ScottishPower faces backlash on profit surge

Published on Sunday 21 May 2006 00:50

SCOTTISHPOWER is bracing itself for another backlash from customers this week, when it reports a huge surge in profits following recent price rises in electricity and gas.

The utility is expected to unveil profits on continuing activities in the region of 40%.

Consumers suffered a 15% rise in gas prices and 8% in electricity, and with some utilities threatening further rises attention is expected to focus on new chief executive Philip Bowman's strategy when he presents his first results since taking over from Ian Russell in January.

The company will claim the improved figures are a result of efficiencies in performance and growth across all divisions, particularly its renewables business. Its PPM wind farms business in America is performing particularly strongly, and should show an increase in operating profits of more than 50%.

Bowman will say that despite the price rises faced by customers, margins remain tight.

A survey of nine analysts revealed profits before one-off items will rise from 459m last year to about 655m for the year ended March 31.

These figures exclude the lower-growth contribution of Pacificorp, ScottishPower's US business, that has now been sold. Analysts expect the company to hold fire on any further price rises, and Bowman is also likely to say that customer levels are about the same as last year, which he may also regard as a defence against any accusations of profiteering.

Bowman will reaffirm the company's view that the government should tread carefully on the nuclear energy option by ensuring there is a balanced energy strategy. ScottishPower said in its submission to the energy review in April that any expansion of nuclear generation should not be to the disadvantage of renewables or investment in clean coal technology.

ScottishPower is spending 170m installing new emissions-reducing technology at its Longannet coal power station in Fife. The Confederation of UK Coal Producers described the move as "good news for the Scottish economy, good news for the environment and good news for the Scottish coal industry".

Analysts will be keen to hear Bowman's plans for the slimmed-down company following the sale of PacifiCorp, which has netted a return of cash to shareholders.

He may also offer some comment on takeover speculation. German giant E.ON withdrew from talks last November but is free to bid from this month.

However, it turned its attention to Spanish firm Endesa, and the City doubts it will return for the Glasgow firm in the short term.

ScottishPower's more positive prospects contrast with those of Centrica, which trades as British Gas and Scottish Gas. On Friday it warned that its earnings for the full year were likely to be at the lower end of market expectations.

Chief executive Sir Roy Gardner said the first two months of the year were particularly challenging.

Even after the group raised prices, the wholesale cost of gas and electricity continued to escalate. This adversely impacted on the profitability of British Gas Residential Energy, which will be loss-making in the first half, and the large industrial contracts, Gardner said.