Annual Report and Accounts 2026

Bringing water to life

Supporting the lives of people and the places

they love for generations to come

Vision, purpose and values

Providing essential water and wastewater

services while investing in renewable energy

to support a sustainable future.

Underpinned by the values we live by

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.

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.

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.

Our vision

Bringing water to life

Our purpose

Bringing water to life –

supporting the lives of

people and places they

love for generations

to come

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 know that it’s not only what we

do, but how we do it that is really important for

our customers, colleagues, communities and the

environment – that’s why we’re focused on living

our values, every day.

Barrow Gurney Reservoir

Strategic Report

Pennon Group plc Annual Report and Accounts 2026

Governance Financial Statements Other Information

Contents

Strategic Report

Year in summary

About us

Group Executive Chair’s letter

Group Chief Executive’s introduction

Our strategy and business model

Our plans to 2030

Our people and culture

Stakeholder engagement

Pennon delivery framework

– Building water resources, improving

water quality 29

– Tackling storm overflows and pollutions

– Driving environmental gains

and delivering Net Zero 42

– Supporting affordability,

delivering for customers 47

Group Chief Financial Officer’s review

Our financial KPIs

Our risk management

Viability statement

Our ESG approach 72

Our ESG performance 74

Our Net Zero Transition 78

Task Force on Climate-related Financial

Disclosures (TCFD) and Taskforce on Nature-

related Financial Disclosures (TNFD) 83

Non-financial and sustainability

information statement 94

Governance

Governance at a glance

Chair’s introduction

Our Board

100

Pennon Executive Board

102

Monitoring purpose and culture

104

Board leadership

105

Division of responsibilities

106

An effective Board

107

Key activities of the Board

109

How the Board engages with stakeholders

111

Composition, succession and evaluation

113

Section 172(1) statement

114

Nomination Committee report

117

Audit Committee report

120

ESG Committee report

126

Health and Safety Committee report

129

Remuneration Committee report

130

Directors’ Remuneration report

133

Directors’ report

156

Financial Statements

Independent auditor’s report

160

Financial Statements

165

Notes to the Financial Statements

171

Other Information

Alternative performance measures

218

Five-year financial summary

221

Glossary

222

Shareholder information

223

SES Water – Metering – ‘on the road’

Leakage dog

Granular Activated Carbon (GAC) at Littlehempston water

treatment works

Strategic Report

Pennon Group plc Annual Report and Accounts 2026

Governance Financial Statements Other Information 01Strategic Report Governance Financial Statements Other Information

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Profit/(loss) before tax – statutory

£114.4m

(2024/25: (£72.7)m)

RCV – Water Group^

£6,505.0m

(2024/25: £5,983.1m)

Earnings per share – Basic – underlying^

28.3p

(2024/25: (10.3)p)

Water Group Return on Regulated

Equity (RoRE)^

6.7%

(2024/25: 5.1%)

Group capital investment^

£643.6m

(2024/25: £652.5m)

Profit/(loss) before tax – underlying^

£135.1m

(2024/25 £(35.1)m)

Underlying EBITDA^

£519.2m

(2024/25: £335.6m)

Water Group Gearing^

61.8%

(2024/25: 61.8%)

^ Measures with this symbol are defined in the Alternative performance

measure (APMs) as outlined on pages 218 to 220.

1. Reduction in Scope 1 and 2 GHG emissions from a 2021/22 baseline.

Pennon Power solar projects

operational in the year

Earnings per share – Basic – statutory

19.4p

(2024/25: (16.1)p)

1,090m

Total litres of drinking water per day

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

About us

Our locations

Pennon is an environmental

infrastructure group focused

on the UK water sector.

Our team of c.4,000 amazing colleagues works around the clock to

deliver over 1 billion litres of water to 4.3 million people every day.

Renewable energy

generation

Wastewater

services

Water

retail

services

Nationwide water

retail services

Renewable energy

generation

Water services

Our services

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Group Executive Chair’s letter

This has been a year of progress, and

continued delivery at Pennon in the

face of challenging weather patterns,

particularly in the second half of the

year. It has also been a year of leadership

transition and a changing regulatory

landscape in the UK water sector.

During the year, the industry has been subject to the

most significant review of its regulatory framework

since privatisation. The work of the Independent Water

Commission, led by Sir Jon Cunliffe, and the Government’s

subsequent White Paper, ‘A New Vision for Water’, signal a

profound shift in expectations for the sector, with greater

transparency, stronger environmental accountability and

a renewed focus on long-term infrastructure resilience, all

of which we support wholeheartedly.

These reforms come at a time when the underlying

challenges facing water systems are intensifying. Climate

change is placing increasing pressure on water resources

and wastewater networks, while population growth and

ageing infrastructure require sustained investment and

long-term planning. Against this backdrop, companies

must demonstrate strong operational performance

coupled with the capability to deliver the significant

investment required in the decades ahead.

We have undergone important changes to our leadership

and governance whilst also entering the first year of a

longer-term plan with AMP8 running from 2025–2030

and constituting the largest investment programme in

the Group’s history. Our focus as a Board has therefore

required a balance between near-term delivery and

ensuring we are best placed to achieve the goals of our

five-year plan.

With a renewed focus and leadership

changes, we are well positioned to deliver

for customers, communities, shareholders

and the environment.

“

Pennon is well

positioned to meet

rising expectations,

strengthening

leadership, sharpening

operational delivery

and maintaining the

financial resilience

required to deliver

improvements for

customers and the

environment.

Reflecting these priorities, the Board has focused in the

past 12 months on ensuring Pennon is well positioned to

meet rising expectations by strengthening leadership,

focusing on operational delivery plans and maintaining

the financial resilience required to deliver improvements

for customers and the environment.

Leadership and Board changes

This year has marked a significant transition in Pennon’s

leadership.

Susan Davy stepped down as Chief Executive in

December 2025 after 18 years of dedicated service.

Under Susan’s leadership Pennon navigated a period of

considerable change, including the acquisitions of Bristol

Water and SES Water, the mobilisation of our plans for the

new regulatory cycle and the development of our record

investment programme. On behalf of the Board, I would

like to thank Susan for her commitment and leadership.

Keith Haslett joined Pennon as Chief Executive on 1 April

2026. In previous roles Keith has delivered improvements

in business performance and customer outcomes and

brings deep operational experience across complex

infrastructure businesses and a strong track record of

both transformation and disciplined operational and

capital delivery. The Board is working closely with Keith

as we strengthen operational performance and deliver

the ambitious programme of investment now underway

with discipline and focus.

In support of our clear aims and ambitions, we also

announced in February 2026 the creation of a new

Chief Asset Officer role, with Ian Christie joining Pennon

in May 2026. Asset health sits at the heart of reliable

service delivery and environmental performance and

strengthening our asset management capability is a

deliberate step as we enter a period of record investment.

David Sproul

Group Executive Chair

Water Group RoRE^

6.7%

Water Group RCV^

£6,505m

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Knapp Mill

Alderney

Ian brings extensive experience in asset management,

operational delivery and system planning, and will play

a key role in ensuring that asset health and long-term

resilience sit at the centre of decision-making across

the Group.

Alongside this transition we have continued to evolve

our Board and leadership structure to ensure the right

capabilities are in place for the next phase of the business.

Iain Evans stepped down from the Board on 31 March

2026 after nearly seven years of service, including as

Senior Independent Director. I would like to thank Iain for

his thoughtful challenge, wise counsel and commitment

to the Company over many years. Andrew Haines,

appointed as a Non-Executive Director in November 2025

and assuming the role of Senior Independent Director

from 1 April 2026, brings extensive experience from

across regulated infrastructure sectors, most recently

as Chief Executive of Network Rail.

With these changes now in place, the work of the

temporary Operating Committee that I supported as

Executive Chair over the leadership transition period

has concluded. I’d like to thank Laura Flowerdew, Sarah

Heald and Andrew Garard for their work and dedication

serving on the Operating Committee during this period.

I resumed my Non-Executive Chair role on 1 April 2026

when Keith joined as Chief Executive and I will continue

to ensure continuity of governance and oversight as the

Group enters the next phase of delivery.

Our performance

The Group has returned to profitability during the year,

with underlying EBITDA^ increasing by 55% compared

with the prior year to £519.2 million. This reflects tariff

increases in the first year of AMP8 as well as improving

underlying performance across the business with the

early benefit of operational efficiencies as well as the

investment programmes now underway. Group Profit

Before Tax was £114.4 million compared to a prior year

loss of £72.7 million.

Our first year has seen Water Group RoRE performance

of 6.7%^, reflecting benefits from financing and Totex

performance, partially offset by the in-year impact of

operational performance challenges from weather extremes.

“

April 2025

marked the

beginning of the new

regulatory period

and the start of

the most ambitious

investment

programme in

Pennon’s history.

Operational and environmental performance

The year has once again demonstrated how rapidly

the operating environment for water infrastructure is

changing. Conditions during the year ranged from one

of the driest springs on record to intense storms and

exceptional rainfall later in the year. The South West of

England experienced five named storms with around

150% of average rainfall during November and December

2025, rising to 190% in January and February 2026,

placing significant pressure on both our water and

wastewater networks and resulting in net operational

penalties of £42.0 million.

These extremes, and the

impact on our performance, highlight the increasing

volatility created by climate change and reinforce the

need for sustained investment in resilient infrastructure.

Despite these challenges and the disappointing

outcome, we continue to make progress in improving

environmental performance across the Group, including

on a number of measures monitored by the Environment

Performance Assessment (EPA). We know we have

further to go, but our Pollution Incident Reduction Plan

is delivering measurable improvements with a c.34%

reduction year-on-year in pollutions and normalised

pollutions reduced by c.53%. Disappointingly, our

provisional assessment for the 2025 EPA rating is 1* as

pollution incidents, although improved, were still above

target, and our WINEP programme did not achieve full

delivery in the year, with four projects not finalised by

March 2026.

Storm overflow use reflects a 17% reduction over the

past year, with spill duration reducing c.25% as a result

of continued investment in our infrastructure despite

the higher than average rainfall, particularly in the last

months of the year. During the 2025 bathing season,

storm overflow usage at bathing water sites reduced

by more than 25% year-on-year and 96.2% of bathing

waters in the South West were classified as Excellent or

Good. South West Water maintained 100% bathing water

compliance for the fifth consecutive year.

We recognise the significant impact sewer flooding

can have on customers when homes, businesses and

properties are affected. Internal sewer flooding incidents

remained strong, although increased year-on-year to

1.20 per 10,000 connections; around one-third of this

increase is due to the exceptionally high rainfall and

weather events, with underlying performance consistent

with previous years and we are focused on ensuring we

deliver at these levels going forward.

^ Measures with this symbol are defined in the Alternative performance

measures (APMs) as outlined on pages 218 to 220

1. Net ODI penalty across water and wastewater (excluding customer

measures of experience) for both in-period and end of AMP measures,

reflecting adjustments for items under review with Ofwat and third-

party impacts.

This performance still delivers strong outperformance

against the target of 1.34 and we expect it to remain a

strong position compared with industry performance.

We are also strengthening our water quality and water

resource resilience through upgrades to treatment

works, enhanced monitoring and increased focus on

asset health. Our targeted investment in AMP7 coupled

with high rainfall across the winter months, meant that

storage levels finished the year at c.98% – well ahead

of anticipated needs in the summer months.

Our water quality performance continues to strengthen

– a testament to our Quality First approach. SES Water

maintained their industry-leading water quality position,

whilst South West Water maintained a strong sector-

wide position and Bristol Water saw year-on-year

improvements.

Reducing leakage remains central to long-term supply

resilience. The year presented significant challenges,

particularly in the South West, due to extreme weather

conditions increasing pressure on our network resilience

and caused higher burst frequency across our networks.

Whilst Bristol Water met leakage targets, South West

Water’s efforts were impacted by these weather

conditions and SES fell slightly short of the reduction

required to meet the year one target. Our teams remain

focused on fixing leaks, as record activity in leak

detection and repair was achieved with more fixes carried

out than ever before.

Group Executive Chair’s letter continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

The impact that weather had on leakage also impacted

on our supply interruption performance, as a result of

an increase in burst pipes. Despite these challenges, our

operational teams ensured that around 75% of bursts

resulted in no impact to customer supply.

We continue to deliver environmental gains, having

restored 254 hectares of peatland during the year,

engaging 2,370 people in events, volunteer days and

school excursions. Pennon Power also plays a central

role in driving gains 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.

Two solar projects were fully constructed by March 2026,

with Aberdeenshire at full generation and Fife energised

and in commissioning stage. Two further sites are on

track for energisation and commissioning in 2026/27.

Supporting customers and communities

Supporting customers and communities remains central

to Pennon’s purpose.

The start of the new regulatory period saw bill increases

across the sector reflecting record levels of investment

in infrastructure and environmental improvements.

Understandably this has heightened sensitivity around

affordability for many households.

Group Executive Chair’s letter continued

Peatland restoration

Sidmouth beach

In response, we have continued to strengthen support

for customers needing additional help, through our

£200million support package across this five-year period

coupled with our affordability toolkit. Over the past year, we

saw a 11% year-on-year increase in those benefitting from

that toolkit and support available, and we continue to focus

on proactively providing support to those who need it most.

We also remain focused on supporting customers with

the tailored services they need through our Priority

Services Register (PSR). c.309,000 customers are now

registered for additional help during an incident.

We have also listened to our customers and the feedback

they have given us on our services and continuously

feed this back into our business. Initiatives such as

WaterShare+ also continue to give customers both a

voice and a stake in how their water company is run. We

know that we are a critical part of the communities we

serve and are building in their feedback, particularly on

how we can do more to communicate and engage, to our

strategy going forward.

Mobilising the AMP8 investment programme

and delivering on our four priorities

The challenging weather events in the year underline

the importance of sustained investment in resilient

infrastructure as climate extremes become more frequent

and more severe. April 2025 marked the beginning of the

new regulatory period and the start of the most ambitious

investment programme in Pennon’s history.

Our acceptance of the PR24 Final Determinations

enabled us to accelerate mobilisation of our £3.2 billion

investment programme to 2030. This programme is

focused on strengthening water resource resilience,

improving environmental performance and upgrading

critical infrastructure across the regions we serve.

Early progress has been made as we continue to

work hard towards our longer-term goals in AMP8.

We are securing efficiencies as projects move from

design into delivery, and are increasing focus on asset

health and base expenditure to ensure that networks

remain resilient, while delivering the step-change

in environmental performance expected during this

regulatory period.

Legal and regulatory proceedings

Whilst we have made good progress in the past year,

enforcement undertakings agreed with Ofwat around

our wastewater business and the conclusion of the

Drinking Water Inspectorate’s (DWI) prosecution against

South West Water for the 2024 Brixham water quality

incident both underline that we must deliver with greater

rigour and discipline. We recognise the impact on both

customers and the environment from these incidents, and

that we must do more to live up to the expectations of

the customers and communities we serve. I also reiterate

our unreserved apology for the impact that the Brixham

incident had on customers, their families and the wider

community. It is now vital that having reflected on the

learnings from these situations, we embed improvements

across our operational businesses and take from them

a drive to improve our delivery for customers and better

protect the environment as we move forward.

Looking ahead

The reforms proposed through the Cunliffe Review and

the Government’s White Paper signal a new era for the

UK water industry, one that places greater emphasis on

transparency, accountability and long-term investment.

Delivering on these expectations requires sustained

focus, disciplined execution and strong collaboration

across government, regulators and companies.

Pennon enters this new phase with a refreshed and

strengthened leadership, a clear strategy and the

largest investment programme in our history underway.

Our £3.2 billion

programme that runs to 2030 will

deliver improvements to water quality, environmental

performance and infrastructure resilience across the

regions we serve. In addition, we have made a submission

to Ofwat for a further c.£250 million

of investment, under

the new ‘cost change process’, which will provide a further

growth opportunity whilst supporting resilience.

This has been a year of progress – but also transition

and challenge, that provides strong foundations for the

future. On behalf of the Board, I would like to thank our

colleagues across the Group for their dedication and

professionalism in delivering essential services every day.

With a renewed purpose and a strengthened leadership

team, Pennon is well positioned to deliver for customers,

communities, shareholders and the environment in the

years ahead.

David Sproul

Group Executive Chair

Pennon Group plc

1. In forecast outturn prices.

2. In 2022/23 prices.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Group Chief Executive Officer’s introduction

I was delighted to join Pennon as Chief

Executive in April 2026, at an important

moment both for the Group and for the

wider UK water sector.

During my short time with Pennon, I have prioritised

meeting colleagues across the Group, visiting operational

and capital delivery sites, and completing deep dive

sessions on our performance. I have learned a great deal

and been struck by the professionalism and commitment

of our teams, who deliver essential services for customers

and communities every day.

As Pennon enters a new era under my leadership and

transitions into the AMP8 regulatory period, we do

so from a solid base. The business has returned to

profitability and has mobilised the largest investment

programme in its history. This programme will deliver

significant improvements in water quality, environmental

performance and heightened resilience of the systems on

which our customers depend.

My focus as Chief Executive is clear: to ensure Pennon

consistently meets high standards of operational

performance while delivering the ambitious programme of

investment for improved outcomes we have set out with

discipline and efficiency. Whilst we demonstrate industry-

leading performance in some areas, we clearly have work

to do on some of our customer-led measures.

Improving environmental performance will be central

to that effort, both through our leading catchment

management and biodiversity work and our operational

delivery. We are already seeing tangible progress through

the implementation of our Pollution Incident Reduction

Plan and through sustained investment in our wastewater

infrastructure. Building on that progress with further

focus on operational excellence and introducing industry

best practice will be a key priority for the Group and me

in the years ahead.

We have strong foundations to enter

our next phase and transition to AMP8.

“

My commitment

is simple: Pennon

will be a company

that delivers

– consistently,

transparently and

with pride in the

service we provide.

We will earn the trust of our customers, the communities

we serve and the shareholders who invest in the business,

by showing our commitment to innovate, transform and

deliver on our promises.

I was also deeply saddened by the impact our business

had on customers in the Brixham area during the 2024

cryptosporidium incident. Whilst I have only been CEO

for a few weeks, it is very clear that we must learn lessons

from this incident and work hard to rebuild trust with the

customer and communities we serve, both in Brixham

and beyond. My focus will be on ensuring we drive

improvements in the way we operate, how we communicate

and support our customers, and delivering a step change in

our performance for our customers and the environment.

I am clear that asset health and long-term system resilience

will also be fundamental to delivering reliable services for

customers and improving the environment. The creation

of the Chief Asset Officer role, with Ian Christie joining the

Group in May 2026, reflects the importance being placed

on strengthening asset management capability as we

deliver our investment plans, focus on improving operational

performance and prepare for future business plans.

The UK water sector is entering a period of significant

change as expectations of environmental performance,

transparency and long-term resilience continue to rise

and the regulatory landscape is reshaped. Pennon is well

positioned to respond and deliver for our stakeholders

in this new era, with a clear strategy, strong regional

businesses and a committed workforce.

I am excited and privileged to lead Pennon and look

forward to working with colleagues across the Group to

transform our operational practices into industry leading

performance and outcomes across all areas. This will allow

us to build trust and deliver against the expectations of

our customers, communities and stakeholders.

Keith Haslett

Group Chief Executive Officer

Keith Haslett

Group Chief Executive Officer

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our business model

Our business model is designed to deliver reliable, regulated water and

wastewater services today, while investing at scale to improve environmental

performance, strengthen resilience and support long-term value creation.

AMP8 represents the primary delivery mechanism for our business model,

translating these foundations into measurable improvements in performance,

resilience and environmental outcomes, while supporting sustainable returns

over the regulatory period and beyond.

Our strategy and business model

Our business model and

clear strategic priorities.

Our four strategic priorities underpin and define everything we do.

Building water resources,

improving water quality

Tackling storm overflows

and pollutions

Supporting affordability,

delivering for customers

Driving environmental gains

and delivering Net Zero

Customers

• Delivering reliable services and resolving issues right first time to

minimise complaints

• Providing clear, timely and accessible communication across all

customer interactions

• Responding quickly and effectively to unplanned interruptions

and service failures

• Using customer insight and feedback to drive continuous service

improvement

• Supporting customers in vulnerable circumstances through

proactive and tailored engagement

Communities

• Supporting local jobs, skills and regional supply chains

• Investing in community and educational programmes

• Building partnerships with local authorities, charities and

environmental groups

• Enhancing access to land, nature and wellbeing benefits

• Stronger local economies and communities

• Long-term social value delivered alongside infrastructure

investment

• Trusted relationships across our regions

People

• Maintaining a strong focus on health, safety and wellbeing

• Developing skills and capability for a future ready water industry

• Promoting inclusive, diverse and high performing teams

• Encouraging open dialogue, engagement and accountability

• A safe, supportive working environment

• High levels of colleague engagement and capability

• A skilled workforce equipped to deliver long-term resilience

Suppliers

• Acting fairly and transparently, in line with the Prompt Payment

Code

• Working collaboratively with supply chain partners to deliver

outcomes

• Supporting SMEs, innovation and skills development

• Maintaining high standards of safety, ethics and sustainability

• Resilient and responsible supply chains

• Innovation that improves outcomes for customers and the

environment

• Shared value creation throughout AMP delivery

Investors

• Delivering a stable, risk-balanced and long-term investment

proposition

• Investing efficiently to enhance asset resilience and

environmental performance

• Maintaining strong financial discipline and robust governance

• Providing clear, transparent and high-quality reporting

• Long-term, sustainable returns aligned with regulatory

frameworks

• Strong governance and prudent financial management

• Confidence in Pennon’s ability to deliver across regulatory cycles

Regulators and policy makers

• Delivering against PR24 commitments and statutory obligations

• Maintaining open, proactive and evidence-based regulatory

engagement

• Providing timely, accurate and transparent reporting

• Supporting government objectives on affordability, resilience,

public health and the environment

• Informing policy development through operational insight and

innovation and the environment

We create value for our stakeholders:

Clean Water

Wastewater

Pennon Power

Retail

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Providing high-quality drinking water

and effective wastewater services.

1. Upstream catchments

We actively manage upstream catchments to protect

water quality at source. This includes land stewardship,

partnership working with landowners, and nature-based

solutions that reduce pollution, improve biodiversity, and

enhance long-term resilience of water resources and

quality.

2. Raw water reservoirs/water resources

We ensure a resilient and sufficient supply of raw water

through the operation of reservoirs, abstraction points,

and water resource systems. Careful balancing of river

flows, reservoir storage, and abstraction supports

environmental protection while maintaining reliable

supplies for customers and future growth.

3. Water treatment works

Raw water is treated at our water treatment works

to meet stringent drinking water quality standards.

Using advanced treatment processes and continuous

monitoring, we ensure water is clean, safe, and reliable

before entering the distribution network.

4. Drinking water mains network to homes and

businesses

We operate and maintain extensive drinking water

mains networks that deliver potable water to homes

and businesses.

5. Customer services

Domestic and non-household customer services, billing

and help provided from our call centres.

6. Wastewater mains network and surface

water catchment

Our wastewater collection systems safely transport sewage

and surface water away from customers’ properties.

7. Wastewater treatment works

(including businesses)

Wastewater from households and businesses is treated to

high regulatory standards before being safely returned to

the environment. Our treatment works play a critical role

in protecting public health, environmental quality, and

regulatory compliance.

8. Renewable energy

We generate renewable and low-carbon energy

from sustainable technologies. This reduces carbon,

enhances energy resilience, and contributes to our wider

environmental and Net Zero, while supporting long-term

value creation.

9. Recycling waste into bio-resources

By recovering bio-resources such as sludge during

wastewater treatment, we convert waste into valuable

products. These processes support a circular economy

through the production of biosolids for agriculture and

feedstocks for renewable energy generation.

What we do

We manage the full water cycle — from raw

water collection and treatment through

to wastewater treatment and recycling —

ensuring reliable services, environmental

protection and long-term resilience.

Alongside water and wastewater services, Pennon Power

supports operational resilience and Net Zero through

renewable energy generation.

Our activities are integrated across regions and services

to maximise efficiency, protect the environment and

deliver better outcomes for customers.

Our strategy and business model continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our plans to 2030

Our strategic priorities ensure we remain focused

on delivering on our plans to 2030.

AMP8: ambitious plans,

delivering at scale

Our plans to 2030 represent the most ambitious in

Pennon’s history, focused on delivering for our customers

and communities. These plans will allow us to deliver on

our 2030 targets; and start delivering on our long-term

strategy, supporting people and the places they love for

generations to come through high-quality water and a

thriving environment across our regions.

To support the delivery of our ambitions, we have

reshaped the organisation around our four strategic

priorities, strengthened governance and oversight

through our review and reporting processes, and

increased frontline capability. These changes will enable

us to drive improvements in operational performance,

whilst providing a robust platform for sustained delivery

through the remainder of AMP8.

Whilst AMP8 represents our largest ever capital

programme, capital deployment is critical, to deliver

efficiently and to focus on those areas and issues

that matter most to our customers, regulators and

investors: environmental improvement, resilient water

supplies, affordability, service quality and long-term

financial sustainability. Strong efficiency opportunities

are emerging early with Totex outperformance being

captured as we progress through design stages in our

capital programme, reflecting disciplined execution,

effective procurement and the benefits of our right-sized

delivery model.

Progress in 2025/26

98%

reservoirs full

53%

reduction in normalised pollutions

c.17%

reduction in storm overflow spills

8,300

estimated spills avoided

5,138

hectares of active management on farms

and peatland restoration delivered by

Upstream Thinking

Customer making a cup of tea

Delivering for the environment

We are passionate about protecting the environment on

which we rely across all our regions. From our Upstream

Thinking programme, which protects catchments and

improves the quality of water in our rivers, to our Pollution

Incident Reduction Plan, we constantly strive to do more

and reduce both our own and others’ impact on the

natural environment.

Environmental performance is therefore a central pillar of

our plans to 2030, with investment targeted to continue

improving the bathing waters of Devon and Cornwall.

Our storm overflow investment programme, coupled

with wastewater upgrades and expanded monitoring and

network control, will deliver improved outcomes for the

environment, focused on those areas our customers have

told us are their priority. With 291 storm overflow schemes

underway through our WINEP programme, as well as

additional interventions to reduce average spill numbers

and ensure wider improvements for the environment, we

are seeing the benefit through lower repeat pollutions

and reductions in storm overflow spills, despite continued

above average rainfall and the impact of climate change.

Alongside infrastructure investment, nature-based

solutions and catchment management play an important

role in reducing environmental risk and improving raw

water quality. We continue with our programme to reduce

the levels of nutrients in our final effluent when returned

to the environment improving water quality. A nature-

based scheme which reduces phosphorus through a

non-chemical solution at Highampton is one of 34

planned in this regulatory period.

Catchment programmes now operate across 95% of our

catchments, embedding cost-effective solutions that

support biodiversity, climate resilience and regulatory

compliance. This integrated approach strengthens

environmental outcomes whilst improving the

sustainability of operations over the long-term.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

c.195,000

customers benefiting from our financial

support framework

c.309,000

priority services customers across

the Group

Long-term water security is being reinforced through

a balanced approach to supply and demand. Demand

reduction initiatives are progressing; our smart metering

programme is well underway, providing customers

with more options around water tariffs, helping them

understand how much water they use and how they can

become more water efficient, whilst also helping identify

leaks in their homes early – saving both water and money.

We have also fixed more leaks than ever before and we

are learning from the data and work we have done, to

drive improved understanding and focus as we progress

into the second year of delivery.

We are also looking beyond 2030, to ensure we are

planning for long-term supply needs; we continue to

progress our Strategic Resource Options in partnership

with Wessex Water, considering options from new

reservoir capacity to water reuse schemes, and progress

through regulatory gateways to meet the scrutiny and

challenge that such significant schemes require.

Together, these schemes will reduce the risk of exposure

to climate change, population growth and extreme

weather over the long term.

Finally, our renewables business, Pennon Power, has

achieved significant milestones with two projects now

energised, and the remaining two on track for delivery

in 2026/27. We have also moved forward with smaller

‘behind the meter’ projects in the South West that

provide significant value in terms of ensuring resilient

power supply and costs across the Group for progressing

in the year ahead.

Delivering clean, reliable drinking

water to all

Customers consistently rate the provision of clean, safe

drinking water as their number one priority. Our plans

therefore focus on continuing to strengthen the resilience

of water supplies and resources. Investment is underway

to continue to strengthen drinking water quality across all

parts of our regions as well as ensuring reliability through

major upgrades at key treatment works, continued lead

pipe replacement and enhanced water quality assurance

processes. Lessons learned from operational incidents

are being embedded across the Group, strengthening

operational monitoring, risk management and customer

communications.

“

A healthy environment is a

defining priority for customers

and communities. In the face

of climate change, ecological

decline and increasing

recreational use of rivers

and seas, customers and

stakeholders rightly expect

environmental leadership

from us.

Delivering for our customers

Our plans were built on the priorities and feedback of

our customers, whether in the Isles of Scilly, Plymouth,

Bristol or Redhill. We work hard to keep customers at the

heart of our businesses, although recognise that with bill

rises in 2025/26, this has been a difficult year for many.

We increased bills after careful consideration, and having

undertaken extensive customer research to ensure that

the investment programme driving the increases was the

one supported and prioritised by customers; we heard

from them that they wanted improved services and did

not want to defer the cost of these improvements for

later generations to pay for.

We recognise that water is vital for life, and therefore for

many, any increase is unaffordable. Our customer teams

have worked tirelessly to support customers, and we have

increased customer support by 11% year-on-year and

continue to do so, with support for customers who need

it, identified proactively through our data-led modelling.

Notwithstanding the relentless focus of our colleagues,

we have seen increased customer contact following

the industry-wide bill rises, and recognise there is more

to do to improve our services. We are investing heavily

to improve our customer technology platforms, with

upgraded telephony implemented in the year, and an

end-to-end customer services platform anticipated to

be in use during 2026/27. This will enhance customer

experience, enable improved communications whilst

supporting efficient delivery by enabling improved self-

service, allowing customers to engage when they want.

As we implement and embed these technologies, we

anticipate further opportunities to enhance and improve

our service, as well as further benefit from AI and other

technological developments.

Energy resilience

Increased renewable generation is reducing exposure

to energy price volatility, improving energy security at

treatment works and pumping stations, and supporting

emissions reductions where renewable assets are

installed on-site. Continued investment in energy

efficiency and environmental research further underpins

long-term sustainability, resilience and cost stability.

Delivering through our people and

our supply chain

Our people are a critical enabler of our delivery and

long-term performance. With c.4,000 colleagues across

the Group, increased investment in frontline roles,

and alignment of our organisation structure with our

delivery priorities, we have been strengthening our

operational capability and execution. We continue to

focus on ensuring a strong executive team, effective

delivery across all areas of our plans, and a focus on clear

accountability and a refreshed leadership team.

Our capital programme requires careful capital allocation

and a structured approach to delivery, to ensure that

investment converts into effective, compliant assets and

measurable outcomes. Our in-house Engineering team

is working collaboratively with our amplify delivery

alliance to progress delivery in line with a clear set of

principles; sequencing for outcomes, mobilising at scale

and efficient delivery.

We have rephased the five-year programme through a

carefully governed approach to mobilisation, prioritising

safety, design maturity and a focus on control of cost and

schedule ahead of construction ramp-up. Ensuring we

get design right up-front, will ensure our outcomes meet

the needs and provide the best outcomes for customers

and the environment.

Our approach also ensures standardisation across the

programme, early contractor involvement and robust

value management to maintain pace whilst meeting high

standards of safety, environmental compliance and quality,

reducing execution risk across the programme.

1. Customers have benefited from one or more of our affordability

initiatives since 2020.

Our plans to 2030 continued

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Our plans to 2030 continued

Financial discipline and delivery

confidence

Financial discipline and delivery confidence for AMP8 is

underpinned by a resilient financial position and disciplined

capital management. We have strengthened liquidity and

ensured capacity to fund record levels of investment while

maintaining balance sheet strength and sustainable returns.

Falmouth

Tariff profiling and strong cost control support stable

cash flows and allow for funding to be raised across the

period. Investment in people, delivery capability and supply

chain partnerships remains central to execution. Through

structured mobilisation, disciplined sequencing and a

continued focus on efficiency, we are maintaining a clear

line of sight from investment to outcomes. This approach

ensures AMP8 is delivered responsibly, at scale and at

pace – strengthening resilience, improving environmental

performance and creating long-term value for customers,

communities and investors.

Delivering on our promises to customers

Protect rivers & beaches

Safe and reliable water

Bill affordability

Easy to contact

Climate-ready future

Customer voice

Reduced spills and pollution through sustained investment in

networks, treatment works and catchment solutions.

Continued investment in treatment works and resilience to

deliver high-quality, dependable drinking water.

Record affordability support provided to over c.195,000

customers through targeted tariffs and debt support.

More frontline colleagues and improved digital services,

delivering faster responses and better outcomes.

Significant investment in resilience, leakage reduction, and

low-carbon solutions to future-proof services.

Customer panels and WaterShare+ insights shaping investment

priorities and service improvements.

Customers said We did

1. Customers have benefited from one or more of our affordability initiatives since 2020.

Strategic Report

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Our 2030 plan: outcomes that

drive value

Our 2030 plan defines the long-term outcomes we

expect AMP8 to deliver. These outcomes address the

most material risks and opportunities facing the business

and are closely aligned with regulatory expectations,

ESG priorities and long-term financial sustainability. We

have focused on delivery, building on our track record of

efficiency and performance improvement.

Investment over the regulatory period continues to be

financed through a combination of investor and customer

funding, with around two-thirds provided by investors and

one-third by customers. Our financing strategy remains

robust, supported by both debt and equity investors and

underpinned by a clear, predictable regulatory framework

for AMP8.

These outcomes shape every element of our AMP8

programme and provide a clear framework for measuring

progress alongside an extensive enhancement

programme, focused on tackling the biggest issues head

on, delivering for our customers, based on the priorities

they have shared.

Strategic priorities

Building water

resources, improving

water quality

Tackling storm

overflows and

pollutions

Driving environmental

gains and delivering

Net Zero

Supporting

affordability, delivering

for customers

Planned investments

over AMP8

We are investing in new

treatment works and reservoirs,

and addressing lead pipe issues

to ensure a clean and reliable

water for all.

• Upgrading one-third of the

water treatment works

• Reducing leakage to less than

10% on our networks – with

a 19% reduction in the South

West region, and 14% reduction

in the Bristol and SES regions

• Lead pipes replacement for

40,000 customers

• Renewing or replacing c.440km

of water mains

• Creating a water grid to

improve connectivity of our

strategic reservoirs

• Investing in large reservoirs,

starting with Cheddar 2 in

Bristol, a significant project

spanning several AMPs

We are investing to address

storm overflows at bathing and

shellfish waters by 2030

• 291 overflow improvements

– 100% of storm overflows at

bathing waters addressed

• Removing rainwater draining

into our sewerage network by a

volume equivalent to over 350

hectares

• Adding over 250,000m

storage in the network and

at treatment sites to reduce

overflows by 62% from 2023/24

levels

• Taking a ‘Green First’ principle

for tackling storm overflows

• Reducing pollution levels and

upgrading over 200km of our

sewer network

We are committed to reaching

Net Zero, investing in climate

resilience and adaptation, and

strengthening our environmental

efforts

• Planting a further 300,000

trees to boost nature recovery

• Recycling more waste and

generating energy to power

20,000 homes

• Expand our award-winning

Upstream Thinking catchment

management programme to

145,000 hectares by 2030

• 10% reduction in the amount of

phosphorous entering rivers –

improving water quality

Despite doubling our investment

programme in AMP8, we are

committed to keeping bills as

low as possible and supporting

people with the cost of living.

• Extended our zero water

poverty pledge to 2030

• Ensure fair charging for our

customers

• SMART metering installations

for one-third of our customer

base – helping them to use 5%

less water

• 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

Our operational KPIs

• Water quality (CRI score)

• Supply interruptions

• Taste, smell and colour

• Leakage

• Unplanned outages

• Mains repairs

• Pollution incidents

• Numeric compliance

• Internal sewer flooding

• Sewer collapses

• External sewer flooding

• Sewer blockages

• Average spills

• Bathing waters

• EPA

• Catchment management

• Scope 1 and 2 GHG reduction

• Renewable electricity

generation

• Biodiversity units

• PSR volumes

• Number of customers on social

tariffs

• Customer measure of

experience (C-MeX)

• Business customer and retailer

measure of experience (BR-

Mex)

2030 outcomes

Strengthening resilience Strengthening resilience Protecting the environment Delivering for customers

Looking ahead to 2030, we are focused on addressing the most pressing challenges facing our regions, supported by a commitment to

sustainable returns and building trust through transparency and responsible operations. These outcomes align with Ofwat’s expectations, our

ESG priorities and the long-term financial sustainability of the business.

Our plans to 2030 continued

Strategic Report

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Our people and culture

Our people are at the heart of the value

we create. In a year where public and

regulatory scrutiny of the water sector

has intensified, our colleagues have

played a critical role in maintaining

essential services and delivering

improvements for the customers

and communities who rely on us.

With nearly 4,000 colleagues across our Group, we

understand the scale of our responsibility both as a major

employer and as a provider of essential public services.

Our priority is to create a working environment that is safe,

inclusive and future-focused – one that develops skills,

supports wellbeing and reflects the values we expect of

an organisation delivering essential services. This year

we strengthened colleague engagement, built capability

across our teams and reshaped the Group to ensure we

are better aligned and prepared to deliver the outcomes

our communities depend on, now and in the future.

Prepared to deliver

This year we have continued to shape the Group so

we are set up to deliver with greater clarity, capability

and operational focus. We have aligned our structures,

strengthened frontline teams and made progress in

ensuring we operate as one integrated organisation.

These changes mean we are better positioned to meet

the delivery challenges in AMP8 and beyond and respond

confidently to heightened scrutiny across the water

sector. We welcomed our new Group Chief Executive

Officer on 1 April 2026, through a series of in-person meet

and greets across the Group. Keith has held open forums

in order to share the next phase of our transformation,

and to encourage transparency with colleagues.

Our values and culture

Our culture remains the foundation of how we work and

how we deliver for our customers and communities. This

year we continued to embed our values Be You, Be Rock

Solid and Be The Future, ensuring they guide the decisions

we make, the standards we set and the behaviours we

expect every day. Our values are now firmly part of the

colleague experience – from onboarding and training, to

recognition and leadership development. In the spirit of

‘Be You’ we continued to reinforce our values through our

engagement programmes – including colleague listening

through our Employee Network Groups, and our ‘You Rock’

Awards, which celebrate those who live our values in action.

These initiatives have helped colleagues feel more

connected to our purpose and to each other,

strengthening a sense of shared ownership and pride.

A key focus has been strengthening leadership at every

level. We know that leaders have a defining influence on

culture, and this year we have continued to develop the

skills, confidence and capability our leaders need to set

clear expectations, support their teams and role model

our values. This includes equipping leaders to have open,

constructive conversations, build trust, and create an

environment where colleagues feel heard, respected and

empowered to perform at their best.

We remain focused on building a workplace where

people feel supported, safe and motivated, and where our

values translate into high-quality service and responsible

decision-making. This work will continue to evolve as we

welcome new leadership and move into the next phase of

our transformation.

Learning and development

Building the capability of our people remains essential to

delivering high-quality services and strengthening our long-

term organisational resilience. From leadership to managers

to colleagues, we invest in development at every level,

ensuring they have the skills, confidence and support they

need to succeed in a period of heightened expectations and

operational focus.

Leadership Development

A key part of this has been investing in our leaders through

a bespoke leadership development programme designed

for the needs of our Group – ‘Leading for the Future’. This

programme focuses on equipping leaders to role model our

values, enable high performance, support colleague wellbeing

and lead through change. By strengthening leadership

capability, we are ensuring our people have the clarity,

support and direction required to deliver for customers and

communities.

Empowered to Act

All of our managers attend an ‘Empowered to Act’

programme, designed to equip managers with the

knowledge and practical tools to confidently manage

employee relations decisions, actions and processes

within their teams, supporting consistent, fair and

effective people management across the Group.

H2Grow

We also recently launched our new Group wide Learning

Experience Platform (LXP), H2Grow, giving colleagues

access to a modern, personalised and comprehensive

learning environment. The platform brings together

technical training, professional development, compliance

learning and skills content in one place, making learning

more accessible and more aligned to the needs of our

organisation.

Area 6 Croyde

Bristol – Littleton Water Treatment Works

Early careers

Our commitment to developing future talent remains

strong. We continue to be active members of the

5% Club, reinforcing our ambition to ensure that at

least 5% of our workforce consists of apprentices,

graduates and trainees. Since 2021, we have

onboarded 105 graduates, and we have 75 colleagues

on apprenticeship programmes. Our graduate and

apprenticeship programmes remain a key part of

our talent pipeline, supporting skills development in

priority areas.

Through these initiatives, we are building a learning-led,

future focused organisation – one equipped with the

right skills, leadership and talent to deliver consistently,

adapt to changing expectations and support the long-

term success of the Group.

Recruitment and attracting talent

This year we modernised and strengthened our

recruitment capability by implementing Teamtailor, our

new Group wide applicant tracking system. This marks

a significant step forward in transforming recruitment

and how we attract top talent from across the market.

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Teamtailor is driving Group integration, replacing legacy

systems and a range of localised practices, giving the

Group one consistent way of managing our hiring activity.

This consolidation has improved visibility, streamlined

workflows, and created a more efficient and joined-up

experience for candidates, hiring managers and our

recruitment teams. It also allows us to make better use

of data, enabling clearer insight into our workforce

pipeline and supporting more informed and inclusive

decision-making.

We have refreshed our careers site with a focus on

improving clarity, accessibility and representation so that

our opportunities appeal to a broad and diverse pool of

talent that reflects the communities we serve.

We remain committed to partnerships and programmes

that support fair access and broaden participation.

This includes ongoing involvement in initiatives such as

the Armed Forces Covenant and 10,000 Black Interns,

as well as targeted support for early career talent joining

us through our graduate and apprenticeship routes.

Our commitment to inclusive hiring continues to

strengthen. We closely monitor application trends to

identify areas for improvement and ensure our processes

remain fair and accessible. During the year, 35% of

applicants were female and 45% were from ethnically

diverse backgrounds, signalling healthy engagement from

groups historically not represented in the utilities sector.

With Teamtailor now embedded, we are well positioned

to continue enhancing visibility of opportunities, reduce

unnecessary barriers for applicants, and deliver a

recruitment experience that is modern, efficient and

aligned to our values. This transformation supports our

ambition to attract and retain the skills and talent we

need to serve our customers, protect the environment

and deliver sustainable, long-term growth.

Equity, Diversity and Inclusion

Creating a workplace where everyone feels valued,

supported and able to contribute their best remains

central to our culture and long-term success. This year

we continued to strengthen our approach to Equity,

Diversity and Inclusion (EDI), expanding colleague

networks, improving governance and building the

foundations for greater representation, inclusion and

opportunity across the Group.

Establishing the Pennon Inclusion

Council

To strengthen alignment and accountability across the

Group, this year we established the Pennon Inclusion

Council. This brings together executive sponsors, ERG

leads, inclusion specialists and representatives from

across our businesses.

The Council focuses on:

• Aligning EDI activity across our brands within the Group

• Reviewing representation and workforce insight data

• Monitoring progress against our EDI commitments

• Providing structured challenge and strengthening

governance

• Ensuring inclusion is reflected in strategic workforce

planning

The Inclusion Council ensures EDI is embedded into

how we lead, plan and make decisions, not treated as a

standalone activity.

Broadening access to opportunities

We continued our commitment to creating pathways for

underrepresented groups. This includes our participation

in the 10,000 Black Interns Programme, designed to

broaden access to professional experience for Black

undergraduates and postgraduates.

We also continued working with Change the Race

Ratio, aligning our ambitions for diverse leadership with

nationally recognised standards and strengthening

transparency through annual benchmarking and data

disclosure.

Launching our family friendly policy

As part of our focus on equity, diversity and inclusion,

we have conducted a review across all our regions and

business of our family friendly policies and relaunched

a refreshed approach. Recognising that family life looks

different for everyone, these policies are designed to

support colleagues at important life moments, whether

welcoming a child, growing a family through adoption

or surrogacy, supporting a partner, or navigating fertility

treatment or neonatal care.

Our updated Family Leave policy brings together

Maternity Leave, Supporting Parent Leave, Adoption

Leave, Shared Parental Leave, IVF and Assisted

Conception Leave, and Neonatal Leave into a clear and

consistent framework. It is designed to provide greater

financial support, increase flexibility and choice for

families, and ensure a fair and inclusive approach across

the organisation.

We know that taking family leave is a significant moment,

both personally and professionally. Our aim is to ensure

that colleagues feel supported, informed and confident

before, during and after their leave, reflecting our values

and our commitment to supporting a modern, diverse

workforce.

Expanding and strengthening our Employee

Resource Groups

Our Employee Resource Groups (ERGs) play an essential

role in creating safe spaces, strengthening community

and ensuring colleague voice shapes our policies and

decision-making. Over the past year we have expanded

our networks, increased membership and strengthened

executive sponsorship to ensure each group has a visible

platform and clear influence across the organisation.

Key progress included:

• Growth in membership and wider colleague engagement

• Executive sponsorship for every network

• Annual plans agreed with each ERG

• Increased collaboration between networks to share

learning and insight

• Direct involvement in shaping policy

Our ERGs are becoming an increasingly integral part

of how we listen to our people, helping ensure lived

experience continues to inform organisational priorities.

Bottled water collection station during a Plymouth water outage

In addition, we introduced a flexible bank holiday policy,

enabling colleagues to swap traditional bank holidays

for days that better reflect their cultural, religious or

personal significance – supporting greater inclusivity and

wellbeing.

We are proud to support the registered charity, the

Social Mobility Business Partnership both at a local and

national level. We combine funding its national delivery

programme which enables over 1,000 students across

the UK to access over 3,500 days of work experience, to

providing local work insight opportunities and lifetime

career coaching to young people from low-income

backgrounds across Exeter, Plymouth, Truro, Bristol,

Bournemouth and the South East.

Launching ExtraShare

During 2025/26 we introduced ExtraShare, a refreshed

Share Incentive Plan designed to support greater

colleague participation in Pennon’s long-term success.

The plan enables colleagues to invest in the business

through a flexible pre-tax salary deduction, with a one-

for-three matching share benefit that enhances the value

of their investment. ExtraShare provides a simple, tax-

efficient way for colleagues to build a stake in the Group,

strengthening alignment between our people and the

sustainable growth of the business.

Our people and culture continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our people and culture continued

Our gender and ethnicity pay gap

In the latest FTSE Women Leaders Report, we once

again solidified our standing as a leader in female

representation, securing the gold position for best

performer in the Women on Boards category across the

entire FTSE 250. This external recognition highlights the

progress we’ve made and the impact of our efforts to

improve gender balance at senior levels.

We have published our Gender Pay Gap report for the

past seven years, and this year we are pleased to publish

our Ethnicity Pay Gap report for the second consecutive

year. The latest results show encouraging progress, with

our median gender pay gap reducing from 11.1% to 9.6%

and our median ethnicity pay gap improving from 11.9%

to 10.7%. While these shifts are incremental, they reflect

sustained focus on representation, progression and

fair reward, underpinned by strengthened governance,

clearer leadership accountability and deeper colleague

engagement. Both reports are available on our website:

www.pennon-group.co.uk

We continue to invest in diverse talent pipelines,

including our long-standing graduate and apprenticeship

programmes and our ongoing participation in the 10,000

Black Interns initiative, which is enabling us to attract a

broader range of ethnically diverse applicants. As more

of these individuals join and develop within the business,

we anticipate further positive impact on our ethnicity pay

gap in the years ahead.

Despite this progress, we recognise that sustainable

change requires continued commitment. Our EDI Action

Plan outlines the targeted steps we will take over the next

three years to strengthen representation, inclusion and

accountability.

For detail on our Board and leadership ethnic

and gender representation, please refer to

page 118

Our Three-Year EDI Action Plan (2026–2028)

We have set a focused three-year plan to

accelerate progress on Equity, Diversity

and Inclusion, centred on strengthening

representation, improving inclusion

and leadership accountability, and

expanding social mobility and early

career access.

Strengthening Representation

We will improve diversity across our workforce and

leadership teams by embedding inclusive recruitment

standards, widening senior talent pipelines and

reviewing policies and practices through an EDI lens.

Improving Inclusion and

Accountability

We will enhance workforce insight, increase voluntary

disclosure rates and embed measurable EDI objectives

into leadership performance to ensure inclusion remains

a core leadership responsibility.

Expanding Social Mobility and Talent

Pipelines

We will grow work placements and early career routes,

strengthen progression into apprenticeships and

graduate roles, and increase socio-economic diversity

across our entry level pathways.

Governance and Transparency

Progress will be monitored through strengthened

governance and leadership dashboards and reported

annually through our ESG and EDI disclosures.

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Women in Leadership Four Key RolesWomen on Boards Appendices

Sponsored by

FTSE Women Leaders Review

Achieving Gender Balance

February 2026

Start

Our Three-Year

EDI Action Plan

(2026–2028)

Gender diversity dashboard

In 2025/26, the Pennon Board was 50% female, and women represented 32% of our senior management teams.

Female representation is also maintained at Executive level, including the Chief Financial Officer. Pennon Group

continues to focus on improving gender balance across all levels.

50% Female 50% Male

Male: 4

Female: 4

Gender – Board Gender – senior management

68% Male32% Female

Male: 45

Female: 21

Gender – Group employees

68% Male32% Female

Male: 2,608

Female: 1,201

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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

HomeSafe, the Group’s flagship health

and safety programme

Ensuring our people go home safe to their families every

day remains at the heart of our HomeSafe programme.

We have made progress on each of the four cornerstones

of our strategy supporting our people and reducing risk.

The four cornerstones – Process Safety, Occupational

Safety, Occupational Health and Wellbeing, and Security

– ensure HomeSafe manages risk in all areas of health,

safety and wellbeing.

The four cornerstones are delivered through visible

leadership, ownership and engagement. Combining

these elements has seen improved risk management,

collaboration and engagement.

Cornerstone activity

Process safety

We have placed a relentless focus on improving controls

to assure mitigation of the risks of some of our higher

hazard activities with a particular focus on eliminating

high hazard chemicals, and upskilling teams who work

with and near potentially explosive atmospheres. We have

introduced the concept of Potentially Serious Incidents

or Fatalities (PSIF) to increase near miss reporting and

focus learning on those areas with higher impacts.

This approach is in line with other water companies

across the UK to collaborate on learning opportunities,

reducing risk in the sector.

Occupational safety

We continued our engagement with teams through our

HomeSafe Live events. We held interactive scenario-

led sessions focused on situational awareness and the

importance of making the safest choice.

Our Site Pride Initiative continues to drive the highest

levels of standards at operational and office locations,

and work vehicles.

We continued our established events including the

annual HomeSafe advent calendar where teams use

fun, engaging ways to deliver serious health and safety

messages to the Group, with over 10,000 views of

these materials on the website, providing high levels

of penetration.

Occupational health and wellbeing

We joined water sector colleagues for the annual

Movember Campaign, with Pennon raising £6,000

for the research into men’s health. We held several

Cancer Survivor Video presentations to increase

awareness. A new Women’s Health Employee Network

Group was launched, sitting alongside the 11 other

Health and Wellbeing Groups, including Neurodiversity

Representation, Mindfulness and Menopause Support.

A specific Men’s Health Group was launched in March,

and we have expanded our Employee Assistance

Platform (EAP) offering and implemented this into

the SES business.

Security

This year’s Security and Emergency Measures Direction

(SEMD) return was developed with heavy engagement

with the internal and external stakeholders and

regulators, at all stages. We have driven Security culture

across the Group through numerous engagement

campaigns. The Group is on track with its undertakings

in line with agreed milestones and investment plans to

improve security and emergency planning capability.

Our HomeSafe 2030 strategy continues to shift our

focus towards leading measures, skills, competencies,

assurance and positive actions, setting clear expectations

across the Group to ensure everyone goes HomeSafe

every day.

In the year we delivered a stable year in terms of total

injuries, however over the winter period we had an

increase in the number of short duration lost time

incidents, almost exclusively as a result of a slip or trip.

Consequently, our number of lost time incidents and our

Lost Time Incident Frequency Rate (LTIFR) increased.

We ended the year at 28 lost time incidents, with over

half of these happening between December and March.

Our LTIFR increased from 0.24 to 0.39. We have

developed re-energising plans for the new year to

address this, reconnecting people to the emotional

elements of why HomeSafe is so important to everyone

at Pennon.

Our people and culture continued

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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.

Pennon, a business that

listens and acts.

Suppliers

Read more on page 26

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Sidmouth

Customers

Who they are

Our businesses provide water and

wastewater services to 4.3 million

residents across the South West

and Sutton and East Surrey regions.

Each year, we also support around

10million visitors to the South West,

making our services vital not only to

local communities but to the regional

economy. Nationally, we serve 210,000

business customers across England

through our non-household businesses.

Why we engage

We know that trust matters. It is built not only through

the quality of the services we deliver, but also through

how we communicate, how we listen, and how we

respond when things change or when customers need

extra support. Over the past year, those expectations

have been tested.

Our plans to 2030 and our four strategic priorities are

built on the priorities and feedback of our customers and

communities. We know that our investment programme

will take time to deliver, and customers have told us

clearly that they want to be kept informed about the

progress we are making, the impact of that investment,

and the difference it will make locally. They have also

told us that how we communicate matters, particularly

during periods of change, such as bill increases, service

disruption or major infrastructure works.

Customers across all our regions have continued to

face cost of living pressures. At the same time, water

bills have risen across the sector to support a major,

regulator-approved investment programme. We know

this combination has been challenging, particularly in the

South West, and we do not underestimate the impact it

has had on household budgets and customer confidence.

Engaging with an SES customer

Key highlights

80,000

customers are shareholders

through WaterShare+

260+

customers joined our WaterShare+

meetings and spoke directly to our

Executive

Stakeholder engagement continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Stakeholder engagement continued

Newton Abbot Outreach Programme

How we engage

Against this backdrop, affordability and customer

experience have been central to our work. Our focus has

been on responding in a way that is both compassionate

and practical: keeping bills as low as possible through

efficiency, expanding financial and practical support for

those who need help, improving service where customers

told us it was falling short, and learning quickly from

feedback so that we can do better.

Customer insight underpins both our long-term strategy

and our day-to-day decision-making. Our plans to 2030

are built on a deep understanding of what matters most

to customers and communities, with our sector-leading

WaterShare+ panel at the heart of this approach.

Through WaterShare+, customers provide structured

challenge, shape key decisions and hold us to account.

We also benefitted from the opportunity to participate

in Consumer Council for Water’s (CCW) WaterVoice

accountability sessions, launched this year across the

sector, to listen, feed back, and agree actions in respect of

three issues raised by customers. The fresh perspective

this brought highlighted the need for heightened

communication and extensive engagement, and we

welcome the opportunity to receive feedback through

a different lens, on some familiar themes.

We draw on a wide range of evidence to understand

customer needs and expectations. Building on our extensive

PR24 research programme, we engage continuously through

service surveys, post-interaction feedback, post-event

reviews and targeted research, alongside ongoing dialogue

with the WaterShare+ panel. This helps us understand not

only how customers experience our services, but where

expectations are changing and where we need to improve.

During 2025/26, we completed 15 post-event feedback

surveys across South West Water, Bournemouth Water

and Bristol Water. Customers shared their views on

how incidents were handled, including the clarity and

timeliness of communication, speed of resolution, overall

satisfaction and the support provided to customers on

the Priority Services Register. This feedback has directly

informed improvements to incident communications,

service recovery arrangements and the way we help

customers who need extra support.

Your bill explained

We have heard from customers that they want

to know what their money is paying for. We

have increased our communications, directly to

customers with their bills, through social media and

on our website – both to explain the bill and how it

affects them as individuals, but also on what we are

doing and the difference it will make.

We improved early engagement with more

personalised information about financial support

and launched a new ‘Your Bill Explained’ website,

supported by simple visuals explaining how bills

are calculated. Signposting to support tariffs, the

Priority Services Register, metering options and

water efficiency advice was also strengthened.

We have also supported colleagues, through

targeted training, AI enabled tools and improved

self service to reduce wait time for customers and

ensure they can choose how they engage.

Reduce your overheads

by saving water

Simple water-saving tricks can cut your

bills and help the environment. For tips

and free water-saving devices see

southwestwater.co.uk/save-water

We're investing to prepare our region for the future. Speaking to

customers from across your area has shaped our priorities:

• Providing reliable, safe water supplies

• Supporting healthier rivers and seas

• Taking action on climate change.

To meet these challenges, the water regulator Ofwat has

agreed the cost of water in your area will need to increase

from 1 April 2026.

In the last year we have:

• Reduced storm overflow spills with the help of a £760m

spending programme

• Invested in renewal of mains pipes, helping to prevent bursts

and leaks.

Why are bills increasing?

Important information about your bill

From 1 April 2026, your water bills will increase. We understand this is never welcome news, but we're here to help.

This leaflet explains:

Customer number

1234 5678 90

Firstname Surname

Address Line 1

Town

County

Post Code

Bill date 1 December 2025

Bill number 1234 5678 90

Customer Care 0344 346 1010

Monday-Friday 8am-6pm, Saturday 9am-1pm

Calls may be recorded and monitored for training or audit purposes

southwestwater.co.uk

Why are bills

increasing?

Our goals to

2030

How you can

find support

We also use targeted research to prepare for future

challenges. In the SES region, we worked with other

southern water companies to understand customer

priorities during periods of severe drought, shaping our

approach to drought planning, demand management and

customer communications.

Insight from customers is complemented by independent

and comparative evidence. We triangulate our own

research with wider industry insight, including CCW’s

Water Matters survey, the UK Customer Satisfaction

Index (UKCSI), business benchmarking and C-MeX

results. This ensures our priorities are evidence-based,

consistently benchmarked against peers, and aligned

with what customers tell us matters most.

Taken together, this approach ensures that listening to

customers is not a one-off exercise, but an integral part

of how we plan, deliver and improve services – supporting

better outcomes now and improving further as we deliver

our investment programme over the coming years.

Our WaterShare+ model enables customers to hold

shares in Pennon Group, giving them direct ownership in

their local water company. It also gives all customers the

ability to speak directly with and challenge us through

our open WaterShare+ customer panel meetings.

This unique model allows customers a greater say in their

water company, providing customers with a vital platform

to engage directly with us and play an active role in

shaping our decisions.

Our independent advisory panel provides review, scrutiny

and challenge of Pennon Group water companies on

behalf of customers. The panel is supported by expert

advisers from CCW, the Environment Agency and Natural

England. These advisers provide specialist insight into

Company and wider industry performance. The panel also

has unrestricted, independent access to the Company’s

technical auditors.

During 2025/26, the panel’s focus has shifted from

development of the business plan to scrutiny of

implementation, challenging the Group on delivery

against performance and investment commitments,

alignment between delivery and customer priorities and

the balance between environmental outcomes, service

improvements and affordability.

WaterShare+ has significantly deepened our

understanding of customer requirements and concerns,

further helping us leverage these insights to inform and

co-create our future plans.

Strategic Report

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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.

Why we engage

We are part of the communities we serve, with around

4,000 colleagues living and working locally. We care

deeply about the places we call home and are passionate

about sustaining and improving them, for our customers,

our families and our friends. Through this strong local

presence, we actively engage with communities to ensure

people have a meaningful voice in shaping the services

we provide and the environmental outcomes that matter

most to them.

Farm and Country show

Better Futures Fund

We believe in supporting projects and charities in

the places where we live and work, helping to build

stronger communities. Our £5 million Better Futures

Fund was launched in January 2025.

The fund includes £2.5 million for community

groups involved with physical activity, education,

health and wellbeing, and positive environmental

impacts. Each brand was allocated a specific

amount of funding based on customers served in

that supply area.

The remaining £2.5 million will go towards

alleviating hardship, in addition to the £200 million

programme to help customers who need extra

support or are struggling financially across the

Pennon family.

Better Futures will help to unlock opportunities and

bring positive change to the communities we serve.

Better Futures

to date April 25 – March 26

SWB BRL BMTH SES

Number

of grants 27 16 12 14

Value

awarded £182,193 £111,627 £42,096 £63,872

Number of

beneficiaries 31,812 60,438 28,595 20,580

Our award-winning education centre in SES: Flow Zone

Flow Zone, our state-of-the-art education centre at

Bough Beech Reservoir, remains the cornerstone

of our SES education programme. Led by former

primary school teachers, the centre offers free,

curriculum-linked school visits from Year three

onwards, supporting teachers to bring water,

environmental and sustainability learning to life.

Throughout the year, Flow Zone has continued to

demonstrate strong demand, high occupancy and

consistently positive feedback from schools. In total,

5,478 pupils engaged with our education programme,

with over 138 schools supported through on-site visits

and outreach activities, including school and nursery

visits, Special Educational Needs (SEN) groups and

hospital settings.

Now five years old, the centre has become a valued

learning resource across Kent and the wider region.

Interactive sessions are carefully aligned to the

National Curriculum, focusing on topics such as

the water cycle, potable water, water efficiency and

responsible behaviours.

A typical visit begins in the Flow Zone classroom,

where pupils explore the local geography, the journey

of water and the history of the reservoir. This is

followed by a guided walk through a tunnel beneath

the reservoir itself, before a second-stage tour of

the water treatment works, allowing learners to see

treatment processes first-hand.

Feedback consistently highlights the expertise of

delivery staff, their ability to build rapport with pupils

and adapt sessions for SEN groups, and the creation

of memorable, practical learning experiences that

reinforce classroom teaching.

In November 2025, Flow Zone’s Learning Outside the

Classroom Quality Badge was successfully renewed,

reflecting nationally recognised standards of quality

endorsed by the Department for Education. Since

2025, the centre has also worked closely with the

National Autistic Society to develop as an Autistic

Friendly Setting.

Supported by community engagement and

promotional activity, Flow Zone continues to play a key

role in instilling efficient water habits from an early age.

“

The whole visit, from start

to finish, was exceptional.

The information was perfectly

pitched for the age group and

the access to the processing

areas was fascinating.

Teacher, Four Elms Primary School, Edenbridge, Kent

How we engage

We work with schools, community groups and local

organisations to build understanding of the water cycle,

promote water efficiency and support wellbeing. Our

education and outreach programmes inspire future

generations while helping communities understand the

challenges facing water resources and the role we all play

in protecting them.

In the wider south west we reached 9,449 pupils in 151

schools. In SES we reached 5,478 pupils in 138 schools.

We also work closely with community partners to deliver

nature-based solutions, restore peatlands, protect water

quality and improve access to lakes and reservoirs for

recreation and wellbeing. Our charitable giving and

community funds support projects that deliver social,

environmental and health benefits across our regions.

Flow Zone

Stakeholder engagement continued

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Stakeholder engagement continued

People

Who they are

Across the Group, almost 4,000

colleagues contribute to our work in a

wide range of operational and corporate

roles. Their commitment underpins

everything we do, from maintaining

vital water and wastewater services to

ensuring our customers receive clean,

safe drinking water every hour of the day.

Why we engage

Our success depends on the talent, skills and shared

values of our people. To deliver our strategy, we are

focused on attracting, developing and retaining a diverse

workforce that reflects the communities we serve. When

colleagues are heard, supported and empowered, they

thrive, and so does our business. Regular two-way

engagement helps us understand what matters most

to our people and make meaningful improvements that

strengthen our culture and capability.

We use a range of tools to stay connected, including

listening sessions, Employee Network Groups and trade

union representation.

How we engage

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 114 to 116 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. Colleagues are able to speak up

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

on page 125 in the Corporate Governance report.

Building consistent connection

Following the separation of Water, Wastewater and

Customer into distinct operational units, each business

now operates its own regular cadence of colleague

communication and engagement. Shaped by feedback

from teams within each unit, these approaches are

tailored to their needs and preferences, resulting in a

model built directly on colleague insight. This includes

regular in-person breakfast briefings, leadership events,

and interactive calls where colleagues hear key updates

and ask questions, alongside tailored communications

from the relevant leader.

Celebrating colleagues: The ‘You Rock’ Awards

This year, we introduced the ‘You Rock’

Awards, a new recognition scheme

designed to celebrate colleagues who

embody our values. These awards

reflect the depth of dedication,

professionalism and integrity that our

people bring to serving customers and

communities every day.

The inaugural event brought colleagues together from

across the Group to recognise individuals and teams

whose contribution has made a lasting impact. The

Awards celebrated colleagues who bring our values to life,

with honours presented across our three core values – Be

You, Be Rock Solid and Be the Future. The evening also

recognised individuals that contribute to a safe and well-

run workplace with our HomeSafe Award, outstanding

achievements through our Leader of the Year, Team of

the Year and also Rising Star awards, shining a spotlight

on those who have made a significant contribution to

our culture, performance and future success.

This approach has now been embedded within

individual business units, with teams running their own

local recognition initiatives, including mini recognition

events and monthly awards, ensuring that success is

celebrated regularly and close to where it happens.

For generations, colleagues across the Pennon Group,

have delivered essential services with pride. The ‘You

Rock’ Awards honour that legacy and spotlight the

exceptional people who are driving our transformation

today. By celebrating those who go above and beyond,

the awards help embed our values in everyday practice,

strengthening a culture where commitment, service and

community focus are recognised and championed.

Building on the success of the inaugural event, we are

now planning our 2026 ‘You Rock’ Awards night, with

nominations open across a wide range of categories,

ensuring colleagues at every stage of their career

have the opportunity to be celebrated.

Investing in our people is central to achieving long-term

success. The ‘You Rock’ Awards are an important part

of how we celebrate achievements, reinforce behaviours

that make a difference, and ensure that being Rock

Solid remains at the heart of everything we do.

Pennon ‘You Rock’ Awards – Winners

‘You Rock’ Awards 2025

Key highlights

Focused on performance

We rallied all colleagues across our Group to tackle

our biggest challenge – reducing storm overflows

and pollutions. We introduced a Group-wide

‘challenge’, tailored to different areas of the Group,

so that wherever you work you could learn more

about this strategic priority and demonstrate your

commitment to improving our performance.

‘You Rock’ Awards evening

Celebrated colleagues across our Group

who exemplify our values in action.

Launching Teamtailor

A faster, more intuitive and inclusive recruitment

process, improving the experience for both

candidates and hiring managers.

c.2,300

colleagues now use Viva Engage, our

internal communications platform

colleagues

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

The Great Big Sparkle Challenge

Uniting our business to tackle our

biggest wastewater challenges

During summer 2025, we committed to tackling storm

overflows and pollution through the power of the

whole business working together as one team. That

commitment became Operation Sparkle — our Group-

wide programme aimed at improving environmental

performance, strengthening our wastewater network,

and contributing to the long-term health of our rivers

and seas.

A key part of this effort was the Great Big Sparkle

Challenge, which encouraged colleagues from every

part of the organisation to get involved. Over just

three months, colleagues delivered more than 1,000

entries from every corner of the organisation —

wastewater, wider operations, corporate functions,

customer and field teams, leaders, and many more.

The level of engagement was exceptional and showed

just how strongly people connected to the ambition

of protecting and improving our environmental

performance. The Sparkle Challenge didn’t just spark

ideas — it strengthened connections, built shared

ownership, and helped embed a mindset of collective

responsibility across the business.

How colleagues took part in the Great Big Sparkle

Challenge:

• Visiting storm overflows to better understand local

risks and opportunities for improvement.

• Joining Wastewater Afternoon Tea calls to listen,

learn and share insights on pollution reduction.

• Submitting innovative ideas to help tackle sewer

misuse and support long-term behavioural change.

• Making a Sparkle Pledge, committing personally

or as teams to actions that improve environmental

performance.

