Cost inflation takes toll on United Utilities and Severn Trent Water

United Utilities and Severn Trent Group both reported inflationary damage to profits as energy costs soared over the past year.

Severn Trent Group has reported a 39% year-on-year fall in group profit before tax to £168m for the 12 months to 30 March 2023 driven by cost inflation.

Group profit before interest and tax (PBIT) was £509 million – up 1% on the previous year, “in line with expectations.” Revenue for the period was up 12% to £2.17bn. Severn Trent said higher energy prices reduced group PBIT by some £43m compared to the previous reporting period as they outstripped the benefit of its in-house generation capacity.

The company reported “record” energy generation from its in-house power production business at 5,956GWh – about 53% of the group’s total consumption. Looking ahead, Severn Trent said it anticipated an additional 45GWh rom its planned acquisition of Andigestion.

And United Utilities reported a 41.7% year-on-year fall in profit before tax to £440m for the 12 month to 30th March 2023 as cost inflation took its toll, particularly in energy and chemical bills the company said.

In what the company described as a “challenging year” revenue was down 2% to £1.82bn with operating profits off 28% to £441m as operating costs increased some £60m (15%) on the previous year driven by inflation in energy and labour costs as well as additional investments, including its Better Rivers programme – a project “to improve river health across our region.”

Net finance expenses including a 28% hike in net finance expense to £475m along with an exceptional profit of £32m on its disposal of its renewable energy arm and fair value losses on derivatives up 55% at £475m contributed to an underlying pre tax loss of £34m.

United Utilities reported a 39% fall in reported storm overflows from its 2020 baseline. but it, and Severn Trent both companies drew media flak on reporting increases in dividend payouts.

United Utilities increased its full year dividend by 4.6% on the previous year to 45.51p. And Severn Trent Group’s proposed final dividend of 64.09 pence was up 4.6% on the previous year.