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RNS Number : 1672Z
Pennon Group PLC
10 January 2024
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THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN
OFFER OF SECURITIES IN ANY JURISDICTION.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
10 January 2024
PENNON GROUP PLC ACQUISITION OF SUTTON AND EAST SURREY WATER
Pennon Group plc ("Pennon", the "Group" or the "Company") is
pleased to announce that it has today acquired 100% of the issued
capital of Sumisho Osaka Gas Water UK Limited ("SOGWUK"), the
holding company of Sutton and East Surrey Water plc ("SES Water")
and certain other ancillary businesses, for GBP89 million from
Sumitomo Corporation and Osaka Gas, with a total enterprise value
of GBP380 million (the "Acquisition").
Pennon is also announcing its intention to issue new Ordinary
Shares to raise up to GBP180 million (the "Equity Capital Raise")
in connection with the Acquisition, in order to ensure that the pro
forma leverage and capital structure for the enlarged Group
following the Acquisition remains consistent with Pennon's
well-established water business gearing range of 55-65%(1) .
Key Investment Highlights
-- Acquisition of SES Water and other ancillary businesses,
adding a high-quality business with over 750,000 customers and a
forecast shadow Regulatory Capital Value ("RCV") of GBP351( (2) ()
million as of 31 March 2024
-- Purchase price of GBP89 million for the equity, including
repayment to the vendors of GBP14 million of equity invested into
SOGWUK since 31 March 2023
-- Enterprise value of GBP380 million based on net debt of
GBP291( (3) () million (as of 31 March 2023)
-- Enterprise value equates to a premium to SES Water 2023 RCV
of c.6% (after certain adjustments)(4) . The transaction is
expected to increase the Group's RCV by c.7% on Acquisition
-- SES Water's 2025-2030 regulatory period ("K8") RCV is
forecast to grow at an attractive average annual rate of
c.5%(5)
-- Builds on Pennon's existing water operations by acquiring
another high-quality, water-only business, along with access to an
experienced and talented management team, and follows the
successful previous acquisitions of two water-only companies
-- Acquisition will benefit SES Water's customers and other
stakeholders - SES Water's customers will be offered the
opportunity to participate in Pennon's unique WaterShare+ customer
shareholding scheme
-- Expected to be earnings accretive from the first year of full
ownership (2024/25), and to generate attractive returns whilst
supporting further RCV growth in the 2020-2025 regulatory period
("K7"), bringing total expected growth over K7 for Pennon to
71%
-- Complementary ethos focused on customer affordability and
delivering better outcomes for customers and the environment with
SES Water's digital capabilities and smart technologies
complementing Pennon's current offering
-- Consistent with Pennon's successful track record of value
creation through the realisation of synergies, a run rate of
GBP11(6) million per annum is anticipated, enabling enhanced
shareholder returns, driven by operational efficiency initiatives,
lower financing costs and economies of scale
Commenting on the Acquisition, Susan Davy, Group Chief Executive
said:
"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."
Financing and Expected Timetable
-- Completion of the Acquisition, which is not subject to any conditions, has already occurred
-- The Acquisition will now be subject to review by the
Competition and Markets Authority ("CMA"), with input from the
Water Services Regulation Authority ("Ofwat"). Pennon considers
that the Acquisition will create a net benefit for customers and
shareholders and expects to receive a decision from the CMA within
its usual timescales
-- The Acquisition is being financed from existing cash and financial resources
-- There is not expected to be any funding impact on South West
Water's plans to otherwise deliver a compelling AMP8 investment
plan
-- The proceeds from the Equity Capital Raise will be used in
connection with the Acquisition to ensure that the enlarged Pennon
Group remains within our well-established water business gearing
range of 55-65%(1) following completion
-- Further information on the Equity Capital Raise and the use
of proceeds from it can be found in the separate announcement being
released by Pennon today
Webcast and Conference Call
A webcast for investors and analysts will take place today at
8.00am (GMT) by Susan Davy, Group Chief Executive and Steve Buck,
Group Chief Financial Officer, immediately followed by a live
Q&A.
