2013 KENOLKOBIL LIMITED

Transcription

1 2013 KENOLKOBIL LIMITED ANNUAL REPORT & FINANCIAL STATEMENTS Strengthening through change

2 Value Statements Rabai Power Plant Vision To be the leading brand in every market we operate in, and a major player in Africa. Mission To develop, improve and increase quality and total value of our products and services; To become a market leader through continuous innovation,- customer focus and to provide the highest quality products and services; To maintain a highly motivated, well trained human resource base; To deliver the highest shareholder value 2

3 Aviation Contents Directorate & Administration 4 Notice of Annual General Meeting 5 Chairman s Report 6-7 Group Managing Director s Report 8-9 Board of Directors 10 Group Management Team 11 Corporate Governance 12 Corporate Social Responsibility 13 Directors Report 15 Statement of the Directors Responsibilities 16 Report of the Independent Auditor 17 Financial Statements: Consolidated Income Statement 18 Consolidated Statement of Comprehensive Income 19 Consolidated Statement of Financial Position 20 Company Statement of Financial Position 21 Consolidated Statement of Changes in Equity 22 Company Statement of Changes in Equity 23 Consolidated Statement of Cash Flows 24 Notes to the Financial Statements Principal Shareholders and Share Distribution 66 Proxy Form 3

4 Directorate & Administration LPG Plant Nairobi BOARD OF DIRECTORS J Mathenge Chairman (Appointed 23 May 2013) Non-Executive Director (Appointed on 01 December 2008) D Ohana Group Managing Director (Appointed on 04 July 2013) D Oyatsi Appointed on 10 August 2007 T M Davidson Appointed on 01 January 2011 P Lai Appointed on 03 February 2006 D Ndonye Appointed on 06 April 2011 J I Segman Retired 03 July 2013 P N V Jakobsson Appointed on 10 August 2007 Resigned 05 September 2013 SECRETARY Ms W Jumba Appointed Secretary on 01 January 2011 Livingstone Associates Deloitte Place, Wayaki Way, Muthangari P O Box 30029, GPO Nairobi REGISTERED OFFICE ICEA Building Kenyatta avenue P O Box 44202, GPO Nairobi BANKERS Major bankers include: BNP Paribas Paris NIC Bank Commercial Bank of Africa Kenya Commercial Bank Limited Ecobank Limited CfC-Stanbic Bank Kenya Limited Bank of Africa Limited AUDITORS Pricewaterhouse Coopers Certified Public Accountants PwC Tower Waiyaki way / Chiromo Road Westlands P O Box 43963, Nairobi 4

5 Shareholders at the last AGM Notice of Annual General Meeting NOTICE is hereby given that the 55th Annual General Meeting of the Company will be held at the Hilton Hotel, Nairobi, Kenya on 15 May 2014 at a.m. AGENDA ORDINARY BUSINESS 1. To table the proxies and note the presence of a quorum. 2. To read the notice convening the meeting. 3. To receive, consider and adopt the audited Financial Statements for the year ended 31 December 2013 together with the reports of the Chairman and Group Managing Director, Directors and Auditor s thereon. 4. Dividend To consider and approve a first and final dividend of Kshs 0.10 per share for the year ended 31 December 2013 payable on or about 5 June 2014 to the shareholders on the Register of Members at the close of business on 16 May 2014 and to approve the closure of the Register of Members from the close of business on 16 May 2014 to the close of business on 19 May 2014 (both days inclusive) for the purpose of processing the dividend. 5. To approve the Directors remuneration as indicated in the Financial Statements for the year ended 31 December Re-election of directors: To re-elect Mr Terence Davidson, a director retiring by rotation in accordance with Article 96 of the Company s Articles of Association and the Capital Markets Authority Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya and, being eligible, offers himself for reelection. Note: 1. In accordance with Section 136 (2) of the Companies Act (Cap 486), every member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote on his or her behalf and a proxy need not be a member of the Company. A form of proxy may be obtained from the Company s website or from the Registered Office of the Company, ICEA Building, 10th Floor, Kenyatta Avenue, Nairobi. In the case of a member being a limited Company, the proxy form must be completed under its Common Seal or under the hand of an officer or attorney duly authorised in writing. 2. All proxies must be duly completed by the member and must be lodged with the Company Secretary, Livingstone Associates, P O Box 30029, Nairobi, or posted in time to reach not later than am on 15 May Alternatively, duly signed proxies can be scanned and ed to wjumba@deloitte.com in PDF format. 3. In accordance with Article 134 of the Companies Articles of Association a copy of the entire Annual Report and Accounts may be viewed on and obtained from the Company s website or from the Registered Office of the Company, ICEA Building, 10th Floor, Kenyatta Avenue, Nairobi. An abridged set of the Statement of Financial Position, Comprehensive Income Statement, Statement of Changes in Equity and Cashflow Statement for year ended 31 December 2013 have been published in two daily newspapers with nationwide circulation. 7. To note that Messrs PricewaterhouseCoopers continue in office as Auditors by virtue of Section 159 (2) of the Companies Act (Cap. 486) and to authorise the Directors to fix their remuneration for the ensuing financial year. BY ORDER OF THE BOARD WINNIEFRED JUMBA COMPANY SECRETARY Date: 09 April

6 Chairman s Report The Board is confident that the strategies and initiatives that have been put in place will enable the Group to seize and capitalize on opportunities that will ensure sustainable growth and profitability. Mr. James Mathenge 6

7 Product delivery Chairman s Report It is with great pleasure that I welcome you all to the 55th Annual General Meeting of KenolKobil Limited and to present to you the Annual Report and financial statements of the company and the Group for the year ended 31st December The operating environment remained fairly stable during 2013, with international oil prices trading within a relatively narrow band. The currencies of the countries where we do business, showed depreciating trends against the United States Dollar, with constraints on dollar availability in some countries outside of Kenya. Interest rates remained on the higher side. Changes The Company went through significant changes in 2013 and faced many challenges associated with restructuring and settlement of outstanding issues. A well-structured and focused change management program mitigated the potentially disruptive impact of rapid change. The re-engineering and restructuring initiatives delivered huge improvements in operational efficiency, business processes and a significant reduction in costs. On behalf of the Board I congratulate management and staff for their unwavering commitment and dedication that turned around the performance of the company from an after tax loss of Ksh 6,284.6 million in 2012 to an after tax profit of Ksh million in The statement of financial position also improved with notable reduction in borrowings and working capital. Outlook The prospects and outlook going forward are positive. The Board is confident that the strategies and initiatives that have been put in place will enable the Group to seize and capitalize on opportunities that will ensure sustainable growth and profitability. Following the commendable performance, the Board of directors recommends for consideration and approval by the shareholders at the Annual General Meeting a first and final dividend of Ksh 0.10 per share for the year ended 31 December Acknowledgement Finally I take this opportunity to acknowledge and express our appreciation to our customers, shareholders, strategic business partners, service providers and suppliers for their unwavering and continued support. This has enabled us to remain a major player in the countries where we operate and in our preferred market segments James Mathenge Chairman 9 April

8 Group Managing Director s Report Management is confident of significantly improved results in 2014 based on progress already realized during the first quarter of 2014, including improvement in gross margins and increased sales. Mr. David Ohana 8

