SLEEPING ON THE JOB? Govt firms that made losses in 2023 named

The Government of Uganda (GoU) owns shares in a number of Public Corporations and State Enterprises.

These enterprises, which are independently managed, are supposed to operate efficiently, make profits and pay dividends to the Government. Their financial performance is therefore of interest to the Government.

Whereas some are making some serious money for the government in terms of dividends, others are sleeping on the job.

As usual, the Auditor General made a report for the year that ended June 2023 in which he assessed the profitability of twenty (28) entities out of the 77 Public Corporations and State Enterprises.

Only 14 made profits. These are Uganda Electricity Transmission Company Limited (UETCL) – sh95bn; National Water and Sewerage Corporation (NWSC)-sh41bn; Civil Aviation Authority (CAA)-sh40bn; Uganda Electricity Generation Company (UEGCL)-sh34bn and National Housing and Construction Company Limited posting profits of shs33bn.

Others are NEC Luwero Industries Limited-sh8bn; NEC Construction Works & Engineering Limited –shs5bn; NEC AGRO SMC Limited-sh4bn; Mandela National Stadium-sh2bn;  Insurance Training College-sh2bn; Uganda Posts Limited-sh905m; Insurance Regulatory Authority-shs44m; Soroti Fruits Limited-sh834m and  Nile Hotel International Ltd-sh926m.

LOSSES

In comparison with the previous year, a number of state enterprises and corporations kept on sleeping on the job.

These include Uganda Electricity Distribution Company which made a loss of sh2bn; Uganda Printing and Publishing Corporation-sh3bn; New Vision Printing and Publishing Company Limited-sh5bn; Uganda Air Cargo Corporation-sh10bn; Uganda Railways Corporation-sh35.17bn; and Uganda National Airlines Company registered a loss of sh325bn. Other loss making entities include Uganda Development Corporation-sh24.8bn; NEC farm Katonga Ltd and NEC Uzima Ltd.

BANKS

Similarly, the AG assessed the profitability of the 5 financial institutions owned by the government and noted that all the 5 institutions were profitable for the 2 consecutive years. However, the profitability of Bank of Uganda and Microfinance Support Centre Ltd tumbled by 54.03% and 67.5% respectively from the previous year.

Bank of Uganda’s profits dropped from sh502bn in 2022 to sh231bn in 2013. Microfinance Support Centre Ltd profits dropped from sh11.1bn in 2022 to sh3.61bn in 2023.

Housing Finance Bank’s profits shoot from sh40.9bn in 2022 to sh58.5bn in 2023. Uganda Development Bank Ltd profits shoot from sh38.8bn in 2022 to sh42.5bn in 2023 and as well Post Bank Limited from shs12.1bn in 2022 to sh15.1bn in 2023.

“I advised the entities to develop clear strategies to improve operations and adopt efficient financial management practices to lower operating costs and increase revenue generation. Government should also consider recapitalizing the most affected entities to revamp their operations,” Muwanga guided in his report.

OPERATING MARGIN

Having analysed the Operating margin of fifteen (15) public corporations and state enterprises to measures the extent to which they were able to meet their operating costs, while remaining profitable, Muwanga noted that only Uganda Electricity Generation Company (22.5%) and Uganda Electricity Distribution Company (16.8%) had operating margin higher than 15% which was considered good, however, these also declined from the previous year from 31.4% and 24.9% respectively.

The AG further noted that despite having operating margin lower than 15%, the operating margins of; Civil Aviation Authority, Uganda Electricity Transmission Company, Uganda Posts Limited, New Vision Printing and Publishing Company Limited, National Water and Sewerage Corporation had improved from the prior year.

Additionally, despite having operating margin lower than 15%, the operating margins of; NEC Construction Works & Engineering Limited, NEC Uzima Limited, NEC AGRO SMC Limited, Insurance Regulatory Authority, Insurance Training College, Uganda National Airlines Company Limited, NEC Farm Katonga Limited, Uganda Railways Corporation had further declined from the previous year.

“A decreased operating margin may indicate potential challenges to the company in covering operating costs, which poses a risk to the company’s financial stability. It could also lead to challenges in investing in expansion,” Muwanga observes.

RETURN ON ASSETS

The Return on Assets (ROA) shows the percentage of how a company’s assets are generating revenue. It measures management’s efficiency in using the enterprise’s assets to generate earnings. Although companies that require large initial investments will generally have lower return on assets, ROAs below 5% are generally considered inadequate.

On this note, the AG assessed the ROAs of twenty-two (22) enterprises/corporations and noted that three (3) entities, including; Uganda National Airlines Company Limited, NEC Luwero Industries Limited and NEC AGRO SMC Limited posted a favourable ROA of over 5%.

