Companies

KenolKobil cuts debt exposure by Sh4 billion

KENO

KenolKobil Chief executive David Ohana. PHOTO | FILE | NATION MEDIA GROUP

Oil marketer KenolKobil cut its short term debts by more than Sh4 billion last year, helping to reduce its finance costs by a quarter.

The oil firm’s short term borrowings dropped to Sh10.4 billion in the year ended December from Sh14.8 billion the year before. Its long term debts also fell to Sh88.3 million from Sh522.5 million in the same period, helping to cut its overall finance costs to Sh1.3 billion.

The deep cut on finance costs saw the company’s net profit nearly double to Sh1 billion, even as sales declined to Sh91.3 billion from Sh109.6 billion reported in 2013.

Chief executive David Ohana said reduction of the debt burden is a major focus area for Kenol, which is recovering from a Sh6.2 billion net loss in 2012 that was caused by currency hedging contracts that turned against the company.

“Our goal is to have very little debt by mid-2016. We have previously been working for banks,” said Mr Ohana in reference to the high finance costs borne by Kenol in the past few years.

He added that the lower finance costs seen in 2014 is the product of debt repayments, cheaper fuel, renegotiation of loan terms and the exit from low-margin businesses like petroleum supplies to airlines and emergency power producers.

READ: KenolKobil 2014 net profit up 95pc, sees more gains in 2015

The company is repaying the debts from cash generated from operations. Kenol has also retired most of its dollar-denominated debt and replaced them with shilling loans, reducing the risk of forex losses brought by volatility in the currency markets.

Mr Ohana said the reduction of debt is part of Kenol’s increased conservatism that has seen it exit businesses that present risks of major losses without offering adequate returns.

Kenol, for instance, has also scaled down its trading activities and has won few tenders to import petroleum products on behalf of the industry due to its relatively higher pricing.

“We are de-risking the business,” Mr Ohana said, adding that the firm will only grow market share if it leads to increased profitability.