Geregu Power: When revenue and profit mask a cash flow problem

The recent bond default by Geregu Power Plc has ripped away the facade of comfort that revenue growth and impressive net profits can create.

For too long, investors were lulled by headline numbers—only to be caught off guard when the company missed payments on its N40.09 billion Series 1 bond.

Beneath the surface, the cash reality was starkly different: free cash flow was under relentless pressure, receivables spiralled out of control, and Geregu continued to pay out large dividends.

This episode is a wake-up call, delivering a powerful lesson on why accounting profits can mislead, and why investors must always look beneath the surface to see the real story told by cash generation.

The fundamental distinction: Revenue, profit, and cash flow

Revenue is the top-line figure: the value of electricity sold and capacity charges billed. For Geregu, this number has grown impressively in recent years, climbing from roughly N71 billion in 2021 to N185 billion in 2025. Net profit (profit after tax) is what remains after deducting costs, interest, depreciation, and taxes.

On this measure, Geregu looked resilient, posting N27.3 billion in 2025—almost identical to the prior year despite higher operating expenses. Cash flow, however, is the purest measure of financial health.

Free cash flow specifically shows how much cash the business actually generates after paying for its day-to-day operations and the capital expenditure needed to maintain or expand the plant.

Unlike accounting profits, which rely on accruals, estimates, and non-cash items, cash flow reflects real money moving in and out of the company’s bank accounts.

It is far harder to manipulate over sustained periods because it ultimately has to reconcile with the cash balances that appear on the balance sheet, and auditors and lenders can independently verify that.

This is why cash flow quality matters more than revenue growth. A company can accelerate revenue recognition, delay expense recognition, reverse previous impairments, or adjust depreciation schedules to boost reported profits. Cash, by contrast, is less forgiving.

When customers, in this case primarily the Nigerian Bulk Electricity Trading Plc, fail to pay on time, the cash does not arrive—regardless of how impressive the revenue line looks.

In Geregu’s case, the gap between profit and cash has been persistent. In 2025, the company reported N27.3 billion in net profit. Still, it generated only about N19.6 billion in operating cash flow and N18.2 billion in free cash flow.

The main culprit was a sharp rise in trade receivables. Money that had been booked as revenue remained stuck in the power sector’s broken payment chain. Working capital absorbed cash even as the income statement looked healthy. In 2024, the picture was worse: free cash flow turned negative (approximately –N14.8 billion) largely because of a heavy capital expenditure programme, despite solid reported profits.

Dividend policy under cash pressure

The most alarming aspect of Geregu’s financial decisions has been its unwavering commitment to paying out hefty dividends—even when free cash flow was nowhere near sufficient to support them. In 2025, Geregu distributed roughly N22.5 billion in dividends, exceeding both its free cash flow and its operating cash flow.

This wasn’t an isolated event; it was part of a repeated pattern of aggressive payouts. Investors receiving these dividends should have asked a critical question: are these payouts sustainable, or are they draining the company’s lifeblood? Paying dividends that outstrip free cash flow means raiding cash reserves, squeezing suppliers, or piling on debt.

Unsurprisingly, Geregu’s cash balances dwindled, payables to gas suppliers swelled, and liquidity became so tight that the company eventually defaulted on its bonds in 2026. The lesson is clear: in times of stress, preserving liquidity and meeting debt obligations must take precedence over rewarding shareholders.

Further compounding the risks is Geregu’s tightly held share structure, which warps the market’s ability to function effectively. With just 18.14 per cent of its 2.5 billion shares available for trading, the stock is plagued by chronically thin volumes. This leaves prices disconnected from reality. For minority investors, this means exit doors are narrow and easily jammed.

Even modest selling can send prices tumbling, and information asymmetries thrive in this opaque environment. By the time the bond default was made public, those who hadn’t already escaped were left exposed, with the limited free float having masked risks until it was too late.

The lessons from Geregu’s saga are unambiguous and urgent. Revenue growth means little if it doesn’t convert to cash. Net profit can deceive when working capital is mismanaged, or non-cash items pad the numbers. Free cash flow—not accounting profit—is the ultimate test of a company’s financial health.

If dividends regularly exceed free cash flow, alarms should sound. Dividend policy must be grounded in cold cash reality. Shareholders celebrating dividends paid out of borrowed money or dwindling reserves are complicit in eroding the company’s future… Always follow the cash—the only number that never lies.