9 K-Card Services Group Managing Director s Report The Board is pleased to present the financial results for the full year 2013 which represents a major turnaround of the company s performance and a major change in the business model for the KenolKobil Group of Companies (the Group ). The Group is undergoing a major restructuring program started in 2013 which includes the Board, Management and Staff necessitated by the extreme challenges the Group faced in 2012 and early The restructuring process will continue in 2014 and has concentrated on five major areas: corporate restructuring, financing costs, operating costs, human resources realignment and risk reduction. Management has also been streamlined and made more efficient by removing operating barriers between the subsidiaries and headquarters. Financing costs were reduced by 28% from Ksh 2,272.8 million in 2012 to Ksh 1,627.8 million in 2013 by optimizing inventory, reducing borrowing and renegotiating interest rates on bank loans. Exchange rate losses were reduced from Ksh 4,605.6 million in 2012 to Ksh million in Total borrowing was reduced by 7% from Ksh 16.6 billion in 2012 to Ksh 15.4 billion in Administration and operating costs were reduced by 43% from Ksh 5,859.8 million in 2012 to Ksh 3,369.2 million in Distribution costs were reduced by 24% from Ksh million in 2012 to Ksh million in Operational streamlining and the quest for increased efficiencies necessitated a reduction in workforce by 41% from 574 employees in 2012 to 338 employees in 2013 within the entire group. Management has embarked on reducing risk and improving the environment in which the Group operates by focusing on resolution of disputes, reduction in structural complexities, control of forex hedging, trading activities and capital investments, and change of sales mix by focusing on high margin sales and exiting low margin businesses. The management activities described above resulted in a net profit after tax of Ksh million in 2013 compared to a net loss of Ksh 6,284.6 million in The improvement was primarily realized in the second half of Outlook Management is confident of significantly improved results in 2014 based on progress already realized during the first quarter of 2014, including improvement in gross margins and increased sales. The Company has reduced borrowing significantly in the first quarter of 2014 and intends to continue reducing debt and increasing shareholder equity in 2014 when the full restructuring of the group is expected to be complete. The subsidiaries are also positioned to generate growth and improve profitability for the Group in 2014, while disposing of non-performing assets across the Group. DAVID OHANA GROUP MANAGING DIRECTOR 9 April

10 Board of Directors Mr. J. Mathenge Chairman Mr. D. Ohana Group Managing Director Ms. P. Lai Group Finance Director Mr. T.M. Mr. Davidson D. Ndonye Non-Executive Director Director Mr. T.M. Davidson Non-Executive Director Mr. D. Oyatsi Non-Executive Director Following the commendable performance, the Board of directors recommends for consideration and approval by the shareholders at the Annual General Meeting a first and final dividend of Ksh 0.10 per share for the year ended 31 December

11 Group Management Team David Ohana Group Managing Director Jerry Thomas Managing Director, Kobil Zambia Ltd Pat Lai Group Finance Director Patrick Ngugi Country Manager, Kobil Petroleum Rwanda SARL Patrick Kondo Group Export Mergers & Acquisitions and Regional Support Manager Yoav Erenberg Country Manager, Kobil Uganda Ltd Avi Bigal General Manager, Kobil Ethiopia Ltd Francis Mwangi Country Manager, Kobil Burundi SA Paul Muhato Marketing Manager, Kobil Tanzania Ltd 11

12 Export services Corporate Governance The KenolKobil Board of Directors has continued to be committed to high corporate governance standards and business values and ethics within the organization to abide by the laws governing in the countries where it operates. Compliance and maintenance of high standards is core to organization s performance and maximizing shareholders value. The Group s general practice is one of not stating views on either national or international political matters, and continues to abstain from participation in politics, and interference in political matters. Further, the Company and all its subsidiaries, all its stakeholders and employees, are guided by the Group s Code of Conduct approved by the Board and Management. The Code of Conduct stipulates the business values and the acceptable behavior standards for all stakeholders regarding the company s business procedures, systems and core ethics. Board of Directors The Board consists of 4 Non-Executive Directors and 2 Executive Directors. The Directors all possess qualification and a wide range of expertise and experience to enable them to contribute in their capacities as directors to the Group. Duties: The Board gives direction on the Company s strategy, objectives, and values and ensures procedures and practices are in place to implement governance and effective control over the company s assets and operations. The Board is able to discharge its responsibilities and authorities with regular reports from management, monthly management accounts, reports from each Board Committee, specific proposals for major capital expenditure and reviews in depth, any strategic opportunities for mergers and acquisitions. The Board of Directors meets quarterly or as required to continually review and monitor the Company s progress with respect to strategic direction and operational effectiveness. Board Committees Two Board Committees, with written terms of reference, facilitate effective assistance to the Board to enable efficient decision making in executing their duties and responsibilities. Delegation of authority to the Board Committees or Management does not mitigate or discharge the Board of its duties and responsibilities. Audit and Risk Committee This committee comprises of Non-Executive Directors, and by invitation, 2 Executive Directors; the external auditor s representatives and the Group Internal Audit Manager representative. The duties and responsibilities are to review, advice and make recommendations on financial information, budgets, risk management, policies and audit issues. It reviews auditors independence, internal controls and compliance with the Code of Conduct and Ethics. It also reviews adherence to statutory and regulatory requirements. This committee held 4 meetings during the year. Nominations, Remuneration and Human Resources Committee This committee comprises of 3 Non-Executive Directors and 1 Executive Director. The duties are to review, advice and make recommendations on Remuneration issues in the Group including senior management appointments and matters on the Employee Share Ownership Plan (ESOP scheme). Board nominations and resignations in the Group. The committee held 4 meetings during the year. Compliance The company complies with statutory and regulatory requirements, including stock exchange requirements, code of conduct. Directors remuneration Following the Government guidelines on directors remuneration, Non-Executive Directors are paid an annual fee and sitting allowance for meetings attended. Approval of the fees is to be tabled at the Annual General Meeting. 12

13 Scholarship Awardees Corporate Social Responsibility As has been the KenolKobil culture, we have continued to give back to society through different initiatives, with the aim of transforming lives in the countries where we have our presence. This year we participated in areas such as health, education, social development and environment. The KenolKobil Educational Scholarship Fund established in Kenya, continued to educate the bright underprivileged children from various communities. In 2013, eight students sat for the Kenya Certificate of Secondary Education (KCSE) and scored a mean grade of A minus. Since its inception, the fund has helped uplift the level of education of members of the society as well as offer opportunities such as mentorship and employment in a bid to reduce the levels of poverty in various parts of the country. So far, the fund has seen 84 children receive full scholarship payment for their secondary and university education. Some of the awardees have successfully graduated from university and are employed and will therefore, be able to change the lives of their families and generations to come. In efforts to uplift the health standards in Rwanda, we funded a health facility in Rugabano, Rusizi district through Umurinzi, a non-profit organization. The facility will provide access to good health care and significantly reduce the mortality rate, increase awareness of health issues such as malaria, HIV/Aids, family planning, prenatal care and vaccinations as well as provide relief to the only health center that is currently serving about 25,000 patients yearly. In addition, Kobil Rwanda partnered with Profermme Twese Hamwe- an organization that deals with the advancement of women, peace and development post genocide- to uphold women s rights through sustainable human development, promoting social justice and fighting gender based violence. KenolKobil has over the past shown its care for the environment and to this, we donated drums to be used as garbage collection bins by Rokana Basic School in Zambia. The school is located in Nkana West area of Kitwe, on the Copperbelt. The donation was made as a way of enabling the pupils in school to learn the importance of keeping their environment clean. We continued to partner with the Chilenje Transit Home by facilitating their travel through a monthly fuel allocation. The provision aids the home in making trips to the clinic, schools or any other activity they may have. Established in 1979, the home currently houses twenty abandoned and lost children from diverse backgrounds, who have faced different challenges in life such as sexual abuse, physical abuse, rejection from their parents/guardians and loss of parents due to AIDS and other natural causes. By supporting the home, we have contributed significantly to the wellbeing of these needy children and the community at large. 13

