Uganda’s power distributor Umeme Limited bounced back from a regulatory clause that suppressed earnings in the previous year to post a net profit of Shs132 billion for the full financial year ended December 31, 2018, the firm has reported in its latest earnings report.
This was up from Shs35bn posted in 2017 after the Electricity Regulatory Authority forced Umeme to claw back Shs115bn that had been recognised as revenue.
EBITDA grew 8.9% to Shs354bn while gross profit posted stronger growth, of 10.6% to Shs581bn. Electricity sales were up 9% to 3,011 Gigawatt hours (GWh) but revenues were flat, rising by just 0.8% to Shs1.5tn.
The earnings report shows a mixed picture: on the upside, operating profit more than doubled from Shs112bn to Shs243bn with profit before tax jumping five-fold to Shs195bn. Operating costs per customer, which had bucked the trend and risen in the previous FY, fell again to just above 2016 levels and significantly lower than the trend since 2013.
Energy loses also fell to 16.6% — the lowest since the start of the concession — as the effects of pre-paid metering system and continuing investments in the grid continued to reduce non-payments and leakages. A quarter of Umeme’s revenue is now pre-paid, boosting cash flows and potentially reducing short-term financing costs.
Umeme’s earnings report also indicates a strengthening of the economy and, in particular, the country’s push to increase the size and output of the industry and manufacturing sector with double-digit growth in these key customer segments. Extra large industrial users grew 6.1% year-on-year while large and medium customers grew at an average rate of 15%. Commercial customers grew almost in tandem, at 16.7%.
On the flip side, domestic customers, where most of the suppressed demand is believed to lie, grew at only 11.5% in the same period as the high end-user tariffs kept many households off-grid. The commissioning of the 183MW Isimba Hydropower project this month has increased the country’s installed generation capacity to 1,167MW and this is set to rise when the 600MW Karuma Hydropower project comes online as early as December 2019.
The two new dams are expected to have a lower weighed average feed-in tariff but the start of interest repayments on the underlying debt means that unless there is more uptake of electricity, and quickly, the new debt repayment pressure could more than offset the relief on the tariff, keeping electricity costs high and consumption low.
Umeme says new connections to the grid grew 14.8% to 1.3 million keeping it ahead of regulatory targets of 300,000 new connections per year but these numbers will have to rise faster and end-user tariffs will have to fall quickly to avoid the extra generation capacity becoming a financial albatross on the country and the energy sector.
In its earnings report, the power distributor struck an optimistic tone, noting that the government “is amenable to commencing negotiations and discussions on the Umeme concession” which currently runs out in 2025. “If approved, such extension will enable Umeme to mobilize and deploy long-term capital that is necessary to expand the distribution grid and increase uptake of the new generation capacity and support the Government agenda on grid connections and economic growth,” the earnings report noted.
Early indications of an extension would boost market confidence in the company which is listed on the Kampala and Nairobi securities exchanges. The stock was up 8.11% in early trading on the Nairobi Securities Exchange after the earnings report. The company proposed to pay a final dividend of Shs28.2, (2017: Shs7.6) bringing its total dividend for the year to Shs40.9 per share.