• Bringing Wastewater Services (WWS) performance

into team meetings, creating space for open

conversations about pollutions, learning, and how

each team can contribute.

Together, these initiatives reflect the scale and

momentum behind Operation Sparkle. The Great Big

Sparkle Challenge brought colleagues together in a

powerful way — and the wider programme continues

to build the systems, behaviours and operational

capability essential to achieving our performance

objectives.

• Viva Engage, our internal communications platform,

continues to grow in popularity, now used by over 2,300

employees.

• Breakfast briefings are now held every six months with

our frontline teams; these sessions bring senior leaders

on site to recognise the teams who work tirelessly

around the clock and to create meaningful two way

dialogue, ensuring operational insight and colleague

feedback directly shape our priorities.

• We ‘Set the Record Straight’ on media headlines,

creating bespoke briefings for all teams so that they are

fully aware of the facts behind the headlines, equipping

all colleagues to answer queries from customers, friends

and family – and also making sure our colleagues can

maintain pride within a difficult external environment.

• WaterWorks, our monthly performance dashboard,

continues to keep all colleagues informed on how we

are delivering for our customers, communities and

the environment, providing clear visibility of progress,

priorities and key metrics across the Group.

Employee resource groups

Through our Pennon Inclusion Council, we give

colleagues a platform to shape culture and influence

policy. As part of this commitment, we are actively

relaunching existing networks and introducing new

groups to better reflect and support our diverse

workforce. These include REACH, Women’s Health,

Professional Women’s, Veterans, LGBTQ+, and

Neurodivergent networks, all designed to foster inclusion,

connection, and meaningful change.

Refreshing our engagement survey approach

We recently launched our new employee engagement

platform, Culture Amp, to strengthen real-time feedback,

and colleague insight across our Group. The insights

gathered will help us identify key themes, prioritise

meaningful actions, and tailor initiatives that truly

enhance colleague experience and engagement.

Internal communication activities

We’re always evolving how we communicate. Our key

activities include:

• Big Chat video calls with the Group Chief Executive

Officer and the Executive team are held regularly, and

focus on our progress against our strategic priorities,

topical business issues and colleague highlights. In

response to colleague feedback, we have broadened

the group of speakers, involving colleagues from all

areas and levels across the Group.

• Senior leader events are held for each business area,

bringing together our leaders in person for a range of

communication and engagement activities to equip and

inform them.

• We’ve introduced senior leader briefings to make sure

our leaders are informed of key business updates

ahead of their teams, allowing them to own the cascade

of information and be fully prepared to answer any

questions from their teams.

• We’ve strengthened the communications cadence

across our Group, making sure we can reach the

frontline colleagues in each business unit. This has

been built based on the communication preferences

and insight within each unit, allowing us to tailor the

approach to colleague needs.

Redhill customer Services Team

Stakeholder engagement continued

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Stakeholder engagement continued

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.

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 sustainable, 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.

Through working with our suppliers, 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

More than 1,000 schemes have already been mobilised

through the amplify supply chain partnership and 100%

of the AMP8, Year 1 WINEP schemes were completed as

of 31 March 2026.

As projects move from design into construction these

actions are supporting delivery of the £3.2 billion

investment to 2030.

To support delivery of these projects, amplify’s principal

construction partners, are working alongside a range

of consultancy organisations. Integrated project

management, design and cost consultancy capability

is being deployed to optimise investment and provide

efficiency through collaborative thinking and innovation,

whilst 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 long established, and all new suppliers are brought

on board to work in alignment with it through our

onboarding and tender processes.

Formal contracts and framework agreements underpin

robust cost-effective procurement activity.

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.

Key highlights

£3.2bn

2025-2030 infrastructure plan

1,000+

schemes already underway

Outcomes, achievements and actions

We have identified opportunities to collate and bring

together spend across our regions and parts of our

Group, to enable synergies, bringing spend under central

management in order to improve value, enhance service

quality and reduce risk.

Amplify is embedding a standardised, repeatable

approach to asset design, delivery and procurement. By

reintroducing standard designs, off-the-shelf products,

Design & Build (D&B) principles and advancing

procurement activity, we are strengthening programme

pace and cost certainty, improving buildability, and

supporting enhanced safety and lower carbon outcomes

to support delivery of our regulatory date commitments.

Our data-driven approach to tendering ensures that

procurement decisions are market-tested for both value

and performance.

Alongside this, we engage with neighbouring water

companies like Wessex Water and Welsh Water through

the Western Procurement Hub, collaboratively procuring

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.

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.

1. In forecast outturn prices.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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.

Why we engage

As a publicly listed company, access to capital and debt

markets is vital to fund our growth and the 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 Group Chief Executive

Officer, Group Chief Financial Officer, and Group 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

overseas investors

• Engagement with debt investors through regular

meetings and investor conferences

• Our Annual General Meeting (AGM), where retail

shareholders can ask questions directly to the Board

• 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 highlights

c.80,000

customers are shareholders under

WaterShare+

over 1/3

of the Group’s c.4,000 employees are

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

various challenges through our continuous engagement

with investors. This included; consultation on ESG issues

through our ESG Chair, Dorothy Burwell; the retirement

of the Group Chief Executive Officer and the subsequent

recruitment and transition to a new one; an update on

the strategy and regulatory landscape as we moved

into the new regulatory period to 2030, and ongoing

engagement under our £2.5 billion EMTN programme

to support continued issuance activity. In addition,

members of the Remuneration Committee met with the

Company’s top shareholders as part of our Remuneration

Policy consultation.

Site survey

Outcomes, achievements and actions

Our sustained investor engagement throughout

2025/26 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 delivered a comprehensive

engagement programme, holding 104 meetings with

banking partners and 58 meetings with investors, across

group sessions and targeted bilateral discussions,

including key investors in the sterling public bond market.

During 2025/26, the management team met with 83%

of our institutional investors (based on issued share

capital), holding 96 meetings and calls with existing and

prospective investors.

Stakeholder engagement continued

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Stakeholder engagement continued

Regulators

Who they are

We have a continuing dialogue and meet

regularly with our regulators: Ofwat, the

Environment Agency (EA), the Drinking

Water Inspectorate (DWI), Natural England,

the Consumer Council for Water (CCW)

and the Health and Safety Executive (HSE).

Why we engage

Regulation shapes every aspect of what we do – from

the quality of the water we supply to the resilience of our

networks and the scale of our environmental ambition.

Strong, transparent relationships with our regulators

are critical to delivering the services our customers and

communities expect.

By engaging early and openly with regulators, we help

ensure our plans are credible, deliverable, and aligned

with long-term regional needs. Constructive engagement

supports decision-making and enables us to demonstrate

progress. Above all, it ensures we remain accountable to

our customers and the environment we are here to protect.

How we engage

We engage with our regulators in a structured and

transparent way. Our teams meet regularly with all our

regulators using a mix of routine meetings, technical

workshops and joint site visits. These are focused on

our published plans, performance reports, delivery

progress and compliance reviews, ensuring transparency

across key metrics such as leakage, customer service

and investment delivery. We also participate in industry

consultations and working groups, helping to shape new

and emerging regulations.

Our engagement is grounded in evidence. We use data-

driven insight, independent assurance, and customer

and stakeholder feedback to demonstrate that our

plans and delivery are rooted in real need. Engagement

is continuous rather than reactive: we brief early on

emerging issues, work collaboratively on long-term

challenges, and provide open access to information so

regulators can clearly see the progress we are making.

Key challenges and how we are

responding

The water sector is entering a decisive phase of reform.

Expectations on companies have never been higher,

and climate driven shocks continue to test our networks.

This underlines the importance of delivering our

£3.2billion

investment plan to strengthen networks,

secure water resources, and improve rivers and seas.

We are working closely with Defra and regulators as the

White Paper reforms move into implementation. We have

shared ideas and proposals widely with regulators and

stakeholders and are frequent contributors to events

and conferences.

Key reform highlights

April 2025

We provided our response to the Independent

Water Commission’s Public Call for Evidence on

industry reform. We welcomed the review, which

largely reflected the prior engagement we had with

Sir Jon Cunliffe and his team.

July 2025

The Independent Water Commission published

their final report, setting a clearer and more

coherent long-term direction for how the water

system should be planned, regulated, and governed.

Summer – winter 2025/26

We engaged regularly with Defra and regulators,

as well as participating in and organising industry

working groups, to unpick the practicalities of

reform. Through these forums we discussed key

themes, such as regional planning and supervision,

and our views on the development of PR29.

January 2026

The Government published their Water White

Paper outlining their plans to reform the water

sector. We were encouraged that their intentions

largely reflected the Commission’s report and our

engagement with Defra and wider stakeholders.

January 2026 to present

We continue to engage with Government, regulators,

industry, and wider stakeholders to support the early

implementation and long-term delivery of reform.

The year saw an increase in focus on asset health and

accelerating investment, particularly where it supports

economic growth. We have worked with Ofwat to

understand the evidence required to support this shift,

providing material grounded in local stakeholder needs

and compelling customer research. Our first PR24 cost

change submission in 2026 reflects this new approach

and will continue to inform future regulatory decisions.

We worked closely with the Consumer Council for Water

(CCW) on new customer panels ahead of their first

meetings in April 2026. We are also discussing with Ofwat

and CCW the impact of our innovative tariff trials, which

better reflect customer usage and affordability while

supporting long-term resilience and sustainability.

We have engaged with Ofwat and the joint regulators’

RAPID body on the Cheddar 2 reservoir scheme.

Preparations remain continuous and transparent, with

an open stage by stage approach. We held a joint market

engagement event with Wessex Water in September 2025,

attended by Ofwat and RAPID, to support this process.

Regulators play a critical role during periods of

operational pressure. During Storm Goretti in January

2026, which was subject to a red weather warning, we

provided daily updates to regulators on our preparations

and recovery, ensuring they had full visibility of our

actions to protect customers.

Looking ahead, development of PR29 is already

underway. We are engaging on the next Water Resources

Management Plan (WRMP), Drainage and Wastewater

Management Plan (DWMP) and the future environmental

programme to ensure long-term needs are clearly

understood and supported. These future plans underpin

our commitment to delivering sustainable, credible

and customer-focused outcomes in partnership with

our regulators.

Outcomes, achievements and actions

Working with our regulators, we have strengthened

our delivery plans, improved the transparency of our

performance, and ensured a shared understanding of

the resilience challenges we face. This has supported

progress on key operational outcomes, including

reductions in pollution incidents, enhanced real-time

monitoring, and targeted improvements in drinking water

quality and asset health.

SES Drinking water event

Over the past year, we have moved quickly to turn our

PR24 business plan into detailed delivery plans, reflecting

the early start agreed with regulators. This is now driving

clearer visibility of progress and stronger alignment

between our commitments and regulatory expectations.

Engagement has shaped important governance

outcomes. Working with Ofwat, we have aligned our

remuneration framework with delivery for customers and

the environment, and strengthened the independence of

our assurance processes.

Our engagement is shaping the future regulatory

framework for customers. Our business model is unique,

with distinct customer brands and separate targets

for SES Water and Bristol Water alongside those for

South West Water. Regulators continue to support us

in ensuring customers benefit fully from this model.

For example, we worked with the EA on the design of

the revised Environmental Performance Assessment to

ensure both Bristol Water and SES Water continue to be

compared with their peers.

Alongside this, our contribution to the Government’s White

Paper reforms is helping inform the emerging regulatory

framework, ensuring it supports long-term investment,

clearer accountability and greater transparency.

1. In forecast outturn prices

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Policy makers

Who they are

We maintain open, transparent

relationships with Defra, parliamentary

committees, MPs and local authorities.

Their roles in shaping the legislative

and regulatory environment have

become even more significant as the

Government’s White Paper on water

reform moves into implementation.

How we engage

We maintain regular dialogue with Defra and respond

to government consultations on resilience, affordability,

environmental improvement and the investment needed

to deliver the ambitions set out in the Government’s

White Paper. We continue to provide evidence to Select

Committees, participate in cross-party roundtables

and support All Party Parliamentary Groups to ensure

the practical realities of delivering essential water and

wastewater services are fully understood.

We work closely with local authorities and MPs across

our regions. Our engagement includes regular meetings,

site visits and constituency-based discussions, giving

representatives direct insight into our operations, the

challenges we face and the progress we are making.

These interactions help ensure local priorities are clearly

reflected in national debates and regulatory decisions.

As a FTSE listed business, we also work with national and

regional business organisations to ensure the voice of

business is represented in wider debates on growth, skills

and infrastructure.

Leakage detection in Bristol

Key challenges and how we are

responding

Policy makers continue to take a close interest in how we

are improving performance, strengthening resilience and

delivering major investment. There is sustained scrutiny

of customer bills, environmental outcomes, the pace of

infrastructure upgrades and how we are responding to

extreme weather and ageing assets. Policy makers expect

clear evidence of progress, transparent communication

and visible improvements.

Locally, we continue to build strong, constructive

relationships with MPs and councillors across our regions,

helping them understand our operational challenges,

long-term plans and the benefits of the investment

we are delivering. We respond promptly to enquiries,

providing clear information to support their casework

and constituent communications. We facilitate site

visits so representatives can see our work first hand,

including upgrades to treatment works, storm overflow

improvements and drinking water resilience schemes.

Local policy makers are regularly invited to our customer

roadshow events, where we explain the work underway in

their area and listen to local priorities.

Outcomes, achievements and actions

We have deepened our engagement with MPs and local

leaders, supporting day-to-day enquiries and providing

tailored briefings on the water cycle, environmental

performance and our investment programme and delivery

progress. We continue to hold one-to-one meetings

with MPs both in Westminster and through hosted

constituency-based site visits.

This engagement has strengthened relationships,

improved understanding of the scale and purpose of our

investment, and supported MPs in communicating clearly

with their constituents. It has also helped build confidence

in our long-term plans, reinforced the importance

of resilience and environmental improvement, and

contributed to a more informed narrative around Pennon’s

role in delivering essential services for the region.

Key highlights

SES Water – Cheam – Luke Taylor MP

Luke Taylor MP visited our £4.5 million upgrade to

strengthen resilience at Cheam water treatment

works, securing high-quality drinking water for

100,000 people through improvements to filtration,

chemical dosing and treated water pumping.

Bournemouth Water – Alderney – Emma

Hardy MP

The Water Minister visited our Alderney water

treatment works site and welcomed the £113 million

modernisation investment, including future-proof

technology to deliver more sustainable and eco-

friendly water supplies.

South West Water – South Milton sewage

treatment works – Caroline Voaden MP

We showcase our major investments through on-site

tours, including the upgraded South Milton Sewage

Treatment Works.

Bristol Water – Chew Valley Lake – Defra

Defra, the Rivers Trust and West Country Water

Resources came together at Chew Valley Lake

to discuss catchment partnerships and regional

planning, supporting collaborative work on future

schemes including the Cheddar 2 reservoir.

Why we engage

At the national level, we work closely with Defra and

parliamentary committees, as the future priorities for

water quality, resilience, customer protections, and

environmental improvement are established. Our

engagement has increased as the White Paper reforms

progress, as we provide evidence, operational insight

and regional context to help ensure policy is practical,

outcomes focused and supportive of long-term

investment. Our engagement remains cross-party,

ensuring Pennon’s values and priorities are understood

across the political spectrum.

At the local level, MPs continue to advocate for their

communities, ensuring local priorities are reflected in

national debates and regulatory decisions. We work with

local authorities to support their role in shaping outcomes

for customers and communities.

As a FTSE listed business, we also work with

organisations such as the Confederation of British

Industry, Chambers of Commerce and regional business

groups to ensure the voice of business is represented

in national policy debates, particularly on growth,

infrastructure, skills, and the role of regulated utilities in

supporting regional economies.

Stakeholder engagement continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Pennon delivery framework

Our four strategic priorities underpin and define everything we do.

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.

Read more on pages 47 to 51

Knapp Mill

Dawlish Storm tank

Based on customer priorities, we have structured our delivery plans to 2030 to

focus on what matters most, ensuring we are well positioned for long-term success.

Our water business is now aligned to these priorities, enabling us to deliver for the

environment, meet customer expectations, and fulfil our purpose and vision.

Wildwood white clawed crayfish Ark site Customer support, Bristol

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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 operate

across the South of England, from Surrey

to the Isles of Scilly, and in areas that

range from densely populated cities to

rural and coastal villages.

Population served

We know that customers rate the reliable provision of

clean, safe drinking water as their number one priority.

We continually strive to improve both our resilience and

our water quality across all our areas; our plans aim to

maintain our strong water quality record by upgrading

water treatment works and replacing old lead pipes in

customers’ homes; we are strengthening resilience by

renewing old water mains and targeting leakage; and we

are supporting customers to be water efficient – using

only the water they need – through smart meters and

water efficiency measures.

The 2025/26 year has demonstrated the challenges that

climate change will bring; a dry spring was followed by

an intensely hot August, driving high demand for water,

whilst freeze-thaw conditions followed by extensive and

intense rainfall over the winter increased operational

challenges later in the year. We are focused on delivering

our capital investment programme to ensure we improve

and enhance our water infrastructure, whilst taking action

to drive continuous improvements in the ways we work

and services we provide.

Actions taken early to ensure refill of our reservoirs from

August to the end of year have resulted in a strong water

resources position as we head into the new financial year,

supported by above average rainfall in the latter months

of the year.

Delivering resilient, high-quality water

services across our regions

We supply around 4.3 million customers across all

regions. With hot weather comes higher demand for

water, and the investment we made following the 2022

drought has seen benefit in the current year, with all

our regions, Devon, Cornwall, Isles of Scilly, Bristol,

Bournemouth, parts of Dorset, Sutton and East Surrey,

operating without temporary use or ‘hosepipe’ bans

despite the high demand in the hot summer period. This

achievement underscores our commitment to resilience

and reliability, doing the right thing for our assets to

maintain their health and strengthen our performance.

2025/26 presented challenges across the South West in

particular, as a result of the variable weather conditions

and high number of named storms. Notwithstanding the

challenges, we maintained resilient water supplies to

our customers, with over 75% of operational incidents

having no impact on customers and our water quality

performance remaining industry-leading for both South

West Water and SES Water.

However, there remains more to do in other areas, as we

recognise the impact on customers of incidents when

they do cause supply interruptions, and that we have not

met our targets in a number of key measures. Targeted

capital investment in water services totalling £341.3 million

in 2025/26, alongside disciplined asset management and

ongoing focus on continuous improvement and learning

the lessons of any operational incidents, will enable us to

meet these challenges head-on.

Our strategic investments, especially those made in

response to the 2022 drought, have been instrumental

in strengthening operational resilience and supporting

sustainable service delivery. Where performance did

not meet targets, we have a clear understanding of the

underlying drivers and have initiated actions to restore

long-term delivery.

SES Water

c.0.7m

Bristol Water

c.1.2m

South West Water

c.2.4m

Litres of drinking water per day

£341.3m

capital investment in water services

in 2025/26. Delivering a resilient,

sustainable, and high-quality water

service across our regions.

Total Water Group

c.4.3m

SES Water

c.160m

Bristol Water

c.280m

South West Water

c.650m

Total Water

Group

c.1,090m

Pennon delivery framework continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Water quality and resilience: proactive

improvements and innovation

Providing safe and reliable drinking water remains

our highest priority, serving approximately 4.3 million

customers across our regions. Our water quality

performance continues to improve year-on-year,

as reflected in our water sampling results, which

demonstrate improved outcomes year-on-year, a

testament to our Quality First approach which integrates

preventative maintenance, proactive cleaning, and

real-time monitoring, allowing for early detection and

resolution of issues and reducing repeat failures.

The Drinking Water Inspectorate measures water

quality through its Compliance Risk Index (CRI). Sutton

and East Surrey (SES Water) achieved a CRI of 0.00,

demonstrating industry-leading compliance whilst

South West Water (including Bournemouth Water,

‘SWB’) maintained a top-quartile CRI of 1.37, reflecting

our long-term investments to improve water quality

and ongoing operational improvements with respect to

tank inspections and maintenance. Bristol Water (BRL)

saw a deterioration with a CRI of 3.95, due to an isolated

sample failure (equating to a score of 2.93) that was

swiftly addressed through daily monitoring and thorough

investigation. To further strengthen compliance, we

launched a comprehensive treatment process risk review

programme in Bristol, targeting sustainable improvements

and reducing testing failures at our treatment works.

Strategic investment in Water Treatment Works

We continued to build and upgrade our water treatment

infrastructure, ensuring future resilience and quality.

Construction at Alderney water treatment works in

Bournemouth was completed in the year and with

commissioning imminent, our upgraded works are set to

supply high-quality water to over 250,000 customers. We

are also upgrading the Knapp Mill water treatment works,

which is progressing as planned, with commissioning

scheduled for the next financial year.

In Bristol, design work has commenced for upgrades at

Stowey, Cheddar, and Littleton water treatment works,

with delivery targeted by 2030. Notably, at Littleton, we

are piloting innovative filtration technology, successfully

used in Singapore and Japan, for the first time in the UK,

reinforcing our commitment to operational excellence

and innovation.

Pennon delivery framework continued

Alderney build in progress

Alderney

Lead pipes

Around 80,000 lead pipes remain in our South West and

Bournemouth (SWB) regional network, with c.120,000 in

Bristol (BRL) and c.100,000 in SES Water (SES).

Whilst we treat water to mitigate the health risk this

would otherwise prevent, we are focused on progressively

removing these pipes from water infrastructure in our

regions. As a result, we have progressed on our plans to

replace c.40,000 lead pipes across our regions by 2030,

with c.4,000 replaced in the current year.

We are also working with CREWW, our innovation

partnership with Exeter University, to utilise modelling

and machine learning to inform our delivery programmes

and target areas with high prevalence, supporting our

long-term ambition to eliminate lead pipes.

Building water resources, improving water quality continued

Enhancing customer confidence: taste,

smell and appearance improvements

Maintaining customer trust in water quality is essential.

Building on our ongoing commitment to water quality and

customer satisfaction, we continued to make progress

across all regions, as reflected in our performance against

Taste, Smell, and Appearance targets. Whilst we have

more to do to reach the stretching targets set for AMP8,

in the South West, customer contacts regarding taste,

smell, and appearance have reduced year-on-year, with

performance in 2025/26 reducing to 1.55 contacts per

1,000 customers. This improvement stems from our

ongoing focus on process optimisation and proactive

engagement across each region. Looking ahead, we

remain dedicated to further enhancing water quality

and customer experience, implementing region-specific

initiatives and leveraging technology to drive continuous

improvement.

Bristol Water (BRL) recorded 0.97 contacts per 1,000

customers, compared to the target of 0.76, positioning

the company within the top half of the industry. Sutton

and East Surrey (SES) achieved 0.74 contacts per

1,000 customers, also above the target of 0.63 but

outperforming the industry average of 1.11.

Investment in manganese removal schemes across

Cornwall, Devon, and Bournemouth, alongside upgrades

at Alderney and Knapp Mill, are expected to further

reduce discolouration-related contacts.

Water softening

At SES Water, we are the only water company to soften

water before supplying it to our customers. Water is

partially softened at five of eight treatment works,

producing approximately 80% of the water supplied.

Our performance target remains challenging, at zero

exceptions allowed; our softening performance is

independently assured, with resilience improvements

underway to mitigate weather-related risks and reduce

customer contacts relating to water hardness.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Water resources, security and climate

resilience

Water resources were under significant pressure during

2025 following the warmest spring in England since 1884.

Reservoir storage in some areas fell to exceptionally low

levels by late summer.

We activated our drought plans, but did not need to

impose any customer supply restrictions or drought

orders; by March 2026, the action we took to ensure

operational resilience, coupled with rainfall across the

winter months, meant that storage levels finished the

year well ahead of anticipated needs across the coming

summer, with storage recovered to 98% and groundwater

levels remaining above average in some areas.

Leakage and network efficiency

Reducing leakage remains central to long-term supply

resilience. The year presented significant challenges,

particularly in the South West, due to dry ground

conditions leading to record soil moisture deficits during

late spring and summer 2025. This was followed by

several freeze-thaw events and severe storms across the

winter period. These conditions increase pressure on our

networks and we experienced higher burst frequency

across our networks.

Our teams remained focused on fixing leaks across our

networks, notwithstanding the challenging weather

conditions with which they were presented. SES, Bristol

Water and South West Water’s efforts were impacted by

these weather conditions.

Bristol Water continues to operate on the industry

leakage ‘frontier’, making finding and fixing leaks more

challenging and less cost-effective. Despite these

challenges, Bristol Water reduced leakage by a further

11% in 2025/26, achieving 34.0 Ml/d, its lowest ever level

and maintained its position among the lowest in the

industry. Although slightly above the three-year rolling

regulatory target, forward plans are in place to meet

targets through the end of the regulatory period.

In South West and Bournemouth, the unusual weather

conditions hindered significant leakage reduction over

the summer, with high volumes of work required to

maintain leakage levels across the hot weather period

and during the freeze-thaw weather in November and

December. Record activity in leak detection and repair

was achieved, with more fixes carried out than ever

before. Leakage levels of 113.5 Ml/d in 2025/26, returned

to those of the previous year, but fell short of the in-year

Isles of Scilly – resilience

In January 2026, Storm Goretti caused major

destruction across our region but the Isles of Scilly

were the first and worst hit. Winds of up to 99mph hit

the five islands, 28 miles off the coast of Cornwall, with

hundreds of trees uprooted, severing water supplies

to these remote communities. A red weather warning

for wind was issued on the afternoon of 8 January,

instructing everyone to stay indoors given danger to

life associated with the storm.

Our 10-strong water operations team mobilised in the

early hours of the following morning, working around

the clock as part of a huge community response.

With widespread loss of power and mobile signal

across the Islands and significant transport disruption,

the team, working with support from our supply chain

and working in partnership with the Duchy of Cornwall,

the Council of the Isles of Scilly, Tresco Estates and

other utilities enabled temporary repairs to be made

to the damaged water pipes, with all supplies restored

by 9am on 11 January. During this time bottled water

stations supplies were set up, with local people

contributing to the recovery efforts and caring for

those who needed extra support.

We were delighted that Isles of Scilly Operations

Manager, Helen Richards, was recognised for the

crucial role she and her team, all of whom also live

on the Islands, played in the aftermath of the storm

to restore vital services to homes and businesses, as

well as the many years in which they have supported

the Islands. Helen attended the King’s Garden party

at Buckingham Palace on 8 May 2026, alongside

representatives from other organisations involved in

the UK wide response to the storm.

We are proud of supplying water to such a unique

place as the Isles of Scilly; South West Water became

responsible for water and wastewater services on the

Islands in April 2020, with Helen involved both shortly

before and after the transfer. She has since built

her team, most of whom were recruited locally and

upskilled, and are all part of the Islands’ community.

The small team cover all aspects of the job from water

resources to metering and from sewerage collection

to treatment where mains drainage is in place. Around

2,500 people live on the five inhabited islands, with

tourism doubling this in the summer months, putting

pressure on the water resources and highlighting the

importance of using water efficiently.

Our programme to 2030 includes significant

investment to build new desalination plants on each

of the Islands to provide resilience to drought as well

as to upgrade the wastewater treatment on St Marys

and Tresco, providing benefit to customers and the

environment.

target to close the gap on the rolling average. This will

impact on our ability to achieve the regulatory three-

year average leakage measure, albeit plans are in place

to return to target in the middle year of the current

regulatory period.

SES Water delivered leakage performance of 23.4 Ml/d

in 2025/26, slightly above the three-year rolling regulatory

target. We remain focused on further reductions,

successfully embedding a new leak detection

contractor in early 2026. SES’s award-winning DMA

Asset Health programme, alongside continued

investment in smart network technology – including the

use of satellite detection – supports targeted network

optimisation and pressure management, contributing to

further leakage savings.

Supply interruptions and network reliability

The impact of weather on leakage also had a

consequential impact on our supply interruption

performance, as a result of an increase in burst pipes.

Despite these challenges, our operational teams ensured

that around three-quarters of bursts resulted in no

impact to customer supply. In SES, supply interruptions

including planned maintenance remained at industry

leading levels, with total time lost of 2 minutes and 58

seconds, well within the regulatory 5-minute target.

This strong performance is attributed to SES’s ongoing

resilience programme, which enhanced network

connectivity and monitoring technology, enabling faster

and more accurate burst identification.

Supply interruptions remained a challenging measure for

South West and Bournemouth; interruptions to supply

resulted in a total 1 hour, 9 minutes and 14 seconds of

customer impact, compared with a long-term average of

around 9 minutes 30 seconds and a target of 5 minutes.

More than half of the time lost was attributable to two

major incidents: an unplanned outage at Dousland water

treatment works and storm damage at Wendron water

treatment works during the red weather warning storm,

Goretti, where much of Cornwall was without power for an

extended period of time.

Bristol Water’s performance saw interruptions increase

to 33 minutes and 42 seconds, compared with a four-year

average of 6 minutes 30 seconds. In response, supply

interruptions delivery plans have been reviewed to drive

improvement, leveraging AI-based burst prediction, smarter

operational technology, and targeted pipe replacement.

Isles of Scilly

Pennon delivery framework continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Managing demand and ensuring

efficiency

Household demand

Reducing household demand remains a strategic

objective, balancing affordability and environmental

outcomes. The government target is to reduce per capita

consumption to 110 litres per person per day by 2050.

Prolonged dry weather in spring and summer 2025

resulted in increased consumption, and targets remain

challenging across the sector. We continued our

“Water is Precious” behavioural campaign, with notable

engagement in Bristol where our free water efficiency

devices, through our ‘Get Water Fit’ platform, which

saw increased uptake, and household water audits

commenced in January 2026.

Ofwat’s nationwide behavioural programme launches

this year, funded through a levy in customer bills, and we

anticipate its positive impact on customer behaviour and

consumption reduction.

Our smart metering programme is progressing, aiming

to significantly expand coverage by 2030, supported

by preparatory work during this regulatory year. Data

from installed smart meters will facilitate customer

engagement and help identify customer-side leakage.

Additionally, tariff trials in the South West are ongoing,

designed to incentivise reduced consumption and ensure

fairer charging. Early results are promising, demonstrating

reductions in household consumption and supporting our

commitment to sustainable water management.

Business demand

Reducing non-household water demand continues to be

a strategic priority, supporting both our environmental

commitments and efficiency objectives. The Government

has set a target for a 9% reduction in business

consumption by 2038.

Similarly to household demand, the hot, dry summer put

pressure on business demand, in particular for agriculture

and tourism activities. For agriculture demand was higher

from April onwards compared to 2024, and for tourism a

similar trend was seen across the Easter holiday period,

and then consistently from June through August. This

has resulted in our 25/26 business demand for all regions

being higher than for 24/25. Despite this, however, the

Bristol Water region still delivered on its 3-year ODI

target, with SES also on track. Progress in the South

West and Bournemouth is more challenging however

across the region, and in Bristol, we have been supporting

businesses with our free water efficiency visits. 111 visits

were completed in the South West and Bournemouth,

and 28 in Bristol. The visits prioritise washroom efficiency,

including the installation of new tap inserts and shower

heads, as well as repairs to leaking taps and toilets.

To further encourage sustainable water use, we launched

a dedicated business water efficiency grant fund in

February 2026. The fund supports projects that deliver

measurable water savings, with a minimum cost benefit

of £0.80 per litre saved per day.

Pennon delivery framework continued

Building water resources, improving water quality continued

Bristol mains repairs

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Cheddar 2 Strategic

Resource Option (SRO)

With the South West facing the dual challenges

of climate change and above-average population

growth, we are working with Wessex Water to assess

the Strategic Resource Options available to provide

resilient supply for the entire South West region. One

option being considered is the Cheddar 2 Reservoir

and Transfer Project which could play a key role in

meeting future water needs across the region. The

project is investigating the option to build a second

reservoir, adjacent to the existing Cheddar reservoir,

and would be designed to reduce reliance on natural

water sources, supporting environmental resilience

by helping to protect these ecosystems – particularly

during drought conditions.

The reservoir would be designed to mitigate drought

risks in the South West, by enabling water to be stored

and then transferred south – through Wessex Water’s

network and into South West Water’s – to provide

resilient supplies for customers in Devon.

If the project is approved, it is anticipated construction

would commence during the next regulatory period.

The scheme would form part of national and regional

water resource management plans, to help balance

supply and demand by enabling transfers from areas

of relative surplus.

Engagement with local stakeholders has started, and

our teams are working to ensure we maximise the

opportunity to protect local biodiversity and enhance

the natural environment.

Cheddar reservoir

Pennon delivery framework continued

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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.

Pennon delivery framework continued

Building water resources, improving water quality continued

Unplanned outage

(%)

In respect of unplanned outage, Bristol Water

comfortably outperformed with a rate of 1.93%

against a target of 2.78%. Similarly, SES Water

outperformed with a rate of 0.33% against a target

of 1.0%. SWB was marginally above its performance

target of 2.14% with a rate of 2.39%. 58% of this

impact was caused by an unplanned outage of a

slow sand filter (SSF) at Bournemouth’s Knapp Mill

water treatment works. That SSF will be returned to

service in 2026/27 and we expect SWB performance

to return to underlying levels this year, on or ahead

of target.

1.93

1.57

2.58

0.33

4.01

0.81

South West Water (SWB)

Bristol Water

SES Water

2025

2024

2023

2025

2024

2023

2025

2024

2023

2.39

2.09

1.15

Operational KPIs

Water quality

(CRI score)

The Compliance Risk Index (CRI) is the Drinking

Water Inspectorate’s (DWI) measure of water

quality. For SES Water, 2025 saw another year

of CRI of 0.00. This represents another year

of industry leading water quality performance

reflecting full compliance. For the SWB region,

2025 saw a CRI outturn of 1.37, well within the

regulatory deadband and maintaining our top

quartile industry performance.

Bristol Water performance was recorded at

3.95, above target but reflecting the ongoing

improvement compared to recent years (2022-24).

1.37

1.19

3.02

3.95

2.82

7.05

0.00

0.01

South West Water (SWB)

Bristol Water

SES Water

2025

2024

2023

2025

2024

2023

2025

2024

2023

Taste, smell and colour

(Contact per 1,000 population)

For SWB, customer contacts relating to taste, smell

and appearance improved from 1.87 in 2024 to 1.55

contacts per 1,000 population in 2025. Performance

remains above the target of 1.33 but continues

to improve as a result of our enhanced network

maintenance programme.

For Bristol Water, contacts were 0.97 per 1,000

customers, compared with a target of 0.76,

positioning performance in the top half of

the industry.

For SES, contacts were also 0.74 per 1,000

customers, above the target of 0.63 but better than

the industry average of 1.11 per 1,000 customers.

1.55

1.87

1.66

0.97

0.95

0.82

0.74

0.58

South West Water (SWB)

Bristol Water

SES Water

2025

2024

2023

2025

2024

2023

2025

2024

2023

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Mains repairs

(Number of repairs per 1,000km)

Asset health is essential for ensuring a robust

supply of water to our customers.

As with leakage, unusual weather conditions

impacted on our operational performance with

increased numbers of mains repairs required, as we

focussed on fixing the impact of storm conditions

or hot weather on our network, as well as on driving

down leakage across all our regions.

169.3

127.5

134.6

150.3

121.0

124.8

78.5

61.9

63.8

2025/26

2024/25

2023/24

2025/26

2024/25

2023/24

2025/26

2024/25

2023/24

South West Water (SWB)

Bristol Water

SES Water

Leakage

(3-year average – megalitres per day)

Reducing leakage from both our own and

customers’ pipes is a critical component of ensuring

a sustainable water supply. A dry spring, hot

summer and several freeze-thaw events (rapid

and extreme changes in temperature) coupled

with storm events over the winter made 2025/26

a challenging year to drive down leakage across

the water sector. Increased mains bursts increased

leakage whilst also impacting supply interruptions

and mains repairs measures across the period.

Notwithstanding the challenges, Bristol Water

remains on the industry leakage ‘frontier’ despite

not meeting the three year rolling target. SES

leakage performance fell short of the target, whilst

there remains more to do in South West Water to

ensure leakage reduction targets are achieved.

113.3

112.8

107.1

36.3

38.5

37.6

21.4

21.2

21.5

South West Water (SWB)

Bristol Water

SES Water

2025/26

2024/25

2023/24

2025/26

2024/25

2023/24

2025/26

2024/25

2023/24

Supply interruptions

(Duration per property per year)

Supply interruptions is a critical measure to

ensure we are providing resilient water supplies

to our customers. Whilst c.75% of operational

incidents have no impact on our customers, supply

interruptions performance is impacted by extreme

weather conditions as well as other events such as

asset impacts or third-party events.

Weather impacted supply interruptions in the year,

particularly during the named storms, resulting in

significant interruptions to supply. In addition, a

single incident in South West Water in April 2025

resulted in a material impact on the measure.

This year’s performance is against a trend of clear

improvement in SWB over AMP7, with performance

in three of the five years above the average

performance for the sector of 10 minutes.

SES remains a sector leader, with total supply

interruptions of 2 minutes and 58 seconds, well

within the target of 5 minutes.

1:09:14

00:14:44

00:09:18

00:33:42

00:07:21

00:09:24

00:02:58

00:26:37

00:03:36

South West Water (SWB)

Bristol Water

SES Water

2025/26

2024/25

2023/24

2025/26

2024/25

2023/24

The early months of 2026 were challenging,

with five named storms, including Storm Goretti.

Following freeze thaw conditions in late 2025, this

had a significant impact on our water networks in

the south west, with a significant increase in mains

bursts, and consequential impacts on both leakage

and supply interruptions. Our teams mobilised in

challenging conditions, focussing on supporting

our customers – also suffering with widespread

power outages and impacts to roads and transport

links from the weather – and ensuring we restored

supplies whilst also supporting our vulnerable

customers during this time.

Managing water resilience

Leakage

(megalitres per day)

Burst mains

(per 1,000km of main)

Supply interruptions

(minutes per property per month)

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

Severe storm events

One-off incident at Dousland

2025/26

2024/25

2023/24

Pennon delivery framework continued

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Pennon delivery framework continued

Reducing storm overflow spills

and pollution incidents is a priority,

focusing on the places that matter

most to customers and local

communities.

During the 2025 bathing season, storm overflow

operation at bathing water sites reduced by more than

25% compared with 2024. Across the full year we reduced

spills by 50% at our top five spilling sites following

targeted interventions, and our analysis indicates that

more than 8,300 spills have been prevented as a direct

result of investment and operational improvements.

Investment and operational improvements

delivered during the year included:

• Targeted interventions at the highest spilling sites to

reduce non-sewage flows, increase treatment capacity,

optimise pumping, install additional storage and

improve sewer condition.

• Operational changes to improve performance during

periods of intense rainfall.

• Enhanced monitoring and data-led decision-making to

prioritise investigation and remediation activity.

Monitoring and transparency

We recognise the importance to customers of improving

transparency and performance in this highly sensitive

area. 100% of our overflows – storm and emergency –

have enhanced Event Duration Monitoring (EDM) in

place. Despite the challenging locations in which many

assets operate, EDM operability was 96.7%, the second

highest in the industry and significantly above the

industry average of 92.7%.

Our EDMs capture data to a high standard, scanning every

10 seconds and recording at two-minute intervals across

all sites, exceeding the minimum 15-minute standard. We

also continue to support transparency through real-time

reporting to the national database and our WaterFit Live

website, which provides up-to-date information on storm

overflow activity at bathing beaches. During the year we

also agreed to extended direct reporting of real-time data

to Surfers Against Sewage (SAS) to improve accessibility

of information for communities.

Bathing waters

Bathing waters across the South West remain among the

cleanest in England. In the 2025 annual bathing water

assessments, 96.2% of bathing waters were classified as

Excellent or Good. South West Water maintained 100%

bathing water compliance for the fifth consecutive year

Water quality can be influenced by a range of factors

beyond our control, including agriculture, wildlife and

climate-related weather patterns. We are prioritising

investment at bathing waters and using enhanced

monitoring and operational insight to identify where

changes can deliver the greatest positive impact.

For bathing waters designated in 2024, two out of six

met the minimum standards; we have investment plans

in place for all of these sites, alongside wider catchment

activity with partners.

Our plans to 2030 put reducing environmental impact at

their heart, with ambitious targets to improve performance

on pollution incidents and reduce the need to operate

storm overflows, starting with investment at bathing

waters and other sensitive catchments.

We maintain and operate more than 25,000km of sewers

across the South West, removing wastewater from homes

and businesses. Tackling storm overflows and reducing

spills is of critical importance to us, helping to protect the

environment and meet the expectations of our customers

and communities.

During the year we enhanced our strategy for wastewater

performance and compliance, targeting improvements

across the region. Our four-phase approach – Identify,

Investigate, Remediate and Validate – supplements

existing processes and ensures a holistic approach to

operational improvement and investment decision-making.

Storm overflows

We are focused on fewer spills, of shorter duration with

targeted investment where it will have the greatest impact.

This year’s 17% reduction in spills, with 25% reduction in spill

duration, was delivered despite continued weather challenges,

including above-average rainfall and increased rainfall intensity,

reinforcing the challenges presented by climate change.

In 2025 the South West experienced 15% higher rainfall

than normal and 62% more rainfall than the national

average. Where across the UK, rainfall was below seasonal

normals. Even with these conditions, storm overflow spills

reduced by 17% and overall spill duration was 25% lower

than the previous year.

The final quarter of 2025 was particularly wet, with 46%

of annual storm overflow spills occurring in the last three

months of the year, during periods of sustained heavy

rainfall of up to 150% of the long-term average.

Alongside our AMP8 programme – targeting investment

at all bathing beaches by 2030 – we also focused on

targeted interventions at our highest spilling sites.

St cleer1. Excludes newly designated bathing waters in 2024.

During the year, we maintained

100% bathing water compliance

for the fifth consecutive year and

delivered improved performance,

including a reduction in storm

overflow spills of

c.17%

and a reduction in pollution incidents of

c.34%

absolute number

c.53%

normalised pollutions

Tackling storm overflows and pollutions

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50% spill reduction at the top five spillers

Among our most important interventions in 2025 to

reduce spills were actions taken at our top five spilling

sites. We achieved a 50% reduction in spills from these

sites through a combination of removing sources of

non-sewage flows entering the network, increasing

treatment capacity, optimising pumping, installing

additional storm storage and improving sewer

condition through lining.

There is more to do at these sites to reduce spills

further and to ensure they meet the long-term future

targets of not spilling on average more than 10 times

per year; however, this progress demonstrates that our

approach is delivering results.

2024 rank Spilling overflows 2025 spills

Salcombe Regis STW

36%

Abbotsham STW

40%

Roborough STW

56%

Dulford SPST

53%

Payhembury STW

57%

Salcombe Regis Payhembury

Pollution incidents

We remain focused on improving performance on

pollution incidents to watercourses, as measured by the

Environment Agency. In April 2025 we published our

Pollution Incident Reduction Plan (PIRP) to drive a step-

change in performance. We updated and republished the

plan in March 2026 to reflect learning from incidents and

operational events, and to incorporate our latest priorities

and areas of focus.

Our PIRP in 2025 was underpinned by five pillars:

• People and culture – approximately 50 managers

completed dedicated training and over 200 colleagues

completed mandatory training covering chemicals and

site drainage. A business-wide campaign ‘The Great Big

Sparkle Challenge’, received over 1,000 entries to drive

improvements across wastewater operations.

• Customer and community engagement – delivery of our

sewer misuse campaign, Bin It Don’t Block It, alongside

approximately 5,500 visits to misuse hotspots.

• Smarter operations – development of an enhanced

catchment-based sewer cleansing programme, with

114km of sewers cleansed, alongside enhanced

pumping station maintenance.

• Asset health and investment – targeted investment to

address known risks and improve resilience, informed

by incident learning and performance data; for example,

replacement of a high-risk rising main at Dunkeswell.

100

120

Industry pollutions per 10,000km

2024

1 Based on 2025 Draft Industry performance (subject to Environmental Agency Publications) from Pollution Incident Reduction Plan published in

March 2025, using the Environmental Agency’s EPA metric reflecting EA recognition of increased sewer length.

53%

reduction in pollutions

• Data, insight and assurance – improved monitoring,

investigation and reporting to support faster

interventions and sustained performance improvement.

We have seen a 76% success rate using AI driven alerts

from 12,000 sewer level monitors, to drive positive and

timely interventions in our network.

Delivery of PIRP initiatives contributed to a 34% reduction

in Category 1-3 incidents, alongside a 60% reduction

in repeat pollution incidents. Root cause analysis has

helped us target interventions more effectively – through

asset upgrades, smarter monitoring and operational

improvements, and behavioural campaigns to reduce

misuse of the network.

During the year, disappointingly, one event in Menagwins

resulted in a Category 1 incident – our first since 2018 –

following a chemical spillage caused by a structural defect

in a third-party tanker hose and the failure of a bung

within the site drainage system. There were two Category

2 incidents, a reduction from four in the prior year.

The positive improvement in the number of pollution

incidents means we have the lowest number of absolute

incidents in the sector, and following the recognition of

our increased sewer length by the Environment Agency,

our normalised pollution incidents reduced by 53%

year-on-year. When considered against draft industry

performance, South West Water is no longer an outlier in

this measure for the first time.

SWW 2025

Pennon delivery framework continued

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Pennon delivery framework continued

Sidmouth beach

Tackling storm overflows and pollutions continued

Operational compliance

In August 2025, we agreed enforcement undertakings

with Ofwat in relation to our historical wastewater

operations. Alongside the rest of the sector, we recognise

the need for an increased focus on compliance with

relevant permits and obligations. In parallel with

investment to reduce pollution incidents and minimise

storm overflow operation, we are strengthening the

systems, processes and controls that support compliance

across our wastewater activities.

Our numeric compliance performance for the period

was 98.1%, with six of our wastewater treatment works

experiencing failures. We have continued to enhance

our action plans, working closely with the Environment

Agency through regular performance and compliance

reviews. We continue to support the Agency’s inspections

and compliance visits. We have seen a four-fold increase

in the number of site visits over the past two years,

providing additional scrutiny of our operations. We are

pleased that three out of every four inspections resulted

in a fully compliant assessment, with the remaining

inspections identifying minor issues for remediation. All

actions are tracked, monitored and remediated as part of

our ongoing drive for 100% compliance.

Sewer flooding and network

performance

The South West experienced exceptionally high rainfall

between November 2025 and February 2026 – nearly

double the usual average for these winter months.

Cornwall experienced the wettest winter on record,

and there were named storms in early 2026, including

Storm Goretti, with winds recording 99 miles per hour

and causing significant power outages, also impacting

performance.

Internal sewer flooding incidents increased to 1.20 per

10,000 connections, with almost double the number of

incidents in January 2026 and February 2026. While

this is an increase year-on-year, it remained below the

target of 1.34 and we expect it to remain a strong position

compared with industry performance. External sewer

flooding incidents reduced to 1,442 (2024/25: 1,465) and

were ahead of target. Sewer collapses reduced by 33%

year-on-year, reflecting targeted network activity to

reduce blockages and improve performance.

We recognise the significant impact sewer flooding

can have on customers when homes, businesses and

properties are affected. We have prioritised activity

to reduce sewer flooding incidents, while continuing

to target resilient network performance and reduce

blockages and collapses.

During the year we enhanced the compensation we

provide when internal flooding occurs by:

• doubling the minimum payment available,

• uplifting allowances for repeat incidents in addition to

standard payments, and

• ensuring compensation is paid automatically, and within

20 days.

North Petherwin storm tank

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Dawlish

Environment Performance Assessment

(EPA) and WINEP delivery

The Environment Performance Assessment (EPA)

is the Environment Agency’s annual assessment of

environmental performance across the water sector.

Companies are rated against a range of measures,

with an overall rating of up to four stars.

Whilst we have made progress in a number of measures

monitored by the EPA, disappointingly, the provisional

2025 EPA rating is 1*. This reduction year-on-year

results from improving performance against operational

measures such as pollutions, although with more to do

to achieve amber and/or green status. However, progress

against our WINEP capital programme has resulted in a

deterioration in the EPA score year-on-year; we achieved

18 out of 19 of our Year 1 deliverables, and delivered

30 wastewater investigations earlier than required.

However, to achieve amber status or better, 98% of

projects must be delivered, including any outstanding

AMP7 programmes. 9 AMP7 projects had dates due

for completion by March 2026; we delivered 6 of these,

with one completed since 31 March and two deliverables

under discussion with the Environment Agency.

Any single failure would have resulted in a red metric

for the EPA given the relatively low level of projects due

for completion and we remain focused on delivering

all elements of the programme on time as we progress

through the delivery period.

Our operational measures showed improvement

year-on-year including:

• Pollution incidents – total pollution incidents per

10,000km of sewer main reduced to 51, a 53%

improvement compared with 2024, reflecting both the

reduction in the number of incidents and recognition

by the Environment agency of a revised sewer length.

Given our topography and proximity to watercourses,

despite this material reduction, this measure remains

challenging to achieve the targets set by the EPA.

• Serious pollution incidents – Category 1-2 pollution

incidents reduced from four to three but remain

adverse to the EPA target.

• Sludge compliance – maintained at 100%.

• Numeric compliance – maintained at 98.1%, achieving

‘amber’ status.

We remain focused on reducing both pollutions and

storm overflow spills and achieving our goal of an EPA 4*

rating; we note that from 2026, the EPA assessments are

changing, with measures added and removed, definitions

broadened and targets made even more stretching.

Introduction of these changes are phased through to

2028 and we are working closely with the Environment

Agency to ensure we understand and respond to the

revised scorecard.

1. Excludes newly designated bathing waters in 2024.

Dawlish – investing to reduce storm overflow spills

As a result of early start funding for our AMP8

storm overflow programme, we have been able to

complete delivery of a major improvement project

in Dawlish during 2025/26. We recognise the

importance of reducing storm overflow spills for

customers, and in Devon and Cornwall, we know that

customers want this investment to be prioritised at

beaches and bathing waters around our coastline.

As a result, our investment in Dawlish was driven

by the need to reduce spills from storm overflows,

strengthen operational resilience and meet evolving

stakeholder expectations. It will also help us ensure

greater resilience to climate change and respond

to community concerns regarding environmental

performance.

Investing for the future

From inception, the team adopted a whole-

life, sustainability-led approach – integrating

operational insight, environmental stewardship, and

constructability to optimise long-term value. The

solution provides a repeatable model for delivering

measurable storm overflow improvements in sensitive

coastal locations.

The project was delivered through the amplify alliance,

bringing together national and local partners. The

integrated delivery model embedded operational,

environmental and constructability expertise from the

outset, enabling aligned, outcome-focused decision-

making.

South West Water set clear strategic direction and

outcome-based objectives, with operational teams

shaping solutions to ensure resilience, maintainability,

and effective performance in a constrained coastal

catchment. Strong governance and transparent

collaboration across designers, constructors and

operators enabled early risk identification and effective

mitigation, maintaining alignment throughout delivery.

Reduced storm overflow activity supports bathing

water quality and coastal amenity, benefiting residents,

visitors, and local businesses. Stakeholder engagement

with residents, businesses and the Parish Council

informed delivery planning and helped minimise

disruption, supporting continued public confidence

during works in the town centre.

Councillor James, Mayor of Dawlish, welcomed the

investment, recognising the increasing pressures

on water services and the importance of protecting

Dawlish’s community and environment. He also noted

that, while disruption was unavoidable, the working

relationship with South West Water and its contractors

was positive, transparent, and collaborative.

Dawlish wastewater solution

Pennon delivery framework continued

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Pennon delivery framework continued

Tackling storm overflows and pollutions continued

Our plan to reduce pollution – at a glance

Our plan has developed and is now built around six key pillars, designed to tackle pollution from

every angle and ensure sustainable improvement.

The key initiatives of our PIRP strategic pillars

Culture

and human

resources

initiatives

Specific asset

upgrades

Programmes

of asset

maintenance

Customers and

community

engagement

Introduction of

new systems

and technology

Operational

response

Right people,

right skills –

building teams

and specialist

knowledge

Increased

training and

use of our new

training centre

Enhanced

induction

programme

Effective staff

engagement

Cross-company

collaboration

and knowledge

sharing

Customer

roadshows

Education

programme

Public campaigns

to tackle

unflushables,

fats, oils, and

greases

Collaboration to

prevent sewer

misconnections

Funding

community

groups that

support the local

environment

Targeted asset

renewals and

upgrades

Sewer capacity

enhancement

schemes

Increase network

and sewage

treatment

capacity

Improved power

resilience

Enhanced

investment to

reduce storm

overflow

discharges

Improved pump

performance

monitoring

Enhanced

burst detection

analytics

Optimise sewer

level monitoring

Emergency

storage

availability

assessments

Rollout of digital

site manuals

Enhanced

proactive

inspections

Enhanced

condition-based

maintenance

dashboards

Optimised

air blower

maintenance

Proactive

catchment

cleansing

Al-driven

predictive

maintenance

Rationalisation

of alarms

Chemical

management

protocol

Rapid

deployment

teams for

pollution

incidents

Optimisation

of incident

management

procedures

Mark up of site

drains

Pollution Incident Reduction Plan

Our Pollution Incident Reduction Plan (PIRP) sets

out the decisive actions we are taking to reduce

pollution incidents across our water and wastewater

network and protect the environment. The plan is

shaped by feedback from customers, stakeholders

and local communities, and is supported by

our largest-ever commitment to environmental

improvement.

Thanks to targeted investment and operational

improvements, our teams are preventing many

incidents before they escalate, safeguarding local

communities and nature. However, we recognise we

need to do more and remain committed to making

the changes needed to reduce pollution and

improve the environment.

Looking ahead

We’re taking practical steps to protect the

environment and reduce pollution across our region.

Our plan has developed and is now built around six

key pillars, designed to tackle pollution from every

angle and ensure sustainable improvement.

Pollution Incident

Reduction Plan 2026

Customer Summary

Read more www.southwestwater.co.uk/

siteassets/documents/environment/rivers-

and-bathing-waters/swb_pirp-customer-

summary-200326.pdf

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Internal sewer flooding

(Incidents per 10,000 sewer

connections)

1.20

0.63

0.74

South West Water (SWB)

2025/26

2024/25

2023/24

Sewer collapses

(Incidents per 1,000km)

5.06

7.54

11.42

South West Water (SWB)

2025/26

2024/25

2023/24

Pollution incidents

(Number of wastewater incidents)

Category 1-3 pollutions is our most challenging

area, but we have seen incidents reduce by a third

despite the wetter end to 2025. We continue to

drive improvements through our Pollution Incident

Reduction Plan (PIRP).

124

189

194

South West Water (SWB)

2025

2024

2023

Numeric compliance (%)

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 quality discharged to

the environment. Performance in this area has been

stable year-on-year with six incidents in 2025.

98.1%

96.2%

South West Water (SWB)

2025

2024

2023

Operational KPIs

Average spills^

During 2025, the average number of spills reduced

by 17% with duration down 25%, despite rainfall

being 14% above long-term average. South West

Water has made interventions at a number of sites

during the year to help achieve this reduction.

34.0

41.3

43.4

South West Water (SWB)

2025/26

2024/25

2023/24

External sewer flooding

(Number of incidents)

Sewer flooding is a key area that significantly

impacts on customers. In 2025/26 we expect

to maintain our industry-leading internal sewer

flooding performance, despite an increase in

incidents due to the exceptional weather in January

and February 2026. We have also delivered further

reductions in external flooding incidents.

1,442

1,465

1,578

South West Water (SWB)

2025/26

2024/25

2023/24

Bathing waters^

Sewer blockages

6,086

6,445

6,448

South West Water (SWB)

2025

2024

2023

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, outperforming the

target. Blockages have also reduced with our

proactive cleansing programme supporting the

reduction this year.

Environmental Performance Assessment

A combination of a basket of measures, the EPA

is the Environment Agency’s assessment of

environmental performance.

South West Water (SWB)

2025 (provisional)

2024

2023

^ Based on Defra public classification

98%

100%

South West Water (SWB)

Good/Excellent (%)

Met standards (%)

2025

2024

2023

98%

100%

99%

100%

^ As per the EA Storm Overflow Return 2025

Pennon delivery framework continued

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Pennon delivery framework continued

Driving environmental gains and delivering Net Zero

Pennon is proud to be at the forefront

of environmental infrastructure, with

environmental stewardship central to

our success.

Guided by our connection to the water

cycle, we are investing for the long-term

and taking measurable action to improve

water quality, enhance biodiversity and

accelerate progress towards Net Zero.

Driving environmental gains

Since the Water Industry Strategic Environmental

Requirements (WISER) were set in 2022 by the

Environment Agency and Natural England, as part of the

UK Government’s 25-Year Plan, all water companies have

taken measures to focus more resource and investment

into environmental resilience.

Pennon’s PR24 business plan launched early to begin

delivery ahead of schedule and now following the water

industry’s Cunliffe Review (2025) and White Paper (2026)

teams are working to review, adopt and progress the

recommendations.

In 2025/26 Pennon took several steps to advance

the Group’s environmental governance including the

first appointment of a Chief Sustainability and Natural

Resources Officer (CSNRO). The ESG Committee has

also gained closer oversight of Net Zero and Climate

Resilience objectives with ongoing active participation

in the Water UK Environment Committee and local

partnerships.

Key metrics

UST active management (ha) 5,138

Peatland restored (ha) 254

Number of BPC units nominated 421

Ofwat Innovation projects Water Net Gain

Number of trees planted 31,893

Number of stakeholder workshops 4 (c.250 people)

Working in partnership

Working with local communities, groups and

organisations is key to strengthening networks and

partnerships for environmental gains between the public,

private and third sectors. In 2025/26 we contributed

to the launch of important regional initiatives such as

Plymouth’s Plan for Nature, the Wild Summit hosted in

Bristol, the UK Government’s Land Use Strategy and

Local Nature Recovery Strategies for Cornwall and

Isles of Scilly, Devon and Bristol. Alongside ongoing

engagement in Catchment Partnerships, we host the

Let’s Talk water stakeholder forum to engage our

environmental partners.

Biodiversity Strategy

Pennon’s Biodiversity Strategy (2023) has been informed

by Defra’s Plan for Water (2023) and Environmental

Improvement Plan (2025) as a clear commitment to the

protection, enhancement and sensitive management of

our landholdings and assets summarised in our approach

to “protect the best, restore the rest and to work in

collaboration beyond our landholdings”.

The Water Special Measures Act (2024) updated the list

of statutory duties that water companies are responsible

for under the Water Industry Act (1991) to establish

greater accountability for sustainability outcomes

including climate resilience and biodiversity. Pennon has

made measurable progress to meet our Biodiversity Duty,

strengthened under the Environment Act (2021), which

we plan to build on over AMP8-AMP9, as detailed in our

Growing Nature to 2035 Progress Update

report (2026).

5,138

hectares Upstream Thinking active

management

Ofwat’s AMP8 Biodiversity Performance

Commitment

In 2025/26 each water company began delivery, and

enhancement works progressed at scale and pace over

the winter, using Defra’s metric to baseline and nominate

habitat parcels as approved by our Biodiversity Panel. In

total Pennon is forecast to deliver a combined target of

393 biodiversity units of positive biodiversity net gain by

2030 across 22 sites between SWB, BRL and SES.

South West Water’s £2 million Nature Recovery

Fund

In early 2026 we launched the application process to

fund community led projects which deliver measurable

benefits to nature, water and people. Funded as part

of our redress package for customers announced in

September 2025, the fund has welcomed significant

interest with successful projects awarded in May 2026.

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.

£2 million

South West Water’s Nature Recovery

Fund was launched during the year to

fund community led projects which

deliver measurable benefits to nature,

water and people.

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Bristol Water

Many designated sites are influenced by pressures

beyond our land. Where only part of a site or its

contributing catchment is within our ownership, site

condition is shaped by a complex interaction of land

use, diffuse pollution and climate change. Blagdon Lake

SSSI was reclassified by Natural England in 2025 as

Unfavourable (declining), reflecting elevated nutrient

levels from the wider catchment alongside the effects of

climate change. While this presents a challenge, it has

also created an opportunity to accelerate a coordinated

recovery plan for the site. Working with Natural England,

the Environment Agency, local landowners and delivery

partners, Bristol Water is developing a catchment-wide

programme to reduce nutrient inputs.

Alongside this collaborative approach are plans to explore

and implement nature-based solutions, such as floating

wetlands, and to improve the management of our land to

support long-term ecological recovery.

Invasive Non-Native Species (INNS)

In 2025/26 South West Water INNS awareness, education

and training activity increased, with over 7,000 people

engaged through outreach and events. Our biosecurity

programme is on track to install three new boat wash-

down facilities, 10 new dip tanks and signage across

multiple sites by the end of AMP8.

For our biosecurity programme we appointed

specialist contractors to test new methods of removal

at Christchurch Harbour and continued large-scale

control programmes for American signal crayfish at key

reservoirs including Burrator and Roadford. We have also

captured and removed over 2,300 invasive fish called

ruffe because they displace native fish species and

disrupt the food web, preventing them from entering the

St Neot and the wider River Fowey system. This is the

highest number since the screens were installed three

years ago, suggesting a population boom last year.

NatureSafe

Launched in early 2024, NatureSafe is an internal

communication campaign to raise awareness of nature-

related risks across Pennon’s operational sites. It equips

ground teams with resources and support for ecology

enquiries and to mitigate any potential incidents. In

2025/26, the campaign expanded to deliver training

sessions to Bournemouth Drinking Water teams;

incentivise behaviour change through Pennon’s Site Pride

and ‘You Rock’ reward schemes and set up an internal

SharePoint Hub. At Pennon our operational teams are

learning to co-exist with and adapt to the presence

of beavers on, adjacent to or nearby our assets as we

continue to identify and mitigate any potential impacts.

Natural Resources Team visiting a Native Crayfish Ark site in Devon (photograph by Marcus Brown)

Protected sites and species

Park Pit and Stannon Lake

Throughout the year, work has continued to advance

Higher Tier Countryside Stewardship applications for

Park Pit and Stannon Lake, both designated County

Wildlife Sites. Ongoing engagement with partners and

stakeholders has helped strengthen the proposals,

which will continue to be refined to secure long-term

biodiversity and ecological resilience.

South West Water

South West Water, in partnership with South West

Lakes Trust, has restored multiple County Wildlife Sites

within the South West Water estate and is safeguarding

several SSSIs, including Crowdy Marsh and Lopwell

Dam. In 2025/26, the South West Lakes Trust actively

managed eight of South West Water’s SSSIs, delivering

agreed habitat management, ecological monitoring and

stakeholder engagement to protect designated features

and maintain favourable condition and, where applicable,

support recovery towards favourable condition.

Fish and eels

South West Water has continued to improve fish and

eel passage and intake screening across South West

Water assets, supporting the recovery of native species

and enhancing river connectivity. The programme is on

track to deliver eight eel passes, seven eel screens, and

the removal of a barrier within the Dendles Wood SSSI,

enabling fish and eels to move more freely between

feeding and breeding grounds. The recently completed

Lopwell Dam eel screen was shortlisted in 2025 for the

Institute of Civil Engineers (ICE) People’s Choice Award,

recognising the successful delivery of a complex project

with strong environmental benefits. At the Colliford

Hatchery we raised 40,000 salmon (a total of 400,000

since 2016) which were stocked at 20 sites along the

St Neot, the main tributary of the River Fowey, rising

above Colliford Lake. This supports survival of salmon

species and supporting the broader health of the river’s

ecosystem.

Pennon delivery framework continued

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Pennon delivery framework continued

CREWW

We continue to address the longer-term

challenges facing the water sector

driven by climate change and population

growth through our joint venture

research partnership with University

of Exeter, the Centre for Resilience

in Environment, Water and Waste

(CREWW).

We have committed £21 million of capital and research

investment which will fund multiple academic schools

across the University of Exeter, working alongside our

subject matter experts to meet these challenges.

Ranging from harnessing the power of AI to reduce

the risk of groundwater infiltration into our sewer

network system to reduce the use of storm overflows,

to investigating the prevalence of polyfluoroalkyl

substances (PFAS) and microplastics in our drinking

water and wastewater, we are using science to drive

value for money for our customers and protect our

environment.

This year, we have extended the reach of the

partnership with the University of Exeter, building

on the foundational work of academics focused on

catchment management, natural processes, and nature-

based solutions which dates back to 2006 through our

pioneering partnership with the farming community

(Upstream Thinking) to bring better water quality to

the South West through a systems based approach.

We have introduced a research theme lead framework

which partners academics in the schools of computer

science, engineering, bioscience and social science

with our subject matter experts to promote a holistic

solutions-based approach. This framework is now

integral to CREWW’s ways of working and has already

contributed to the initiation of new multi-disciplinary

research projects which also draw upon expertise and

input from outside the CREWW partnership.

The CREWW Safe to Swim (S2S) Forums, held in

September 2025 and March 2026, convened local water

quality interest groups, water companies, internationally

respected water industry-focused academics from

Newcastle University and the University of Exeter,

representatives from local government, national

regulators, UKHSA and technology consultants

responsible for advising the Paris Olympics Organising

Committee on use of the Seine for events.

The S2S Forums facilitated discussion regarding

improved methods for informing customers and visitors,

empowering them to make well-informed decisions

and helping to prevent unnecessary ‘not safe to swim’

alerts that negatively impact coastal communities

economically. We will be launching research projects

and discussions with regulators on the research themes

identified in the forums, namely:

1. Improving the current approach

To identify and develop methods for improving existing

modelling systems which underpin water quality alerts.

The focus will be tailoring alerts for specific bathing

waters (local tides/marine topography) rather than the

current global models.

2. Influencing behaviours

Working with local stakeholders to ensure the improved

alert information is understood by bathing water

users in terms of risk of illness and causes of risk. A

risk-based approach will balance the safeguarding

of bathing water user health with protecting coastal

economies from blunt ‘yes/no’ unsafe to swim alerts.

3. Better science, better understanding of

risk of illness

With the advances in science since the 1980’s (where

the current bathing water regulation regime draws

its scientific basis) this theme will review the current

scientific approaches to identifying risk of illness to

bathing water users.

We look forward to sharing the S2S initiative and the

wider research programme with the International Water

Industry at the 2026 IWA World Water Congress &

Exhibition in October 2026 where multiple research

projects have been selected by the IWA academic

panel to be showcased.

CREWW building

Centre for Resilience in the

Environment, Water and Waste

(CREWW)

South West Water’s partnership with the University of

Exeter is now taking strides in pioneering research to

address challenges facing the UK water industry and

overseas. In 2025/26, several projects were launched to:

• map and predict high-risk groundwater infiltration areas;

• improve safety and quality of bathing waters in a new

expert-led Safe to Swim Forum;

• investigate restoration of seagrass and temperate

rainforest habitats in the South West via Water Industry

National Environment Programme (WINEP); and

• tackle prediction of algal blooms in lakes.

Water Industry National Environment

Programme (WINEP)

Improvements

Across Pennon, our water companies have been working

closely with regulators, including the Environment Agency

and Natural England, to develop and deliver environmental

programmes through the WINEP, focusing on key themes

such as drinking water protected areas, fish and eels,

Invasive Non-Native Species, and protected sites.

Investigations

Through targeted WINEP investigations, South West

Water is advancing nature-based solutions across marine

and terrestrial habitats. Our seagrass investigation

project is assessing the impacts of treatment works and

upstream catchment improvements on seagrass health

across the South West, alongside an Ocean Conservation

Trust trial examining how nutrient pollution from sewage

and agricultural runoff affects seagrass survival, helping

to identify opportunities for active restoration. In parallel,

our Temperate Rainforest investigation is exploring the

creation and restoration of celtic rainforest on South

West Water land and across wider catchments, supported

by partnership projects including a Plantlife-led project

on Dartmoor to build evidence and share best practice

for scalable restoration.

