Pennon Group, owners of South West Water and Bournemouth Water has announced details of new retail joint venture for business customers with South Staffs/Cambridge Water with the publication of its half year results for the six months ended 30 September 2016.

Operating as Pennon Water Services (PWS), the new  joint venture will create the fourth largest non-household water retail business with 8% market share, in a deal which will deliver a combined customer base of 180,000 accounts and around £170 million of revenue,

Pennon Group commented:

“A key part of our non-household strategy has been to retain our existing customer base of c.85,000 customers and to capitalise on Viridor’s national footprint, its commercial culture, order book, expertise and existing customer relationships.”

“Pennon has always recognised the need to achieve scale in order to compete within this market and as a result a new retail non-household venture arrangement with South Staffordshire PlcGroup (incorporating South Staffs and Cambridge Water) has been agreed.”

The results document says:

"Both Viridor and South West Water have a breadth and depth of experience in managing large asset bases and in using engineering excellence, technology and innovation to deliver efficiency and effectiveness. By sharing knowledge across the Group and harnessing our combined skills we can provide even better services to our extensive customer base of local authorities, major corporate clients, businesses and household customers."

South Staffordshire Plc Group said the partnership would strengthen its ability to respond to the water retail market opening from April 2017, when businesses and other non-household customers in England will be able to choose who they buy their water and waste water services from.

The Group’s existing in-area trading names of South Staffordshire Water Business and Cambridge Water Business will be retained, with Source for Business being the out-of-area national brand name.

As part of the JV, which is subject to competition clearance, Pennon will take an 80% equity stake in the enlarged PWS, with South Staffordshire Plc taking the remaining 20%.

South Staffordshire Plc Group, which includes South Staffs Water, Cambridge Water and Echo Managed Services, also owns the Rapid billing system which will continue to be used by the enlarged PWS business across its consolidated customer base.

Operating profits rise 13.7% at Pennon

Pennon Group’s underlying operating profit and PBT rose 13.7% and 19.9% respectively following higher revenues and cost savings at South West Water and growth at Viridor driven by the Energy Recovery Facilities (ERFs) and recycling ‘self-help’ initiatives. The Group has increased the interim dividend per share  by 6.0% to 11.09p.

Group revenue was broadly in line with last half year at £685.5 million. Revenue from the water business was up by 3.1% to £287.9 million as a result of 1.3% higher demand, tariff increases of 1.4% (with RPI of 1.1%) and increased new connections.

Pennon said South West Water is outperforming the regulatory contract, on track to deliver a net ODI reward for 2016/17, and a cumulative net ODI reward for performance to date. South West Water was awarded enhanced status for its 2015-2020 Business Plan, and has the highest potential returns in the water sector.

Driving totex outperformance - measures include use of data analaytics and realtime pressure management

On Totex outperformance, Pennon said £80 million of South West Water’s cumulative Totex savings delivered up to H1 2016/17 are being driven by:

• continuing advantages from strategic alliances including a new water distribution framework and the H5O capital alliance in place since 2010, now delivering efficient schemes within the Bournemouth region
• ensuring efficient capital investment through the use of data analytics optimising the capital and operating solution and promoting efficient off-site build techniques
• changing ways of working through our iOps programme including utilising new technology and equipment to increase the resources needed to deliver wastewater improvement, realtime pressure management targeting efficient interventions

Commenting on the results, Chris Loughlin, Pennon Group Chief Executive said:

"Pennon has delivered a good performance in the first half of 2016/17 across its water and waste businesses. South West Water continues to achieve a sector-leading RORE(1) at 11.7% as it outperforms for its customers, and is expecting momentum and delivery to continue. Viridor is on track to contribute the targeted c.£100 million of EBITDA from its ERF(2) portfolio this year while self-help measures are driving improved EBITDA margins in recycling.

“We are continuing to invest for growth. Following a review, we have taken the decision to commit to a £252 million ERF at Avonmouth, expanding our portfolio to twelve plants. This is a significant investment in the UK’s environmental infrastructure and will add to the already expected significant increase in EBITDA from our ERF portfolio once all facilities are fully operational. In water, we are announcing a new retail venture for business customers with South Staffs/Cambridge Water.”

“We remain focused on driving value through efficiency. South West Water has delivered £80 million of Totex savings since the beginning of K6 (2015-2020), while our recently completed Shared Services Review will increase total Group cost savings from the c.£11 million previously announced to c.£17 million p.a from 2019.”

“We believe Pennon is well positioned for the future and is on track to meet management expectations for the full year 2016/17. Our performance underpins our sector-leading dividend policy of 4% growth per annum above RPI inflation to 2020."