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Utility Week 8 July issue

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Page 27 of 31

28 | 8TH - 14TH JULY 2016 | UTILITY WEEK Analysis M arket opening is approaching at an alarming rate, and water companies continue to make it clear to what extent they wish to participate in the mar- ket. Southern Water has become the latest to announce its intention to exit the non-house- hold water retail market when competition is introduced – news that came as no surprise to many in the industry. Also, unsurprising was the news that ambitious Scottish Water subsidiary Busi- ness Stream will take on the incumbent water and sewerage company's business cus- tomer base. The new entrant has not shied away from expressing its wish to enter the English water retail market at large, having said last June that the company was "perus- ing a number of different opportunities for market entry into England post-2017". Southern Water says the decision to offload its business customers – which rep- resent a mere 5 per cent of its overall retail customer base – will enable it to "focus on additional service improvements for its household customers". The company has declined to comment further at this stage. It does, however, say that one of the rea- sons for choosing Business Stream is the retailer's wealth of experience in the exist- ing market. "Aer looking carefully at the options available to us, we have decided to sell our non-household retail business to Business Stream, a specialist retailer that has been at the forefront of the competitive market in Scotland for eight years," says Southern chief executive, Matthew Wright. It was Business Stream, though, that approached Southern Water aer research highlighted the water and sewerage com- pany as a "suitable acquisition target" that would allow the audacious new entrant to enter the market on scale. Business Stream chief executive Jo Dow says the acquisition provides the firm with a "springboard for growth" and will create "huge opportuni- ties", because it in effect doubles the size of its customer base to more than 200,000. Dow says that, by creating the third larg- est UK non-domestic water supplier, the firm has "forged a bright future for its existing workforce", creating new jobs and building a "foundation for growth". She tells Utility Week that location was also a "big driver" for the move, with Thames Water, Anglian Water and Water Plus – three of the largest market participants – all in close proximity. "Although we've used this transaction to gain that immediate scale, we are also very much with an eye on medium- to longer-term growth," she says. "And the location will be important for that growth." Business Stream says it will consider further acquisitions from companies wish- ing to exit the retail market. "We've made no secret of our ambitions – that we want to grow the business – and we've always said we were looking at joint venture, acquisition, partnership." Nearly all companies have now confirmed whether they intend to participate in the new market, and those that haven't are expected to reveal their plans soon, ahead of shadow market opening in October this year and full market opening in April 2017, and applica- tions for water and sewerage service licences have been flooding in, with 12 applications received to date. Suppliers such as new entrant Everflow tell Utility Week they are considering buying into the English market when it opens, and Veolia UK also says it wants to grow its retail activities in the UK water market. However, as Dow warns, time is short: "Nine months is really not an awful lot of time, and I think there is still much to do to create the market infrastructure and every- thing else that is needed to compete in that market." Southern Water confirms exit As Southern Water becomes the second water company to reveal it will exit the non-household retail market, Lois Vallely looks at what this latest deal means for the companies involved. Markets & Trading Company profiles Business Stream Chief executive: Johanna Dow Founded: 2007 Turnover: £320.1 million Operating profit: £30.5 million Staff: 250 Parent: Scottish Water Business customers (from April 2017): 200,000 Southern Water Chief executive: Matthew Wright Founded: 1989 Turnover: £829 million Operating profit: £326 million Staff: 2,092 Parent: Southern Water Capital Limited Business customers (from April 2017): none 26 March 2014 – government introduces retail exit to the Water Act 2014 at the eleventh hour Timeline of water market preparations 16 April 2015 – South West Water's parent company Pennon acquires Bournemouth Water from Sembcorp Holdings for a cash consideration of £100.3m 25 January 2016 – Portsmouth Water reveals it will exit the market and sell its business customer base to Scottish supplier Castle Water 6 February 2016 – Everflow tells Utility Week it is considering buying into the market 1 March 2016 – United Utilities and Severn Trent team up to create a separate retail business 1 April 2016 – Ofwat opens the licence application process for those wishing to participate in the new market 3 May 2016 – CMA clears the Severn Trent and United Utilities JV, to be called Water Plus 13 May 2016 – Veolia says it wants to grow its retail activities in the UK water market 24 June 2016 – Southern Water confirms it will exit the market and sell its business customers to Business Stream

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