Driving environmental gains and delivering Net Zero continued

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Conservation, access and recreation

Bristol Water

At Bristol Water’s Blagdon Lake, a highlight of the

biodiversity works underway in 2025/26 includes a large

hedgerow project where 1,890 metres have been laid by

a local champion hedge layer, inspiring training sessions

for local apprentices. At Chew Stoke Pumping Station,

the countryside charity CPRE planted 660 metres of

hedgerow to improve safety and livestock barriers while

creating a wildlife corridor between existing woodland

and wildflower meadows. Community engagement has

continued for conservation and recreation across the

Bristol estate, including school woodland visits, reservoir

runs, charity and NHS events.

South West Lakes Trust

In 2025/26, teams in South West Water and South West

Lakes Trust worked closely to continue delivery of

environmental, access, education and recreation benefits

across our reservoirs and lakes. Over 2.1 million visitors

explored the trails, play areas and nature surrounding

our lakes across the South West, supported by more

than 4,000 volunteer days and 5,500 education sessions.

Provision includes habitat enhancement, species

monitoring, outdoor learning and wellbeing activities,

access to the water for recreation, and the maintenance

and improvement of paths and visitor facilities to ensure

they remain safe and well cared for, delivering value for

people and nature.

Innovation

South West Water is partnered with Westcountry

Rivers Trust on our Water Net Gain project for the

Ofwat Innovation Fund which in 2025/26 put forward a

Willingness to Accept Study to prepare a funding case

through the PR29 business plan. Also, the sector’s first

land-based carbon baseline was completed via the UK

Water Industry Research (UKWIR) research programme.

Upstream Thinking

South West Water celebrated the 15-year anniversary

of our Upstream Thinking catchment management

programme has become a cornerstone in the Group’s

environmental leadership to deliver impactful and

lasting improvements to water quality, biodiversity and

catchment resilience across each region.

2025 Water Industry

Award winners

Natural Capital Initiative of the year

South West Water – Upstream Thinking

This award is for going above and beyond normal

practice and continued and ongoing commitment

to sustainability and environmental improvement.

This relates not just to the natural environment

an organisation holds in trust but also in its own

practices and operations.

“

This programme

celebrates its 15

anniversary

this year, but continues to

innovate and demonstrate

measurable benefits.

The judges said the project’s

evidence-based approach

has shown how complex

and pioneering collaboration

with the local communities

and stakeholders can lead

to multiple benefits.

In 2025/26, Upstream Thinking delivered 5,138 hectares

of active management and the programme expanded

to now cover 95% of our drinking water catchments to

include Chew Magna, Egford, Blagdon, Forum Springs,

Axe, Cheddar and Avon in the Bristol area. This year our

highlights include reaching a total of 421,199 trees planted

since 2019 and receiving further recognitions, winning the

CIRIA Biodiversity Challenge Award and a water industry

award for Natural Capital Initiative of the Year.

South West Peatland Partnership

In early 2026, the partnership premiered a short film

called The Living Layer to raise awareness of the

importance of peatland restoration and to give insight

into the team’s work across Exmoor, Dartmoor and

Bodmin. In 2025/26, over 2,370 people in total engaged

with events, volunteer days and school excursions

including a visit from Prince William, Duke of Cornwall,

launching a 20-year plan for the Duchy’s Dartmoor Estate

which includes areas of the peatland programme.

In 2025/26, the programme delivered 254 hectares of

peatland restoration with the support of 120 registered

volunteers and more than 20 local partners, farmers,

landowners, and funders.

Our Net Zero transition

Our commitment to Net Zero goes hand in hand with

climate adaptation. We are cutting our emissions through

renewable energy, low-carbon infrastructure, and

operational efficiency, and have reduced our Scope 1 and

2 emissions across the Group by 41% from our 2021/22

baseline, in-line with our revalidated Science Based

Target (SBTs), adhering to the latest climate science and

bringing SES Water into our Group boundary.

We are also innovating across our supply chain to tackle

scope 3 emissions, having trialled low-carbon materials

and processes to reduce embodied emissions. As we look

ahead to Net Zero, we will continue to decarbonise our

operations, measuring and monitoring the direct real-time

emissions of nitrous oxide (N

O) from our wastewater

treatment works, to adjust the treatment processes to

minimise emissions across our treatment works.

We will also continue to pursue bioresource energy

recovery, using waste to power our own operations, and

supporting our supply chain in adopting low-carbon

materials and techniques.

Read more about our progress on our Net Zero

transition on pages 78 to 82

Climate adaptation

We’re continuing to evolve 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 work 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

can deliver multiple environmental benefits and climate

resilience.

Our Green First 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.

Pennon delivery framework continued

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Aberdeenshire

The solar site is built on low grade

agricultural land.

It has more than 26,000 solar panels and more than

8km of cabling. It will generate c.14 GWh annually,

equivalent to powering 5,000 homes in the UK or

offsetting the equivalent of 4% of annual consumption

in the Group.

26,000

solar panels

c.14 GWh

generated annually

Pennon Power

Pennon Power has been established to deliver our

renewable energy ambitions and support our broader

Net Zero strategy. Pennon Power plays a central role in

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.

Two solar projects were fully constructed by March 2026,

with Aberdeenshire at full generation and Fife energised

and in the commissioning stage. Two further sites are on

track for energisation and commissioning in 2026/27.

The Aberdeenshire project is a 16MWp solar farm, and

the Fife project a 45MWp solar farm, with a 30MW two-

hour co-located battery storage system, situated on the

site of a former open-cast coal mine.

Reduction in GHG emissions from

2021/22 baseline – Scope 1 and 2

(SBT verified) (%)

Over recent years, we have continued to make

measurable progress in reducing our GHG emissions,

supported by targeted operational improvements

and ongoing investment in low-carbon solutions.

Building on this momentum, this year we have

undertaken a revalidation of our science-based

targets (SBTs) through the Science Based Targets

initiative (SBTi). This process was required to bring

SES Water within the scope of the Group’s targets.

By re-baselining our science-based targets we are

reaffirming our commitment to delivering our near-

term carbon reductions in alignment with the latest

climate science. Our Group GHG inventory is now

fully aligned with our science-based targets.

Renewable electricity generated

(GWh/year)

While in-year generation has been limited by delays

in the energisation of new solar capacity, including

at our Dunfermline (Fife) site, this represents a

short-term phasing impact rather than a change

in underlying trajectory. With major assets now

constructed and commissioning, we expect a step

change in renewable electricity generation as these

projects come fully online, and generate throughout

2026/27.

In addition to the growing contribution from grid-

scale solar, our hydro generation continues to provide

a stable source of renewable electricity, supporting

overall performance. Alongside this, we are assessing

behind the meter projects across our regulated

businesses, to enable on-site generation that reduces

grid demand and supports operational energy

resilience. Together, these initiatives are broadening

our renewable energy mix and strengthening the

long-term profile of renewable electricity generated

across the Group.

The move to reporting this target in GWh/year

further supports transparency and comparability of

performance over time, as we scale generation in line

with our renewable energy ambitions.

Catchment management

(Total hectares)

We continue to deliver our award-winning catchment

management approach across 95% catchments

across the Group. Catchment management protects

and improves raw water quality, helping to provide

clean, safe drinking water while reducing the need for

additional infrastructure. This nature-based approach

remains a cornerstone of our environmental strategy,

and we sustained strong performance across the

2025/26 year, building on the success of exceeding

our targets during the 2020 to 2025 period.

Pennon Group

2025/26

2024/25

2023/24

Pennon Group

2025/26

2024/25

2023/24

149,258

144,120

126,733

South West Water (SWB)

2025

2024

2023

Once fully commissioned in Q1 2026/27, the annual

generation from Fife alone will more than double the size

of the Group’s renewable energy portfolio. The project in

Fife is being commissioned during Q1 2026/27.

The two further projects, in Cumbria and

Buckinghamshire, will add a further 87MWp to

the portfolio in 2026/27 and 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 directly to operational sites

within the Group. These sites will support the UK’s wider

Net Zero ambitions as well as provide resilience against

fluctuations in energy prices directly on-site.

Operational KPIs

Driving environmental gains and delivering Net Zero continued

Read more about our progress on reducing

GHG emissions and Our Net Zero Transition

on pages 72 to 82

Pennon delivery framework continued

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As providers of essential services we play

a vital role in the health and economic

wellbeing of our communities; we are

committed to delivering on the priorities

of our customers, whilst keeping bills

affordable.

Keeping bills affordable while delivering

essential investment

Affordability starts with delivering high-quality services

at the lowest sustainable cost. Over the past decade, we

have focused on operational efficiency, productivity and

strong customer service, helping to keep bill increases

below headline inflation. The water sector is now

entering a period of unprecedented, regulator-approved

investment to 2030, designed to secure safe and clean

drinking water, reduce storm overflow spills, protect and

enhance the environment, strengthen network resilience

and prepare for climate change.

In the South West, the challenge is particularly

pronounced. Our network serves more than 157

designated bathing waters across a large and

geographically diverse region, supported by a

comparatively small customer base. Customers rightly

care deeply about protecting the rivers, beaches and

coastal waters that are central to local communities,

health, wellbeing and the regional economy. Delivering

that protection requires higher infrastructure and

operating costs than many other regions, and this

contributed to a step-change in bills in 2025/26, and a

further increase in 2026/27. While the increase in the

second year was lower, with inflation remaining high,

we know affordability pressures remain a concern for

many households.

Understanding the impact on

customers

Bills across the UK water sector have increased by

around 25% for the 2025/26 year, and whilst this was

supported by customers in terms of the need for greater

investment, the impact on bills has been challenging at

an individual level. We have seen a significant step up

in the past year in the volume of contact received from

customers – both who need support with the affordability

of their bill, or for more information and understanding

on what their bill is paying for. In the South West region,

the removal of the GC50 government contribution has

further increased the year-on-year impact for customers

of their water bills.

Our customer service teams have been working tirelessly

to support customers through this period, and, in

particular, to provide tariff and other support measures

to those who need it most. Alongside this, we have also

been working hard to understand how we can learn from

the challenges this year has brought, to provide greater

levels of communication, support and engagement with

customers as we move forward.

Customers told us they were concerned about

affordability, worried about future costs, and at times

unsure why their bill had increased by a particular

amount or by more than expected. For many, higher water

bills came alongside wider cost of living pressures. For

customers in vulnerable circumstances, these pressures

may be compounded by health conditions, disabilities,

caring responsibilities, language barriers, digital exclusion

or major life events.

‘Water Great Summer’ Campaign

We were able to flex our

communications across the summer

to reflect the regional variations and

also the changing impact of weather

conditions.

For SES we ran a ‘pause TV’ campaign with ITVX.

Using this media allowed us to target customers with

a stronger water saving message when temperatures

went above 26 degrees. Over the six weeks of the

campaign we reached 300,000 viewers, driving

awareness of using water wisely.

To support Bristol Water during Drought Level 2, we

targeted both household customers and also visitors

to the region, reflecting the additional demand on

supplies presented in the summer months.

We used out of home media to target visitors at the

Gordano M5 service station and Weston Super Mare

rail station with a reach of 1.3 million.

Household customers were targeted with a

combination of press and digital advertising together

with paid social media – with increases in activity

during the heatwave periods. The objectives were to

drive awareness of water saving advice, including free

devices and also of the impact of the dry summer on

water resources. We saw a positive result for all key

objectives across the period

Find out how:

Supporting affordability, delivering for customers

Pennon delivery framework continued

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Pennon delivery framework continued

Supporting affordability, delivering for customers continued

Over the past year, we significantly expanded affordability

support:

• More than c.190,000 customers across the Group are

now benefiting from our financial support framework;

and

• At South West Water and Bournemouth Water, we set

a target to support 75,000 customers through social

tariffs by the end of 2025/26. That target was exceeded

ahead of schedule, with 79,666 customers benefitting.

Innovative tariff trials

We are currently trialling three progressive tariffs

designed to reward efficient water use:

• Smart Saver, where charges rise with usage

• Seasonal tariffs, with higher rates in summer and lower

rates in winter

• Summer peak tariffs, where customers using water

above an upper limit pay a higher rate during peak

summer periods

One year analysis of the Smart Saver trial showed a 5.3%

reduction in water use, which is encouraging. However,

customer feedback also highlighted areas of concern,

including anxiety about unfamiliar tariff designs and

worries about higher charges.

We are using this feedback to refine tariff design, improve

how we explain these options to customers, and ensure

safeguards are in place, particularly for customers who

need extra support.

Building a platform for the future

We know from the extensive engagement we have with

customers, that as we move into an ever more digital

and AI world, it is important that we have the tools and

technology to support customers through the channels

they choose. With this in mind, we have been working hard

to implement a cutting edge customer platform, which will

provide the foundations for an enhanced digital service

offering for customers, and allow for improved customer

service, self service and communication. We anticipate

the technology will ‘go-live’ in 2026/27 and have been

working hard to engage and train customer colleagues in

the new system, and ensure customer journeys will benefit

from improved digital functionality and simplification

and automation of our existing processes. Providing

improved customer service, coupled with both efficiency

improvement and strengthened cyber resilience, project

‘Fusion’ provides significant opportunity to modernise and

improve delivery for our customers.

In preparing for the 2026/27 annual billing cycle, we have

taken into account this feedback and tried to reflect in our

approach what customers have told us matters most:

• knowing about changes early

• receiving clear and simple explanations

• trusting that changes are applied fairly and consistently

• being able to access help easily

• speaking to someone who understands their situation

Communication has been a key theme across all areas,

both in terms of the bill itself, as well as what customers

are paying for. We know customers care deeply about

our region and the impact our services can have on the

environment; and that they want to understand how we

are making a difference in their local area. We are taking a

hyper-local focus to our communications and engagement,

and will be sharing progress on our investment programme

as we deliver projects across the five-year cycle.

Improving customer service

Our household and business contact centres focus on

providing seamless, end-to-end support, with particular

emphasis on helping customers understand their bill,

identify the right tariff and access affordability support

quickly. During the year we strengthened how we

communicate bill changes and the reasons for them,

improved the consistency of our explanations across

channels, and enhanced the way we identify and support

customers in vulnerable circumstances, including those

who may be digitally excluded or who need additional

assistance to engage with us. These changes are designed

to make it easier for customers to get the help they

need, first time, and to build trust through fair, clear and

consistent outcomes.

Targeted support and eradicating

water poverty

In 2025, we met our pledge to eliminate water poverty

in the South West and Bristol, using the definition of

affordability as spending no more than 5% of household

disposable income on water. This was an important

milestone and reflected sustained focus over a number of

years. While SES Water does not yet measure affordability

using this methodology, we are working to extend the

same approach across the Group, building on the progress

achieved in our South West and Bristol regions.

We recognise that the bill increases in 2025/26 and

2026/27 mean we must continue strengthening support to

prevent customers falling into difficulty.

Customer affordability & vulnerability events

Engagement case study: Affordability

& vulnerability community drop-ins

During the year, rising living costs meant more

residents needed help with bills, budgeting, benefits

and debt. These pressures are often made worse by

vulnerability factors such as poor health, disability,

caring responsibilities, language barriers, digital

exclusion or recent life events. Many customers told us

they needed face-to-face support to talk through their

options with someone they trusted.

What we aimed to do:

• Provide accessible, in-person support on affordability

issues, including arrears, budgeting and water use

• Identify vulnerability early and make reasonable

adjustments where needed

• Increase take-up of financial support and

independent advice through community-based

engagement

• Prevent problems escalating by agreeing sustainable

payment plans and support schemes

• Build trust with customers less likely to use digital or

formal channels

What we delivered:

• We ran 569 community drop-in sessions to reach

customers who might otherwise struggle to access

support. Sessions were promoted locally and held

in familiar, trusted venues, removing the need for

appointments or online forms.

• Held in libraries, foodbanks, community centres and

partner venues

• Delivered through confidential one-to-one

conversations

• Offered practical support including budgeting

advice, benefits guidance, debt signposting, payment

plans, affordability tariffs and referral to the Priority

Services Register

• Delivered in partnership with local advice agencies

to enable warm handovers into longer-term support

• The drop-ins improved access for customers who

were anxious about formal processes or struggled

with digital channels. Customers benefitted from

clear options, fewer repeat contacts, and quicker

routes into the right support at the right time.

Outcomes

Measure Result

Number of drop-in sessions delivered 569

Customers directly supported at

face-to-face events 3,680

PSR registrations 278

Warm referrals received from community

partnerships 2,287

Customer engagement – Boscombe Engagement

(Photograph by Tom Hunt)

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Storm Goretti

Overview

On 9 January, Storm Goretti caused significant

disruption across Cornwall, including a power outage at

Wendron treatment works that lasted until 12 January.

As a result, up to 15,960 properties experienced water

supply interruptions, including a number needing

additional support or who relied on water for critical

medical needs. During the incident, all customers with

critical needs successfully received deliveries and

communication was maintained throughout via text

messages, voice messages to landlines, InYourArea,

the website, social media and regional media coverage,

alongside the establishment of three bottled water

stations in Helston, Mullion and Marazion.

Following the event, customers were invited to

provide feedback via SMS, with 940 responses

received, including 230 Priority Service Register (PSR)

customers, representing a 12.8% response rate among

those contacted and 5.9% of all affected properties.

Customer feedback

Overall, feedback from customers affected by Storm

Goretti reflects a broadly positive view of the response,

particularly given the exceptional circumstances.

Many customers recognised the severity of the storm

and felt the situation was handled effectively, with

strong appreciation for the efforts of frontline teams,

especially those supporting bottled water distribution

and vulnerable customers. Communications were seen as

helpful and reassuring, supported by a range of channels

and supplementary information such as video updates.

This positive sentiment is reflected in satisfaction

metrics, with the highest scores relating to the

frequency of updates, followed by satisfaction with the

speed and clarity of communications, and accuracy.

Customers placed particular value on being kept

informed, although there remains opportunity to

strengthen clarity and precision. Satisfaction with time

to resolution was lower, reflecting the prolonged impact

of the incident.

Together, this indicates that while customers valued the

efforts, communication and support provided during a

complex event, the length of disruption remained a key

driver of overall experience.

This feedback was fed directly back into our

incident management process for future service and

communication improvements.

Flambards bottle station

Supporting our customers through

operational challenges

Our approach to incident management is rooted in

putting customers at the centre of every decision,

particularly during periods of disruption. We prioritise

clear, timely and accessible communication, ensuring

customers are kept informed through multiple channels

and can easily understand what is happening, what action

is being taken, and what support is available.

We place a strong emphasis on identifying and

proactively supporting customers in vulnerable

circumstances, ensuring they receive tailored assistance

at pace. Alongside this, we focus on maintaining service

transparency, acting quickly to resolve issues where

possible, and providing practical support such as

alternative water supplies, when service interruptions

occur.

Importantly, we treat every incident as an opportunity

to learn. Customer feedback is actively gathered and

embedded into our continuous improvement processes,

helping us refine both our operational response and

the way we communicate. This ensures that, even in

challenging and prolonged events, we continue to

strengthen the experience we deliver and build trust with

the communities we serve.

This informs our customer strategy for delivering a

trusted, simple and human service. It is how we run the

business, grounded in five principles: first-time resolution,

moments of truth, proactive communication, simple

self-service, and clear accountability. As part of this, we

have aligned clear customer promises across the Group

to ensure a consistent and transparent experience,

supported by actively sharing best practice between our

regions to drive continuous improvement.

Customer affordability

We achieved our target to eliminate water poverty by

2025 in the South West, Bournemouth and Bristol regions,

and we have recommitted to 100% affordability by 2030.

Our £200 million support package will help us achieve

this goal and ensure no customer cannot afford their

water bill. We are working to extend our approach in SES.

Pennon delivery framework continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

[

Developer Measure of Experience (D-MeX)

D-MeX is Ofwat’s measure of service experience for developers which directly

compares us with our peers. South West Water, Bristol Water and SES Water have

seen broadly improving trends in performance in this metric.

Customer Measure of Experience (C-MeX)

C-MeX is Ofwat’s measure of customer experience, capturing feedback from

customers who contact us and broader perception surveys. We triangulate this

with operational data to focus on what matters most to customers. This informs

our customer strategy for delivering a trusted, simple and human service. It is how

we run the business, grounded in five principles: first time resolution, moments of

truth, proactive communication, simple self service, and clear accountability. As

part of this, we have aligned clear customer promises across the Group to ensure a

consistent and transparent experience, supported by actively sharing best practice

between our regions to drive continuous improvement.

We have clear C-MeX improvement plans in place, with regular team and

Board review, focused on right first time delivery and clearer, more effective

communication. This is supported by ongoing reviews of key customer journeys to

identify areas we can improve.

To improve performance, we are prioritising a number of critical processes where

failure is most visible and repeatable: billing effectiveness, leak management,

blockages and operational jobs. We are already seeing service improvements in

these areas.

C-MeX performance varies across regions. Bristol Water is a leading performer in

the sector, SES Water is improving, whilst South West Water remains a key focus

for improvement.

Across our household and business contact centres, our aim is to provide clear,

joined up, end-to-end support. Whether customers contact us about a bill,

affordability concerns, service issues or additional support needs, our objective is

to make it easier to get the right help first time, in a way that works for them.

South West Water (SWB)

Bristol Water

SES Water

Operational KPIs

Pennon delivery framework continued

Supporting affordability, delivering for customers continued

PSR Volumes at end of March

Current PSR volumes as at end of March 2026 are:.

No. customers on social tariffs

We achieved our target of eliminating water poverty

by 2025 across the South West, Bournemouth and

Bristol regions, and have recommitted to achieving

100% affordability by 2030. Our £200 million

support package will help us achieve this goal and

ensure no customer cannot afford their water bill.

We are working to extend our approach in SES.

80,000

36,600

25,000

South West Water (SWB)

Bristol Water

SES Water

170,500

77,000

61,500

South West Water (SWB)

Bristol Water

SES Water

Business Retailer Measure of Experience (BR-MeX)

Business customer and retailer measure of experience is Ofwat’s measure of how

business customers and retailers experience our services. It reflects feedback on

service reliability, communication, responsiveness, and overall satisfaction, helping

us understand what is working well and where we need to improve.

BR-MeX is derived from three components:

• B-MeX (Business Customer Satisfaction Survey), contributing 50% of the score

• R-MeX (Retailer Satisfaction Survey), contributing 25%

• Market Performance Framework (MPF) measures, contributing the remaining 25%

Together, these components generate a total score and relative ranking across

the industry, providing a balanced view of customer experience and market

compliance.

SWW’s BR-MeX performance in 2025/26 reflects a mixed position across its

component measures, resulting in a stable but lower quartile overall ranking

relative to the industry. BR-MeX scores remained broadly consistent through the

year, with a year end score of 69.10 and an overall position of 14th. SES delivered a

strong overall BR-MeX performance in 2025/26.

Across the Pennon Group, the focus for 2026/27 is on strengthening BR-MeX

performance through coordinated, forward looking actions that will deliver long-

term improvements.

South West Water (SWB)

Bristol Water

SES Water

South West Water (SWB)

Bristol Water

SES Water

1. C-MeX, BR-MeX and D-MeX positions reflect final Q4 performance but

remain subject to industry review and validation

Strategic Report

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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 4.9 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

90,000 phone calls, assisting with simple queries as well

as complex customer challenges relating to their site

and its future requirements. Its focus upon root causes

of complaints into its own service and those it recorded

against wholesalers have yielded almost a 20% reduction

in its volume of complaints year-on-year.

Financial performance and growth

Revenue increased by 21.2%, from £252.4 million in

2024/25 to £305.8 million in 2025/26. This was primarily

driven by the increase in wholesale water costs and an

increase in customer consumption in our incumbent

areas. Revenue has also increased year-on-year due to

continued customer growth and low customer attrition.

Operating costs have increased during the year as a

result of the pass through of wholesale water costs;

other operating costs remain under tight control despite

inflationary pressures, leading to stable underlying

EBITDA year-on-year.

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 c.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.

PWS is continuing to focus on its key strategic initiatives

of growing through long-term contracts in targeted

business sectors, retaining customers and strong control

of operating costs, by investing in IT system improvements,

which will ultimately improve customer experience.

As a result, PWS has taken its cumulative position since

the market opened to c.55,000 megalitres, the equivalent

of c.22,000 Olympic-sized swimming pools. New

contracts in the year included AO, Rowe’s Cornish Bakers,

and The Inn Collection Group.

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 Heinz, Unite students and Asahi.

Outlook

PWS 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 (W2B)

Pennon’s 30% shareholding in Water2Business continues

to deliver market leading customer service performance,

maintaining a high Trustpilot score of 4.8 out of 5

during the year. Further customer growth has seen

Water2Business grow to a c.7.3% market share.

Water2Business has continued their strong financial

performance during the year, contributing c.£1.0million

of associated companies’ profit after tax to the Group’s

results, supported by the addition of 6,400 new customers.

During the year, Water2Business maintained its

carbon neutral status in line with the Department for

Environment, Food and Rural Affairs (Defra) guidelines,

continuing to combat climate change and sustain the

environment through reducing emissions and offsetting

via 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 revenue

improvements.

Serving its customers

A materially enhanced customer journey is demonstrated

by key metrics. Complaints are down by 42% since

2024/2025 and 55% versus two years ago. First contact

resolution continues to improve and call abandonment

rates remain low. Customer satisfaction has strengthened

significantly, with Trustpilot scores rising from 1.7 to 4.5

stars. Inbound queries and billing mailboxes have also

reduced substantially, falling by 74% and 47% respectively.

These gains have been achieved alongside a deliberate

portfolio cleansing strategy, which naturally increases

inbound contact as lower quality or higher risk accounts

are addressed. Despite this, the business has enhanced

the customer experience and supported customers

more efficiently. This progress reflects the commitment

of colleagues delivering positive, meaningful customer

interactions.

Financial performance and growth

SES BW’s revenue increased by 11.8% from £67.9 million in

2024/25 to £75.9 million in 2025/26, marking a significant

turnaround as we evolve the portfolio mix. The business

remained focused on stabilising operations and prioritising

portfolio quality over expansion, consolidating the

customer base, improving performance, and strengthening

cash recovery. Revenue growth was primarily driven by

wholesale price increases rather than acquisition.

As the business continues consolidation during 2025/26,

it secured new customers including IW Group Services

(UK) Limited and Cairn Group to offset attrition. We also

extended key renewals including Ibstock Brick Limited,

Splendid Hospitality Group, BH Central Services Ltd, and

Rank Leisure Holdings Limited.

Sidmouth

Business retail

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Group Chief Financial Officer’s review

The Group has delivered a return to

profitability in 2025/26. This is in line

with expectations and reflects the step

up in revenue from the first year of

AMP8 coupled with a firm focus on

operational costs, despite inflationary

and operational pressures.

Underlying EBITDA^ has increased by 55% year-on-year

to £519.2 million (2024/25: £335.6 million) driven by higher

revenue and a focus on cost control. Whilst the first year

of the five-year cycle results in a step up in the underlying

cost base, due to inflationary pressures and regulatory

charges, our integration and efficiency programmes have

provided benefit and the restructuring of the Group,

aligned with our strategic priorities, has allowed increased

focus on cost control and driving further efficiencies

throughout the business.

Underlying operating profit more than doubled year-on-

year to £325.5 million (2024/25: £148.5 million), with EBITDA

benefits moderated by modestly increased depreciation

charges reflecting the Group’s expanding asset base from

the ongoing capital investment programme.

Non-underlying costs of £20.7 million were incurred

(2024/25: £37.6 million) as a result of ongoing restructuring

charges, investment in new technology and costs

associated with environmental and legal provisions.

Interest costs also increased, reflecting higher borrowing to

support the regulated capital programme and investment

in Pennon Power. This was partially offset by higher year-

on-year interest capitalisation, again stemming from the

ongoing capital programme.

As a result, underlying profit before tax^ was £135.1 million

(2024/25: loss of £35.1 million), whilst statutory profit before

tax was £114.4 million (2024/25: loss of £72.7 million).

Statutory profit after tax was £92.6 million (2024/25: loss

of £56.8 million).

Our £3.2 billion

investment programme over the five-year

AMP8 period is a core focus across the business, to

deliver improvements for customers and to ensure we

improve the resilience and performance of our assets.

We remain focused on delivery, with clear priorities and

tight control. This means delivering outcomes effectively,

executing the capital programme efficiently and building

on the momentum we have created this year. We remain

on track to deliver on our Performance Commitment

Deliverables (PCDs) over the five-year period, with a

net neutral position at the end of year one in terms of

delivery incentives.

In the first year of AMP8, we have continued to focus

on delivering on our four strategic priorities through our

business units, and to focus on efficiency opportunities

across our integrated structures and operations. As we

continue to challenge ourselves to focus our expenditure

to deliver improved outcomes, we are also looking at how

we learn from our different legacy businesses to deliver as

efficiently and effectively as we can.

We invested significant levels of capital to deliver network

resilience and enhancements and benefits for the

environment and our customers. Our Group-wide capital

investment was £643.6 million^ (2024/25: £652.5million),

comprising £588.5 million of investment in our water

businesses as we focus on delivering on our AMP8

commitments.

This financial year has marked a

return to profitability in the first year

of our five-year regulatory cycle.

Laura Flowerdew

Group Chief Financial Officer

Financial highlights of the year

Revenue

£1,291.4m

(2024/25: £1,047.8m)

Benefiting from tariff increases

Underlying EBITDA^

£519.2m

(2024/25: £335.6m)

Reflecting revenue growth and cost discipline

Underlying profit before tax^

£135.1m

(2024/25: £35.1m underlying loss

before tax)

Return to profitability

Statutory profit before tax

£114.4m

(2024/25: £72.7m loss before tax)

^ Measures with this symbol are defined in the Alternative performance

measure (APMs) as outlined on pages 218 to 220.

1. At forecast outturn prices.

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Capital investment^

£643.6m

(2024/25: £652.5m)

Investing to deliver on our commitments

Water Group Gearing^

61.8%

(2024/25: 61.8%)

Financially resilient

Water Group RoRE^

6.7%

(2024/25: 5.1%)

Strong return in year one of AMP8

Dividend per share

29.29p

(2024/25: 31.57p)

Revenue £m

Water Group

Our expenditure was slightly lower than anticipated as a

result of reprofiling of spend, to ensure robust modelling

and clear design across our major projects, prior to

commencing on-site delivery. Across the water business

we have delivered key investments in storm overflow

reductions, wastewater treatment and infrastructure,

clean water treatment works, network resilience, leakage

and metering. Outside of the water business we continue

to invest in renewable energy sites, with Pennon Power

capital expenditure of £54.1 million in 2025/26.

Our current rate of investment for the Group aligns

with that required to deliver our five-year programme

of £3.2billion

and which will deliver 34% growth in our

regulatory asset base to 2030. To support this growth,

we are focused on ensuring we have a strong and

resilient balance sheet and we end the first year of

the AMP8 period with a Water Group gearing of 61.8%,

well within our gearing policy of 55-65% and within our

anticipated range of 60-65% to 2030 for our Water

Group. The continued strong Water Group performance

reflects the benefit of significantly improved operating

cash flows in 2025/26, supporting investment in our

capital programme.

Debt funding is also critical for our growth; both South

West Water and SES Water continue to maintain

investment-grade credit ratings, enabling access to

competitive financing. During the year the Group has

raised £640.0 million in additional funds to support the

AMP8 capital programme and expects to continue to

raise this quantum of debt each year through the

AMP8 period.

We continue to outperform the regulatory cost of equity.

Our RoRE^ in 2025/26 reflects a 6.7% real return to

shareholders, outperforming the equity return allowed

by Ofwat of 5.4% as a result of strong financing and

Totex performance in year, and offset by challenging ODI

performance, as operational performance was impacted

by adverse weather conditions and a step up in targets in

the first year of the five-year period.

2024/25

Underlying

EBITDA^

Revenue Inflationary

and regulatory

pressures

Bad debt Weather

and incident

Operational

efficiencies

Other Group

entities

2025/26

Underlying

EBITDA^

335.6

519.2

201.5

(21.9)

(9.2)

(17.9)

20.0

11.1

Underlying EBITDA^ £m

Water Group

2024/25 Revenue Tariff increases

Customer demand

and other

Non-household

retail, intra-group

and other

2025/26 Revenue

1,047.8

176.1

25.4

1,291.4

42.1

Other Group

CFO’s review continued

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

SES Water

SES Water’s revenue for 2025/26 was £84.2 million

(2024/25: £82.8 million), EBITDA performance was stable

as inflationary cost increases were partially offset by

increased revenue and savings from an operational costs

efficiency programme.

SES Water’s capital investment of £25.2 million has

focused on network resilience, leakage detection and

repair, lead pipe replacement and metering.

CFO’s review continued

Group performance – summary

Group revenue for 2025/26 was £1,291.4 million

(2024/25:£1,047.8 million), reflecting strong growth

across the business.

Water revenue increased by £201.5 million (24.6%),

primarily driven by the benefit of increased regulatory

allowances and higher consumption. This uplift reflects

revised tariff structures and enhanced service obligations

under the regulatory framework, supporting our long-

term investment and service delivery plans.

Non-household retail revenue increased by £61.4 million

to £381.7 million, with new contracts outside South West

Water regions contributing £10.3 million, in addition

to tariff increases. This reflects continued progress in

expanding our presence and growing the customer base.

Overall, the Group’s underlying EBITDA^ has increased

55% from £335.6 million to £519.2 million, driven

by higher water revenue and a continued focus on

operational efficiency. It also reflects the strength of the

business model and the benefits of our investment in

transformation, delivered alongside managing inflationary

and operational cost pressures.

Cost pressures in the period reflected inflationary costs,

coupled with a step up in costs resulting from the new

regulatory plan. The impact of both high summer demand

and exceptional winter storms on our operations also

led to higher in-year costs, as we looked to mitigate

the impact on customers and the environment of these

conditions, and support and compensate customers –

with increased payments – where our service fell short

of expectations.

Segmental performance –

Water businesses

South West Water

South West Water’s revenue for 2025/26 was £937.8

million (2024/25: £737.7 million) driven by regulated tariff

increases. Underlying operating costs^ of £456.1 million

(2024/25: £429.1 million) have increased year-on-year

by £27.0 million. This 6.3% increase reflects inflationary

cost pressures, plus the impact of increased regulatory

charges, higher bad debt charges linked to our step up

in revenue, increased operational costs resultant from

adverse weather and operational incidents, including

£5.7million in customer compensation.

Our efficiency programme has delivered benefits,

helping to mitigate these pressures whilst a reduction

in commodity costs through our hedging strategy has

resulted in lower year-on-year power prices.

South West Water’s underlying EBITDA^ increased

by 56.1% to £481.7 million. Underlying operating profit

has more than doubled, reflecting the strong EBITDA

performance, offset by an increase in depreciation

charges of £3.7 million compared to last year and in line

with our ongoing capital investment programme.

Net finance costs of £170.1 million (2024/25: £170.6

million) reflect an effective interest rate of 5.7%

(2024/25:

5.4%) The year-on-year decrease of £0.5 million was a

result of higher capitalised interest partially offset by

higher debt to fund the ongoing capital programme.

South West Water’s statutory profit before tax was

£124.2 million (2024/25: loss of £62.7 million) after non-

underlying costs of £15.4 million (2024/25: £32.4 million).

South West Water’s capital expenditure was

£563.3million (2024/25: £588.7 million), reflecting early

benefits being delivered to customers and communities

across our regions. We have already invested heavily

this year in storm overflow reductions, our wastewater

treatment and infrastructure, new water treatment

works, leakage detection and repair, smart metering,

and replacing lead pipes.

^ Measures with this symbol are defined in the Alternative performance measures (APMs) as outlined on pages 218 to 220.

2. A measure of the mean average interest rate payable on net debt associated with South West Water Limited’s group of companies, excluding interest

costs not directly associated with net debt.

Major categories of capital

expenditure (£m)^

South West Water (Water): £316.1m

South West Water (Wastewater): £247.2m

SES Water: £25.2m

Pennon Power: £54.1m

Other: £1.0m

Total

£643.6m

These cost impacts were partially offset by a focus on our

efficiency initiatives and integration across our regions

and businesses, with greater focus on cost control across

our four business units.

Our ongoing commitment to affordability and support

schemes for those in need will be critical going forward,

both to support our customers and to ensure we

maintain a strong collections profile. Despite the step

up in revenues, cash collection remained strong across

the year. Expected credit loss charges were £19.5 million

(1.5% of revenue), slightly higher than the prior year

(0.9%) but remaining strong within the sector. Our teams

continued to focus on both managing older debt profiles

and ensuring effective collection of more recent billings,

despite the increase in tariffs.

Our non-household retail businesses saw a 32.0%

increase in EBITDA, with increase in tariffs added to

by a strong focus on gross margin improvement and

cost control.

As a result, underlying profit before tax^ was £135.1 million

(2024/25: loss of £35.1 million) and statutory profit before

tax was £114.4 million (2024/25: loss of £72.7 million)

after non-underlying costs of £20.7 million (2024/25:

£37.6million).

Revenue Underlying EBITDA^

£m

2025/26

£m

2024/25

£m

2025/26

£m

2024/25

South West Water 937.8 737.7 481.7 308.6

SES Water 84.2 82.8 29.0 29.6

Total Water Group 1,022.0 820.5 510.7 338.2

Retail 381.7 320.3 9.9 7.5

Other 25.6 12.8 (1.4) (10.1)

Intra-group (137.9) (105.8) – –

Group 1,291.4 1,047.8 519.2 335.6

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Segmental performance –

Non-household retail

The Group holds interests in two non-household water

retailers, Pennon Water Services (80% ownership)

and SES Business Water (100% ownership) which are

reported as the non-household retail segment. Revenue

has increased by 19.2% year-on-year, as a result of tariff

increases and new contract wins. Underlying EBITDA

increased by 32.0% year-on-year as a result of revenue

increases, coupled with a strong focus on margin

improvements and cost control within the businesses.

The Group also owns 30% of Water2Business, which is

reported under the equity method.

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.

Overall revenue increased by 21.2% to £305.8 million

(2024/25: £252.4 million) through new contract wins and

tariff increases across wholesale water charges.

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 £10.3million additional revenue compared to

the prior year.

Operating costs have increased during the year as a

result of the pass through of wholesale water costs;

other operating costs remain under tight control despite

inflationary pressures, leading to stable underlying

EBITDA year-on-year.

During the year, Pennon Water Services commenced

investment in the implementation of a new billing system

to provide improved automation, efficient delivery and

better customer self-service. This expenditure will drive

efficiencies, support ongoing efficient margins and enable

revenue growth. The implementation costs are separately

reported as non-underlying costs, given the non-

recurring element of this programme of work over time.

3. Pennon Water Services (PWS) – 80:20 joint venture with South Staffordshire.

PWS’s statutory profit before tax was £5.3 million

(2024/25: £5.4 million) after non-underlying costs of

£1.6million (2024/25: nil). The underlying profit before

tax in 2025/26 was £6.9 million (2024/25: £5.4 million), an

increase of 27.8% compared to prior year.

SES Business Water

SES Business Water’s revenue increased by 11.8% from

£67.9 million in 2024/25 to £75.9 million in 2025/26 driven

primarily by wholesale tariff increases, with EBITDA of

£0.9 million (2024/25: loss of £0.1 million).

The business continued to focus on stabilising operations,

prioritising portfolio quality and strengthening cash recovery.

Segmental performance – Other

The Other segment comprises the results of Pennon

Group plc company and other Group businesses,

including Pennon Power and the ancillary businesses of

SES. The Other segment contributed underlying EBITDA

of a loss of £1.4 million (2024/25: loss of £10.1 million) and

an underlying loss before tax of £2.6 million in the year

(2024/25: loss of £3.8 million) with non-underlying costs

of £3.7 million (2024/25: £1.5 million) associated with the

restructuring and the closure of an ancillary business

acquired as part of the SES Group.

Pennon Power saw an underlying EBITDA increase in

2025/26 of £1.8 million (increase on £0.3 million loss

reported in 2024/25). This has been driven by revenue

and other income of £2.1 million (2024/25: nil).

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 £1.0 million of profit

after tax in our 2025/26 results (2024/25: £0.8 million),

an increase of 25.0%.

Group finance costs (net)

The £7.0 million increase in finance costs (net) was

primarily driven by new and renewed debt facilities

(£34.3million) as we continue to invest record levels of

capital in our water businesses, offset by lower interest

rates (£8.9 million), increased interest receivable

(£6.3million), higher levels of capitalised interest

(£12.8million), given ongoing investment and other

movements amounting to £0.7 million.

The Group continues to efficiently secure funding

through its Sustainable Financing Framework and to

ensure interest rate risk is mitigated in line with the

Group Treasury Policy, this is achieved both through

issuing fixed rate debt issuances and effective interest

rate hedging, whilst a further component of the debt

portfolio is index-linked.

Group finance costs, net (£m)

2024/25

Net finance

costs

Floating

rate

New debt

Leases

Capitalised

interest

Interest

receivable

Other 2025/26

Net finance

costs

184.4

(6.6)

34.3

(2.3)

(12.8)

(6.3)

0.7

191.4

Non-underlying items

Non-underlying items^ for 2025/26 were a net charge

before tax of £20.7 million (2024/25: net charge of

£37.6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 these items is considered to provide additional

useful information on the performance and the position

of the Group as well as enhancing the comparability of

information between reporting periods.

The non-underlying charge includes:

• £9.9 million of technological enhancement costs in

connection with the implementation of new customer

technology platforms in both South West Water and

Pennon Water Services

• £6.7 million includes costs of settlement of both the

DWI’s prosecution in respect of the May 2024 Brixham

water quality incident, and the enforcement undertakings

agreed with Ofwat in August 2025 in respect of the

wastewater investigations, together with associated

legal fees

• £4.1 million of costs in connection with ongoing

restructuring and reshaping actions

The non-underlying charges in the year give rise to a net

tax credit of £4.1 million in relation to the above items.

CFO’s review continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Tax

The overall 2025/26 tax charge for the Group was £21.8

million (2024/25: credit of £15.9 million). On an underlying

basis, the tax charge for 2025/26 for the Group of £25.9

million (2024/25: credit of £7.0 million) consisted of:

• Deferred tax charge of £25.3 million (2024/25: credit of

£7.8 million). This charge primarily arises in relation to

capital allowances in excess of depreciation charged

across the Group, largely due to full expensing. This is

partially offset by a current year deferred tax credit in

relation to tax losses carried forward for utilisation in

later periods

• Current tax charge of £0.6 million (2024/25: charge of

£0.8 million) predominantly relating to prior year items.

There was also a non-underlying current tax credit in the

year of £0.8 million (2024/25: credit of £0.5 million) and

a deferred tax credit in the year of £3.3 million (2024/25:

£8.4 million) relating to the non-underlying items.

The Group continues to generate tax losses, all of which

are carried forward for future relief. These tax losses arise

as a result of 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.

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 or make any corporation tax payments for the

foreseeable future.

The UK Finance (No.2) Act 2023 introduced the Pillar

Two global minimum effective tax rate of 15%. The

legislation implements a domestic top-up tax and a

multinational top-up tax in line with OECD BEPS Pillar

Two principles. The UK is the only jurisdiction in which

the Group operates therefore an assessment of any

potential Pillar Two tax exposure has been performed

focusing solely on the application of the UK domestic

top-up tax rules. The assessment performed by the

Group, based on country-by-country reporting principles

and financial statements has determined that no top-up

tax is expected to arise.

Earnings per share (basic and diluted)

The Group has recorded a statutory earnings per share

of 19.4 pence per share for the year ended 31 March 2026

(2024/25: loss of 16.1 pence per share). This includes a

net non-underlying^ charge before tax of £20.7 million

(2024/25: £37.6 million) and a net non-underlying^ tax

credit of £4.1 million (2024/25: credit of £8.9 million).

Our adjusted earnings per share excludes the impact

of deferred tax charges and non-underlying^ items.

For the Group, we have generated basic adjusted

earnings per share for 2025/26 of 28.3 pence (2024/25:

loss of 10.3pence).

Movement in net debt

The Group’s cash flow from operations for 2025/26 was

£529.7 million (2024/25: £233.6 million). Our improved

operating cash flows reflect the higher levels of

underlying profitability, benefitting from higher tariffs

and operational efficiencies, added to by improved

working capital management, partially offset by cost

pressures from inflation and delivering on our operational

performance commitments.

Net interest payments were £154.6 million (2024/25:

£132.0 million) with the higher payment in 2025/26 driven

by increased debt consequent on our ongoing record

levels of capital investment.

Capital investment has resulted in slightly lower cash

outflows of £33.9 million to £632.8 million (2024/25:

£666.7 million). Capital investment included £54.1 million

(2024/25: £40.7 million) for the investment in Pennon

Power.

Other significant movements in net debt in 2025/26

include payment of our interim and final dividends

for 2024/25 totalling £133.7 million (interim and final

dividends for 2023/24: £126.9 million). In addition there

was non-cash indexation on our loan instruments

totalling £43.3 million (2024/25: £33.4 million).

Group debt

Group debt at 31 March 2026 (£m) Gross debt Net debt

Pennon Group plc 365.3 364.9

Water Group 4,388.6 4,019.3

– South West Water 4,087.5 3,787.3

– SES Water 301.1 232.0

Other Group companies 233.5 214.9

Intercompany borrowing eliminations (219.5) (219.5)

Total adjusted Group (excluding FV and non-cash indebtedness) 4,767.9 4,379.6

Non-cash indebtedness 129.3 129.3

Total Group 4,897.2 4,508.9

Net debt and liquidity

The Group’s net debt at 31 March 2026 was £4,508.9

million (31 March 2025: £4,078.2 million). This includes

fair value adjustments of £96.5 million (31 March

2025: £106.8 million) which are released over the life

of the related debt instruments and other non-cash

accounting adjustments of £32.8 million (31 March 2025:

£35.2million). The Group’s net debt position excluding

these adjustments is £4,379.6 million (31 March 2025:

£3,936.2 million).

^ Measures with this symbol are defined in the Alternative performance measures (APMs) as outlined on pages 218 to 220).

4. Includes unwind of fair value adjustments and other non cash indebtedness.

5. Excluding the carrying value of fair value acquisition adjustments and other non-cash indebtedness.

CFO’s review continued

Movement in net debt

Pennon Group – summarised net debt flow (£m) 2025/26 flows

Net debt excluding other non-cash indebtedness – 1 April (3,936.2)

Opening balance 1 April (4,078.2)

Cash generated from operations 529.7

Corporation tax received 1.0

Net interest paid (154.6)

Capital investment^ (632.8)

Proceeds from dividend forfeiture 1.7

Share issuance transaction costs (5.6)

Ordinary dividends paid (133.7)

Non-cash index-linked accretion (43.3)

Other movements

6.9

Closing balance 31 March (4,508.9)

Net debt excluding other non-cash indebtedness – 31 March (4,379.6)

As at 31 March 2026, the Group had £998.3 million of

liquidity through a combination of cash and committed

facilities (31 March 2025: £1,036.1 million). This consists

of cash and cash equivalents and restricted funds

of £388.3million (31 March 2025: £476.1 million) and

£610.0million (31 March 2025: £560.0 million) of undrawn

committed facilities.

During the year the Group has secured c.£640 million of

new debt, through its diverse portfolio, consisting of:

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

At 31 March 2026, the Water Group’s net debt to RCV

ratio stood at 61.8% (31 March 2025: 61.8%). This reflects

a stable position as increasing RCV offsets in year debt

funding of our investment programme.

At 31 March 2026 South West Water’s

net debt to RCV

ratio

stood at 61.9% (31 March 2025: 62.0%). This remains

broadly neutral year-on-year as a result of increasing

RCV offsetting in year debt funding of our investment

programme.

South West Water’s cost of finance, with an effective

interest rate in 2025/26 of 5.7% (2024/25: 5.4%), reflects

higher interest rates and the impact of full year interest

charges on new issuances in 2024/25.

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 remain stable at 60.1%, 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 9.0%.

This is due to the high percentage of indexed-linked debt

seen in this water only business. Over a period of time

inflation levels will rise and fall, and will directly impact

the rate reported. In addition, as the debt book matures,

we anticipate it will benefit from being part of the wider

portfolio of debt and hedging strategies employed by

the Group.

Investment grade ratings

The Group, through South West Water, maintains two

investment grade credit ratings with Moody’s and Fitch,

which was a new licence requirement from April 2025.

The Moody’s rating remains on negative watch and the

Group remains committed to supporting an investment

grade credit rating.

SES Water maintains strong credit ratings with Moody’s

and S&P, Moody’s upgraded SES in November 2024,

in recognition of the benefit gained from being part of

the wider Pennon Group and the subsequent support

provided to its balance sheet in the form of new equity.

RoRE^ Water Group SWB BRL SESW

Base return 5.4% 5.4% 5.4% 5.2%

Financing 1.4% 1.7% 1.3% (2.4%)

Totex 2.0% 2.1% 1.1% 3.5%

ODI (2.1%) (2.3%) (2.0%) (1.0%)

Cumulative RoRE 2025/26 6.7% 6.9% 5.8% 5.3%

Cumulative RoRE 2024/25 5.1% 6.0% 5.1% 4.2%

Ring-fenced 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

wider 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

Group Plc. 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 2026

SWB 5,362.6

BRL 756.4

SBB 6,119.0

SESW 386.2

Water Group 6,505.2

The total water business RCV^ of £6,505.2 million reflects

the inclusion of regulatory reconciling items from the

PR24 Final Determination and inflation of 3.5% as at

March 2026.

Water Group net debt structure (£m)

Total

£4,019.3m

Index-linked: £1,044.1m

Floating: £211.4m

Fixed: £2,763.8m

^ Measures with this symbol are defined in the alternative performance measures section of the annual report on pages 218 to 220.

6. Euro Medium Term Note.

7. Based on South West Water Group, including Bristol Water excl. SES (SBB).

8. Based on South West Water Group including Bristol Water (SBB) net debt/RCV.

9. Estimated at £11.5 million, subject to final outcomes from Ofwat.

• £150 million in US private placements with an average

maturity of four years

• £300 million through our inaugural public bond

issuances under our EMTN

programme

• £190 million of new term loans and leasing with an

average maturity of seven years

In addition to this, a further private placement of

£49million has been completed post year end.

The Group has secured an additional £320 million in new

and renewed revolving credit facilities since March 2025.

Resulting from the changes above and drawing of new

debt during the year, South West Water

gross debt at

31March 2026 was £4,087.5 million (31 March 2025:

£3,815.9 million). The debt has a maturity of up to 31 years

with a weighted average maturity of 12 years.

Water Group

net debt at 31 March 2026 is a mix of fixed

(£2,763.8 million, 68.7%), floating (£211.4 million, 5.3%) and

index-linked borrowings (£1,044.1 million, 26.0%), which

reflects our diverse debt portfolio. Where appropriate,

derivatives are used to fix the rate on floating rate debt.

Return on Regulated Equity (RoRE)^

During the year, the water business delivered a RoRE of

6.7% (2024/25: 5.1%), comprised of financing and Totex

outperformance, offset by Operational Delivery Incentive

(ODI) underperformance.

Cumulative benefits from the structure of the Group’s

debt portfolio continue to support financing performance,

providing higher RoRE returns given higher inflation.

Totex performance reflects lower expenditure in year one

of the period than in the allowances, resulting from both

efficiencies gained in delivery of the capital programme

and timing differences over the five-year period.

ODI performance across South West Water (SBB) in

2025/26 has been materially impacted by the adverse

weather and step up in both performance outcomes and

penalty rates applied at the start of the new regulatory

cycle. RoRE, as calculated above, includes the impact of

penalties associated with both operational performance

incentives (£42.0 million) and customer measures

of experience for both the water and wastewater

businesses. Plans are in place to mitigate and minimise

these going forward through operational interventions

and focused investment.

CFO’s review continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Taxation strategy

Transparency remains a critical component of our

approach, recognising that openness and honesty with

our customers is essential. There has been a dramatic

shift in how tax transparency is viewed over the last

decade and the Group is proud to stand as a leader in

ethical and transparent business practices across the UK

utilities sector.

We are proud to have been awarded the Fair Tax Mark

for the eighth year in a row in October 2025. The Fair

Tax Mark accreditation scheme is the gold standard of

responsible tax conduct. It recognises organisations that

are leaders in corporate tax transparency.

Like any successful business, we continue to work hard

to be efficient and effective in delivering the best possible

results for customers, communities and shareholders.

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.

Further details are given in the Group’s tax strategy

report available on the Pennon Group website

www.pennon-group.co.uk

Tax contribution 2025/26 –

borne/collected

The Group’s total tax contribution (TTC) for 2025/26

amounted to £130 million (excluding £166 million of VAT

receipts) (2024/25: £124 million excluding £176 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 £64

million (2024/25: £63 million) including employees’ Pay

As You Earn (PAYE) and total NICs. The total includes

PAYE of £6 million (2024/25: £5 million) on pension

payments made by the Group pension scheme.

A net amount of £41 million (2024/25: £44 million) was

collected on behalf of the authorities for employee payroll

taxes. Business rates of £36 million (2024/25: £35 million)

were paid to local authorities. This is a direct cost to the

Group and reduces profit before tax.

UK corporation tax receipts from HMRC in the year

amounted to £1 million (2024/25: £3 million receipts) in

relation to over-payments made in prior years. There

were no payments due in respect of 2025/26 or 2024/25

as the Group has generated tax losses in both years.

Payments to the Environment Agency and other

regulatory bodies totalled £25 million (2024/25: £23

million). This reduces profit before tax.

Fuel excise duty of £1 million (2024/25: £1 million) related

to transport costs. This reduces profit before tax.

VAT repayments of £166 million (2024/25: £176 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 10 July 2025, Ofwat announced

its findings for South West Water and its decision to

accept South West Water’s enforcement package, in lieu

of a financial penalty. The agreed undertakings consist

of investing £20 million between 2025-2030 to reduce

spills from specific outflows, establishing a £2 million

local fund to tackle sewer misconnections and providing

£2 million of funding through a Nature Recovery Fund

to support environmental groups. The costs in relation

to the £20million investment will be accounted for as

capital when incurred.

On 2 February 2024, a summons was received by South

West Water from the EA in relation to water discharge

activity at seven locations with a total of 30 charges.

The EA have since withdrawn six of these charges

relating to one site. Sentencing was held on 12 and

13March 2026, although the value of any fine will not

be known until the judgement is handed down on

30 July 2026.

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

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.

Following the Brixham cryptosporidium outbreak in

May 2024, legal proceedings were brought by the

Drinking Water Inspectorate (DWI). South West Water

pleaded guilty to the charge of supplying water unfit for

human consumption on 4 March 2026, with sentence

received on 2 June 2026. The Court levied a fine of

£1.9million, reflecting the serious impact this incident

had on customers in the area, whilst also recognising the

extensive customer support and remedial actions taken

by South West Water.

An amount of £6.7 million has been included within the

non-underlying costs for the matters set out above.

Total tax contribution

Total

£130m

Employment taxes: £64m

Business rates: £36m

Corporation tax: £(1)m

Environmental payments: £25m

Fuel excise duty: £1m

Other: £5m

CFO’s review continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Pensions

At 31 March 2026, the overall Group surplus on retirement

obligations was £31.9 million (31 March 2025: £31.2

million). The increase in the overall Group surplus in

2025/26 of £0.7 million is mainly due to a £2.2 million

increase in the Bristol Water surplus as a result of the

buy-out of the scheme, largely recognised in other

comprehensive income offset by a £1.7 million decrease in

the Pennon Group Pension Scheme (PGPS), recognised

in other comprehensive income. Total liabilities have

reduced by £100.7 million, largely due to changes in

the financial assumptions driven by the increase in

the discount rate and the buy-out of the Bristol Water

scheme which generated a £92.8 million settlement

at the date of buy-out. Total assets have reduced by

£100.0 million, driven by the reduction in the value

of assets from the prior year and the buy-out of the

Bristol Water scheme, which generated a £92.8million

settlement at the date of buy-out. The settlement charge

to the statement of profit or loss for the Bristol Water

buy-out was £nil. The triennial valuation of PGPS as

at 31 March 2025 has been completed and no deficit

recovery contributions are required. The ongoing funding

requirements for the Company to the scheme are limited

to the continuing administration expenses. The Group

pension surplus includes a net surplus of c.£9 million

(31 March 2025: c.£11.4 million) relating to the Bristol

Water section of the Water Companies Pension Scheme

(WCPS). The Company and Trustee will shortly complete

wind-up deeds after which the surplus will be returned to

the Company. The Group pension surplus also includes

c.£5 million (31 March 2025: c.£5 million) of surplus in the

SES Water section of WCPS (gross of tax).

Dividends

The Group continues to focus on delivering on

its commitments to customers, shareholders and

stakeholders. 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, it has recommended a final dividend of

20.03 pence per share for the year ended 31 March 2026.

Together with the interim dividend of 9.26 pence per

share paid on 1 April 2026 this gives a total dividend

per share for the year of 29.29 pence. Pennon offers

shareholders the opportunity to invest their dividend

in a Dividend Reinvestment Plan (DRIP).

The proposed total dividend for 2025/26 has increased

by 3.4% year-on-year to £138.2 million (2024/25: £133.7

million). This reflects an increase in line with CPIH on the

2024/25 dividend. Current year dividends are covered

3.8 times by underlying EBITDA^ (2024/25: 2.5 times).

Pennon Group plc has sufficient 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 through strong target RoRE^ and growing RCV^.

Dividends are charged against retained earnings in the

year in which they are paid.

Cost change process

In the PR24 Final Determination, Ofwat highlighted a

number of areas of potential cost uncertainty where they

would consider ‘re-opening’ the Final Determination to

adjust for the impact of these issues on water company

cost allowances. As a result, in the 2025/26 financial year,

Ofwat introduced a ‘cost change process’ that allows

companies to provide submissions to Ofwat for additional

funding in the current regulatory five-year period for

specific areas of investment. These areas include asset

health and economic growth considerations, which will be

of relevance in the regions in which the Group operates.

The first submission was completed for both South West

Water and SES Water in May 2026, with detailed cases

and supporting evidence with Ofwat for review. Whilst

the Group’s submissions amounted to c.£250 million

additional allowances, in-AMP funding was requested as

part of that submission. The submissions will be subject

to review and scrutiny from Ofwat, and given the nature

of certain claims, which are specific to the Group’s coastal

region, may require ongoing engagement and discussion

before agreement. We continue to engage positively with

Ofwat in this regard and ensure any additional expenditure

is fully supported by our customer research and

engagement through our WaterShare+ customer panels.

Financial outlook

Looking to 2026/27, we anticipate continued

strengthening in the Group’s profitability. This results

from Water Business revenue continuing to increase in

line with the Final Determination and inflation, leading

to an expected increase of Water Group revenues

of c.£50-£70 million. Non-household retail revenues

will increase by c.10%-15% driven by sector wide tariff

increases and increases in Pennon Power as energy

generation increases.

We expect total operating costs across the regulated

Water Group to increase broadly in line with inflation, with

efficiencies offsetting cost pressures from the growth in

the asset base. The non-regulated costs are expected to

grow at a faster rate and in line with the wider water tariff

increases as this drives up the wholesale costs they face.

The increase in revenue along with the cost increases

set out, are expected to result in underlying EBITDA^

increasing in 2026/27 by 5%-10% compared with 2025/26.

It is anticipated the Group will remain in net ODI penalty

next year.

Depreciation and amortisation charges are expected to

increase by c.5%-10% as a result of the ongoing capital

investment programme.

Overall capital expenditure is expected to be in the range

of £620-£700 million driven by investment in the water

business as projects progress through the delivery cycle,

which will deliver benefits to customers and communities

across our regions. As the build out of Pennon Power

nears completion the investment here will decrease.

Net debt requirements to support our record AMP8

investment programme, both from the full year effect of

current year financing and into 2026/27, are expected to

increase net finance costs at a Water Group and therefore

Group level, leading to an increase in net interest costs

of 10-15%.

Laura Flowerdew

Group Chief Financial Officer

10 June 2026

^ Measures with this symbol are defined in the Alternative performance measures (APMs) as outlined on pages 218 to 220.

10. In 2022/23 prices.

11. All guidance measured on an underlying basis.

CFO’s review continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our financial KPIs

Regulatory measures

1. For further information on the relevance to Executive Directors’ remuneration see page 138 to 140.

2. Cumulative AMP8 measure.

^ Measures with this symbol are defined in the Alternative performance measures (APMs) as outlined on pages 218 to 220.

Return on regulated equity (RoRE)^

(%)

Water group

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 218 to 220.

Our performance in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 52 to 59.

Link to remuneration, bonus/LTIP1

LTIP performance measure.

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 218 to 220.

Our performance in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 52 to 59.

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 218 to 220.

Our performance in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 52 to 59.

Link to remuneration, bonus/LTIP

N/a

South West Water (SWB)

Bristol Water

SES

Water Group

61.9

60.1

61.8

62.0

59.3

61.8

63.5

64.4

60.7

69.0

63.7

68.2

South West Water (SWB)

Bristol Water

SES

Water Group

2025/26

2024/25

2022/23

2023/24

2021/22

South West Water (SBB)

SES

Water Group

6.0%

5.1%

3.7%

5.1%

7.6%

4.2%

8.0%

5.2%

8.2%

6.3%

2025/26

2024/25

2022/23

2023/24

2021/22

6.9%

5.8%

5.3%

6.7%

2025/26

2024/25

2022/23

2023/24

2021/22

£5,618

£365

£5,983

£5,189

£5,536

£4,002

£3,623

£5,363

£756

£386

£6,505

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Statutory measures

Profit/(loss) before tax (£m)

Why is this KPI important to us?

Profit/(loss) before tax is a key measure of the Group’s financial

performance after deducting all operating and finance costs. Underlying

profit/(loss) before tax is measured to exclude any non-underlying items,

as explained in our Alternative Performance Measures on pages 218 to 220.

Our performance in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 52 to 59.

Link to remuneration, bonus/LTIP1

Underlying Profit before tax Annual bonus performance measure.

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 non-underlying items, as explained in our Alternative

Performance Measures on pages 218 to 220.

Our performance in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 52 to 59.

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 in 2025/26

Commentary on performance is set out in the Group Chief Financial

Officer’s report on pages 218 to 220.

Link to remuneration, bonus/LTIP

Link to remuneration, bonus/LTIP LTIP sustainable dividend measure.

^ Measures with this symbol are defined in the Alternative performance measures (APMs) as outlined on pages 218 to 220.

114.4

135.1

(72.7)

(35.1)

(8.5)

16.8

(9.1)

16.8

127.7

143.5

2025/26

2024/25

2022/23

2023/24

2021/22

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

19.4

28.3

(16.1)

(10.3)

4.0

44.3

0.0

6.0

(2.9)

5.1

Statutory (continuing/discontinued)

Underlying^ (continuing/discontinued)

29.29

3.8x

31.57

2.5x

31.84

3.8x

35.31

2.8x

36.67

2.7x

Dividend per share

EBITDA dividend cover^ (times)

2025/26

2024/25

2022/23

2023/24

2021/22

2025/26

2024/25

2022/23

2023/24

2021/22

Our financial KPIs continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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.

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.

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

The Group operates a consistent risk management

framework across 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.

Third line

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.

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.

Business units committees and steering groups

Managing Directors have established committees and steering groups that assess,

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.

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.

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.

Second line

First line

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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 basis, before

considering existing control measures, and a net

basis, after taking account of the effectiveness of

those controls. The overall Red, Amber, Green (RAG)

rating reflects the combined assessment of impact

and likelihood. The resulting net risk position is then

compared with the relevant risk appetite to determine

Environmental, Social and Governance

(ESG) risk management

Our purpose and values recognise the broader societal

role that the Group plays within the regions and

communities it serves. Consequently, 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 through the ESG framework

by the ESG Committee. Further detail is provided on

pages 126 to 128.

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 83 to 93.

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.

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.

whether further action is required and to prioritise the

appropriate management response. Actions to manage

risks cover four response types:

• Tolerate: where decisions are taken to tolerate a risk,

subject to ongoing monitoring.

• Treat: where actions are taken to manage and reduce

risks.

• 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.

• Terminate: where decisions are taken to stop activities

so that we are not exposed to particular risks.

Actions to mitigate risks are allocated to action owners

and progress is monitored through the risk review process.

Risk management process diagram

Our risk management continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 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.

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 to 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 ageing 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 to medium

term

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 are

detailed within the table below:

Our risk management continued

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. This allows the

business to pursue value-enhancing opportunities, while

maintaining an overall level of risk exposure that the

Board considers to beappropriate.

Principal risks and uncertainties

There continues to be a challenging context for the

Group, with continued public and media focus on the

water industry, providing a critical environment for the

UK Government to progress the recommendations in the

Cunliffe Review through the ‘transition plan’. Negative

public sentiment around the sector remains heightened,

with continuing media coverage. In turn, increased

regulatory scrutiny on compliance and performance

coupled with rising expectations of resilience, challenge

existing operations and have the potential to create

unfunded obligations for investment.

Whilst 2025 saw a less volatile macroeconomic position,

with falling interest rates and inflation, the current

situation, including developments in the Middle East,

are likely to create at least short-term pressures and

uncertainty. Whilst it is unclear for how long these

matters will continue, the impact on supply chains,

commodity and chemical costs, as well as wider interest

and inflation rates, is likely to create uncertainty over

the near-term, increasing risk and pressure on financial

performance. The widespread need for investment across

the UK’s infrastructure also increasingly puts pressure

on delivery partners in terms of both availability and

efficiency and will need careful management. Availability

of funding and maintaining credit ratings will also be key,

in the face of the above challenges and pressures, as well

as on continued concern in the wider market.

The Board has carried out a detailed review of the

Group’s principal risks in the context of the Group’s

strategic objectives and priorities as well as the external

environment within which it operates. This has included:

• Confirming that the Group’s risk appetite statements

remain appropriate.

• Receiving and reviewing updates on the Group’s

principal risks, including movements in the risk exposure.

• Undertaking horizon scanning of emerging risks and

trends.

• Performing deep dive reviews into key risk areas.

• Through the Audit Committee, 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 pay all pension obligations as

they fall due and increased costs to the Group should

the defined benefit pension scheme deficit increase

has been assessed as not materially impacting the

Group’s strategic priorities due to mitigating actions

implemented, and is no longer considered to be a

principal risk.

• The changes in government policy and changes

to regulatory frameworks principal risks have been

combined into a single risk, policy and regulatory

change, reflecting the extent to which policy and

regulation in the UK water sector are interconnected.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Category Ref

Strategic

priorities Risk description

Net risk/

Direction

of travel

Law, regulation

and finance

page 66

Policy and regulatory change

Non-compliance with laws and

regulations

Inability to secure finance and funding

within our debt covenants to meet

ongoing commitments

Non-compliance or occurrence of

avoidable health and safety incidents

Market and economic

condition

page 67

Macro-economic near-term risks

impacting inflation, interest rates and

power prices

Operating performance

pages 67 to 68

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 investment

page 69

Insufficient capacity and resilience of

the supply chain to support the delivery

of the Group’s operational and capital

programmes which more than doubles

during AMP8

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 83 to 93.

Overview of Pennon’s principal risk profile

Risk matrix

Financial Impact

Likelihood of risk occurring

Likelihood of risk occurring (over

five-year period)

1. Rare – Only in extreme

circumstances

2. Unlikely – Less than even chance

3. Possible – Even chance

4. Probable – Above average

Financial Impact (over five years)

A. Minor, <2% Profit after tax

B. Moderate, 2-5% Profit after tax

C. Major, 5-7.5% Profit after tax

D. Severe, >7.5% Profit after tax

Net risk level

High

Medium

Low

Directions of travel

Increasing

Stable

Decreasing

The chart below summarises the net risk assessment of the Group’s principal risks

relevant to the risk categories.

Our risk management continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Principal risk Strategic impact Mitigation

Net risk/

Direction of

travel

Policy and regulatory

change

Changes in Government

policy and direction may

fundamentally impact our

ability to deliver the Group’s

strategic priorities, impacting

investment of £3.2 billion

in the

next regulatory period.

