Umeme posts high 2013 pretax profits

Saturday March 29 2014

By BERNARD BUSUULWA Special Correspondent

Power distributor Umeme’s profit before tax rose by 89 per cent to Ush115 billion ($44.6 million) at the end of December 2013.

The positive results were mainly driven by the roll-out of prepaid meters and lower financing costs.

The company recorded Ush61 billion ($23.7 million) during the same period in 2012.

The power distributor’s total revenues increased from Ush866 billion ($336 million) at the end of December 2012, to Ush966 billion ($375 million) by December 2013: Total assets rose by 18 per cent to Ush889 billion ($345 million) during the same period, according to its full year results for 2013 that were released on March 24, 2014.

Though energy losses fell from 26 per cent in 2012 to 24.3 per cent at the end of last year, they remained one per cent above the 23 per cent target set by the company in early 2013.

The company declared a full year dividend of Ush16.8 ($0.007) per share for 2013, up from Ush15 ($0.006) for 2012.

Growth in revenues was accelerated by the installation of additional prepaid meters in many areas within and outside Kampala.

Backed by a “pay as you go” model that requires users to pay for power supply  before consumption, the prepaid meters pushed Umeme’s revenue collection rate from 94 per cent in 2012, to 100 per cent last year, a record level in the firm’s collection history.

The number of prepaid electricity consumers grew to 52,000 in 2013, out of a domestic consumer base estimated at 550,000, according to Umeme data.

“Around 3 per cent of sales were driven by prepaid metering and consumers in this segment accounted for 10 per cent of all domestic users.  Umeme requires $100 million to implement full roll-out of the prepaid metering programme.

“Additional capital expenditure will help us bring down energy losses to 20 per cent this year, and 15 per cent next year,” said Celestino Babungi, Umeme’s chief financial officer.

The company’s consumer base grew to 574,000 in 2013. Some 100,000 new consumers will be migrated to the prepaid platform this year, and the remaining users will be absorbed onto the platform by the end of 2018, Umeme said. 

However, customers have claimed that Umeme inflated outstanding bills carried over from the postpaid system. But the company has dismissed the complaints as “habitual reluctance” of users to acknowledge their utility expenses.

A drop in financing costs also propelled Umeme’s incomes in 2013. Financing expenses dropped by 72 per cent to Ush72 billion ($ 28 million) at the end of December 2013, a direct consequence of paying off old loans valued at $40 million with proceeds from the initial public offering.  The loans were owed to the International Finance Corporation (IFC).

But the impact of the recent $190 million syndicated loan obtained from the IFC, Stanbic Bank Group and Standard Chartered Bank on financing costs in the near future remains unclear, in spite of huge expansion pressures faced by Umeme.

Umeme’s share price closed at Ush365 ($0.14) per share on the day the results were announced, with modest trading activity valued at Ush4.5 million ($1,747) on the counter.

Market watchers attributed this lukewarm reaction to a “wait-and-see” attitude among investors who are keenly awaiting the outcome of Umeme’s appeal to the  Electricity Dispute Tribunal over amendments to its supply licence, a contentious issue that has put revenues of Ush37.8 billion ($14.7 million) at stake.

“Many investors have been on the lookout for the outcome of Umeme’s appeal over recoverable costs and the full impact of its 2013 performance. Supported by such a brilliant performance, Umeme shares are likely to experience sharper demand in coming days, but some investors who bought the stock at Ush275-350 ($0.1-0.14) may hold out for a bigger rise in the share price, closer to Ush420 ($0.16),” said Paul Bwiso, general manager at Dyer and Blair Uganda Ltd.

But some retail investors are still unhappy with Umeme’s dividend policy.

“Umeme is still faced with high borrowing needs because of low electricity coverage in Uganda. Declaring a high dividend could be detrimental to the company in the long term as it seeks to repay heavy loans,” said Andrew Muhimbise, an investor at the Uganda Securities Exchange.