Uganda’s primary electricity distributor, Umeme, has informed its shareholders that it expects a decline of more than 25% in net profit for the fiscal year ending December 31, 2023. The decrease is attributed to the depreciation of its intangible assets, following the adoption of new standardized accounting methods.
Umeme clarified that the substantial financial impact arises from the classification of its intangible assets under amortization in compliance with the International Financial Reporting Standards (IFRS). The IFRS aims to ensure consistency, transparency, and comparability of financial statements for public companies globally.
Under its agreement with the state, Umeme is obliged to match costs incurred for intangible assets, which are government-owned, with their remaining useful time. Given the termination of Umeme’s operations in March 2025 after two decades of heavy investments, the remaining useful time for these assets is approximately fourteen months.
The projected decline in net profits is primarily due to the increased amortization charge for the year 2023, according to a notice issued by Umeme.
For context, amortization is an accounting method where the cost of an asset, such as equipment, is spread over its expected useful life. Umeme’s assets subject to amortization include power lines, software, machinery, automobiles, substations, and buildings. While amortization is a non-cash expense, it indirectly impacts reported earnings and may influence the company’s valuation and investor sentiment.
Despite the profit reduction projection, Umeme emphasizes that its economic and operating fundamentals remain robust. The company has seen growth in electricity demand, new customer connections, reduction in energy losses, operating cost efficiencies, and investments in the distribution system. The disclosure was made by Shonubi, Musoke & Co Advocates, Umeme’s secretary, in accordance with Rule 38(3) of The Uganda Securities Exchange Listing Rules, 2021.
The legal firm noted, “This announcement is issued pursuant to the provisions of Rule 38 (3) of The Uganda Securities Exchange Listing Rules, 2021,” indicating Umeme’s compliance with the requirement for listed companies to inform shareholders of a significant profit decline before the release of financial statements. This proactive measure aims to enable investors to better prepare and mitigate potential market reactions, preventing substantial fluctuations in stock prices.
