Rating agency retains KenolKobil negative outlook despite profit

Money Markets

A KenolKobil petrol station in Nairobi. The firm’s market share has come under pressure from Total Kenya that has been expanding its business and network. Photo/FILE 

By GEORGE NGIGI

In Summary

• GCR has retained Kenol’s short and long term ratings at A and A1, despite the firm's return to profitability.
• KenolKobil has taken up cost cutting measures which have included laying-off staff while also restructuring its balance sheet so as to reduce its indebtedness.

South Africa-based rating agency, GCR, has retained a negative outlook for listed oil marketer KenolKobil despite its return to profitability. GCR also retained Kenol’s short and long term ratings at A and A1.

 

KenolKobil has taken up cost cutting measures which have included laying-off staff while also restructuring its balance sheet so as to reduce its indebtedness.

“While the sector inherently reflects thin margins, the group expects profitability to be enhanced by continued cost rigour and further streamlining. GCR would nonetheless expect to see consistent follow-through in terms of strategy execution before the negative outlook is lifted,” said GCR in its rating report.

The oil marketer’s net profit stood at Sh558.4 million in December, reversing a net loss of Sh6.2 billion the year before when it took a big hit from a contract aimed at protecting it against foreign exchange volatility.

The performance saw the firm end a two-year dividend drought that started in 2011, declaring a payout of Sh0.1 per share.

Its performance led to GCR downgrading its credit rating and marking its outlook as negative, citing Kenol’s debt position and the ditching of its buyout by Puma Energy.

READ: KenolKobil loses market share to small dealers

Kenol’s restructuring process has concentrated on five major areas; corporate restructuring, financing costs, operating costs, human resources, realignment and risk reduction.

GCR noted that Kenol’s debt had reduced to Sh10.1 billion at the end of March this year from a high of Sh15.6 billion in 2011.

The oil distributor has also taken a more conservative operational approach by scaling back on open tender participation.

“Note is also taken of efforts to improve relationships with suppliers, with a settlement reached with the Kenya Petroleum Refinery during the year. While cases from other parties are pending, none are expected to result in material losses,” said GCR in the report.

KenolKobil share price at the Nairobi Securities Exchange has lost 5.26 per cent in the last six months trading at Sh8.70 Tuesday.

Foreign investors have been major buyers of the stock which recorded a net foreign investor inflow of Sh240 million during the month of June.

The firm’s market share has also recently come under pressure from rivals notably Total Kenya that has lately been expanding its business and network.