Scottish Water invested a record £886 million in the last year, according to its latest annual report.

But the the publicly-owned utility said the changing climate and aging water and waste water assets mean it will need higher investment levels in future to maintain vital services.

Revenue for the year to March 31, 2023, rose to £1.836 billion from £1.733 billion while surplus before taxation fell to £60.9 million from £90.8 million.

Douglas Millican, Scottish Water’s former chief executive – who stood down on May 31 after more than two decades at the utility – said that despite investment levels increasing significantly in the last two years Scottish Water was currently investing around only 40% of the necessary long-term replacement rate.

Writing in Scottish Water’s Annual Performance and Prospects report, which covers the 2022-23 financial year, Millican said: “We owe it to our customers to be honest with them about the cost of delivering the services they rely on and expect, and will continue to expect, and keep transitioning towards a more sustainable future.

“There is not a stand-still option. Assets are ageing and need replacing. Our climate is changing and we must adapt.

“As with all our investment programme, we need to decide which areas are the greatest priority for investment with the resources we have.

“And, as with most things, people across Scotland will have differing opinions on what they should be. We will continue to work with communities to listen to their views and work with partners, including local authorities, to introduce sustainable infrastructure.”

The report also highlighted how Scottish Water delivered sustained levels of drinking water quality and environmental performance, despite a number of serious challenges caused by extreme weather patterns.

Millican said an area of growing concern was the use of Combined Sewer Overflows (CSOs), which are designed to spill at times of very heavy rainfall. He said the utility was committed to doing more to better protect Scotland’s rivers and coasts.

“CSOs are very much in the spotlight just now with considerable media coverage, and in turn public attention, on the issue of CSO spills and river health,” said Millican.

“We are committed to building on the improvements already made and doing more to further protect the water environment where we are making progress with implementing our Improving Urban Waters Routemap.

“This will see us invest up to £500 million in the waste water system, including treatment works and CSOs, to improve the quality of waste water discharges and protect rivers and coastal environments.”

He said Scotland already has one of the best quality water environments in Europe with 87% of waterways achieving “good or better condition” for water quality but said it was vital more was done to protect water bodies.

The report highlighted how Scottish Water has started to install monitors on CSOs to provide better data on spill events and aims to have 1,000 of them in place at high priority sites across the country by the end of next year. Technology will also be fitted upstream in some areas to reduce the risk of overflow spills.

Scottish Water employs 4,400 people with a further 2,000 employed within partner organisations.

Alex Plant moved from Anglian Water to take over from Millican as CEO earlier this month.

Plant said: “I am excited to have joined such a highly-regarded organisation to work to continue to deliver great service, great value to our customers. As well as the vital work we deliver around-the-clock I know we face some difficult issues, with climate change one of the most pressing.”