Strategic priorities

Climate change

influence

Nature related

influence

The Group actively monitors and responds to emerging policy and regulatory developments through regular

engagement with government, regulators and industry bodies, both directly and via Water UK. This is supported

by our experienced strategy and regulatory function, regular meetings with key stakeholders, robust consultation

response processes, and ongoing horizon scanning, including climate change-related policy developments.

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 priorities

Climate change

influence

Nature related

influence

The Group mitigates the risk of non-compliance through established legal and regulatory compliance frameworks

supported by second line oversight, regular review and assurance, and targeted control enhancements such as

the Environmental Permit Assurance Team and its site inspection programme. Compliance with corporate legal

obligations is reinforced through Pennon Board-approved policies, oversight by the Legal Compliance function,

mandatory staff training, and the Group-wide Code of Conduct. Additionally, a confidential whistleblowing process

overseen by the Ethics Management Committee enables timely escalation and investigation of potential breaches.

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 priorities

Climate change

influence

Nature related

influence

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 are regularly reviewed by the

Pennon Executive and Pennon Board.

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 priorities

Climate change

influence

Nature related

influence

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 complemented by site based

investment, regular site visits by senior staff, initiatives such as Site Pride and HomeSafe Live as well as 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.

Law, regulation and finance

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

Climate change and nature-based impacts

Transitional climate change/nature-based influence

Physical climate change/nature-based influence

Directions of travel

Increasing

Stable

Decreasing

Key

Our risk management continued

1. At forecast outturn prices

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Principal risk Strategic impact Mitigation

Net risk/

Direction of

travel

Macro economic 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 priorities

Climate change

influence

Nature related

influence

The Group maintains a manageable debt maturity profile and diverse funding mix with c.25% 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.

Market and economic conditions

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

Climate change and nature-based impacts

Transitional climate change/nature-based influence

Physical climate change/nature-based influence

Directions of travel

Increasing

Stable

Decreasing

Key

Operating performance

Principal risk Strategic impact Mitigation

Net risk/

Direction of

travel

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 priorities

Climate change

influence

Nature related

influence

The Group strengthens the reliability and quality of drinking water supplies through diversified water resource

planning, routine planned and preventative maintenance works, and continuous asset and network monitoring via

the 24/7 Control Centre. Established incident response procedures and root cause analysis support recovery where

such events occur, while investment in treatment works, catchment management, mains interventions, lead pipe

replacement and monitoring of emerging contaminants helps protect water quality. Resilience is further supported

through leakage reduction, demand management, smart metering, water efficiency initiatives, and the development of

additional storage and network transfer capability to maintain supplies during periods of stress.

Our risk management continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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

Climate change and nature-based impacts

Transitional climate change/nature-based influence

Physical climate change/nature-based influence

Directions of travel

Increasing

Stable

Decreasing

Key

Our risk management continued

Operating performance (continued)

Principal risk Strategic impact Mitigation

Net risk/

Direction of

travel

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 priorities

Climate change

influence

Nature related

influence

The Group is focused on improving wastewater performance through clear operational accountability, regular

performance oversight and delivery of its Pollution Incident Reduction Plan. This includes targeted storm overflow

improvements, proactive asset health checks at key sites and the implementation of a wastewater compliance

management system. These actions are supported by the delivery of WINEP and AMP8 investment programmes,

wider initiatives to reduce pollution incidents, and continued engagement with the Environment Agency.

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 priorities

Climate change

influence

Nature related

influence

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.

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 priorities

Climate change

influence

Nature related

influence

The Group supports attraction and retention through its People strategy, aligned to the Group’s Values, with a focus

on building capability, developing talent and aligning resources to customer and business priorities. Regular employee

engagement, including pulse surveys, Big Chats for all employees to hear from our Executive, engagement forums,

and newsletters, helps identify concerns and respond to feedback. This is reinforced by continued investment

in graduate and apprentice recruitment, a strong focus on diversity and inclusion, and leadership development

programmes designed to strengthen capability at current and future senior levels.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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

Climate change and nature-based impacts

Transitional climate change/nature-based influence

Physical climate change/nature-based influence

Directions of travel

Increasing

Stable

Decreasing

Key

Principal risk Strategic impact Mitigation

Net risk/

Direction of

travel

Insufficient capacity and

resilience of the supply

chain to support the

delivery of the Group’s

operational and capital

programmes in AMP8

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 priorities

Climate change

influence

Nature related

influence

The integrated delivery model for AMP8 enables greater flexibility and broadens the number of supply chain partners

providing enhanced resilience for the Group. The procurement framework for professional services, and Tier 1 and

Tier 2 contractors is in place.

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.

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 priorities

Climate change

influence

N/A

Nature related

influence

N/A

The Group maintains a dedicated Information Security team with a strong preventive and detective information

security framework, aligned to guidance issued by the National Cyber Security Centre (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.

Business systems and capital investment

Our risk management continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 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

planning, which is managed through regular long-term

modelling and monitoring of key measures including

gearing, debt covenant headroom and liquidity. The

Board is supported in this by the review of the Audit

Committee. The resilience of the business and 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 subsidiaries

South West Water and SES Water account for the

majority of the Group’s earnings, with both businesses

characterised by five-year regulatory settlements for

allowed expenditure programmes and associated

revenue streams.

The viability assessment has been made with reference

to the Group’s long-term strategy and consideration of

the ongoing volatility in global energy and commodity

markets and risk associated with climate change. 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 83 to 93. The

Group’s strategic business plan includes the expected

investment identified at this stage to meet climate-

change adaptation.

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 maintained at seven years, which recognises

the longer-term nature of the regulatory environment

for the water business, looking beyond the term of the

current regulatory settlement period to March 2030,

and the other non-regulated investments undertaken

by Pennon. The Group assumes that a continuation of

the need for significant capital investment across the

water sector will form part of the regulator’s approach

beyond 2030.

Risks

The Pennon Board and Executive review the Group’s

emerging and Principal Risks throughout the year and

assess the likelihood and impact of risk occurrence in the

context of the preventative risk management actions in

place. This assessment and the financial implications are

taken into account in setting the stress testing for the

viability assessment.

Current position

As set out in the Group Chief Financial Officer’s Report

on pages 52 to 59, the Group has a strong liquidity

and funding position with £998.3 million of cash and

committed facilities as at 31 March 2026 with a mixture

of fixed, floating and index-linked debt with the Group’s

largest subsidiary South West Water having a weighted

average debt maturity of 12 years. Future financial

performance is based upon the budget for 2026/27

and the Group’s strategic plan over a seven-year period

to 31March 2033, based on the Final Determination

through to March 2030, and taking into account

the impact of revenue adjustments for operational

performance, through the regulatory Outcome Delivery

Incentive (ODI) mechanism, where there is an

appropriate degree of certainty.

Stress testing

The Group’s strategic plan has been stress-tested using

both individual sensitivities and combined scenarios with

regard for the Group’s Principal Risks.

Covenants and key metrics

The Group assesses its financial viability through

considering the impact of stress testing on debt

Covenants, defined as capacity limits based on a

percentage of RCV for each of the two water business

and for the Group as a whole.

In addition, credit metrics and key ratios are considered,

in particular the key ratios for each of the two water

businesses are: gearing measured as net debt to

Regulatory Capital Value (RCV); Adjusted Interest Cover

Ratio (AICR); and Funds From Operation (FFO)/net debt.

The Group, through the water businesses, maintains two

investment grade credit ratings with Moody’s and Fitch

that consider financial ratio performance, alongside other

company-specific and industry considerations. There is

ongoing engagement with the agencies to review the

performance of the water businesses and in instances of

underperformance, as implied by the stress tests, would

engage regarding mitigations available and timeliness of

recovery plans to support the ongoing credit rating.

Launceston

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Stress-testing evaluation and mitigations

Through this testing, it has been determined that the stress tests performed,

including principal risks where either tested individually or in aggregate when

weighted by likelihood, do not compromise the Group’s viability over the

seven-year period.

Whilst mitigations were not required in any of the above individual sensitivities

or the 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 works.

• Working capital management e.g. re-negotiating credit terms

• Raising equity finance; and

• Restriction of dividends.

The Group has confidence in its ability to raise additional funding should it be

required to ensure the Group maintains solvency.

In addition, more extreme combined scenarios were considered, including an

absolute worse case that assumes all Principal Risks occur, that compromise

the Group’s viability measures over the seven-year assessment period.

The Board considered the likelihood of these scenarios on the Group’s viability

over the seven-year viability period as remote, concluding that the Group

remains 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 and its ability to raise

new finance. 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 120 to 125, 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.

Impact on key metrics

Stress test Principal risk Level of

stretch

Covenants

maintained

Gearing AICR FFO/net

debt

Interest rates

Inability to secure sufficient finance and

funding, within our debt covenants, to meet

ongoing commitments

2% increase on

any new and

floating rate

debt

Yes

Bad debt

Macro economic near term risks impacting on

inflation, interest rates and power prices

1% of Revenue Yes

Inflation – increase 1% increase Yes

Inflation – decrease 1% decrease Yes

Fines and ODI

Penalties

Non-compliance with laws and regulations

Failure to secure, treat and supply clean drinking

water

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% of regulated

equity

Totex

underperformance

5-8% of Totex

per annum

Yes

Combined

Scenario: Totex

underperformance,

fines and ODI penalties

As referenced above As above Yes

The table below summarises the stress tests undertaken that support the long-term financial viability of the Group.

Viability statement continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Double Materiality Matrix

Our ESG approach

We are proud of the progress we have made in our

approach to ESG, embedded in all that we do. We

continue to deliver lasting benefits for our customers,

communities and the environment, now and for

generations to come. This progress is delivered against

our key strategic priorities, as we work to build a resilient,

future-focused organisation for all those weserve.

Last year, we 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 assessment was reviewed during the year and remains

current. This process sets the foundation for ambitious targets relevant to our

stakeholders, to take us to 2030 andbeyond.

Throughout this 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 our core values guiding us, we

are building our approach to keep Pennon at the forefront of sustainability

leadership in our industry.

Double Materiality Assessment (DMA)

Conducting our first Double Materiality Assessment (DMA), marked a

significant step in strengthening how we identify and prioritise ESG issues

most important to our stakeholders and organisation. This assessment

reaffirmed the long-standing relevance of our core priorities, including water

quality, climate resilience, freshwater stewardship and transparency, and

provided focus to support our strategy and targets to 2030 and beyond. We

remain committed to embedding these outcomes across our decision-making,

risk management and disclosures, ensuring our approach continues to

reflect stakeholder expectations and evolving regulatory requirements. This

assessment was reviewed during the year and remains current. Full details of

the methodology and results of our DMA are set out in the Annual Report and

Accounts 2025.

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 ESG themes to provide a clear and structured view of our

priority areas.

1 Water pollution

2 Regulation and compliance

3 Disclosure and reporting

4 Water use

5 Climate change adaptation

6 Energy

7 Biodiversity

8 Health and Safety

9 Affected Communities

10 Management of relationships with

suppliers

11 Climate change mitigation

12 Waste

13 Equal treatment and opportunities for all

14 Secure employment

15 Corporate culture

16 Social dialogue

17 Training and skills development

18 Corruption and bribery

Environmental Social Governance

5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

19 17

2.00 3.002.50 3.50 4.504.00 5.00

Financial materiality

Impact materiality

11/12

19 Working conditions

20 Responsible marketing practices

21 Adequate wages

22 Circular economy

23 Measures against violence and harassment

in theworkplace

24 Gender equality and equal pay

25 Air pollution

26 Forced labour

27 Child labour

Key

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

UN Sustainable Development Goals

(SDGs)

We engage with the UN Sustainable Development Goals

(SDGs) to shape our ESG approach and evaluate our impact

on global sustainability outcomes. As we progress against

our 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 continue to commitment to

the UN Global Compact, the world’s largest corporate

sustainability initiative.

We communicate throughout the report on upholding

the Compact’s Ten Principles across human rights, labour,

environment, and anti-corruption. As part of this commitment,

we commit to continuing to report annually on our progress,

reinforcing our ambition to lead with integrity, build trust, and

enhance transparency.

ESG targets 2025–2030

Our ESG targets for the 2025–2030 period were

developed following the findings of our DMA and are

intended to drive meaningful progress across the

environmental, social and governance issues most

material to Pennon and our stakeholders, above and

beyond our regulatory targets and performance

commitments.

2025/26 represents the first year of delivery against this

refreshed set of targets. Overall, performance has been

positive, with 12 of our 14 targets on target, reflecting

strong progress in embedding our reaffirmed priorities

across the Group. Where performance is off track,

remediation plans are in place. This includes renewable

electricity generation, which has been off target due

to delays in energising our large-scale Solar PV site in

Dunfermline. This has now come online and performance

is forecast to return to target from next year. Additionally,

where achieving our ambitious Lost Time Injury

Frequency Rate (LTIFR) target remains a clear Group

priority, supported by enhanced leadership focus and

operational controls through our HomeSafe programme.

During the year, we have also undergone a revalidation

of our science-based targets through the Science

Based Targets initiative (SBTi). This process involved

re-baselining our greenhouse gas (GHG) emissions to

reflect our updated Group emissions inventory with

SES Water included and the latest climate science,

reaffirming our commitment to a science-led pathway

for emissions reduction. In line with this revalidation, we

have reset our interim GHG reduction targets to ensure

continued alignment with our long-term ambitions and

revised science-based targets. We have also refined our

renewable electricity target by converting it to a GWh

per year metric, strengthening transparency in how our

performance is tracked and reported, while maintaining

the same overall level of targeted output.

Our ESG targets provide a clear, measurable framework

for action. They are embedded within our governance

structures with progress reviewed by the ESG Committee

regularly to ensure they meet performance, ambition and

relevant stakeholder expectations. Progress against each

target is reported throughout the following section and

will continue to inform our decision-making as we work

towards our 2030 objectives and beyond.

Wimbleball Dam Camera Crayfish Survey

Our ESG approach continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Reduction in GHG emissions from

2021/22 baseline – Scope 1 and 2

(SBT verified) (%)

2025/26 performance

2025/26 target

2030 target

By re-baselining our science-based targets we are reaffirming our

commitment to delivering our near-term carbon reductions in alignment

with the latest climate science. We have reset our interim ESG targets to

reflect these changes, with our Group GHG inventory now fully aligned

with our science-based targets and with our interim targets. Additional

targets relating to our Scope 3 emissions, are detailed in Our Net Zero

Transition pages.

To continue driving progress against these stretching GHG reduction

targets, controlling the direct process emissions of nitrous oxide (N

from our wastewater treatment works is essential. This year we initiated

our programme to directly monitor and control N

O emissions at some of

our wastewater treatment sites. We are expecting the improved visibility

of emissions from our direct monitoring activity to allow us to begin to

more precisely control processes to reduce the formation of N

Read more about our progress on reducing GHG emissions

on pages 78 to 82

Renewable electricity generated

(GWh/year)

155

2025/26 performance

2025/26 target

2030 target

Whilst our performance was off-track across the financial year due to

delays in energising our Dunfermline site, Pennon Power’s new solar

farm, built on former mining land, marks a major shift towards renewable

energy. The 100-acre site has 80,000 solar panels and a large battery

storage system. This historical shift, together with a further 26,000

panels now energised at another site in Cullerlie, near Aberdeen, are

delivering the equivalent energy requirements for 20,000 homes each

year. With generation now on-track for subsequent years, these projects

are supporting the UK’s wider efforts towards Net Zero ambitions and

demonstrate our long-term commitment to renewable energy. This year,

we have also converted the unit used in this target to GWh/year, to drive

accountability and transparency in performance.

Read more about Pennon Power’s progress on page 46

Tree planting

(Number, cumulative)

421,199

400,000

500,000

2025/26 performance

2025/26 target

2030 target

The Group’s tree planting programme has now planted over 400,000

trees to date, contributing to progress towards our landscape restoration

and biodiversity across our regions. One example is our transformational

habitat management initiative at Blagdon Lake, near Bristol. This effort

specifically tackles ash dieback through targeted tree felling and the

introduction of a wide variety of new species, while traditional hedgerow

rejuvenation and coppice restoration support both local heritage

and nature. Any tree waste from these activities is reused creatively,

including being fed to animals at a local zoo, contributing to the

circular economy. Collectively, these actions strengthen the ecosystem

surrounding Blagdon Lake as part of our ongoing commitment to tree

planting and habitat enhancement.

Read more about our biodiversity impact on pages 42 to 43

Our ESG performance

Dunfermline – Battery Energy Storage System Countess Wear WWTW Himalayan Balsam Training

Planting trees

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Peatland restoration

(Hectares, cumulative)

5,158

5,054

5,184

2025/26 performance

2025/26 target

2030 target

Our peatland restoration is delivered by the South West Peatland

Partnership as part of Upstream Thinking, our long-standing catchment

management programme, which marked 15 years since its launch in 2010

this year, building on pioneering projects dating back to 2006. Working

collaboratively with farmers, landowners, conservation bodies and local

partners across our catchments, Upstream Thinking demonstrates the

power of prevention and working with nature at scale. Restoring degraded

peatlands helps to protect and improve raw water quality, stabilise water

flows, reduce sediment and nutrient losses, enhance biodiversity and store

carbon, all whilst increasing our combined resilience to climate change

and flooding. By tackling shared challenges together across our regions,

peatland restoration delivers lasting benefits for nature, communities and

customers, while supporting healthier rivers from source to sea.

Read more about Upstream Thinking on page 45

Diversity of workforce

(%)

2025/26 performance

2025/26 target

2030 target

This year, we have been recognised by FTSE

Women Leaders as a leader for Women on

Boards across the FTSE 250. We continue to

strengthen our inclusive culture, including

through the launch of two new employee network

groups: our Professional Women’s Network, which

supports career development, visibility and

progression for women across the Group, and the

Men’s Health Group, which promotes open

conversations, wellbeing and the reduction of

stigma around mental and physical health.

Increase in Social Impact from

Community Investment (%)

37.5

2025/26 performance

2025/26 target (baseline)

2030 target

This year we launched our £5 million Better Futures Fund to support

customers and communities across all our regions. The fund provides

hardship grants and supports community groups focused on physical

activities, education, health and wellbeing and positive environmental

outcomes. Through the fund, we have supported over 140,000 individuals

so far this year, demonstrating the tangible social impact we have created

through our approach to community investment, as calculated and

independently verified by Business for Societal Impact’s (B4SI) community

investment framework.

One funded project we supported this year was a canoe-based litter pick

and recycling initiative on the Plym Estuary. The project brought together

volunteers for a hands-on river clean-up, whilst helping participants better

understand how waste accumulates in tidal environments. The following

week, the group took part in a community recycling workshop, transforming

recovered plastic into new products using people-powered machinery.

Feedback showed participants felt proud of their contribution, developed

new skills and felt more connected to both nature and their local community,

with many keen to continue as part of a regular clean-up team.

Customer affordability

(%)

99.5

100

2025/26 performance

2025/26 target

2030 target

Customer affordability is one of our four key and strategic priorities as a

Group, with our pledge of zero water poverty across our regions. Against

a backdrop of industry-wide bill increases and cost of living pressures,

we remain focused on fair charging and targeted support for those most

in need. Despite doubling our investment programme in AMP8, we are

committed to keeping bills as low as possible, delivering our largest ever

affordability package and expanding schemes such as smart metering to

help customers better manage their water use and bills. While affordability

pressures remain challenging, our performance this year reinforces our

commitment to having zero customers in water poverty.

Read more about supporting affordability and delivering

for customers on pages 47 to 51

Peatland restoration on Bodmin Moor

5% Club accreditation status

(Grade)

Platinum

2025/26 performance

2025/26 target

2030 target

We continue to invest in long-term skills and careers and have again

been recognised with Platinum membership of the 5% Club. We have

delivered over 680 apprenticeships and graduate placements towards

our target of 1,000 by 2030.

Read more about our people on pages 14 to 17

Our ESG performance continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Lost Time Injury Frequency Rate (LTIFR)

(Number per 100,000 hours worked)

0.39

0.20

2025/26 performance

2025/26 target

2030 target

Our HomeSafe programme continues to place the safety and wellbeing

of our people at the centre of everything we do, underpinned by four key

cornerstones covering process safety, occupational safety, occupational

health and wellbeing, and security. Through a continued focus on

leadership, engagement and strengthening our safety culture, we have

made progress in improving risk management and building greater

awareness across the Group. While overall injury levels remained stable,

we saw an increase in lost time incidents during the winter period,

primarily linked to slips and trips, resulting in a rise in our LTIFR. We

have refreshed our approach to re-engage teams and reinforce the

importance of HomeSafe, with a continued focus on reducing harm and

ensuring everyone goes home safe every day.

Read more about HomeSafe on page 17

Funding raised through Sustainable

Financing Framework (£millions)

490

400

2,000

2025/26 performance

2025/26 target

2030 target

Pennon’s Sustainable Financing Framework (SFF) embeds our ESG

approach into how capital is raised and deployed, aligning funding with

eligible ICMA green and sustainable categories to support water quality,

resilience, Net Zero and affordability outcomes. A growing proportion

of our debt instruments are now linked to sustainability performance

targets, embedding accountability and transparency into how we fund

and deliver change.

ESG criteria included in tender

evaluations (%)

100

2025/26 performance

2025/26 target

2030 target

ESG criteria are embedded within Pennon’s tender evaluation processes,

ensuring these are assessed alongside cost and quality when selecting

suppliers. This approach is supported by our Sustainable Procurement

Policy, onboarding processes and Code of Conduct for Supply Chain

Partners, which set clear expectations for ethical behaviour, responsible

practices and environmental stewardship across our supply chain.

We’re also stepping up how we work with our suppliers, recognising

the key role they play in delivering our science-based targets for

GHG emissions, and our wider sustainability. This means setting clear

expectations and supporting suppliers to improve their sustainability

performance over time. By taking this approach, we’re not just focusing

on our own targets, but helping to build a stronger, more sustainable and

resilient supply chain.

Supply Chain Sustainability

School (Membership grade)

Gold

Silver

Gold

2025/26 performance

2025/26 target

2030 target

Through our Supply Chain Sustainability

School (SCSS) partnership, we are focused on

helping our people and suppliers build practical

sustainability knowledge and skills. This year,

this included our Carbon Literacy Day lunch

and learn session and training pathway, to

encourage colleagues to build their carbon

literacy and prepare for our climate transition.

Glassdoor score

(Average score)

3.4

3.2

3.8

2025/26 performance

2025/26 target

2030 target

Employee feedback, including on Glassdoor, helps us identify strengths

and areas for improvement as we continue to invest in engagement,

development, and retention across our workforce.

We recently launched our new employee engagement platform, Culture

Amp, to strengthen real time feedback, and colleague insight across our

Group. The insights gathered will help us identify key themes, prioritise

meaningful actions, and tailor initiatives that truly enhance colleague

experience and engagement.

Read more about Our People on pages 14 to 17

ESG rating (Sustainalytics)

(Score percentile)

Top 1%

Top 10%

Top10%

2025/26 performance

2025/26 target

2030 target

We are ranked 1

out of 46 companies scored for ESG risk in the Water

Utilities sub-industry by Sustainalytics, reflecting our commitment to

ESG performance and disclosure. This is reinforced by our inclusion

on CDP’s 2025 Climate A-List, recognising the strength of our climate

strategy, governance and transparency.

Read more about ESG ratings on page 77

Our ESG performance continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

A and A-

CDP Climate and Water

(Previous rating: A- and A-)

This year, we achieved inclusion in CDP’s Climate

A List for the first time, marking a significant

milestone and recognising our leadership in climate

action and disclosure. This places us in the top c.4%

of organisations globally for CDP Climate, reflecting

the quality, completeness and transparency of our

reporting alongside the actions we are taking to

manage climate-related risks and opportunities.

This progress is underpinned by continued

development in our approach to reducing our

emissions, supported by robust governance,

disclosure and performance across the business.

We also achieved a leadership rating for CDP’s

Supplier Engagement badge, recognising our work

with suppliers to address sustainability challenges

in our value chain, and maintained our strong CDP

Water Security score.

ESG ratings

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 ratings, improving our scores across

these key assessments as an industry leader for ESG.

This year, we achieved inclusion in CDP’s Climate A List,

whilst maintaining or improving scores across each of our

material ESG ratings.

Our Sustainalytics assessment places Pennon Group 1st

out of 46 Water Utilities assessed globally and earning

us Sustainalytics ‘ESG Top Rated’ industry and regional

badges for 2026.

These results reflect our unwavering commitment to

sustainability, strong governance, and proactive risk

management, demonstrating our leadership in ESG

performance across the industry.

Prime ( B+)

ISS corporate rating

(Previous rating: Prime, B+)

3.8/5

FTSE4Good ESG Score

(Previous rating: 3.8/5)

S&P Global’s Corporate

Sustainability Assessment

(CSA)

(Previous rating: 47)

10.1 low

ESG risk

(Previous rating 11.7 low)

ESG management: 87.8

(Previous rating: 84.5)

MSCI ESG Indexes

(Previous rating: AA)

Latest external assessment scores

(as of 31 March 2026)

Roadford reservoir

Our ESG performance continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our Net Zero Transition

Across Pennon, we recognise the urgent need to

transition to a low carbon, climate resilient economy,

aligned with the goals of the Paris Agreement and a

1.5°C pathway.

This year and for the start of AMP8 we have reviewed our

strategic ambition to become a Net Zero organisation,

setting our near-term focus on achieving our emissions

reduction goals through our near-term science-based

targets and developing our longer-term strategy

through a Climate Transition Plan, to be published in the

upcoming financial year.

Whilst our regulated businesses have made significant

progress, achieving a 45% reduction in emissions towards

their operational Net Zero ambition last year, we are

cognisant of the shortcomings of that commitment,

covering only operational greenhouse gas (GHG)

emissions within our regulated businesses, with over 73%

of the Group’s emissions occurring in our value chain, in

other words, the Group’s scope 3 GHG emissions.

Building on the progress we are making as a Group

against our near term GHG reduction targets, which have

been revalidated by Science Based Targets initiative

(SBTi) in April 2026, our Group’s Climate Transition

Plan sets out our pathway to achieving Net Zero across

all three emissions scopes by 2050 across the Group,

aligned with the latest climate science and in reference to

the SBTi Net Zero Standard.

Our plan will build on our current decarbonisation

strategy to provide greater transparency on the levers,

dependencies and milestones required to achieve

Net Zero, ensuring we remain accountable to our

stakeholders while contributing to a resilient and low-

carbon future.

Our GHG targets

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 initially validated and approved by the

Science Based Targets Initiative (SBTi) in May 2024, and

this past year we have reaffirmed our commitment to the

SBTi, by rebaselining these targets to include SES Water,

ensuring our SBTs remain relevant across our Group.

Our 2025/26 performance

Our performance against these headline GHG targets is

presented below.

Our GHG performance in the year reflects strong

progress at Group level, with further action required on

our regulated businesses PCs as we move through AMP8.

We have continued to deliver against our SBTs, supported

by our decarbonisation strategy. However, performance

against our regulatory GHG performance commitments

highlights the challenges of transitioning at pace whilst

delivering our largest programme of capital investment

to date.

These results, provide a foundation for improvement

as we move through the AMP period and beyond to

Net Zero 2050, reinforcing the need for continued

action to achieve sustained progress against all of our

GHG commitments.

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 ‘rebased’ SBTs are set out below. These apply across

the whole Pennon Group, including SES Water.

• The Group commits to a 63% 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 by 30% from fuels and energy-related

activities, wastes generated in operations, business

travel, employee commuting, upstream leased assets

and use of sold products 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 2030/31.

GHG performance commitments

Our South West Water (including Bournemouth Water),

Bristol Water and SES Water regulated businesses also

have five GHG related performance commitments (PCs)

reportable to our regulator Ofwat.

Four of the performance commitments relate to

operational GHG’s where the measure is based on Scope

1 and 2 emissions and a subset of Scope 3 emissions that

relate only to our operational activities.

Our operational GHG performance commitments are

measured using the location-based GHG accounting

methodology where our purchase of renewable electricity

from suppliers does not count towards our emissions

reduction, whereas our Group science-based targets

use the market-based greenhouse gas accounting

methodology which does account for our renewable

electricity purchase.

The fifth performance commitment is an embodied

carbon measure that relates to activity under our capital

investment programme and is a measure of tonnes of CO

embodied in our investment in our capital projects as a

proportion of our spend on those projects.

These performance commitments are all measured

against the baseline values we calculated and forecast

as part of our PR24 (2025-2030) business plan.

SES EV charger

GHG target Company scope

2025/26

Performance

2025/26

Target

63% Scope 1 & market-based Scope 2 reduction by

2032/33 Pennon Group 41% 40%, ESG target

30% Scope 3 absolute emissions reduction across

categories 3, 5, 6, 7, 8 & 11 by 2032/33 Pennon Group -2% 7%, internal target

60% of suppliers by emissions to be committed

to SBTs by 2027/28 Pennon Group 33% 40%, internal target

100% renewable electricity purchase by 2030/31 Pennon Group 92% 80%, internal target

Drinking Water Operational GHG PC South West Water -5% 0.2% Ofwat PCL

Wastewater Operational GHG PC South West Water -1% 0.1%, Ofwat PCL

Drinking Water Operational GHG PC Bristol Water -13% 0.3% Ofwat PCL

Drinking Water Operational GHG PC SES Water -15% 6%, Ofwat PCL

Embodied Carbon GHG PC South West Water 38% 0.9%, internal target

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our decarbonisation strategy

Our strategy for reducing our GHG emissions relies on

having a strong understanding of the sources of all our

emissions alongside a robust carbon accounting process.

We use the UK water industry Carbon Accounting

Workbook to calculate our greenhouse gas emissions.

Our key priorities include:

• Reducing emissions through changes to our operational

practice, such as increasing our energy efficiency,

switching to lower carbon fuel sources and transitioning

to electric vehicles

• Maximising generation from our own renewable energy

assets

• Where we cannot generate enough electricity to meet

our needs ourselves we will purchase electricity from

renewable sources

• Meeting our commitments to reduce leaks and help

customers to use less water

• Where possible reversing carbon emissions from our

core activities

• Supporting the development of innovative solutions

and using whole life carbon assessments to help us

switch to lower carbon solutions

Decarbonisation levers

Energy efficiency

We continuously improve our energy efficiency by

ensuring our assets are operated efficiently and are

maintained in optimal condition. Our programme of pump

testing, repair and replacement included replacement of

pumps at some of our largest water treatment works this

year, ensuring ongoing efficient and reliable operation for

future years.

We also replaced some of our aeration assets this year with

new blowers installed at some of our wastewater treatment

works: these new machines benefit from the latest

developments in blower technology, are more appropriately

sized for the duty they need to perform and contribute to a

more efficient wastewater treatment process.

Amongst our most notable energy efficiency projects

this year was the refurbishment and replacement of one

of our largest pumps at our Restormel water treatment

works in Cornwall, which is the site that uses the

most energy in our South West Water region. We also

replaced another of our largest pumps at our Roadford

Dam water pumping station site in Devon, with plans to

continue to replace more pumps at this site in 2026/27.

We have continued to concentrate our efforts this

year on ensuring our largest energy consuming assets

consistently operate as efficiently as possible. We have

invested in new real-time efficiency metering as well as in

new monitoring devices that use innovative methods to

detect where energy is being wasted.

We are compliant with the UK Government’s Energy

Saving Opportunity Scheme (ESOS) aimed at improving

energy efficiency and reducing carbon emissions for large

businesses. Our energy action plans have been submitted

via the Government’s MESOS online portal and we report

on our progress against these plans on an annual basis.

Our South West and Bournemouth Water businesses

maintain their certification to the Energy Management

Systems Standard ISO 50001, ensuring we operate to a

high standard of energy management and providing an

auditable framework to our energy management activity.

Renewable energy

South West Water (including Bournemouth Water) and

SES Water have continued to source 100% renewable

electricity backed by Renewable Energy Certificates

(since 2022), representing over 92% of the Group’s

electricity consumption. For our Bristol Water electricity

needs we are transitioning to 100% renewable electricity,

towards meeting our science-based target for 100%

renewable electricity sourcing for the Group by 2030/31.

During 2025/26 we have added to our portfolio of on-site

renewable electricity by completing a new 206kW Solar

PV scheme at our St Cleer water treatment works, as well

as developing our plans to construct new Solar PV at

further sites before 2030.

Although not part of our regulated water businesses, the

Pennon Group’s commercial energy company Pennon

Power has continued delivery throughout the year of new

large Solar PV schemes, and the first two of these were

energised in 2025/26. This remains a major step towards

meeting the Group’s ambitions to own and control its

own renewable energy assets. Progress with our Pennon

Power Solar PV projects is featured in more detail on

page 46.

Fuel switching

We have conducted a review of our stand-by generators

to determine which assets are suitable for using diesel

replacement fuels such as HVO (Hydrotreated Vegetable

Oil), made from waste oil, to reduce GHG emissions.

Many of our newer generators are ‘HVO ready’ and are

suitable for diesel replacement with HVO as a ‘drop-in

fuel’. Where this has been confirmed by our review we are

using HVO to fuel these assets.

Our older generating plants may not be immediately

suitable for switching to HVO usage and we have

continued to use diesel fuel to ensure some of these

older assets can continue to provide a resilient service.

Our diesel generator replacement programme ensures

all new replacement generators are HVO ready and as

a result we plan to transition to using HVO as a diesel

replacement across all our generator fleet over a period

of time.

Our longer-term plan includes exploring other

alternatives to fossil fuels for our stand-by generation; we

are actively looking at options to switch to using battery

back-up where possible, as well as looking at hydrogen as

a potential future solution to providing power resilience at

our operational sites.

Transport

Our planned transition away from fossil fuelled vehicles

towards electric vehicles continues, with over 219 of

our company cars and 112 of our company vans now

fully electric.

Alongside our electric vehicle fleet we are also

transitioning some of our fleet vehicles to petrol-electric

hybrid vehicles with 39 hybrid cars and vans already on

our fleet.

As part of our strategy to transition to electric vehicles

we are also deploying our own vehicle charging

infrastructure on our key operational sites and this year

we added to our charging infrastructure by installing

new chargers at our Hayle wastewater treatment works

in Cornwall.

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.

We are exploring ways of measuring fugitive emissions of

at our wastewater treatment works that use anaerobic

digestion of sludge as part of the on-site process.

Following the latest climate science, N

O has now

become a much greater proportion of our direct Scope

1 emissions following a change to N

O emissions factors

this year to align with the most recent emissions factors

published by the IPCC (Intergovernmental Panel on

Climate Change).

This effectively increases the volume of our N

emissions by 7.2 times the emissions we reported in

previous years, making our efforts to increase our

monitoring and control of these emissions a much more

significant component of our Net Zero plans, and we have

made significant progress this year with our initiatives

for monitoring and controlling these emissions (see

‘Monitoring and controlling our process and fugitive

emissions’ on the next page).

Our Net Zero Transition continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Wimbleball reservoir

Our Net Zero Transition continued

Nature-based solutions

Our Upstream Thinking catchment management

programme, delivered to improve raw water quality,

includes on farm interventions of improved soil

management, wetland creation, buffer strips, tree planting

and other nature-based solutions.

We have also 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.

Looking forward, we are increasing adoption of nature-

based solutions in the planning and delivery of our AMP8

Business Plan in 2025-2030 for the multiple benefits they

provide for the environment.

We have triaged all our wastewater investment solutions

to assess the suitability for delivering a nature-based

solution as an alternative to a ‘hard engineering’ solution.

Our Green First approach

Our carbon emissions extend beyond our daily

operations. Embodied carbon are emissions associated

with the construction, repair, and maintenance of our

physical assets. These emissions account for a significant

proportion of our Group’s total emissions.

Through AMP8, our Green First Framework is embedding

carbon considerations in how we plan, design and

deliver our investments by prioritising lower carbon

and nature-based solutions at the earliest stages of the

design process. This approach is key to addressing these

embodied emissions.

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 emissions from our capital

investment programme.

Our bespoke embodied carbon performance commitment

supports the delivery of our wider carbon reduction

goals. Embodied carbon accounting is foundational to

this effort, enabling us to better understand and actively

manage emissions across our capital programme and our

supply chain.

Through closer collaboration with suppliers, we are

advancing the use of whole life carbon assessment

methodologies, alongside identifying practical

opportunities to reduce emissions. While this represents

important progress, further work is required to scale

these approaches and drive consistent reductions in

embodied carbon across our investments.

Embedding a carbon reduction culture

We recognise that achieving our Net Zero goals will

be a collaborative effort between all our stakeholders,

which is why we are working towards creating a

working environment in which colleagues, customers,

and suppliers are motivated to help us accelerate our

transition to Net Zero emissions.

To improve the ‘Carbon Literacy’ of our own employees

and our supply chain partners we have joined the Supply

Chain Sustainability School.

This online learning platform provides access to a vast

range of learning materials which will help to upskill our

workforce and our delivery partners.

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 goals 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.

Further details of how we are integrating

climate into our business and preparing for a

low-carbon future can be found in our Task

Force on Climate-related Financial Disclosures

(TCFD) on pages 83 to 93.

Monitoring and controlling

our process and fugitive

emissions

Measuring and monitoring the direct real-time

emissions of N

O from our wastewater treatment

works is the first step towards controlling these

Scope 1 emissions; without it, we cannot establish

the effectiveness of our reduction initiatives.

Once we have established an annual baseline of

O emissions at our sites we can then use the real-

time data outputs to adjust the treatment processes

to minimise the formation of emissions and begin to

take control of N

O emissions reduction across our

wastewater treatment works.

This year we moved on from the initial pilot of our

measuring approach at our Countess Wear (Exeter)

wastewater treatment works and embarked on a

new programme of direct on-site N

O monitoring

at our Dawlish and Sidmouth wastewater treatment

sites as part of our wider five-year emissions

monitoring, optimisation and control strategy.

This pioneering initiative uses a mix of fixed

and mobile monitoring equipment taking high-

granularity 15-minute data readings, enabling us to

not only measure N

O emissions but also dissolved

oxygen, redox, ammonia, nitrate, nitrite, airflow,

energy and temperature.

In the coming years between 2026 and 2030 we

intend to roll out this technology to many more

of our wastewater treatment works and we are

expecting this approach to enable us to begin to

reduce our Scope 1 process and fugitive emissions

towards meeting the Group’s near-term Scope 1 and

2 science-based target by 2032/33.

Direct N

O monitoring equipment at our Dawlish wastewater

treatment works

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Streamlined Energy and Carbon Report (SECR)

Pennon Group plc GHG Emissions.

2025/26 2024/25

market-based location-based market-based location-based

Direct emissions from burning of fossil fuels 10,899 10,899 9,101 9,101

Process and fugitive emissions 67,435 67,435 67,233 67,233

Transport: Company owned or leased vehicles 5,639 5,639 5,915 5,915

Total Scope 1 GHG emissions (tCO

e) 83,974 83,974 82,248 82,248

Scope 2 GHG emissions (tCO

e) 16,563 81,968 26,717 89,295

Total gross Scope 1 & 2 GHG emissions (tCO

e) 100,537 165,941 108,965 171,543

Scope 3 GHG emissions

(estimated) 273,444 273,444 294,145 294,145

Total gross Scope 1, 2 & 3 GHG emissions (tCO

e) 373,982 439,386 403,110 465,687

GHG emissions removals through purchases of Renewable Energy Guarantees of Origin (tCO

Included in

scope 2

Included in

scope 2

Included in

scope 2

Included in

scope 2

GHG emissions saved by exporting self-generated electricity (tCO

e) – (2,069) – (1,837)

Total annual net GHG emissions (tCO

e) 373,982 437,317 403,110 463,850

Energy consumption used to calculate Scope 1 and 2 GHG emissions (MWh) 567,877 567,877 534,221 534,221

GHG emissions intensity measure: (Gross Scope 1 and 2 tCO

e/£100,000 revenue)

7.8 12.9 10.4 16.4

Biogenic GHG emissions outside of Scopes (tCO

e) 1,557 1,557 2,871 2,871

Notes:

Pennon Group plc total Scope 1 (83,974 tCO

e), Scope 2 market-based (16,563 tCO

e), Scope 2 location-based (81,968 tCO

e) GHG emissions, market-based GHG emissions intensity measure (7.8 tCO

e) (gross Scope 1 and 2/£100,000

revenue), and location-based GHG emissions intensity measure (12.9 tCO

e) (gross Scope 1 and 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 2025/26 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 as a consequence of our actions, which occur at sources which we do not own or control.

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

1. Estimated GHG emissions for relevant Scope 3 categories calculated for 2025/26 are provided in our ESG Databook available on our website: www.pennon-group.co.uk/reportsandpresentations

2. Based on relevant Group revenue for 2025/26.

3. Process and Fugitive Emissions have been restated for 2024/25 to align with the updated accounting methodology adopted by the UK Water Industry for N

O process emissions from wastewater treatment aligned to the latest

IPCC guidance. Emissions relating from the spreading of waste water sludges to land have been restated for 2024/25 aligning to a new methodology adopted by the UK Water Industry aligned to the latest UKWIR research and

ratified by the Water UK Carbon Network. We have restated our 2024/25 emissions relating to Bristol Water Holdings companies which have been removed from our Scope 1 & 2 emissions as these are now included within Scope 3

Category 15 (investments). Our Scope 3 2024/25 emissions relating to long term hire vehicles have been restated as we are now reporting them under Scope 3 Category 8 (Upstream Leased Assets) so Well-to-Tank emissions are

no longer included.

Operational Pennon Group plc GHG emissions by business

South West

Water

Bristol

Water

SES

Water

Group

total

Scope 1 GHG emissions (tCO

e) 73,610 9,002 949 83,974

Scope 2 GHG emissions (market-based) (tCO

e) 581 15,587 12 16,563

Total gross Scope 1 & Scope 2 GHG emissions (tCO

e) 74,191 24,589 961 100,537

Scope 1 & 2 Operational intensity measure (kgCO

e/ Ml) – Water

18.82 235.42 15.50 n/a

Scope 1 & 2 Operational intensity measure (kgCO

e/ Ml) – Wastewater

286.92 n/a n/a n/a

1. Group total includes 796 tCO

e (total gross Scope 1 & 2 GHG emissions) from Pennon Water Services Limited, Pennon Power Limited, Advanced Minerals Limited, Allmat (East Surrey) Limited and Group shared services.

2. For ‘Water’ measure, Ml = measured water into supply.

3. For ‘Wastewater’ measure, Ml = full measured flow treatment.

Change in Scope 1 and 2 emissions

As noted elsewhere in this section, the emissions factors

associated with N

O process emissions have been

amended to follow the latest climate science, this means

that direct Scope 1 process emissions are now a much

greater proportion of the Group’s GHG inventory, this new

methodology has been applied to both current and prior

year emissions and is part of our ‘rebased’ SBT methodology.

Under this updated methodology, Operational Scope 1

and 2 emissions (market-based) for the Group decreased

by c. 4% since the previous year. This has been driven by

increased renewable electricity purchase in the Bristol

Water part of the business driving market-based Scope

2 emissions down. This decrease in Scope 2 emissions

outweighs the 2% rise in Scope 1 emissions due to the

use of alternative power sources at operational sites

used to support our water supply needs following the dry

weather within the year.

Change in Scope 3 emissions

Scope 3 categories were evaluated for relevant categories

in line with the reporting guidance. The Group is reporting

on categories 8 (upstream leased assets), 11 (use of sold

products) & 15 (investments) for the first time.

The emissions for Scope 3 categories 1 and 2 are

calculated using a spend-based approach, with category 1

emissions from purchased chemicals calculated using the

Water Industry’s Carbon Accounting Workbook. Category

7 emissions are calculated based on activity data, and

emissions for all other relevant Scope 3 categories are

also calculated using activity data.

The estimated Scope 3 emissions of the Group have

reduced from 294,215 tCO

e in 2024/25 to 273,444

tCO

e in 2025/26. A breakdown of our estimated Scope

3 GHG emissions is provided in our ESG Databook,

published on our website (www.pennon-group.co.uk/

reportsandpresentations).

Our use of sold products emissions relate to the sale of

sludge to third parties for the use of soil enhancement.

The methodology used to calculate these sludge

emissions has changed since the previous year in line

with latest UKWIR research and was included within the

Carbon Accounting Workbook v20 after being recently

ratified by the Water UK Carbon Network. This has led

to a reduction in the estimated methane emissions from

sludge spread to land in both current and prior year

emissions and is part of our ‘rebased’ SBT methodology.

Our Net Zero Transition continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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 2025 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, 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/reportsandpresentations.

Market and location-based

methodology

We report both market-based and location-based Scope

2 GHG emissions. For our market-based emissions

accounting 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

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.

Energy usage

2025/26 (MWh) 2024/25 (MWh)

Methodology

Imported grid electricity

462,338 430,657

Primarily based on billed

electricity consumption except

a small part of consumption

which is estimated by electricity

supplier

Imported private wire electricity (renewable) 6,580 6,138 Metered & Billing Data

Self-supplied renewable electricity 8,387 10,841 Metered data

Self-supplied heat 3,577 6,625

Estimated that 60% of heat

generated by sewage gas CHP is

beneficially used, the rest (40%)

is released to atmosphere

Natural gas

44,516 43,018

Primarily based on billing data,

some estimates is billing data

Liquid fuels (for stationary applications)

13,914 6,739

Estimated based on fuel use/

spend and vendor data

Energy used by fleet transport

28,565 30,203

Estimated based on fuel use/

spend and mileage data

Total energy usage

567,877 534,221

Intensity measure: MWh/£100,000 revenue

44.04 51.03

Energy usage data notes:

1. Total energy usage (567,877 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 2025/26.

4. Energy consumption used to calculate Scope 1 and 2 GHG emissions.

5. We have restated our 2024/25 energy consumption to remove energy consumption relating to Bristol Water Holdings companies, this aligns to the

control boundary used for our Greenhouse Gas accounting.

Our 100-Acre Pennon Power Solar PV at Dunfermline in Scotland

Offshore emissions

All of Pennon Group’s energy usage is within the UK, and

the Pennon Group had no offshore GHG emissions or

energy usage in the reporting period.

Energy usage

Including self-supplied energy, the Group used 567,877

MWh of energy in 2025/26. The increase in energy has

been driven by weather related impacts, with a drier

summer followed by increased rainfall experienced in

January and February 2026. Our Bristol Water business

has been recovering from drought conditions and since

the summer period which resulted in having to use more

energy intensive raw water sources. In our South West

Water business we needed to increase our usage of our

raw water pumping stations to support our reservoir

levels across the region. Energy usage for the wastewater

part of our South West Water business remained

similar to the previous year despite the addition rainfall

volumes during the early part of 2026. A breakdown of

Group energy usage and associated data assessment

methodologies is shown above.

Further details and previous years’ data

are provided in our ESG Databook, which

can be found at:

www.pennon-group.co.uk/sustainability

Our Net Zero Transition continued

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Task Force on Climate-related Financial Disclosures (TCFD)

and Taskforce on Nature-related Financial Disclosures (TNFD)

We are driven by our purpose of bringing

water to life and remain focused on

our strategic priorities, delivering for

our customers, communities, and the

environment.

We operate in a changing environment where the impacts

of climate change and biodiversity loss are increasingly

evident. To remain resilient, we monitor climate 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

seventh year of TCFD reporting.

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

with the TCFD framework. We have addressed the 11

recommended disclosures and have considered the best

practice guidance from the TCFD.

TNFD recommendations

The TNFD published their final framework in September

2023 and published sector guidance for water utilities

in June 2025. This is our fifth year of voluntarily

reporting against the TNFD framework and we have

now embedded our long-term commitment to managing

nature-related risks and opportunities across the Group,

through becoming an official TNFD adopter. 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.

Our approach to managing climate and

nature risks

As weather extremes intensify, greater risks are posed to our

water and wastewater services which our customers rely on.

We are making adaptation progress in key areas, detailed in

our Climate Adaptation Report published in 2024.

Read our Climate Change Adaptation Report:

https://www.southwestwater.co.uk/siteassets/

documents/environment/climate-change-

adaptation-report_2024.pdf

The challenges posed by climate hazards, combined with

heightened customer and regulatory expectations, mean

we need to go further to manage the impacts of extreme

weather. A key area of focus for us is to reduce the impacts

from storm overflows and sewer flooding.

We are investing £3.2 billion

into our services and

infrastructure across 2025-2030, focusing on four strategic

priorities: water quality and resilience, storm overflows

and pollution, Net Zero and environmental gains, and

addressing customer affordability. These investments will

strengthen our management of climate and nature risks,

and enable us to deliver opportunities which benefit our

customers and the regions we operate in.

We are focused on delivering for our customers and

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 energy prices. We 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.

We’ve demonstrated our commitment to action on

climate change and nature through our transparency in

voluntary reporting to CDP since 2013. We have been

recognised on CDP’s A List for Climate in 2025, placing

us at the leadership level and in the top 4% of disclosers

globally. You can read more about our work to enhance

resilience on pages 78 to 80, and about our Net Zero

performance on page 81.

As a UN Global Compact signatory, we embed its principles

on human rights, labour, environment, and anti-corruption

into our ESG approach and report progress annually.

Charlestown Beach

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 62 to 69). Principal risks are reviewed as part of

our audit governance processes.

South West Water and SES Water have their own boards,

which report to the Pennon Group Board. The boards

oversee climate- and nature-related risks within their

operations. New board members are briefed on key

climate-related and nature-related risks, for example

through site visits and strategic discussions. For more

information see our Corporate Governance report

on pages 96 to 159. Further information on Board

Committees and ESG skills can be found on page 96

and pages 117 to 132.

Management’s role

Our C-suite Executives play a key role in identifying,

assessing, and managing climate-related and nature-

related risks and opportunities, including through relevant

Executive committees. We have also appointed a Chief

Sustainability and Natural Resources Officer (CSNRO),

who is accountable for climate and nature policies and

targets. Our business is divided 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 identifying,

assessing, and managing 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 on to 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-related and nature-related 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

our Group’s programme of ESG targets, that align with

our ESG approach. You can read more about our ESG

approach on pages 72 to 73.

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Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Climate and nature-related governance

Audit Committee

The Audit Committee oversees risk

management and internal controls and

monitors the Group’s financial reporting,

including how the impacts of climate and

nature 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.

Audit Committee report pages

120 to 125

Nomination Committee

The Nomination Committee supports

Board composition and succession

planning, including consideration of

ESG and climate-related expertise.

It considers competencies related to

climate-related risks and opportunities

when reviewing the structure, size, and

composition of the Board and senior

executives across the Group.

Nomination Committee report

pages 117 to 119

ESG Committee

The ESG Committee provides the

platform for discussion of the Group’s

ESG agenda, environmental performance

and related climate and nature risks

and opportunities, as well as setting and

reviewing key metrics relating to ESG

targets and goals.

ESG Committee report pages

126 to 128

Health and Safety Committee

The Health and Safety Committee

monitors risk across all areas of health

and safety – including areas impacted

by climate-related risks such as extreme

weather events. The Committee also

reviews the effectiveness of the Group’s

procedures for Health and Safety

reporting and performance.

Health and Safety Committee

report page 129

Remuneration Committee

The Remuneration Committee

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.

Remuneration Committee report

pages 130 to 132

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.

Pennon Executive Board (PEx), headed by Group Chief Executive Officer

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. The CSNRO reports to PEx monthly, providing updates on sustainability and nature-related issues. There are several Executive

committees which report to PEx, including business unit senior leadership teams.

TCFD/TNFD Recommendation: Disclose the organisation’s governance

around climate-related and nature-related risks and opportunities.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Climate scenario analysis

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 5th assessment (2014), including a high and a low

emissions scenario, which were also used as the basis for

planning by Ofwat as part of the PR24 methodology and

align with Ofwat’s climate change principles published in

February 2026.

Our transition risk scenarios align with scenarios

developed by the Network for Greening the Financial

System (NGFS), which are widely adopted in the UK.

The two 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.

Physical climate risk scenarios:

RCP2.6 – Lower Physical Impacts:

Less than 2°C warming by the year 2100

– corresponding to a low emissions

‘optimistic’ scenario.

RCP8.5 – High Physical Impacts:

Up to 4°C warming by the year 2100 –

corresponding to a high emissions

‘business-as-usual’ scenario, which is

appropriate to use when considering

high risks.

Transition climate risk scenarios:

Net Zero 2050: The UK puts in place

strong policies and actions to mitigate

climate change and keep warming to under

2°C by 2100, aligned with the Paris

Agreement. Supportive policies are

introduced quickly and smoothly, enabling

rapid technology and system change.

Current Policies: The UK makes

incremental progress to mitigate climate

change, but no major policies change,

resulting in limited action to keep warming

below 4°C by 2100, and missing the targets

of the Paris Agreement. Technology and

system change is slow and stalls.

For our scenario analysis, the following assumptions were

made:

• Scenarios focus on the UK policy and regulatory

context and are semi-independent of global action and

temperature pathways.

• It is assumed energy prices remain high throughout the

next 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 increases across the regions we serve,

however 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).

Short, medium and long-term horizons for

climate risks

In shaping our strategy, we consider short, medium and

long-term horizons for climate risks and opportunities.

Short-term: 1-10 years

Over this horizon we define key targets (operational,

financial, sustainability) and we consider changing

regulatory frameworks and emerging 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. 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: 10-25 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 Net Zero targets fall 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. Physical risks become very significant over

this period. Current projections are that by 2100 the

planet will have warmed by up to 3°C, however there is

much uncertainty.

TCFD/TNFD Recommendation: Disclose

the impacts of climate-related and nature-

related risks and opportunities on the

organisation’s business, strategy, and

financial planning where such information

is material.

Climate-related strategy

Countess Wear WWRW

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

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Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Key

Risk ratings

High

Medium

Low

Risk trend

Increasing

Stable

Decreasing

Scenario analysis – physical climate risks continued

Our key physical climate risks

Principal risk Time horizon Current risk rating and trend Key impacts of physical climate risks

Chronic: Increasing frequency and

intensity of droughts

Short, medium and long-

term

• Climate impacts will affect our ability to provide reliable services to customers. Climate change will impact

water resources and pose greater risks of supply shortages, as well as to our water and wastewater treatment

and networks. Without adaptation, this would result in increased service disruptions and reduced outcomes for

customers and the environment. For example, climate change is driving increases to rainfall which could contribute

to greater storm overflows if left unmanaged and pose risks of flooding and damaging our assets.

• 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. For example, we have 36 major sites/assets at

high-risk of coastal flooding and erosion. We operate over £7 billion of assets, the majority of which relate to water

and wastewater and will be impacted by climate change in some way. Drought in the South West in 2022 cost the

Group around £20 million, and following this we have continued to invest to enhance resilience.

• Unmitigated risks would have material impacts on our business. This would include additional expenditure (Opex

and Capex) to recover from service interruptions and repair or replace deteriorated assets, and would result in more

frequent and greater ODI penalties.

• Impacts are worse with every bit of additional warming. Impacts would increase over each time horizon as

extreme weather events increase in frequency and magnitude and are compounded by chronic climate change.

Additionally, the natural environment which we are dependent on would also decline over time, creating greater

costs and impacts for us (e.g. reducing water quality and quantity).

Chronic: Increasing average and high

temperatures

Short, medium and long-

term

Chronic: Increasing frequency of heavy

rainfall and floods

Short, medium and long-

term

Chronic: Rising sea levels

and coastal erosion

Short, medium and long-

term.

Acute: Increasing frequency of extreme

weather events, heatwaves and storms

Short, medium and long-

term.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Our strategic responses to physical

climate risks

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:

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 landowners in our regions).

Longer-term investment, as outlined in our strategic

plans, will be needed to manage future risks to

acceptable/tolerable levels. 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 that 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 are driven by best-value

adaptive planning.

We have 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; and 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 to medium-

term, however, additional options will be required under

the high emissions scenario, or options may need to be

implemented earlier than the low emissions scenario over

the long term.

Investments in natural capital will be central to our

climate adaptation. Healthy and functioning ecosystems

are critical for resilient water and wastewater operations.

Therefore, we are investing in 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 change adaptation is a continual, evolving and

iterative process. We regularly review our adaptation

progress, and as 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

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.

Impacts on financial planning

Impacts from not mitigating risks: 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 (e.g. Opex and

Capex to recover from service disruptions and repair

assets).

The value of our assets and our cost of capital could

decrease if assets become degraded / impaired, and if we

were perceived as high-risk by financiers.

Impacts from mitigating risks: Our revenue is unlikely

to be impacted significantly due to the regulatory Price

Review system as explained above, however by investing

in climate adaptation we have greater ability to achieve

regulatory rewards (ODIs). Our Capex would increase to

build resilience to climate change, and this investment

would aim to prevent our operating costs from changing

significantly from today (as we would experience fewer

service disruptions than in a scenario where risks are

unmitigated). The value of our assets and our cost of

capital would remain relatively unchanged compared to

today if we continue to enhance our resilience.

Adapt to climate change

Innovate

Enhance resilience

Become more efficient

Collaborate

Balance investment over time

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Strategic Report

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Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Scenario analysis – climate transition risks

Our key climate transition risks

Transition risk Time horizon Current risk rating and trend Key impacts of transition risks

Regulation and policy: Challenges

balancing trade-offs in regulation in the

water sector between agendas of

infrastructure delivery, Net Zero, climate

resilience, environmental enhancement,

and other objectives, posing the risk of

increasing costs and carbon

Short and medium-term

• The cost to our business of achieving our Net Zero target rises, and there is less ability to recover costs

through the regulatory pricing system. Misalignment in policies and low incentives make reaching Net Zero

more costly and impose greater investment risks to our business. Additionally, our supply chain could also lag in

decarbonising, impacting our Scope 3 emissions.

• Current UK policies are not sufficient to deliver the necessary carbon emission reductions. Therefore, meeting

our Net Zero targets would require greater use of carbon offsets or we would be at risk of missing targets. Low

readiness and capacity could stall our progress to reduce emissions and realise opportunities. This could result in

higher costs for access to low-carbon technologies and related skills (due to the UK’s previous under-investment),

and increased costs related to both our own renewable energy generation, and the purchasing of green electricity

from external suppliers.

• 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 climate targets. Some may be highly sensitive

to affordability, and increasingly scrutinise our investment choices.

• Current UK policies and markets are not sufficient to enable us to realise some of our climate-related

opportunities. Low incentives and low-maturity markets reduce opportunities for our business relating to resource

efficiency, carbon sequestration, bioresources etc.

Regulation and policy: Regulatory funding

risk for achieving Pennon’s Net Zero

ambitions and adapting to climate change

Short and medium-term

Technology: Capacity and readiness of

technology, employees and supply chain

to achieve Net Zero

Short and medium-term

Market: Increased costs of energy and

materials due to the transition to Net Zero,

impacts of climate change, and wider

factors

Short and medium-term

Reputational: Negative public and

stakeholder relations due to Pennon

failing to be a seen as a leader in

environmental sustainability

Short and medium-term

Reputational: Customer affordability and

fairness concerns for achieving Net Zero

and adapting to climate change

Short and medium-term

Key

Risk ratings

High

Medium

Low

Risk trend

Increasing

Stable

Decreasing

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Scenario analysis – climate transition opportunities

Our key climate-related opportunities

Climate-related opportunities Time horizon Current opportunity rating and trend Key impacts of climate-related opportunities

Resilience: Enhancing resilience across

Pennon’s operations, asset base, and

supply chain to avoid costs and enhance

value

Short and medium-term

• Costs to our business of achieving our Net Zero targets could be reduced. With greater regulatory

support towards the step-change in investment required, the cost and availability of technologies, skills, and

resources could be reduced. We are already benefiting from reducing our energy costs through investment

in renewable energy.

• The regulatory environment may be more favourable for nature-based solutions (NBS) which can also

sequester carbon. More stringent carbon management requirements across the economy and more mature

carbon/biodiversity markets would provide more incentives for NBS.

• Our reputation could benefit from realising climate opportunities, provided we support customers in

need. 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.

• We can increase our revenue and decrease our operating costs. A more favourable enabling environment

would mean that our climate-related opportunities are enhanced and easier to realise. Investing and

innovating on energy and resource efficiency can reduce our operating costs, and delivering SROs and

bioresources could enhance our revenues.

Energy source: Reducing carbon and

enhancing energy resilience and revenue

by using and generating renewable

energy

Short and medium-term

Markets: Generating value and reducing

our financing costs through sustainable

financing

Short and medium-term

Resource efficiency: Saving water, energy,

materials, and carbon by enhancing

efficiency, using low-carbon and nature-

based solutions, and reducing emissions

across Pennon’s supply chain

Short and medium-term

Products and services: Enhancing revenue

through providing resilient water

solutions, bioresources, and expertise to

other water companies

Short, medium, and long-

term

Key

Risk ratings

High

Medium

Low

Risk trend

Increasing

Stable

Decreasing

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Strategic Report

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Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Our strategic responses to climate transition

risks and opportunities

Although there are important differences in the impacts

between the different transition scenarios we’ve

considered, 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

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.

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 reduce

water losses), as well as optimising processes, reducing

waste, and deploying smart technologies to improve the

performance of our water and wastewater systems and

networks. Many of these opportunities will reduce costs.

We are investing in programmes to streamline operations,

enhance resource efficiency and reduce energy use and

carbon across our operations. This will accelerate our

progress toward 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, physical 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.

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.

Skills and resources across key areas of the green

economy will continue to be in high demand. To ensure

our access, 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 with regulators 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 regulatory 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

different climate 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 carbon 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.

Impacts on financial planning

Impacts from not mitigating risks and not delivering

opportunities: Our revenue is unlikely to be impacted

significantly due to the regulatory Price Review system,

but our non-water revenue (eg sale of bioresources) is

less able to grow. We may also miss out on regulatory

rewards (ODIs) if we fell behind in our carbon and

biodiversity targets. Our Capex and Opex to achieve

Net Zero would increase relative to our current plans.

The value of our assets and our cost of capital would

remain relatively unchanged compared to today.

Impacts from mitigating risks and delivering

opportunities: Our revenue is unlikely to be impacted

significantly due to the regulatory Price Review system,

but our non-water revenue has greater potential to grow.

We have greater confidence in receiving regulatory

rewards (ODIs) related to meeting our carbon and

biodiversity targets. Our Capex and Opex to achieve

Net Zero may remain largely unchanged compared to

our current plans, and while Capex investment will be

required to reduce risks and deliver opportunities, we

expect to recover costs as opportunities reduce our

Opex and our exposure to risks. 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 as financiers recognise us as low-risk

and sustainable.

Statement of resilience

There are clear impacts on our business under different

climate scenarios, in particular:

• Higher costs in the short and medium term to meet our

Net Zero targets under the ‘Current Policies’ 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. We have confidence that our Group has a range

of strategic options to manage the impacts and take

advantage of opportunities, in order for us to remain

resilient under the different climate scenarios considered.

We will need 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

and sustainability. Significant action and investment will

be required by our Group, as well as action by our supply

chain partners and wider actors (eg government, local

authorities, major landowners/users, and other providers

of infrastructure and services).

Early investment in decarbonising our business remains

more cost-effective in the long-term, and reduces the risk

to our Group and our customers from potential future

measures such as carbon pricing, as well as safeguarding

our reputation on environment and climate change.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Growing Nature to 2035

Our strategy for nature recovery

Read more here:

www.southwestwater.co.uk/siteassets/

documents/environment/biodiversity-

strategy-report_2023.pdf

southwestwater.co.uk

Drainage and

Wastewater

Management Plan

Our Regional Plan

Read more here:

www.southwestwater.co.uk/siteassets/

documents/about-us/dwmp/our-plan/

dwmp-our-plan.pdf

Nature-related strategy

Our nature-related impacts and dependencies

Our most material nature-related impacts and

dependencies for our direct operations are in the

freshwater, land, and atmosphere realms. 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 gases to the atmosphere in our treatment processes.

We are currently developing a roadmap to strengthen

our alignment with the TNFD recommendations.

As part of this work, we are conducting the Locate(L)

and Evaluate (E) stages of a LEAP assessment for South

West Water’s direct operations for water infrastructure,

focusing on identifying our interfaces with nature

and improving our understanding of our material

dependencies and impacts. This is due to be completed

in 2026. The LEAP process is advocated by TNFD and

will support the development of nature-related targets

and actions while also helping to understand how

nature-related risks and opportunities could influence

our business model and long-term resilience.

We are building an understanding of ‘priority locations’

(as defined by TNFD) within our operations and value

chains. Key examples include:

• 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

some bathing water catchments from this year onwards,

primarily in relation to bathing water quality issues.

• 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.

Drainage and Wastewater Management Plan Our ‘Green First’ Framework

Drainage and Wastewater Management Plan

Our ‘Green First’

Framework

May 2023

Read more here:

www.southwestwater.co.uk/siteassets/

documents/about-us/dwmp/our-plan/our-

green-first-framework_final.pdf

Technical Report

Draft Water Resources

Management Plan

October 2023

Read more here:

www.southwestwater.co.uk/siteassets/

documents/about-us/wrmp/revised-wrmp/

sww-dwrmp-main-technical-report-v2.pdf

Our nature-related strategies

Our business planning and financial planning are

underpinned by a series of nature-related 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 our own

staff (e.g. Nature Safe) and external partners, to improve

the biodiversity condition. The outputs of these plans

will enable us to prepare to respond to and report on

material nature-related issues.

• ‘Green First’ Framework: Published in 2023, the

framework sets out our approach to using 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.

• WRMP and DWMP: These 25-year strategic plans

identify key nature-related dependencies and impacts

across Water Resource Zones, particularly those linked

to leakage, water use, and water supply, and set out

actions being implemented to address them.

• Habitat Management Plans: These have been

developed for several South West Water sites, including

species records and biodiversity enhancement

recommendations which are available to operators.

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Climate and nature-related 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 62 to 64, including the methodology for

assessing risks.

We are 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 and materiality ratings 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 four 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 shown on pages 66 to 69.

Risks have been assessed by senior managers across

Pennon Group using Pennon’s risk assessment

methodology (see risk management framework is

explained in detail on pages 62 to 64).

Risk ratings are based on assessing likelihood and

consequence on a 4 x 4 risk matrix. Materiality is

determined based on the impact of risks across a range

of criteria: financial, safety, environmental, stakeholders &

customers, reputation, management effort, quality.

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 (eg Nature Based Solutions).

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.

Key actions to manage nature impacts and risks

We are carrying out many actions to enhance nature

recovery, manage our dependencies on nature sustainably,

and limit our negative impacts. Key examples include:

• 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.

• NatureSafe launched in 2024, is a cultural change

initiative supporting our employees and contractors

across operational sites to understand and protect

nature – in alignment with our Biodiversity Strategy.

• 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 published our Biodiversity Enhancement Case,

a portfolio programme of investigations and actions to

deliver environmental gains and biodiversity benefit

across the South West. It aligns statutory WINEP

requirements with our Biodiversity Strategy, Local

Nature Recovery Strategies, and our commitments

toward the Ofwat Biodiversity Performance Commitment

to inform ongoing investment and planning.

• Our Biosecurity and Invasive Non-Native Species

(INNS) Plan sets out how employees and contractors

understand impacts linked to INNS, identify priority

species, and implement controls on-site, embedding

INNS risk management into operational decision-making.

• Our Natural Resources team provides internal advice on

nature-related issues, helping teams resolve challenges

and ensure alignment with our Biodiversity Strategy.

• 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: installing waterside fencing, building

ponds, improving farm tracks, increasing slurry storage

and planting trees and buffer strips to catch and filter

water.

