IT would be crude to characterise the growth of Castle Water as the marauding Scots invading the English market. But the advance of the Blairgowrie-based water retailer into the market south of the Border has certainly been decisive and bold.

Castle moved quickly to gain a foothold south of Hadrian’s wall after being by founded erstwhile investment banker John Reynolds and Graham Edwards in 2014.

Its ascent has been powered by a flurry of acquisitions and contract wins with major public sector organisations, with growth especially marked since the market for providing water services to business customers in England and Wales was liberalised in 2017. That followed a similar market change in Scotland nine years previously.

Castle, which provides services such as billing, meter reading and water efficiency measures to non-domestic customers, underlined the opportunity provided by the liberalisation in accounts newly available at Companies House.

Pre-tax profits soared to nearly £7 million in the year ended March 31 from just over £1m the year before, while revenue surged to almost £440m from £17.9m.

The growth is largely attributed to completion of deals to acquire the business customers of Thames Water and Portsmouth Water, building on an earlier deal to take over Cobalt Water in Ayrshire, and the opening up of the market in England and Wales.

Since year-end, it has sealed a fourth deal, with the business customers of South East Water, located mainly in Kent and Hampshire, coming on board in July.

Such expansion activity means the company now serves around 350,000 business, public body and charity customers around the UK, with around 250 of its 350 staff based mostly in Blairgowrie. It still employs around 30 in Ayrshire further to the Cobalt deal.

“The growth comes almost entirely from the acquisitions,” said Mr Reynolds, referring to the company’s latest accounts. “The major part of our organic growth strategy did not kick in until the end of that accounting period, around November/ December 2017, since when we have been selected to provide services to a large number of English public sector sites. That further significant growth will show through in the current year’s numbers.”

Castle Water has gained many important contract wins through its position on the Crown Commercial Service framework, which Mr Reynolds said allows the company to bid to provide services to public sector organisations in England. Through that framework it works with the likes of English Heritage, which runs tourist attractions at castles, gardens and historic sites.

“One thing we are very proud of is that there are a number of case studies which have been published by the Crown Commercial Service, highlighting how well the transfer to Castle has gone and the savings we have delivered for NHS trusts and universities in particular,” Mr Reynolds said. “We are very pleased with that.”

The decision by Mr Reynolds, who was named Rising Star in the 2018 EY Entrepreneur of the Year Scotland awards, to establish a water services business came after he served as a member of the Water Industry Commission for Scotland, the market regulator.

Faced with a choice of staying on the regulatory side or becoming an operator, he chose the latter, putting in motion the process of setting up Castle Water. At the time, the Scottish market was open to competition though still in its infancy, with little in the way of consumers switching between providers. The market, he recalled, was polarised between the subsidiaries of vertically integrated companies and some small “entrepreneurial, fast-moving retailers”.

Mr Reynolds explained: “Customers had a choice between a sales proposition that resonated from a smaller independent, or the stability of a larger company without a very exciting offering. We aim to do something different, which is to be a fast-moving very entrepreneurial retailer offering something that customers respond to, but the resources behind us you would normally associate with one of the large incumbents. That is what we set out to do, and what we have done.”

An important early development came when it secured an “affinity partnership” with NFU Scotland, the Scottish farmers’ union. Mr Reynolds described the deal as an important “first step” for the business because it was able to demonstrate the savings it could make to an influential customer base, whom he described as “very canny”.

“It is powerful to work with a body like that,” Mr Reynolds said.

But perhaps its biggest challenge came as it prepared itself for the opening of the non-domestic water market in England and Wales on April 1, 2017 - a move which effectively gave more than 1.2 million businesses, charities and public sector bodies the right to choose their own water retail services.

By then Castle already had built up around 10 per cent of the market south of the Border as a result of the acquisition of the business services divisions of Portsmouth Water in 2015, and Thames Water, which was completed in July 2016. Mr Reynolds said those deals had been “very important for our credibility as a company” in the English market.

However, with Castle having only be established in 2014, Mr Reynolds said “we had to be ready to compete with FTSE 100 companies in three years.”

Mr Reynolds noted that company could apply to England and Wales the learnings it had been refining in Scotland, where the market had been liberalised several years previously.

However, he said the market down south is more complicated. A key difference is that, while in Scotland there is a single wholesaler, the publicly-owned Scottish Water, there are several privately-owned regional monopolies in England and Wales.

“There is a higher cost of operating [in England and Wales] in terms of the market mechanism,” Mr Reynolds added.

Asked how he views the English and Welsh market after 18 months of open competition, Mr Reynolds said: “We saw a lot of retailers [and] hospitality companies look for single national contracts in the first six to nine months of the market. We have now seen public sector groups look for national contracts and for better prices.

“There’s an ongoing level of education in the market. The other thing that is happening is that customers are looking more actively at how they are billed to make sure their bills are correct.

“We certainly have been able to save our customers about £17m to date by correcting historical inaccuracies. We are not sure the same thing has happened with the water retailers who are still part of vertically-integrated companies.”

Such companies would include licensed water retailers spun out from the likes of Anglian Water of South West Water, which operate at arm’s length from those utilities.

Mr Reynolds noted that the margins available to suppliers are higher in Scotland, where he believes the market is more mature and there is “more of an acceptance of the range of services provided by retailers.”

In broad terms, Mr Reynolds feels good progress has been made in the Scottish market since liberalisation. He observes there are still some “poor sales practices” but notes the effects of strong competition can be seen, with customers now able to choose from around 30 suppliers.

Castle currently has a market share of around eight per cent in Scotland. And Mr Reynolds said the firm would consider further acquisitions to drive growth.

“We will continue to look at acquisitions if they are available on a sensible basis,” Mr Reynolds said. “We have certainly got the management and the systems capability to take on other large customer bases.”

Six Questions:

What countries have you most enjoyed travelling to, for business or leisure, and why? 
I visited Israel with a group from the UK Churches, which had a profound affect on me.

When you were a child, what was your ideal job? Why did it appeal? 
I studied theology, considering ordination. 

What was your biggest break in business? 
I’ve had a lot of opportunities and a fair bit of luck. The biggest break came from being involved in the water industry in Scotland when Defra announced the deregulation of the water industry In England. I also learned a lot from becoming the European CEO of a US financial restructuring business which was expanding in Europe for the first time. This meant I had to go back to real basics, like setting up an office from scratch, when previously working for large companies all the nuts and bolts were done for me – invaluable experience when I started Castle Water.

What was your worst moment in business? 
I had set up a business in 2007 with a group of colleagues, which had just started to make good progress after the financial crisis, but I had to step back a due to a family illness in 2009, and I felt I was letting down my colleagues in a really difficult business climate. 

Who do you most admire and why? 
The Dalai Lama. He has to preserve not just his own integrity, but the identity of a country, a civilisation, a race and a religion. 

What book are you reading and what music are you listening to? 
I’m reading Alone in Berlin by Hans Fallada, a novel about the German resistance to the Nazis. I listen to 80s rock and trad Jazz.

What was the last film you saw? 
Solo.