14 KenolKobil is committed to availing quality products that cater for all our customers. 14

15 Directors Report The directors submit their report together with the audited financial statements for the year ended 31 December 2013, in accordance with Section 157 of the Kenyan Companies Act, which discloses the state of affairs of KenolKobil Limited (the Company) and its subsidiaries (together, the Group). PRINCIPAL ACTIVITIES The principal activities of the Group continue to be the importation of refined and other petroleum products for storage and distribution. RESULTS AND DIVIDEND The net profit for the year of Shs 558,419,000 (2012: loss of Shs 6,284,575,000) has been added to retained earnings. During the year, no interim dividend was paid (2012: nil). The directors recommend the approval of a final dividend of Shs 147,176,120 (2012: nil). DIRECTORS The directors who held office during the year and to the date of this report were: J Mathenge - Chairman (Appointed 23 May 2013) J I Segman - Retired 3 July 2013 D Ohana - Group Managing Director (Appointed 4 July 2013) P Lai - Group Finance Director D Oyatsi P N Jakobsson - Resigned 5 September 2013 T M Davidson D Ndonye AUDITOR The Company s auditor, PricewaterhouseCoopers, continues in office in accordance with Section 159(2) of the Kenyan Companies Act. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors on 9 April By order of the Board SECRETARY 9 April

16 Statement of Directors Responsibilities The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and Company as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the Group and Company keep proper accounting records that disclose, with reasonable accuracy, the financial position of the company. The directors are also responsible for safeguarding the assets of the company. The directors accept responsibility for the preparation and fair presentation of financial statements that are free from material misstatements whether due to fraud or error. They also accept responsibility for: (i) Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. (ii) Selecting and applying appropriate accounting policies; (iii) Making accounting estimates and judgements that are reasonable in the circumstances. The directors are of the opinion that the financial statements give a true and fair view of the financial position of the Group and Company as at 31 December 2013 and of the Group and Company s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act. Nothing has come to the attention of the directors to indicate that the Group will not remain a going concern for at least the next twelve months from the date of this statement. Director Director 09 April

17 Report of the Independent Auditor to the Members Of KenolKobil Limited Report on the financial statements We have audited the accompanying consolidated financial statements of KenolKobil Limited (the Company) and its subsidiaries (together, the Group), as set out on pages 18 to 65. These financial statements comprise the consolidated statement of financial position at 31 December 2013 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, together with the statement of financial position of the Company standing alone as at 31 December 2013 and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Kenyan Companies Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the state of the financial affairs of the Group and of the Company at 31 December 2013 and of the profit and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act. Report on other legal requirements As required by the Kenyan Companies Act we report to you, based on our audit, that: i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; ii) in our opinion proper books of account have been kept by the company, so far as appears from our examination of those books; and iii) the company s statement of financial position and statement of comprehensive income are in agreement with the books of account. The engagement partner responsible for the audit resulting in this independent auditor s report is CPA Peter Ngahu P/1458. Certified Public Accountants Nairobi 9 April

18 Consolidated Income Statement Notes Shs 000 Shs 000 Sales 5 109,687, ,527,486 Cost of sales (104,660,874 ) (188,239,327 ) Gross profit 5,026,579 4,288,159 Other income 6 1,402, ,364 Distribution costs (761,412) (995,562) Administrative expenses (3,369,232) (5,859,817) Net foreign exchange losses 9 (105,347) (4,605,632) Interest income 9 43,932 78,392 Interest expense 9 (1,671,759) (2,351,185) Share of loss in associate 23 (1,774) (2,383) Profit / (loss) before income tax 563,918 (8,964,664 ) Income tax (expense) / credit 10 (5,499 ) 2,680,089 Profit / (loss) for the year (of which Shs 36,015,000 (2012 loss: Shs 6,450,170,000) has been dealt with in the accounts of the Company) 558,419 (6,284,575) Attributable to: Equity holders of the Company 558,419 (6,284,575) Non controlling Interest - - Total 558,419 (6,284,575 ) Earnings per share - Basic (Shs per share) (4.27) - Diluted (Shs per share) (4.26) The notes on pages 25 to 65 are an integral part of these consolidated financial statements. 18

19 Consolidated Statement of Comprehensive Income Notes Shs 000 Shs 000 Profit / (loss) for the year 558,419 (6,284,575 ) Other comprehensive income: Items that may be subsequently reclassified to profit or loss Movement in hedge reserve 14-1,461,538 Currency translation differences 14 (80,410) (105,862) Other comprehensive income for the year, net of tax (80,410) (1,355,676) Total comprehensive income for the year 478,009 (4,928,899 ) Attributable to: Equity holders of the Company 478,009 (4,928,899) Non controlling Interest ,009 (4,928,899 ) The notes on pages 25 to 65 are an integral part of these consolidated financial statements. 19

20 Consolidated Statement of Financial Position As at 31 December 2013 EQUITY Notes Shs 000 Shs 000 Share capital 13 73,588 73,588 Share premium 5,166,350 5,166,350 Retained earnings 1,270, ,568 Other reserves 14 8, ,219 Proposed dividends ,176 - Total equity 6,666,294 6,445,725 Non-current liabilities Deferred income tax , ,073 Borrowings , ,552 Total non-current liabilities 716, ,625 Current liabilities Payables and accrued expenses 27 5,591,360 9,113,256 Current income tax 189, ,305 Borrowings 15 14,854,274 15,947,219 Dividends payable 103, ,036 Total current liabilities 20,738,754 25,340,816 TOTAL EQUITY AND LIABILITIES 28,121,673 32,684,166 ASSETS Non-current assets Property, plant and equipment 19 4,667,999 4,284,409 Prepaid operating lease rentals , ,859 Intangible assets , ,613 Deferred tax asset 17 2,595,040 2,358,357 Available for sale investment 22 2,249 2,344 Investment in associate 23 15,346 18,203 Total non-current assets 8,740,004 8,143,785 Current assets Inventories 24 6,528,533 8,884,066 Receivables and prepayments 25 10,756,595 13,084,886 Current income tax 321, ,424 Cash and cash equivalents 26 1,775,058 2,191,005 Total current assets 19,381,669 24,540,381 TOTAL ASSETS 28,121,673 32,684,166 The notes on pages 25 to 65 are an integral part of these consolidated financial statements. The financial statements on pages 18 to 65 were approved for issue by the board of directors on 9 April 2014 and signed on its behalf by: Director Director 20

21 Company Statement of Financial Position As at 31 December 2013 Notes Shs 000 Shs 000 EQUITY Share capital 13 73,588 73,588 Share premium 5,166,350 5,166,350 Retained earnings (779,662) (815,677 Other reserves , ,972 Total equity 5,035,808 5,257,233 Non-current liabilities Borrowings ,170 Total non-current liabilities - 439,170 Current liabilities Payables and accrued expenses 27 13,772,500 15,956,414 Borrowings 15 13,651,233 14,691,187 Dividends payable 103, ,036 Total current liabilities 27,527,102 30,759,637 TOTAL EQUITY AND LIABILITIES 32,562,910 36,456,040 ASSETS Non-current assets Prepaid operating lease rentals , ,145 Property, plant and equipment , ,194 Deferred tax asset 17 2,321,658 2,090,428 Intangible asset 20 6,401 15,301 Investment in subsidiaries 21 6,137,032 6,137,032 Loan to subsidiary , ,742 Total non-current assets 9,365,539 9,278,842 Inventories 24 4,951,058 7,729,755 Receivables and prepayments 25 8,490,391 10,808,755 Loans and receivables from related parties 29 8,210,299 7,094,612 Tax recoverable 293, ,270 Cash and cash equivalents 26 1,252,341 1,247,806 Total current assets 23,197,371 27,177,198 TOTAL ASSETS 32,562,910 36,456,040 The notes on pages 25 to 65 are an integral part of these consolidated financial statements. The financial statements on pages 18 to 65 were approved for issue by the board of directors on 9 April 2014 and signed on its behalf by: Director Director 21