Going forward

Over the coming years, we will continue to develop

our approach to embedding nature-related risks,

dependencies and opportunities across the Group. As a

first step, we will integrate the findings from the South

West Water LEAP assessment into our ongoing nature

strategy development. Building on this pilot, we will

progressively expand the scope of our LEAP assessments

covering more of our operational footprint, additional

value chain stages, and a wider set of ecosystems

and interfaces with nature. This phased expansion will

support more comprehensive, decision-useful disclosures

and ensure our reporting keeps pace with the ambition of

the TNFD framework.

Bough Beech Nature Reserve

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

2025/26 2024/25

GHG metrics

Scope 1, 2 and 3 GHG emissions (in tCO

e). 373,982 403,110

Reduce Scope 1 and 2 GHG emissions by 63% by 2032/33 from a 2021/22 base

year (science-based target).

41% 36%

Reduce absolute Scope 3 GHG emissions from fuels and energy-related

activities, wastes generated in operations, business travel, employee commuting,

upstream leased assets and use of sold products by 30% by 2032/33 from a

2021/22 baseline (Science Based Target).

-2% 4%

Climate-related physical risks metrics

Number of major sites/assets at high-risk of coastal flooding and erosion. 36 36

Pollution incidents (Number of wastewater incidents, calendar year). 124 189

Annual average number of spills from each storm overflow (number per

calendar year).

34.0 41.3

Climate-related transition risks metrics

Risk of increased energy costs: Proportion of our operational expenditure

on electricity (%).

12.7% 14.6%

Managing transition risk in our supply chain: 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).

33% 35%

Risk of customer affordability in achieving Net Zero and adapting to climate

change: our customer affordability measure.

99% SWB

100% BW

99.7% SESW

100% SWB

100% BW

91.6% SESW

Climate-related opportunities

Renewable Electricity Generation (GWh/year) 27 26

The Group commits to increase annual sourcing of renewable electricity to 100%

by 2030 (Science Based Target).

92% 85%

Value (£) of finance raised through our sustainable financing framework £490m £800m

Capital deployment

Investment deployed on Net Zero and environmental gains £13.3m £13.5m

Remuneration

Proportion of our management incentive schemes linked to ESG outcomes,

including climate change.

28.6% 27.4%

Internal carbon value

Value of carbon used in business cases and whole life carbon assessments

(£/tCO

Ofwat

Performance

Commitment

Price £188/

tCO

£294/tCO

(Sensitivity

testing:

Low: £147/High:

£442)

1. Emissions restated for 2024/25, see page 93 for details on the Group’s GHG emissions and restatements.

Climate and nature-related 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 use a range of metrics 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 81 to 82). We report on all

Scope 3 categories which are relevant and material

to our business (ESG Databook). Our TNFD-aligned

metrics and SASB disclosures are reported 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 this TCFD report.

Access our ESG Databook

https://www.pennon-group.co.uk/investor-

information/financial-reports-and-presentations

Across GHG metrics, performance continues to improve

year-on-year, with reductions in scopes 1 and 2 and work

ongoing to progress scope 3 reduction, which remains a

key challenge for our Net Zero transition. Climate-related

physical risk metrics are also trending positively, with

improvements in storm overflow and pollution indicators

reflecting the impact of targeted interventions, while

further work is needed to meet long-term resilience goals.

Climate-related transition risks are moving in the right

direction, including improved affordability in SES Water.

Climate-related opportunities are being realised, with

Pennon Power now operational and contributing to

renewable generation, and a step-change in performance

expected next year.

For capital deployment, remuneration and internal carbon

value, progress is being made in embedding climate

considerations into business decision-making, including

directing investment towards Net Zero and environmental

outcomes, linking incentives to ESG performance, and

applying an internal carbon price aligned with Ofwat

performance commitments.

Reduction in GHG emissions

Scope 1 and 2 GHGs from 2021/22 baseline (Science

Based Target)

2032/33 target

63%

41%

Reduction in GHG emissions for Scope 1 and 2 (from a

2021/22 baseline, science-based target) has strengthened

year-on-year, with a 41% reduction now achieved, up

from 36% in the previous year. This improvement reflects

reduced market-based Scope 2 emissions, driven by

increased renewable electricity procurement, despite

a modest increase in Scope1 emissions linked to

operational responses to dry weather conditions.

Performance is reported on a rebaselined methodology

aligned to the latest climate science, which increases the

relative contribution of Scope 1 process emissions.

Read more in Our Net Zero Transition on

pages 78 to 82

Task Force on Climate-related Financial Disclosures (TCFD) and Taskforce

on Nature-related Financial Disclosures (TNFD) continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Non-financial and sustainability information statement

Time horizon Read more Related policies

Climate and

environment

Our ambition is to achieve Net Zero across the Group,

supported by the development of our Group’s Climate

Transition Plan that sets out a clear, credible pathway to

decarbonisation. We are strengthening how we identify

and manage climate-related risks and opportunities and

are embedding a more structured approach to reducing

emissions across our operations.

This includes continued focus on innovation and the

actions needed to decarbonise our activities, working

collaboratively with partners and our supply chain.

Approach to ESG – pages 72 to 73

Our Task Force on Climate-related Financial

Disclosures – pages 83 to 93

Our Net Zero transition – pages 78 to 82

• 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 14 to 17

Stakeholder engagement – People pages

22 to 23

• 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 are committed to keeping bills as low

as possible.

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. Through our

Better Futures Fund, we are supporting local projects

that enhance wellbeing, protect the environment,

and strengthen communities across the South West,

Bournemouth, Bristol, and SES Water regions.

Stakeholder engagement – Customers

page 19 to 20 and Communities page 21

Supporting affordability, delivering

for customers – pages 47 to 51

s172(1) – pages 114 to 116

• 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 obligate all of our partners and suppliers to comply

with our policies, which include our Code of Conduct and

Anti-Modern Slavery and Human Rights Policy through

our supplier terms and conditions. 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 Policy

• Code of Conduct

• Code of Conduct for Supply Chain

Partners

Anti-

corruption

We have a zero tolerance policy towards financial crime

and we’re committed to implementing and enforcing

effective systems to counter them. We require everyone

who works for us, to act honestly and with integrity at

all times. We will not tolerate anyone employed by us, or

associated with us, regardless of location or position to be

involved in any level of financial crime.

Anyone who 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 124

Anti-financial crime and corruption –

page 124

• Whistleblowing Policy

• Anti-Financial Crime Policy

• Code of Conduct

• Gifts and Hospitality Policy

The following information and the sections referenced, represent our non-financial and sustainability information

statement which is required by sections 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 8, can be found online at https://www.pennon-group.co.uk/about-us/policies.

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

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

• 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 AMP8

• Renewable Electricity Generation

(GWh/year)

• % reduction in Scope 1 and 2 GHG

emissions from a 2021/22 baseline

(science-based target)

• Tree planting

• Catchment management (hectares)

• Regular all-colleague

Culture Amp surveys

• Health and Safety Steering

Group overseeing targets,

performance monitoring

and interventions

• Employee representative

groups, including Employee

Network Groups and trade

unions relations

• Change the Race Ratio

• Reduced workplace accidents and

improved employee wellbeing

• 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

• % 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

• % priority services register (PSR) –

customer satisfaction

• C-MeX

• D-MeX

• BR-Mex

• 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

• Gifts and Hospitality

and Conflicts of Interest

procedures

• Bribery and Fraud Risk

Assessment Workshops

• Group-wide anti-financial

crime mandatory training

contained in new interactive

Code of Conduct module

• Supplier due diligence

process

• Speak Up portal

• 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

Approval of the Strategic

Report

Our Strategic Report on pages 1 to 95

has been approved by the Board of

Directors and signed on behalf of the

Board by:

Andrew Garard

Pennon General Counsel and

Company Secretary

10 June 2026

Non-financial and sustainability information statement continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Financial Statements Other Information

Board skills matrix and meeting attendance

during the year

Board of Directors tenure

Governance at a glance

Board composition

as at 31 March 2026

Gender representation

Board meetings

There were six scheduled Board meetings during the year with a

number of ad hoc meetings taking place when necessary.

2025

May

Board and Committee meetings

July

AGM, Board and Committee meetings

September

Board and Committee meetings

November

Board and Committee meetings

2026

January

Board and Committee meeting

March

Board and Committee meetings

Ethnic representation

Board independence

50% Male

5 directors

0-3 years

12.5%

Ethnic minority

Independent

50% Female

2 directors

3-5 years

1 director

5+ years

87.5%

White

Non-independent

Board skill

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

Board meeting attendance

1. Appointed 1 April 2026

2. Resigned 31 December 2025

3. Appointed 1 November 2025

4. Appointed 8 April 2025

5. Resigned 31 March 2026

6/6

David SproulChair

0/0

Keith Haslett

Executive

Director

6/6

Laura Flowerdew

4/4

Susan Davy

3/3

Sir Andrew Haines

Non-Executive

Director

6/6

Andrea Blance

6/6

Dorothy Burwell

6/6

Jon Butterworth

6/6

Loraine Woodhouse

6/6

Iain Evans

As at the date of this report, there are six independent Directors

and two non-independent Directors.

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Governance

Key focus areas for the

Board in 2025/26

Board changes

• Susan Davy retired from the Board and as Group

Chief Executive Officer on 31 December 2025.

• David Sproul, Chair of Pennon Group, assumed

the role of Executive Chair on 1 January 2026

supported by an Operating Committee. The

Operating Committee, comprising Laura

Flowerdew, Sarah Heald and Andrew Garard,

commenced on 1 January 2026 and ended 1 April

2026 following the appointment of Keith Haslett

as Group Chief Executive Officer.

• Keith Haslett joined the Board and was appointed

as Group Chief Executive Officer on 1 April 2026.

• Iain Evans stepped down from the Board on

31March 2026.

• Sir Andrew Haines was appointed to the Board as

Non-Executive Director on 1 November 2025 and

became Senior Independent Director on 1April

2026.

• Andrea Blance was appointed to the Board as

Chair of the Remuneration Committee on 8 April

2025.

Read more on Andrea, Andrew and Keith’s

experience in their biographies on pages

100 to 101

See pages 109 to 110 for more information

Customer affordability

Delivery of AMP8

Storm overflows and eliminating

pollutions

Delivery of capital projects

Investment programmes

Water quality and resilience

Incident management

Compliance with the UK Corporate Governance Code 2024 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 UK Corporate

Governance Code 2024 which is published on the Financial Reporting Council (FRC) website. For the year ended 31

March 2026, we were compliant with all provisions of the Code ,with the exception of Provision 24, which is explained

further on page 120.

1. Board leadership and Company purpose Page

A: Board of Directors 100 to 101

B: Purpose, values and culture 104

C: Governance structure and framework 105

D: Stakeholder engagement 111 to 112

E: Workforce policies and practices 108

2. Division of responsibilities

F: Role of the Chair 106

G: Division of responsibilities 106

H: Role of the Non-Executive Directors 106

I: Board policies, processes, information, time and resources 107 to 108

3. Composition, succession and evaluation

J: Appointments to the Board 113

K: Board skills, experience and knowledge 96

L: Board evaluation 119

4. Audit, risk and internal control

M: Independence and effectiveness of internal and external auditors 123

N: Fair, balanced and understandable assessment 123

O: Risk and internal control 124 to 125

5. Remuneration

P: Alignment to purpose, values and long-term success 133 to 136

Q: Remuneration policy 150 to 155

R: Independent judgement and discretion 130 to 132

A rating

A rating for climate, earning a

place on CDP’s prestigious A-List

and putting Pennon in the top 4%

of companies worldwide. Pennon

received an A score for water,

recognising the Board’s strong

leadership in protecting water quality

and the natural environment.

top ten best performer in FTSE 250

Women Leaders Review, and 11

the utility sector.

Cyber security

Governance at a glance continued

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Chair’s introduction

Dear Shareholder

I am very pleased to introduce, on behalf of the Board, the

Pennon Group Corporate Governance Report for 2026,

which sets out our governance practices and processes,

and how we applied the principles of the UK Corporate

Governance Code 2024 (the Code) throughout the year.

The Board is committed to being compliant with the new

relevant provisions in the timeframes dictated within

the Code. This report covers our key focus areas and

achievements during 2025/26 and explains how the

Board continues to operate effectively and efficiently and

support the Group’s strategy.

Review of the year

We continue to operate to the highest standards of

corporate governance, which 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 97 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 and Sutton and East Surrey Water plc.

More information on the Board’s activities can

be found on pages 109 to 110

The Board’s primary focus in the year was ensuring

strong governance arrangements were in place,

underpinned by the right team and expertise to

deliver effectively for our stakeholders.

“

We pay particular

attention to our

Group culture,

ensuring it fully aligns

with our shared

purpose, values and

strategy.

Changes to the Board

We are pleased to welcome two new Non-Executive

Directors, Andrea Blance and Sir Andrew Haines to the

Board during the year.

Since Andrea’s appointment in April 2025, she has

brought her extensive risk and commercial strategy

expertise both to the Board and the Remuneration

Committee, which she chairs.

Sir Andrew Haines joined the Board in November

2025 and brings with him a wealth of experience from

infrastructure and capital projects. He was appointed as

Senior Independent Director on 1 April 2026.

Iain Evans stepped down effective 31 March 2026. I would

like to thank him for his immense contribution to the Board

over the last eight years and wish him well for the future.

In July 2025, we announced the retirement of Susan Davy

as Group Chief Executive Officer. During her 11 years as a

member of the Board, Susan successfully led the affairs

of the Group through a period of substantial development

and growth. I would like to thank Susan for her service to

the Group and our stakeholders. Effective 1 April 2026,

we welcomed Keith Haslett as the Group Chief Executive

Officer, whom I look forward to working with.

The details of the process of his recruitment

can be found on page 113

Biographies of Andrea Blance and Sir Andrew

Haines can be found on pages 100 to 101

David Sproul

Pennon Chair

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“

Our system of governance

remains effective, and

continues to support the

delivery of our strategy.

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 the Board and Committee performance

reviews support this view: see page 119 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 62 to 69 for a description of the risks we

identify and review.

Board independence – Pennon,

South West Water and SES 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 Water.

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 Water 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

10 June 2026

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.

As part of our engagement with regulators, we were

delighted to welcome the Secretary of State for Water

and Flooding at the Department for Environment,

Food and Rural Affairs (Defra), Minister Emma Hardy

to our Board meeting in May 2025. During this visit,

we highlighted our focus and commitment to creating

sustainable and resilient water resources, battling storm

overflows and pollutions, delivering our outcomes and

building trust.

The Board also welcomed Iain Coucher and David

Black, the respective Chair and CEO of Ofwat, to its

Board meeting during the year, where we had the

opportunity to give comfort on our alignment with the

PR24 Final Determinations, and how our strategic plans

and investment projects are being delivered in line with

regulatory expectations and customer needs.

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 employee surveys and

Be the Future Forums.

You can read more on how we engage with

our stakeholders on pages 111 to 112 and in our

Section 172(1) statement on pages 114 to 116

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

was delighted to see the development of the Group’s

values, which reflect the views of our wider stakeholders

and culture.

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. During the year, we were

incredibly proud to have moved from third position to first

position for best performer 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 15 and is in the Nomination

Report on page 118

Chair’s introduction continued

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Our Board

Committee key for Board:

Audit Committee

ESG Committee

Health & Safety Committee

Nomination Committee

Remuneration Committee

Committee Chair

David Sproul

Group Chair

Date of appointment to the Board

1 July 2024 and became Pennon Chair on

24 July 2024.

Current external appointments

Chair of Starling Group plc and Starling

Bank Limited, Non-Executive Director of

Safanad Limited and Director of Pension

Protection Fund. David is also a senior

adviser to Bridgepoint Europe, and he sits

on the Board of Governors as Chair of the

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.

Laura Flowerdew

Group Chief Financial Officer

E H

Date of appointment to the Board

10 July 2024.

Current external appointments

None

Skills and experience

Laura was appointed as Group 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.

Keith Haslett

Group Chief Executive Officer

E H

Date of appointment to the Board

1 April 2026.

Current external appointments

None

Skills and experience

Keith brings more than 25 years of

experience in the UK water sector, with a

strong track record of leading complex and

regulated utilities. Prior to joining Pennon,

he served as CEO of Affinity Water, where

he delivered improvements in business

performance and customer outcomes. Earlier

in his career, Keith held senior leadership

roles at Northumbrian Water Group and

United Utilities, overseeing large-scale water

and wastewater operations and multi-billion-

pound capital investment programmes. His

experience spans engineering, operational

delivery, environmental performance, and the

transformation of asset management and

organisational structures.

Keith is a Chartered Civil Engineer and holds

an MBA from Queen’s University Belfast.

Sir Andrew Haines OBE

Senior Independent Director

A H N R

Date of appointment to the Board

1 November 2025.

Effective 1 April 2026, Sir Andrew took

over as Senior Independent Director and

became a member of the Health and Safety

Committee, Audit Committee and the

Remuneration Committee.

Current external appointments

Chair of DfT Operator Limited, Chair and Pro

Chancellor, Cranfield University.

Skills and experience

Andrew retired from his role as Chief

Executive and Board Member of Network

Rail in October 2025 after 7 years. During this

time, he successfully led a regulated utility

business of £9 billion annual turnover with a

capital programme of circa £4-5 billion per

annum and achieved an outperformance

of the regulatory efficiency targets in the

control period as well as best ever safety

performance. Prior to this, Andrew was Chief

Executive of the Civil Aviation Authority,

the UK’s aviation regulator, which he joined

following nine years as a Managing Director

in private sector train companies. He was

awarded the OBE in 2016 and knighted for

services to transport and the economy in

2025.

Board changes 2025/26:

Susan Davy stepped down from the

Board on 31 December 2025. Until her

resignation, she was a member of ESG

Committee and Health and Safety

Committee.

Iain Evans CBE stepped down from

the Board on 31 March 2026. Until

his resignation, Iain was the Senior

Independent Director, a member of the

Health and Safety Committee, the Audit

Committee and the Remuneration

Committee.

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100

Jon Butterworth MBE

Independent Non-Executive Director

E H N

Date of Appointment to the Board

8 July 2020.

Current external appointments

Chief Executive Officer at National Gas. Major

in the British Army Reserves. UK Emergency

Energy Co-ordinator for HMG. Chair of the

National Gas Museum Trust.

Skills and experience

Jon has a distinguished track record and an

immense depth of experience and knowledge

within infrastructure and utilities. Jon begun

his career as an apprentice at British Gas

over 47 years ago working in Europe, the

USA and the UK on major infrastructure.

Currently as the CEO of National Gas PLC,

Jon is responsible for the primary energy

supply into the UK and the operation of the

system.

Loraine Woodhouse

Independent Non-Executive Director

A E H N

Date of Appointment to the Board

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 of 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.

Andrea Blance

Independent Non-Executive Director

A N R

Date of appointment to the Board

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.

Dorothy Burwell

Independent Non-Executive Director

E N R

Date of appointment to the Board

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.

Andrew Garard

Group General Counsel and

Company Secretary

Date of Appointment to the Board

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.

Our Board continued

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101

Pennon Executive Board

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.

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 in 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.

Laura Flowerdew

Group Chief Financial Officer

See biography on page 100

Keith Haslett

Group Chief Executive Officer

See biography on page 100

Andrew Garard

Group General Counsel and

Company Secretary

See biography on page 101

Paul Ringham

Managing Director of Pennon Power

Paul joined the Group as Managing Director

of Pennon Power, the Group’s 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, 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.

Ian Cain

Chief Executive Officer of Retail and

Customer Markets

Following the acquisition of SES Water on 10

January 2024, Ian transitioned to the Pennon

Group and, in July 2025, assumed the role of

Chief Executive Officer (CEO) of Retail and

Customer Markets. He now oversees the

Group’s strategic interests in the Business

Retail water market, alongside responsibility

for all customer service operations across

Pennon’s brands. He leads Pennon’s

customer strategy and governance, ensuring

clarity, accountability and a strong alignment

to regulatory expectations, customer insight

and industry good practice.

Ian became CEO of SES Water in February

2020, bringing extensive experience from

senior leadership roles in the UK utilities and

service sectors. Before joining SES Water, Ian

was CEO of iSupplyEnergy. Prior to that, Ian

held other senior roles in leading water and

energy utilities including Managing Director

for Retail and Group Customer Service

at Thames Water and Managing Director

of British Gas Energy, where he led major

transformation in customer propositions,

service solutions and customer experience,

digitisation and operational effectiveness.

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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.

Graham will retire from the Group on 30

June 2026 and we thank Graham for his

commitment and significant contribution to

South West Water over his career.

Sarah Heald

Chief Strategy & Regulatory

Affairs Officer

Sarah was appointed Chief Strategy,

Regulatory Affairs, and Investor Relations

Officer of Pennon Group in July 2025.

Sarah is an experienced executive with over

17 years’ experience spanning corporate

strategy, stakeholder engagement,

sustainability and investor relations across

regulated industries including the water

sector, infrastructure, and financial services.

She leads Pennon’s strategy, regulatory

and external affairs, and investor relations

functions, shaping the Group’s direction and

positioning amid the most significant re-

examination of the water sector.

Previously, Sarah served on the Executive

Committee at Aberdeen plc, where

she led sustainability, corporate affairs,

marketing, and investor relations. She

chaired Aberdeen’s executive sustainability

committee, the Charitable Foundation,

and was a Non-Executive Director of the

Aberdeen Financial Fairness Trust.

Prior to that, Sarah was Corporate Affairs

and Investor Relations Director at Pennon

Group 2015 – 2020 and was on the Executive

Leadership Team that sold Viridor to KKR in

July 2020. Earlier in her career, Sarah worked

at FGS Global and she started her career

in investment banking at Bank of America

Merrill Lynch.

Carolyn Cadman

Chief Sustainability and Natural

Resources Officer

Carolyn has recently been appointed Chief

Sustainability and Natural Resources Officer,

having joined South West Water as Director

of Natural Resources in May 2022.

Carolyn’s team are delivering projects

to lower carbon emissions, increase

nature recovery efforts and improve the

sustainability of operations across the

Group, including mainstreaming nature-

based solutions. Carolyn’s team lead the

Upstream Thinking catchment management

programme, the South West Peatland

Partnership and are part of the South West

Invasives Forum.

Prior to joining South West Water, Carolyn

was Chief Executive of Cornwall Wildlife

Trust, and has served in national roles

for Natural England and the Marine

Management Organisation, and in the South

West region for Cornwall Council.

Carolyn is a Director of South West Water’s

partnership with Exeter University, the Centre

for Resilience, Environment, Waste and

Water, which undertakes innovative research

in catchment management, microplastics,

peatland restoration, AI, engineering and

water management. Carolyn sits on the

Board of the Devon Local Nature Partnership

and she chairs the Cornwall Catchment

Partnership.

Executive Board changes

2025/26:

Adele Barker was Chief People Officer

and was a member of the Pennon

Executive Board during 2025/26.

Sharon Gathercole was appointed Chief

People Officer of Pennon Group plc in

October 2025 and stepped down in

May 2026.

Ian Christie

Group Chief Asset Officer

Ian joined Pennon Group as Chief Asset

Officer in May 2026.

Ian brings extensive experience across

asset management, operational delivery

and system planning. His expertise will be

instrumental in strengthening the Group’s

focus on asset health and reliability, and in

supporting the successful delivery of current

and future business plans.

Prior to joining Pennon, Ian Christie was the

Managing Director at Welsh Water, leading

various directorates on their Executive

Committee. Ian also served as the Head of

Potable Water Service at United Utilities

and with a background in civil engineering,

Ian also has a wealth of experience in

delivering construction and asset investment

programmes for a number of utility providers.

Pennon Executive Board continued

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103

Purpose, values and culture

As a dedicated business, working round the clock to

deliver our essential water services for our customers, we

are influenced by our values and culture to be effective

stewards of the environment and our communities. We

know that it’s not only what we do, but how we do it

that is 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 ensuring its alignment with its purpose, values and strategy. During the year, the Board

considered a number of areas that helped it to assess the embedding of the Group’s culture.

Area assessed How the Board monitors the culture

Employee engagement Appointment of a designated Non-Executive Director for workforce engagement – The Board approved the appointment of the designated

Non-Executive Director, giving the employees a meaningful voice and representation in Board discussions.

Site visits – the Board attended a number of site visits and other office locations to meet operational colleagues in their day-to-day environment

to hear from them.

Big Chat and Be the Future Forum – 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 for 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 Respect and Inclusion Policy – 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 Remuneration Committee 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 remains a standing agenda item at every Board meeting in 2025/26. The 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. The Board also conducted an assessment

and approval of the HomeSafe strategic plan to 2030.

Lost time injuries – Updates on efforts to reduce injuries of our staff across all Group companies are assessed at every Executive meeting and

further presented for assessment at the Health and Safety Committee.

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.

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:

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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

120 to 125

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.

Board leadership

Governance structure and framework

Pennon Group plc – Board of Directors

The Board’s role is to foster the long-term success and sustainability of the Group, while establishing value for all its

stakeholders, including its shareholders, customers, employees and the communities it serves, by providing robust

leadership and effective direction to the business as a whole.

It sets the Group’s strategy and sustainability strategy, considering stakeholders, while maintaining a balanced approach

to risk within a framework of effective controls for the mutual benefit of customers, shareholders and employees.

It has also established the Group’s purpose and values and monitors culture to ensure alignment. It sets the tone and

approach to corporate governance and is responsible for the overall financial performance of the Group.

Group Chief Executive Officer and Pennon Executive Board (PEx)

Responsible for framing and navigating the business objectives to achieve delivery of the Group’s strategy. To the

extent of the authority delegated by the Board, ensuring 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 Group Chief Executive Officer, the Pennon Executive Board meets regularly to receive reports from

the management committees and to ratify recommendations to be presented to the Board.

* An Operating Committee headed by the Chair acted in the absence of the Chief Executive Officer between 1 January 2026 to 31 March 2026 to

ensure continuity and stability in delivery of the business strategy.

Nomination Committee

Regularly reviews the structure, size

and composition (including the skills,

knowledge, independence, diversity

and experience required) of the Board,

comparing it to its current position and the

skills and expertise needed in the future.

Nomination Committee Report

pages 117 to 119

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.

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

126 to 128

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 page 129

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 130 to 132

Board Committees

The Chair of each Committee formally reports to the Board and meets three or more times a year as necessary.

Committee members have the essential skills and experience to execute the specific area of focus delegated by the

Board.

Demonstrating accountability for Committee recommendations by reporting to the Board and ensuring the Board has

oversight of Committee matters. The terms of reference for each Committee are agreed by the Board and can be found at

www.pennon-group.co.uk/about-us/board-committees.

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The Chair and the Group Chief Executive

Officer have a clear separation of

responsibilities, 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 on this page.

Division of responsibilities

Group Chair:

David Sproul

• Lead the Board and promote a healthy culture of openness and debate to

facilitate constructive Board relations and effective contribution from all Non-

Executive Directors.

• Ensure the Board holds itself to the highest standards of good and effective

governance through integrity and credibility.

• Maintain a ‘fit for purpose’ Board through ongoing skills assessment and training

as required and proactively aligning Board composition, performance, and

succession planning with future strategic needs.

• 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.

• Exhibit the high standards and values of the Group and make certain that the

views of all stakeholders are understood and considered.

• Provide advice, support and guidance to the Group Chief Executive Officer

thereby facilitating an open relationship.

Group Chief Executive Officer:

Keith Haslett

• Manage the Group and provide executive leadership.

• Develop, propose and implement the Group strategy as agreed by the Board and

in line with the strategic framework.

• Lead on all regulatory and policy decisions.

• Lead the Group in accordance with the decisions of the Board.

• Ensure financial and operational leadership.

• Collaborate with the Chair on important and strategic issues of the Group and

provide input to the Board’s agenda.

• Contribute to succession planning and implement the organisational structure.

• Lead on acquisitions, disposals, and business development.

• Develop and manage relations with all stakeholders

Senior Independent Director:

Sir Andrew Haines

• Assist the Chair with shareholder communications and being an additional point

of contact for shareholders.

• Be available to other Non-Executive Directors if they have concerns that are not

satisfactorily resolved by the Chair.

• Ensure an annual performance evaluation of the Chair, with the support of the other

Non-Executive Directors, and ensure effective succession planning for the Board.

Group Chief Financial Officer:

Laura Flowerdew

• Manage the Group’s financial affairs and support the Group Chief Executive in

providing executive leadership and implementing the Group strategy.

• Report accurate and detailed financial information to the Board on performance

and developments across the business.

• Manage and balance 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.

Non-Executive Directors:

Jon Butterworth, Loraine Woodhouse, Dorothy Burwell,

Andrea Blance

• Critically review the strategies, operational performance and financial reporting

proposed for the Group.

• Evaluate proposals from management and constructively challenge its

recommendations.

• Contribute to corporate accountability and good governance through being

active members of the Committees of the Board.

• Play a key role in succession planning of the Board and the annual Board and

Committee evaluations.

Group General Counsel and Company Secretary:

Andrew Garard

• Support the Chair, Chief Executive Officer and the Board in ensuring all policies,

processes, information, and resources are in order to ensure the Board can

operate effectively and efficiently.

• Advise and keep the Board updated on any changes to Listing and Transparency

Rules and best corporate governance practices.

• Facilitate a comprehensive induction for newly appointed Directors that is

tailored to the Group’s industry and strategy.

• Co-ordinate the annual Board and Committee evaluations in conjunction with

the Chair and Group Chief Executive Officer.

• Provide advice and services to all Directors, as needed.

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How the Board operates

In fulfilling its responsibilities, the Pennon Board has

established a clear strategy for sustainable growth and

ensures that its carefully defined aims and objectives

align with the Group’s purpose and values. The Board

maintains the highest standards of governance alongside

taking decisions to ensure the long-term sustainability of

the Group.

Benefiting from a diverse skill set, independence of

thinking and experience of the Directors as demonstrated

by their biographies on pages 100 to 101, decisions

reached by the Board are fair, focused and balanced

and they demonstrate that constructive debate has

occurred. The best 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 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. As detailed

on page 106, there is a clear division of responsibilities

between the roles of the Chair and Group 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,

with additional meetings held during the year to consider

pertinent issues, including matters requiring timely

consideration. Directors’ attendance at scheduled Board

meetings held during the year is set out on page 96.

The Board also approved a number of matters during the

year by written resolution.

Board and Committee meeting agendas are prepared in

advance by the Company Secretary in conjunction with

the Chair and the Group Chief Executive Officer. Agenda

items are aligned with the annual Board and Committee

cycle programme, with other items and updates added for

consideration in response to matters of importance to the

business at the time. For each scheduled Board meeting

there are a number of standing items such as the monthly

performance reports from the Group Chief Executive

Officer and Group Chief Financial Officer, operational

reports, detailed reviews, 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 109 to 110

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

to allow for adequate time to review, ensuring impactful

contributions are made at the meetings. Meeting packs

are provided via an online Board portal system offering a

fast, secure and reliable method of distribution.

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 Group

Chief Executive Officer and regular updates with the

Group General Counsel and Company Secretary and

Group Chief Financial Officer.

Meetings of the Non-Executive Directors, in the absence

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 and Sutton and East

Surrey Water plc provided by the boards of South West

Water and Sutton and East Surrey Water plc. The Board

undertakes a review of the Matters Reserved to the Board

on a periodic basis.

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 available to view on our website and also are

summarised on the Committee Report pages below.

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 117 to 132.

An effective Board

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.

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Workforce engagement

During the year, the Board decided to adopt one of

three employee engagement methods referred to in

the UK Code. The Board appointed Dorothy Burwell,

a Designated Non-Executive Director for Workforce

Engagement, to engage with colleagues. The Designated

Non-Executive Director for Workforce Engagement

would report to the Board on the progress of workforce

engagement, initiatives, and activities. The Board is

confident that this would further enhance colleagues’

voice in the Boardroom coupled with gaining first-hand

knowledge of how the culture is being embedded across

various business areas of the Group.

To further enhance the Board’s approach to workforce

engagement, the periodic employee engagement surveys

(including related management feedback sessions)

and continuous employee feedback through our own

in-house forums, such as ‘Be the Future Forums’ and the

‘Big Chat’, hosted on a fortnightly basis by the Executive

team would continue to function. 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 these chosen approaches are 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 page 111.

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,

are set out on pages 114 to 116; and an explanation as to

how we engaged with our different stakeholders during

the year can be found on pages 111 to 112.

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

are continually delivered for our stakeholders. At

the meetings the Board receives 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. In addition, the Board dedicates a separate

meeting at its scheduled meeting in September to

discuss the Group’s strategy, ensuring that the Company

remains on track in its implementation and delivery or

improvement, where necessary, of the agreed strategy.

Pennon Executive Board

The Pennon Executive Board meets 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 reference are reviewed

in accordance with the demands of the business,

changing regulation and emerging best practice.

The Pennon Executive Board is led by the Group Chief

Executive Officer. The biographies of the Executive

Board can be found on page pages 102 to 103.

During the year, Susan Davy resigned as Group Chief

Executive Officer on 31 December 2025. To support

an orderly succession, the Board approved an interim

arrangement covering the period between Susan

stepping down from the Board and Keith Haslett joining

the Board on 1 April 2026.

From 1 January 2026 to 31 March 2026, David Sproul

assumed the role of Executive Chair, supported by an

Operating Committee comprising the Chief Financial

Officer, Group Chief Strategy, Regulatory Affairs &

Investor Relations Officer and Group General Counsel

and Company Secretary. The Operating Committee

with delegated executive powers continued to run the

business and deliver the Group’s strategy and ensured

continuity.

Workforce policies and practices

conflicts of interests

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

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.

CEO meets redhill staff

An effective Board continued

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Key activities of the Board

In 2025/26, the Board engaged in a wide

range of activities. The Board visited

Bournemouth and Bristol operational

sites, welcomed the Secretary of State for

Water and Flooding at the Department

for Environment, Food and Rural Affairs

(Defra) and the respective CEO and

Chair of Ofwat to its Board meeting

during the year.

Activity Outcome Stakeholders considered See page(s)

Strategic

2025 Sharesave plan

Reviewed and approved a new Sharesave plan which

introduced a matching element to the SIP scheme.

The implementation of the matching element to the SIP

scheme providing one free share for every three shares

purchased will not only ensure affordability but give

colleagues a higher stake in the Company.

134

Delivery of capital programme

Reviewed and approved the delivery of the AMP8 capital

programme in line with the business delivery plans and

framework model for delivery.

Successfully deliver the capital programme for the benefit

of all stakeholders and foster long-term relationships with

our suppliers.

Strategy Day

Attended Strategy Day to drive focus for the next steps

for growth.

Organic and inorganic growth opportunities were

presented and considered.

108

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.

29 to 50

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.

36 to 41

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.

29 to 35

Financial

2024/25 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.

Key to stakeholder groups

Customers

Regulators

People

Suppliers

Bournemouth site visit

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 here.

Investors

Policy makers

Environment

Communities

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Activity Outcome Stakeholders considered See page(s)

Environmental

Net Zero strategy plan, green recovery investment

programmes

Implementation and alignment of plans with our strategic

priorities by engaging in, for example, Upstream Thinking

investments to enhance water quality while also

contributing to Net Zero.

Accelerate delivery of our Net Zero plans to achieve a

more sustainable future for all.

78 to 82

Pollution Incident Reduction Plan 2026

Reviewed and approved our plan to improve the

environment and reduce pollution risk across all aspects

of our operations – and especially with regard to our

wastewater operations.

Ensure that our waterways and water consumption

remain safe for our customers and for communities that

we serve.

Ofwat delivery plan

Reviewed and approved the submission of our Final

Delivery Plan to highlight the planned investments over

the 2025-2050 period.

Foster our commitment to the long-term sustainable

growth of the UK’s environmental infrastructure.

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.

47 to 51

Workforce engagement

Considered and approved the appointment of a workforce

engagement non-executive director.

Create employee voice within the Boardroom to

enhance decision-making that considered the interest

of our people.

108

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.

14 to 16

Risk

Mitigation of key risks

Ongoing focus on key risks, with detailed reviews 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.

107

Key activities of the Board continued

Key to stakeholder groups

Customers

Regulators

People

Suppliers

Investors

Policy makers

Environment

Communities

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Engaging with our regulators and

policy makers

The Board receives regular updates on our regulators and

policy makers from the Group Chief Executive Officer and

Chief Strategy and Regulatory Affairs Officer. The Board,

through the Chair, Group Chief Executive Officer and

Group Chief Financial Officer proactively engages with

our regulators, particularly Ofwat and the Environment

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 November 2025, the Group Chief Executive Officer

attended an industry-wide meeting hosted by the

Secretary of State to discuss strategically significant

issues, including transition, performance, and delivery.

Additionally, the Group Chief Executive Officer and

members of the Executive regularly engage with

Members of Parliament through site visits and meetings

to discuss individual projects. Our dedicated Public

Affairs department focuses on responding to casework

from Parliamentary offices, ensuring queries are dealt

with quickly and effectively, regularly feeding back to the

Group Chief Executive Officer and Executive on topics of

interest to MPs and other stakeholders.

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.

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 engages 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 programmes. 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 WaterShare+

Panel champions the customer voice, ensuring that

consumer views are actively represented in Board level

decision-making.

The Group 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.

Engaging with our people

The Board receives regular updates on our people from

the Group Chief Executive Officer and Group Chief

People Officer at its meetings.

Feedback from employee surveys, the Big Chat and Be

the Future Forums 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

22 to 23.

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.

Pennon Group has a stable shareholder register, of

which around half are UK-based investors. Members of

the management team met with 83% of our institutional

investors (based on issued share capital) during 2025/26,

holding over 90 meetings with current and prospective

investors, through roadshows, events and conferences in

London and overseas.

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 at 10am on 8 July 2026 at Bristol Water

plc, Bridgwater Road, Bristol, England BS13 7AT 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.

How the Board engages with stakeholders

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Engaging with environmental

organisations

During the year, the Board received regular updates on

environmental performance, regulatory engagement

and partnership activity through the Group Chief

Executive Officer, informed by the Chief Sustainability

and Natural Resources Officer. In this role, responsibility

for environmental and biodiversity strategy, Net Zero,

catchment management and environmental stakeholder

relationships sits centrally.

We continue to maintain constructive engagement with

key regulators, including Department for Environment,

Food & Rural Affairs (Defra), the Drinking Water

Inspectorate (DWI) and the Environment Agency,

alongside industry collaboration through Water UK.

Through our attendance at Catchment Partnerships

and our close collaboration with local authorities, local

nature partnerships, landowners, and community groups

across the region, we continue to promote nature-

based solutions and shared environmental stewardship

across the region. Our Upstream Thinking programme

and leadership of the South West Peatland Partnership

remain central to this approach, working with farmers and

our NGO delivery partners to improve raw water quality

and sustainability of supply at source. This catchment

management approach enhances biodiversity and

reduces treatment risk and demand.

Our Green First approach to managing asset risk has

been progressed through the development of natural

catchment management plans that bring all stakeholders

in water management in a catchment together. These

are a critical tool in understanding where we can apply

nature-based solutions to managing excess water flows,

and we are now progressing to the next stage of working

with partners in trial catchment such as the Bidwell brook

to progress nature-based flood risk solutions.

The Chief Sustainability and Natural Resources Officer

has throughout the year convened a Let’s Talk Water

Stakeholder Forum. Since 2022 when the Forum was

established, meetings have normally been held online,

however in September 2025 stakeholders from across

the region headed to Roadford reservoir to discuss a

range of themes, including Cycle 2 of the Drainage and

Wastewater Management Plan and criteria for a nature

recovery fund.

Engaging with our suppliers

The Board receives updates at Board meetings on our

engagement with suppliers that is conducted through

a formal Request for Proposal process 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.

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.

Shareholder and investor engagement calendar

June

• Announcement of 2024/25 Results

• 2024/25 London Roadshow

• 2024/25 Geneva Roadshow

• RBC Utilities & Infrastructure Reverse

Roadshow

• 2024/25 Numis PCIM Roadshow

• 2024/25 Australian Roadshow

September

• Citi’s Utilities Field Trip

• Bank of America’s Utilities & Infrastructure

Field Trip

• Morgan Stanley’s European Utilities & Energy

Summit

November

• Announcement of half year 2024/25 Results

• Half year 2024/25 London Roadshow

January

• Citi’s European Utilities Conference

• Bernstein’s Virtual Utilities Conference

February

• ESG Chair Engagement Roadshow

March

• ESG Chair Engagement Roadshow

• Barclays’ Water Splash Summit

• UBS’ Global Energy & Utilities Conference

• Bank of America’s Energy, Utilities &

Infrastructure Conference

How the Board engages with stakeholders continued

2025 2026

Littlehempston Water treatment works

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Board support and training

In the discharge of its statutory duties, the Board has

been supported by the advice and services of the

Company Secretary and other relevant 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.

As part of the Board effectiveness review process, the

training needs of Directors are discussed and an action

plan for delivery considered. Training may include

attendance at external courses organised by professional

advisers and internal presentations from senior

management.

During the year, updates were provided to the Board

and Committees via the Group General Counsel and

Company Secretary and/or the Group’s external advisers.

These included updates on mandatory reporting and

recent legal or governance changes. Specifically, the Board

received updates on the Water (Special Measures) Act,

the Cunliffe Review, directors duties’ under the Companies

Act 2006 and identity verification for directors under the

Economic Crime and Corporate Transparency Act 2023.

Pennon Board composition,

independence, and experience

The Board comprises the Pennon Chair, five Non-

Executive Directors, two Pennon Executive Directors and

the Group General Counsel and Company Secretary. As

at 31 March 2026, female representation on the Board

was at 50%, 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 page 101 demonstrate collectively

a broad range of business, financial and other relevant

experiences.

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 page 101). The Board is satisfied that the Audit

Committee has financial literacy and competence

relevant to the sector in which the Group operates.

Board appointment and succession

planning

The Nomination Committee frequently reviews the size

and structure of the Board. The Committee regularly

reviews the succession plan for Non-Executive Directors

and the Executive team at Pennon, with consideration

for diversity, skill and experience at the forefront of their

minds. External search consultancy firms, Heidrick &

Struggles and Russell Reynolds Associates supported

the Board during the process of recruitment of Sir

Andrew Haines and Keith Haslett as Board Directors.

Both firms have no connection with the Company or with

any individual Directors. Both firms are signatory to the

Voluntary Code of Conduct for External Search Firms.

The Board is aware of the Ofwat’s new fitness and

propriety rule which ensures that candidates being

considered for directorship or senior management roles

within the sector meet stringent standards of honesty

and integrity, knowledge and experience, and financial

soundness before they can be offered their role. The

Board ensured that the necessary background checks in

line with the rules were conducted during the recruitment

process of the CEO and reports submitted to Ofwat.

Composition, succession and evaluation

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

internal evaluation in 2024/25, with feedback

currently being implemented, the Board was due to

undertake an external evaluation this year. However,

given the significant changes to the Board during

the year, including a new Group Chief Executive

Officer, retirement of the Senior Independent

Director, and addition of two Non-Executive

Directors, the Board took the decision to commence

the evaluation process in May 2026.

Recommendations from the review process will

be disclosed in the 2026/27 Annual Report and

Accounts.

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.

Further information on the other business commitments

of the Pennon Chair and Pennon’s Non-Executive

Directors is on pages 100 to 101.

Introductions

Introduction meetings with

key stakeholders in the

business and an outline

of the Board and its

Committees.

Information

Presentations from Executive

Directors to provide key

information on Finance,

Remuneration, Health and

Safety, Legal, Regulatory,

Risk, Environmental and

other key Group matters.

Engagement

Newly appointed Directors

are invited to visit different

operating facilities across

the Group and to meet with

employees in order to better

understand key processes

and systems.

Board Inductions

Newly appointed Directors receive a formal, tailored induction coordinated by the Group General Counsel and

Company Secretary. The programme goes through the below process:

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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 each of the

s.172 matters set out on pages 114 to 115.

s.172 duties Read more Pages

The long-term consequences

of our decisions

Strategic Report

Our business model

Principal risks

Our ESG performance

Our Net Zero transition

Viability statement

Key activities of the Board

2 to 95

8 to 9

62 to 69

74 to 77

78 to 82

70 to 71

109 to 110

The interests of our employees

Strategic Report

Investing in our people

How we engage

Diversity, equity and inclusion

Whistleblowing policy and Speak Up

Purpose and culture

Our values

2 to 95

14 to 17

22 to 23

15 to 16

108

104

The importance of having excellent

business relationships with suppliers,

customers and anyone else who we

impact

Our operational review

How the Board engages with stakeholders

28 to 51

18 to 27

The impacts our operations have on our

communities and our environment

Our ESG performance

Our Net Zero transition

How we engage

TCFD and TNFD disclosures

ESG Committee report

74 to 77

78 to 82

83 to 93

126 to 128

Ensuring we maintain our reputation

for the highest standards of business

conduct

Non-financial information statement

Purpose and culture

Our values

Modern Slavery

Anti-financial crime framework

Whistleblowing Policy and Speak Up

94 to 95

104

135

158

124

108

The need to act fairly between our

shareholders

Stakeholder engagement

Voting at the AGM

111 to 112

111

Section 172(1) statement

How the Board fulfils its

s.172 duty

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 111 to 112

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.

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.

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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

Appointment of Workforce

Engagement Non-Executive

Director

Our People

The Board assessed the impact of the appointment on promoting effective monitoring of the

culture and engagement within the Group and escalating our colleagues’ views to support informed

decision-making.

Our Regulators

The Board discussed the UK Corporate Governance Code 2024.

In January 2026, the Board appointed a designated

Workforce Engagement Non-Executive Director.

AMP8 Capital Programme

Our Customers and communities

The Board considered the proposed capital delivery programme against regulatory and strategic

priorities. In addition, consideration was given to the long-term benefit of a resilient asset base on

affordability of services.

Our Investors

The Board assessed the capital investment programme against a number of criteria including

forecasts, investor expectations, improvement to the Company’s asset base, financial resilience and

in the ability to support sustainable returns.

Our Regulators

The Board considered the structure of the capital delivery programme to meet regulatory

commitments.

Our Environment

The Board assessed the investments on various grounds including sustainability, water resources,

natural habitat and healthier rivers and seas.

The Board approved the AMP8 capital programme.

Ofwat delivery plan

Our Customers

The Board considered the impact of the Company’s largest ever investment programme against

customer expectations and needs.

Our Investors

The Board assessed potential performance against the delivery plan from the perspective of our

investors considering, amongst other things risks, progress monitoring and reporting.

Our Regulators

The Board carefully considered the expectations of our regulators in respect of the PR24 business

plan and its delivery.

In August 2025, the Board approved the submission of

the Ofwat delivery plan.

Building water resources,

improving water quality

Tackling storm overflows and

pollutions

Supporting affordability,

delivering for customers

Driving environmental gains and

delivering Net Zero

Strategic priorities

Section 172(1) statement continued

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Section 172(1) statement continued

Key decision Board discussion and s.172 considerations Outcome Link to strategy

Customer experience

platform – Project Fusion

Our People

The Board considered the impact of the proposed customer experience platform on our colleagues

and their experience at work.

Our Customers

The Board assessed the platform against customer experience and service quality.

Our Investors

The Board considered the investment in the platform from a value creation perspective and

assessed its impact on operational performance, long-term costs and delivery of the Group’s

strategic objectives.

Our Regulators

The Board carefully considered the expectations of our regulators in rolling out the new platform in

particular with regard to transparency and customer commitments.

The Board approved the additional expenditure on

Project Fusion.

Interim

dividend

declaration

As part of its 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 2025, the Board approved the payment of

an interim dividend of 9.26p per ordinary share.

Building water resources,

improving water quality

Tackling storm overflows and

pollutions

Supporting affordability,

delivering for customers

Driving environmental gains and

delivering Net Zero

Strategic priorities

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Nomination Committee report

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.

• 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.

The Nomination Committee continues to play a pivotal role

in shaping the Board’s long-term leadership, ensuring its

composition remains aligned with Pennon’s strategic direction.

David Sproul

Chair of the Nomination Committee

Committee

members

Date of

appointment

to Nomination

Committee Attendance

David Sproul (Chair) July 2024

Andrea Blance

April 2025

Iain Evans

September 2018

Jon Butterworth July 2010

Dorothy Burwell December 2022

Loraine Woodhouse December 2022

Andrew Haines

November 2025

1. Appointed 8 April 2025

2. Resigned 31 March 2026

3. Appointed 1 November 2025

The Committee’s focus for 2025/26

• 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.

• Supported the Board in managing the CEO

succession process.

• Oversaw the recruitment and selection of a new

CEO, Keith Haslett, who joined the Company in

April 2026.

• 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.

Dear Shareholder

I am pleased to present the Nomination Committee’s

report for the year ended 31 March 2026. Over the course

of the year, the Committee has continued to focus on

ensuring strong and sustainable leadership across the

Board and Executive team and welcomed Andrea Blance

who joined the Board on 8 April 2025.

As part of our ongoing succession planning and with the

support of Heidrick and Struggles, we were delighted to

welcome Sir Andrew Haines to the Board in November

2025, bringing with him extensive leadership experience

from across the UK’s transport and regulatory sectors,

most recently as Chief Executive of Network Rail from

2018 to 2025. Sir Andrew’s appointment forms an

important element of our planned transition as Iain

Evans retired from the Board at the end of the financial

year. We thank Iain for his wise counsel and significant

contribution and wish him well for the future.

The Committee has also devoted significant attention

to ensuring a smooth and well-managed transition

following Susan Davy’s decision to retire as CEO. We are

pleased to have completed a comprehensive recruitment

process (supported by Russell Reynolds) and to be

welcoming Keith Haslett, who brings extensive industry

experience and joined the Group at the beginning of

April. The Committee is confident that Keith’s leadership

will support the continued delivery of Pennon’s strategic

ambitions.

The Committee held three scheduled meetings during

the year and held a number of ad-hoc meetings, in

person and by Teams call, to fulfil the duties set out in its

terms of reference.

Committee meetings are attended by its members,

with other senior leaders invited as appropriate. During

the year, regular attendees included the Group Chief

Executive Officer, the Group General Counsel and

Company Secretary, and the Group Chief People Officer.

Committee members do not take part in discussions

relating to their own roles or succession.

David Sproul

Chair of the Nomination Committee

10 June 2026

Three additional Nomination Committee meetings were

held during the year.

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Nomination Committee report continued

Board diversity

Fostering a diverse and inclusive culture remains a core

priority for Pennon. The Committee continues to monitor

the Group’s progress in promoting diversity across

gender, ethnicity and social mobility, regularly reviewing

the composition of both our workforce and our leadership

teams. We have seen how bringing together a broader

range of perspectives has strengthened our culture,

helping us to evolve into a more caring, considerate

organisation with a strong focus on wellbeing.

As of 31 March 2026, female representation on the Board

stood at 50%. In the 2026 FTSE Women Leaders Report,

Pennon was ranked 1st in the FTSE 250 for female

representation on boards, a significant achievement

that reflects our continued commitment to diversity

and inclusion. The report, independently conducted

and supported by the Government, provides strong

external validation of the progress we are making in

advancing gender equality across the organisation.

We are exceptionally proud of this recognition and the

powerful message it sends to our female colleagues

about the opportunities for leadership and progression

within Pennon.

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 third year running, in line with

our commitment to the Change the Race Ratio campaign,

we have also voluntarily published our ethnicity pay gap

of 13.6% (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 around 6%. Our Group ethnic diversity has increased

slightly in the year to 3.6%.

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 to report annually on progress

against the associated targets. The Policy was last

reviewed in March 2025.

The Policy reaffirms the Board’s commitment to ensuring

that all Board and senior leadership appointments are

made on merit, assessed against objective criteria, and

supported by a search process that actively promotes

diversity of gender, social background and ethnicity.

In line with this commitment, the Board continues to work

towards – and maintain – the following targets:

a. A minimum of 33% female representation on the

Board.

b. At least one racially or ethnically diverse Board

member.

c. A minimum of 33% female representation at Group

senior management level.

d. Assurance that succession planning for the Board

and senior management delivers an appropriate

balance of skills, experience and independence, while

supporting the progressive refresh of the Board.

The Group-wide approach to diversity and inclusion

– detailed on page 137 – applies equally to the

Remuneration, Audit and Nomination Committees.

As each Committee is composed of Board members,

the principles and expectations of the Board’s Diversity,

Respect and Inclusion Policy apply consistently across

all three Committees. We can confirm that we currently

exceed all Policy targets.

To support monitoring and statutory reporting, including

FCA Diversity disclosures and our gender and ethnicity

pay gap reporting, colleagues – including the Board and

senior leadership – are invited to provide personal data

relating to protected characteristics. This information

is collected during recruitment and onboarding, with

colleagues encouraged to review and update their

data periodically. All information is held securely on the

Group’s HR management systems and forms the basis of

the reporting reflected in the table below. Participation

remains entirely voluntary.

FCA diversity disclosure table

The Committee is pleased to report against the FCA’s

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 2026 and have been calculated

based on diversity data provided upon employment.

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 87.5% 3 10 100%

Mixed/Multiple Ethnic Groups – – – – –

Asian/Asian British – – – – –

Black/African/Caribbean/Black British 1 12.5% – – –

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 4 50% 2 6 60%

Women 4 50% 1 4 40%

Other categories – – – – –

Not specified/prefer not to disclose – – – – –

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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 identify opportunities for improvement

and best practice, as well as helping to inform future

agenda items and areas of focus.

2025 Board performance review

process, action points and

recommendations

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 risks.

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.

• 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 that 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.

• As part of its succession planning, the Board should

consider candidates with infrastructure experience.

(This was enacted with the appointment of Sir Andrew

Haines.)

• Members of the Board would appreciate deeper dives

into the business and more site visits. (Deep dives

are now part of Board and Committee agendas and

members have individually and collectively made a

number of site visits.)

• The Board would appreciate an upweighting in the

principal controls. (A new Director of Internal Audit has

been appointed and KPMG have been assisting with

the review of the internal controls environment).

• There could be better linkage between KPIs and

strategic delivery, knowledge of senior management

and the resources required to enable effective and

efficient delivery. (A KPI pack has been developed and

deep dives have taken place on talent).

• The Board would value the ‘outside-in’ perspective from

stakeholders. (A weekly corporate affairs report is sent

to the Board).

• The length of Board papers should be reviewed.

(Further instructions have been sent out on the

composition of Board papers).

2026 Board performance review

This review is currently under way now that Keith Haslett

has joined the Company. It is being conducted by Chris

Saul Associates and will comprise a combination of

interviews with members of the Board and Pennon

Executive, meeting observation and a report to be

prepared in consultation with the Chair, Group Chief

Executive Officer and Group General Counsel and

Company Secretary.

The outcome will be reported in the 2026/27 Annual

Report and Accounts. In accordance with Provision 21

of the UK Corporate Governance Code 2024, the Board

confirms that Chris Saul Associates is an independent

third party and has no other commercial relationship with

the Company or any of the Directors.

Site visit to Bude with Loraine Woodhouse

Nomination Committee report continued

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Audit Committee report

Role of the Audit Committee

• Monitor and review the effectiveness of the Group’s risk

management and internal control framework, including

financial, operational, reporting and compliance

controls.

• Monitor the integrity of the Group’s financial and

regulatory reporting, including significant reporting

judgements.

• Oversee the effectiveness and independence of Internal

Audit and the adequacy of the Group’s assurance

framework.

• Review key Group policies within the Committee’s remit,

including Risk Management, Treasury, Tax and the

Delegated Authorities Schedule.

• Oversee the external audit process, including auditor

appointment (as appropriate), audit quality and

independence, and approval of non-audit services.

• Review the effectiveness of arrangements for

whistleblowing and fraud risk management.

Dear Shareholder

I am pleased to present the Audit Committee’s report for

the year ended 31 March 2026. This was an important

year for the Group, reflecting the start of the AMP8

regulatory period, evolving reporting requirements and a

change in Group Chief Executive Officer.

This report describes how the Committee discharged the

responsibilities delegated to it by the Board, including

monitoring the integrity of the financial statements and

related disclosures, reviewing the effectiveness of the

Group’s risk management and internal control systems,

and supporting the Board’s assessment that the 2025/26

Annual Report is fair, balanced and understandable.

We have focused on the following key priority areas:

• Internal controls and risk: Development of the Group’s

risk management and internal control framework,

including deep dives on incident management, cyber

security, and wastewater processes and controls.

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

Committee

members

Date of

appointment to

Audit Committee Attendance

Loraine

Woodhouse

(Chair)

December 2022

Iain Evans

September 2018

Andrea Blance

April 2025

1. Resigned 31 March 2026

2. Appointed 8 April 2025

The Committee’s focus for 2025/26

• Strengthen oversight of the Group’s risk

management and internal control framework,

including targeted deep dives.

• Challenge key financial reporting judgements.

• Oversee external assurance, including audit

scope, key risks, materiality, independence

and approval of non-audit services, as well as

regulatory assurance on the Annual Performance

Report.

• Review Internal Audit findings, monitor delivery of

management actions, and approve the audit plan.

• Support readiness for the UK Corporate

Governance Code reforms, including Provision 29

requirements for audit, risk and internal controls.

• Financial reporting and FBU (fair, balanced and

understandable): Challenge key financial reporting

judgements (including climate-related considerations)

and support the Board’s assessment that the Annual

Report is fair, balanced and understandable.

• External audit: Oversee the work of PwC as Group

External Auditor, including audit scope, key risks,

materiality, independence and approval of non-audit

services.

• Assurance and internal audit: Review Internal Audit

findings, monitor delivery of management actions, and

ensure the audit plan remains aligned to principal and

emerging risks.

• Resilience, regulatory and governance readiness:

Oversee going concern and longer-term viability work,

regulatory reporting/assurance activity (including

AMP8 regulatory assurance), and preparations for

UK Corporate Governance Code reforms including

the programme of work to support the Board’s future

Provision 29 declaration on material internal controls.

The Committee provided robust challenge to

management’s key judgements and the related

disclosures, supported by the External Auditor and

specialist assurance providers. Following PwC’s

appointment as External Auditor for the 2024/25 financial

year (after a competitive tender in 2023/24), we oversaw

audit delivery, monitored independence (including non-

audit services approvals) and assessed the effectiveness

of the audit process.

Sir Andrew Haines became a member of the Audit

Committee effective 1 April 2026.

For the period between 1 April 2025 and the appointment

of Andrea Blance on April 8 2025, the committee

composition was not in compliance with Provision 24

of the UK Corporate Governance Code 2024. However,

there were no committee meetings held or decisions

made during the relevant period.

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More detail on our risk management processes, principal

risks and their associated mitigation can be found on

pages 62 to 69.

The Committee received regular updates on preparations

for the 2024 UK Corporate Governance Code reforms, in

particular Provision 29 and the strengthened expectation

for the Board to make a declaration on the effectiveness

of material internal controls. During the year we

progressed the identification and confirmation of material

controls across financial and non-financial areas, with a

plan being finalised for testing across 2026/27.

The Committee also reviewed the Group’s financial

resilience throughout the year. On behalf of the Board,

we considered the going concern assessment over a

15 month ‘look-forward’ period aligned to the Group’s

liquidity policy, and reviewed the Group’s longer-term

viability over seven years. This assessment considered

projections and scenarios reflecting the external

environment, including economic uncertainty, inflation

and the potential impact of regulatory incentives and

penalties on our water businesses.

The Board has maintained the seven-year period for the

viability assessment. In the current year, this includes

the four years remaining of AMP8 alongside longer-term

forecasts informed by early AMP9 projections.

The viability statement is set out on pages 70 to 71.

I would like to thank Iain for his significant contribution

to the Committee over many years, and I am pleased to

welcome Sir Andrew Haines to the Committee following

his appointment to the Board during the year.

Loraine Woodhouse

Chair of the Audit Committee

10 June 2026

The Committee advised the Board on its statement

that the 2025/26 Annual Report, taken as a whole, is

fair, balanced and understandable and provides the

information necessary for shareholders to assess the

Group’s position, performance, business model and

strategy. In doing so, we considered the effectiveness

of the verification and review processes supporting the

Annual Report and challenged management to improve

clarity and balance where needed. The key financial

reporting judgements considered by the Committee are

summarised later in this report (see page 122).

Our work programme is aligned to the annual reporting

cycle and the Committee’s terms of reference, enabling

timely review of matters as they arise and appropriate

challenge ahead of key Board decisions.

We reviewed the effectiveness of the Group’s risk

management and internal control systems through

regular reporting on the operation of the risk framework,

the outcomes of key assurance activity and the work of

the independent Internal Audit function.

Additionally, the Audit Committee undertakes risk deep

dives focused on aspects of the Group’s principal risks.

During 2025/26, the Committee performed deep dives on

the following areas:

• Incident management – in particular following incidents

arising during the current or prior year to ensure that

lessons are learned and embedded in the processes

and systems operating across the Group.

• Cyber security – as one of our principal risks, this has

been a key focus for the Committee, including updates

on our cyber-resilience plans at each Audit Committee

meeting, as well as cyber exercises taking place during

the year, including involvement from the Board.

• Wastewater processes and controls – the effectiveness

of our controls, monitoring and reporting processes in

wastewater are critical, and we recognised the historic

challenges across the sector in offering Enforcement

Undertakings in August 2025 in response to legacy

issues (see also page 38). The Audit Committee has

undertaken a risk deep dive into the wastewater

processes and controls, as well as having received

updates from Internal Audit on the implementation

of the action plan agreed in response to the 2024

Environment Agency prosecution.

Matters of significance for 2025/26

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 and half-year results.

• Reviewed the internal assessment of going

concern and longer-term viability on behalf of

the Board.

• Reviewed in detail the 2025/26 Annual Report

and advised the Board that the presentation of

the 2025/26 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 2025/26 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 2026.

• Reviewed and approved the non-audit services

and related fees provided by the External

Auditor for 2025/26.

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,

Iain Evans and Andrea Blance, who 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 Group Chief Executive Officer, the

Group Chief Financial Officer, the Group 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 and the Director of Risk and

Assurance without management present. Further, the

Committee Chair regularly communicates with the Group

Chief Financial Officer, the External Auditor and with

Committee members outside of the meetings to better

understand any issues or areas of concern.

Audit Committee report continued

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Audit Committee report continued

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 whistleblowing

activity, including the effectiveness of the

Group’s Speak Up arrangements and oversight

of themes arising and management actions

taken. No material issues were identified.

• 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.

• Reviewed internal assurance reports and

recommendations, and undertook deep dives

at Committee meetings on principal risk areas,

tracking agreed actions to completion (for

details, see above).

• Approved the Internal Audit Charter in line with

latest guidance and updated standards.

• Advanced the programme of work in

preparation for the Board’s future declaration

under UK Corporate Governance Code

Provision 29, including identification and

confirmation of material controls and planning

for assurance and testing. The Committee will

oversee the assurance/testing plan through

2026/27 to support the Board’s declaration.

• 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 accounting policies.

• Reviewed and considered internal financial

policies.

• Reviewed the governance statement disclosures

and confirmed the basis for compliance with the

UK Corporate Governance Code (on a comply

or explain basis), including consideration of any

areas requiring enhanced explanation.

• Held regular meetings with the External Auditor

without members of management being

present.

• Reviewed progress against UK Corporate

Governance Code reforms, including

governance reporting expectations and the

staged implementation of Provision 29 (material

internal controls), and agreed the Committee’s

oversight approach. This will include oversight

of the testing approach in 2026/27.

The UK Corporate Governance Code requires the Committee to describe the significant matters it considered in

relation to the financial statements and how those matters were addressed. The significant areas of judgement

considered for the year ended 31 March 2026 are set out in the table to the right, together with the Committee’s

actions and conclusions. We also considered presentational and disclosure matters, including the use of non-underlying

performance measures and ensuring a fair presentation of statutory and non-statutory performance.

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.

Expected credit

losses

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 Group 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 remains

unchanged at seven 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 70 to 71.

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We last undertook a formal comprehensive audit tender

process for statutory audit services in 2023/24. The

current External Auditor, PricewaterhouseCoopers

LLP (PwC), were appointed following a comprehensive

audit tender process and approval by shareholders

at the Company’s 2024 AGM. PwC commenced their

appointment as auditor and presented their first report to

shareholders for the year ended 31March 2025. The lead

audit partner must change every five years. Colin Bates,

has held the role since 2024/25.

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 team which supports the

Committee in delivering its responsibilities and has

continued to operate effectively. The internal audit

charter was reviewed and approved by the Committee

during the year. The Group Internal Audit Plan is set on a

rolling six-month basis and was approved in March 2025

and September 2025, 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).

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 assurance regarding

annual regulatory reporting obligations to Ofwat and

the half year review: 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 27% of the audit fee, which

is within the Group’s 70% non-audit fee limit.

The Group 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 184.

External auditor reappointment

and 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.

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 may be an occasional 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.

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. No issues were raised during

that review. The Committee concluded that the auditor

was effective during the year and that the relationship

and communications were open and constructive.

The Committee Chair has also met privately with the

External Auditor to discuss key matters.

Auditor independence

The Committee regards independence of the External

Auditor as critical 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.

Fair, balanced and understandable

assessment

To enable the Committee to advise the Board in making

its statement that it considered the Group’s Annual

Report to be fair, balanced and understandable (FBU)

on page 159, 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

2026 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 160 to 164.

In preparing and finalising the 2025/26 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 responsibilities delegated to it by the

Board, ensuring that standards of good governance are

maintained and that appropriate assurance is obtained

across the business. Particular focus will be given to the

Group’s principal risks, the internal control environment

and financial reporting. The Committee will also oversee

the programme of work to support implementation of

the revised UK Corporate Governance Code, including

the identification, assurance and testing of material

controls to support the Board’s future declaration under

Provision 29.

Audit Committee report continued

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Training on our Pennon Code of Conduct is mandatory

for all employees, with training for new joiners and annual

employee refresher training

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 Pennon Code of Conduct.

The Code of Conduct is supported by 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 e-learning is mandatory for all employees and

is delivered through the Group’s learning management

platform to track completion. Employees are obliged to

complete an annual refresher, and the course is part of

the induction of all new employees, irrespective of job

function or business area.

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

(whistleblowing reports) 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.

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 62 to 69.

Changes in the UK Corporate Governance Code

relating to risk management, specifically the pending

requirements of Provision 29, have been considered

throughout the year with a programme put in place to

ensure readiness for the enhanced requirements that

come into effect in 2026/27.

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.

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 2026.

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 62 to 69 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. Key performance

indicators are in place to enable the Board to measure

the Group’s ESG performance on pages 74 to 76 and a

number of these are linked to remuneration incentives on

page 140.

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 Group Chief Financial Officer, 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.

A financial crime risk assessment framework is in place

and is complemented by the regular review of corporate

policies relating to financial crime prevention.

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, business ethics, money

laundering, insider trading, conflicts of interest, or

notifiable breaches of customer privacy data violations

during the year.

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. 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.

Audit Committee report continued

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Whistleblowing Policy – Speak Up

The Pennon 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 People in Touch B.V. trading

as SpeakUp.

The investigation process is overseen by the Ethics

Management Committee and is undertaken without

fear or favour 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 by the Group Deputy General Counsel

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 continue to chair the

Water Industry Whistleblowing Best Practice Forum

consisting of 12 water and waste companies across

England and Wales.

Countess Wear Wastewater Treatment Works

Audit Committee report continued

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ESG Committee report

The ESG Committee (the Committee) supports the Group’s

ongoing commitment to environmental stewardship,

social responsibility, and good governance, ensuring that

sustainability remains embedded across the Group.

Dorothy Burwell

Chair of the ESG Committee

Committee

members

Date of

appointment to

ESG Committee Attendance

Dorothy Burwell

(Chair)

December 2022

Jon Butterworth July 2020

Laura Flowerdew July 2024

Loraine Woodhouse April 2025

Susan Davy

March 2018

Keith Haslett became a member of the ESG Committee

effective 1 April 2026.

Role of the ESG Committee

The ESG Committee supports the Board in

overseeing the Group’s Environmental, Social and

Governance (ESG) strategy, performance and

disclosures, ensuring sustainability considerations

are embedded across the business.

