Investing to support Southern Water’s future investment programme

• Consortium led by Macquarie Asset Management offers an equity support package to Southern Water totalling up to £1.2 billion comprising an initial £655 million of binding equity commitments with up to a further £545 million intended to be committed by December 2025
• This new equity investment will help fund Southern Water’s record investment programme in the 2025 to 2030 regulatory period.

A consortium led by Macquarie Asset Management (MAM) has committed to invest an additional £655 million of equity into Southern Water (the Company), with confirmation of intent to provide equity commitments of up to a further £545 million (and with a minimum of £245 million by December 2025, the majority of which is already supported by investors).

This new equity investment will enable Southern Water to fund its investment plan for the next five years, the 2025 to 2030 regulatory period. Southern Water has the largest growth investment programme in the sector relative to its size, which will see around £4,000 per household of investment in the water and waste-water network and services.

The investment will also help maintain Southern Water’s momentum on its turnaround plan, which is now recognised by its regulators and other key stakeholders.

Alongside the new equity investment, MAM has supported Southern Water to further reduce its legacy holding debt. This will further improve the Company’s financial resilience in response to the credit rating downgrades of the UK water framework in recent months.

The initial £655 million equity commitment is not conditional on the outcome of the Company’s appeal to the Competition and Markets Authority (CMA). The size of the additional equity commitment will be finalised following further engagement with the Company and key stakeholders on the 2025-30 business plan, including consideration of the anticipated outcome from the Company’s appeal to the CMA, where MAM remains confident in the strength of Southern Water’s case and supporting evidence. The commitment for further equity also reflects confidence in the government’s recent commitment to reform the sector and address the long-term need for increased investment.

Since acquisition in 2021, MAM-managed funds and co-investors have already injected £1.65 billion of equity. Together with the additional equity commitments of up to £1.2 billion, the total equity investment made by MAM-managed funds and co-investors into Southern Water would be up to £2.85 billion.

MAM’s investors have not received any dividends during their period of ownership since 2021, and Southern Water has committed that no dividends will be paid during the 2025 to 2030 regulatory period, with returns reinvested into the business to further support its record investment programme.

MAM first invested into Southern Water in 2021, following a period of poor performance including regulatory and environmental fines. At that time, MAM set out a series of public commitments to help drive operational improvement and additional investment.

Southern Water has made good progress with its Turnaround Plan, including a ~40% reduction in pollution incidents, a ~80% reduction in customer complaints, and other areas such as water leakage and sewer flooding which are now top quartile.

Southern Water recognises that, following 15 years during which customer bills fell in real prices, the significant increase in bills for the 2025-30 regulatory period will have an impact on its customers. As such, it has extended its social tariff and its financial hardship scheme, as well as looking at other ways it can help its customers and other stakeholders.

Martin Bradley, Senior Managing Director, Macquarie Asset Management said:

“This additional equity investment demonstrates our commitment to Southern Water and its management team, and our belief that the planned investment programme will deliver for its customers and the environment.”

“Prior to our ownership, Southern Water had been through a challenging period. Whilst significant improvements have already been made, the Company and the sector has further to go to keep pace with the increased demands on the network from climate change and population growth, and  the impact of new legislation and regulatory targets, beyond those previously anticipated. The new management team, largely put in place since 2021, has created a positive culture focused entirely on building a better company to rise to the unique challenges and demands facing the region.”

“Southern Water’s business plan reflects the ambitions of its customers and other stakeholders. Its investment programme for 2025-30 is double the 2020-25 period and represents around £4,000 per household. This will deliver additional capacity and improved resilience of water and waste-water services, help reduce water abstraction from local rivers and support economic and population growth in the region. It will also start to retrofit the legacy sewer system to significantly reduce storm overflows caused by rain run-off from urban areas, highways, and agriculture. Whilst an investment programme of this scale will inevitably face some challenges, we believe it will create real benefits, felt by communities."

“With the help of our investors’ capital, Southern Water will have the financial resources to maintain its positive momentum. While it’s been a difficult time to raise private sector capital for a UK water company, we are aligned with the Government’s ambition to reform the sector and are encouraged by the desire to achieve the reset required to effect real long-term change. We will continue to work with Southern Water’s management in its constructive engagement with Ofwat, DEFRA, the Environment Agency, the Drinking Water Inspectorate, and community groups to create the conditions to deliver on our shared ambitions.”