22 Consolidated Statement of Changes in Equity Attributable to Equity holders of the Company Year ended 31 December 2012 Share Share Other Retained Proposed Total capital premium reserves earnings dividends equity Notes Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Balance at 1 January ,588 5,166,350 (1,366,477 ) 7,144, ,857 11,650,461 Loss for the year (6,284,575 ) - (6,284,575 ) Other comprehensive income, net of tax: Movement in hedge reserve ,461, ,461,538 Currency translation differences (105,862 ) - - (105,862) Total comprehensive income - - 1,355,676 (6,284,575 ) - (4,928,899 ) Transactions with owners: Movement in ESOP reserve , ,020 Dividends: - Final for 2011 paid (632,857) (632,857) Total transactions with owners ,020 (632,857 ) (275,837 ) Balance at 31 December ,588 5,166, , ,568-6,445,725 Year ended 31 December 2013 Balance at 1 January ,588 5,166, , ,568-6,445,725 Profit for the year , ,419 Other comprehensive income, net of tax: Currency translation differences (80,410 ) - - (80,410) Total comprehensive income - - (80,410 ) 558, ,009 Transactions with owners: Movement in ESOP reserve (257,440 ) - - (257,440) Proposed dividends (147,176 ) 147,176 - Total transactions with owners - - (257,440 ) - - (257,440 ) Balance at 31 December ,588 5,166,350 8,369 1,270, ,176 6,666,294 The notes on pages 25 to 65 are an integral part of these consolidated financial statements. 22

23 Company Statement of Changes in Equity Attributable to Equity holders of the Company Share Share Other Retained Proposed Total capital premium reserves earnings dividends equity Notes Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Year ended 31 December 2012 Balance at 1 January ,588 5,166,350 (985,586) 5,634, ,857 10,521,702 Loss for the year (6,450,170) - (6,450,170 ) Other comprehensive income, net of tax: Movement in hedge reserve ,461, ,461,538 Total comprehensive income - - 1,461,538 (6,450,170) - (4,988,632 ) Transactions with owners: Movement in ESOP reserve , ,020 Dividends: - Final for 2011 paid (632,857) (632,857) Total transactions with owners ,020 (632,857 ) (275,837 ) Balance at 31 December ,588 5,166, ,972 (815,677) - 5,257,233 Year ended 31 December 2013 Balance at 1 January ,588 5,166, ,972 (815,677) - 5,257,233 Profit and total comprehensive income for the year ,015-36,015 Total comprehensive income ,015-36,015 Transactions with owners: Movement in ESOP reserve - - (257,440) - - (257,440) Total transactions with owners - - (257,440) - - (257,440 ) Balance at 31 December ,588 5,166, ,532 (779,662) - 5,035,808 The notes on pages 25 to 65 are an integral part of these consolidated financial statements 23

24 Consolidated Statement of Cash Flows Notes Shs 000 Shs 000 Cash flows from operating activities Cash generated from operations 28 3,122,960 6,086,574 Interest received 9 43,932 78,392 Interest paid 9 (1,671,759) (2,351,185) Income tax paid (197,793) (857,716) Net cash generated from operating activities 1,297,340 2,956,065 Cash flows from investing activities Prepayment for operating lease rentals 18 (561,771) (378,663) Purchases of property, plant and equipment 19 (789,715) (854,179) Capitalisation of amounts previously in prepayment - 58,290 Purchases of intangible asset 20 - (229) Proceeds from sale of property, plant and equipment 880,898 8,519 Proceeds from sale of prepaid operating lease 313 2,870 Net cash used in investing activities (470,275 ) (1,163,392 ) Cash flows from financing activities Net repayments of borrowings (145,000) (862,113) Net repayments of short term borrowings (1,092,945) (1,428,019) Dividends paid (8,667) (596,185) Net cash used in financing activities (1,246,612 ) (2,886,317 ) Net decrease in cash and cash equivalents (419,547 ) (1,093,644 ) Cash and cash equivalents and bank overdrafts at beginning of the year 26 2,191,005 3,271,736 Exchange gains on cash and cash equivalents 3,600 12,883 Cash and cash equivalents at end of the year 26 1,775,058 2,191,005 The notes on pages 25 to 65 are an integral part of these consolidated financial statements. 24

25 1 General information KenolKobil Limited is a public limited company, which is listed in the Nairobi Securities Exchange, is incorporated in Kenya under the Companies Act as a public limited liability company, and is domiciled in Kenya. The address of its registered office is: ICEA Building 10th Floor PO Box NAIROBI The Company s shares are listed on the Nairobi Securities Exchange. For Kenyan Companies Act reporting purposes, the balance sheet is represented by the statement of financial position and the profit and loss account by the income statement, in these financial statements. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation The consolidated financial statements of KenolKobil Limited have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets at fair value through profit or loss. The financial statements are presented in Kenyan Shillings (Kshs), rounded to the nearest thousand. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. Changes in accounting policy and disclosures (i) New and amended standards adopted by the group The following standards have been adopted by the group for the first time for the financial year beginning on or after 1 January 2013: Amendment to IAS 1, Financial statement presentation regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). 25

26 2 Summary of significant accounting policies (continued) Amendment to IFRS 7, Financial instruments: Disclosures, on asset and liability offseting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. IFRS 10, Consolidated financial statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11, Joint arrangements focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. IFRS 12, Disclosures of interests in other entities includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. (ii) New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group (b) Consolidation (i) Subsidiaries Subsidiaries are all entities (including structured and special purpose entities) over which the Group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value 26

27 2 Summary of significant accounting policies (continued) or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the group s accounting policies. (ii) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interest are also recorded in equity. (iii) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss (iv) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investments are initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the profit of loss of the investee after the date of acquisition. The Group s investments in associates include goodwill identified on acquisition. 27

28 2 Summary of significant accounting policies (continued) If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss as appropriate. The Group s share of post-acquisition profit or loss is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income, with a corresponding adjustment to the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to share of profit/(loss) of associates in the income statement. Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognised in the Group s financial statements only to the extent of unrelated investor s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group Dilution gains and losses arising from investments in associates are recognised in the income statement. (v) Separate financial statements In the separate financial statements, investments in subsidiaries and associates are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment Dividend income is recognised when the right to receive payment is established (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Kenyan Shillings (Kshs), which is the Group s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within finance income or costs. All other foreign exchange gains and losses are presented in profit or loss within other income or other expenses. 28

29 2 Summary of significant accounting policies (continued) Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income Translation differences on non-monetary financial assets, such as equities classified as available-for-sale financial assets, are included in other comprehensive income and cumulated in available-for-sale financial assets reserve. (iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of the that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised in other comprehensive income and accumulated in transaction reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income (d) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Management Board. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns, value added taxes and after eliminating sales within the group entities. The group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the group s activities, as described below. The group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (i) Sale of goods - wholesale Sales of goods are recognised in the period in which the entity has delivered products to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer s acceptance of the products. Delivery does not occur until the products have been shipped to the specified location, the risks of obsolescence and loss transferred have been to the wholesaler, and either the wholesaler has accepted 29

30 2 Summary of significant accounting policies (continued) the products in accordance with the sales contract, the acceptance provisions have lapsed or the entity has objective evidence that all criteria for acceptance have been satisfied. (ii) Sales of goods retail The Group operates a chain of retail outlets for selling shoes and other leather products. Sales of goods are recognised when the entity sells a product to the customer for cash or by credit card. (iii) Sales of services Revenue is recognised in the period in which the services are rendered, by reference to the stage of completion of the specific transaction and assessed on the basis of the actual service provided as a proportion of the total services to be provided (f) Property, plant and equipment All categories of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income Freehold land is not depreciated. Depreciation on other assets is calculated using the straight line method to write down their cost to their residual values over their estimated useful lives, as follows: - Buildings on freehold land 40 years - Buildings on leasehold land shorter of 40 years or the period of the lease - Motor vehicles 5 years - Plant and machinery 15 years - Furniture and equipment 10 years The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its estimated recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are included in the income statement. 30

