A Kobil fuel station along Limuru road in Nairobi. Fuel price discounts helped KenolKobil to extend its position as the largest oil marketer by sales volumes ahead of Total.
What you need to know:
KenolKobil defended its position through aggressive marketing that saw the company issue a discount of between two shillings and five shillings per litre on pump prices for motorists on its loyalty card programme.
Analysts say KenolKobil’s discounts were the major drivers of its turnover growth in the past two years
The company says its planned acquisition by Swiss firm Puma Energy will help it to manage stocks, forex exposure, and financing costs better
Fuel price discounts helped KenolKobil to extend its position as the largest oil marketer by sales volumes ahead of Total.
Data from the Petroleum Institute of East Africa (PIEA), the industry lobby, shows that KenolKobil’s market share stood at 25 per cent in the half year ending June against Total’s 21.2 per cent.
The gap is more than two times wider than the 1.7 percentage points in December when KenolKobil first replaced Total as the largest oil marketer with a 1.7 percentage point lead at 25 per cent.
KenolKobil defended its position through aggressive marketing that saw the company issue a discount of between two shillings and five shillings per litre on pump prices for motorists on its loyalty card programme.
“KenolKobil’s pricing strategy has driven the current shift in the local oil market, positioning itself as the market leader in Kenya,” David Ohana, the general manager, said in a statement.
The discounts offered by the company last year stood at about Sh150 million and drove sales volumes to one million cubic metres compared to 740, 220 cubic metres in 2010.
The company renewed the promotion from March this year, seeking to replicate the sales growth seen in 2011 when it ran for 11 months.
KenolKobil keeps an inventory to cover demand for one to two months, reducing the impact of the discounts on margins.
Analysts say KenolKobil’s discounts were the major drivers of its turnover growth in the past two years though the company failed to translate increased volumes to profit in the half year to June 30 due to foreign exchange losses.
The company grew its sales 24.7 per cent to Sh103.8 billion in the first half to June compared to Sh83.2 billion last year. It however made a net loss of Sh3.8 billion –its biggest ever—that reversed the Sh2.2 billion net profit recorded in last year’s first half.
KenolKobil’s foreign exchange loss worsened from Sh842.6 million to Sh4.2 billion, driven by a hedging position taken in late 2011 that exposed it when the shilling strengthened to settle at about Sh84 to the dollar.
The company says its planned acquisition by Swiss firm Puma Energy will help it to manage stocks, forex exposure, and financing costs better. KenolKobil has announced a profit warning for the full year ending December, citing the forex loss, among other factors. This means that the company is projected to earn a maximum of Sh2.4 billion down from Sh3.2 billion last year.
Total, which slipped into losses in the year ended December last year, has also suffered from financing costs that have been worsened by declining sales volumes. The company made a net loss of Sh259.7 million in the first half, reversing a net profit of Sh79.7 million in the same period last year.
Its net finance costs nearly tripled to Sh1.1 billion from Sh395.9 million as sales volumes declined to 393,000 tonnes from 426,000 tonnes. Total expects to use the Sh5.2 billion from issuance of preference shares to reduce its short-term loans and overdrafts to cut financing costs.
Oil marketers are set to get a reprieve from the decision by the Energy Regulatory Commission (ERC) to increase their margins by 38 cents per litre to cover their financing costs. This raises the cover for their finance costs to one shilling.