The webcast can be accessed here: Investor Information | Pennon
Group PLC (pennon-group.co.uk)
The presentation can be accessed here:
https://www.pennon-group.co.uk/investor-information/financial-reports-and-presentations
The conference call can be accessed using the details below.
United Kingdom (Toll-Free): +44 800 358 1035
United Kingdom (Local): +44 20 3936 2999
Global Dial-In Numbers
Conference passcode: 956400
For further information, please contact:
Pennon Group PLC
Steve Buck Group Chief Financial Officer +44 (0)1392 44 3168
Jennifer Cooke Group Head of Investor Relations
Media Enquiries
James Murgatroyd FGS Global
+44 (0)207 251 3801
Harry Worthington
Barclays Bank PLC
Lead Financial Adviser and Joint Corporate Broker +44 (0) 20
7623 2323
Alisdair Gayne, Iain Smedley, Osman Akkaya, Richard
Bassingthwaighte
Morgan Stanley & Co. International plc
Joint Financial Adviser and Joint Corporate Broker +44 (0) 20
7425 8000
Andrew Foster, Francesco Puletti, George Chalaris, Josh
Williams
Background to and rationale for the Acquisition
The Acquisition of SES Water marks an important step for the
Group as it looks 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(7) .
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.
The Board believes that the Acquisition presents an attractive
opportunity to further expand South West Water's wholesale
capabilities, whilst also deploying best practice from both
businesses to deliver value for customers, shareholders and wider
stakeholders.
In addition, Pennon represents a stable, well-financed and
long-term custodian of SES Water that will enhance SES Water's
financial resilience and is able to invest in SES Water's water
resources infrastructure, environment and people owing to Pennon's
strong financial performance and long-term UK shareholder base.
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 deliver an
estimated c.7% increase in RCV on acquisition, bringing 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.
Completion of the Acquisition, which is not subject to any
conditions, has already occurred. Following completion, the
Acquisition will now be subject to review by the CMA, with input
from Ofwat.
SES Water and the other ancillary businesses which make up the
Acquisition will be managed separately from the rest of the Pennon
Group until the CMA review is complete.
Under the terms of the Acquisition, Pennon is making a total
aggregate cash payment of GBP89 million to Sumitomo Corporation and
Osaka Gas for 100% of the issued share capital of SOGWUK, which
includes GBP14 million to reimburse equity contributions they have
made to SOGWUK since 31 March 2023.
The size of the Acquisition means that it represents a Class 2
transaction for the purposes of the UK Financial Conduct
Authority's Listing Rules.
About Pennon
Pennon Group plc is a FTSE 250 listed UK focused environmental
infrastructure group, comprising South West Water (incorporating
Bristol Water and Bournemouth Water), Pennon Water Services, Pennon
Power, a stake in Water2business and now including SES Water and a
number of other ancillary businesses which make up the
Acquisition.
South West Water is one of the leading businesses in the UK
water sector, providing water and wastewater services to a
population of c.3.5 million across nine counties in the South
West.
The Company provides over 870 million litres of safe, clean
drinking water every day, in addition to the management of
c.23,000km of sewer network used to transfer water and surface
water run-off to one of our 653 wastewater treatment works where it
is treated, tested and safely returned to the environment.
Following the Acquisition, the Group anticipates RCV growth over
the K7 (2020-25) period of 71%, resulting in an RCV of GBP5.8
billion by 2025. Looking to the K8 (2025-30) period, we expect RCV
growth of c.37% including the Acquisition, bringing total expected
RCV growth 2020-2030 to c.134%.
Pennon Water Services is an 80:20 venture with South
Staffordshire Plc, and provides retail water and wastewater and
value-added services to around 160,000 non-household customer
accounts across England and Scotland, and is focused on delivering
long-term, sustainable growth. Water2business is a 30:70 venture
with Wessex Water, providing retail water and wastewater services
to over 180,000 non-household accounts across England and
Scotland.
Further information on Pennon can also be found on the Group's
website, www.pennon-group.co.uk
Pennon LEI: 213800V1CCTS41GWH423
About SOGWUK and SES Water
SOGWUK
SOGWUK is the holding company for SES Water and certain other
ancillary businesses including SES Home Services, SES Business
Water, Allmat Limited, Advanced Minerals Limited and Surrey Downs
Property Investments Limited, however these are very small in size
in the context of SES Water.
