Macquarie injects further £550m into Southern

Macquarie has agreed to inject a further £550 million in Southern Water almost two years after it put more than £1 billion into the firm after it bought a majority stake in the water company.

Macquarie said the investment would help Southern maintain the momentum of its turnaround plan and manage the impacts of high inflation and interest on costs.

Since the acquisition in September 2021, Southern has appointed a new executive team and ramped up its annual capital investment spend by 56%.

Following historic mismanagement and systemic problems with how wastewater was managed, which came to light under previous chief executive Ian McAulay, the company was fined record amounts by both Ofwat and the Environment Agency.

Through its turnaround plan it is focusing on improving the health of waterways by adding capacity at treatment sites and its sewer network as well as bolstering supplies to ensure resilience.

“When we invested in Southern Water in 2021, we said its operational transformation would take time,” said Martin Bradley, Macquarie asset management’s head of infrastructure in EMEA.

“Whilst the company is making good initial progress, maintaining this momentum depends on significant and sustained investment in its infrastructure. Instead of reducing our ambitions in the face of higher cost inflation and interest rates, we are backing Southern Water with additional equity, enabling it to invest circa £1 billion more than the funding it received via the regulatory framework for the period.

“Securing the ongoing investment needed to achieve the ambitions of Southern Water’s customers and stakeholders will rely on important decisions by its regulators. With rain-water run-off from highways and urban areas into the sewer network causing around 98% of all pollution events in the Southern Water area, we also need a broader conversation on how we progress long-term solutions that relieve pressure on the UK’s legacy storm overflow system.”

As well as efforts to curb the use of combined sewer overflows, Southern is working to mitigate the causes of pollution incidents not in its control including  rain-water run-off from highways and urban areas and groundwater entering the sewer network.

Lawrence Gosden, chief executive at Southern, said the total investment since the acquisition equates to £1,500 per household in the region. “Macquarie’s additional investment is a strong vote of confidence in our operational transformation. It will help us to deliver on our ambitions to customers and position Southern Water well for our upcoming regulatory determination.”

The company has not paid a dividend since 2017 and it said it did not anticipate doing so during the remainder of this asset management period (AMP7).

Southern is the latest water company to require additional investment from shareholders in recent months. In July, Thames shareholders committed to provide £750 million in new equity funding over the next three years subject to certain performance-related conditions.

Meanwhile, SES Water’s shareholders have also agreed to inject £22 million into the company to ensure its financial resilience.