Severn Trent announces £940m JV with United Utilities
COVENTRY-based utility Severn Trent has entered into a joint venture agreement with United Utilities to combine their non-household water and wastewater retail businesses.
The new operation, which will be based in Stoke-on-Trent, will principally comprise billing and customer service activities.
The two companies said they had a strong track records in operating and growing successful non-household retail services in Scotland. With the non-household retail market in England set to open for competition in 2017, they said the new JV would combine the complementary skills of both companies, including sales, customer service, business strategy and credit management, to provide a better offer for large and small businesses across England and Scotland.
Once synergies have been made, the two companies said in a joint statement that the new business would be an “efficient and cost-effective operation focussed on improved customer service and growth”.
As an indication of the size of the new business, based on the accounts of Severn Trent and UU and before allowing for any financing or synergy effects, the JV would have had sales of £940.2m, gross assets of £200m and pre-tax profit of £9.7m for the year ended March 31, 2015.
The new operation will be headed by chief executive Sue Amies-King, who is 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 £3.5m 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.
The JV agreement is subject to clearance from the Competition and Markets Authority. However, the two companies said they were confident of obtaining this at some point in the spring.
Liv Garfield, CEO, Severn Trent said: “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, CEO, UU added: “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.”