• Review the policies, management, initiatives

and performance of the Group with respect to

environmental, social and governance matters,

including climate-related and nature-related risks

and opportunities.

• Review the overarching environmental

performance of the business, including progress

against ESG targets, climate transition plans

and environmental improvement programmes,

ensuring a focus on key areas of improvement.

• Review the actions of the Group to determine the

suitability of environmental and social policies and

practices, including those of key suppliers and

contractors.

• Monitor workforce, culture, customer and

community matters, including employee

engagement and wellbeing, diversity and

inclusion, customer service and support for

vulnerable customers.

• Review the extent and effectiveness of the

Group’s ESG reporting and assurance and its

participation in relevant external benchmarking

assessments.

• Regularly report to the Board and advise the Audit

Committee of any material non-financial risks.

The key successes of the

Committee’s focus for 2025/26

During the year, the ESG Committee made progress

against its focus areas for 2025/26, supported by

regular performance oversight and targeted deep

dives across environmental, social and governance

priorities.

• Oversaw delivery of the Group’s refreshed ESG

targets for 2025–2030, with 12 of 14 achieving or

exceeding target, supported by remediation plans for

remaining areas.

• Strengthened ESG governance and leadership

through the appointment of a new Committee Chair

and the creation of the Chief Sustainability and

Natural Resources Officer role.

• Enhanced the Group’s approach to climate and

nature risk, becoming a Taskforce on Nature-

related Financial Disclosures (TNFD) adopter and

completing the first stages of a LEAP assessment,

progressing a 1.5°C-aligned Climate Transition Plan

following revalidation of the Group’s science-based

targets (SBTs) to include SES Water.

• Maintained a focus on social priorities through deep

dives on workforce engagement, culture, wellbeing,

diversity and customer outcomes, informing

continued enhancements to the Group’s social

strategy.

• Continued embedding ESG priorities across the

Group and supply chain, including through the

Supply Chain Sustainability School.

• Achieved leading ESG ratings and benchmarking

performance, including CDP Climate A List

recognition, awards as an ESG Industry and Regional

Leader by Sustainalytics, ranking 1st out of 46 water

utilities assessed globally, and recognition as a FTSE

Women Leaders company for Women on Boards

across the FTSE 250.

• Achieved continued progress against strategic

priorities, including emissions reduction and

improvements in water quality and resilience.

• Supported continued integration of ESG risks and

performance through regular reporting to the Board,

including advising the Audit Committee on material

non-financial risks.

1. Resigned 31 December 2025

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Reporting and assurance

The ESG Committee recognises that high-quality

reporting and assurance are essential to maintaining

trust and confidence in the Group’s ESG performance and

disclosures. During the year, the Committee continued to

take an active role in overseeing how ESG information is

reported, assured and communicated, ensuring it remains

robust, transparent and meaningful for stakeholders.

ESG disclosures are integrated throughout the Annual

Report and Accounts and supported by the ESG

Databook, providing greater visibility of performance

and progress.

The Committee also oversaw the continuation of limited

independent assurance over selected ESG metrics,

providing additional confidence in the accuracy and

reliability of reported information. This assurance focuses

on the systems, processes and governance that underpin

ESG data and is complemented by wider non-financial

assurance activity across the Group’s regulated

businesses. The Committee works closely with the Audit

Committee to consider assurance findings and ensure

that any material issues are appropriately addressed

and escalated.

Looking ahead, the Committee is considering the

implications of emerging reporting requirements,

including the UK Sustainability Reporting Standards

(UK SRS) published in February 2026 and currently

under consideration by the Financial Conduct Authority

(FCA). The Committee will continue to monitor

regulatory developments closely to ensure the Group

remains well-prepared and its reporting continues to

meet both regulatory and stakeholder expectations as

standards evolve.

In addition, health and safety remains a clear Group

priority, with the ambition to achieve a stretching Lost

Time Injury Frequency Rate (LTIFR). While this target

was not met during the year, enhanced leadership focus

and strengthened operational controls, including the

continued rollout of the HomeSafe programme, are in

place to support improved outcomes in 2026/27.

The Committee remains satisfied that the Group’s

ESG targets provide a clear, measurable framework for

action and are embedded within governance processes.

Progress against each target is reviewed regularly by

the ESG Committee, ensuring appropriate challenge,

accountability and transparency as the Group continues

to work towards its 2030 objectives and beyond.

Climate and nature

Climate and nature remained central to the Committee’s

agenda during the year. The Committee oversaw the

continued development of the Group’s climate strategy,

including progress towards publication of a 1.5°C aligned

Climate Transition Plan.

During the year, the Group revalidated its near-term

science-based targets in line with the latest climate

science, including bringing SES Water into scope, and

continued to embed climate considerations into policies,

performance monitoring and decision-making.

The Committee also enhanced its oversight of

nature-related risks and opportunities by supporting

the Group’s decision to become a Taskforce on

Nature-related Financial Disclosures (TNFD) adopter

and overseeing completion of the first stages of a LEAP

assessment, helping to strengthen the integration of

climate and nature risk into governance processes.

ESG Performance

The ESG Committee received regular updates on ESG

performance throughout the year, enabling it to monitor

progress against the Group’s refreshed ESG targets for

the period 2025-2030 and to challenge areas requiring

additional focus.

As of 31 March 2026, Pennon has achieved or exceeded

12 out of 14 ESG targets, representing a solid first year

of delivery against the Group’s refreshed targets, with

remediation plans in place for the remaining two areas

targeted for improvement as we move into 2026/27.

Overall performance reflects effective embedding of the

Group’s reaffirmed ESG priorities across the business,

supported by regular oversight from the ESG Committee

and targeted management actions.

Performance remains on track against the Group’s key

science-based targets (SBTs), for greenhouse gas (GHG)

emissions reduction. This follows the revalidation of

the Group’s SBTs through the Science Based Targets

initiative (SBTi). This process included re-baselining the

Group’s emissions inventory to reflect the inclusion of

SES Water and the latest climate science, reaffirming

our commitment to a science-led pathway for emissions

reduction. Progress against this target builds the

foundation for our Group’s Climate Transition Plan, due to

be published in 2026/27.

Strong performance has also been observed across

several social and governance targets, underpinned

by deep dives on workforce engagement and culture,

wellbeing, talent, recruitment and diversity, customer

matters, and key incidents relating to sites at Dousland

and Menagwins. These sessions enabled the Committee

to assess performance against objectives, understand

underlying drivers and ensure that delivery remains

aligned with stakeholder expectations.

Where performance was off track at year end, the

Committee reviewed the position in detail and ensured

that remediation plans were in place. This includes

renewable electricity generation, where performance was

below target due to delays in energising a large-scale

Solar PV site in Dunfermline. This site has now been

energised, and renewable electricity generation is

forecast to return to target from the next reporting year.

Dear Shareholder

I am pleased to report on the work of the ESG Committee

during 2025/26, my first year as Chair of the Committee.

I am supported by a committed and experienced

Committee, and I would like to thank fellow members

and management for their engagement and contribution

throughout the year.

The Committee has maintained its focus on the effective

governance and integration of environmental, social and

governance considerations across the Group, supported

by regular performance oversight, a programme of

targeted deep dives and increased involvement in

workforce engagement. Throughout the year, the

Committee’s work reflected the focus areas set out in last

year’s report, including embedding refreshed ESG targets,

strengthening our social approach, advancing the Group’s

approach to climate and nature, responding to evolving

reporting requirements, and ensuring ESG remains fully

integrated across the business.

These priorities have been supported by strengthened

leadership arrangements, including the appointment of

Carolyn Cadman to the newly created Chief Sustainability

and Natural Resources Officer role, enhancing executive

accountability and expertise across sustainability, climate

and nature.

The year also marked an important step forward in

embedding climate-related and nature-related risk

within governance and decision-making, with the

Group becoming an official Taskforce on Nature-related

Financial Disclosures (TNFD) adopter and completing the

first stages of a LEAP assessment.

The Committee also reviewed external ESG assessments

and benchmarking results, with the Group continuing

to lead across key ESG ratings, including recognition on

CDP’s Climate A List and designation as an ESG Industry

and Regional Leader by Sustainalytics for 2026. These

outcomes provide assurance over the Group’s progress

and help inform our ongoing reporting focus.

The Committee has continued to challenge and support

management throughout the year, ensuring ESG risks

and opportunities are appropriately considered in

decision-making and that progress against commitments

remains transparent and robust.

ESG Committee report continued

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Focus areas for 2026/27

Looking ahead, the ESG Committee will continue to focus

on the following priorities:

• Oversight of delivery against ESG targets for 2025-

2030, ensuring sustained progress, appropriate

challenge and remediation actions are in place where

required.

• Continued development of the Group’s social approach,

including assessing the Group’s current approach to

social impact and value delivery and outcomes for

customers and communities.

• Deepening oversight of workforce and customer

engagement, including continued focus on employee

experience, culture, and support for customers in

vulnerable circumstances.

• Publication and oversight of the Group’s formal Climate

Transition Plan in 2026/27, aligned to a 1.5°C warming

pathway, and continued monitoring of delivery against

carbon commitments and science-based targets.

• Further embedding of climate-related and

nature-related risk into governance and

decision-making, including expansion of the scope and

maturity of the Group’s LEAP assessment.

• Ongoing review of ESG reporting and regulatory

developments, including conducting a gap analysis

against the UK SRS and preparing for future

implementation requirements.

• Continued review of external ESG benchmarking

and rating assessments, using insights to inform

performance.

• Continued integration of ESG considerations across the

Group, supported by effective reporting to the Board

and engagement with other Board Committees.

Dorothy Burwell

ESG Committee Chair

10 June 2026

Benchmarking

External ratings and benchmarking remain an important

element of the ESG Committee’s oversight, providing

independent insight into the effectiveness, credibility

and ambition of the Group’s ESG performance. These

assessments help the Committee understand relative

performance, identify emerging best practice and ensure

that external reporting remains relevant, decision-useful

and aligned with stakeholder expectations.

During the year, the Committee reviewed ratings across

a range of independent ESG rating assessments and

benchmarks, using these to inform discussions on ESG

performance. The Group continued to demonstrate

leading performance across key ESG ratings, including

recognition on CDP’s Climate A List and being awarded

as an ESG Industry and Regional Leader by Sustainalytics

for 2026, ranking 1st out of 46 water utilities assessed

globally. Additionally, the Group’s Board was recently

recognised as a FTSE Women Leaders company for

Women on Boards across the FTSE 250.

These results provide independent validation of the

Group’s progress and performance throughout the

year and it is encouraging to see the Group move from

strength to strength across these ratings, reflecting the

hard work to embed ESG priorities across the Group.

Dragonfly Monitoring, Ockerton Court, Dartmoor

ESG Committee report continued

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Health and Safety Committee report

Dear Shareholder

I am pleased to provide an update on the Health and

Safety 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 is particularly proud of our

Pennon Water Services division who, for the sixth year,

have had no lost time injuries.

HomeSafe, our flagship initiative to drive enduring and

sustained change, continues to drive the overall approach

and the Board Committee has robustly reviewed the 2030

strategy and implementation of the four cornerstones.

As ever, leadership sets the tone and 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 Committee recognises the improvements

across the four cornerstones of the HomeSafe 2030

strategy and supports the focus on risk management

and reduction.

The Board Committee also acknowledges the increase in

personal lost time injuries across the winter period and

has reviewed these in detail. The Board is satisfied the

response is proportionate and that there can be periods

where low impact injuries fluctuate, this does not change

the overall strategic direction of HomeSafe, however does

serve as a timely reminder that the focus on HomeSafe

has to be consistent and persistent.

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

Loraine Woodhouse April 2025

Susan Davy

November 2020

Laura Flowerdew July 2024

The Committee’s focus for

2025/26

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 and Safety performance.

• A review of the tactical interventions to deliver

in-year improvements in incident reduction.

• A review and challenge of high potential near-

miss events within our strategic supply chain

to ensure themes are identified and pragmatic

solutions implemented.

• Visiting sites to engage with front-line colleagues

and the wider Health and Safety teams.

During the year the Board reviewed two significant

incidents within the supply chain and was satisfied the

investigations and subsequent actions were appropriate

and that wider learning, particularly around supervision

was adopted across the Group.

Committee composition

From 1 April 2026 membership of the Health and Safety

Committee will be Jon Butterworth, Sir Andrew Haines,

Loraine Woodhouse, Keith Haslett and Laura Flowerdew.

Reporting

In addition to the regular Board report by the Group

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.

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

10 June 2026

1. Resigned 31 March 2026

2. Resigned 31 December 2025

Keith Haslett and Sir Andrew Haines became members of

the Health and Safety Committee effective 1 April 2026.

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Remuneration Committee report

Role of the Remuneration Committee

The Remuneration Committee is responsible for making

sure pay and rewards across the Group are fair, competitive,

and support the company’s goals. Specifically, it:

• Ensures pay is aligned with the Group’s strategy and

reflects its values.

• Sets and reviews the overall pay policy, considering

shareholder views and best practice, so the company

can attract, retain and motivate senior leaders.

• Advises the Board on how executive pay should be

structured.

• Decides the pay levels for the Chair, Executive Directors

and senior executives, and keeps an eye on pay across

the wider workforce.

• Approves how performance-related pay schemes are

designed and sets the targets for them.

• Reviews performance outcomes and decides how much

should be paid under incentive schemes.

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

Iain Evans

September 2018

Dorothy Burwell December 2022

1. Resigned 31 March 2026.

The Committee’s focus for 2025/26

During the year the Committee focused on:

• Reviewing pay and terms for the Executive

Directors, the Chair, senior executives and the

wider workforce.

• Considering long-term incentive plans for the next

three to five years, engaging with stakeholders as

appropriate.

• Setting challenging but realistic performance

targets that align with the Group’s strategy, values

and best practice.

• Reviewing the Remuneration Policy to ensure it

continues to support delivery of the Group’s strategy.

• Looking at pay arrangements for

the incoming Group Chief Executive Officer.

These considerations guide the Committee’s decisions.

We aim to act responsibly while also encouraging strong

performance to deliver the significant investment needed

for the future of the business.

Pay for senior executives in our sector is under close

public scrutiny, and we understand the need to rebuild

trust. At the same time, we operate in a complex and

highly regulated environment, providing essential water

and waste water services to millions of households.

We have an ambitious investment plan for the AMP8

period, with £3.2 billion being invested across our regions.

This includes major projects such as reducing storm

overflows, upgrading major water treatment works,

replacing ageing infrastructure, and supporting nature

recovery. Our teams are also dealing with ongoing

challenges such as affordability for customers, population

growth, and reducing environmental impact.

Given the scale and complexity of these challenges, it

is essential that we attract and retain highly capable

leaders. We compete with other large organisations for

senior talent, both within and beyond the water sector.

To do this, our pay levels must remain competitive with

similar companies, including utilities, infrastructure

businesses, and the wider FTSE market.

Pay plays an important role in attracting, motivating and

retaining the right people. Having a strong leadership

team is critical to delivering our long-term strategy and

meeting the expectations of all our stakeholders.

Business context

This has been a year of significant progress, evolution

and continued delivery for Pennon amidst a changing

landscape in the UK water sector.

The Group has returned to profitability during the year,

with underlying EBITDA increasing by 55% year-on-year

to £519.2 million, driven by higher water revenue and a

continued focus on operational efficiency. RoRE of 6.7%

outperformed the regulatory cost of equity, reflecting

benefits from financing and Totex performance more

than offsetting the impact of ODI penalties.

The year has once again demonstrated how rapidly

the operating environment for water infrastructure is

changing. Conditions during the year ranged from one

of the driest springs on record to intense storms and

exceptional rainfall later in the year.

These extremes, and the impact on our performance,

highlight the increasing volatility created by climate

change and reinforce the need for sustained investment

in resilient infrastructure. We know we have further to go,

but our Pollutions Incident Reduction Plan is delivering

measurable improvements with a c.34% reduction year-

on-year in pollutions.

There was also a c.17% reduction in storm overflow

use year-on-year, and a 25% reduction in average

spill duration. Disappointingly, one event resulted in a

Category 1 incident – although our overall Category 1 and

2 pollutions reduced year-on-year to three. In addition,

our provisional assessment for the 2025 EPA rating is 1*

given that whilst underlying operational performance saw

improvement, we still did not achieve the high standards

required across a number of measures, and in the current

year, four projects within our broader WINEP programme

were not finalised by March 2026, and therefore further

impacted the EPA scorecard.

On 2 June 2026, South West Water was fined £1.9 million

in respect of the Brixham cryptosporidium incident

arising in May 2024. We recognise the impact both on

our customers from this incident, and we recognise that

we must do more to live up to the expectations of the

customers and communities we serve.

Supporting customers and communities remains central

to Pennon’s purpose. The start of the new regulatory

period saw bill increases across the sector reflecting

record levels of investment in infrastructure and

environmental improvements. We remain mindful of

affordability for many households, and will aid customers

through our £200 million support package across this

five-year period coupled with our affordability toolkit.

Our £3.2 billion investment programme over the five-year

AMP8 period is a core focus across the business, to

deliver improvements for customers and to ensure we

improve the resilience and performance of our assets.

In the first year of AMP8, we have continued to focus

on delivering on our four strategic priorities through our

business units, and to focus on efficiency opportunities

across our integrated structures and operations.

Weinvested record levels of capital (£643.6 million)

to deliver network resilience and enhancements and

benefits for the environment and our customers.

Sir Andrew Haines became a member of the

Remuneration Committee effective 1 April 2026.

Three additional Remuneration Committee meetings

were held during the year.

Dear Shareholder

I am pleased to present our 2026 Remuneration Report.

As a leading company in the UK water sector, we focus

on long-term responsibility and sustainability. We

recognise the impact we have on many groups, including

our customers, local communities, the environment, our

employees and our investors.

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Keith is a seasoned leader in the UK water sector,

bringing over 25 years of experience across regulated

utilities, with a strong track record of delivering

for customers by driving operational excellence,

delivering complex capital programmes, and increasing

shareholder value. He most recently served as the CEO

of Affinity Water and also held senior executive roles at

Northumbrian Water Group and United Utilities.

For some time the Committee recognised that

our previous approach to remuneration had fallen

significantly behind competitive market practice. As

noted in last year’s Remuneration Report, the pay

for the previous CEO was in the bottom 10% of the

FTSE 250. The unsustainable market positioning was

emphasised when recruiting our CFO in 2024, as many

credible external candidates had pay expectations that

far exceeded the pay levels of our previous CEO. Prior

to Susan’s decision to retire from the business, the

Committee had already held initial discussions with some

of our investors regarding a potential reset to her salary.

When setting salary levels for the new CEO, the Committee

took into account FTSE 250 and sector pay levels, Keith’s

experience in the sector and outstanding leadership skills,

the size of our business, our record capital investment

plans, and the complexity of operating in the water sector.

While the size and complexity of the CEO role at Pennon

is significant, we have not sought to match pay levels in

large global companies. In addition to published market

data, the Committee was also able to very clearly verify

the live market rate for the role by reflecting on the pay

expectations of various external candidates.

Keith’s salary has been set at £800,000 which is broadly

in line with median FTSE-listed companies of a similar

market capitalisation to Pennon. Total target and

maximum remuneration remain in lower quartile practice

and are positioned at around the 20

percentile in this

group. Therefore the overall package remains modest

compared to broader industry practice.

The charts shown overleaf set out the positioning for

the CEO versus this group, which comprises FTSE-listed

companies with a market capitalisation of c.£1.5 billion

to £3.5 billion. As shown overleaf, Pennon’s market

capitalisation is at the median of this group.

When pay is compared to the broader FTSE 250,

where Pennon is positioned amongst the largest 15%

of companies, total remuneration is positioned at

around median.

The adjusted targets were calibrated so that they

maintain comparable stretch as when targets were set

(based on allowed rate of return in AMP7), ensuring

that performance is assessed on a like-for-like basis.

Customer performance was expanded to include

assessment of SES, which was acquired following grant.

The customer metrics also included affordability and

social value measures following feedback from EFRA

Committee members at a sector wide Select Committee

in January 2025.

The vesting level for the 2023 LTIP is 35.4% of maximum.

Based on Ofwat guidance, this award is not subject to

the performance-related executive pay prohibition rules

as the award was granted prior to the implementation of

the Act. However the Committee noted that the vesting

assessment specifically took into account metrics related

to environmental performance. Although this award vests

in 2026, all vested shares are subject to a further two-

year holding period and therefore awards are not eligible

for release until 2028.

Our incentives are structured to provide a rounded

measure of performance, incorporating metrics related

to customers, operations, water quality and financial

resilience. The stretching performance targets mean that

full payouts are dependent on strong delivery. Where

targets had not been achieved, this is already reflected in

the performance assessment. The Committee undertook

a holistic review of both the annual bonus and LTIP

outcomes, and concluded that the outcomes for the year

were supported by the performance achieved.

Full details of both incentives are set out in the main body

of the Remuneration Report.

In addition, the Committee is mindful that the in-flight

2024 and 2025 LTIP awards are subject to Ofwat’s pay

prohibition rules. The Committee will consider how the

rules should be applied and any impact on payment of

each of these awards following the end of the relevant

performance period.

Board changes

Susan Davy stepped down from the Board and retired

as Chief Executive Officer on 31 December 2025.

Remuneration arrangements in relation to Susan’s

departure were determined in accordance with our

Remuneration Policy and have been detailed on page 142.

We were delighted to appoint Keith Haslett as our new

Group Chief Executive Officer (CEO) – with Keith joining

the Group on 1 April 2026.

Our stretching business plan for AMP8 was agreed with

Ofwat and was rated as outstanding. The targets that

we set for our incentive plans are directly linked to this

business plan which takes into account the expectations

from the regulator and our various stakeholders. The

bonus and LTIP awards for the Executive Directors are

funded at the Group level, ensuring incentives are not

funded by customers.

The annual bonus for 2025/26 is structured to provide

a clear link to the performance of SWW and SES, which

reflects feedback previously provided by Ofwat. In

proportion, 90% of the award is weighted to the regulated

water business (70% SWW; 20% SES), with the balance

linked to PWS and Pennon Power objectives. Within these

elements, financial, customer and environmental measures

are embedded. This basket of measures seeks to capture

areas of focus across a diverse range of stakeholders.

Based on a formulaic assessment of performance, the

outturn of the 2025/26 bonus was 40.3% of maximum.

The Committee thereafter considered events which

could trigger Ofwat’s performance-related executive

pay prohibition rules, including the review of certain

matters which have not been fully concluded at the time

of decision-making. On the assumption that the incident

at Menagwins in June 2025 (see page 37 for further

information) will be classified as a Category 1 event, and

that the provisional EPA score of 1* will be confirmed

later in the year, the Committee concluded that no bonus

would be paid in respect of SWW. As 70% of the 2025/26

bonus was linked to SWW performance, this reduced the

Group outturn for the Executive Directors from 40.3% to

17.5% of maximum. In the event that both the Menagwins

incident is downgraded to a Category 2 event and the

EPA is improved to 2*, the Committee would reconsider

whether either of the Executive Directors should be

eligible for a bonus in respect of SWW performance.

The impact of the Brixham water quality incident has

already been reflected in directors’ remuneration, through

the cancellation of the annual bonus for relevant directors

in respect of the 2023/24 financial year.

The 2023 LTIP was subject to stretching targets relating

to RoRE, operational water quality measures and a

basket of customer measures. This is the first award to

include additional goals relating to water quality following

feedback from Ofwat. RoRE targets for the final year

of the performance period were adjusted to reflect the

Group’s allowed rate of return, as determined by Ofwat,

over AMP8.

Further detail regarding our operating performance is set

out in the Strategic Report. Many of the key aspects of

our performance were captured in the scorecards that we

use for senior executive incentives.

Wider workforce remuneration

We continue to prioritise fair and competitive pay for

our front-line colleagues, particularly at a time when the

financial environment remains challenging. We believe

this is the right approach, both for our people and for the

long-term success of the business.

We are proud to be an accredited Living Wage Foundation

employer, with the majority of our workforce covered since

2021. In 2026, most colleagues received a pay increase of

4.5%, and our minimum hourly rate has increased to £13.95

around £1,000 per year higher than the Real Living Wage.

This reflects our ambition to remain an employer of choice.

Our overall approach to reward continues to evolve

alongside the Group. As the business has grown through

acquisitions and now operates across more locations, we

have focused on ensuring our reward offering remains

relevant, competitive and inclusive. This year, we have:

• Refreshed our reward and recognition programmes

• Enhanced our all-employee share plans by introducing

matching shares

• Increased flexibility in benefits, giving colleagues more

choice over options that suit their lifestyles

We also continue to offer strong pension provision and

enhanced life assurance benefits.

We are committed to ensuring that performance-related

pay is meaningful and clearly linked to outcomes. This

means rewarding colleagues when they deliver for

our customers, communities, shareholders and the

environment all aligned with our Group values. For senior

managers, there is also a continued focus on building

share ownership, strengthening alignment with the long-

term success of the business.

Encouragingly, our share scheme remain popular, with

around 42% of colleagues participating in either ShareSave

or our enhanced share incentive plan, ExtraShare.

Incentive outcomes

Our incentives are designed to provide a rounded

assessment of performance across a range of key metrics.

In line with Ofwat guidance, the majority of our incentives

are linked to delivery of stretching objectives in relation to

our customers, communities and the environment.

Remuneration Committee report continued

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Although the Committee has debated how pay

arrangements could be best structured to support the

delivery of Pennon’s ambitious strategy and the interests

of our various stakeholders, the Committee concluded

that implementing major changes was not appropriate in

the context of the Chief Executive Officer transition.

Therefore the policy presented to shareholders at the

2026 AGM is largely rolled forward from the previous

policy approved by shareholders.

Following the AGM we will initiate a more holistic review

of our approach to remuneration. In line with our normal

practice we will engage with our major shareholders

regarding any material changes that are proposed in

response to this review. We will also consider evolving

guidance from Ofwat and market practice in the sector

as part of our review.

In light of the above, our current expectation is to operate

the policy for 2026/27 consistent with prior years.

The salary for the Group Chief Financial Officer for

2026/27 has been increased by 3%, below the average

increase awarded to the wider workforce. Whilst incentive

opportunities are unchanged, following Keith joining the

business in April 2026, we are currently undertaking a

review of our performance metrics for 2026/27, with the

intention of simplifying and refining our scorecards to

better reflect our strategic priorities. Scorecards will be

finalised over the coming months, with details disclosed

in the 2026/27 report.

Summary

The Committee continues to be mindful of the scale of

the challenges facing the water sector and the need to be

able to incentivise the delivery of long-term, sustainable

performance that delivers value to all our stakeholders.

For the sector to deliver improved performance for all

stakeholders, it is essential that we are able to attract and

retain high-quality talent to the sector.

As always, we have sought to take a measured and

pragmatic approach to remuneration as we navigate these

challenges in a time of unprecedented change. The main

body of the report provides further details on our key

decisions.

Andrea Blance

Chair of the Remuneration Committee

10 June 2026

We also reviewed pay relative to water and utility peers. It

is recognised that there are a wide range of pay models

operated by peers and there is also variance in disclosure

levels, reflecting the different ownership models which

apply across the sector. These variations make direct

comparison of pay levels challenging. However, the

Committee remains comfortable that the package for the

incoming Group Chief Executive Officer was competitive

and appropriate when taking into account the scale and

complexity of the Pennon Group. As noted above, we were

also able to obtain live insight into pay expectations in

the talent market as part of the recruitment process, and

this further corroborated the fair market rate for the role.

Following this reset and correction in salary for the Chief

Executive Officer role, we would expect future salary

increases to be capped in line with the rate for wider

employees.

Buyout awards will be granted in connection with awards

forfeited upon leaving his former employer. Whilst all of

these legacy awards were due to be delivered in cash,

it was considered appropriate to deliver the majority

of these in Pennon shares to provide alignment with

shareholders in line with best practice.

Further details of Keith’s joining arrangements are set out

on page 142.

In the three-month period between Susan stepping

down and Keith joining the business, David Sproul was

appointed as Executive Chair, supported by an Operating

Committee, including Laura Flowerdew, with delegated

executive authority to run the business and progress

delivery of Pennon’s strategy. To partially recognise the

additional responsibilities and time commitment associated

with assuming this role, David was paid an additional fee

of £4,000 per month for this period. For the avoidance of

doubt, David was not entitled to participate in any incentive

arrangements during his tenure as Executive Chair.

An equivalent salary supplement of £4,000 per month

was also paid to Laura during this period to reflect

additional responsibilities taken on.

Remuneration Policy review

Our current Remuneration Policy was last approved at our

2023 AGM, with 94% of votes in favour. This policy includes

a number of best practice features, with modest incentive

opportunities when compared to FTSE market norms.

In line with the normal triennial cycle, we will be required

to seek approval for our Policy again at the upcoming

2026 AGM.

Salary

£1,400k

£1,200k

£1,000k

£800k

£600k

£400k

£200k

£k

CEO positioned around the median

Total target compensation

£7,000k

£6,000k

£5,000k

£4,000k

£3,000k

£2,000k

£1,000k

£k

CEO positioned at the c.20th percentile

Market capitalisation

£4.0bn

£3.5bn

£3.0bn

£2.5bn

£2.0bn

£1.5bn

£1.0bn

£0.5bn

£0.0bn

Pennon positioned at the median

Remuneration Committee report continued

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Investing to deliver on our

commitments

£643.6m

including investment in renewable

energy generation of

£54.1m

Group liquidity of nearly

£1bn

Strong return to profitability –

Underlying EBITDA^

£519.2m

Vesting 2023 LTIP measures

Performance outcome = 35.4% of max

Legacy LTIP award – granted before new legislation

and guidance developed

2025/26 bonus measures

Performance outcome = 17.5% of max

Prior to reduction the formulaic outturn was 40.3%

Safeguards 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

Structure of executive pay

Remuneration outturns for 2025/26

£273k

£71k

£513k

£554k

£87k

£106k

Susan Davy (former CEO)

Laura Flowerdew (CFO)

Fixed pay

RoRE: 50%

Operational

measures: 30%

Customer

experience: 20%

SWW: 70%

SES: 20%

Pennon Power: 5%

PWS: 5%

Bonus LTIP

Year 1

Base salary

Retirement benefits – 10% of salary

Benefits

Bonus: up to 125% of salary, up to 50 % in cash 50% deferred into shares for three years

Year 3

Capital investment in Water Services in

2025/26 of

£341.3m

In-year reduction in storm overflow

spills of

c.17%

Customers benefiting from our

financial support framework

c.195,000

Directors’ Remuneration report

Year 2

LTIP: subject to three-year performance period

Year 4 Year 5

Subject to a two-year holding period

Shareholding guideline: Executive Directors are expected to build up a shareholding equivalent to 200% of salary

^ Measures with this symbol are defined in the Alternative

performance measures (APMs) as outlined on pages 218 to 220.

1. Customers have benefited from one or more of our affordability

initiatives since 2020.

£873k

£731k

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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 colleagues is through the employee engagement

survey results, the ‘Be The Future’ forum – our employee

engagement forum and through interactions direct with

colleagues at events, such as site visits.

Our Reward Strategy and approach for the

wider workforce

Our well-established People Strategy across the Group is

centered 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 135) are incorporated into our reward philosophy

and frameworks. 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:

Rewarding our colleagues

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

Salary increases for the wider workforce

The 2025 pay award concluded for colleagues covered

by collective bargaining after the publication of last

year’s Annual Report. A two-year deal was secured

which continued to focus on front-line roles with an

average increase valued at 4.1% for colleagues, and for

senior managers this was reduced to 3.6%. For 2026 the

award was 4.5% for eligible colleagues, this is based on

November CPIH plus 1% which was agreed in the 2025

pay award and confirmed to colleagues at that time.

We are proud that our employees will earn a minimum

of £13.95 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 objective of being an employer

of choice.

We will continue to evaluate work patterns for the mutual

benefit of customers, colleagues and operational needs

during 2026/27.

Wider workforce bonus arrangements

All colleagues across the Group are eligible to participate

in variable pay schemes. Senior bonus arrangements

utilise the same broad framework as for the Executive

Directors. 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 2025/26. 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 where we offer a

generous matching element. We are pleased that

despite the ongoing cost-of-living increases, 95%

of colleagues continue to participate in the defined

contribution schemes.

Our ShareSave scheme was again opened for

applications in 2025, 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. In 2025 we launched

ExtraShare for colleagues, which introduced a matching

element for colleagues, so for every three shares bought,

the Company purchases one extra share for colleagues.

The 2025 ShareSave scheme received strong support

from our colleagues, with around 20% of colleagues

joining the scheme, and we will continue the promotion of

ExtraShare to increase SIP membership.

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. We are proud that we

are an accredited Living Wage employer, with the largest

part of our business having been accredited since 2021.

We continue to focus our pay spend on lower paid roles.

Wider workforce remuneration overview

In accordance with the 2024 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.

Directors’ Remuneration report continued

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Our values

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.

Total reward

Our people strategy is supported by our reward principles, which deliver our overall

total reward framework:

Underpinned by our

Pennon values

Supported by Reward

Strategy & governance, job

evaluation & benchmarking,

systems & data

Support the delivery of

Pennon People Strategy

Total reward

Base pay

Variable pay & allowance

Saving for the future

Benefits

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.

Talented people

doing great things

For our customers and

one another

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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, 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’.

Pillar Highlights

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 95%

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. 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.).

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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.

We have voluntarily published our Ethnicity Pay Gap

data since 2023. 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 13.6%. 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 3.9% to

2.4%. This reflects the improvements we have made in

increasing representation of females in the upper middle

and upper quartiles through targeted development and

inclusive succession planning.

During the year we have been recognised for our

progression in gender equality by external bodies.

Our placement as number one in the 2026 FTSE 250

Women Leaders Review reflected our high number of

female Board members.

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

Across the Group we have Employee Network Groups

that provides a two-way dialogue for all colleagues across

the Group. These are regularly attended by senior leaders

and the forums provoke healthy debate and discussion

on areas that matter to colleagues including reward. We

will be strengthening representation to ensure that the

issues that matter the most are raised. We want these

groups to be a key source of dialogue and employee

views for shaping future reward developments.

We hold regular meetings with the recognised trade

union representatives, keeping them informed of business

developments, 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 the recognised trade

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.

Notes to the single figure table

Fixed pay

As noted in the Chair’s statement, the CFO received a

modest salary supplement of £4,000 per month for three

months to reflect additional responsibilities taken on prior

to Keith Haslett joining the business. This supplement

ceased in March 2026.

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.

Our incentives are designed to provide a rounded

assessment of performance across a range of key

metrics. In line with Ofwat guidance, the majority of our

incentives are linked to delivery of stretching objectives

in relation to our customers, communities and the

environment.

Single total figure of remuneration table (audited)

Current Executive Directors Former Executive Director

Laura Flowerdew

(£000) Susan Davy

(£000)

2025/26 2024/25 2025/26 2024/25

Base salary 487 319 398 511

Benefits

18 14 75 50

Pension

49 32 40 51

Total fixed pay 554 365 513 612

Annual bonus

106 190 87 270

LTIP – deferred reinvestment of shares

6,7

71 51 273 215

Total variable pay 177 241 360 485

Total fixed and variable pay 731 605 873 1,098

1. The LTIP figure disclosed for Laura Flowerdew relates to awards granted before she became an Executive Director. 2025/26 figures for Laura Flowerdew

include an additional salary supplement of £12,000 paid to reflect additional responsibilities during the CEO transition period.

2. Remuneration for Susan Davy relates to the period ending 31 December 2025, when she retired from her role and left the Group .

3. Benefits comprise a car allowance, fuel allowance, medical insurance, and income protection. Following a risk assessment of personal security for Susan

Davy, the Committee determined that additional security measures were necessary. To facilitate this, the Committee approved a personal security

related allowance to be paid in two installments, the first tranche of which (£50,000) is included above.

4. See page 141 for further information on retirement benefits.

5. As disclosed in the 2025 Annual Report and Accounts, the Committee determined a formulaic outturn of 42.4% of maximum would apply to the 2024/25

bonus. However, the Committee opted not to approve these payouts and to delay payments to the Executives until there was further clarity on how the

Water (Special Measures) Act would be operated in practice. Following further guidance being published by Ofwat, in July the Committee determined

it would be appropriate to release these payments to the Executives, and these amounts have been included in the 2024/25 single figure totals. Half of

Laura Flowerdew’s 2025/26 bonus was deferred into shares for three years.

6. For 2025/26, the 2023 LTIP has been valued based on the average share price during the three-month period to 31 March 2026 of 553p, 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.

7. For 2024/25, the 2022 LTIP has been restated to reflect the adjusted share price upon vest (486p). This value includes accrued dividends over the

vesting period. These LTIP awards are subject to a two-year holding period.

Due to the way the incentives are structured, where

targets are not achieved, this directly reduces the

outcomes that Executives can achieve. Incentive

outcomes under both the annual bonus and LTIP are

also subject to a final discretionary assessment by the

Committee to ensure they remain reflective of overall

performance and the experience of our wide range of

stakeholders including our customers, the communities

in which we operate, the environment, our colleagues and

our investors. The review considers performance from a

number of different perspectives, with the framework set

out overleaf. Further details can be found on page 141.

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How does the Committee ensure incentives are

linked to stretching targets?

Rounded assessment – incentive metrics linked

to a basket of measures including financial,

operational, customer and environmental

measures. This means that full payouts require

outperformance across all aspects of performance.

Link to Ofwat approved business plans –

incentive targets linked to the regulated entities

are derived from the stretching business plans

approved by Ofwat. For AMP8, Ofwat once again

rated our business plan as ‘outstanding’.

Combination of absolute and relative measures

in addition to the absolute operating metrics, the

customer related metrics in the LTIP are assessed

on a relative basis, with full vesting requiring upper-

quartile performance.

Financial resilience – financial metrics are essential

as they enable the Group to invest in the future and

deliver robust and sustainable performance for all of

our stakeholders. Full payouts on financial metrics

require delivery of stretching goals.

Annual bonus outturn for 2025/26

Consistent with prior years, the bonus is based on a

rounded assessment of performance. In line with regulatory

guidance, more than 60% of the bonus is linked to delivery

of stretching objectives in relation to our customers,

communities and the environment. Profit measures for the

individual businesses are included in the bonus to ensure

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.

Consistent with our 2024/25 bonus, following direct

feedback from Ofwat, the Pennon annual bonus for

2025/26 is structured to provide a clear link to the

performance of SWW and SES. In proportion, 90% of the

award is weighted to the regulated water business (70%

SWW; 20% SES), with the balance linked to PWS and

Pennon Power objectives. Within these, financial, customer

and environment measures are embedded. This basket of

measures ensure that the experience of our diverse range

of stakeholders are captured in our bonus outcomes.

Other than profit measures for SWW and SES, targets for

2025/26 were binary. This simple structure ensured that

any shortfall in performance relative to our stretching

targets resulted in no bonus being paid in respect of

that element.

For future years, we expect to review this binary structure

and instead set target ranges for metrics where appropriate.

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 below, the formulaic outcome of the

annual bonus was 40.3% of maximum.

In line with requirements, the Committee considered

whether there were any events in the year which would

trigger Ofwat’s performance-related executive pay

prohibition rule, including certain events for which

assessments by external bodies had not been fully

concluded at the time of decision-making.

On the assumption that the incident at Menagwins

in June 2025 (see page 37 for further details) will

be classified as a Category 1 event, the Committee

concluded that no bonus would be paid in respect

of SWW. As 70% of the 2025/26 was linked to SWW

performance, this reduced the Group outturn for the

Executive Directors from 40.3% to 17.5% of maximum.

In the event that both the Menagwins incident is

downgraded to a Category 2 event and the EPA is

improved to 2*, the Committee would reconsider whether

either of the Executive Directors should be eligible for a

bonus in respect of SWW performance.

In addition, enforcement undertakings agreed in August

2025, related to Ofwat’s wastewater investigation and the

guilty plea lodged in respect of the Environment Agency

prosecutions arose in periods when Laura Flowerdew

was not an executive director of SWW and therefore the

prohibition rules would not apply. However the former

CEO, Susan Davy was an executive director at the time

of some of these events and these have already been

taken into account with the relevant performance related

pay outcomes for 2025/26. The Committee also noted

that the Brixham water quality incident resulted in the

cancellation of the 2023/24 bonus.

Based on Ofwat guidance, there were no triggers for

cancellation of performance-related pay at SES, and

therefore outcomes under this element were based on

the scorecard. Similarly, bonuses for Pennon Power and

PWS which do not relate to the regulated water entities,

will be based on the scorecard outcome.

Consistent with our normal approach, the Committee

also undertook a holistic assessment of performance

to determine whether the bonus outturn remains

appropriate in the context of broader performance.

See page 141 for further details of this assessment.

Directors’ Remuneration report continued

Summary of annual performance outcomes

Pennon Power PWS SWW SES Total

Weighting 5% 5% 70% 20% 100%

Outturn 80% 78.2% 32.6% 47.8%

Total 4% 3.9% 22.8% 9.6% 40.3%

Adjusted for Prohibition 4% 3.9% 0% 9.6% 17.5%

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 + 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

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Measure Sub-weighting Target Actual Outcome

SWW (70%) 22.8%

Financial resilience – PBT 20% £157.6m £139.6m 0.0%

Customer & Environmental measures 65%

Wastewater

Discharge permit compliance 2.6% 99% 98.1% 0.0%

Internal flooding (per 10k cust.) 2.6% 1.54 1.20 2.6%

External flooding 2.6% 15.29 18.04 0.0%

Sewer collapses 2.6% 13.00 5.06 2.6%

Bathing water quality 2.6% 100% 100% 2.6%

Normalised pollutions – category 1-3 2.6% 25.02 51 0.0%

Storm overflow – average spills per overflow 2.6% 20 34 0.0%

Biodiversity 2.6% On Track On Track 2.6%

South West Water – Water Services

Water resources 2.6% 90% 97% 2.6%

CRI 2.6% 1.83 1.37 2.6%

Water quality contacts 2.6% 1.33 1.55 0.0%

Leakage (3-year rolling average) 2.6% 104.5 113.3 0.0%

Supply interruptions 2.6% 05m00s 1hr9m14s 0.0%

Mains repairs (per 1,000km) 2.6% 141.3 169.3 0.0%

Unplanned outage 2.6% 2.14% 2.39% 0.0%

PCC (3-year rolling average) 2.6% 143.7 147.7 0.0%

Bristol

Water resources 2.6% 90% 95% 2.6%

CRI 2.6% 1.50 3.95 0.0%

Water quality contacts 2.6% 0.79 0.97 0.0%

Leakage (3-year rolling average) 2.6% 35 35.2 0.0%

Supply interruptions 2.6% 05m00s 33m42s 0.0%

Mains repairs 2.6% 140.2 149.6 0.0%

Unplanned outage 2.6% 2.78% 1.93% 2.6%

PCC (3-year rolling average) 2.6% 0 148.3 0.0%

Capital programme

PCD delivery 2.6% 100% <100% 0.0%

ESG measure 15% see overleaf 11.8% 11.8%

Overall total 32.6%

1,3

Impact of prohibition 0.0%

Measure Sub-weighting Target Actual Outcome

SES (20%) 9.6%

Financial resilience – PBT 20% £3m £(7.6)m 0.0%

Customer & Environmental measures

Water resources 7.2% 90% 100% 7.2%

CRI 7.2% 1.83 0 7.2%

Water quality contacts 7.2% 0.64 0.74 0.0%

Leakage (3-year rolling average) 7.2% 20.9 21.4 7.2%

Supply interruptions 7.2% 05m00s 2m58s 7.2%

Mains repairs (per 1,000km) 7.2% 68 78.5 0.0%

Unplanned outage 7.2% 2.14% 0.33% 7.2%

PCC (3-year rolling average) 7.2% 141.3 147.5 0.0%

PCD delivery 7.2% 100% <100% 0.0%

ESG Measures 15% see overleaf 11.8% 11.8%

SES Total 47.8%

2,3

Measure Sub-weighting Target Actual Outcome

PWS (5%) 3.9%

PBT 20% £5.3m £5.7m 20%

Customer & Service metric

Revenue growth 9.3% 20% 21.1% 9.3%

Revenue attrition 9.3% 6.0% 7.0% 0.0%

Debt reduction (collection / billing) 9.3% 101% 98.8% 0.0%

CCW written complaints (response within

10 days) 9.3% 100% 100% 9.3%

Abandoned rates 9.3% 7% 6% 9.3%

MPS

9.3% 92% 93% 9.3%

Trustpilot score 9.3% 4.8 4.95 9.3%

ESG measures 15% see overleaf 11.8% 11.8%

PWS Total 78.2%

1. The definitions of these key ODI measures are contained within the SWW Annual Performance Report and with ESG measures in the ESG Databook.

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.

4. MPS reflects final December score, measure currently revised with only three months performance

Measure Weighting Target Actual Outcome

Pennon Power 5%

Delivery against

milestone events

Review of delivery against

milestones considered to

warrant an outturn of 80%

for this element

1. Project milestones included Fife and Aberdeenshire complete and energised, Buckinghamshire on track for delivery in 2026/27 and two behind the

meter projects ready for or in construction.

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Long-term incentive outturn for

2025/26 (audited)

Consistent with Ofwat guidance the performance-

related executive pay prohibition rules do not apply

retrospectively to the 2023 LTIP award. LTIP awards are

funded at the Group level and are therefore not funded

by customers.

The 2023 LTIP award was subject to stretching targets

relating to RoRE, operational water quality measures and

a basket of customer metrics.

RoRE targets were set in 2023 based on performance

during the AMP7 period and were calibrated based on

our allowed rate of return which is set by Ofwat. The

performance period for the 2023 awards (2023/24 to

2025/26) spans the AMP7 and AMP8 periods. On this

basis, RoRE targets for 2025/26 (the first year of AMP8)

were adjusted taking into account the Group’s updated

allowed rate of return as set by Ofwat for AMP8. The

adjusted targets were calibrated so that they maintain a

comparable level of stretch as when targets were set and

ensuring that performance is assessed on a like for like

basis. No changes have been made to the RoRE targets

for years one and two of the LTIP performance period

which remain aligned to the AMP7 cycle.

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 (50% of award)

AMP7 – average over 2023/24 and 2024/25

(33.3%) 6% 8% 6.3% 12.1%

AMP8 – 2025/26 (16.7%) 4.6% 7% 6.7% 15.1%

Operational measures (30% of award)

EPA rating (cumulative stars over period) 9 12 5 0%

Pollutions Cat 1-3 (normalised reduction –

final year) -20% -50% -17% 0%

Pollutions Cat 1-2 (absolute) 6 0 9 0%

Storm overflow reduction (final year) -15% -30% 1% 0%

Basket of Customer measures

(20% of award)

C-MeX SWW (3.6%) 9 4 14.3 0%

BRL(1.1%) 9 4 5.0 0.9%

SES (0.4%) 9 4 12.0 0%

R-MeX SWW (0.7%) 9 4 8.3 0%

BRL (0.2%) 9 4 7.3 0%

SES (0.1%) 9 4 10 0%

D-MeX SWW (0.7%) 9 4 6.7 0.4%

BRL (0.2%) 9 4 5.7 0.2%

SES (0.1%) 9 4 12.5 0%

MPS PWS (0.7%) 9 4 5.3 0.6%

W2B (0.2%) 9 4 4.0 0.2%

SESBW (0.1%) 9 4 7.0 0%

Trustpilot score PWS (0.7%) 4.5 5 4.9 0.6%

W2B (0.2%) 4.5 5 4.9 0.2%

SESBW (0.1%) 4.5 5 2.9 0%

Affordability – water poverty SWW (0.7%) 98% 100% 99.1% 0.5%

BRL (0.3%) 98% 100% 100% 0.3%

Social Impact (5%) £1.0m £1.5m £1.2m 2.8%

WaterShare (5%) Maintain Maintain + 10% Maintain 1.3%

Overall vesting outcome 35.4%

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. C-MeX, R-MeX, D-MeX, MPS, Trustpilot score and Affordability metrics based on average performance of the three-year performance period.

The vesting of the LTIP award is subject to an ‘underpin’ relating to overall Group performance. This was considered as

part of the Committee’s holistic assessment of overall performance – see overleaf.

Directors’ Remuneration report continued

Following the acquisition of SES in January 2024 and

feedback from Ofwat, customer measures were updated

to include metrics which relate directly to SES. These

customer measures are assessed on a relative basis

and the same stretch is required as for our existing

businesses. 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. Therefore, similar to the approach taken

for the 2022 LTIP, we have included metrics which relate

to these areas within our basket of measures.

ESG Measure Sub-weighting Target Actual Outcome

Environment, Social & Governance

Renewable electricity (%) 1.07% 16.10% 8.6% 0.00%

Reduction in GHG emissions (%) 1.07% 49% 52% 1.07%

Tree Planting 1.07% 400,000 421,199 1.07%

Peatland Restoration (Ha) 1.07% 5,000 5,158 1.07%

Diversity of workforce 1.07% 33% 34% 1.07%

5% Club accreditation status (Grade) 1.07% Platinum Platinum 1.07%

Glassdoor Score (average) 1.07% 4.0 3.5 0.00%

Lost Time Injury (LTIFR) 1.07% 0.2 0.39 0.00%

ESG rating (Score) 1.07% Top 10% Top 1% 1.07%

Sustainable Financing (£m) 1.07% £400m £490m 1.07%

ESG Tender Evaluations (%) 1.07% 75% 95% 1.07%

Supply Chain (Grade) 1.07% Silver Gold 1.07%

Customer affordability 1.07% 95% 99.40% 1.07%

Increase in social impact 1.07% £1m £1.2m 1.07%

ESG Total 11.8%

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Holistic assessment of overall

performance

Our incentives are structured to provide a rounded

measure of performance, incorporating metrics relating

to customers, operations, water quality and financial

resilience. This means that areas of under or over

performance are reflected in the scorecard outcomes.

As mentioned previously, as it does every year,

the Committee undertook a holistic assessment of

performance to ensure that both the bonus and LTIP

outcomes are appropriate in the context of broader

performance the stakeholder experience. The framework

used is set out on page 138. For 2025/26, the Committee

also noted the impact of the Water (Special Measures)

Act on bonus outcomes.

This year, the Committee considered the following:

• The Group’s return to profitability, with underlying

EBITDA increasing by 55% year-on-year to

£519.2million, driven by higher water revenue and

a continued focus on operational efficiency.

• RoRE of 6.7% outperformed the regulatory cost of

equity, comprising financing and Totex outperformance,

partially offset by the in-year impact of operational

performance challenges from weather extremes, such

as Storm Goretti in the South West.

• Record levels of capital investment (£643.6 million)

to deliver network resilience and enhancements and

benefits for the environment and our customers.

• Whilst we know we have further to go, this year our

Pollution Incident Reduction Plan delivered measurable

improvements with a c.34% reduction year-on-year in

pollutions, with normalised pollutions reduced by c.53%.

• Delivery of environmental gains, having restored

peatlands, engaged communities in events and driving

gains in clean energy within Pennon Power.

• The 9% year-on-year increase in the number of our

customers benefitting from our affordability toolkit and

support available, with 316,400 customers also now

registered under our Priority Services Register.

The Committee specifically considered the EPA rating of

South West Water when considering incentive outturns.

The Committee noted that a portion of the LTIP is

directly linked to EPA ratings over the three-year period,

with a four-star average required for maximum payout.

This element of the 2023 LTIP lapsed in full, and therefore

the outcomes were already amend to reduced to zero

based on the EPA ratings achieved.

The bonus and LTIP also include several other

environmental metrics which comprise a significant

proportion of our incentives, demonstrating our

commitment to the environment beyond the EPA

framework and ensuring that our overall environmental

performance is reflected in outcomes.

Taking all of this into account, the Committee determined

that the overall outcomes for the annual bonus and LTIP

were at the modest end of the spectrum and represent

a fair reflection of overall Group performance over the

relevant periods of assessment.

As noted above, vested 2023 LTIP awards granted to

Executive Directors will not be released in 2026. Instead,

awards will remain subject to 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 8 32 40 65 (17 May 2034)

Laura Flowerdew – 49 49 65 (5 February 2041)

Executive Directors are eligible to join the Defined Contribution Company Pension Scheme.

Directors’ Remuneration report continued

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Arrangements for the incoming

ChiefExecutive Officer (audited)

Keith Haslett was appointed as the new Chief Executive

Officer and joined the Group on 1 April 2026. Keith is a

seasoned leader in the UK water sector, bringing over

25 years of experience across regulated entities, with

a strong track record of driving operational excellence,

delivering complex capital programmes, and increasing

shareholder value. He most recently served as the CEO

of Affinity Water and having held senior executive roles at

Northumbrian Water Group and United Utilities.

Details regarding the salary for the incoming CEO are set

out in the Remuneration Committee Chair’s statement.

The other core elements of Keith’s package have been

set in line with the Remuneration Policy and at the same

levels provided to the previous CEO. For 2026/27, Keith

will be eligible for a maximum bonus opportunity of 125%

of salary, and an LTIP opportunity of 150% of salary.

Keith was granted buyout awards in connection with

awards forfeited upon leaving his former employer on a

broadly like for like basis. Whilst all of these legacy awards

were due to be delivered in cash, it was considered

appropriate to deliver the majority of these in Pennon

shares to provide alignment with shareholders in line with

best practice.

Buyouts include awards in respect of performance-

related remuneration from his previous employer, the

value of which is yet to be confirmed at the time of this

report. Full details of these buyouts will be disclosed in

next year’s report.

Keith will also receive a buyout award in respect of his

2025/26 retention award. This award will be delivered in

shares with value of £165k. In line with the original terms

of the award, no performance conditions will be attached

to the award.

Awards are subject to malus and clawback provisions.

Consistent with the Remuneration Policy Keith will

receive retirement benefits of 10% of salary consistent

with benefit levels available to wider workforce. He will

also be provided with role-appropriate benefits including

car and fuel allowance, medical insurance, and income

protection. Keith was also eligible for a one-off allowance

in line with our Policy to facilitate relocation, up to a

maximum of £75k for one year.

Arrangements for the outgoing

ChiefExecutive Officer (audited)

Susan Davy retired from the Board as Chief Executive

Officer on 31 December 2025. All remuneration

arrangements relating to Susan’s departure were

consistent with the Directors’ Remuneration Policy

and the Company’s incentive plan rules.

Susan received a payment in lieu of notice in respect of

salary, benefits and pension for her contractual notice

period of 12 months, as well as accrued but untaken

holiday (capped at 60 days), totalling £735k. For the

12-month period she will continue to be entitled to (or

receive a payment in lieu of) health care and car-related

benefits. She also received a security related allowance

of £50k, as previously agreed by the Committee prior to

her departure. She received a contribution towards legal

costs related to her departure and an allowance related

to outplacement assistance capped at £60k. For the

purposes of her legacy defined benefit pension (which

ceased further accrual in 2021), she will be treated as a

retiree.

Susan was eligible for an annual cash bonus in respect

of 2025/26, pro-rated for time employed. Outstanding

deferred bonus awards will continue to vest in

accordance with their original timescales.

In line with the Remuneration Policy Susan was treated

as a good leaver for the purpose of outstanding Long-

Term Incentive Plan awards, which will be pro-rated for

time and subject to performance assessed at the end of

the relevant performance period. All awards will remain

subject to malus and clawback provisions.

Susan is also subject to the post-employment

shareholding requirement for two years following

cessation of employment.

There were no other payments to any past Directors or

payments for loss of office during 2025/26.

Non-Executive Directors’ remuneration

Single figure of remuneration (audited)

2025/26 2024/25

Fees

(£000)

Taxable

benefits

(£000)

Total fees

(£000)

Fees

(£000)

Taxable

benefits

(£000)

Total fees

(£000)

David Sproul

312 0 312 187 0 187

Iain Evans 95 0 95 93 0 93

Jon Butterworth 75 0 75 73 0 73

Loraine Woodhouse 86 0 86 84 0 84

Dorothy Burwell

84 0 84 67 0 67

Andrea Blance

83 0 83 – – –

Sir Andrew Haines

29 0 29 – – –

1. David Sproul received an additional £12,000 due to taking on the role of Executive Chair from 1 January 2026 to 31 March 2026 during the period of

CEO transition.

2. Dorothy Burwell was appointed as ESG Chair on 1 April 2025.

3. Andrea Blance was appointed as Remuneration Committee Chair on 8 April 2025.

4. Sir Andrew Haines was appointed to the Board on 1 November 2025.

Non-Executive Directors’ fees and benefits

During the year, the fees for Non-Executive Directors were reviewed and increased with effect from 1 April 2026. Non-

Executive fees were increased by 3% which is below the average increase awarded to the wider workforce. 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 2026 From 1 April 2025

Chair fee

£309,000 £300,000

Basic Non-Executive Director fee £71,359 £69,280

Additional fees

Senior Independent Director £11,788 £11,445

Chair of Audit Committee £17,677 £17,162

Chair of Remuneration Committee £15,333 £14,887

Chair of ESG Committee £15,333 £14,887

Chair of Health and Safety Committee £5,894 £5,722

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.

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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 2025/26. 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.

Additional contextual information

Historical TSR

The graph below shows the value, over the 10-year period ended on 31 March 2026, of £100 invested in Pennon Group

on 1 April 2016 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 2016

Value of £100 invested on 31 March 2016

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

Keith Haslett 1 April 2026 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 2027

Dorothy Burwell 1 December 2022 30 November 2027

Andrea Blance 8 April 2025 7 April 2028

Sir Andrew Haines 1 November 2025 30 October 2028

Key

Pennon Group

FTSE 250

180

140

100

31 March

2016

31 March

2020

31 March

2018

31 March

2022

31 March

2024

31 March

2017

31 March

2021

31 March

2019

31 March

2023

31 March

2025

31 March

2026

Directors’ Remuneration report continued

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Historical Chief Executive Officer remuneration

The table below provides a summary of the Chief Executive Officer’s single figure remuneration over the past 10 years, as well as the payout and vesting levels of variable pay plans in relation to the maximum opportunity.

2016/17 2017/18 2018/19 2019/20 2020/21 2020/21

2021/22 2022/23

2023/24

2024/25

2025/26

Chris Loughlin Chris Loughlin Chris Loughlin Chris Loughlin Chris Loughlin Susan Davy Susan Davy Susan Davy Susan Davy Susan Davy Susan Davy

Single figure of remuneration (£000) 1,318 1,153 1,351 2,135 1,337 1,930 1,527 543 812 1,098 873

Annual bonus pay-out

(% of maximum) 84.0 87.0 91.0 78.0 79.2 78.1 30.7 0.0 0.0 42.4 17.5

LTIP vesting

(% of maximum) 20.4 0.0 32.0 86.6 89.9 89.9 88.2 0.0 60.2 41.1 35.4%

1. 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.

2. 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.

3. 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.

4. For 2024/25, the single remuneration figure has been adjusted from the figure published in the 2024/25 remunerations due to an annual bonus paid to Susan Davy after the Committee reviewed Ofwat guidance, and the actual valuation of Susan Davy’s 2022 LTIP award based on the adjusted price on the date of

vesting, being 486p.

5. Susan Davy retired from the Board on 31 December 2025 and remuneration is included to this date. The bonus outturn of 17.5% of maximum follows application of Ofwat’s performance related pay prohibition rules.

Percentage change in Directors’ remuneration

2021/22 2022/23 2023/24 2024/25 2025/26

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Salary/

Fees Benefits Bonus

Executive Directors

Susan Davy

4% -23% -58% 0% -27% -100% 3.5% 0% 0% 0% 134.4% - -22% 51% -68%

Laura Flowerdew

– – – – – – – – – – – – 53% 34% -44%

Non-Executive Directors

David Sproul

– – – – – – - – – – – – 66%

Iain Evans 1% – – 3% – – 12% – – 10.3% – – 2%

Jon Butterworth 35% – – 3% – – 3.5% – – 4% – – 3%

Loraine Woodhouse – – – – – – 25% – – 13.4% – – 3%

Dorothy Burwell

– – – – – – 3.5% – – 4% – – 25%

Andrea Blance

– – – – – – – – – – – – –

Sir Andrew Haines

– – – – – – – – – – – – –

All employees

Pennon Group plc 3% -28% -11% 4% -30% -73% 12.8% -39% -3.4% 7.1% 33.8% -70.8% 27% -26% 972%

UK employees 2% -19% -14% 4% -20% -45% 6% -21% -2.2% 4.2% 29.3% 78.8% 0% -8% 27%

1. Susan Davy retired and stepped down from the Board on 31 December 2025 so figures only show 9 out of 12 months’ information. The increase in benefits is attributed to her security allowance paid in 2025/26.

2. Laura Flowerdew was appointed to the Board as Chief Financial Officer on 11 July 2024. The increase in her salary reflects the full year, her salary increase for 2025/26 and her salary supplement during three months of 2025/26.

3. David Sproul was appointed to the Board as Chair Delegate on 1 July 2024, and assumed the role on 24 July 2024. He also received an additional fee of £12,000 for being Executive Chair from 1 January 2026 to 31 March 2026, in the absence of a CEO.

4. The percentage change for Dorothy Burwell for 2025/26 reflects her appointment as ESG Committee Chair on 1 April 2025.

5. Andrea Blance was appointed to the Board and became Remuneration Committee Chair on 8 April 2025.

6. Sir Andrew Haines was appointed to the Board on 1 November 2025.

7. A bonus was paid in 2024/25 after the publication of the Annual Report and Accounts, the percentage change isn’t noted as the bonus was nil in 2023/24.

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Relative importance of spend on pay

2024/25

(£ million)

2025/26

(£ million)

Percentage

change

Overall expenditure on pay

151.1 131.3 -13.1%

Distributions to ordinary shareholders 126.9 133.7 5.4%

Purchase of property, plant, and equipment (cash flow) 666.7 632.8 -5.1%

1. The 2024/25 figure has been updated for late adjustment made in note 13 in the 2024/25 Annual Report and Accounts. 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 20:1 for the median employee for 2025/26. The ratio is slightly lower than in 2024/25 due to differences in the annual bonus payout due to the Water (Special Measures) Act prohibition and her stepping down from

the Board on 31 December 2025. 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

25th percentile

(P25) pay ratio

Median

(P50) pay ratio

75th percentile

(P75) pay ratio

2025/26 A 26:1 20:1 16:1

2024/25

A 35:1 27:1 20:1

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. The 2024/25 single figure has been updated as a result of reflecting the actual valuation of the closing share price on the date of vesting of the LTIP award and the bonus payment that was awarded for FY2024/25 after the Committee considered the Ofwat feedback relating to the Water (Special Measures) Act.

2. 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.

3. 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 2025 to 31 March 2026. The calculations were performed delete and replace with using employee data as at 31 March 2026.

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.

For 2025/26 the total remuneration for the employees identified at P25, P50 and P75 is £33,060, £43,722 and £56,120 respectively. The FTE base salary of 2025/26 for the employees identified at P25, P50 and P75 is £30,569, £26,337 and

£42,236 respectively. Further detail on our approach to pay in the wider organisation is set out on page 131. 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.

Share awards and shareholding disclosures

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Share awards granted during 2025/26 (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 Holding period end date

Susan Davy

LTIP – conditional award 150% of salary

797

25% of maximum

31 March 2028 30 September 2030

Laura Flowerdew 713 31 March 2028 30 September 2030

Susan Davy

Deferred Bonus Shares – nil

cost options

50% of bonus awarded

135

n/a 26 August 2028 26 August 2028

Laura Flowerdew 95

LTIP awards were calculated using the share price of 458p for all participants, being the average closing price over the five dealing days preceding the normal date of grant for the 2025 LTIP, which was 1 October 2025. LTIP awards are also

subject to an additional two-year holding period. The targets for the 2024 and 2025 LTIP awards are aligned to the targets for the 2023 LTIP, as shown on page 140. The deferred bonus award used a share price of 493p for participants.

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 133.

The beneficial interests of the Executive Directors in the ordinary shares of the Company as at 31 March 2026 together with their shareholding guideline obligation and interest are shown in the table below.

Share interests

(including connected parties)

at 31March 2026*

Vested LTIP awards

in holding period

Deferred bonus shares

SAYE

Performance shares (subject

to performance conditions) Shareholding guideline Shareholding guideline met?

Susan Davy

365,749 90,337 27,505 2,744 131,104 200% Yes

Laura Flowerdew

3,692 8,466 21,631 0 312,425 200% 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. Susan Davy’s shareholding and interest in shares is shown as at her last day of employment, 31 December 2025.

3. 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.

* This includes any exercised shares.

Since 1 April 2026, 119 additional ordinary shares have been acquired by Laura Flowerdew as a result of her 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 2026 and 31 May 2026.

Executives are subject to shareholding guidelines, which also apply post-employment, further details can be found on page 152 of the Remuneration Policy.

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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 2026

Shares held at

31 March 2025

David Sproul 4,635 –

Iain Evans – –

Jon Butterworth 2,054 2,054

Loraine Woodhouse 3,389 3,389

Dorothy Burwell 3,389 3,389

Andrea Blance 2,000

Sir Andrew Haines –

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 2026 and 31 May 2026.

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 2026 is as set out below:

Awarded Headroom Total

Discretionary schemes 1.03% 3.97% 5%

All schemes 2.18% 7.82% 10%

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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 2025 Granted in year Lapsed in year Exercised in year

Options

outstanding as at

31 March 2026

Exercise price

Earliest

nominal

exercise date

Susan Davy July 2021 LTIP

54,430 54,430 30/06/2026

June 2022 LTIP

87,366 51,459 35,907 12/06/2027

July 2023 LTIP 131,368 10,509 120,859 20/07/2028

July 2024 Sharesave 2,744 2,744 405p 01/09/2027

July 2024 LTIP

151,047 63,439 87,608 17/07/2029

July 2025 Deferred Bonus Plan 27,505 27,505 26/08/2028

October 2025 LTIP

173,983 130,488 43,496 30/09/2030

Laura Flowerdew June 2022 LTIP

20,599 12,133 8,466 12/06/2027

July 2022 Sharesave

1,075 1,075 668p 01/11/2025

July 2023 LTIP 31,303 31,303 20/07/2028

July 2023 Deferred Bonus Plan 2,380 2,380 17/07/2026

July 2024 Sharesave

2,744 2,744 405p 01/09/2027

July 2024 LTIP

125,555 125,555 17/07/2029

July 2025 Deferred Bonus Plan – 19,251 19,251 26/08/2028

October 2025 LTIP

– 155,567 155,567 30/09/2030

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 performance criteria applicable to the 2024 & 2025 LTIP awards are disclosed on page 140 of this Annual Report.

3. Awards are subject to an additional two-year holding period.

4. For Susan Davy, the options outstanding are shown as at her last day of employment, 31 December 2025.

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Malus and clawback

Details of malus and clawback provisions are set out in the Directors’ Remuneration Policy.

The Committee has not applied any action under the provisions of malus and clawback during 2025/26.

The Remuneration Committee and its advisors

Andrea Blance, Iain Evans and Dorothy Burwell were members of the Remuneration Committee through the year, with

Iain Evans stepping down on 31 March 2026. David Sproul, Jon Butterworth and Susan Davy attended 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 the 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 2025/26 were £208,800 (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 2025 AGM and the Remuneration Policy at the 2023 AGM, including votes for, against and

withheld.

Annual report on remuneration (2025 AGM)

For % (including votes at the Chair’s discretion) 99.06%

Against % 0.94%

Withheld number 9,390,744

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 160 to 164 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

10 June 2026

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Remuneration Policy 2026

Introduction

The previous Directors’ Remuneration Policy was

approved by shareholders at the 2023 AGM on 20 July

2023 with a 94% vote in support. In line with the normal

three-year renewal cycle, a new Remuneration Policy,

as described in this part of the report, will be presented

to shareholders for approval at the 2026 AGM on 8 July

2026, and if approved will come into effect from this date.

