Email: pennon@mpms.mufg.com

Website: www.signalshares.com

ShareGift service

Through ShareGift, an independent charity share donation scheme,

shareholders who only have a small number of shares with a value that

makes it uneconomical to sell them can donate such shares to charity.

Donations can be made by completion of a simple share transfer form

whichis available from the Company’s registrar, MUFG Corporate Markets

Limited, orbycontactingShareGift on 020 7930 3737 (www.sharegift.org).

Individual savings accounts

Shareholders may gain tax advantages by holding their shares in the

Company in an Individual Savings Account (ISA).

Dividend Reinvestment Plan (DRIP)

Subject to obtaining shareholder approval at the 2025 Annual General

Meeting for the payment of a final dividend for the year ended 31 March

2025, full details of the DRIP and how to participate will be published on

the Company’s website at www.pennon-group.co.uk/dividends/dividend-

reinvestment-plan-drip.

The full timetable for offering the DRIP is given opposite.

The DRIP provides shareholders with an opportunity to invest the cash

dividend they receive on their Pennon Group plc shares to buy further

sharesin the Company at preferable dealing rates.

Corporate information

Registered office

Peninsula House

Rydon Lane

Exeter

Devon

EX2 7HR

Company registration number: 2366640

Company Secretary

Andrew Garard

Corporate brokers

Barclays Bank plc

Morgan Stanley & Co. International plc

Independent auditors

PricewaterhouseCoopers LLP

Online portfolio service

The online portfolio service, provided by MUFG Corporate Markets Limited,

gives shareholders access to more information on their investments. Details

of the portfolio service are available online at www.signalshares.com.

Electronic communications

The Company has passed a resolution which allows it to communicate with

its shareholders by means of its website.

Shareholders currently receiving a printed copy of the annual report who

now wish to sign up to receive all future shareholder communications

electronically can do so by registering with MUFG Corporate Markets

Limited’s share portal.

Go to http://www.signalshares.com to register, select ‘Account Registration’

and then follow the on-screen instructions by inputting your surname, your

Investor Code (which can be found on your proxy form) and your postcode,

as well as entering an email address and selecting a password.

By registering to receive your shareholder communications electronically,

youwill also automatically receive your dividend confirmations electronically.

Electronic proxy voting

Pennon encourages the use of electronic proxy voting and no longer

provides paper proxy forms alongside the AGM Notice. We believe that

is both more efficient and consistent with our important environmental

sustainability responsibilities and objectives.

You may register your proxy votes via www.signalshares.com.

Registering your vote electronically is entirely secure and ensures the

privacy of your personal information. Alternatively, if you wish to vote by

postyou may request a hard copy proxy form by contacting our registrar,

MUFG Corporate Markets Limited. Contact details are provided above.

Pennon’s website

http://www.pennon-group.co.uk provides news and details of the Company’s

activities plus links to its subsidiaries’ websites.

The Investor Information section contains up-to-date information for

shareholders including detailed share price information, financial results,

dividend payment dates and amounts, and stock exchange announcements.

There is also a comprehensive shareholder services section which includes

information on buying, selling and transferring shares, and how to notify

achange in personal circumstances, for example, a change of address.

Beware of share fraud

The following is taken from the ScamSmart section of the Financial Conduct

Authority’s website (www.fca.org.uk/scamsmart).

Fraudsters use persuasive and high-pressure tactics to lure investors

into scams. They may offer to sell shares that turn out to be worthless

ornon-existent, or to buy shares at an inflated price in return for an

upfrontpayment.

While high profits are promised, if you buy or sell shares in this way you

willprobably lose your money.

255Pennon Group plc Annual Report and Accounts 2025

Strategic report Financial statements Other informationGovernance

How to avoid share fraud

Keep in mind that firms authorised by the Financial Conduct Authority (FCA)

are unlikely to contact you out of the blue with an offer to buy orsell shares.

Do not get into a conversation; note the name of the person and firm

contacting you and then end the call.

Check the Financial Services Register from http://www.fca.org.uk to see

iftheperson and firm contacting you is authorised by the FCA.

Beware of fraudsters claiming to be from an authorised firm, copying

itswebsite or giving you false contact details.

Use the firm’s contact details listed on the Register if you want to call itback.

Call the FCA on 0800 111 6768 if the firm does not have contact details

onthe Register or you are told they are out of date.

Search the FCA Warning List of unauthorised firms at

www.fca.org.uk/scamsmart.

Consider that if you buy or sell shares from an unauthorised firm you will

not have access to the Financial Ombudsman Service or Financial Services

Compensation Scheme. Seek impartial advice from a financial adviser before

you make an investment.

Remember: if it sounds too good to be true, it probably is!

5,000 people contact the Financial Conduct Authority about share fraud

each year, with victims losing an average of £20,000.

Report a scam

If you are approached by fraudsters, please tell the FCA using the share

fraudreporting form at http://www.fca.org.uk/scams where you can find out

more about investment scams. You can also call the FCA Consumer Helpline

on 0800 111 6768.

If you have already paid money to share fraudsters you can report this

atanytime to Action Fraud using their Online Fraud Report Tool at

www.actionfraud.police.uk/reporting-fraud-and-cyber-crime or by calling

0300 123 2040.

Shareholder information continued

256 Annual Report and Accounts 2025 Pennon Group plc