EVERY cloud has a silver wiring. The chronic limpness of the euro, for reasons too obvious to state, should help ScottishPower-owning Iberdrola cross the line of reduced market profit expectations when it reports next week. People often forget that the Spanish energy giant earns half of its cash in American dollars and pounds sterling.
That is useful when the United States and the UK are a muscular part of the business. It is no coincidence that when chief executive Ignacio Galan unveiled a €9.6 billion (£7bn) global investment programme this time last year it was skewed to those markets as Iberdrola’s home turf has been churned up by more oppressive utility regulation, including a doubling of Spanish levies amid towering public debt.
ScottishPower, from bog–standard energy generation and distribution to renewables, got more than 40 per cent of that investment cake through to 2016, and the US – at 17 per cent – a bit more than Spain.
Even with those offsetting freshening winds from America and the UK, Iberdrola’s earnings are expected to have fallen for the second consecutive year, with the market consensus being underlying earnings down a few hundred million euros at €6.86bn (£5bn).
Further problems also loom. In the UK the electricity and gas industries have been a political lightning rod, from boardroom fat-cattery to endlessly rising household bills, almost since their privatisations in the mid–1980s (1991 in ScottishPower and Scottish Hydro’s case).
As such, given the approach of the UK election, Iberdrola will likely be quizzed on Wednesday about possible ongoing industry volatility complicating its operations here in the medium-term.
Labour leader Ed Miliband has promised to freeze energy prices for 20 months if his party gains power, and his vaguely Private Eye “Dave Spart” talk of “predators and producers” does not bode particularly well for an harmonious relationship with business.
Meanwhile, the Competition and Markets Authority is investigating the industry. I suspect that, given the sensitivity about being perceived as trying to influence a foreign country’s electoral process, the ebullient Galan and his UK lieutenants may on this occasion play down such issues.
Even if ScottishPower is dismayed privately by Labour’s neo left-wing stance on prices, there is little mileage in alienating the political masters of the energy waters Iberdola and others will have to navigate after May’s election.
And, with an eye to commercial realpolitik, Iberdrola’s broad global spread is one of its strongest cards.
With the Latin American market every bit as important to it as the US, the company should have the geographic earnings spread to weather any chilly official price interventions in the UK.
Televised football 1 Broadband 1
Virgin Media’s £3 billion investment in expanding its UK broadband network is a strategic move that was in the works before rivals Sky and and BT commandeered the headlines this week with their Croesus-like bidding round for televised football.
But it shows the smaller media player is not letting its bigger rivals sing all the best tunes. Virgin Media’s claims for the broadband speeds, allegedly twice as fast as currently available from BT, Sky and TalkTalk, are impressive if the technology delivers.
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