Water supplier Pennon Group has sunk to a loss after being hammered by soaring power costs, extreme weather, and telling households to use less water.
It comes as suppliers are under mounting pressure from regulators and the public to reduce sewage spills and modernise networks.
Pennon, which owns the recently combined South West Water and Bristol Water, said it swung to a statutory pre-tax loss of £8.5 million in the year to April, from a profit of £128 million last year.
Its underlying pre-tax profit shrunk by 88%, to £17 million from £144 million the prior year.
“This has been an extraordinary year for Pennon in which extreme weather patterns have tested our operational resilience,” Susan Davy, Pennon’s group chief executive, said.
“At the same time, inflationary pressures have proven our financial resilience.”
The supplier blamed its shrinking profit on inflation, which it said has driven up power costs.
It also said it was partly because of “lower customer demand as a result of continued water efficiency promotion”, meaning the knock-on impact of encouraging households to use less water and save money.
Pennon is among leading utilities groups to have flagged extreme weather conditions, including hotter and drier summers and freezing cold winters.
This led to an increase in unplanned outages last year, leaving some households cut off from water supplies.
It also noted rising sea levels and flooding, owing to climate change.
“We are facing significant environmental challenges as a sector, and as a group we need to move at pace to keep up with the change that is rightly demanded,” Ms Davy said.
Thirty years ago, nearly half of all household and business sewage in South West Water’s region was untreated and discharged directly into the sea, she said.
But the firm stressed it has invested more than £13 billion in upgrading sewage treatment works, as well as spending around £160 million in renewable energy generation.
Water regulator Ofwat has previously investigated South West Water in a probe over sewage dumping and environmental performance.
Earlier this month it launched a new probe into whether it accurately reported its leakage performance – which refers to water lost through leaks in the water pipeline network.
Pennon said there are signs that inflation is beginning to stabilise, but the global economy continues to be “volatile”.
It said average household bills will go up in the year ahead, but at a lower rate than cost inflation – with South West Water rising by 0.8% and Bristol Water bills hiked by 5.5%.
The “vast majority” of its customers find their bill affordable, the firm stressed as it pledged to keep bills as low as possible and eliminate water poverty across the region.