Severn Trent Profit Offsets Interest Rate Swap Losses

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Severn Trent Plc, the U.K.’s second-largest publicly traded water company, said fiscal full-year profit climbed 8.8 percent on higher sales. The shares dropped as the utility reported a loss on interest rate swaps.

Revenue rose 2.5 percent to 1.8 billion pounds ($2.8 billion). The Coventry, England-based company reported higher earnings were curbed by a 133.5 million-pound loss on financial instruments, where interest rate swap losses more than offset an exchange rate gain on loans.

The stock traded 0.6 percent lower at 2,169 pence in London at 3:25 p.m. on a day the FTSE was 0.6 percent higher as “substantial” financial instrument losses, hard for analysts to forecast, “spurred today’s share-price weakness,” Bloomberg Intelligence analyst Elchin Mammadov said by e-mail.

Underlying pretax profit advanced to 300.4 million pounds for the year ended March from 276.1 million pounds a year earlier. Severn Trent, which spent 547.4 million pounds last year upgrading water-treatment works, cleaning sewers and reducing sewer flooding and pollution events, is planning to invest 3.3 billion pounds in improvements through 2020.

The company said in March it planned to invest 190 million pounds in renewable energy to generate half its electricity needs within five years. Severn Trent will build its first solar plants this year and is installing facilities that turn food waste into power to shield itself from fluctuating energy prices. Power bills for the year slid 1.4 million pounds.

‘Economic Case’

“Energy is one of our highest costs and energy is volatile so we’re trying to move ourselves into a less volatile position on energy costs,” Chief Executive Officer Liv Garfield said by phone. “There is a good economic case for spending on energy.”

Larger rival United Utilities Group Plc said Thursday it plans to spend 100 million pounds on clean energy by 2020 to cut electricity bills. It’s aiming to supply 35 percent of its power from waste-to-energy generation, wind and solar.

Pennon Group Plc, the third-largest publicly traded water company in the U.K., earlier this week reported profit rose 0.9 percent on higher earnings at its Viridor waste-to-power unit.

Severn Trent on Friday proposed a 5.6 percent rise in the total dividend for the year of 84.9 pence a share.

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