31 2 Summary of significant accounting policies (continued) (g) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cashgenerating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment. (ii) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group, are recognised as intangible assets, when the following criteria have been met: It is technically feasible to complete the software product for it to be available for use; Management intends to complete the software product and use or sell it; There is an ability to use or sell the software product; It can be demonstrated how the software product will generate probable future economic benefits; Adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and The expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Computer software development costs recognised as assets are amortised over their estimated useful lives, not exceeding five years. (h) Impairment of non-financial assets Assets that have an indefinite useful life for example, goodwill or intangible assets not ready to use- are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 31

32 2 Summary of significant accounting policies (continued) (i) Financial assets (i) Classification The Group and Company classify financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. The directors determine the classification of the financial assets at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading. Assets in this category are classified as current assets if expected to be realised within 12 months; otherwise, they are classified as non-current Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or the directors intend to dispose of the investment within 12 months of the end of the reporting period. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date, which is the date on which the entity commits to purchase or sell the asset. Investments are initially recognised at fair value, plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets, carried at fair value through profit or loss, are initially recognised at fair value, and transaction costs are expensed. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the entity has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. (iii) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously 32

33 2 Summary of significant accounting policies (continued) (iv) Impairment of financial assets Assets carried at amortised cost The Group and Company assess at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets classified as available-for-sale The Group and Company assess at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in profit or loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in profit or loss as part of other income when the entity s right to receive payments is established. (j) Derivative financial instruments Derivatives, which comprise solely forward foreign exchange contracts, are initially recognised at fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair value. The derivatives do not qualify for hedge accounting. Changes in the fair value of derivatives are recognised immediately in profit or loss. These derivatives are trading derivatives and are classified as a current asset or liability. (k) Inventories Inventories are stated at the lower of cost and net realisable value. Cost of crude oil and refined products is determined by weighted average costing method (taking into account the cost of purchase plus incidental costs incurred to bring the inventory to present location). Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (l) Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of 33

34 2 Summary of significant accounting policies (continued) business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment (note 2 (i)). (m) Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. (n) Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (o) Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable 34

35 2 Summary of significant accounting policies (continued) future. Generally the group is unable to control the reversal of the temporary difference for associates. Only where there is an agreement in place that gives the group the ability to control the reveral of the temporary difference not recognised. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.. The current income tax rate applicable in the period was 30% (2012: 30%). (p) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (q) Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (r) Provisions Provisions are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 35

36 2 Summary of significant accounting policies (continued) (s) Share Capital Ordinary shares are classified as share capital in equity. Any premium received over and above the par value of the shares is classified as share premium in equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company s equity holders. (t) Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the financial statements in the period in which the dividends are approved by the shareholders. Proposed dividends are shown as a separate component of equity until declared. (u) Share based payment The Group has an Employee Share Ownership Plan (ESOP) under which, subject to the vesting conditions, eligible employees are entitled to acquire units in a separately administered Trust, each unit in the trust representing one share in KenolKobil Limited. The Group also operates a scheme under which senior management and the executive directors are entitled to acquire a predetermined number of shares at a predetermined price, subject to fulfilment of the vesting conditions. The direct cost to the Group of fulfilling its obligations under the above schemes is charged to the income statement when incurred. The cost of issued share options is recognised in the income statement over the vesting period, measured at the fair value of the option. On allocation of shares to the trust, appropriate adjustments are made to increase share capital and the corresponding adjustments are made to the trust account. On vesting, the trust allocates the shares to the eligible individuals with adjustments made to the ESOP reserve. When the options are exercised, the entity issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. (v) Employee benefits (i) Pension obligations The Group and Company have defined contribution plan for its employees. The Group and Company and all its employees also contribute to the appropriate National Social Security Fund, which are defined contribution schemes. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay 36

37 2 Summary of significant accounting policies (continued) all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. For defined contribution plans, the Group and Company pay contributions to publicly or privately administered plans on a mandatory, contractual or voluntary basis. The entity has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. (ii) Termination benefits Termination benefits are payable when employment is terminated by the group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. (w) Accounting for leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. The Group and Company lease certain property, plant and equipment. Leases of property, plant and equipment where the Group and Company have substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in non-current liabilities. The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the assets useful life and the lease term. (x) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 37

38 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. (i) Critical accounting estimates and assumptions The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (a) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2(g). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. The carrying amount of the goodwill and the key assumptions made are set out in Note 20. (b) Other receivable Critical estimate has been made by management regarding other receivable balances under Note 25. The Directors believe that the asset value is recoverable therefore no impairment charge or provision has been made in the consolidated financial statements. (c) Income taxes The group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the group provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made (d) Provisions for obligations and use of estimates Provisions for obligations and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. (e) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Most of the group s borrowings are current and are not subject to significant fair value estimation. (ii) Critical judgements in applying the entity s accounting policies In the process of applying the Group s accounting policies, management has also made judgements in determining whether assets are impaired and provisions and contingent liabilities. 38

39 4 Financial risk management Financial risk factors The group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group s financial performance. Risk management is carried out by the treasury department under policies approved by the board of directors. Treasury identifies, evaluates and hedges financial risks. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. (a) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the group use forward contracts. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. At 31 December 2013, if the US dollar had weakened/strengthened by 5% against the respective functional currencies of Group companies with all other variables held constant, consolidated post tax profit for the year would have been Shs 368,720 (2012: Shs 230,879,000) higher/lower, mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated trade receivables, bank balances and foreign exchange losses/gains on translation of US dollardenominated borrowings. Profit is less sensitive to movement in Shs/US dollar exchange rates in 2013 than 2012 because of the decreased amount of US dollar-denominated borrowings and hedges. (ii) Price risk The group is not exposed to commodity price risk. (iii) Cash flow and fair value interest rate risk The group s interest rate risk arises from borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the group to fair value interest rate risk. The Group regularly monitors financing options available to ensure optimum interest rates are obtained. During 2013 and 2012, the group s borrowings at variable rate were denominated in the Kshs and the US Dollar. 39

40 4 Financial risk management (continued) At 31 December 2013, an increase/decrease of 0.5% would have resulted in an decrease/increase in consolidated post tax profit of Shs 5,851,156 (2012: Shs 95,387,787), mainly as a result of higher/lower interest charges on variable rate borrowings (b) Credit risk Credit risk is managed on group basis, except for credit risk relating to accounts receivable balances. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, and deposits with banks, as well as credit exposures to wholesale and retail customers, including outstanding receivables. The group assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using the company issued K-Card. No credit limits were exceeded during the reporting period, and management does not expect any losses from nonperformance by these counterparties. The amount that best represents the Group s and Company s maximum exposure to credit risk at 31 December 2013 and 2012 is made up as follows: Group Company Shs 000 Shs 000 Shs 000 Shs 000 Cash equivalents 1,775,058 2,191,005 1,252,341 1,247,806 Trade receivables 5,802,432 8,720,695 4,342,526 8,167,103 Loans to related parties - - 8,210,299 7,094,612 Other receivables 4,191,679 3,351,908 3,536,179 1,550,466 11,769,169 14,263,608 17,341,345 18,059,987 Some collateral is held for some of the above assets. All receivables that are neither past due nor impaired are within their approved credit limits, and no receivables have had their terms renegotiated. None of the above assets are either past due or impaired except for the following amounts in trade receivables (which are due within 30 days of the end of the month in which they are invoiced). Group Company Shs 000 Shs 000 Shs 000 Shs 000 Past due but not impaired: - by up to 30 days 1,223,300 1,468, , ,761 - by 31 to 90 days 853, , , ,323 Total past due but not impaired 2,076,359 2,136,252 1,393, ,084 Impaired and fully provided for (704,751 ) (101,651 ) (397,227 ) (859,444 ) All receivables past due by more than 90 days are considered to be impaired, and are carried at their estimated recoverable value. 40

