Kenya Electricty Generating Company (KENGEN) board suspended dividend payment for the just ended in order to report an increased net profit, this news site can reveal.
When the company announced the financial results for the year, the company finance director John Mudany said the energy firm was withholding dividends for the year to ensure that investors harvest returns from capital gains.
“Instead of paying investors dividends at the rate of Sh0.30 or Sh0.50, we think your investments in the company will have better returns from capital gains because our share has been trading at a good price,” said Kengen Finance and ICT director Mudany when the company announced financial results for the year ended 2017.
But pressed by our reporters on whether the chase for capital gains was the main reason why the dividend policy had suspended for the reported financial year, Mudany confirmed that the company’s decision was also informed by the need to retain investment tax allowances in its books.
During the year, the firm reported an earned income tax allowance of Sh1.6 billion from its capital intensive power generation projects and also a Sh980 million saving in depreciation on assets.
This year, the firm reported Sh9.244 billion down from Sh10.224 billion last year.
Had it recommended a dividend, which is usually 30 percent of its after tax profit, it would have been required to pay compensatory tax. Last year the firm paid Sh2.4 billion in compensatory tax after paying five year dividend to the government which is the biggest shareholder.
Essentially, dividend recommendation would have resulted shaved off a tidy amount of income from its book and would have potentially led to the firm reporting a lower after tax profit than last year.
Mudany said the amount of money that would have gone to pay dividends will be used as the company’s contribution in the planned Ol Karia V Geothermal Power Generation Project.
“As you know, we have secured funding for the Ol Karia V project from international financiers. However, the condition in the release of the funding is that Kenya has to make a financial contribution to the overall funding of the project. We will invest all the retained earnings in this project to build value for the investors and also to cover Kenya’s contribution,” said Mudany.
The firm reported today an 34 percent increase in full year net profit to Sh9.05 billion from Sh6.7 billion last year in spite of falling revenue and operating profit.
Revenue to the firm dropped by Sh3.2 billion or 8 percent from Sh38.6 billion to Sh35.4 billion.
The increase in profit is attributable to tax savings as well as savings in depreciation of property and equipment.