The Directors’ Remuneration Policy will be displayed

on the Company’s website at www.pennon-group.co.uk/

investor-information, immediately after the 2026 AGM

and will be available upon request from the Group

Company Secretary.

Changes to Remuneration Policy

Our current pay model of a bonus plus performance-

based LTIP reflects mainstream FTSE market practice;

and contains a number of best practice governance

features. During the year, the Committee debated how

pay arrangements could be best structured to support

the delivery of Pennon’s ambitious strategy and the

interests of our various stakeholders. However, the

Committee concluded that implementing major changes

at this time was not appropriate in the context of the

CEO transition. The Policy set out on the following

pages has therefore largely been rolled forward from the

previous Policy approved by shareholders. Minor changes

have been made to reflect best practice and to ensure

the Policy has sufficient flexibility to aid its effective

operation.

Following the AGM we will initiate a more holistic review

of our approach to remuneration. In line with our normal

practice we will engage with our major shareholders

regarding any material changes that are proposed in

response to this review. We will also consider evolving

guidance from Ofwat and market practice in the sector as

part of our review.

Future policy table – Executive Directors

The table below sets out the elements of the remuneration package for the Executive Directors.

Fixed pay

Base salary

Purpose and link

to strategy

Set at a competitive level to attract and retain high calibre candidates to meet the Company’s

strategic objectives in an increasingly complex business environment.

Base salary reflects the scope and responsibility of the role as well as the skills and experience of

the individual.

Operation

Salaries are generally reviewed annually and any changes are normally effective from 1 April each

year. In normal circumstances, salary increases will not be materially above the general employee

pay increases.

However, the Committee reserves the right to make increases above those made to general

employees, for example in circumstances including (but not limited to) an increase in the scope

of the role, to address market competitiveness or to reflect an individual’s development in a role.

Maximum

When reviewing salaries the Committee has regard to the following factors:

• Salary increases generally for all employees in the Company and the Group.

• Market rates.

• Performance of the individual and the Company and/or development in the role.

• Other factors it considers relevant.

There is no overall maximum.

Performance

framework

None, although individual and Company performance are factors considered when

reviewingsalaries.

Benefits

Purpose and link

to strategy

Benefits provided are consistent with the market and level of seniority to aid retention of key

skills to assist in meeting strategic objectives.

Operation

Benefits currently include the provision of a company vehicle, fuel, health insurance and life

assurance. Other benefits may be provided if the Committee considers it appropriate.

In the event that an Executive Director is required to relocate, relocation benefits may be

provided.

Maximum

The cost of insurance benefits may vary from year to year depending on the individual’s

circumstances.

There is no overall maximum benefit value but the Committee aims to ensure that the total value

of benefits remains proportionate.

Performance

framework

None.

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Future policy table – Executive Directors continued

Fixed pay continued

Pension-related benefits

Purpose and link

to strategy

Provides funding for retirement and aids retention of key skills to assist in meeting the

Company’s strategic objectives.

Operation

The Executives are eligible to participate in the Pennon Group Defined Contribution Scheme at

the same level of benefit as the wider workforce.

A cash allowance may be provided as an alternative and/or in addition where pension limits have

been reached.

Maximum

The maximum pension benefit will normally be capped at a level comparable to the pension

benefit available to the majority of employees. This is currently 10% of salary.

Performance

framework

None.

All-employee share plans

Purpose and link

to strategy

Align the interests of all employees with Company share performance.

Operation

Executive Directors may participate in all-employee plans, including HMRC approved plans, on

the same basis as employees.

Maximum

The maximum will be consistent with other employees. For HMRC approved plans, the maximum

will be as prescribed under the relevant legislation governing the plans.

Performance

framework

None.

Variable pay

Annual bonus

Purpose and link

to strategy

Incentivises the achievement of annual performance objectives aligned to the strategy of the

Company.

Operation

Annual bonuses are calculated following finalisation of the financial results for the year to which

they relate.

A portion of any bonus is normally deferred into shares in the Company which are usually

released after three years. Normally 50% is deferred.

Dividends (or equivalents) may be paid/accrued on deferred shares.

Awards are subject to malus and clawback provisions. Further details are set out on pages

152 to 153.

Maximum

The maximum bonus potential is 125% of base salary.

Performance

framework

Performance targets may relate to financial, operational, strategic and environmental objectives,

which are reviewed each year. Performance criteria will reflect strategic priorities and regulatory

requirements.

The level of payment for threshold performance will vary depending on the nature of the metric

and the stretch of the target set. There is normally scaled payment for performance between the

threshold and maximum performance hurdle.

The measures, weighting and threshold levels may be adjusted for future years.

Following the financial year end the Committee, with advice from the Chair of the Board and

following appropriate input from other Board Committees, assesses the extent to which targets

are met and determines bonus levels accordingly. The Committee may exercise its discretion in

certain circumstances; further details are set out on pages 152 to 153.

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Long-term incentive plan (LTIP)

Purpose and link

to strategy

Provides alignment to the achievement of the Company’s strategic objectives and the delivery of

sustainable long-term value to shareholders.

Operation

Annual grant of conditional shares (or equivalent). Share awards vest subject to the achievement

of specific performance conditions, normally measured over a performance period of no less than

three years.

An ‘underpin’ applies which allows the Committee to reduce or withhold vesting if the Committee

is not satisfied with the underlying operational and economic performance of the Company.

In addition, a two-year holding period will normally apply in respect of any shares which vest at

the end of the three-year performance period.

Dividends (or equivalents) may accrue on share awards that vest.

Awards are subject to malus and clawback provisions. Further details are set out below.

Maximum

The maximum annual award is 150% of base salary.

Performance

framework

Performance metrics and targets are set to reflect the long-term strategic priorities of the Group.

Performance criteria are linked to our long-term strategy and may include a combination of

financial, operational, strategic and/or shareholder-related measures. An ’underpin’ applies which

allows the Committee to reduce or withhold vesting if the Committee is not satisfied with the

underlying performance of the Company.

No more than 25% of maximum vests for minimum performance. However, this may be adjusted

to reflect the nature of the metrics and stretch of targets. The Committee will keep the

performance measures and weightings under review and may change the performance condition

for future awards if this were considered to be aligned with the Company’s interests and strategic

objectives, as well as the impact of regulatory changes. In certain circumstances, the Committee

may exercise its discretion and adjust performance outcomes. Further details are set out on this

page and on page 153.

The Committee would usually seek to consult with major shareholders in advance of any

proposed material change in performance measures.

Other features

Shareholding guidelines

Purpose and link

to strategy

Create alignment between Executives and shareholders and promote long-term stewardship.

During the course of their tenure, Executive Directors are expected to build up a shareholding

equivalent to 200% of salary.

Departing Executive Directors are also expected to retain a material interest in Company shares

for two years after they step down from the Board. Executives will normally be expected to hold

200% of salary (or actual relevant holding, if lower) on departure, with the guideline reducing

to 100% of salary after 12 months. This guideline will apply to all share awards vesting after the

adoption of this Remuneration Policy.

Operation

The Committee retains discretion to waive this guideline in certain cases (e.g. compassionate

circumstances).

Notes to the policy table

Performance measures and targets

There is a strong emphasis on performance related

executive pay demonstrating a substantial link between

rewards and delivery of stretching performance

objectives. The performance conditions for the annual

bonus and LTIP are selected by the Committee each

year to provide a rounded assessment of performance

including metrics which drive financial resilience and key

performance indicators for customers, communities and

the environment. These metrics are used by the Board to

oversee the operation of the businesses.

The Committee may amend performance measures,

weightings and targets, in the context of the Company’s

strategy, the impact of changes to the regulatory

framework, accounting standards and any other relevant

factors.

The measurement of performance against performance

targets and determination of incentive outcomes is at

the Committee’s discretion. Adjustments may be made to

reflect underlying financial or non-financial performance

of the individual or the Group, consideration of overall

performance in the round, and/or circumstances

unforeseen or unexpected when the targets were set.

When making this judgement, the Committee may take

into account all factors deemed relevant.

Performance conditions may also be replaced or varied if

an event occurs or circumstances arise which cause the

Committee to determine that the performance conditions

have ceased to be appropriate. If the performance

conditions are varied or replaced, the amended

conditions must, in the opinion of the Committee, be

fair, reasonable and materially no less difficult than the

original condition when set.

The Committee would clearly disclose any material

changes to performance measures, and seek shareholder

views as appropriate.

Malus and clawback

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 considers these time horizons

appropriate as they align with our annual bonus deferral

period and the combined performance and holding

period under the LTIP, and provides sufficient time for

any potential circumstances to be identified.

Discretion

In line with the 2024 Corporate Governance Code,

the Remuneration Committee has ensured that it will

maintain the ability to override the formulaic outcomes

for future awards under the annual bonus and LTIP where

the outcomes are not considered by the Committee to be

appropriate (e.g., unreflective of underlying performance),

as outlined above.

The Committee will disclose the use of any such

discretion.

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Fixed remuneration Annual variable remuneration Long-term variable remuneration

Operation of executive share plans

The long-term incentive plan will be operated in

accordance with the rules of the plan as approved

by shareholders. The deferred bonus awards will be

governed by the rules adopted by the Board from time

to time. Awards under any of the Company’s share plans

referred to in this report may:

• Be granted as conditional share awards, nil-cost options

or in such other form that the Committee determines

has the same economic effect.

• Have any performance conditions applicable to them

amended or substituted by the Committee if an event

occurs which causes the Committee to determine an

amended or substituted performance condition would

be more appropriate and not materially less difficult to

satisfy.

• Incorporate the right to receive an amount (in cash

or additional shares) equal to the value of dividends

which would have been paid on the shares under

an award that vests. This amount may be calculated

assuming that the dividends have been reinvested in

the Company’s shares on a cumulative basis.

• Be settled in cash at the Committee’s discretion (e.g.

due to regulatory limitations).

On a change of control or voluntary wind up of the

Company, LTIP awards may vest to the extent determined

by the Committee having regard to the performance of

the Company, and, unless the Committee determines

otherwise, the period of time that has elapsed since grant.

Deferred bonus awards may vest in full. Alternatively,

participants may have the opportunity, or be required, to

exchange their awards for equivalent awards in another

company, although the Committee may decide in these

circumstances to amend the performance conditions.

The Committee also has the discretion to treat any

variation of the Company’s share capital or any demerger,

special dividend or other transaction that may affect

the current or future value of awards as an early vesting

event on the same basis as a change of control.

Keith Haslett

Chief Executive Officer

£902k

100%

53% 29% 18%

18%

39%

38%

32%

29%53%

29%

£1,702k

£3,102k

Minimum performance

Mid performance

Max performance

Fixed remuneration Annual variable remuneration Long-term variable remuneration

Laura Flowerdew

Chief Financial Officer

£557k

£1,046k

£1,902k

Minimum performance

Mid performance

Max performance

Illustration of applications of Remuneration Policy

Minimum performance

Fixed pay, which constitutes base salary, pension-related benefits and benefits in kind. These values are made up of the

salaries for 2026/27 (set out on pages 131 and 132) and the expected value of ongoing benefits. The pension value is

10% of salary.

Mid performance

Fixed pay and 50% of the maximum annual bonus and 25% of the maximum long-term incentive award.

Maximum performance

Fixed pay and 100% vesting of the annual bonus and of long-term incentive awards.

No adjustments have been made for potential payment of dividends. Benefits from all-employee schemes have also

been excluded.

As long-term share awards are granted in shares and subject to stretching performance criteria, the value of the award

can vary significantly depending on the extent to which targets are achieved and the movement in the share price. For

example, if the share price increased by 50% over the relevant vesting and holding period, the maximum values shown

in the charts above would increase to £3,702k for the CEO and £2,269k for the CFO. Conversely if the share price was

to fall by 50%, the maximum values shown in the charts would reduce to £2,502k for the CEO and £1,535k for the CFO.

Detailed provisions

The Committee reserves the right to make any

remuneration payments and/or payments for loss of

office (including exercising any discretion available in

connection with such payments) outside the policy set

out above where the terms of the payment were agreed

(i) before the 2014 AGM (the date the Company’s first

shareholder-approved Directors’ Remuneration Policy

came into effect); (ii) before the policy set out above

came into effect, provided that the terms of the payment

were consistent with the shareholder-approved Directors’

Remuneration Policy in force at the time they were

agreed; or (iii) at a time when the relevant individual was

not a Director of the Company and, in the opinion of the

Committee, the payment was not in consideration for the

individual becoming a Director of the Company. For these

purposes ‘payments’ includes the Committee satisfying

awards of variable remuneration and, in relation to an

award over shares, the terms of the payment are ‘agreed’

at the time the award is granted.

The Committee may make minor amendments to the

policy (for example for regulatory, exchange control, tax

or administrative purposes or to take account of a change

in legislation) without obtaining shareholder approval for

thatamendment.

Differences in remuneration policy for

all employees

When setting remuneration for Executive Directors the

Committee considers relevant information about pay and

conditions in the Group. Senior executives and Executive

Directors generally receive a higher proportion of their

total pay in the form of variable remuneration and share

awards. All employees of the Group are entitled to base

salary and pension provision including life assurance.

In addition, all colleagues are entitled to participate in

annual bonus arrangements, the levels of which are

based on the seniority and level of responsibility.

Long-term incentive share awards are only available to

senior executives and Executive Directors, and certain

benefits are generally available only to more senior

employees at management level and above.

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Future policy table – Non-Executive Directors

Fees

Purpose and link

to strategy

Set at a market level to attract Non-Executive Directors who have appropriate experience and

skills to assist in determining the Group’s strategy.

Operation

Fees are set by the Board with the Non-Executive Chair’s fees being set by the Committee. The

relevant Directors are not present at the meetings when their fees are being determined.

The Non-Executive Chair and Non-Executive Directors normally receive a basic fee and do not

participate in any of the Company’s incentive arrangements or receive pension-related benefits.

A portion of any fees may be delivered in shares.

Non-Executive Directors may receive an additional fee for any specific Board responsibility such

as membership or chairmanship of a Committee or occupying the role of Senior Independent

Director.

In reviewing the fees, the Board, or Committee as appropriate, consider the level of fees payable

to Non-Executive Directors in other companies of similar scale and complexity.

Maximum

Total fees paid to Non-Executive Directors will remain within the limits stated in the Articles of

Association or as otherwise approved by shareholders.

Benefits

Operation

Where appropriate limited role-appropriate benefits may be provided.

Expenses incurred in the performance of non-executive duties for the Company may be

reimbursed or paid for directly by the Company (including any tax due on the expenses).

The Chair’s benefits include the provision of a driver and vehicle, when appropriate for the

efficient carrying out of their duties.

Maximum

None.

Approach to recruitment remuneration

When considering the appointment of Executive Directors,

the Committee seeks to balance the need to offer

remuneration to attract candidates of sufficient calibre to

deliver the Company’s strategy whilst remaining mindful of

the need to pay no more than is necessary.

The Committee will appoint new Executive Directors

with a package that is in line with the Remuneration Policy

that has been agreed by shareholders and is in place at

the time.

Other elements of remuneration would be in line with the

Company’s policy set out in the future policy.

The maximum variable pay opportunity on recruitment

(excluding ‘buyouts’) would be 275% of salary, which is

in line with the future policy table. The Committee may

determine for the first year of appointment that incentives

may be subject to different weightings or objectives.

To facilitate recruitment, it may be necessary to

recompense a new Executive Director for the expected

value of remuneration or contractual arrangements

forfeited on joining the Company (‘buyout’ awards). The

Committee may make buyout awards in accordance with

the Listing Rules or utilising any other incentive plan

operated by the Group from time-to-time. The Committee

will ensure that any such award would not exceed the

value of arrangments forfeited and be made only where

a Director is able to demonstrate that a loss has been

incurred. Any buyout would take into account the terms

of the arrangement forfeited, including in particular any

performance conditions and the time over which they vest.

The award would normally have time horizons which are

in line with or greater than the awards forfeited. Where

appropriate the exact nature of the buyout may be tailored

based on the commercial circumstances at the time,

provided that the value of the buyout remains comparable

to arrangements forfeited.

For interim positions a cash supplement may be paid

rather than salary (for example a Non-Executive Director

taking on an executive function on a short-term basis).

Where an employee is promoted to the position of

Executive Director (including if an Executive Director is

appointed following an acquisition or merger), pre-existing

awards and contractual commitments would be honoured

in accordance with their established terms.

Non-Executive Directors’ fees would be in line with the

policy set out in the future policy table on this page.

Policy on termination of service

agreements and payment for loss

of office

The Company’s policy is that Executive Directors’ service

agreements normally continue until the Director’s agreed

retirement date or such other date as the parties agree.

Otherwise, they are terminable on up to one year’s notice.

There are no liquidated damages provisions for

compensation on termination within Executive

Directors’ service agreements. Taking into account the

circumstances of any termination, the Committee may

determine that a payment in lieu of notice should be

made. Any such payments would be restricted to salary

and benefits (including pension). In these circumstances,

consideration would be given to phasing of payments and

an individual’s duty and opportunity to mitigate losses.

The Committee reserves the right to make any other

payments in connection with a Director’s cessation of

office or employment where the payments are made in

good faith in discharge of an existing legal obligation (or

by way of damages for breach of such an obligation) or

by way of compromise or settlement of any claim arising

in connection with the cessation of a Director’s office or

employment. Benefits payable may include certain one-

off benefits in connection with termination, such as legal

costs and outplacement support.

Remuneration Policy 2026 continued

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Any compensation payable will be determined by reference to the terms of the service contract between the Company

and the employee, as well as the rules of the various incentive plans as set out in the table below.

Annual bonus

Normally no bonus is payable unless an Executive Director is employed on the date of payment.

In certain good leaver circumstances (death, disability, redundancy, retirement and any other

circumstance at the Committee’s discretion) a bonus may be payable. Any such bonus would be

based on performance and pro-rated to reflect the period of service with performance normally

assessed at the same time as other employees. The Committee retains discretion to adjust the

timing and pro-rating of any award to take account of any prevailing exceptional circumstances

which they consider would be fair to the Company and to the employee. Share deferral would not

normally apply.

Deferred shares

Unvested awards would normally lapse upon cessation. In certain good leaver circumstances,

the participant may retain their awards. The restricted period is not automatically terminated

on cessation of employment; rather, the restricted period continues to apply as if the leaver was

still in employment. However, awards may be released to participants at an earlier date following

cessation of employment at the discretion of the Committee.

Good leaver circumstances are death, injury, ill-health, disability, redundancy, retirement (with

agreement of the Company), the transfer of the employing company or business or any other

circumstance at the Committee’s discretion.

Long-term

incentive plan

Any unvested awards would normally lapse upon cessation of the individual’s employment

within the Group. In certain good leaver circumstances, awards vest to the extent determined by

the Committee taking into account the extent to which the performance conditions have been

satisfied, the period of time elapsed between grant and the cessation of employment and such

other factors as the Committee may deem relevant. Awards would normally vest on the original

normal vesting date and be released at the end of the two-year holding period (unless the

Committee determines awards should be subject to earlier vesting and release dates).

If a participant dies, an award will, unless the Committee determines otherwise, vest and be

released as soon as possible following the participant’s death, taking into account the extent to

which the performance conditions have been satisfied and the period of time elapsed since grant.

Good leaver circumstances are death, ill health, injury, disability, redundancy, where the

participant’s employer is no longer a member of the Group, where the participant is employed in

an undertaking which is transferred out of the Group, or for any other reason that the Committee

determines.

All awards would lapse if a participant was summarily dismissed.

All-employee

awards

Leavers will be treated in accordance with the HMRC approved rules.

Other awards

Where a buyout award is made on recruitment, leaver provisions would be determined at the

time of award.

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 engages on remuneration matters with the

wider workforce, through many mechanisms including the

Be the Future Forum, the Big Chat and two-way business

unit communications, on which more can be read on

pages 22 to 23.

Statement of consideration of

shareholder views

In developing this 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 this Policy.

As detailed on page 132 to the extent that a further

review of the Policy is initiated later in the year the

Committee would engage with our major stakeholders

as appropriate.

Remuneration Policy 2026 continued

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Pennon Group plc Annual Report and Accounts 2026 Financial Statements Other Information

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155

Introduction

The Directors present their Annual Report and Accounts

for the year ending 31 March 2026. 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 2026

Annual Report and Accounts, where applicable (under

Listing Rule 6.6.1), 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 to n/a

Likely future developments

of the Company 10 to 13

Risk management systems 62 to 69

Certain employee and employee

engagement matters as well as the

disclosures below

14 to 17

and 22 to 23

How the Board has engaged with

employees and had regard for

employee interests

22 to 23

and 111

Business relationships/engagement

with suppliers, customers and others 18 to 27

Carbon and greenhouse gas

emissions, energy consumption and

energy efficiency action 74 to 82

Financial risk management 177 to 179

Financial instruments

175 and

198 to 199

This Directors’ report (including pages 96 to 159, 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 2025 AGM and are available on our website.

Auditors: The External Auditor for the 2025/26 financial

year was PricewaterhouseCoopers LLP. The Independent

Auditors’ Report starting on page 160 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 20.03 pence per ordinary share to be paid

on 4September 2026 to shareholders on the register

on 24July 2026, making a total dividend for the year

of 29.29pence per share. The aggregate cost of the

final dividend will be £94.5 million and total dividend

£138.2million. The Strategic Report on pages 1 to 95

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

(2024/25: £nil)

Other contributions: During the year, the Group

provided a total of £0.4 million in charitable donations

(2024/25: £0.1 million).

Directors’ report

Andrew Garard

Group General Counsel and Company Secretary

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Financial Statements Other Information

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156

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 62 to 69, 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 2027. 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.£101.5 million; this value is considered

equivalent to an extreme one-off event that could

occur over the 15 month period of the assessment to

30 September 2027, 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.

Disclosures

Listing Rule 6.6.1 disclosures: The Company has no

long-term incentive arrangements in place under LR

9.3.2R 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.

Per note 8 ‘finance costs of £40.5 million (2024/25:

£27.7 million) have been capitalised on qualifying assets

included in property, plant and equipment’.

There is no other information to be disclosed under

Listing Rule 6.6.1R.

DTR 3.1.2R: The Directors’ interest in the ordinary shares

and options of the Company are disclosed within the

Directors’ Remuneration Report on pages 146 to 148.

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 62 to 69. 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 2026, the Group has access to undrawn

committed funds of £610.0 million and cash and cash

equivalents and restricted funds of £388.3 million,

totalling £998.3 million. The Group has a headroom of

£186.7million at 30 September 2027.

At the 2025 AGM, the Directors were given the authority

to purchase up to a maximum number of 47,197,167 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 2025 until 10 June 2026, 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 2026,

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 and which were in force throughout the year and

remain in force.

Directors

Details of the Directors who served in the year and

to the date of this report can be found on page 96.

Biographies for Directors currently in office can be found

on pages 100 to 101 and on our website. During the year,

Susan Davy resigned as a Director of the Company on

31 December 2025, Iain Evans resigned as a Director

of the Company on 31 March 2026, Andrea Blance was

appointed as a Director of the Company on 8 April 2025,

Sir Andrew Haines was appointed as a Director of the

Company on 1 November 2025 and Keith Haslett was

appointed as a Director of the Company on 1 April 2026.

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.

Directors’ report continued

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157

Greenhouse gas emissions: Details of our GHG

emissions can be found in the Strategic Report on

page 81.

Energy usage: Details of our Energy usage can be found

in the Strategic Report on page 82.

Research and development: Research and development

within the Group involving water and wastewater

treatment processes amounted to £1.2 million during the

year (2024/25: £1.1 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 34 to the

financial statements. All of the issued shares are fully paid

up and quoted on the London Stock Exchange.

In addition, the Company issued and allotted 6,882

ordinary shares in the Company under the terms of the

Pennon Sharesave Plan 2025.

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 223. The Company

is not aware of any agreements between shareholders

which may result in restrictions on the transfer of

securities or on voting rights.

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 22 to 23 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 2026, approximately 42% (2024/25: 33%) of the

Group’s employees were participating in these plans.

Modern Slavery Act: Our people are fundamental to

our business, and we remain committed and passionate

about supporting our staff, customers and communities

to thrive in 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 at:

https://www.pennon-group.co.uk/sites/default/

files/attachments/pdf/pennon-modern-slavery-

statement-2025.pdf

New standards or interpretations due to be adopted from

1 April 2026 are not expected to have a material impact

on the Group’s and the parent company’s net assets or

results.

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 118. Also,

information regarding the employee diversity is provided

on pages 15 to 16 and 137. The Board’s activities in

relation to assessing and monitoring culture can be found

in the Corporate Governance Statement on page 163.

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 2027, 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 2025 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.

Directors’ report continued

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Financial Statements Other Information

Governance

158

• 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 Annual Report and Accounts, including 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 each of the Directors is aware, there is no

relevant audit information of which the Group’s and

Company’s auditors is unaware; and

• Each of the Directors has taken all the steps each

Director ought to have taken individually as a Director

in order to make herself or himself aware of any relevant

audit information and to establish that the Company’s

auditor is aware of that information.

The Directors’ report consisting of pages 156 to 159 was

approved by the Board on 10 June 2026.

By order of the Board

Andrew Garard

Group General Counsel and Company Secretary

10 June 2026

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 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 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 pages 100 to 101 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 profit of the

group;

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. £ 96,038,171 (such amount to be reduced by any shares

allotted or rights granted under (ii) below in excess of £

96,038,171); and

II. £ 192,105,155 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 2025 AGM. In addition,

shareholders approved at the 2025 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 2026 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 20th October 2020.

Statement of Directors’ responsibilities

in respect of the financial statements

The Directors are responsible for preparing the Annual

Report and the Group 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, the 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.

Directors’ report continued

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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 2026 and of the group’s profit

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 2026 (the “Annual Report”),

which comprise:

• the Consolidated and Company balance sheets as at 31 March 2026;

• the Consolidated statement of profit or loss for the year then ended;

• the Consolidated statement of comprehensive income for the year then ended;

• the Consolidated statement of changes in equity for the year then ended;

• the Company statement of changes in equity for the year then ended;

• the 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 manual adjustments 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: £12,900,000 (2024/25: £10,400,000) based on 1% of Revenue.

• Overall company materiality: £19,650,000 (2024/25: £17,900,000) based on 1% of Total assets.

• Performance materiality: £9,650,000 (2024/25: £7,800,000) (group) and £14,700,000 (2024/25: £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.

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Key audit matter How our audit addressed the key audit matter

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 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 judgement. 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 inflation and water tariffs, changes to customer

support programmes, whether the household customer

no longer occupies a property in the area and the level

of expected leakage.

As part of our audit of the directors’ judgement 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 the key factors relating to non-

recovery through review of external macroeconomic

data and the post balance sheet collections data for

April 2026 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.

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 2026;

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.

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.

The key audit matters below are consistent with last year.

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 judgement 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 judgemental and therefore the position adopted is

subjective.

As part of our audit of the directors’ judgement over the

level of manual adjustments required:

• We have performed walkthrough procedures to

understand the process for calculating the accrued

income, with a specific focus on the directors’

methodology, including reviewing accounting papers

supporting the estimation;

• We performed lookback procedures over the directors

historical forecasting to assess the accuracy of the

manual adjustments applied;

• We performed post year-end lookback procedures

over the 2025/26 accrued income based on amounts

subsequently billed in April 2026; 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.

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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% (2024/25: 75%) of overall materiality, amounting to £9,650,000 (2024/25: £7,800,000)

for the group financial statements and £14,700,000 (2024/25: £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 £645,000 (group audit) (2024/25: £500,000) and £982,000 (company audit) (2024/25: £895,000) 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, where the directors’ assessment covered the period of 15 months from

the date of approval of the Annual Report and Accounts to September 2027;

• 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 assess 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 assess that 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.

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.

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. 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 company is comprised of one reporting unit which was subject to a full scope audit by the group audit team for the

purposes of the company financial statements.

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 understanding 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 £12,900,000 (2024/25: £10,400,000). £19,650,000 (2024/25: £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 between £4,800,000 and £11,600,000. 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.

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• 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 in respect of the financial statements, 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.

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 2026 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.

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;

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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

We were first appointed by the company for the financial year ended 31 March 2025. Our uninterrupted engagement

covers two financial years.

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

10 June 2026

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, the incorrect classification of items

as non-underlying in the Income Statement and management bias in significant accounting estimates and judgements.

Audit procedures performed by the engagement team included:

• 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 non-underlying items and assessing the judgement made by the directors over their classification;

• 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 matters raised through the group’s whistleblowing process insofar as they relate to the financial

statements;

• Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with

laws and regulations;

• Reviewing internal audit reports that 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.

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Notes

		Before	Non-underlying		Before	Non-underlying
		non-underlying	items		non-underlying	items
		items	(note 6)	Total	items	(note 6)	Total
		2026	2026	2026	2025	2025	2025
		£m	£m	£m	£m	£m	£m
Revenue	5	1,291.4	–	1,291.4	1 ,0 47. 8	–	1 ,0 47. 8
Operating costs	7
Employment costs		(131.3)	(4. 8)	(136. 1)	(151.1)	(11.7)	(162.8)
Raw materials and consumables used		(40.0)	–	(4 0.0)	(51.7)	(0.2)	(51. 9)
Other operating expenses		(581.4)	(15.9)	(597 .3)	(4 99. 7)	(25 .7)	(525.4)
Financial assets impairment		(19 .5)	–	(19.5)	(9.7)	–	(9. 7)
Earnings before interest, tax, depreciation and amortisation	5	5 19. 2	(20 .7)	498.5	3 3 5.6	(37 . 6)	2 98 .0
Depreciation, amortisation and impairment	7	(193.7)	–	(193.7)	(187. 1)	-	(187 . 1)
Operating profit/(loss)	5	325.5	(20.7)	304.8	148.5	(37 . 6)	110.9
Finance income	8	21.9	–	21.9	1 5.0	–	1 5.0
Finance costs	8	(213.3)	–	(213.3)	(199. 4)	–	(199.4)
Net finance costs	8	(191.4)	–	(191.4)	(184.4)	–	(184.4)
Share of post-tax profit from associated companies	21	1 .0	–	1 .0	0.8	–	0.8
Profit/(loss) before tax	5	1 3 5 .1	(20. 7)	114.4	(35.1)	(37 . 6)	(72 .7)
Taxation (charge)/credit	9	(25.9)	4 .1	(21.8)	7.0	8.9	1 5.9
Profit/(loss) for the year		109 .2	(16 .6)	9 2 .6	(28. 1)	(28.7)	(56.8)
Attributable to:
Ordinary shareholders of the parent				91.5			(57 .9)
Non-controlling interests				1 .1			1 .1
Earnings per ordinary share (pence per share)	11
Basic				19. 4			(16. 1)
Diluted				1 9.3			(16. 1)

The above results were derived from continuing operations. The notes on pages 171 to 217 form part of these financial statements.

Consolidated statement of profit or loss

For the year ended 31 March 2026

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165

		Before	Non-underlying		Before	Non-underlying
		non-underlying	items		non-underlying	items
		items	(note 6)	Total	items	(note 6)	Total
		2026	2026	2026	2025	2025	2025
	Notes	£m	£m	£m	£m	£m	£m
Profit/(loss) for the year		109 .2	(16 .6)	9 2 .6	(28. 1)	(28.7)	(56.8)
Other comprehensive (loss)/income
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit obligations	31	(1.5)	–	(1.5)	3.5	–	3.5
Tax relating to components of other comprehensive income	9	0. 9	–	0. 9	(0. 9)	–	(0. 9)
Total items that will not be reclassified to profit or loss		(0. 6)	–	(0.6)	2 .6	–	2 .6
Items that may be reclassified subsequently to profit or loss
Loss on cash flow hedging		(6.7)	–	(6.7)	(19. 7)	–	(19 .7)
Hedging losses recycled to profit or loss		7. 5	–	7. 5	15 .4	–	15.4
Tax relating to components of other comprehensive income	9	(0.2)	–	(0. 2)	2 .4	–	2 .4
Total items that may be reclassified subsequently to profit or loss		0.6	–	0.6	(1.9)	–	(1.9)
Other comprehensive income for the year net of tax	37	–	–	–	0. 7	–	0. 7
Total comprehensive income/(loss) for the year		109 .2	(16 .6)	9 2 .6	(27 .4)	(28.7)	(56. 1)
Total comprehensive income/(loss) attributable to:
Ordinary shareholders of the parent				91.5			(57.2)
Non-controlling interests				1 .1			1 .1

The notes on pages 171 to 217 form part of these financial statements.

Consolidated statement of comprehensive income

For the year ended 31 March 2026

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166

Consolidated and Company balance sheets

At 31 March 2026

Group Company

		2026	2025
	Notes	£m	£m
Non-current liabilities
Borrowings	29	(4, 746. 0)	(4,296.9) (328.4) (195.6)
Other non-current liabilities	30	(188.0)	(171.3) – –
Derivative financial instruments	24	(1.9)	(1.6) – –
Deferred tax liabilities	32	(551.9)	(530. 6) – –
Provisions	33	(0. 4)	(0. 5) – –
		(5,488.2)	(5, 000 .9) (328.4) (195.6)
Net assets		1,411. 6	1,450. 7 1,584.2 1,525.8
Shareholders’ equity
Share capital	34	288. 1	2 8 8.1 288.1 288.1
Share premium account	35	7 5 5 .1	7 55 .0 755.1 755.0
Capital redemption reserve	36	1 5 7.1	157 . 1 157.1 157.1
Retained earnings and other reserves	37	2 0 7. 7	24 8.0 383.9 325.6
Total shareholders’ equity		1,408.0	1,448.2 1,584.2 1,525.8
Non-controlling interests		3 .6	2.5 – –
Total equity		1,411. 6	1,450 .7 1,584.2 1,525.8

2026

£m

2025

£m

The profit for the year attributable to ordinary shareholders’ equity dealt with in the accounts of the Parent Company

is £191.5 million (2025: £13.5 million loss). The notes on pages 171 to 217 form part of these financial statements.

The financial statements on pages 165 to 217 were approved by the Board of Directors and authorised for issue

on 10 June 2026 and were signed on its behalf by:

Laura Flowerdew

Group Chief Financial Officer

Pennon Group plc

Registered Office: Peninsula House, Rydon Lane, Exeter, Devon, England EX2 7HR. Registered in England Number

02366640.

Group Company

		2026	2025
	Notes	£m	£m
Assets
Non-current assets
Goodwill	15	1 79. 9	17 9.9 – –
Other intangible assets	16	6 7. 5	62 .2 – –
Property, plant and equipment	17	6 , 2 9 7. 5	5,8 41.5 – –
Investment properties	18	6. 3	7.9 – –
Other non-current assets	20	7. 1	8.7 191.3 104.6
Financial assets at fair value through profit or loss	25	–	0 .6 – 0.6
Deferred tax assets	32	–	– 25.9 23.6
Derivative financial instruments	24	21.4	22.4 – 0.1
Investments in subsidiary undertakings	21	–	– 1,562.7 1,562.7
Investments in associated companies	21	2 .8	1.8 – –
Retirement benefit assets	31	2 0.5	22 .0 3.6 4.0
		6,6 03 .0	6 ,14 7.0 1,783.5 1,695.6
Current assets
Inventories	22	15.3	12 .8 – –
Trade and other receivables	23	452 .4	391 .8 180.0 53.8
Current tax receivable	28	–	0.9 0.4 –
Financial assets at fair value through profit or loss	25	0.6	– 0.6 –
Derivative financial instruments	24	9.0	9.8 1.2 0.7
Cash and cash equivalents	26	3 32 .7	4 17. 9 0.4 45.0
Restricted funds	26	5 5.6	58.2 – –
Retirement benefit assets	31	11.4	9. 2 – –
		8 7 7. 0	900. 6 182.6 99.5
Liabilities
Current liabilities
Borrowings	29	(151. 2)	(257 .4) (36.9) (51.5)
Financial liabilities at fair value through profit and loss	25	–	(0.3) – (0.3)
Derivative financial instruments	24	(0 . 6)	(0 .5) – (0.1)
Trade and other payables	27	(422.3)	(331.0) (16.6) (19.6)
Current tax liabilities	28	–	– – (1.9)
Provisions	33	(6 .1)	(6.8) – (0.3)
		(580.2)	(596. 0) (53.5) (73.7)
Net current assets		296.8	304.6 129.1 25.8

2026

£m

2025

£m

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				Retained
		Share	Capital	earnings
	Share	premium	redemption	and other	Non-
	capital	account	reserve	reserves	controlling	Total
	(note 34)	(note 35)	(note 36)	(note 37)	interests	equity
	£m	£m	£m	£m	£m	£m
Group
At 31 March 2024	174. 6	3 98.2	157. 1	431.3	1.4	1, 16 2. 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 ordinary owners of the parent:
Dividends paid	–	–	–	(126. 9)	–	(126.9)
Rights issue*	113.5	37 7. 5	–	–	–	4 91 .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 ordinary owners of the parent	113.5	3 56.8	–	(126. 1)	–	344. 2
At 31 March 2025	2 8 8 .1	7 5 5.0	157 . 1	24 8.0	2 .5	1,450.7
Profit for the year	–	–	–	91.5	1 .1	92 .6
Total comprehensive income for the year	–	–	–	91.5	1 .1	92 .6
Transactions with ordinary owners of the parent:
Dividends paid	–	–	–	(133.7)	–	(1 33.7)
Dividends forfeited	–	–	–	1.7	–	1.7
Transaction costs relating to rights issue	–	(0.5)	–	–	–	(0.5)
Sale of share forfeiture shares	–	0.6	–	–	–	0.6
Adjustment in respect of share-based payments (net of tax)	–	–	–	2 .6	–	2 .6
Own shares acquired by the Pennon Employee Share Trust in respect of share options granted	–	–	–	(2 .4)	–	(2 .4)
Total transactions with ordinary owners of the parent	–	0.1	–	(131.8)	–	(131.7)
At 31 March 2026	288. 1	7 5 5 .1	1 5 7.1	2 0 7. 7	3 .6	1,411.6

* 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. In

the year ended 31 March 2025 transaction costs directly attributable to the rights issue of £20.5 million were incurred and were accounted for as a deduction from share premium. In the year ended 31 March 2026 an additional £0.5 million transaction costs directly attributable to the rights issue have been

accounted for as a deduction from share premium. Cash paid in relation to the transaction costs amounted to £15.4 million in the year ended 31 March 2025 and £5.6 million in the year ended 31 March 2026.

The notes on pages 171 to 217 form part of these financial statements.

Consolidated statement of changes in equity

For the year ended 31 March 2026

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168

capital

(note 34)

£m

premium

account

(note 35)

£m

Capital

redemption

reserve

(note 36)

£m

Retained

earnings

and other

reserves

(note 37)

£m

Total

equity

£m

Company

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) – – – 1.5 1.5

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

Profit for the year – – – 191.5 191.5

Other comprehensive loss for the year – – – (0.5) (0.5)

Total comprehensive income for the year – – – 191.0 191.0

Transactions with equity shareholders:

Dividends paid – – – (133.7) (133.7)

Dividends forfeited – – – 1.7 1.7

Transaction costs relating to rights issue – (0.5) – – (0.5)

Sale of share forfeiture shares – 0.6 – – 0.6

Adjustment in respect of share-based payments (net of tax) – – – 1.7 1.7

Own shares acquired by the Pennon Employee Share Trust in respect of share options granted – – – (2.4) (2.4)

Total transactions with equity shareholders – 0.1 – (132.7) (132.6)

At 31 March 2026 288.1 755.1 157.1 383.9 1,584.2

In the year ended 31 March 2025 transaction costs directly attributable to the rights issue of £20.5 million were incurred and were accounted for as a deduction from share premium. In the year ended 31 March 2026 an additional £0.5 million transaction costs directly attributable to the rights issue have been

accounted for as a deduction from share premium.

The notes on pages 171 to 217 form part of these financial statements.

Company statement of changes in equity

For the year ended 31 March 2026

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Financial Statements

169

Group

		2026	2025
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	38	529.7	233. 6
Interest paid	38	(172.0)	(143.1)
Tax received		1.0	3.0
Net cash generated from operating activities		35 8.7	93.5
Cash flows from investing activities
Interest received		1 7. 4	11. 1
Purchase of property, plant and equipment		(629 .4)	(663. 1)
Withdrawal/(deposit) of restricted funds		2 .6	(20.8)
Purchase of intangible assets		(8. 1)	(5.5)
Proceeds from sale of property, plant and equipment		4.7	1 .9
Net cash used in investing activities		(612.8)	(6 76. 4)
Cash flows from financing activities
Proceeds from issuance of ordinary shares		–	4 91 .0
Share issue transaction costs		(5. 6)	(15.4)
Purchase of ordinary shares by the Pennon Employee Share Trust		(2.4)	(1.2)
Proceeds from new borrowing		569 .9	9 20.0
Repayment of borrowings		(305.7)	(328.5)
Cash inflows from lease financing arrangements		90.0	2 5 .0
Lease principal repayments		(4 5. 3)	(97. 2)
Dividends paid		(1 33.7)	(126.9)
Proceeds from dividend forfeiture		1.7	–
Net cash received from financing activities		168.9	866.8
Net (decrease)/increase in cash and cash equivalents		(85.2)	2 83.9
Cash and cash equivalents at beginning of the year	26	4 1 7. 9	1 3 4.0
Cash and cash equivalents at end of the year	26	3 32 .7	4 17. 9

The notes on pages 171 to 217 form part of these financial statements.

Consolidated cash flow statement

For the year ended 31 March 2026

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170

Notes to the Financial Statements continued

1. General information

Pennon Group plc is a public limited company, listed by shares, which is listed on the London Stock Exchange and

incorporated and domiciled in the United Kingdom. It is registered in the United Kingdom under the Companies Act

2006. The address of the registered office is given on page 224. 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 provides water only services in the South East region. Sutton and East Surrey Water Services Limited provides

water and wastewater retail services to non-household customer accounts. Pennon Group plc 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 Limited, operating in the same sector as Pennon Water Services Limited and Sutton and East Surrey

Water Services Limited.

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), (w) and (p) respectively) and in accordance with UK-adopted International

Accounting Standards and with Companies Act 2006.

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.

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.

New standards and interpretations

New standards or interpretations which were mandatory for the first time in the year beginning 1 April 2025 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 2026 are not expected to have a material impact on

the Group’s and the parent company’s net assets or results.

IFRS 18 ‘Presentation and Disclosure in Financial Statements’ (effective from 1 April 2027) will replace IAS 1

‘Presentation of Financial Statements’. IFRS 18 will not impact the recognition or measurement of items in the financial

statements but it is expected to have a significant impact on the presentation and disclosure within the financial

statements, in particular on the statement of profit and loss and providing management-defined performance measures

within the financial statements.

Management is currently assessing the detailed implications of applying the new standard on the Group’s financial

statements. From the high-level preliminary assessment performed, the following potential impacts have been identified:

• The line items presented on the primary financial statements might change as a result of the application of the

concept of ‘useful structured summary’ and the enhanced principles on aggregation and disaggregation.

• The Group does not expect there to be a significant change in the information that is currently disclosed in the

notes because the requirement to disclose material information remains unchanged; however, the way in which the

information is grouped might change as a result of the aggregation/disaggregation principles. In addition, there will be

significant new disclosures required for management-defined performance measures; and for the first annual period

of application of IFRS 18, a reconciliation for each line item in the statement of profit or loss between the restated

amounts presented by applying IFRS 18 and the amounts previously presented applying IAS 1.

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171

Notes to the Financial Statements continued

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.

(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. Revenue excludes value added tax, trade discounts and revenue arising from

transactions between Group companies.

• Within the cash flow statement there will be changes to how interest received and interest paid are presented.

Interest paid will be presented as financing cash flows and interest received as investing cash flows, which is a

change from current presentation as part of operating cash flows.

• Whilst a detailed assessment of the impact of IFRS 18 has not yet been concluded, it is not expected that existing

covenants will be impacted by subsequent changes to accounting standards.

The Group will apply the new standard from its mandatory effective date of 1 April 2027. Retrospective application is

required, and so the comparative information for the financial year ending 31 March 2027 will be restated in accordance

with IFRS 18.

IFRS 20 ‘Regulatory assets and regulatory liabilities’ was published on 29 May 2026 and will be applicable for the year

ended 31 March 2030. The Group has not yet assessed the impact of this standard.

Going concern

The going concern basis has been adopted in preparing these financial statements. At 31 March 2026 the Group has

access to undrawn committed funds of £610.0 million and cash and cash equivalents and restricted funds of £388.3

million, totalling £998.3 million. The Group has an expected headroom of £186.7 million at 30 September 2027.

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 2027.

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.£101.5 million; this value is

considered equivalent to an extreme one-off event that could occur over the 15 month period of the assessment

to 30 September 2027, 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 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 2027, 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.

2. Principal accounting policies continued

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(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 Limited and the regulated water services undertaken by Sutton and East Surrey Water plc. The non-

household retail business reflects the services provided by Pennon Water Services Limited and Sutton and East Surrey

Water Services Limited. 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 statement of profit or loss 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 (j).

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 statement of profit or loss through operating costs. The cost of

assets includes directly attributable labour and overhead costs which are incremental to the Group.

Intangible assets are amortised evenly over their useful economic lives:

Software development 5 to 15 years

Assets in the course of construction are not depreciated until commissioned.

Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs

that are directly attributable to the design and testing of identifiable software products controlled by the group are

recognised as intangible assets when management intends and has the ability to use the software, it can be reliably

measured, and it is probable that incremental future economic benefits will flow to the Group.

(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 statement of

profit or loss as it arises.

2. Principal accounting policies continued

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.

Customers with a metered supply are billed 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 are 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 principal 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 and Sutton and East Surrey Water Services provide specialist retail water and wastewater

services to business customers. They raise bills and recognise 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 20 (Other non-current assets) and note 23 (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 (v) below). The value of contract liabilities is disclosed within note 27 (Trade and other payables) and

note 30 (Other non-current liabilities) as appropriate.

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lease payments and are depreciated over their estimated economic lives or the finance lease period, whichever is

the shorter.

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) Investment property

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by or for the

Group’s own activities is classified as investment property. 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.

Investment property is held at cost less accumulated depreciation. Subsequent expenditure is capitalised to the asset’s

carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the

Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when

incurred.

Investment property assets are depreciated evenly to their residual value over their estimated economic lives, and are

principally:

Residential properties 10 to 80 years

Gains and losses on disposal are determined by comparing sale proceeds with carrying amounts. These are included in

the statement of profit or loss.

(j) 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 statement of profit or loss 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.

(k) 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.

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 buildings	10 to 80 years
Land and buildings – leasehold buildings	Over the estimated economic lives or the 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 (v).

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.

(h) Leased assets

Where the Group enters into a contract that contains a lease, it recognises a right-of-use asset and a lease liability

except for:

• Low value assets; and

• Leases with a duration of 12 months or less.

Assets and liabilities arising from a lease 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

2. Principal accounting policies continued

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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 statement of profit or loss 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 within gains/(loss) on cashflow hedging in the statement

of comprehensive income, and the ineffective portion in the statement of profit or loss. The gains or losses deferred

in equity in this way are subsequently recognised in the statement of profit or loss in the same period in which

the hedged underlying transaction or firm commitment is recognised in the statement of profit or loss. 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 statement of profit or loss.

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 or loss

Financial instruments at fair value through profit or loss 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 statement of profit or loss.

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.

(q) Taxation including deferred taxation

The tax charge for the year comprises current and deferred taxation. Tax is recognised in the statement of profit or loss,

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.

2. Principal accounting policies continued

(l) 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 statement of profit or loss 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.

(m) 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.

(n) 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.

(o) Restricted cash

Restricted cash within the financial statements relates to cash held under contractual agreements to offset

counterparty exposure or provide cover for future interest payments. The restricted cash could be removed by

replacing the cash with an agreed alternative.

(p) 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 statement of profit or loss when instruments are derecognised

or impaired. Premia, discounts and other costs and fees are recognised in the statement of profit or loss through

amortisation.

ii) Trade receivables

Trade receivables do not carry any interest receivable and are recognised initially at fair value on trade date 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.

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.

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(s) 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

statement of profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

(t) 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.

(u) 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 statement of

profit or loss.

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.

The income 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.

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, including any adjustment to tax payable in respect of previous

years. 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.

The Group measures its tax uncertainties 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.

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 taxabl e

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.

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.

(r) 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.

2. Principal accounting policies continued

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Notes to the Financial Statements continued

(z) 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 statement of profit or loss.

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.

(aa) 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.

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 Group 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 29.

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 has no significant concentration of liquidity risk.

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. Whilst a detailed assessment of the impact of IFRS 18 has not yet been concluded, it is not expected that

existing covenants will be impacted by subsequent changes to accounting standards.

Defined contribution scheme

Costs of the defined contribution pension scheme are charged to the statement of profit or loss in the year in which

they arise. The Group has no further payment obligations once the contributions have been paid.

ii) Share-based payments

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.

(v) 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.

(w) 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 asse t

is recognised as a contract liability on the balance sheet. The contract liability reduces, and revenue is recognised in

the statement of profit or loss, 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.

(x) 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 statement of profit or loss.

(y) 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. Excluding these items is considered

to provide additional useful information on the performance and the position of the Group as well as enhancing the

comparability of information between reporting periods.

2. Principal accounting policies continued

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Notes to the Financial Statements continued

For 2026 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 £4.5 million (2025 post tax

profit for the year and equity would have increased/decreased by £4.0 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 2026 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 £10.4 million (2025 post tax profit

for the year and equity would have increased/decreased by £10.0 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 23.

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 its

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. The Group has no significant concentration of inflation risk.

Inflation risk is mitigated through the index linked nature of our revenues and RCV calculations.

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 2026
Non-derivative financial liabilities
Borrowings excluding lease liabilities	88.8	129.8	873.7	2,635.9	3,728.2
Interest payments on borrowings	171.3	161.8	449.8	1,008.6	1,791.5
Lease liabilities including interest	67.3	80.3	318.9	1,110.4	1,576.9
Trade and other payables	379.1	–	–	–	379.1
Derivative contracts
Derivative contracts – net receipts	(7.3)	(5.1)	(15.8)	(3.2)	(31.4)
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)

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 24.

The Group has no significant interest-bearing assets upon which the net return fluctuates from market risk. The Group

has no other significant concentration of 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 38) are largely independent of changes in market interest rates.

3. Financial risk management continued

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Notes to the Financial Statements continued

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 24.

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.

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 performs an impairment analysis at each

reporting date. 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 2026 the Group’s

trade and other receivables were £465.0 million (2025: £387.3 million), against which £128.7 million (2025: £117.3 million)

had been provided for ECLs (note 23). 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 statement of profit or loss. 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 23. An increase/decrease in the

provision rates for current occupiers of 1% would lead to an increase/decrease in the level of provision by £1.7 million

(2025: £1.4 million).

3. Financial risk management continued

(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 2026

the Group had cash and facilities, including restricted funds, of £998.3 million (2025: £1,036.1 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 39 and calculated as total borrowings less cash and cash equivalents. Tota l

capital is calculated as total shareholders’ equity plus net borrowings. The Group currently manages a net borrowings

position of £4,508.9 million (2025: £4,078.2 million). The gearing ratios at the balance sheet date were:

	2026	2025
	£m	£m
Net borrowings	4,508.9	4,078.2
Total equity	1,411.6	1,450.7
Total capital	5,920.5	5,528.9
Gearing ratio	76.2%	73.7%

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 AMP8 (2025–2030) regulatory period is set at 55%. 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
	2026	2025
	£m	£m
Regulatory Capital Value (RCV)	6,505.0	5,983.1
Net borrowings	4,019.3	3,698.3
Net borrowings/Shadow Regulatory Capital Value	61.8%	61.8%

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.

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Notes to the Financial Statements continued

4. Critical accounting judgements and estimates continued

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 2025, the outcome of which is summarised in note 31.

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 2024 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 31.

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 and 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. Excluding these items is considered to provide additional useful information on the performance and the

position of the Group as well as enhancing the comparability of information between reporting periods. 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. 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 statement of profit or loss 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, including the proportion of employee costs to allocate. 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

and there’s not a significant risk of material change in the next 12 months. However, management consider the total

level of accrued revenue relating to water and wastewater to be material and highlight this as a material other estimate.

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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 SWW and the regulated water services undertaken by SESW. The non-household retail segment

(business retail) reflects the services provided by PWS 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
2026
Revenue	1,022.0	381.7	25.6	(137.9)	1,291.4
Employment costs	(109.8)	(8.2)	(13.3)	–	(131.3)
Raw materials and consumables used	(38.7)	–	(1.3)	–	(40.0)
Operating costs	(362.8)	(363.6)	(12.4)	137.9	(600.9)
Operating profit/(loss) before depreciation, amortisation and non-underlying items (Underlying EBITDA)	510.7	9.9	(1.4)	–	519.2
Depreciation, amortisation and impairment	(189.0)	(0.8)	(3.9)	–	(193.7)
Operating profit/(loss) before non-underlying items	321.7	9.1	(5.3)	–	325.5
Finance income	23.2	0.6	19.3	(21.2)	21.9
Finance costs	(212.9)	(4.0)	(17.6)	21.2	(213.3)
Share of post-tax profit from associated companies	–	–	1.0	–	1.0
Profit/(loss) before tax and non-underlying items	132.0	5.7	(2.6)	–	135.1
Non-underlying items	(15.4)	(1.6)	(3.7)	–	(20.7)
Profit/(loss) before tax	116.6	4.1	(6.3)	–	114.4
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/(loss) 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/(loss) 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)/profit before tax and non-underlying items	(35.6)	4.3	(3.8)	–	(35.1)
Non-underlying items	(36.1)	–	(1.5)	–	(37.6)
(Loss)/profit before tax	(71.7)	4.3	(5.3)	–	(72.7)

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.

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Notes to the Financial Statements continued

5. Segmental information continued

		Non-household
	Water	retail	Other	Eliminations	Group
	£m	£m	£m	£m	£m
Balance sheet
31 March 2026
Assets (excluding carrying value in associated companies)	7,186.2	109.9	611.1	(437.1)	7,470.1
Carrying value in associated companies	–	–	9.9	–	9.9
Total assets	7,186.2	109.9	621.0	(437.1)	7,480.0
Liabilities	(5,823.7)	(122.4)	(559.4)	437.1	(6,068.4)
Net assets	1,362.5	(12.5)	61.6	–	1,411.6
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	–	–	10.5	–	10.5
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

Segment liabilities of the water segment comprise 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 2026
Intangible asset additions	16	7.6	0.8	–	8.4
Amortisation of other intangible assets	7	3.6	0.2	(1.4)	2.4
Capital expenditure (Property, plant and equipment)	17	580.8	–	54.7	635.5
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

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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. Excluding these items is considered to provide additional useful information on the performance and the position

of the Group as well as enhancing the comparability of information between reporting periods. The presentation of

results is consistent with internal performance monitoring.

		2026	2025
	Notes	£m	£m
Operating costs
Restructuring/Transformational costs 1		(14.0)	(15.8)
Costs of Brixham water quality incident and other regulatory
investigations 2		(6.7)	(21.0)
SES Water Group acquisition costs 3		–	(0.7)
Renewables projects acquisition related costs 4		–	(0.1)
Earnings before interest, tax, depreciation and amortisation		(20.7)	(37.6)
Net tax credit arising on non-underlying items above 5	9	4.1	8.9
Net non-underlying charge		(16.6)	(28.7)

1. £4.1 million (2025: £15.8 million) of costs were incurred in connection with the ongoing restructuring of the Group and £9.9 million of technological

enhancement costs were incurred in connection with the business transformation of the Group. £4.8 million (2025: £10.9 million) of the total costs

were employment costs. Due to the one-off nature and incidence of the costs they were classified as non-underlying.

2. £6.7 million includes costs of settlement of both the DWI’s prosecution in respect of the May 2024 Brixham water quality incident, and the enforcement

undertakings agreed with Ofwat in August 2025 in respect of the wastewater investigations, together with associated legal fees. £15.8 million prior year

costs relate to the operating costs for remediation of the Brixham water quality incidents and include £0.8 million of directly attributable employment

costs. Due to the one-off nature and incidence of the costs they were classified as non-underlying.

3. In the prior year the Group incurred expenses of £0.7 million in connection with the acquisition of SES Water Group. Due to the one-off nature and

incidence of the costs they were classified as non-underlying.

4. In the prior year expenses in connection with the strategic review of renewal energy generating investments, not directly attributable to the intangible

assets acquired, totalled £0.1 million. Due to the one-off nature and incidence of the costs they have been classified as non-underlying.

5. 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 £8.9 million deferred tax credit also in respect of tax losses carried forwards.

5. Segmental information continued

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 2026	£m	£m	£m	£m
Segment revenue	1,022.0	381.7	25.6	1,429.3
Inter-segment revenue	(120.0)	(0.2)	(17.7)	(137.9 )
Revenue from external customers	902.0	381.5	7.9	1,291.4
Significant service lines
Water	902.0	–	–	902.0
Non-household retail	–	381.5	–	381.5
Other	–	–	7.9	7.9
	902.0	381.5	7.9	1,291.4
		Non-household
	Water	retail	Other	Total
Year ended 31 March 2025	£m	£m	£m	£m
Segment revenue	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

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.

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183

Notes to the Financial Statements continued

Fees payable to the Company’s auditor in the year were:

	2026	2025
	£000	£000
Fees payable to the Company’s auditor and its associates for the audit of parent
company and consolidated financial statements	867	922
Fees payable to the Company’s auditor and its associates for other services:
The audit of Company’s subsidiaries	1,683	1,511
Audit-related assurance services	454	360
Other non-audit services	234	1,866
Total fees	3,238	4,659

A description of the work of the Audit Committee is set out in its report on pages 120 to 125 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.

7. Operating costs

		2026	2025
	Notes	£m	£m
Employment costs (underlying)	13	131.3	151.1
Raw materials and consumables		40.0	51.7
Other operating expenses before non-underlying items
include:
Profit on disposal of property, plant and equipment		(3.6)	(1.2)
Short-term/low value asset lease expense		9.1	6.2
Financial asset impairment	23	19.5	9.7
Depreciation of property, plant and equipment:
• Owned assets	17	152.5	146.7
• Under leases	17	37.3	37.0
Depreciation of investment properties	18	0.8	1.0
Amortisation of other intangible assets	16	2.4	2.3
Impairment of intangible assets	16	0.3	–
Impairment of property, plant and equipment	17	–	0.1
Impairment of investment properties	18	0.4	–

Operating costs include a charge of £20.7 million (2025: £37.6 million) relating to non-underlying items, as detailed in

note 6.

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Notes to the Financial Statements continued

8. Net finance costs

2026 2025

		Finance cost	Finance income	Total	Finance cost	Finance income	Total
	Notes	£m	£m	£m	£m	£m	£m
Cost of servicing debt
Bank borrowings and overdrafts		(156.8)	–	(156.8)	(138.6)	–	(138.6)
Interest element of lease payments		(48.7)	–	(48.7)	(49.9)	–	(49.9)
Other finance costs		(7.8)	–	( 7.8)	(10.9)	–	(10.9)
Interest received		–	17.4	17.4	–	11.1	11.1
Amortisation of unamortised hedging adjustment		–	2.3	2.3	–	2.3	2.3
		(213.3)	19.7	(193.6)	(199.4)	13.4	(186.0)
Notional interest
Retirement benefit obligations	31	–	2.2	2.2	–	1.6	1.6
Net finance costs		(213.3)	21.9	(191.4)	(199.4)	15.0	(184.4)

In addition to the above, finance costs of £40.5 million (2025: £27.7 million) have been capitalised on qualifying assets included in property, plant and equipment, at an average borrowing rate of 5.4% (2025: 5.7%).

Other finance costs include £1.1 million (2025: £1.1 million) of dividends payable on listed preference shares issued by Bristol Water plc, which are classified as debt (see note 29) .

9. Taxation

	Before non-	Non-underlying		Before non-	Non-underlying
	underlying items	items (note 6)	Total	underlying items	items (note 6)	Total
	2026	2026	2026	2025	2025	2025
	£m	£m	£m	£m	£m	£m
Analysis of charge/(credit) in year
Current tax charge/(credit)	0.6	(0.8)	(0.2)	0.8	(0.5)	0.3
Deferred tax charge/(credit)	25.3	(3.3)	22.0	(7.8)	(8.4)	(16.2)
Tax charge/(credit) for year	25.9	(4.1)	21.8	(7.0)	(8.9)	(15.9)

UK corporation tax is calculated at 25% (2025: 25%) of the estimated assessable profit for the year.

UK corporation tax for the Group is stated after a credit relating to prior year current tax of £0.2 million (2025: £0.3 million charge) and a prior year deferred tax credit of £8.3 million (2025: £0.7 million charge). Of the prior year deferred tax

credit, £8.0 million relates to capital losses that require recognition on consolidation. This is due to the existence of deferred tax liabilities arising on the fair value of land acquired through business combinations. The remaining elements are in

respect of capital allowances claimed in accordance with UK tax legislation.

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Notes to the Financial Statements 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 current year relates to ongoing legal and

environmental cases and the prior year’s relate 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, and therefore

do not arise as profits in any of the tax returns of the entities within the Group.

The Group incurs depreciation in relation to certain property, plant and equipment which does not qualify for tax relief.

As such, this creates a permanent difference which increases the tax charge.

Immediate tax relief is available in respect of capitalised interest and foreign exchange gains/losses.

Tax losses generated in the year and carried forward generate a deferred tax credit rather than current tax credit,

hence the adjustment to current tax. When utilised, the deferred tax asset will reverse creating a current tax deduction

in the period of utilisation.

Other temporary differences relate to the timing of relief for items including pensions, general provisions and financial

derivatives. The tax deduction in respect of these temporary differences was higher in FY25 due to additional pension

contributions made to fund deficits in the scheme.

In addition to the amounts recognised in the statement of profit or loss, the following tax (credits)/charges were

recognised:

	2026	2025
	£m	£m
Amounts recognised directly in other comprehensive income
Deferred tax (credit)/charge on defined benefit pension schemes	(0.9)	0.9
Deferred tax charge/(credit) on cash flow hedges	0.2	(2.4)
Amounts recognised directly in equity
Deferred tax charge on share-based payments	–	–

OECD Pillar Two

Pillar Two legislation is applicable to the group. Under the legislation, the group will be required to pay a top-up tax

on profits of its subsidiaries in order to ensure that these profits are taxed at a global minimum tax rate of 15%.

The UK is the only jurisdiction in which the Group operates therefore an assessment of any potential Pillar Two

tax exposure for FY26 has been performed focusing on the application of the UK domestic top-up tax rules.

The assessment performed by the Group, in line with UK legislation, is based on country-by-country reporting

principles and financial statements information for FY26. 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.

9. Taxation continued

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% (2025: 25%) as follows:

	2026	2025
	£m	£m
Reconciliation of total tax charge/(credit)
Profit/(loss) before tax	114.4	(72.7)
Profit/(loss) multiplied by the standard rate of UK corporation tax of 25%
(2025: 25%)	28.6	(18.2)
Effects of:
Expenses not deductible for tax purposes	1.3	0.8
Associate profits not taxable	(0.3)	(0.2)
Adjustments to tax charge in respect of prior years	(8.5)	1.5
Depreciation charged on non-qualifying assets	1.1	1.0
Adjustment in respect of deferred revenue expenditure	0.4	(0.7)
Other	(0.8)	(0.1)
Tax charge/(credit) for year	21.8	(15.9)
	2026	2025
	£m	£m
Reconciliation of current tax (credit)/charge
Profit/(loss) before tax	114.4	(72.7)
Profit/(loss) multiplied by the standard rate of UK corporation tax of 25%
(2025: 25%)	28.6	(18.2)
Effects of:
Relief for capital allowances in place of depreciation	(60.1)	(11.2)
Disallowance of depreciation charged in the accounts	24.3	24.3
Other temporary differences	(3.8)	(6.6)
Expenses not deductible for tax purposes	0.4	0.8
Associate profits not taxable	(0.2)	(0.2)
Adjustments to tax charge in respect of prior years	(0.2)	0.3
Depreciation charged on non-qualifying assets	1.1	1.0
Tax losses carried forward	19.7	15.9
Relief for capitalised interest and foreign exchange gains/losses	(10.0)	(5.8)
Current tax (credit)/charge for year	(0.2)	0.3

The current tax credit arising on the FY26 accounting profit is £0.2 million (2025: current tax charge of £0.3 million)

versus the expected current tax at the UK headline rate of 25% x PBT. This is driven by a range of adjustments which

are explained further below:

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

reduction in expected cash tax. Consequently there is a deferred tax charge arising in relation to the tax relief claimed

in excess of current year depreciation driven by additional capital allowance deductions leading to a higher deferred

tax liability.

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Notes to the Financial Statements continued

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 the level of long-term capital investment. Earnings per

share have been calculated as follows:

		2026			2025
	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	91.5	19.4	19.3	(57.9)	(16.1)	(16.1)
Deferred tax (credit)/charge
before non-underlying items	25.3	5.4	5.4	(7.8)	(2.1)	(2.1)
Non-underlying items
(net of tax)	16.6	3.5	3.5	28.6	7.9	7.9
Adjusted earnings	133.4	28.3	28.2	(37.1)	(10.3)	(10.3)

12. Dividends

	2026	2025
	£m	£m
Amounts recognised as distributions to ordinary equity holders in the year
Interim dividend paid for the year ended 31 March 2025 12.14p
(2024: 11.60p) per share	42.0	40.1
Final dividend paid for the year ended 31 March 2025 19 .43p
(2024: 25. 0 7p) per share	91.7	86.8
	133.7	126.9
Proposed dividends
Proposed interim dividend for the year ended 31 March 2026 9.26p
(2025: 12.14p) per share	43.7	42.0
Proposed final dividend for the year ended 31 March 2026 20 .03p
(2025: 19. 43p) per share	94.5	91.7
	138.2	133.7

The proposed interim and final dividends have not been included as liabilities in these financial statements.

The proposed interim dividend for 2026 was paid on 2 April 2026 and the proposed final dividend is subject to approval

by shareholders at the AGM.

10. Profit/(loss) of the parent company

	2026	2025
	£m	£m
Profit/(loss) attributable to ordinary shareholders’ equity dealt within the accounts of the parent company	191.5	(13.5)

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

37), 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.

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.

	2026	2025
Number of shares (millions)
For basic earnings per share	471.8	360.5
Effect of dilutive potential ordinary shares from share options	1.5	–
For diluted earnings per share	473.3	360.5

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

14. Directors’ emoluments

	2026	2025
	£000	£000
Executive Directors:
• Salary	873	968
• Share-based payments	1,055	680
• Other emoluments, including payments in lieu of pension provision	122	121
• Compensation for loss of office	735	489
Non-Executive Directors	764	648
	3,549	2,906

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 133 to 155.

Remuneration of key management personnel
	2026	2025
	£000	£000
Salaries and short-term employee benefits	4,572	3,724
Share-based payments	1,939	854
Compensation for loss of office	1,646	489
	8,157	5,067

KMP remuneration comprises all Directors and certain senior managers who are members of the executive team.

13. Employment costs

		Group		Company
		2026	2025	2026	2025
	Notes	£m	£m	£m	£m
Wages and salaries		169.0	175.5	9.8	8.4
Social security costs		22.2	17.5	1.7	1.2
Other pension costs	31	15.7	16.2	0.8	1.2
Share-based payments	34	2.6	2.0	1.7	1.6
Total employment costs		209.5	211.2	14.0	12.4
Charged:
• Employment costs (excluding
non-underlying items)		131.3	151.1	11.4	11.5
• Employment costs (non- underlying items)		4.8	11.7	2.6	0.9
• Capital schemes – property, plant and equipment		73.1	48.1 -		–
• Research and development		0.3	0.3	–	–
Total employment costs		209.5	211.2	14.0	12.4

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.

