Oil marketer KenolKobil #ticker:KENO paid its former chief executive, Jacob Segman, Sh490 million in December, settling a shares compensation dispute that loomed large over its finances in the wake of Mr Segman’s exit in July 2013.
KenolKobil says in its latest financial report that the settlement was part of several one-off costs that kept its 2017 net profit flat at Sh2.4 billion.
“In December, we paid the former chief executive $4.8 million as part of his ESOP [employee share ownership plan] claim. This amount is exclusive of tax,” KenolKobil’s chairman, James Mathenge, told the Business Daily in an interview.
The payment was made in fulfilment of Mr Segman’s contractual entitlement of at least four per cent of the firm’s total issued share capital between 2007 and 2010.
Mr Mathenge said the company risked paying even more if the matter went into litigation, making the settlement ‘a very good deal’.
“We are therefore happy that this matter is now settled and behind us,” he said.
ESOPs, such as Mr Segman’s, are normally used to retain talent and increase productivity.
KenolKobil’s ESOP trustees last September went to court seeking a determination as to whether Mr Segman deserves the payment, given that he lodged his claim past the stipulated timeframe.
The former chief executive had up to three years (until July 2016) after leaving the company to lay claim to his share purchase option that amounted to about 20 million shares.
But Mr Segman expressed his intention to exercise this option on April 26, 2017, a few months after KenolKobil announced it was offering employees an opportunity to take up shares worth Sh386.1 million.
“There is an urgent need for this court to determine the question of whether or not the options granted to one Jacob Israel Segman in respect of KenolKobil ESOP have lapsed,” James Mathenge, one of the ESOP trustees, said in court filings.
It was not immediately possible to access the judgment but it appears that it favoured the former CEO, prompting KenolKobil to seek an out-of-court settlement.
Among largest payouts
Mr Segman’s hefty payout, which is equivalent to a fifth of KenolKobil’s 2017 net earnings, registers as one of corporate Kenya’s largest to a single individual from an ESOP.
The Sh490 million payout is, however, in line with KenolKobil’s recent dispute resolution plan, which has seen the cash-rich company settle disagreements privately but at a significant cost to its bottom-line.
Mr Segman’s payout is part of the Sh1.3 billion one-off costs that the NSE-listed company booked last year, cutting back gains from a Sh55.2 billion increase in revenue to Sh158.7 billion.
KenolKobil also booked a Sh570.2 million impairment, being the last tranche of the Sh1.85 billion it has been writing off for three years as losses accrued from the defunct Kenya Petroleum Refineries Ltd (KPRL).
The oil firm had initially attempted to recover the funds through litigation but decided to write it off instead.
KenolKobil also booked an expenditure of over Sh240 million to settle “other legal disputes with business partners” in the year to December, further eating into its profitability.
“We expect no further provisions or expenses related to these matters. Absent these one-off costs, the business would have registered a net profit or about Sh3.4 billion,” David Ohana, the managing director, said.
KenolKobil’s sales grew in the period under review despite the economic downturn – a development the management attributed to an increase in volumes to “strategic” partnerships with the world’s leading oil producers.
Mr Ohana said high international prices further boosted sales growth, adding that he anticipates that prices will this year continue to fluctuate, hitting lows of about $58 a barrel and highs of $65.
The oil marketer, which also has operations in Burundi, Ethiopia, Rwanda, Uganda and Zambia, closed the year with finance costs of Sh340.7 million compared to Sh354.7 million in 2016.
KenolKobil’s finance costs as of December were Sh340.7 million, representing a four per cent drop from the previous year’s Sh354.7 million, attributable to “better inventory and cash management strategies.”
The firm’s board of directors has recommended a final dividend of 30 cents per share, adding a similar amount already paid out to shareholders as an interim dividend.
If the final dividend is approved by the oil marketer’s owners at the annual general meeting slated for May 30, the dividend payout will mark a 33 per cent increase from the 45 cents per share paid out in 2016.