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Umeme Limited posts $29m profit for first half of 2022

Saturday August 27 2022
Umeme technicians at work in Kampala.

Umeme technicians at work in Kampala. The firm posted a $29 million profit before tax in the six months to June 2022, up from the $17.8 million posted in June 2021. PHOTO | FILE

By BERNARD BUSUULWA

Umeme Limited posted a $29 million profit before tax in the six months to June 2022, up from the $17.8 million posted in June 2021.

This was shaped by a decline in operating costs and the full reopening of Uganda’s economy in January following a pandemic lockdown.

“The full reopening of Uganda’s economy in January 2022 unlocked strong demand for power among bars, night clubs, schools and beaches that had been closed for almost two years due to the Covid-19 pandemic lockdown restrictions. The reopening of Uganda’s border with Rwanda also boosted demand for manufactured products from Uganda and electricity consumption in some industries,” said Andrew Oyie, Umeme Limited’s Chief Finance Officer.

However, rising inflation levels has affected its operations, raising questions about the scale of future changes pegged to local electricity tariffs.

“But increased inflation has led to higher costs of fuel, operations and network maintenance and higher prices charged for some imported materials. The 35.1 percent average distribution revenue margin is a direct result of increased power sales and a reduction in overall operating costs during the first six months of 2022,” said Mr Oyie.

Dennis Kakembo, Managing Partner and Energy Practice leader at Cristal Advocates, said, “Inflation is likely to rise further during the last six months of 2022. The Uganda shilling has depreciated quite a lot against the US dollar of late and the fact that the local currency usually depreciates significantly against the US dollar in September every year might affect Umeme’s operations because of huge foreign currency exposure in its debt profile and procurement value chain.”

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The power distributor’s total operating costs dropped from $33.9 million in June 2021 to $32 million in June this year. The company’s total sales fell from $255 million to $249.4 million in the same period, an indicator of aggressive cost cutting measures undertaken by the power firm in an effort to boost profitability.

Total assets slightly fell from $706.4 million in June 2021 to $702.6 million at the end of June 2022 while the firm’s operating cashflow grew from $47.6 million to $58.9 million during the same period.

In comparison, total electricity sales volumes increased from 1,720 gigawatt hours in June 2021 to 1,875 gigawatt hours in June 2022, with domestic users accounting for the lion’s share of electricity consumption.

The total number of electricity units consumed by domestic power users—households and cottage businesses—increased from 359.7 gigawatt hours in June 2021 to 401 gigawatt hours in June 2022, according to Umeme Limited records. Electricity consumption attributed to commercial users rose from 183.7 gigawatt hours in June 2021 to 205.1 gigawatt hours in June 2022.

The electricity distributor’s revenue margin averaged 35.1 percent during the first six months of 2022 while the energy loss ratio dropped to 17.1 percent in the same period.

However, growth posted by new electricity connections provided by Umeme Limited appears minimal during the first six months of this year, a situation blamed on the negative effects of rising inflation on consumers’ spending power and the government’s failure to fund the subsidised Electricity Connections Policy (ECP).

Whereas the Umeme counter recorded massive trading turnover of Ush1.36 billion ($354,001) and trading volumes amounting to 8.13 million shares at the Uganda Securities Exchange(USE) on Tuesday, its share price remained stable at Ush200 ($0.05) while trading volumes shrunk in subsequent trading sessions, a sign of cautious optimism among investors towards its short-term growth forecast.

“Umeme Limited’s performance appears like a corporate bond that is maturing after one year but does not have a fixed interest rate. The company is sitting on lots of cash because it is unable to invest much due to legal uncertainty that lies ahead while investors have undervalued its stock,” said Simon Mwebaze, General Manager at UAP-Old Mutual Financial Services Uganda Limited.

“I would not be surprised if Umeme declared a dividend of Ush70 ($0.018) per share for end of December 2022.”

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