41 4 Financial risk management (continued) (c) Liquidity risk Cash flow forecasting is performed in the operating entities of the group in and aggregated by group finance. Group finance monitors rolling forecasts of the group s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (note 15) at all times so that the group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the group s debt financing plans and covenant compliance. Treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts. The table below analyses the Group s and the Company s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. (a) Group Less than Between Over 2 Total 1 year 1 and 2 years years Shs 000 Shs 000 Shs 000 Shs 000 At 31 December 2013: - borrowings (excluding finance leases) 14,850, ,657-15,334,948 - finance leases 3,983 17,617 20,278 41,878 - trade and other payables 5,591, ,591,360 - current income tax 181, ,761 - dividend payable 103, ,369 20,730, ,274 20,278 21,253,316 At 31 December 2012: - borrowings (excluding finance leases) 19,943, ,663-20,571,762 - finance leases 4,120 18,085 20,804 43,009 - trade and other payables 9,113, ,113,256 - dividends payable 112, ,036 29,172, ,748 20,804 25,840,063 41

42 4 Financial risk management (continued) (b) Company Less than Between Over 2 Total 1 year 1 and 2 years years Shs 000 Shs 000 Shs 000 Shs 000 At 31 December 2013: - borrowings (excluding finance leases) 13,651, ,651,233 - trade and other payables 13,772, ,772,500 - dividends payable 103, ,369 At 31 December 2012: 27,527, ,527,102 - borrowings (excluding finance leases) 14,691, ,170-15,130,357 - trade and other payables 15,956, ,956,414 - dividends payable 112, ,036 Capital management 30,759, ,170-31,198,807 The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new capital or sell assets to reduce debt. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The gearing level is managed on an ongoing basis to ensure it is within acceptable levels as determined by the board. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity plus net debt. Group Company Shs 000 Shs 000 Shs 000 Shs 000 Total borrowings 15,376,825 16,614,771 13,651,233 15,130,357 Less: cash and cash equivalents (1,775,058) (2,191,005) (1,252,341) (1,247,806) Net debt 13,601,767 14,423,766 12,398,892 13,882,551 Total equity 6,666,624 6,445,725 5,035,808 5,257,233 Total capital 20,268,391 20,869,491 17,434,700 19,139,784 Gearing ratio 67% 69% 71% 73% 42

43 5 Segment information The Group Management Team is the group s chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Group Management Team for the purposes of allocating resources, assessing performance and making strategic decisions. The Group Management Team considers the business from a line of business perspective. The reportable operating segments derive their revenue primarily from the importation of, refined and other petroleum products for storage and distribution. The Group Management Team assesses the performance of the operating segments based on operating profit. This measurement basis excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs, legal expenses and goodwill impairments when the impairment is the result of an isolated, non-recurring event. The segment information provided to the Group Management Team for the reportable segments for the year ended 31 December 2012 is as follows: Inland Market Export, Niche Total Trading, Business Aviation Shs 000 Shs 000 Shs 000 Shs 000 Total segment revenue 80,296, ,366,577 3,863, ,527,486 Revenue from external customers 80,296, ,366,577 3,863, ,527,486 Gross profit 3,135,084 (593,688 ) 751,201 3,292,597 Other income 153, , ,364 Administrative expenses (5,366,614) (328,583) (164,602) (5,859,799) Finance (cost)/income (3,744,117) (2,888,862) (245,443) (6,878,422) Income tax expense 1,782,487 1,083,107 (185,525) 2,680,069 Share of (loss)profit from associates - - (2,384) (2,384) (Loss) / profit after tax (4,039,359 ) (2,728,026 ) 482,810 (6,284,575 ) 43

44 5 Segment information (continued) The segment information provided to the Group Management Team for the reportable segments for the year ended 31 December 2013 is as follows: Inland Market Export, Niche Total Trading, Business Aviation Shs 000 Shs 000 Shs 000 Shs 000 Total segment revenue 97,636,192 7,997,276 4,053, ,687,453 Revenue from external customers 97,636,192 7,997,276 4,053, ,687,453 Gross profit 3,888, , ,016 4,265,168 Other income 1,161, ,586 1,402,931 Administrative expenses (3,093,128) (162,523) (113,581) (3,369,232) Finance (cost)/income (1,082,345) (589,753) (61,076) (1,733,174) Income tax expense (24,202) 18,732 (30) (5,500) Share of (loss)profit from associates (1,774) (1,774) Profit / (loss) after tax 850,238 (501,960 ) 210, ,419 The Group s assets structures, comprising of the depot terminals, asset set ups at customer locations and the service stations network combined, supports the revenue generated from the various business segments. The business segments in the Group are essentially integrated with synergies between them, supported by the asset base. There is thus no suitable basis of allocating the assets and related liabilities to specific business segments that will be of significant added value. There is no single customer that accounts for more than 10% of revenue and geographical information is unavailable as the cost to develop it would be excessive. 6 Other income Group Shs 000 Shs 000 Gain on disposal of property, plant and equipment 830,093 5,808 Rental income 337, ,489 Facility fees 131, ,993 Non-fuel and other income 103, ,074 1,402, ,364 44

45 7 Expenses by nature The following items have been charged/ (credited) in arriving at profit before income tax: Group Shs 000 Shs 000 Employee benefits expense (Note 8) 892,497 1,451,127 Amortisation of operating lease rentals (Note 18) 578, ,833 Depreciation of property, plant and equipment (Note 19) 264, ,706 Receivables provision for impairment losses (Note 25) (162,905) (140,208) Inventories expensed 510,000 1,368,000 Repairs and maintenance of property, plant and equipment 347, ,611 Auditors remuneration - Company 13,670 17,035 - Group (including Company) 24,652 30,959 8 Employee benefits expense Shs 000 Shs 000 The following items are included within employee benefits expense: Salaries and wages 672, ,681 Retirement benefits costs: - Defined contribution scheme 38,033 54,172 - National Social Security Funds 15,141 22,841 Employee Share Ownership Plan (ESOP) costs 153, ,261 Other staff costs 13,146 14, ,497 1,451,127 9 Finance income and costs Shs 000 Shs 000 Finance costs: Interest expense (1,671,759) (2,351,185) Net foreign exchange losses on financing activities (105,347) (4,605,632) (1,777,106 ) (6,956,817 ) Finance income: Interest income 43,932 78,392 Net finance costs (1,733,174 ) (6,878,425 ) 45

46 10 Income tax expense Shs 000 Shs 000 Current income tax 278, ,119 Movement in deferred income tax (Note 17) (272,681) (2,291,867) Transfer of Kobil Petroleum tax - (466,000) Prior year over provision of current income tax - (134,341) Income tax expense/ (credit) 5,499 (2,680,089 ) The tax on the Group s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: Shs 000 Shs 000 Profit / (loss) before income tax 563,918 (8,964,664) Tax calculated at a tax rate of 30% (2012: 30%) 169,175 (2,689,399) Effect of different tax rates in Kobil Zambia and Kobil Petroleum Limited (Kenya) (35%) and (37.5%) respectively 44,187 (21,624) Prior year under provision of current income tax 11,179 5,547 Prior year over provision of deferred income tax (16,327) (71,129) Expenses not deductible for tax purposes 83, ,125 Income not subject to tax (285,956) (3,609) Income tax expense / (credit) 5,499 (2,680,089 ) 11 Earnings per share Profit / (loss) attributable to equity holders of the Company (Shs 000) 558,419 (6,284,575 ) Number of ordinary shares in issue 1,471,761,200 1,471,761,200 Basic earnings / (loss) per share (Shs) 0.38 (4.27 ) For the diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares Profit / (loss) attributable to equity holders of the Company (Shs 000) 558,419 (6,284,575) Number of ordinary shares in issue 1,471,761,200 1,471,761,200 Adjustment for Group employee share ownership plan 988,123 2,076,348 Weighted average number of ordinary shares for diluted earnings per share 1,472,749,323 1,473,837,548 Diluted earnings per share (Shs) 0.38 (4.26 ) This computation does not take into account gains/losses recognised directly in equity. 46

