Pennon : Acquisition of Bournemouth Water from Sembcorp

16 April 2015

Acquisition of Bournemouth Water from Sembcorp Holdings Limited

Pennon Group Plc ("Pennon" or the "Company") is pleased to announce that it has acquired 100% of the issued share capital of Sembcorp Bournemouth Water Investments Limited including its non-regulated and regulated subsidiaries (the "Acquisition") from Sembcorp Holdings Limited for a cash consideration of £100.3 million[1]. As part of the Acquisition £86.9 million of external net debt and debt like items have been assumed by Pennon.

Sembcorp Bournemouth Water Investments Limited is the holding company for Sembcorp Bournemouth Water Limited and includes a developing non-regulated business providing a platform for retail expansion and the provision of value added services to customers. For the year ended 31 December 2014, the acquired businesses had combined revenues of £49.2 million, operating profits of £15.3m and profit before tax of £10.2m.

Sembcorp Bournemouth Water Limited is a regulated water only company serving a population of approximately 440,000 in the Bournemouth region, with a Regulatory Capital Value (RCV) of £148.8 million as at 31 March 2014.

Sembcorp Bournemouth Water Limited is a profitable business and one of the highest performing water only companies in the UK across a range of indicators with outstanding customer service reflected in its Service Incentive Mechanism (SIM) scores. The Pennon Board considers the Acquisition to be highly complementary to South West Water Limited ("South West Water") and it believes that it presents an attractive opportunity to expand South West Water's wholesale capabilities whilst driving synergistic and best practice operations.

The Acquisition forms part of Pennon's broader strategy to re-organise South West Water's operations ahead of market liberalisation and prepare for the statutory reform of the non-household retail market from 2017 and is expected to deliver significant benefits to both customers and shareholders through a combined retail business structure.

The Acquisition has been agreed and immediately completed, and is now subject to an automatic referral to the Competition and Markets Authority ("CMA"). The Company expects to receive a decision from the CMA within its usual timescales. It is understood that the CMA will deploy usual considerations in coming to its conclusion on the merger clearance. Pennon considers that the merger will create a net benefit for customers and this will form the basis of the case to the CMA.

The Acquisition is expected to provide an incremental 5% growth in South West Water's RCV and to modestly enhance earnings per share (before deferred tax) following integration, which is expected to commence following any CMA approval. The Acquisition will support the Company's previously announced dividend policy of year-on-year growth of 4% above RPI inflation to 2019/20.

Pennon proposes to replenish cash resources used for the cash consideration through a placing of new Ordinary Shares to raise up to £100.3 million (the "Placing").

Commenting on the Acquisition, Chris Loughlin, Executive Director of Pennon and Chief Executive of South West Water said:

"Bournemouth is a top-performing water company and is an excellent business fit with South West Water's existing operations. The combined business will provide an enhanced platform for innovation and growth ahead of market liberalisation in 2017 and will better serve both Bournemouth and the South West, delivering tangible benefits to customers and shareholders."

Conference Call

A conference call for analysts and investors on this announcement will be hosted by Chris Loughlin and Susan Davy at 08.30am (BST) on Thursday 16th April 2015.

Dial-in number: +44 (0)20 3003 2666

Conference passcode: 1604

Pre-Close Trading Statement

On 23rd March 2015, Pennon Group issued a Pre-Close Trading Statement and announced a dividend policy of year-on-year growth of 4% above RPI inflation through to 2019/20. The Company's expectations remain in-line with this Trading Statement.

For further information please contact :

Pennon:

· Susan Davy, Group Director of Finance, Pennon Group Plc (01392 443998)

· Chris Loughlin, Executive Director of Pennon Group Plc and Chief Executive, South West Water Limited (01392 443055)

· Sarah Heald, Head of Investor Relations, Pennon Group Plc (01392 443401)

Finsbury:

· James Murgatroyd, Finsbury (020 7251 3801)

Barclays (Financial Advisor to Pennon):

· Iain Smedley and Mark Todd, Barclays (020 7623 2323)

About Pennon

Pennon Group Plc is an environmental utility infrastructure company which owns South West Water Limited and Viridor Limited. The Group has assets of around £5 billion and a workforce of around 4,500 people.

South West Water provides water and sewerage services to a population of approximately 1.7 million in Devon and Cornwall and parts of Dorset and Somerset.

Further information on Pennon can also be found on the Group's website,www.pennon-group.co.uk

About Sembcorp Bournemouth Water Investments Limited

Sembcorp Bournemouth Water Investments Limited is the holding company for the following group of trading companies with Total Gross Assets[2] of £183.8m and Net Assets of £40.5m as at 31st December 2014:

Sembcorp Bournemouth Water Limited

Sembcorp Bournemouth Water Limited is a water only company supplying drinking water to a population of approximately 440,000 people in the Bournemouth and Christchurch region, and has held a Water Undertaker Licence of Appointment since 1989.

Sembcorp Bournemouth Water Limited is a profitable business and one of the best-performing water companies across a range of indicators including:

· Value for money - average water bill in 2015/16 is 26% below the industry average

· Customer service - ranked equal top using an average of the industry's Service Incentive Mechanism (SIM) over the three year period 2011/12 to 2013/14

· Reliability of service - duration of interruptions is one of the lowest in the industry

Within Sembcorp Bournemouth Water Limited there are non-appointed activities including moorings, fisheries, home insurance products and energy generation.

Aquacare (BWH) Limited

Aquacare (BWH) Limited provides water hygiene and treatment services to local authorities, social housing and industry operating within the Bournemouth Water area and beyond.

Sembcorp Water Services UK Limited

Sembcorp Water Services Limited provides water retail and private network services to industrial customers under its own Water Supply Licence.

Mill Stream Insurance Limited

Mill Stream Insurance Limited provides cost effective insurance cover for Sembcorp Bournemouth Water Limited.

Barclays

Barclays Bank Plc, acting through its Investment Bank, is acting exclusively for Pennon Group Plc and no one else in connection with the Acquisition and will not be responsible to anyone other than Pennon Group Plc for providing the protections afforded to clients of Barclays or for providing advice in connection with the Acquisition.