SOGWUK had adjusted net debt of GBP291(3) million as of 31 March
2023.
SOGWUK had gross assets of GBP613 million as at 31 March 2023
and profit before tax of (GBP31 million) for the period 31 March
2022 to 31 March 2023.
SES Water
SES Water is a local water supplier company in South East of
England with over 150 years of operating history in the
abstraction, treatment, storage and distribution of clean potable
water to household customers and businesses.
Serving over 750,000 customers, its designated geographical
coverage, includes neighbourhoods of East Surrey, West Sussex, West
Kent and South London.
Purpose led, SES Water's aim is to harness the potential of
water to enhance nature and improve lives. It aims to achieve this
by placing customers and the environment at the heart of its
decision making and driving transformation through digital
innovation as an industry leader in smart networks.
SES Water is one of the best performing water companies across a
range of indicators including:
-- Reliability of service - a top performer on supply interruptions in 2023
-- Reducing leakage - targeted reduction plan on track
-- Water quality - upper quartile performance in the sector
SES Water had an RCV of GBP334 million as of 31 March 2023 and
an RCV of GBP351 million estimated as of 31 March 2024(2) .
Important notices
The person responsible for arranging the release of this
announcement on behalf of the Company is Andrew Garard, Group
General Counsel and Company Secretary.
This announcement is being issued by and is the sole
responsibility of the Company. This announcement is for information
only and does not itself constitute, contain or form part of an
offer to sell or issue or the solicitation of an offer to buy or
subscribe for securities referred to herein in any jurisdiction
including, without limitation, the United States, any other
Restricted Territory (as defined below) or in any jurisdiction
where such offer or solicitation is unlawful. No public offering of
securities will be made in connection with any securities referred
to herein in the United Kingdom, the United States, any other
Restricted Territory or elsewhere.
This announcement is restricted and is not for publication,
release, distribution or forwarding, in whole or in part, directly
or indirectly, in or into the United States of America (including
its territories and possessions, any state of the United States,
Australia, Canada, the Republic of South Africa, Japan (each a
"Restricted Territory") or any other jurisdiction in which such
release, publication, distribution or forwarding would be unlawful.
No public offering of the securities referred to herein is being
made in any such jurisdiction or elsewhere. This information has
not been approved by the London Stock Exchange, nor is it intended
to be so approved.
The securities referred to herein have not been and will not be
registered under the United States Securities Act of 1933, as
amended (the "Securities Act"), or with any securities regulatory
authority of any state or other jurisdiction of the United States,
and may not be offered, sold or transferred directly or indirectly
in or into the United States, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements
of the Securities Act and in compliance with the securities laws of
any state or any other jurisdiction of the United States. No public
offering of any securities referred to herein is being made in the
United States.
No offering document or prospectus will be made available in any
jurisdiction in connection with the matters contained or referred
to in this announcement and no such offering document or prospectus
is required (in accordance with the EU Prospectus Regulation or UK
Prospectus Regulation) to be published.
Persons (including, without limitation, nominees and trustees)
who have a contractual or other legal obligation to forward a copy
of this announcement should seek appropriate advice before taking
any action.
Certain statements in this announcement are forward-looking
statements relating to the Group's operations, performance and
financial position based on current expectations of, and
assumptions and forecasts made by, management. They are subject to
a number of risks, uncertainties and other factors that could cause
actual results, performance or achievements of the Group to differ
materially from any outcomes or results expressed or implied by
such forward-looking statements. Often, but not always,
forward-looking statements can be identified by the use of
forward-looking words such as "plans", "expects", "is expected",
"is subject to", "budget", "scheduled", "estimates", "forecasts",
"goals", "intends", "anticipates", "believes", "targets", "aims" or
"projects". Words or terms of similar substance or the negative
thereof, are forward-looking statements, as well as variations of
such words and phrases or statements that certain actions, events
or results "may", "could", "should", "would", "might" or "will" be
taken, occur or be achieved. Such statements are qualified in their
entirety by the inherent risks and uncertainties surrounding future
expectations.
