Summary:

• Umeme, a Ugandan electricity distributor listed on multiple exchanges, increased its dividend by 22.4% despite a significant drop in net profit due to accounting adjustments. The company faces the end of its concession in 2025, with assets returning to the Ugandan government.

Umeme, the Ugandan electricity distributor listed on both the Nairobi Securities Exchange (NSE: UMME) and the Uganda Securities Exchange (USE: UMEM), has boosted its dividend by 22.4 percent as it approaches the final year of a 20-year concession from the Ugandan government.

Announcing its financial results on Monday, the company declared a final dividend of USh54.20 (Sh1.84) for the year ending December 2023. Coupled with the interim dividend of USh24 (Sh0.82) paid the previous month, the total dividend payout for the year amounts to Sh2.66 per share, up from USh63.90 (Sh2.17) per share in 2022.

Despite a sharp 92 percent drop in net profit to Sh408.2 million, attributed to a significant amortisation charge of Sh15 billion (USh442 billion) for aligning asset values with their remaining useful life as per accounting standards, Umeme decided to increase its dividend.

The company clarified that the rise in the amortisation and impairment charge, from USh160 billion in 2022 to USh442 billion in 2023, was necessitated by International Financial Reporting Standards (IFRS), which require aligning amortisation of fixed assets with the shorter of the remaining contract duration or the assets’ useful life generating economic benefits.

Umeme explained that since amortisation doesn’t reflect actual cash outflows, it was able to raise the dividend based on the higher operating profit before the amortisation charge. Operating profit before amortisation, impairment, interest, and tax surged by 21 percent to Sh16.48 billion, with a total dividend payout reaching Sh4.32 billion.

In 2023, Umeme saw a 16.4 percent increase in revenue to Sh74.7 billion, while the cost of sales rose by 15.5 percent to Sh49.3 billion.

As the concession term draws to a close in March 2025, Umeme’s assets and operations will revert to the Ugandan government. Private shareholders, including the International Finance Corporation, will be compensated at the net asset value plus a five percent premium.

Despite the gradual reduction in asset present value due to amortisation and corporate transfers, Umeme remains the market leader in terms of dividend yield since its cross-listing on the Nairobi Securities Exchange in December 2012.