As part of the deal, Pennon will retain an 80 per cent share in the enlarged Pennon Water Services and the operations will be merged in Bournemouth. South Staffordshire Group will take the remaining 20 per cent.
The combined business will have around £170 million of revenue, and approximately 8 per cent of the non-household retail market share (180,000 accounts), making it the fourth largest retailer.
The activities will be merged from April 2017, subject to competition clearance, and will benefit from “strong customer service”. South Staffordshire 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 Pennon Water Services business to service its customers.
Existing in-area trading names will be retained, with Source for Business being the out-of-area national brand name.
In its financial report for the six months to September 2016, Pennon said it has “always recognised the need to achieve scale to compete within this market”. Thus, a new retail non-household venture arrangement with South Staffordshire Group has been agreed.
Pennon chief executive Chris Loughlin told Utility Week: “There is strength in being together, for economies of scale and to reduce our operating cost to serve. We want to move together with a like-minded company, and South Staffordshire has been renowned for being one of the more entrepreneurial parts of the water sector. They seem a good strategic fit for us.”
In a statement, he said: “We’ve made no secret of our ambition to develop our presence in the water market as we prepare for retail market opening next April. We’re pleased to team up with the South Staffordshire Group, combining our expertise and creating a bigger business retailer, with excellent growth potential.”
A key part of Pennon’s non-household strategy so far has been to retain its existing customer base of 85,000 customers, and to capitalise on Viridor’s national footprint and existing customer relationships.
Revenue for the group was broadly in line with last half year at £685.5 million. Meanwhile, revenue from the water business was up by 3.1 per cent to £287.9 million as a result of 1.3 per cent higher demand, tariff increases of 1.4 per cent and increased new connections.
Underlying profit before tax for the group was £128.1 million, an increase of 19.9 per cent, compared with the prior half year. On a statutory basis, profit before tax was £102.4 million, compared with £106.8 million last year, reflecting non-underlying charges of £25.7 million. The water business’ underlying profit before tax increased by £10 million, or 11.5 per cent, to £97 million, compared with £87 million the previous year.
Loughlin said: “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 per cent growth per annum above RPI inflation to 2020.”