Environmental utility infrastructure company Pennon shares fell more than 15% after the company unveiled a £550m rights issue, cut its dividend and announced a major "operational reset" aimed at improving performance, particularly at South West Water.

The FTSE 250 company is launching a fully underwritten 7-for-15 rights issue at 250p a share, a 35.5% discount to its theoretical ex-rights price based on Tuesday’s closing price. The fundraising will help finance an additional £1bn of investment across its regulated water businesses, taking planned capital investment during the AMP8 regulatory period to around £3.6bn.

The strategy is led by relatively new CEO Keith Haslett after a comprehensive review had identified areas requiring improvement across service, environmental performance and asset management. Its reset will focus on people and culture, operational excellence, asset management and reliability, environmental performance and customer transformation, with measures including greater use of in-house skills and centralised asset management.

Haslett said: "It's clear from my comprehensive review that Pennon has real strengths, but there are areas where we need to improve and deliver better outcomes for our customers and communities. The operational plan, which is already underway, is practical and focuses on clearer accountability with key skills brought back in-house, and more investment where our assets need it most.

"I am confident this plan will deliver a better service for customers, improve our environmental performance and generate sustainable, growing value for our shareholders."

The Exeter-based firm will also reduce its total dividend for the year to March 2027 to around £125m from £138m. Taking account of the rights issue, Pennon said the underlying dividend per share reduction would be around 30%, to approximately 18p, with the payout thereafter expected to grow in line with CPIH.

Pennon said the increased investment is expected to drive regulated asset value growth of more than 40% over AMP8, compared with the 34% forecast at the start of the regulatory period. The group is also proposing the sale of Pennon Power, with around £25m of proceeds earmarked for renewable generation at its sites and the remainder used to reduce debt.

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