Forward-looking statements include statements relating to: (a)
future capital expenditures, expenses, revenues, earnings, economic
performance, indebtedness, financial condition, dividend policy,
losses and future prospects; (b) business and management strategies
and the expansion and growth of the Company's operations; and (c)
the effects of global economic conditions on the Company's
business.
Such forward-looking statements involve known and unknown risks
and uncertainties that could significantly affect expected results
and are based on certain key assumptions. Many factors may cause
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Important factors that could cause actual results,
performance or achievements of the Company to differ materially
from the expectations of the Company, include, among other things,
general business and economic conditions globally, industry trends,
competition, changes in government and changes in regulation and
policy, including in relation to the environment, health and safety
and taxation, labour relations and work stoppages, interest rates
and currency fluctuations, changes in its business strategy,
political and economic uncertainty and other factors. Such
forward-looking statements should therefore be construed in light
of such factors.
The Group's principal risks were described in the 2023 Pennon
Group Annual Report which can be viewed online at
http://annualreport.pennon-group.co.uk. Such forward looking
statements should therefore be construed in light of such risks,
uncertainties and other factors and undue reliance should not be
placed on them. They are made only as of the date of this
announcement and no representation, assurance, guarantee or
warranty is given in relation to them including as to their
accuracy, completeness, or the basis on which they are made.
Neither the Company nor any of its directors, officers,
employees or advisers provides any representation, assurance or
guarantee that the occurrence of the events expressed or implied in
any forward-looking statements in this announcement will actually
occur. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as at the date of this
announcement.
No obligation is accepted to publicly revise or update these
forward-looking statements or adjust them as a result of new
information or for future events or developments, except to the
extent legally required. Nothing in this announcement should be
construed as a profit forecast or profit estimate.
Neither the content of the Company's website (or any other
website) nor the content of any website accessible from hyperlinks
on the Company's website (or any other website) is incorporated
into or forms part of this announcement.
Barclays Bank PLC ("Barclays"), which is authorised in the
United Kingdom by the Prudential Regulation Authority and regulated
in the United Kingdom by the Prudential Regulation Authority and
the Financial Conduct Authority, is acting exclusively as lead
financial adviser and joint corporate broker to the Company and no
one else in connection with the Acquisition. In connection with
such matters, Barclays, its affiliates and their respective
directors, officers, employees and agents will not regard any other
person as their client, nor will they be responsible to anyone
other than the Company for providing the protections afforded to
clients of Barclays nor for providing advice in connection with the
Acquisition, the contents of this announcement or any matter
referred to herein.
Morgan Stanley & Co. International plc ("Morgan Stanley"),
which is authorised in the United Kingdom by the Prudential
Regulation Authority and regulated in the United Kingdom by the
Prudential Regulation Authority and the Financial Conduct
Authority, is acting exclusively as joint financial adviser and
joint corporate broker to the Company and no one else in connection
with the Acquisition. In connection with such matters, Morgan
Stanley, its affiliates and their respective directors, officers,
employees and agents will not regard any other person as their
client, nor will they be responsible to anyone other than the
Company for providing the protections afforded to clients of Morgan
Stanley nor for providing advice in connection with the
Acquisition, the contents of this announcement or any matter
referred to herein.
Note: All GBPm and % numbers shown to 0 decimal places.
Potential differences due to rounding.
(1) Gearing at the regulated water business level, defined as
net debt / RCV
(2) Based on management forecast of RCV as at 31 March 2024
(3) Reported net debt adjusted to include unamortised issuance
costs and short term debt, before fair value uplift, rounded down
from actual figure of GBP291.52m
(4) Premium stated before GBP14 million of vendor equity
contributions since 31 March 2023 and reflects adjustments
including pensions and Pennon's view on the value of unregulated
assets
(5) K8 total nominal growth rate of 25%, based on SES Draft
Business Plan for AMP8
(6) Anticipated run rate of targeted efficiency savings (on a
net basis)
(7) March 2023 Ofwat numbers
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END
ACQUPUMUGUPCPPB
(END) Dow Jones Newswires
January 10, 2024 02:00 ET (07:00 GMT)
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