RIYADH, 1 November 2007 — Saudi Electricity Co. (SEC), the Gulf’s largest utility by market value, increased its third-quarter profit by 5.8 percent on higher sales in the summer, beating analysts’ forecasts.
Chief Executive Officer Ali ibn Saleh Al-Barrak said he expected a return to annual profit growth in 2007 for the first time since 2005 despite the traditionally loss-making fourth-quarter.
Net income was 1.704 billion riyals ($454.4 million) in the three months to Sept. 30, usually the best quarter, coinciding with a surge in demand for power during the hot summer months in the desert kingdom. Analysts’ forecasts for the third quarter profit ranged from SR1.68 billion to SR1.7 billion, according to a Reuters survey last month.
“The rise in profits stemmed from an increase in electricity energy sales and in tariffs ... that has exceeded the increase in operating costs,” the firm said in a statement.
Operating profit in the nine-months to Sept. 30 rose 6 percent to SR1.87 billion.
Barrak said sales volume in the first nine months of 2007 rose 8 percent. He said in June that annual growth in power demand was 7 percent. “We hope to achieve net profits this year that are higher than 2006,” he said after the third-quarter earnings were announced.
A loss of not more than SR642 million in the fourth quarter would put the company on track to achieve growth in net profit for 2007. It made a net loss of SR508 million in the fourth quarter of last year, almost double its level a year earlier.
The company, which is investing heavily to cope with the rise in demand, has been affected by the global rise in contracting costs for its maintenance and operations, Barrak said. He declined to elaborate saying only the cost of fuel transport rose 20-30 percent in 2007 from 2006. “The important investments being undertaken, coupled with efforts to cut costs and improving human resources to raise productivity will have a positive impact in the coming few years,” he said.
He did not elaborate on the human resources development plan.
The company may continue to cut jobs over the next few years under a voluntary early retirement scheme which aims to reduce the 29,000-strong work force by 900 this year, Barrak said in June.
The stock closed yesterday at SR12.75, up 4.1 percent from the previous session.
Electricity plans to invest SR190 billion to increase generating capacity by 60 percent by 2015 to increase power production to 54,000 megawatts by 2015 from 34,000 MW at the end of 2006 and meet surging demand.
The firm would invest some SR7 billion a year of its own cash and raise the rest in either loans or Islamic bonds.