Scottish Power warns of IAS39 profits impacts

Scottish Power has warned investors that the controversial IAS39 accounting
standard is expected to have a considerable impact on profits when the company
reports interim results next month.

The energy group, valued at approximately £10bn, said IAS39, the
international financial reporting standard for financial instruments, was
expected to cause movements in the fair value of its bonds and energy contracts.

‘We anticipate that IAS39 will have a significant adverse impact on statutory
results this quarter due principally to movements in the fair values of the
convertible bond and the portfolio of energy contracts,’ the group said in a

Scottish Power said that although the new accounting treatment would cause
‘statutory results to be more volatile’ than under UK GAAP, there was no impact
on the performance of the group and its present and future cash flows.

Last month, the market punished FTSE250 oil company Venture Production when
it reported a pre-tax loss of £5.9m despite increasing revenues by 59% to £56.1m
because of the requirements of IAS39.

The impacts of the standard come at a demanding time for Scottish Power,
which recently axed its former finance director David Nish as part of a
restructuring programme involving the sale of US subsidiary PacifiCorp.

The FTSE100 group said plans for the restructuring, which it claims will lead
to ‘annualised cost savings’ of £60m a year, had been finalised and would cost
£35m. The first tranche of the charge would be reflected in the interim results.
The restructuring is expected to see 450 employees lose their jobs.

The utility company is also believed to be preparing to fight off a bid from
German utility giant EON.

Scottish Power’s shares fell 14.5p to 572p on the back of the trading
statement. The fall was ascribed to the group’s failure to disclose further
information on the EON bid rather than the impacts of IAS39.

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