Kenol puts on hold investment after Sh3.8bn loss

Oil marketer KenolKobil has put on hold new investments to protect cash after it posted a Sh3.8 billion net loss in the half year ended June.

The company has in the past three years expanded aggressively in the region, acquiring fuel depots and service stations. But the loss, its first since 2009, has hurt its cash position.

Its cash holding worsened to Sh3 billion in June from Sh10.4 billion in the same month last year.

“Capital expenditure has also been suspended till cash flow improvements are generated,” said Jacob Segman, Kenol’s managing director.

Among the new investments Kenol had lined up include commercial properties in Kenya, Ethiopia, and Rwanda to which the company had committed a total of Sh4 billion. In Kenya, the firm had earmarked $10 million (Sh830) million and the remaining $40 million to Ethiopia and Rwanda, with the properties set to built on land owned by the oil marketer.

The company’s Sh3.8 billion net loss reversed the net profit of Sh2.2 billion last year as high operating expenses and foreign exchange losses took their toll.

Kenol took a major hit from foreign exchange losses that stood at Sh4.2 billion compared to Sh842.6 million, driven by a hedging positions taken in late 2011.

The company, which engages in huge foreign currency denominated transaction in its importation of oil, had taken the hedging contract after the shilling depreciated to an all-time-low of 107 units to the dollar in mid October last year.

The contract protected Kenol Kobil during periods of depreciation of the shilling but would have exposed it in times when the currency appreciated as it is an agreement to buy foreign currency at a pre-determined rate.

The shilling however, stabilised at the 84 units range early this year and has moved within a narrow margin since then.

“The exchange rates remain our biggest exposure and a key area of concern and focus,” Mr Segman said, adding that the company will fare better in the future if it is acquired by Puma Energy as intended.

“Management sees substantial benefits crystallising upon closing of this deal, mainly in the area of inventories management, forex exchange risk, cost of financing and better sources of products for the whole group,” Mr Segman said.