Northumbrian Water Limited (NWL) said its operating profit increased from £188.3 million to £211.6 million in the year to March 31, 2023 — but higher finance charges resulted in a loss before tax of £49 million.
The water firm warned that customer bills will have to rise to help fund capital investment.
In its outlook Northumbrian Water said: ” … we must improve our performance across water quality and leakage and continue to invest in the resilience of our assets, as well as preparing for the challenges of the next period …
“We know that will be undertaking a huge increase in capital investment, including to address storm overflows, which will need to be funded through a combination of borrowing, shareholder equity and increases in customer bills.
“Getting the right balance between investing in our services, environmental improvements and the affordability of customer bills is not easy, and it’s important to us that the views of our customers inform those decisions.”
In its Annual Report and Financial Statements, Northumbrian Water said group revenue increased £69.8 million to £849.9 million during the year.
Operating costs rose by £46.5 million to £638.3 million, largely due to the “unprecedented increase in power prices experienced during the year and a consequential increase in chemical prices.”
Northumbrian Water said its net finance charges were “materially impacted” by high levels of inflation, increasing by £90.5 million to £260.6 million “due to significantly higher accretion on index-linked bonds and adverse movements on the market valuation of inflation-linked derivatives.”
The firm said: “Both of these items are non-cash in nature and accretion will reduce as inflation falls over time. However, for the year, this resulted in a loss before tax of £49.0m and a loss after tax of £27.1m
“The high inflation has also been reflected in significant growth in our Regulatory Capital Value from £4.5bn to £5.1bn. This underpins the financial strength and long term value of the business.
“We invested c.£330m in our assets in the year, including around £213m invested in maintaining the health of our assets to ensure the continued provision of sustainable water and wastewater services in the areas we serve.
“In addition, as well as supporting growth from developers in our areas, we continued to deliver our AMP7 enhancement programme which will deliver environmental improvements through the Water Industry Environmental Programme, improved resilience of our water and wastewater assets, as well as cyber resilience, and smart metering.
“To meet our medium term funding requirements, we have established a £6bn European Medium Term Note programme under which we raised bonds of £400m in October 2022 and £350m in February 2023.
“We have a committed bank facility of £450m for the purpose of maintaining general liquidity, which was undrawn at 31 March 2023.
“NWL retains investment grade credit ratings of Baa1 (stable outlook) from Moody’s and BBB (stable outlook) from Standard & Poor’s.
“The directors have assessed the future prospects of the company and have confirmed that the business remains financially resilient over the long term.
“However, the board has concerns that the rate of return being proposed in the price review process for 2025-2030 is not consistent with the risks faced by equity investors.”