Severn Trent and United Utilities have entered into a joint venture agreement to combine their non-household water and wastewater retail businesses, principally comprising billing and customer service activities, into one business centrally located in Stoke-on-Trent.
Both companies already have strong track records in operating and growing successful non-household retail services in Scotland. With the non-household retail market in England opening for competition in 2017, a joint statement by the utilities said the JV will combine the complementary skills of both companies, including sales, customer service, business strategy and credit management, to deliver an attractive proposition for large and small business customers across England and Scotland.
"Bringing our businesses together will create a JV with the synergies to provide an efficient and cost-effective operation focussed on improved customer service and growth.", the statement says.
Based on the accounts of Severn Trent and United Utilities (UU), and before allowing for any financing or synergy effects, the JV would have had sales of £940.2m, gross assets2 of £200.0m and profit before tax of £9.7m for the year ended 31 March 2015.
The Chief Executive of the JV will be Sue Amies-King (currently Business Retail Director at UU) and the Chief Financial Officer will be Stuart Howell (currently Head of Finance and Business Planning, Business Services at Severn Trent).
Severn Trent will pay £3.5 million on completion of the transaction in order to create a 50/50 JV and will share the cost of systems development necessary for the provision of non-household retail services. After completion, Severn Trent and UU will account for the JV, through share of profits of joint ventures, using equity accounting.
Liv Garfield, Severn Trent CEO, said::
“I am delighted to be working with UU in creating this JV. The introduction of competition into the non-household retail market presents us with an exciting opportunity to combine our expertise for the benefit of customers and shareholders. The JV will provide non-household customers with an excellent retail choice as, together, we deliver a market leading offer and great service for customers across England and Scotland.”
Steve Mogford, UU CEO, said:
“We have been an early mover in building a strong non-household retail capability and have already established a sizeable presence in Scotland. This early progress, supported by our new customer relationship management system, means that we are well positioned for full market opening in England. The JV will combine the complementary skills and capabilities of UU and Severn Trent to improve our competitive offering for customers, increase efficiency and enhance value for shareholders.”
The Agreement is subject to clearance from the Competition and Markets Authority, which Severn Trent and UU expect to obtain in the Spring.
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