KenolKobil has started writing off a multi-million shilling debt owed by Kenya Petroleum Refineries Ltd (KPRL) even as the oil marketer posted a record Sh1.2 billion half-year net profit.
The Nairobi Securities Exchange-listed firm has booked an impairment of Sh400 million relating to a longstanding dispute with the defunct refinery due to inefficiencies at the facility.
KenolKobil, despite incurring the charge, managed to post a 30 per cent growth in net earnings on the back of lower financing costs which stood at Sh97.9 million in the six months to June compared to last year’s Sh379.4 million.
The lower financing expenses made up for a decline in revenue as lower unit prices of product in the period saw the oil marketer post Sh2 billion drop in sales to Sh36.9 billion volumes jumping 23 per cent in volumes.
“We had an agreement with KPRL on how they would share the barrels of product but because of their old machines, they were unable to meet their contractual obligations,” said chief executive David Ohana in an interview.
“This issued goes back about 15 years. The board has now decided to act, clean the books and impair the amount down to zero. What we have booked is a significant amount of the total.”
KPRL has been demanding Sh1.2 billion from the oil marketer, money it says it owes as a result of default on payment for petroleum products collected from the Mombasa-based refinery.
KenolKobil disputed this amount and made a counterclaim of Sh3.1 billion, saying it incurred product losses due to inefficiencies at the Mombasa-based facility.
The two parties reached an out-of-court settlement in 2013 but Mr Ohana says there has been “no progress from government and we do not want to go the legal route”, hence the board’s decision to write off the disputed debt.
KenolKobil, which last year disposed of its loss-making businesses in Tanzania and the Democratic Republic of Congo, says its subsidiaries in Rwanda, Burundi, Ethiopia, Uganda and Zambia, are now contributing about 40 per cent of the company’s profit.
The firm closed the half-year with borrowings of Sh4.62 billion (compared to last year’s Sh4.66 billion), despite management’s promise to be debt free by June.
Mr Ohana explained that a jump in international prices of some oil products, coupled with a decision to increase their stocks, necessitated them to maintain their borrowings. The oil marketer’s inventory increased 39 per cent to Sh4.94 billion in a period when the firm opened 20 new services stations. It targets to open 15 more by year-end.
KenolKobil’s bottom line was positively impacted by a forex gain of Sh39.3 million, reversing a Sh155.09 million loss it booked in a similar period last year.
The oil marketer’s board of directors has declared an interim dividend of 15 cents per share (an increase from last year’s 10 cents per share) and the payment will be made on or around September 30 to investors on the register as of August 26.