Higher costs and drought hit profits at Pennon

The FTSE 250 firm said underlying revenues in the year to 31 March rose 4% to £825m. But operating costs jumped nearly 27% to £517m, and earnings before interest, tax, depreciation and amortisation fell 20% to £307.8m.

Underlying pre-tax profits tumbled 88% to £16.8m, while the pre-tax loss was £8.5m, compared to a pre-tax profit of £127.7m a year previously.

Pennon said: "During 2022/23, volatility in the global economy - reflecting the geopolitical situation and economic difficulties arising from the global pandemic - has continued.

"As expected, the impact of elevated inflation on power and interest costs has reduced our near-term earnings."

The second half was also hit by drought in the south west, it noted, which pushed up operating costs and capital expenditure.

Pennon also said "storm overflow use" - where raw sewage is discharged into the sea - had been reduced by 30% in 2022, to an average of 28 per asset. The company said it was on track to reduce the use of storm overflows by 50% by 2025.

Susan Davy, chief executive, said: "This has been an extraordinary year for Pennon, in which extreme weather patterns have tested our operational resilience. At the same time, inflationary pressures have proven our financial resilience.

"In a year in which the sector has been rightly challenged to clean up its act, we have delivered improvements in environmental performance."

Looking to the current year, Pennon expects overall revenues to increase with the combined impact of inflation on the 2023/24 tariffs and ongoing expected growth in the non-household retail business.

Power costs are forecast to remain broadly flat year on year.