(Reuters) -British water utility Pennon Group (LON:PNN)'s annual profit plummeted 88%, the company said on Thursday, squeezed by the driest summer in decades, extreme rainfall and harsh cold winter at a time when it grapples with high costs.
The results come as the British water industry faces scrutiny from lawmakers, regulators and public over under-investments in infrastructure and the dumping of raw sewage.
"As summertime nears, it's touch-and-go whether reservoir levels will be sufficient to keep customers' supplies running at full flow. If not, Pennon could find itself in the regulator's firing line," Hargreaves Lansdown (LON:HRGV) analyst Aarin Chiekrie said in a note.
Pennon said on Thursday it planned to invest 750 million pounds ($947 million) over two years to improve its environmental standards and water treatment methods.
That follows peer Severn Trent (LON:SVT)'s announcement last week of capital investment plans of up to 1 billion pounds. United Utilities also put forward its "biggest environmental programme yet" in October.
Pennon said underlying profit before tax for the year ended March 31 fell to 16.8 million pounds, from 143.5 million pounds a year earlier.
The near-term earnings had been impacted by the drought in the South West, which led to increased levels of operating costs and capital expenditure, the company said.
The company in September had said it expected power costs to almost double during the year.
Shares in Pennon are down 41% from record highs hit in August 2021 and have underperformed peers. The stock fell 2.3% in morning trade on Thursday.
($1 = 0.7923 pounds)