ScottishPower plc announced today profits for the year of �628 million, down 15 per cent on last year's figure of �736 million. The electricity and water group is seeking to increase shareholder value by restructuring its business into three distinct areas and looking to grow its business in the US.
The company's performance was in line with analysts' expectations but it has, by its own admission, faced a tough year. Despite this, dividends per share are being increased 5 per cent to 26.04 pence.
This year's financial results have been impacted by the outage at the Hunter power station in Utah at a time of exceptional volatility in the western US power markets. This led to power having to be purchased on the open market to cover the shortfall. The Hunter Station is part of ScottishPower's PacifiCorp business, a US utility that it acquired for about �7bn ($10bn) including debt in 1988.
Profitability has also been affected by tighter price controls in the UK following UK regulatory reviews. Operating profit for the year increased �9 million to �970 million, despite the impact of the outage and the regulatory reviews.
Chief Executive Ian Russell, who succeeded Sir Ian Robinson in April this year, said, "Our underlying business performance has been good and we have taken a number of steps to sharpen our focus on improving shareholder value. These include restructuring into three divisions to focus on growth in energy and firm action in the
US to capture opportunities in the western power markets".
The emphasis on the energy parts of the business confirms the view of those who see ScottishPower moving away from its multi-utility base. In future, it is expected to focus increasingly on its core electricity businesses both in the UK and US. Talks are underway with Enron to acquire Portland General Energy (PGE) from them. This would significantly increase its US west coast electricity business. The group has had limited success in cross-selling electricity and gas to Southern water customers in the UK and although it has achieved some synergies, analysts are increasing looking for a more focused approach.
The group will need greater liquidity if it is to grow its energy portfolio, and selling Southern Water appears to be the preferred option. Although a refinancing package is being considered to release value from Southern Water, a disposal seems more likely. Italian state-controlled energy group Enel is one of a number of companies thought to be interested in a takeover of Southern Water.
ScottishPower has already separated its telecommunications business when it created Thus. In 1999 it sold a 49.9 per cent stake raising �1bn.
PacifiCorp contributed operating profit of �351 million, after the impact of the Hunter outage, which was caused by the failure of a 430MW generating unit in November 1999. Actions have been implemented to counteract the financial impact of this event which was costing PacifiCorp $1m a day until the plant was re-commissioned this week. This has included managing debt exposure, vigorously pursuing regulatory recovery of power purchase costs, encouraging load reduction through demand side management, and introducing approximately 940 MW in new generation capacity.
In a separate move yesterday, ScottishPower launched a legal action principally against British Energy. The summons seeks the courts assistance in amending the terms of the agreement whereby it is committed to buying 75 per cent of Scotland's nuclear output until 2005. The contract would cost ScottishPower �1bn over the next four years. ScottishPower argue that the introduction of the New Electricity Trading Arrangements is a material change but have failed to come to satisfactory terms with British Energy during talks over the last 18 months.