South West Water owner taps investors to fix infrastructure after sewage spills

The owner of embattled South West Water has slashed its dividend and launched a cash call to investors as it attempts to fund infrastructure investment, days after it was hit by a record £7.9m fine for hundreds of sewage spills.

London-listed Pennon said on Wednesday it would tap investors for £550m, as part of a £1bn investment “to drive improved outcomes for customers and communities”.

Shares in the utility company, which supplies water to about 3.5 million customers across the south-west of England, as well as 380,000 business customers around the UK, tumbled in response to the announcement, making Pennon the biggest faller on the FTSE 250 index.

Pennon’s new chief executive, Keith Haslett, who was appointed in April, said he had conducted a comprehensive review of the business and had identified areas for improvement, including customer service and the company’s environmental performance.

Last month, a judge issued South West Water with the largest fine for environmental offences in the region, at nearly £8m, and said the company’s conduct amounted to reckless failures in management systems and response to known risks. The fine will be paid by shareholders rather than through bill increases.

The company was fined after hundreds of sewage spills during a six-year period at popular bathing spots including the coastal village of Harlyn in north Cornwall and in sensitive habitats, such as the River Camel, which is home to otters and Atlantic salmon and popular with birdwatchers and sailors.

In June, South West Water was fined £1.85m by a judge in a separate case. The company pleaded guilty to the criminal offence of supplying water unfit for human consumption, after a 2024 parasite outbreak in Brixham, Devon, made hundreds of people sick and forced thousands of households to boil their water.

Pennon said on Wednesday it would also slash its shareholder dividend by about 30%, including the impact of the equity raise, as part of its “operational reset”.

Shares in Pennon, which also owns Bristol Water and SES Water, slumped by as much as 22% on Wednesday after the company’s announcement, named “project Proteus”, after a sea god in Greek mythology.

Haslett told reporters the reaction to the company’s plans had been mixed, saying: “Investment is needed to achieve improvements – we’re funding the plans in the right way.”

He added this would not be funded by further increases to customers’ bills and said he was also bringing some critical roles back in-house, including leakage teams that were previously outsourced.

In its recent results for the year to 31 March, Pennon revealed it had incurred outcome delivery incentives from the water regulator for England and Wales, Ofwat, of about £42m for its water and wastewater performance. It said it had faced operational pressures from “exceptional storms and sustained rainfall coupled with a step up in targets and penalty rates”.

The company anticipates it will continue to incur the penalties until 2030 but is aiming to reduce them by at least 50% a year.

On Tuesday, South West Water applied for a ban on non-essential water use for some businesses across parts of Devon and west Dorset, after a lack of significant rainfall after the hot, dry summer. The proposed ban would restrict activities such as vehicle washing, the cleaning of buildings and the filling of non-domestic swimming pools and ponds.

Customers of South West Water are already seeing their bills rise to fuel £2.5bn of investment in infrastructure in the years to 2030.

The number of customer complaints received by South West Water more than doubled over the past year, according to the latest figures from a consumer watchdog. The Consumer Council for Water found complaints to the company soared by 153%, and rated South West Water and Thames Water “poor” for the number of complaints received and how they handled them.

In recent weeks, Andy Burnham has come under further pressure from a cross-party group of MPs to take control of indebted Thames Water.

The MPs are calling for ministers to break off talks with the US hedge funds that are effectively running the company and to consider emergency legislation to take charge of Thames’ financial affairs.

However, the environment secretary, Angela Eagle, has previously suggested a special administration regime – effectively temporary public control – could not be triggered for Thames Water and would require a change in the law.