Geregu Power Plc, the newcomer on the Nigerian Exchange Group’s listing, lost N8.2 billion or 61 percent of revenue in its third quarter operations that ended September 2022. Its interim report for the period attributed the revenue drop to gas supply constraints.
The power-generating company closed the quarter with a turnover of N5.2 billion, down from N13.4 billion in the corresponding quarter in 2021. Gas supply constraints led to a drop in capacity delivered and energy sent out from 1,855,920 Mwh as of 30 September 2021 to 1,314,439 Mwh as of 30 September 2022.
The company lost its primary gas supplies to its power generating plant in mid-July 2022 following a nationwide force majeure declared by Shell Petroleum Development Company Limited on the Forcados oil terminal pipeline.
The company’s management responded to the huge revenue losses by way of compensatory cost reduction, which has helped to defend profit. It slashed administrative expenses by 91.5 percent quarter-on-quarter to N682.5 million in the third quarter.
It also pruned the cost of sales by over 56 percent quarter-on-quarter to about N3 billion for the quarter. With a more rapid drop in revenue, however, the cost of sales encroached on earnings, leading to a drop of over 66 percent in gross profit quarter-on-quarter to N2.1 billion for the third quarter.
The huge drop in administrative cost compensated both for the revenue drop and the incursion of the cost of sales on revenue. The result is a rebound in operating profit for the quarter from a loss of N1.8 billion in the same quarter in 2021 to N1.4 billion in the third quarter of 2022.
Finance income provided the strength to avert a loss position in the third quarter despite declining from N2.6 billion to N2 billion quarter-on-quarter. Finance expenses however swelled from N288 million to N2.7 billion over the same period, resulting in an adverse shift from net finance income of N2.3 billion in the same quarter last year to net finance cost of N644 million in the third quarter of 2022.
Despite the shift, the drop in administrative cost and the rebound in operating profit still permitted an increase in pre-tax profit from N507 million to N795 million over the review period.
This was further reinforced by a favourable shift from a tax expense of N268 million in the same quarter last year to a tax credit of N350 million for the third quarter that ended September 2022.
Geregu Power was therefore able to build an after-tax profit of N1.1 billion for the third quarter, which is a huge increase from the N239 million profit in the same period in 2021. It is however a weak contribution to its half-year closing after-tax profit of roughly N9.9 billion.
The company’s nine-month position reflects the major setback of loss of revenue in the third quarter. Revenue for the nine months of trading dropped by 28 percent to N39 billion at the end of September 2022.
Cost of sales went down slightly ahead of revenue at 29 percent year-on-year to N20 billion. Gross profit declined by over 27 percent to N18.9 billion over the period.
The big cost saving from administrative expenses in the third quarter was reflected in the nine-month earnings record with a drop of over 73 percent to N2.9 billion at the end of September. This changed the reading from the decline in gross profit to an increase of 6 percent in operating profit to N16 billion.
The challenge for the company came from the cost of finance that multiplied close to eight times year-on-year to N4.2 billion at the end of September. That overturned the company’s net finance income of N2.1 billion in the same period last year into a net finance cost of roughly N2.1 billion.
The company closed the period with a pre-tax profit of a little below N14 billion, which is a drop of 24 percent year-on-year. However, a drop of 33.5 percent in tax expenses limited the decline in after-tax profit to 11.4 percent to close at N10 billion.
The gas supply constraint is expected to last up till the end of October, which is expected to affect the final quarter earnings outcome as well.
The company closed the third quarter operations with earnings per share of N4.01, a decline from a diluted figure of N4.53 per share in the same period last year.