47 12 Dividends During the year, no interim dividend was paid (2012: nil). The directors recommend the approval of a final dividend of Shs 147,176,120 (2012: nil). Proposed dividends are accounted for as a separate component of equity until they have been ratified at an annual general meeting. Dividend payments are subject to withholding tax at the rate of 0%, 5% or 10% depending on the residence of the individual shareholder. Dividends Shs 000 Shs 000 At start of year 112,036 75,364 Declared dividend - 632,857 Paid dividend (8,667) (596,185) At end of year 103, , Share capital Number of Ordinary Share ordinary share capital Share premium shares Shs 000 Shs 000 Balance at 1 January 2013 and ,471,761,200 73,588 5,166,350 Balance at 31 December 2013 and ,471,761,200 73,588 5,166,350 The total authorised number of ordinary shares is 1,500,000,000 with a par value of Shs 0.05 per share. All issued shares are fully paid. 47

48 14 Other reserves (a) Group ESOP Fair value Translation Hedge reserve reserve reserve reserve Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Year ended 31 December 2012 At 1 January ,783 85,445 (383,167) (1,461,538 ) (1,366,477 ) Currency translation differences - - (105,862) - (105,862) Movement in the ESOP reserve 357, ,020 Movement in hedge reserve ,461,538 1,461,538 Net gain/ (loss) recognised 357,020 - (105,862 ) 1,461,538 1,712,696 At 31 December ,803 85,445 (489,029) - 346,219 Year ended 31 December 2013 At 1 January ,803 85,445 (489,029 ) - 346,219 Currency translation differences - - (80,410) - (80,410) Movement in the ESOP reserve (257,440 ) (257,440) Net loss recognised (257,440 ) - (80,410 ) - (337,850 ) At 31 December ,363 85,445 (569,439 ) - 8,369 (b) Company ESOP Fair value Hedge Total reserve reserve reserve Shs 000 Shs 000 Shs 000 Shs 000 Year ended 31 December 2012 At 1 January ,507 85,445 (1,461,538 ) (985,586 ) Movement in the ESOP reserve 357, ,020 Movement in hedge reserve - - 1,461,538 1,461,538 Net gains recognised 357,020-1,461,538 1,818,558 At 31 December ,527 85, ,972 Year ended 31 December 2013 At 1 January ,527 85, ,972 Movement in the ESOP reserve (257,440 ) - - (257,440 ) Net loss recognised (257,440 ) - - (257,440 ) At 31 December ,087 85, ,532 Fair value reserve arose from the fair value adjustment of Kobil Petroleum Limited assets during acquisition by KenolKobil Limited in

49 15 Borrowings The borrowings are made up as follows: Group Company Shs 000 Shs 000 Shs 000 Shs 000 Non-current Bank borrowings 484, , ,170 Finance leases 37,895 38, Total Non-current 522, , ,170 Current Bank borrowings - borrowings in KShs 4,056,480 5,716,513 4,056,480 5,716,513 - borrowings in US$ 7,770,942 7,275,614 7,770,942 7,275,615 - borrowings in TShs 741, , borrowings in Ushs 193, , borrowings in Ebirr 49, borrowings in Zkw 204, , borrowings in Rwf 10,170 13, borrowings in BIF - 13, Commercial paper 1,823,811 1,699,059 1,823,811 1,699,059 Finance leases 3,983 4, Total current 14,854,274 15,947,219 13,651,233 14,691,187 Total borrowings 15,376,826 16,614,771 13,651,233 15,130,357 The bank borrowings are secured by certain land and buildings of the Group with a value in excess of Shs 645million (2012: Shs 649 million). Finance leases are effectively secured as the rights to the leased asset revert to the lessor in the event of default. The carrying amounts of short-term borrowings and lease obligations approximate to their fair value. Fair values are based on discounted cash flows using a discount rate based upon the borrowing rate that directors expect would be available to the Group at the statement of financial position date. It is impracticable to assign fair values to the Group s long term borrowings due to inability to forecast interest rate and foreign exchange rate changes. 49

50 15 Borrowings (continued) The exposure of the group s borrowings to interest rate changes and the contractual re-pricing dates at the end of the reporting period are as follows: Group Company Shs 000 Shs 000 Shs 000 Shs 000 Between 1 and 2 years 484, , ,170 Between 2 and 5 years - 21, Total Non-current 484, , ,170 Letter of credit (LC) facilities available to the Group are US$ 143 million (2012: US$ million). Unutilised LC facilities at year end amount to US$ 79.8 million (2012: US$ million). Finance lease liabilities minimum lease payments Group Shs 000 Shs 000 Not later than 1 year 3,983 4,120 Later than 1 year and not later than 5 years 17,617 18,085 Later than 5 years 20,278 20,804 41,878 43, Employees Share Ownership Plan (ESOP) As at 31 December 2013, the Group had the following share-based compensation plans: (i) Employee Share Ownership Scheme All employees are entitled to participate under this scheme. The grant is made based on merit which is at the sole discretion of the Board of Directors. For an employee to receive a grant, he / she must among other conditions: be above 19 years of age have been in continuous service for at least 12 month, for a full time basis; The vesting period under this scheme is 3 years from the date of the grant. (ii) Executive Option Scheme This scheme is open to all permanent employees holding a managerial position in the Company or any subsidiary who the Board may from time to time decide is eligible to participate. Entitlement is based on merit which is at the sole discretion of the Board of Directors. The vesting period is 3 years from the date of the grant after which the options must be exercised within a period of 10 years. The number of units in respect of which options may be granted (including units issued under the employee share ownership scheme) on any day shall not exceed 10% of shares in issue immediately prior to that day. 50

51 16 Employees Share Ownership Plan (ESOP) (continued) The company had options agreement with the former CEO under which he was entitled to receive options for units amounting to 4% of the company s shares in respect of the financial years 2011 to 2014 that was issued on 1 May The former CEO s options are priced at the ruling subscription price at the end of The same terms are applicable as the other options issued under the executive option scheme. A summary of the status of all schemes as at 31 December 2013 and 31 December 2012 and changes during the years ended on these dates is presented below: Employee Share Ownership Scheme Number Number of units of units Outstanding at 1 January 2,076,348 4,159,510 Granted - - Exercised / vested (832,880) (1,191,840) Forfeited (255,345) (891,322) Outstanding at 31 December 988,123 2,076,348 Executive Option Scheme Number 2013 weighted Number 2012 weighted of options average of options average exercise exercise price price Shs Shs At 1 January 134,196, ,379, Granted Exercised - - (7,876,989) 3.42 Forfeited (746,152) 8.58 (2,305,498) 8.34 At 31 December 133,450, ,196, Exercisable at 31 December 133,450,378 64,391,080 The options outstanding at 31 December 2013 had a weighted average exercise price of Shs 6.73 (2012: Shs 6.81) and a weighted average remaining contractual life of 9 years (2012: 6 years). Under the employee schemes, market price of the shares at the year end has been taken to be the fair value, while under the executive scheme, the probability of the each employee exercising the option and the price of shares as at 31 December has been used to estimate the fair value. The financial results of the ESOP trust have not been consolidated on the basis that they are not material to the Group. 51