However, eighteen (19) enterprises/corporations registered a poor performance on ROA of below 5%. The worst performing enterprises were; Uganda Development Corporation, New Vision Printing and Publishing Company Limited, Uganda Printing and Publishing Corporation, Uganda Railways Corporation, NEC Farm Katonga Limited and Uganda Electricity Distribution Company among others.

The noted performance was mainly attributed to low revenue performance and high cost of operations for entities such as NEC Luwero Industries Limited, Uganda Printing and Publishing Corporation and Uganda Railways Corporation among others.

For the electricity sub-sector, the low ROAs were attributed to delayed project completion, ineffective asset management, increased technical and commercial costs.

This implies that the Companies/Corporations are not generating enough income from the use of their assets.

Similarly, the AG assessed the Return on Assets of the five (5)) Financial Institutions and noted that the ROA of Housing Finance Bank, Bank of Uganda, and Microfinance Support Centre Ltd improved compared to the previous year with the exception of Post Bank Limited and Uganda Development Bank Ltd.

The AG advised the entities to institute mechanisms to increase income generation from use of their assets.

DIVIDENDS

According to the AG report, only Housing Finance Bank Limited proposed a dividend of sh.29.23bn in the year under review up from sh20.49bn proposed in the prior year.

“I further noted that although some companies were making significant amounts of profits, they were not paying dividends to the Government. Examples included; UETCL, National Water and Sewerage Corporation, National Housing and Construction Company Limited, UEGCL, NEC Luwero Industries Limited, and NEC Construction Works & Engineering Limited, Uganda Development Bank Ltd, Post Bank Limited among others,” the AG report points out.

The enterprises however, attributed the non-payment of dividends to retention of funds to fund planned investments/projects.

“I advised the Accountant General to ensure that entities operationalise dividend policies that provide for equitable allocation of profits to investment as well as shareholders,” Muwanga said.

LIQUIDITY

The AG further analysed the ability of Public Corporations and State enterprises to meet their short-term financial obligations by comparing the current assets and current liabilities using the Current Ratio analysis.

Generally, the ratio of Current Assets to Current Liabilities between 1.5 and 2 is desirable, although acceptable current ratios vary between different industries or sectors.

According to the report, fourteen (14) entities were above the ideal threshold, implying that they are able to meet their liabilities as they fall due.

However, out of the fourteen (14) entities, seven (7) had excessively higher current ratios of 4 and above, these included; Uganda Development Corporation, Mandela National Stadium, NEC Farm Katonga Limited, NEC Luwero Industries Limited and UEDCL, among others. The very high current ratio implies that the Companies are not efficiently utilizing their current assets or short-term financing facilities.

It was observed that eight entities had ratios below 1.5 and may have a challenge of paying their obligations as and when they fall due.

These included; Uganda Printing and Publishing Corporation, Nile Hotel international limited, NEC Construction Works & Engineering Limited, New Vision Printing and Publishing Company Limited, Uganda Railways Corporation, Uganda Posts limited, Uganda National Airlines Company Limited and Uganda Electricity Generation Company.

For the financial institutions, Muwanga noted that the Loans and advances to customers for the 3 out of the 4 Banks increased on average from sh513.955bn to sh 652.495bn. The Uganda Development Bank had the highest Loans and Advance deposits to customers of sh1220.89bn while Microfinance Support Centre Ltd had the lowest Loans and Advance deposits to customers of sh131.63bn.

“The increase in the Loans and advance deposits to customers is a sign of good performance for the Banks as long as there are no significant non-performing loans,” the AG observed and further advised the accounting officers of the affected institutions to strengthen their treasury/working capital management strategies to ensure speedy collection of debts and reduction of liabilities.

DEBT

According to Muwanga, Public Corporations and State Enterprises should be able to meet their short and long- term debt obligations. Gearing (debt) ratio measures the proportion of the enterprises’ assets that are financed by debt. Although the risk levels vary from industry to industry, a debt ratio of more than 50% is considered undesirable.

The AG report notes that thirteen (13) out of the nineteen (19) Public Corporations and State enterprises assessed, had debt ratios of less than 50% implying that owners’ equity was sufficient to cover total debt with the exception of six (6) enterprises which had a debt ratio above 50%.

The enterprises have been advised to review their debt-to-equity mix and keep an appropriate balance to ensure entity profitability.

“Government established public corporations and state enterprises with an objective of ensuring efficient and effective management of government operations while delivering services to the citizens. I noted that 61% of the assessed companies made profits while 39% were not making profits, thus affecting their return on assets, ability to pay dividends to the Government, and ability to settle their obligations as they fall due. Unprofitable companies should put in place strategies to improve their performance and deliver to the expectations of the Government. In addition, the Government should develop appropriate financial and non-financial performance assessment indicators for each category of Public Corporations and State Enterprises to enable comprehensive and standardised performance assessment,” Muwanga concluded.

In the subsequent publication we shall profile the bosses who call shorts at these loss and profit making government firms.

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