South East Water penned losses in the tens of millions after extreme weather left the supplier scrambling to meet environmental commitments in the year to March.
Some £17mln worth of extra costs from having to find new water sources, repairing leaks and compensating customers aided a £74.2mln pre-tax loss, following 2022’s £17mln profit.
“We have done everything we can to meet the exacting performance targets and rigorous environmental commitments that go even beyond our statutory obligations," the firm said in a statement.
However, “extreme weather events have had a significant impact on our performance in the past year”, the company added.
Kent experienced the driest conditions since records began almost 200 years ago, while Sussex saw its lowest rainfall since 1911, according to privately-owned South East Water.
Demand rose to an all-time high meanwhile, as the UK experienced some of its hottest weather ever last summer.
Water companies have faced growing pressure to improve environmental standards in recent months, with 11 of the UK’s 17 suppliers facing fines last October over the likes of supply issues and pollution incidents.
Though South East Water was hit with a relatively small fine of £3.2mln in October, it had faced a £90mln charge in July 2021 over illegally discharging sewage into rivers and oceans.
Sector woes are set to worsen, with likely tougher regulation from 2024 to improve environmental credentials poised to boost capital expenditure requirements.
Aside from an expected hike on bills over the coming years, further negative light has been shone on the sector over companies’ high debt-to-equity ratios too.
South East’s gearing of 79% is higher than embattled peer Thames Water, which had a ratio of 78% last spring according to regulator Ofwat, and looked to be teetering on the edge of collapse in late June as a result.
Higher interest rates prompted by stubborn inflation have therefore threatened to bite water companies, which are set to face growing costs on servicing debt.
This prompted Deutsche Bank analysts to dub Thames’ struggles a “canary in the coal mine” moment for the sector, in which South East accounts for 2.2mln customers.