3rd May 2016 12:05
LONDON (Alliance News) - The UK Competition & Markets Authority on Tuesday approved the joint venture agreement between Severn Trent PLC and United Utilities Group PLC for their non-household water and waste-water retail businesses, which should help each company benefit from the others skill set ahead of the market in England opening up in 2017.
The blue-chip utilities struck the joint venture agreement in March, with the combined business to primarily comprise of billing and customer service activities and located in Stoke-on-Trent. The pair said the joint venture will be called Water Plus and is expected deliver synergies to provide an efficient and cost-effective business focused on improved customer services and growth.
"United Utilities and Severn Trent 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, Water Plus 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," said both companies in individual statements.
Ofwat launched plans late last year to open up a wastewater-to-energy market and a water trading market to unlock at least GBP1.00 billion of unrealised benefits as it tries to get utilities under its watch to make better use of their resources.
The water industry regulator also set out plans to change the measure of inflation used to set bills and placed further pressure on companies and their engagement with their customers.
Water companies in the UK will spend a combined GBP44.00 billion, or GBP2,000 per household, between 2015 and 2020 to improve the level of service they offer to customers.
The fact the new joint venture has customer service as one of its main priorities is of no surprise, as Ofwat began cracking down on customer satisfaction in the industry back in 2014, promising a 5% fall in prices and "big service improvements" by 2020.
The joint venture should benefit from the complimentary skill sets that each business brings to the table ? most notably United Utilities' customer relationship management systems and Severn Trent's customer relations and debt management skills ? which should help lift overall service levels.
The debt management skills that Severn Trent will bring to the table will also broaden the range of help being offered to customers in the market, as the UK water industry previously pledged a package worth more than GBP40 million to support customers struggling to pay their bills or who are in debt.
Based on the accounts of both companies, before allowing for any financing or synergy effects, the joint venture operation would have had sales of around GBP940.2 million and a pretax profit of GBP9.7 million in the year ended March 31.
However, analysts have already voiced their opinion that the venture is unlikely to add any value any time soon. Both Severn Trent and United Utilities suffer from very tight margins within their respective non-household water retail business, making the potential cost synergies a big driver of the partnership - but analysts don't expect those synergies to be published in the near term.
Severn Trent's non-household retail water business only accounts for around 2% of the company's overall earnings before interest and tax, whilst United Utilities' unit contributes around 2.3% of overall Ebit.
Sue Amies-King, the current business retail director of United Utilities, will head up the venture whilst Stuart Howell, the head of finance at Severn Trent, will be the chief financial officer of the new operation.
Severn Trent shares were trading up 0.3% to 2,234.0 pence per share on Tuesday afternoon whilst United Utilities shares were trading up 0.1% to 940.50 pence.
By Joshua Warner; [email protected]; @JoshAlliance.
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
Severn TrentUnited Utilities