The Investment Column: Tough future for ScottishPower

Executives from ScottishPower, like other multi-utilities, should chant the following mantra in the bathroom mirror every morning: "Doing deals is easy; reaping rewards in the long term is the difficult bit." A quick glance behind ScottishPower's impressive looking 44 per cent rise in interim profits, to pounds 240m, shows the problem.

Almost all of the increase was due to the pounds 1.7bn takeover last year of Southern Water, which has made direct year-on-year comparisons difficult. ScottishPower can point to successes, including selling pounds 90m of Southern's rag-bag of non-regulated businesses, against an initial projection of pounds 70m. This helped underlying like-for-like profits at Southern rise by 24 per cent.

But at ScottishPower's other business the performance looks less impressive. Generation earnings fell by pounds 7m in the six months to the end of September, while at energy supply, the pounds 5m cost of the company's assault on the domestic gas market halved profits to pounds 5.7m. The story at Manweb, the regional electricity company, was of static profits of pounds 50.5m as tough price controls on power distribution took their toll. On top of all this is the group's debt-laden balance sheet, with gearing set to rise to 125 per cent next year after the pounds 317m windfall tax provision.

Against this ScottishPower has done more than most to grow its non-regulated businesses. The telecoms arm is making profits - a big achievement against its industry peers. The company insists its domestic gas business is also profitable, but it faces a stern test next year when British Gas cuts its prices by 9 per cent and wades into the electricity market.

From now on the going can only get tougher. Though the group's shares firmed 2.5p to 439.5p, investors cannot expect the miracles to continue forever.