Pennon Group plc is pleased to announce that on 10 January 2024 it acquired 100% of the issued capital of Sumisho Osaka Gas Water UK Limited, the holding company of Sutton and East Surrey Water plc (“SES Water”) and certain other ancillary businesses, for £89 million from Sumitomo Corporation and Osaka Gas, with a total enterprise value of £380 million.
We are also pleased to announce the successful completion of the equity capital raise of new Ordinary Shares of approximately £180 million in connection with the Acquisition, which will be used to ensure that the pro forma leverage and capital structure for the enlarged Group following the Acquisition is consistent with Pennon’s well-established gearing range of 55-65%.
The Acquisition of SES Water and other ancillary businesses will add a high-quality business to the Group with over 750,000 customers and a forecast shadow Regulatory Capital Value (“RCV”) of £351 million as of 31 March 2024. The enterprise value equates to a premium to SES Water 2023 RCV of c.6% and will increase the Group’s RCV by c.7% on Acquisition.
The Acquisition of SES Water marks an important step for the Group as we look ahead to the K8 (2025-30) regulatory period. The Board considers SES Water to be highly complementary, adding a high-quality, water-only operation to the Group. Building on Pennon’s track-record of acquisitive growth and value creation evidenced through the acquisition and integration of Bournemouth Water and Bristol Water, the addition of SES Water further increases the water element of RCV to represent c.57% of the Group’s total RCV.
The Acquisition of SES Water represents a strong strategic fit for the Group and has been assessed in line with the Board’s highly disciplined review of potential growth opportunities, conforming with our twin-track growth strategy. In reviewing the Acquisition, the Board considered a range of factors including earnings accretion, value creation from the impact on shareholder returns and the impact on customers and other stakeholders.
Furthermore, Pennon’s ownership and approach to the local delivery of local services will give SES Water customers greater advocacy, involvement and ownership in their water provider with Pennon’s unique share issuance scheme WaterShare+, providing SES Water customers with the opportunity to become shareholders in their local water company.
The Acquisition will increase the size and scale of the Group to serve a total population of c.4.3 million and will bring total expected RCV growth for Pennon to 71% over K7. It also adds another 476 dedicated employees to the Group, enabling access to a new, wider and diverse talent pool in Southern England.
Susan Davy, Group Chief Executive, commented:
“SES Water is a fantastic fit for Pennon as we further expand our presence in water supply across Southern England, building on our successful similar acquisitions of Bournemouth Water and Bristol Water alongside the adoption of water supply in the Isles of Scilly.
The business is a proven, high-quality water operation. We are particularly impressed by the innovation and technology-led solutions implemented by SES Water.
As part of the Pennon Group, we will enhance SES Water’s financial resilience and better position the business to serve its customers and all stakeholders, as has proven to be the case with our acquisitions of Bournemouth Water and Bristol Water.
We are able to invest in SES Water’s resources infrastructure, environment and people thanks to our strong financial performance and long-term UK shareholder base, delivering a seamless transition for SES Water’s customers while also providing a more robust and reliable service in the medium term.
We expect SES customers to benefit from Pennon’s stewardship of the business, including being able to offer them the opportunity to participate in our unique WaterShare+ scheme and participate in the ownership of their local water provider.”
To view the Acquisition RNS please click here.
To view the Placing Launch RNS please click here.
To view the results of the equity capital raise please click here.
To view the Investor Presentation, please click here.