	2026	2025
Employees (average full-time equivalent number)
The average monthly number of employees (including Executive Directors) was:
Water	3,384	3,528
Non-household retail	207	259
Other	101	123
Total	3,692	3,910

The average monthly number of employees (including Executive Directors) of the parent company was 90 (2025: 97)

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Notes to the Financial Statements continued

16. Other intangible assets

	Renewable
	energy	Software
	generation	development	Total
	£m	£m	£m
Cost:
At 1 April 2024	40.3	29.9	70.2
Additions	–	5.5	5.5
Transfers/reclassifications	–	3.6	3.6
At 31 March 2025	40.3	39.0	79.3
Additions	–	8.4	8.4
Disposals	–	(0.1)	(0.1)
Other	(0.3)	–	(0.3)
At 31 March 2026	40.0	47.3	87.3
Accumulated amortisation:
At 1 April 2024	–	9.9	9.9
Charge for the 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
Charge for year	–	2.4	2.4
Impairment charge	–	0.3	0.3
At 31 March 2026	–	19.8	19.8
Carrying amount:
At 1 April 2024	40.3	20.0	60.3
At 31 March 2025	40.3	21.9	62.2
At 31 March 2026	40.0	27.5	67.5

Renewable energy generation intangible assets are as a result of acquiring renewable energy sites with rights to

generate energy in the future. 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.

Software consists of capitalised development costs being an internally generated intangible asset.

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.

In the year ended 31 March 2025 an adjustment was made to reclassify cost and accumulated depreciation in relation

to assets acquired on the acquisition of Bristol Water plc totalling £3.6 million.

15. Goodwill

	£m
Cost:
At 1 April 2024	179.9
At 31 March 2025	179.9
At 31 March 2026	179.9
Carrying amount:
At 1 April 2024	179.9
At 31 March 2025	179.9
At 31 March 2026	179.9

Goodwill acquired in a business combination is allocated at acquisition to the CGU expected to benefit from that

business combination.

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. The recoverable amount is adjusted

for estimated costs to sell. 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.

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

17. Property, plant and equipment

				Fixed and
	Land and buildings	Infrastructure	Operational	moveable plant	Construction
		assets	properties	and equipment	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 1 April 2024	196.3	3,242.8	1,090.6	2,648.9	567.8	7,746.4
Additions	1.5	68.3	8.9	99.1	469.2	647.0
Assets adopted at fair value	–	17.4	–	–	–	17.4
Disposals	(0.5)	(1.3)	(1.0)	(13.8)	–	(16.6)
Transfers/reclassifications	3.0	40.1	14.6	74.4	(134.1)	(2.0)
At 31 March 2025	200.3	3,367.3	1,113.1	2,808.6	902.9	8,392.2
Additions	1.3	112.6	40.9	12.3	468.4	635.5
Assets adopted at fair value	–	13.2	–	–	–	13.2
Disposals	(0.1)	–	(0.3)	(1.9)	–	(2.3)
Transfers/reclassifications	13.1	119.8	10.6	(19.3)	(124.2)	–
At 31 March 2026	214.6	3,612.9	1,164.3	2,799.7	1,247.1	9,038.6
Accumulated depreciation:
At 1 April 2024	31.4	442.5	353.5	1,553.8	–	2,381.2
Charge for year	1.7	49.0	23.9	113.1	–	187.7
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	33.0	481.4	378.7	1,657.6	–	2,550.7
Charge for year	3.6	52.5	24.1	111.9	–	192.1
Disposals	–	–	(0.3)	(1.4)	–	(1.7)
At 31 March 2026	36.6	533.9	402.5	1,768.1	–	2,741.1
Net book value:
At 31 March 2024	164.9	2,800.3	737.1	1,095.1	567.8	5,365.2
At 31 March 2025	167.3	2,885.9	734.4	1,151.0	902.9	5,841.5
At 31 March 2026	178.0	3,079.0	761.8	1,031.6	1, 247.1	6,297.5

Of the total depreciation charge of £192.1 million (2025: £187.7 million), £189.8 million (2025: £183.7 million) has been charged against profits £2.3 million (2025: £2.4 million) has been offset by deferred income and £nil million (2025: £1.6 million)

has been charged to capital projects. Asset lives and residual values are reviewed annually. During the year borrowing costs of £40.5 million (2025: £27.7 million) have been capitalised on qualifying assets, at an average borrowing rate of 5.4%

(2025: 5.7%).

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 2025/26.

In the year ended 31 March 2025 an adjustment has been made to reclassify cost and accumulated depreciation in relation to assets acquired on the acquisition of Bristol Water plc totalling £2.0 million.

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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 lease 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	Construction
	buildings	assets	properties	and computers	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 1 April 2024	5.3	404.0	336.9	425.7	–	1,171.9
Additions	–	22.1	0.8	2.1	–	25.0
At 31 March 2025	5.3	426.1	337.7	427.8	–	1,196.9
Additions	0.8	0.2	4.1	32.0	52.9	90.0
Disposals	(0.2)	(6.3)	(10.5)	(37.0)	–	(54.0)
At 31 March 2026	5.9	420.0	331.3	422.8	52.9	1,232.9
Accumulated depreciation:
At 1 April 2024	0.6	75.1	96.4	209.9	–	382.0
Charge for year	0.1	6.2	5.8	21.5	–	33.6
At 31 March 2025	0.7	81.3	102.2	231.4	–	415.6
Charge for year	0.3	6.8	5.9	20.8	–	33.8
Disposals	(0.2)	(1.7)	(2.7)	(26.0)	–	(30.6)
At 31 March 2026	0.8	86.4	105.4	226.2	–	418.8
Net book amount:
At 1 April 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
At 31 March 2026	5.1	333.6	225.9	196.6	52.9	814.1

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

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 plant,
	Land and	Infrastructure	Operational	vehicles and	Construction
	buildings	assets	properties	computers	in progress	Total
	£m	£m	£m	£m	£m	£m
Group
Cost:
At 1 April 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
Additions	0.9	–	–	1.3	0.7	2.9
Transfers/reclassifications	1.1	–	–	–	(1.1)	–
At 31 March 2026	37.0	–	–	11.9	2.7	51.6
Accumulated depreciation:
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
Charge for year	1.5	–	–	2.3	–	3.8
At 31 March 2026	8.6	–	–	7.5	–	16.1
Net book amount:
At 1 April 2024	26.2	–	–	4.7	5.5	36.4
At 31 March 2025	27.9	–	–	5.4	3.1	36.4
At 31 March 2026	28.4	–	–	4.4	2.7	35.5

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Notes to the Financial Statements continued

18. Investment properties

	Residential
	properties	Total
	£m	£m
Group
Cost:
At 1 April 2024	9.3	9.3
Disposals	(0.2)	(0.2)
At 31 March 2025	9.1	9.1
Disposals	(0.5)	(0.5)
At 31 March 2026	8.6	8.6
Accumulated depreciation:
At 1 April 2024	0.2	0.2
Charge for year	1.0	1.0
At 31 March 2025	1.2	1.2
Charge for year	0.8	0.8
Disposals	(0.1)	(0.1)
Impairment	0.4	0.4
At 31 March 2026	2.3	2.3
Net book amount:
At 1 April 2024	9.1	9.1
At 31 March 2025	7.9	7.9
At 31 March 2026	6.3	6.3

The fair value of the investment properties held by the Group at 31 March 2026 was £6.3 million. The fair value was determined by a RICS Qualified independent valuation expert. Rental income from operating leases was £0.2 million

(2025: £0.2 million)

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

19. 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		Trade receivables
		for fair value	for cash flow	Debt instruments	and trade
		hedging	hedging	at amortised cost	payables	Total
	Notes	£m	£m	£m	£m	£m
Group
31 March 2026
Financial assets
Amounts owed by associated companies	20	–	–	7.1	–	7.1
Trade receivables	23	–	–	–	336.3	336.3
Derivative financial instruments	24	1.9	28.5	–	–	30.4
Cash and cash equivalents and restricted funds	26	–	–	388.3	–	388.3
Total		1.9	28.5	395.4	336.3	762.1
Financial liabilities
Borrowings	29	–	–	(4,897.2)	–	(4,897. 2)
Derivative financial instruments	24	–	(2.5)	–	–	(2.5)
Trade and other payables	27	–	–	–	(373.9)	(373.9)
Total		–	(2.5)	(4,897.2)	(373.9)	(5,273.6)
31 March 2025
Financial assets
Amounts owed by associated companies	20	–	–	8.7	–	8.7
Trade receivables	23	–	–	–	270.0	270.0
Derivative financial instruments	24	0.4	31.8	–	–	32.2
Cash and cash equivalents and restricted funds	26	–	–	476.1	–	476.1
Total		0.4	31.8	484.8	270.0	787.0
Financial liabilities
Borrowings	29	–	–	(4,554.3)	–	(4,554.3)
Derivative financial instruments	24	–	(2.1)	–	–	(2.1)
Trade and other payables	27	–	–	–	(281.7)	(281.7)
Total		–	(2.1)	(4,554.3)	(281.7)	(4,838.1)

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Notes to the Financial Statements continued

21. Investments

Subsidiary undertakings

	£m
Company
At 1 April 2024	1,153.2
Investment in subsidiary undertakings:
Sutton and East Surrey Water Group Holding Limited share issue	80.0
Peninsula Insurance Limited share issue	1.0
South West Water Limited share issue	330.0
Impairment of investment in subsidiary undertakings	(1.5)
At 31 March 2025	1,562.7
At 31 March 2026	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, an indirect associate, was transferred from Bristol

Water Holdings Limited to the Company. Accordingly, the investment in Bristol Water Holding’s parent company Bristol

Water Holdings UK Limited was reduced by £1,500,000.

See note 40 for details of the Company’s subsidiary and joint venture undertakings and shareholdings.

20. Other non-current assets

Non-current receivables

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Amounts owed by subsidiary undertakings	–	–	184.2	95.9
Amounts owed by related parties (note 43)	7.1	8.7	7.1	8.7
	7.1	8.7	191.3	104.6
Non-current receivables were due:	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Between 1 and 2 years	7.1	–	28.1	12.2
Over 2 years and less than 5 years	–	8.7	63.1	45.3
Over 5 years	–	–	100.1	47.1
	7.1	8.7	191.3	104.6
The fair values of non-current receivables were:	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Amounts owed by subsidiary undertakings	–	–	184.2	95.9
Amounts owed by associates	7.1	8.7	7.1	8.7
	7.1	8.7	191.3	104.6

The fair values of the above non-current receivables are valued using level 2 measures.

On 31 January 2025 the £8.7 million loan receivable with Water 2 Business Limited (W2B), an indirect associate, was

transferred from Bristol Water Holdings Limited (BWH) to the Company.

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

21. Investments continued

Investment in associates and joint ventures

		Place of business/
		country of		Measurement
Name of entity	Principal activity	incorporation	% of ownership	method
Water 2 Business Limited (W2B)	National retailer in the non-household market and provides retail water services to	England	30%	Equity
	non-household customers
Bristol Wessex Billing Services Limited (BWBSL)	Meter reading, billing, debt recovery and customer contact management services	England	50%	Equity
Searchlight Collections 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 2026 is £2.8 million (2025: £1.8 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 2026 is £1.0 million (2025: £0.8 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

		2026			2025
		£m			£m
	W2B	BWBSL	Searchlight	W2B	BWBSL	Searchlight
Current
Cash and cash equivalents	2.9	1.3	0.2	2.2	1.7	–
Other current assets	80.8	2.6	(0.2)	71.3	1.2	0.1
Total current assets	83.7	3.9	–	73.5	2.9	0.1
Non-current assets	3.2	–	–	4.2	–	–
Financial liabilities (excluding trade payables)	–	–	–	–	–	–
Current liabilities (including trade payables)	(53.8)	(3.9)	–	(42.5)	(2.9)	–
Total current liabilities	(53.8)	(3.9)	–	(42.5)	(2.9)	–
Non-current liabilities	(23.8)	–	–	(29.4)	–	–
Net assets	9.3	–	–	5.8	–	0.1
Summarised statement of comprehensive income		2026			2025
		£m			£m
	W2B	BWBSL	Searchlight	W2B	BWBSL	Searchlight
Revenue	412.0	20.9	0.2	327.3	19.7	0.2
Cost of sales and other operating expenses	(405.5)	(20.9)	(0.2)	(321.5)	(19.7)	(0.2)
Interest	(1.7)	–	–	(2.1)	–	–
Pre-tax profit	4.8	–	–	3.7	–	–
Taxation charge	(1.3)	–	–	(1.1)	–	–
Total comprehensive income	3.5	–	–	2.6	–	–

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Notes to the Financial Statements continued

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:

	2026	2025
	£m	£m
Group
Not due	118.5	64.6
Past due 1 – 30 days	34.9	31.1
Past due 31 – 120 days	35.6	29.3
More than 120 days	276.0	262.3
	465.0	387.3

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 (p) i). South West Water Limited and Sutton and East Surrey Water plc

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 Limited’s operating area, Sutton and East

Surrey Water plc’s operating area and the non-household retail business of Pennon Water Services and Sutton and East

Surrey Water Services Limited, 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		Allowance
	Trade	for expected	Trade	for expected
	receivables	credit losses	receivables	credit losses
	2026	2026	2025	2025
	£m	£m	£m	£m
Devon, Cornwall & Bournemouth
(household customers)
• Current occupier < 12 months: 1% – 30%	97.7	1.0	68.7	0.4
• Current occupier 12 – 24 months: 10% – 60%	16.0	3.6	12.4	2.9
• Current occupier 24 – 36 months: 15% – 80%	12.2	3.9	10.9	3.0
• Current occupier > 36 months: 20% – 100%	99.1	39.8	91.6	39.9
• Previous occupier: 55% – 100%	58.4	36.8	51.3	32.1
Bristol	44.7	21.0	37.4	17.6
Sutton and East Surrey Water	50.5	10.6	33.0	7.2
Sutton and East Surrey Water Services*	21.5	7.7	21.6	9.5
Pennon Water Services*	48.2	4.3	50.1	4.7
Other	16.7	–	10.3	–
	465.0	128.7	387.3	117.3

*Non-household retail

21. Investments continued

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.

Water 2 Business Limited’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 £2.8 million (2025: £1.8 million) which comprises 30% of the Group’s share of

equity of Water 2 Business Limited. For Bristol Wessex Billing Services Limited and Searchlight Collections Limited, the

net equity is £nil (2025: £nil). The Group’s share of profit from associated companies is £1.0 million (2025: £0.8 million)

which comprises 30% of the Group’s share of Water 2 Business Limited, restricted by brought forward losses.

22. Inventories

	Group
	2026	2025
	£m	£m
Raw materials and consumables	15.2	12.1
Work in progress	0.1	0.3
Finished goods	–	0.4
	15.3	12.8

23. Trade and other receivables – current

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Trade receivables	465.0	387.3	–	–
Less: allowance for expected credit losses
in respect of trade receivables	(128.7)	(117.3)	–	–
Net trade receivables	336.3	270.0	–	–
Amounts owed by subsidiary undertakings	–	–	176.0	51.2
Amounts owed by associated companies	0.4	0.2	0.4	0.2
Other receivables	48.0	45.6	0.4	1.5
Contract Assets	49.4	57.4	0.4	–
Prepayments	18.3	18.6	2.8	0.9
	452.4	391.8	180.0	53.8

Contract assets includes £41.9 million (2025: £34.8 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.

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

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:

				Change in fair value used for
	Notional	Carrying		measuring ineffectiveness in
	amount	amount		the period
Group	£m	£m	Line item in the balance sheet	£m
As at 31 March 2026
Interest rate swaps	603.0	25.9	Derivative financial instruments	1.8
Cross currency swaps	56.1	(0.9)	Derivative financial instruments	(0.4)
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	–
				Change in fair value used for
	Notional	Carrying		measuring ineffectiveness in
	amount	amount		the period
Company	£m	£m	Line item in the balance sheet	£m
As at 31 March 2026
Cross currency swaps	16.0	1.2	Derivative financial instruments	0.8
As at 31 March 2025
Cross currency swaps	16.0	0.4	Derivative financial instruments	(0.4)

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.

23. 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:
	2026	2025
	£m	£m
At 1 April	117.3	125.3
Provision for expected credit losses	19.5	9.7
Receivables written off during the year as uncollectable	(8.1)	(17.7)
At 31 March	128.7	117.3

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.

24. Derivative financial instruments

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Derivatives used for cash flow hedging
Non-current assets	19.5	22.3	–	–
Current assets	9.0	9.5	1.2	0.4
Current liabilities	(0.6)	(0.5)	–	(0.1)
Non-current liabilities	(1.9)	(1.6)	–	–
Derivatives used for fair value hedging
Non-current assets	1.9	0.1	–	0.1
Current assets	–	0.3	–	0.3

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 (2025: £nil).

A net £0.8 million credit (2025: £4.3 million debit) was recognised in other comprehensive income for cash flow hedges,

including a £7.5 million credit (2025: £15.4 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 2026 the Group had interest rate swaps, to swap from floating to fixed rate, and hedged financial liabilities

with a notional value of £603.0 million and a weighted average maturity of 4.5 years (2025: £636.0 million, with 5.3

years). The weighted average interest rate of the swaps for their nominal amount was 3.03% (2025: 2.92%).

At 31 March 2026 the Group had cross currency swaps and hedged financial liabilities with a notional value of

£56.1 million (2025: £56.1 million) and a weighted average maturity of 4.1 years (2025: 4.1 years). The weighted average

interest rate of the swaps for their nominal amount was 5.6% (2025: 5.6%). The swaps are denominated in USD and EUR

to match the underlying currency exposures.

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Notes to the Financial Statements continued

26. Cash and cash equivalents and restricted funds

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Cash at bank and in hand	103.8	166.2	0.4	44.8
Short-term bank deposits	75.0	0.2	–	0.2
Other deposits	153.9	251.5	–	–
Cash and cash equivalents	332.7	417.9	0.4	45.0
Restricted funds	55.6	58.2	–	–
Total	388.3	476.1	0.4	45.0

Group short-term deposits have an average maturity of one working day (2025: one working day).

Group other deposits (including restricted funds) have an average maturity of 53 days (2025: 14 days).

Restricted funds include £46.2 million (2025: £46.1 million) to settle long-term lease liabilities (note 29) and £9.4 million

(2025: £12.1 million) held in an instant access account. Restricted funds are available for access, subject to being

replaced by an equivalent valued security.

27. Trade and other payables – current

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Trade payables	218.9	138.8	2.2	0.9
Contract liabilities	45.1	46.7	–	–
Other tax and social security	5.2	2.6	0.4	0.3
Accruals	59.5	54.4	1.5	6.1
Other payables	93.6	88.5	3.7	3.5
Amounts owed to subsidiary undertakings	–	–	8.8	8.8
	422.3	331.0	16.6	19.6

24. Derivative financial instruments continued

The Group’s financial derivatives are valued using level 2 measures:

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Assets
Derivatives used for cash flow hedging	28.5	31.8	1.2	0.4
Derivatives used for fair value hedging	1.9	0.4	–	0.4
Total assets	30.4	32.2	1.2	0.8
Liabilities
Derivatives used for cash flow hedging	(2.5)	(2.1)	–	(0.1)
Total liabilities	(2.5)	(2.1)	–	(0.1)

25. Financial instruments at fair value through profit or loss

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Current liabilities	–	(0.3)	–	(0.3)
Current assets	0.6	–	0.6	–
Non-current assets	–	0.6	–	0.6

Financial instruments at fair value through profit or loss reflect the fair value movement of the hedged risk on the

hedged item which had been designated in a fair value hedging relationship.

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

29. Borrowings

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Current
Bank and other loans	99.2	222.0	20.0	49.5
Fixed rate bonds	2.2	2.5	–	–
Private placements	16.7	–	16.9	–
Amounts owed to subsidiary undertakings	–	–	–	2.0
	118.1	224.5	36.9	51.5
Leases	33.1	32.9	–	–
Total current borrowings	151.2	257.4	36.9	51.5
Non-current
Bank and other loans	466.0	506.3	99.9	99.9
Private placements	964.8	841.9	228.5	95.7
Fixed rate bonds	1,177.5	886.4	–	–
RPI index-linked bonds	1,057.9	1,030.5	–	–
Listed preference shares	12.5	12.5	–	–
	3,678.7	3,277.6	328.4	195.6
Leases	1,067.3	1,019.3	–	–
Total non-current borrowings	4,746.0	4,296.9	328.4	195.6
Total borrowings	4,897.2	4,554.3	365.3	247.1

South West Water Finance Plc issued a £300 million fixed rate bond in September 2025 with a cash coupon of 5.25%.

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%.

27. Trade and other payables – current continued

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
	2026	2025
Contract liabilities	£m	£m
At 1 April	218.0	165.5
Revenue recognised in the year	(22.1)	(9.9)
Additions in relation to property developer services (note 2c)	23.8	21.9
Net movement in customer overpayments	11.5	40.5
At 31 March	231.2	218.0

The analysis of contract liabilities between current and non-current is:

	Group
	2026	2025
	£m	£m
Current	45.1	46.7
Non-current (note 29)	186.1	171.3
	231.2	218.0

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 2027.

Included within contract liabilities are amounts received from customers in advance of the satisfying its performance

obligations. The current balance includes these customer overpayments and other advance receipts which are

expected to be utilised through the delivery of services or offset against customer bills within the next 12 months.

28. Current tax assets/(liabilities)

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Current year (creditor)/debtor	–	(0.1)	0.4	0.4
Prior year tax items	–	1.0	–	(2.3)
	–	0.9	0.4	(1.9)

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200

Notes to the Financial Statements continued

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 2026, as part of an ongoing programme to renew and raise new financing, the Group

entered into £300 million (2025: £650 million) of new public bonds issuances and £150 million (2025: £150 million)

private placements with an average maturity of 5.5 years.

The maturity of non-current borrowings, excluding leases, was:

	Group
	2026	2025
	£m	£m
Between 1 and 2 years	102.4	71.8
Over 2 years and less than 5 years	697.9	268.2
Over 5 years	2,878.4	2,937.6
	3,678.7	3,277.6

The weighted average maturity of non-current borrowings, excluding leases, was 12.6 years (2025: 12.3 years).

Undrawn committed borrowing facilities at the balance sheet date were:

	Group
	2026	2025
	£m	£m
Floating rate:
Expiring within 1 year	–	65.0
Expiring after 1 year	610.0	495.0
	610.0	560.0

29. Borrowings continued

Fair value adjustments of £96.5 million (2025: £106.8 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 £1,546.7 million, 2025: £1,570.2 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.

The fair values of borrowings valued using level 2 measures, unless otherwise stated below, (as set out in note 24) were :

		2026		2025
	Book value	Fair value	Book value	Fair value
	£m	£m	£m	£m
Group
Bank and other loans	99.2	99.2	222.0	222.0
Fixed rate bonds	2.2	2.2	2.5	–
Private placement	16.7	16.7	–	–
	118.1	118.1	224.5	222.0
Leases	33.1	33.1	32.9	32.9
Total current borrowings	151.2	151.2	257.4	254.9
Group
Bank and other loans	466.0	455.2	506.3	556.1
Private placements	964.8	981.6	841.9	842.2
Fixed rate bonds (level 1)	1,079.0	1,067.1	781.4	784.0
Fixed rate bonds	98.5	60.8	105.0	61.6
RPI index-linked bonds (level 1)	236.5	240.9	224.6	233.0
RPI index-linked bond	821.4	625.8	805.9	602.2
Listed preference shares	12.5	17.4	12.5	18.5
	3,678.7	3,448.8	3,277.6	3,097.6
Leases	1,067.3	928.6	1,019.3	1,007.4
Total non-current borrowings	4,746.0	4,377.4	4,296.9	4,105.0
Total borrowings	4,897.2	4,528.6	4,554.3	4,359.9

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

30. Other non-current liabilities

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Other creditors	1.9	–	–	–
Contract liabilities	186.1	171.3	–	–
	188.0	171.3	–	–

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 27. 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.

31. 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 planned buy-out of the Section was completed on the 11 July 2025 and the process to wind up the

scheme continues.

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.

29. Borrowings continued

Information on leases

The Group has leases for various assets as shown in note 17.

The maturity of lease liabilities was:

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Within 1 year	33.1	32.9	–	–
Over 1 year and less than 5 years	206.5	169.8	–	–
Over 5 years	860.8	849.5	–	–
	1,100.4	1,052.2	–	–
Analysed as:	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Current	33.1	32.9	–	–
Non-current	1,067.3	1,019.3	–	–
	1,100.4	1,052.2	–	–

Lease liabilities includes liabilities of £1,057.0 million (2025: £1,007.2 million) that are subject to secured financing

arrangements (see note 17) and lease liabilities under IFRS 16 of £43.4 million (2025: £45.0 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

2026 the range of IBRs used was between 5.7% and 7.9% (2025: between 5.1% and 6.9%) and the weighted average IBR

across all leases was 6.3% (2025: 6.2%). 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 2026

(2025: c.0.9%).

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, £46.2 million at 31 March

2026 (2025: £46.1 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 £42.4 million (2025: £94.3 million) and interest

repayments of £49.9 million (2025: £63.0 million), in addition to inflows from lease financing arrangements of £90.0

million (2025: £25.0 million).

Other information required to be disclosed under IFRS 16 is included in note 17.

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Notes to the Financial Statements continued

The sensitivities regarding the principal assumptions used to measure the schemes’ liabilities are:

	Change in		Impact on schemes’ liabilities
	assumption
		2026	2025
Rate of increase in current and future pensions	+/– 0.5%	+/– 4.6%	+/-4.4%
Rate used to discount schemes’ liabilities	+/– 0.5%	–/+ 5.4%	-/+ 5.6%
Inflation	+/– 0.5%	+/– 3.8%	+/-4.3%
Life expectancy	+/– 1 year	+/– 3.5%	+/-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
	2026	2025	2026	2025
	£m	£m	£m	£m
Present value of financial obligations	(572.6)	(673.3)	(120.8)	(120.5)
Fair value of plan assets	610.3	709.7	124.4	124.5
Surplus of funded plans	37.7	36.4	3.6	4.0
Less: restriction of surplus	(5.8)	(5.2)	–	–
Net asset recognised in the balance sheet	31.9	31.2	3.6	4.0

31. Retirement benefit obligations continued

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.

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. Under the Pensions Schemes Act 2026, which came

into force on 29 April 2026, the Trustees will be able to retrospectively validate amendments if required. Accordingly n o

additional liabilities have been recognised.

Defined contribution schemes

Pension costs for defined contribution schemes were £14.3 million (2025: £14.9 million).

Defined benefit schemes

Assumptions

The principal actuarial assumptions at 31 March were:

	2026	2025
	%	%
Rate of increase in pensionable pay	2.7	2.5
Rate of increase for current and future pensions	2.8	2.7
Rate used to discount schemes’ liabilities and expected
return on schemes’ assets	6.1	5.8
Inflation	3.2	3.1

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 2024 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:

	2026	2025
Male	24.2	23.8
Female	26.7	26.6

The average life expectancy in years of a future pensioner retiring at age 62, 20 years after the balance sheet date, is

projected as:

	2026	2025
Male	25.0	24.9
Female	27.7	27.7

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

31. Retirement benefit obligations continued

The movement in the net defined benefit obligation over the accounting period is as follows:

		2026			2025
	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	(673.3)	704.5	31.2	(774.2)	800.8	26.6
Current service cost	(1.0)	(0.9)	(1.9)	(1.0)	(1.4)	(2.4)
Past service cost, curtailments and gains/losses on settlements	92.8	(92.8)	–	–	–	–
Interest (expense)/income	(33.7)	35.9	2.2	(36.0)	37.6	1.6
	58.1	(57.8)	0.3	(37.0)	36.2	(0.8)
Remeasurements:
Loss on plan assets excluding amounts included in interest expense	–	(1.6)	(1.6)	–	(87.9)	(87.9)
(Loss)/gain from change in demographic assumptions	(2.3)	–	(2.3)	7.2	–	7.2
Gain from change in financial assumptions	10.6	–	10.6	86.3	–	86.3
Experience (losses)/gains	(7.5)	(0.7)	(8.2)	(2.3)	0.2	(2.1)
	0.8	(2.3)	(1.5)	91.2	(87.7)	3.5
Contributions:
Employers	0.1	1.8	1.9	0.1	1.8	1.9
Payments from plans:
Benefit payments	41.7	(41.7)	–	46.6	(46.6)	–
	41.8	(39.9)	1.9	46.7	(44.8)	1.9
At 31 March	(572.6)	604.5	31.9	(673.3)	704.5	31.2

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 overall surplus includes a net surplus of c. £11.4 million (31 March 2025 £9.2 million) relating to the Bristol Water Section of the WCPS. The planned buy-out of the Section was completed on 11 July 2025. The section’s assets and liabilities

were remeasured prior to settlement using actuarial assumptions at this date. The assets and liabilities were both reduced by £92.8 million resulting in a net £nil statement of profit or loss settlement charge. An actuarial gain of £2.7 million was

recognised in other comprehensive income for the period 1 April 2025 to 11 July 2025.

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 now only available as a refund. Under UK tax legislation a tax deduction of 25% (2025: 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 wind up the scheme continues and the

Trustee has indicated its intention to return the surplus to the Company. The remaining assets relating to the Bristol Water Section are 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.

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Notes to the Financial Statements continued

31. Retirement benefit obligations continued

The movement in the Company’s net defined benefit obligation over the accounting period is as follows:

		2026			2025
	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	(120.5)	124.5	4.0	(137.9)	141.4	3.5
Current service cost	(0.3)	–	(0.3)	(0.4)	–	(0.4)
Interest (expense)/income	(6.8)	7.0	0.2	(6.5)	6.6	0.1
	(7.1)	7.0	(0.1)	(6.9)	6.6	(0.3)
Remeasurements:
Gain/(loss) on plan assets excluding amounts included in interest expense	–	0.7	0.7	–	(16.2)	(16.2)
(Loss)/gain from change in demographic assumptions	(0.5)	–	(0.5)	1.2	–	1.2
Gain from change in financial assumptions	2.5	–	2.5	15.8	–	15.8
Experience losses	(3.3)	–	(3.3)	(0.4)	–	(0.4)
	(1.3)	0.7	(0.6)	16.6	(16.2)	0.4
Contributions:
Employers	–	0.3	0.3	–	0.4	0.4
Payments from plans:
Benefit payments	8.1	(8.1)	–	7.7	(7.7)	–
	8.1	(7.8)	0.3	7.7	(7.3)	0.4
At 31 March	(120.8)	124.4	3.6	(120.5)	124.5	4.0
The schemes’ assets relating to the Group were:		2026			2025
	Quoted prices in	Prices not quoted		Quoted prices in	Prices not quoted
	active market	in active market	Fund	active market	in active market	Fund
	£m	£m	%	£m	£m	%
Equities	88.5	–	15	92.2	–	13
Government bonds	–	–	-	16.4	–	2
Other bonds	82.3	38.8	20	91.7	49.1	20
Diversified growth	43.0	–	7	39.1	–	6
Property/Infrastructure	40.1	22.5	10	42.7	27.8	10
Insurance linked security	55.9	–	9	50.0	–	7
Bulk insurance policies	–	54.7	9	–	146.6	21
LDI investments	158.3	–	26	114.3	–	16
Other (including cash funds)	2.8	17.6	4	18.3	16.4	5
	470.9	133.6	100.0	464.7	239.9	100

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

31. Retirement benefit obligations continued

The Company’s share of the schemes’ assets at the balance sheet date was:

		2026			2025
	Quoted prices in	Prices not quoted		Quoted prices in	Prices not quoted
	active market	in active market	Fund	active market	in active market	Fund
	£m	£m	%	£m	£m	%
Equities	20.6	–	17	21.2	–	17
Government bonds	–	–	–	3.8	–	3
Other bonds	19.2	9.0	23	21.1	11.3	26
Diversified growth	10.1	–	8	9.0	–	7
Property/Infrastructure	9.4	5.4	12	9.8	6.4	13
Insurance linked security	13.1	–	10	11.5	–	9
LDI investments	37.0	–	30	26.3	–	21
Other	0.6	–	–	4.1	–	4
	110.0	14.4	100	106.8	17.7	100

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 yields	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 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, which are commonly used by UK pension schemes.

The weighted average duration of the defined benefit obligation is 11 years (2025: 10 to 12 years).

The 2025 triennial actuarial valuation of the principal defined benefit scheme was agreed in 2025 with an actuarial valuation surplus of £14.0 million. No deficit recovery contributions are required as a result of the 2025 valuation. Additional

contributions of £1.8 million were paid into the scheme in respect of scheme expenses (2025: £1.8 million). The Group monitors funding levels on an annual basis and the Group expects to pay only scheme expenses of around £1.9 million, during

the year ended 31 March 2027.

The last formal valuation of the SES section of the WCPS was at 31 March 2022.

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Notes to the Financial Statements continued

32. 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
	2026	2025	2026	2025
	£m	£m	£m	£m
Net liabilities/(assets) after offsetting at 1 April	530.6	548.4	(23.6)	(20.7)
Charged/(credited) to the statement of profit or loss	25.3	(7.8)	(2.2)	(3.0)
(Credited)/charged to other comprehensive income	(0.7)	(1.5)	(0.1)	0.1
Other non-underlying credits in the statement of profit or loss	(3.3)	(8.5)	–	–
Net liabilities/(assets) after offsetting at 31 March	551.9	530.6	(25.9)	(23.6)

Deferred tax assets have been recognised in respect of all temporary differences where it is probable that these assets will be recovered. 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.

The Group has applied the exemption from recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes as required by the amendments to IAS 12 ‘International Tax Reform – Pillar Two Model

Rules’.

The movements in deferred tax assets (after offset) were:

Group

Deferred tax liabilities

			Short-term
			liabilities	Retirement
	Property, plant and	Fair value	including	benefit
	equipment	adjustments	provisions	obligations	Total
	£m	£m	£m	£m	£m
At 1 April 2024	522.3	104.7	4.9	2.3	634.2
Underlying charged/(credited) to the statement of profit or loss	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
Underlying charged/(credited) to the statement of profit or loss	43.7	(0.9)	(0.4)	0.6	43.0
Credited to other comprehensive income	–	–	–	(0.9)	(0.9)
At 31 March 2026	605.1	104.3	4.0	3.6	717.0

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

32. Deferred tax continued

Deferred tax assets

		Share-based		Corporate interest	Fair value
	Derivatives	payments	Tax losses	restriction	adjustment	Total
	£m	£m	£m	£m	£m	£m
At 1 April 2024	(4.2)	(0.6)	(42.2)	(10.7)	(28.1)	(85.8)
Underlying charged/(credited) to the statement of profit or loss	1.1	(0.1)	(51.0)	(0.6)	3.0	(47.6)
Non-underlying credited to the statement of profit or loss	–	–	(8.5)	–	–	(8.5)
Credited to equity	(2.4)	–	–	–	–	(2.4)
At 31 March 2025	(5.5)	(0.7)	(101.7)	(11.3)	(25.1)	(144.3)
Underlying charged/(credited) to the statement of profit or loss	4.5	(0.1)	(22.4)	(0.1)	0.4	(17.7)
Non-underlying credited to the statement of profit or loss	–	–	(3.3)	–	–	(3.3)
Charged to equity	0.2	–	–	–	–	0.2
At 31 March 2026	(0.8)	(0.8)	(127.4)	(11.4)	(24.7)	(165.1)
Net liability
At 31 March 2025						530.6
At 31 March 2026						551.9

Deferred tax assets not recognised

		Short-term	Tax losses and
	Property, plant	liabilities including	corporate interest
	and equipment	provisions	restriction	Total
Gross	£m	£m	£m	£m
At 1 April 2024	0.4	0.2	22.0	22.6
Movement in unrecognised deferred tax	(0.1)	–	11.6	11.5
At 31 March 2025	0.3	0.2	33.6	34.1
Utilisation of unrecognised deferred tax	–	(0.2)	(1.7)	(1.9)
Movement in unrecognised deferred tax	(0.3)	–	–	(0.3)
At 31 March 2026	–	–	31.9	31.9

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Notes to the Financial Statements continued

Deferred tax charged/(credited) to equity or other comprehensive income during the year was:

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Remeasurement of defined
benefit obligations	(0.9)	0.9	(0.1)	0.1
Cash flow hedges	0.2	(2.4)	–	–
	(0.7)	(1.5)	(0.1)	0.1

When a business incurs capital expenditure which is qualifying for tax relief, tax deductions are obtained via the capital

allowance regime. The tax relief arising replaces the accounting depreciation of the qualifying expenditure which is not

tax deductible. Over the period of ownership of the relevant property, plant and equipment, 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. The Group has benefited from 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 derivatives and share based payments because the treatment

of such items are different for tax and accounting purposes creating temporary differences which will unwind in the

near future. 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).

The fair value deferred tax liabilities shown above relate to the impact of previous business combinations of

Bournemouth Water, Bristol Water and SES Water in respect of an increase between the fair value and book value

of property, plant and equipment that was acquired and upon which a deferred tax liability is booked. In respect of

the same business combinations, fair value deferred tax assets relate to the revaluation of debt on the acquisition of

Bournemouth Water, Bristol Water and SES 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 statement of profit or loss.

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 capital losses accumulated to date which have not been utilised. The deferred

tax on these tax losses is recognised together with the deferred tax on the UK corporate interest restrictions carried

forward. These tax attributes are available indefinitely. The increase in tax losses in the current year is partly driven

by a prior year adjustment as discussed in note 9. UK capital losses are recognisable only on consolidation as per the

application of IAS 12. The basis for recognition is that the UK tax group has appropriate taxable temporary differences

that are expected to reverse in a manner which will enable full utilisation of these tax attributes thereby reducing future

tax payable thereby complying with the offsetting provisions set out in IAS 12.

32. Deferred tax continued

Deferred tax assets have not been recognised in respect of the following items:

		Short-term	Tax losses and
	Property, plant and	liabilities including	corporate interest
	equipment	provisions	restriction	Total
Tax effect	£m	£m	£m	£m
At 1 April 2024	0.1	–	5.5	5.6
Utilisation of unrecognised deferred tax	–	–	2.9	2.9
At 31 March 2025	0.1	–	8.4	8.5
Movement in unrecognised deferred tax	–	–	(0.4)	(0.4)
Utilisation of unrecognised deferred tax	(0.1)	–	–	(0.1)
At 31 March 2026	–	–	8.0	8.0

Following the acquisition of SES Water in FY24, the Group acquired various tax attributes upon which no deferred

tax assets were recognised at the point of acquisition. As at FY26, these attributes continue to be unrecognised.

These tax attributes mainly relate to tax losses £23.8 million (2025: £25.5 million) and a UK corporate interest

disallowance of £8.1 million (2025: £8.1 million).

The Group does not consider that it is probable that sufficient taxable profits will be created which would enable

utilisation of these tax attributes when taking into account the application of the UK tax rules in respect of attributes

acquired via an acquisition.

Company

Deferred tax assets

	Retirement
	benefit	Share-based
	obligations	payments	Tax losses	Total
	£m	£m	£m	£m
At 31 March 2024	0.9	(0.5)	(21.1)	(20.7)
Credited to the statement of profit or loss	–	–	(3.0)	(3.0)
Charged to other comprehensive income	0.1	–	–	0.1
At 31 March 2025	1.0	(0.5)	(24.1)	(23.6)
Credited to the statement of profit or loss	–	–	(2.2)	(2.2)
Credited to other comprehensive income	(0.1)	–	–	(0.1)
At 31 March 2026	0.9	(0.5)	(26.3)	(25.9)

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

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.

Outstanding options to subscribe for ordinary shares of 61.05 pence each under the Company’s share option schemes are:

Date granted

Subscription price

fully paid

Period when

options normally

exercisable

Thousands of shares in respect

of which options outstanding

at 31 March

2026 2025

19 July 2020 750p 2023 – 2025 – 27

6 July 2021 710p 2024 – 2026 36 53

5 July 2022 669p 2025 – 2027 24 206

4 July 2023 536p 2026 – 2028 323 495

2 July 2024 406p 2027 – 2029 1,115 1,383

3 July 2025 421p 2028 – 2030 776 –

2,274 2,164

The number and weighted average exercise price of Sharesave options are:

		2026		2025
	Number of	Weighted average	Number of	Weighted average
	ordinary shares	exercise price per	ordinary shares	exercise price per
	(thousands)	share (p)	(thousands)	share (p)
At 1 April	2,164	472	1,461	746
Granted	844	421	1,324	406
Additional options awarded as part of rights
issue	–	–	493	492
Forfeited	(453)	477	(789)	543
Exercised	(7)	406	(4)	501
Expired	(274)	600	(321)	645
At 31 March	2,274	437	2,164	472

The weighted average price of the Company’s shares at the date of exercise of Sharesave options during the year was

513 pence (2025: 612 pence). The options outstanding at 31 March 2026 had a weighted average exercise price of

437 pence (2025: 472 pence) and a weighted average remaining contractual life of 2.1 years (2025: 2.4 years). The

number of exercisable Sharesave options at 31 March 2026 was 3,091 (2025: 2,277) and the weighted average exercise

price of exercisable Sharesave options was 699 pence (2025: 710 pence).

33. Provisions

	Restructuring	Other	Total
	£m	£m	£m
Group
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
Charge	–	5.7	5.7
Utilised	(6.4)	(0.1)	(6.5)
At 31 March 2026	–	6.5	6.5

Other provisions include £0.3 million (2025: £0.4 million) in relation to dilapidations and onerous contracts and £6.2

million (2025: £0.5 million) in relation to ongoing legal and environmental cases. £6.2 million of these provisions are

expected to be utilised within one year.

34. Share capital

Allotted, called–up and fully paid

		Number of shares
	Treasury shares	Ordinary shares	£m
Group and Company
At 1 April 2024 ordinary shares of 61.05p each For consideration of £21,000, shares issued under the	5,628	286,045,323	174.6
Company’s Sharesave Scheme	–	3,386	–
Rights issue	–	185,928,002	113.5
At 31 March 2025 ordinary shares of 61.05p each For consideration of £4,000, shares issued under the	5,628	471,976,711	288.1
Company’s Sharesave Scheme	–	6,883	–
At 31 March 2026 ordinary shares of 61.05p each	5,628	471,983,594	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. In the year

ended 31 March 2026 an additional £0.5 million transaction costs directly attributable to the rights issue have been

accounted for as a deduction from share premium.

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Notes to the Financial Statements continued

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:

	2026		2025
		Weighted
	Number of	average award	Number of	Weighted
	ordinary shares	price per share	ordinary shares	average award
	(thousands)	(p)	(thousands)	price per share (p)
At 1 April	108	803	217	863
Granted	184	493	22	665
Vested	(42)	988	(45)	1,141
Lapsed	(13)	710	(86)	729
At 31 March	237	536	108	803

The awards outstanding at 31 March 2026 had a weighted average award price of 536 pence (2025: 803 pence) and a

weighted average remaining contractual life of 1.9 years (2025: 1.6 years). The Company’s share price at the date of the

awards ranged from 493 pence to 988 pence (2025: 665 pence to 1,141 pence).

The aggregate fair value of awards granted during the year was £0.9 million (2025: £0.1 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.

35. Share premium account

	£m
Group and Company
At 1 April 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
Sale of share forfeiture shares	0.6
	755.6
Less: Transaction costs directly attributable to rights issue	(0.5)
At 31 March 2026	755.1

34. Share capital continued

The aggregate fair value of Sharesave options granted during the year was £0.8 million (2025: £1.0 million), determined

using the Black-Scholes valuation model. The significant inputs into the valuation model at the date of issue of the

options were:

	2026	2025
Weighted average share price (pence)	494	564
Weighted average exercise price (pence)	421	406
Expected volatility	31%	27%
Expected life	3.5 years	3.5 years
Risk-free rate	4.3%	5.3%
Expected dividend yield	6.4%	7.8%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous

three year and five year 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 133 to 155.

The number and price of shares in the LTIP are:

	2026		2025
		Weighted
	Number of	average award	Number of	Weighted
	ordinary shares	price per share	ordinary shares	average award
	(thousands)	(p)	(thousands)	price per share (p)
At 1 April	1,978	773	1,122	863
Granted	675	458	603	646
Additional shares awarded as part
of rights issue	–	–	470	–
Vested	(94)	–	(133)	753
Lapsed	(555)	629	(84)	1,093
At 31 March	2,004	548	1,978	773

The awards outstanding at 31 March 2026 had a weighted award price of 548 pence (2025: 773 pence) and a weighted

average remaining contractual life of 3.0 years (2025: 3.3 years).

The aggregate fair value of awards granted during the year was £1.5 million (2025: £1.3 million), determined from market

value. No option pricing methodology is applied since the vesting of the shares depends on non-market performance

vesting conditions.

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Notes to the Financial Statements continuedNotes to the Financial Statements continued

	Own	Retained
	shares	earnings	Total
	£m	£m	£m
Company
At 1 April 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)
Credit to equity in respect of share-based payments
(net of tax)	–	1.5	1.5
Credit/(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	(2.1)	–	(2.1)
At 31 March 2025	(0.7)	326.3	325.6
Profit for the year	–	191.5	191.5
Other comprehensive expense for the year	–	(0.5)	(0.5)
Dividends paid relating to 2025	–	(133.7)	(133.7)
Dividends forfeited	–	1.7	1.7
Credit to equity in respect of share-based payments
(net of tax)	–	1.7	1.7
Credit/(charge) in respect of share options vesting	1.3	(1.3)	–
Own shares acquired by the Pennon Employee Share Trust
in respect of share options granted	(2.4)	–	(2.4)
At 31 March 2026	(1.8)	385.7	383.9

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.

36. 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 31 March 2024	157.1
At 31 March 2025	157.1
At 31 March 2026	157.1

37. Retained earnings and other reserves

	Own	Hedging	Retained
	shares	reserve	earnings	Total
	£m	£m	£m	£m
Group
At 1 April 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)	–
Credit/(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
Profit for the year	–	–	91.5	91.5
Other comprehensive income/(loss) for the year	–	0.6	(0.6)	–
Dividends paid relating to 2025	–	–	(133.7)	(133.7)
Dividends forfeited	–	–	1.7	1.7
Credit to equity in respect of share-based payments
(net of tax)	–	–	2.6	2.6
Credit/(charge) in respect of share options vesting	1.3	–	(1.3)	–
Own shares acquired by the Pennon Employee Share Trust
in respect of share options granted	(2.4)	–	–	(2.4)
At 31 March 2026	(1.8)	25.3	184.2	207.7

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 247,106 ordinary shares (2025: 127,801 ordinary shares) held by the Trust at 31 March 2026 was

£1,308,000 (2025: £573,000).

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Notes to the Financial Statements continued

39. Net borrowings

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Borrowings – current
Bank and other current borrowings	(118.1)	(224.5)	(36.9)	(51.5)
Lease obligations	(33.1)	(32.9)	–	–
Total current borrowings	(151.2)	(257.4)	(36.9)	(51.5)
Borrowings – non-current
Bank and other non-current borrowings	(3,666.2)	(3,265.1)	(328.4)	(195.6)
Listed preference shares	(12.5)	(12.5)	–	–
Lease obligations	(1,067.3)	(1,019.3)	–	–
Total non-current borrowings	(4,746.0)	(4,296.9)	(328.4)	(195.6)
Total financing liabilities	(4,897.2)	(4,554.3)	(365.3)	(247.1)
Less:
Cash and cash equivalents	332.7	417.9	0.4	45.0
Restricted funds	55.6	58.2	–	–
Total net borrowings	(4,508.9)	(4,078.2)	(364.9)	(202.1)

38. 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
	2026	2025
	£m	£m
Profit/(loss) for the year	92.6	(56.8)
Adjustments for:
Share-based payments	2.6	2.0
Profit on disposal of property, plant and equipment	(3.6)	(1.2)
Depreciation charge	190.6	184.7
Amortisation of intangible assets	2.4	2.3
Intangible impairment charge	0.3	1.3
Impairment of investment properties	0.4	–
Share of post-tax profit from associated companies	(1.0)	(0.8)
Finance income	(21.9)	(15.0)
Finance costs	213.3	199.4
Taxation charge/(credit)	21.8	(15.9)
Changes in working capital:
(Increase)/decrease in inventories	(2.5)	0.4
Increase in trade and other receivables	(59.1)	(42.5)
Increase/(decrease) in trade and other payables	94.6	(30.5)
(Decrease)/increase in provisions	(0.8)	6.2
Cash generated from operations	529.7	233.6

Reconciliation of total interest paid:

	Group
	2026	2025
	£m	£m
Interest paid in operating activities	172.0	143.1
Total interest paid	172.0	143.1

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213

Notes to the Financial Statements continuedNotes to the Financial Statements continued

39. Net borrowings continued

The movements in net borrowings during the periods presented were as follows:

Group
	Net borrowings		Transfer between		Net borrowings
	at 31 March		non-current and	Other non-cash	at 31 March
	2024	Cash flows	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)
	Net borrowings		Transfer between		Net borrowings
	at 31 March		non-current and	Other non-cash	at 31 March
	2025	Cash flows	current	movements	2026
	£m	£m	£m	£m	£m
Bank and other current borrowings	(224.5)	180.7	(73.3)	(1.0)	(118.1)
Current lease obligations	(32.9)	96.4	(43.4)	(53.2)	(33.1)
Bank and other non-current borrowings	(3,265.1)	(444.9)	73.3	(29.5)	(3,666.2)
Listed preference shares	(12.5)	–	–	–	(12.5)
Non-current lease obligations	(1,019.3)	(90.0)	43.4	(1.4)	(1,067.3)
Total financing liabilities	(4,554.3)	(257.8)	–	(85.1)	(4,897.2)
Less
Cash and cash equivalents	417.9	(85.2)	–	–	332.7
Restricted funds	58.2	(2.6)	–	–	55.6
	(4,078.2)	(345.6)	–	(85.1)	(4,508.9)

Non-cash movements relates to accrued interest expense which will be presented as operating cash flows in the statement of cash flows when paid.

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Notes to the Financial Statements continued

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

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

SES Business Water Limited 66-74 London Road, Redhill, RH1 1LJ England

SES Home Services Limited 66-74 London Road, Redhill, RH1 1LJ England

Source for Business 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.

		Country of
Joint Ventures and Associates	Registered office address	incorporation	Stake (%)
Joint Ventures:
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	England	50
	Trading Estate, Cornishway West, Taunton,
	Somerset, TA1 9LQ
Associates:
Water 2 Business Limited	21e Somerset Square, Nailsea, Bristol, United	England	30
	Kingdom, BS48 1RQ

* 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.

40. Subsidiary and joint venture undertakings at 31 March 2026

		Country of
		incorporation,
		registration and
Principal subsidiary companies	Registered office address	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
East Surrey Holdings Limited	66-74 London Road, Redhill, RH1 1LJ	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,	Guernsey
	St Peter Port, GY1 1EJ
Pennon Power Aberdeenshire Limited	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
(formerly EEB16 Limited)
Pennon Power Limited*	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Pennon Power Fife Limited (formerly	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
Dunfermline Solar Limited)
Pennon Power Lite Limited (formerly	Peninsula House, Rydon Lane, Exeter, EX2 7HR	England
South West Water Services Limited)*
Sutton and East Surrey Group	66-74 London Road, Redhill, RH1 1LJ	England
Holdings Limited*
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

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Financial Statements

215

Notes to the Financial Statements continuedNotes to the Financial Statements continued

Other contractual and litigation uncertainties

Ofwat and the Environment Agency (EA) announced an industry-wide investigation into sewage treatment works on

18 November 2021. On 10 July 2025, Ofwat announced its findings for South West Water Limited and its decision to

accept South West Water Limited’s enforcement package, in lieu of a financial penalty. The agreed undertakings consist

of investing £20 million between 2025-2030 to reduce spills from specific outflows, establishing a £2 million local fund

to tackle sewer misuse and providing £2 million of funding through a Nature Recovery Fund to support environmental

groups. The costs in relation to the £20 million investment will be accounted for as capital when incurred.

On 2 February 2024 summons was received by South West Water Limited from the EA in relation to alleged breaches

of permits in relation to the illegal water discharge activity at seven locations with a total of 30 charges. The EA have

since withdrawn six of these charges relating to one site. At a hearing on 14 November 2024, South West Water Limited

pleaded guilty to five of the charges. Sentencing was held on 12 and 13 March 2026 although the value of any fine will

not be known until the judgement takes place on 30 July 2026.

On 23 May 2023 Ofwat announced an investigation into South West Water Limited’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 Limited 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 (ODI). 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.

Following the Brixham cryptosporidium outbreak in May 2024, legal proceedings were brought by the Drinking Water

Inspectorate (DWI). South West Water pleaded guilty to the charge of supplying water unfit for human consumption

on 4 March 2026, with sentence received on 2 June 2026. The Court levied a fine of £1.9 million, reflecting the serious

impact this incident had on customers in the area, whilst also recognising the extensive customer support and remedial

actions taken by South West Water. Full provision was recognised in the 2025/26 financial year for the fine.

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. An amount of £6.7 million has been included in non-underlying costs in respect of the above.

40. Subsidiary and joint venture undertakings at 31 March 2026

continued

Subsidiary audit exemption

Pennon Group plc has issued guarantees over the liabilities of the following companies at 31 March 2026 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
Pennon Power Fife Limited (formerly Dunfermline Solar Limited)	12683727
Pennon Power Aberdeenshire Limited (formerly 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

41. Contingencies

Contingent liabilities

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Guarantees:
Performance bonds	28.8	20.0	28.7	15.0
	28.8	20.0	28.7	15.0

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.

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Financial Statements

216

Notes to the Financial Statements continued

Company

The following transactions with associates and subsidiaries which were not wholly owned by the Company occurred in

the year:

	2026	2025
	£m	£m
Sales of goods and services
Water 2 Business Limited	0.5	0.1
Year-end balances	2026	2025
	£m	£m
Receivables due from related parties
Water 2 Business Limited
(including loan receivable of £7.1 million (2025: £8.7 million))	7.5	8.9

On 31 January 2025 the £8.7 million 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%.

42. Capital commitments

	Group		Company
	2026	2025	2026	2025
	£m	£m	£m	£m
Contracted but not provided	254.9	167.9	–	–

The above capital commitments in the current and prior year relate to property, plant and equipment.

43. 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 investment of South West Water Limited and

Water 2 Business Limited is an associate investment of the Company.

	2026	2025
	£m	£m
Sales of goods and services
Water 2 Business Limited	32.2	29.5
Purchase of goods and services
Bristol Wessex Billing Services Limited	4.4	4.1

Year-end balances

	2026	2025
	£m	£m
Receivables due from related parties
Water 2 Business Limited (including loan receivable of £7.1 million
(2025: £8.7 million))	7.5	10.9
Bristol Wessex Billing Services Limited	0.2	0.2
Payables due to related parties
Bristol Wessex Billing Services Limited	1.6	1.6

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%.

Strategic Report

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Financial Statements

217

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 2025/26, the following APMs were added to

or amended to those presented previously:

• The APM ‘Effective interest rate’ has been amended and is now calculated for the Water Group which includes SES Water. Previously this was for South West Water only.

• The APM ‘Effective cash cost of interest rate’ has been amended and is now calculated for the Water Group which includes SES Water. Previously this was for South West Water only.

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 2026

Underlying

£m

Brixham and

regulatory

investigations

£m

Restructuring/

Transformation

£m

Statutory

results

£m

Earnings

per share

EBITDA (see below) 519.2 (6.7) (14.0) 498.5

Operating profit/(loss) 325.5 (6.7) (14.0) 304.8

Profit/(loss) before tax 135.1 (6.7) (14.0) 114.4

Taxation (25.9) 0.7 3.4 (21.8)

Profit after tax 92.6

Non-controlling interests (1.1)

Profit after tax attributable to shareholders 91.5 19.4

Non-underlying items

Underlying earnings reconciliation 31 March 2025

Underlying

£m

Brixham

£m

SES

acquisition

£m

Renewables

acquisition

£m

Transformation

£m

Statutory

results

£m

Earnings

per share

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)

Underlying EBITDA

Underlying EBITDA (earnings before interest, tax, depreciation and amortisation and non-underlying items) is used to assess and monitor operational underlying performance.

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218

Underlying interest cover

Underlying net finance costs (excluding pensions net interest cost) divided by operating profit before non-underlying

items.

2026

£m

2025

£m

Net finance costs after non-underlying items (note 8) 191.4 184.4

Net interest on retirement benefit obligations (note 8) 2.2 1.6

Net finance costs for interest cover calculation 193.6 186.0

Operating profit before non-underlying items (see ‘Underlying earnings’ above) 325.5 148.5

Interest cover (times) 1.7 0.8

Underlying EBITDA dividend cover

Underlying EBITDA for the Group divided by proposed combined interim and final dividends.

2026

£m

2025

£m

Underlying EBITDA (see ‘Underlying earnings’ above) 519.2 335.6

Proposed dividends (note 12) 138.2 133.7

EBITDA dividend cover (times) 3.8 2.5

Underlying dividend cover

Proposed dividends divided by profit for the year before non-underlying items and deferred tax.

2026

£m

2025

£m

Proposed dividends (note 12) 138.2 133.7

Profit/(loss) for the year attributable to ordinary shareholders 91.5 (57.9)

Deferred tax charge/(credit) before non-underlying items (note 9) 25.3 (7.8)

Non-underlying items after tax in profit/(loss) for the year (note 6) 16.6 28.7

Adjusted profit/(loss) for dividend cover calculation 133.4 (37.0)

Dividend cover (times) 1.0 –

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.

2026

£m

2025

£m

Additions to property, plant and equipment (note 17) 635.5 647.0

Additions and ‘other’ movements to intangible assets (note 16) 8.1 5.5

Capital investment 643.6 652.5

Effective interest rate

A measure of the mean average interest rate payable on net debt associated with the Water Group, which excludes

interest costs not directly associated with net debt. This measure is presented to assess and monitor the relative cost

of financing for the Water Group.

2026

£m

2025

£m

Net finance costs before non-underlying items (note 8) 191.4 184.4

Remove: net finance income before non-underlying items not associated with the

Water Group (1.7) 5.0

Net finance costs before non-underlying items associated with the

Water Group 189.7 189.4

Net interest on retirement benefit obligations 2.0 1.5

Capitalised interest 34.2 23.3

Non-debt related interest 2.4 (2.2)

Net finance costs for effective interest rate calculation 228.3 212.0

Group net debt (opening) (note 39) 4,078.2 3,844.8

Remove: Unamortised hedging adjustment (35.2) (37.5)

Remove: opening net debt not associated with the Water group (344.9) (238.2)

Opening net debt for calculation 3,698.1 3,569.1

Group net debt (closing) (note 39) 4,508.9 4,078.2

Remove: Unamortised hedging adjustment (32.8) (35.2)

Remove: closing net debt not associated with the Water Group (456.8) (344.9)

Add: equity injection from parent company – 380.0

Closing net debt for calculation 4,019.3 4,078.1

Average net debt (opening net debt + closing net debt divided by 2) 3,858.7 3,823.6

Effective interest rate (%) 5.9 5.5

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).

2026

£m

2025

£m

Net finance costs for effective interest rate calculation (as above) 228.3 212.0

Remove non-cash interest accrued (income statement indexation charge) (44.9) (33.4)

Net finance costs for effective cash cost of interest calculation 183.4 178.6

Opening net debt (as above) 3,698.1 3,569.1

Closing net debt (as above) 4,019.3 4,078.1

Average net debt (opening net debt + closing net debt divided by 2) 3,858.7 3,823.6

Effective cash cost of interest (%) 4.8 4.7

Alternative performance measures continued

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219

Total Expenditure (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.

Water Group Gearing

Calculated as combined closing net debt of South West Water and SES Water over RCV for 2025/26 and shadow RCV

for 2024/25.

2026

£m

2025

£m

Net debt 4,019.3 3,698.3

RCV/Shadow RCV 6,505.0 5,983.1

Water Group Gearing 61.8% 61.8%

Capital payments

Payments for property, plant and equipment (PPE), intangible asset and investment property additions, net of proceeds

from sale of PPE, intangible assets and investment properties. The measure is presented to assess and monitor the net

cash spend on PPE, intangible assets and investment properties.

2026

£m

2025

£m

Cash flow statements: purchase of property, plant and equipment 629.4 663.1

Cash flow statements: purchase of intangible assets 8.1 5.5

Cash flow statements: proceeds from sale of property, plant and equipment and

investment properties

(4.7) (1.9)

Capital payments relating to the Group 632.8 666.7

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.5.4% and c.5.2% for SES Water

for the period 2025 to 2030) plus totex outperformance, financing outperformance and PCD 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.

• Price control deliverables (PCD) performance – If the PCD delivery is delayed, Ofwat applies a Time Value of Money

(TVM) adjustment claw back, delivery dates are 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 2025 to 2030, the notional equity proportion is 45.0%.

Further information on this metric can be found in South West Water and SES Water’s annual performance reports 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 and www.seswater.co.uk/about-us/publications/our-annual-performance-report respectively.

Alternative performance measures continued

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220

2026

£m

2025

£m

2024

£m

2023

£m

2022

£m

Income statement

Revenue before non–underlying items 1,291.4 1,047.8 907.8 825.0 792.3

Operating profit before non–underlying items 325.5 148.5 166.3 153.1 237.2

Net finance costs before non–underlying items (191.4) (184.4) (150.2) (136.6) (93.7)

Share of post-tax profit from associated companies 1.0 0.8 0.7 0.3 –

Profit/(loss) before tax and non–underlying items 135.1 (35.1) 16.8 16.8 143.5

Net non–underlying items before tax (20.7) (37.6) (25.9) (25.3) (15.8)

Taxation (charge)/credit (21.8) 15.9 0.6 8.9 (112.1)

Profit/(loss) for the year 92.6 (56.8) (8.5) 0.4 15.6

Attributable to:

Ordinary shareholders of the parent 91.5 (57.9) (9.5) 0.1 15.4

Perpetual capital security holders – – – – –

Non–controlling interests 1.1 1.1 1.0 0.3 0.2

Dividends proposed/declared 138.2 133.7 126.9 111.7 102.0

Earnings per ordinary share (basic):

Earnings per share 19.4p (16.1p) (2.9p) – 4.0p

Deferred tax before non–underlying items 5.4p (2.2p) 1.5p (0.2p) 2.1p

Non–underlying items (net of tax) 3.5p 7.9p 6.5p 6.3p 30.2p

Earnings per share before non–underlying and

deferred tax 28.3p (10.3p) 5.1p 6.0p 36.6p

Declared dividends per share 29.29p 31.57p 36.67p 35.31p 31.84p

2026

£m

2025

£m

2024

£m

2023

£m

2022

£m

Capital expenditure

Acquisitions (including investment in joint ventures) – – 90.2 – 425.1

Property, plant and equipment 635.5 647.0 604.5 353.7 237.3

Intangibles 8.1 5.5 45.0 4.6 3.6

Balance sheet

Non–current assets 6,603.0 6,147.0 5,669.1 4,743.0 4,527.0

Net current assets/(liabilities) 296.8 304.6 (23.3) 87.0 389.5

Non–current liabilities (5,488.2) (5,000.9) (4,483.2) (3,704.8) (3,641.9)

Net assets 1,411.6 1,450.7 1,162.6 1,125.2 1,274.6

Number of employees

(average full time equivalent for year)

Water 3,384 3,528 3,051 2,639 2,394

Non–household retail 207 259 191 158 177

Other businesses 101 123 90 67 65

3,692 3,910 3,332 2,864 2,636

Five-year financial summary

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221

AMP7 The 2020 to 2025 regulatory price review period

AMP8 The 2025 to 2030 regulatory price review period

AMP9 The 2030 to 2035 regulatory price review period

BRL Ofwat reference to the Bristol region

BR-MeX Business customer and retailer measure of experience is Ofwat’s measure of how

business customers and retailers experience our services

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

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

NCSC National Cyber Security Centre

Net Zero Achieving a balance between greenhouse gas emissions produced and removed from

the atmosphere across Scope 1, 2 and 3, as defined by the GHG Protocol, in line with

the UK Government’s 2050 target and the Science Based Targets initiative (SBTi) Net

Zero Corporate Standard.

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

REACH Race Ethnicity and Cultural Heritage

RNAGS Reason for Not Achieving Good Status

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

SBB Ofwat reference for South West Water including Bournemouth and Bristol – refers

to the combined company across all five regions: South West (Devon and Cornwall),

Bristol, Bournemouth and Isles of Scilly

SESW Sutton and East Surrey Water

SWB Ofwat reference for South West Water including Bournemouth – refers to the four

regions: South West (Devon and Cornwall), Bournemouth and Isles of Scilly

SWW South West Water Limited

TCFD Task force on climate-related financial disclosures

TCND Task force on nature-related financial disclosures

Totex Total expenditure

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.

Glossary

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222

Financial calendar, including Dividend Reinvestment Plan (DRIP) alternative

Financial year end 31 March 2026

Full Year Results 2025/26 10 June 2026

Annual Report and Accounts Published 16 June 2026

Annual General Meeting 2026 8 July 2026

Pennon Q1 Trading Update 8 July 2026

Ordinary shares quoted ex-dividend 23 July 2026*

Record date for final dividend 24 July 2026*

Final date for receipt of DRIP applications 10 August 2026*

Final dividend payment date 4 September 2026*

Trading Statement September 2026

Half Year Results 2026/27 1 December 2026

* Subject to obtaining shareholder approval at the 2026 Annual General Meeting.

Shareholder analysis at 31 March 2026

Number of holding of shares

Number of

shareholders

% of total

shareholders

% of ordinary

1–100 2,039 16.1 0.01

101–1,000 5,701 45.1 0.57

1,001–5,000 3,888 30.8 1.8

5,001–50,000 758 6.0 1.8

50,001–100,000 50 0.4 0.7

100,001+ 206 1.6 95.1

12,642

Number of

accounts

% of total

accounts

% of total

Individuals 11,988 94.9 3.8

Companies 571 4.5 84.2

Trust companies (pension funds etc.) 1 – –

Banks and nominees 82 0.6 12.0

12,642

Major Shareholders as at 9 April 2026

Shareholder

Shareholding in

Pennon Group plc

% of issued

share capital

Lazard LCC 45,933,776 9.73

Crédit Agricole S.A. 35,354,489 7.49

BlackRock, Inc. 33,628,139 7.12

Vanguard Group, Inc. 27,311,371 5.79

Pictet & Cie 18,991,178 4.02

Impax Group PLC 18,730,376 3.97

Schroders PLC 18,519,508 3.92

Franklin Resources Inc. 18,355,856 3.89

HSBC Group PLC 17,569,465 3.72

Deutsche Bank Group AG 15,049,511 3.19

Legal & General Group PLC 14,790,621 3.13

As at 26 May 2026, the Company has been notified of the following holdings of voting rights in the ordinary share

capital of the Company: BlackRock Inc. on 20 April 2026 of 23,520,374 shares (4.98%), on 22 April 2026 of 23,665,101

shares (5.01%), on 24 April 2026 of 23,137,073 shares (4.90%), on 27 April 2026 of 24,180,144 shares (5.12%), on 30 April

2026 of 22,949,438 shares of (4.86%), on 1 May 2026 of 23,830,753 shares of (5.04%) and on 29 May 2026 of 22,605,274

shares (4.78%). 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.

Shareholder information

Strategic Report

Pennon Group plc Annual Report and Accounts 2026 Governance Other InformationFinancial Statements

223

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 2026

Annual General Meeting for the payment of a final

dividend for the year ended 31st March 2026, 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 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

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.

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 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 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

Strategic Report

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224

Designed and produced

by carrkamasa.co.uk

Pennon Group plc

Peninsula House

Rydon Lane

Exeter

Devon

England EX2 7HR