52 17 Deferred income tax Deferred income tax is calculated using the enacted income tax range rates of between 30% and 37.5% ( % %). The movement on the deferred income tax account is as follows: Group Company Shs 000 Shs 000 Shs 000 Shs 000 At start of year Deferred tax assets (2,358,357) (481,414) (2,090,428) (675,864) Deferred tax liability 230, (2,128,286) (481,414) (2,090,428) (675,864) Charge to profit and loss account (Note 10) (272,681) (2,291,867) (81,525) (2,048,936) Credit to equity - 644, ,372 At end of year (2,400,967 ) (2,128,284 ) (2,321,658 ) (2,090,428 Deferred tax assets (2,595,040) (2,358,357) (2,321,658) (2,090,428 Deferred tax liability 194, , (2,400,967 ) (2,128,284 ) (2,321,658 ) (2,090,428 Consolidated deferred income tax assets and liabilities, deferred income tax charge/(credit) in the profit and loss account, and deferred income tax charge/(credit) in equity are attributable to the following items: Group 2013 At 1 January Charged/ Credited At 31 December 2013 (credited) to equity 2013 to income statement Shs 000 Shs 000 Shs 000 Shs 000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis 129,843 67, ,021 Unrealised exchange differences (224,845) 100,083 - (124,762) Currency translation differences (95,002 ) 167,261-72,259 Deferred income tax assets Provisions (450,085) 78,105 - (371,980) Tax losses (1,583,197) (518,047) - (2,101,244) (2,033,282 ) (439,942 ) - (2,473,224 ) Net deferred income tax liability/(asset) (2,128,284 ) (272,681 ) - (2,400,967 ) 52

53 17 Deferred income tax (continued) 2012 At 1 January Charged/ Credited At 31 December 2012 (credited) to equity 2012 to income statement Shs 000 Shs 000 Shs 000 Shs 000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis 202,795 (72,952) - 129,843 - on revaluation surplus Unrealised exchange differences (614,675) (255,167) 644,997 (224,845) Currency translation differences 16,720 (16,720) - - (395,160) (344,839 ) 644,997 (95,002 ) Deferred income tax assets Provisions (65,909) (384,176) - (450,085) Tax losses (12,582) (1,570,615) - (1,583,197) Unrealised exchange differences (7,763) 7, (86,254 ) (1,947,028 ) - (2,033,282 ) Net deferred income tax liability (481,414 ) (2,291,867) 644,997 (2,128,284 ) Company 2013 At 1 January Charged/ Credited At 31 December 2013 (credited) to equity 2013 to income statement Shs 000 Shs 000 Shs 000 Shs 000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis (17,008 ) 6,094 - (10,914) Provisions (257,013 ) (17,561) - (274,574) Unrealised exchange differences (199,395 ) 68,676 - (130,719) Tax losses (1,617,012 ) (288,439) - (1,905,451) Net deferred tax liability/(asset) (2,090,428 ) (231,230 ) - (2,321,658 ) 2012 At 1 January Charged/ Credited At 31 December 2012 (credited) to equity 2012 to income statement Shs 000 Shs 000 Shs 000 Shs 000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis (22,397 ) 5,389 - (17,008) Provisions (30,246 ) (226,767) - (257,013) Unrealised exchange differences (623,221 ) (210,546) 634,372 (199,395) Tax losses - (1,617,012) - (1,617,012) Net deferred tax liability/(asset) (675,864 ) (2,048,936 ) 634,372 (2,090,428 ) 53

54 18 Prepaid operating lease rentals (a) Prepaid operating lease rentals Group Company Shs 000 Shs 000 Shs 000 Shs 000 At start of year 608, , , ,867 Additions 561, , ,496 99,274 Disposals (313) (2,870) (313) - Amortisation for the year (578,342) (397,833) (206,850) (112,996) Currency translation differences 8,673 (23,753) - - At end of year 600, , , ,145 (b) Operating lease commitments Not later than 1 year 223, , ,115 - Later than 1 year and not later than 5 years 627, , ,820 Later than 5 years 859,105 1,629, , ,344 1,710,889 1,918,204 1,019, ,164 54

55 19 Property, plant and equipment (a) Group Furniture Freehold Motor Plant & & office land Buildings vehicles equipment equipment Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January 2012 Cost 396,622 3,087,308 98,484 1,493, ,317 5,236,865 Accumulated depreciation - (726,832) (56,800) (570,810) (104,325) (1,458,767) Net book amount 396,622 2,360,476 41, ,324 56,992 3,778,098 Year ended 31 December 2012 Opening net book amount 396,622 2,360,476 41, ,324 56,992 3,778,098 Additions - 619,730 3, ,577 19, ,179 Write off - (18,711) (18,711) Transfers - (78,719) - 75,435 3,284 - Disposals - - (241) (351) (180) (772) Currency translation differences (26,235) (77,976) (645) (34,201) (1,622) (140,679) Charge for the year - (79,583) (13,417) (74,114) (20,592) (187,706) Closing net book amount 370,387 2,725,217 31,194 1,100,670 56,941 4,284,409 At 31 December 2012 Cost 370,387 3,517,861 92,490 1,733, ,889 5,894,418 Accumulated depreciation - (792,644) (61,297) (633,121) (122,948) (1,610,010) Net book amount 370,387 2,725,217 31,194 1,100,670 56,941 4,284,409 Year ended 31 December 2013 Opening net book amount 370,387 2,725,217 31,194 1,100,670 56,941 4,284,409 Additions ,488 11, ,948 14, ,715 Transfers (58,949) 78,380 2,782 (9,733) (12,480) - Disposals (6,075) (39,881) (4,099) (719) (31) (50,805) Currency translation differences (2,857) (27,357) (4,497) (53,585) (2,849) (91,145) Charge for the year - (169,126) (9,987) (69,781) (15,281) (264,175) Closing net book amount 302,516 3,181,721 26,576 1,116,800 40,386 4,667,999 At 31 December 2013 Cost 302,516 4,101,325 87,360 1,877, ,716 6,548,739 Accumulated depreciation - (919,604) (60,784) (761,022) (139,330) (1,880,740) Net book amount 302,516 3,181,721 26,576 1,116,800 40,386 4,667,999 55

56 19 Property, plant and equipment (continued) (b) Company At 1 January 2012 Furniture Freehold Motor Plant & & office land Buildings vehicles equipment equipment Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost 6, ,585 22,490 85,784 44, ,968 Accumulated depreciation - (150,013) (11,109) (37,143) (14,555) (212,820) 6, ,572 11,381 48,641 30, ,148 Year ended 31 December 2012 Opening net book amount 6, ,572 11,381 48,641 30, ,148 Additions - 247,910 2,150 17,984 5, ,501 Reclassification - (150,641) - 12, (134,672) Disposals - - (3,008) - - (3,008) Charge for the year - (14,696) (5,257) (7,336) (8,486) (35,775) Closing net book amount 6, ,145 5,266 71,971 30, ,194 At 31 December 2012 Cost 6, ,854 21, ,450 53, ,789 Accumulated depreciation - (164,709) (16,366) (44,479) (23,041) (248,595) Net book amount 6, ,145 5,266 71,971 30, ,194 Year ended 31 December 2013 Opening net book amount 6, ,145 5,266 71,971 30, ,194 Additions - 26,444 9,957 53,023 1,303 90,727 Reclassification - (75,399) - 11,838 - (63,561) Disposals (6,000) (6,000) Charge for the year - (5,270) (604) (8,515) (18,144) (32,533) Closing net book amount ,920 14, ,317 13, ,827 At 31 December 2013 Cost ,899 31, ,311 54, ,955 Accumulated depreciation - (169,979) (16,970) (52,994) (41,185) (281,128) Net book amount ,920 14, ,317 13, ,827 In the opinion of the directors, there are no impairments of property, plant and equipment. 56

57 20 Intangible assets (a) Group Goodwill Computer Total software Shs 000 Shs 000 Shs 000 Year ended 31 December 2012 Opening net book amount 847,942 43, ,249 Additions Amortisation - (17,068) (17,068) Currency translation differences - (2,797) (2,797) Closing net book amount 847,942 23, ,613 At 31 December 2012 Cost 847, , ,747 Accumulated amortisation and impairment - (92,133) (92,133) Net book amount 847,942 23, ,613 Year ended 31 December 2013 Opening net book amount 847,942 23, ,613 Amortisation - (12,528) (12,528) Currency translation differences - (363) (363) Closing net book amount 847,942 10, ,722 At 31 December 2013 Cost 847, , ,747 Accumulated amortisation and impairment - (105,025) (105,025) Net book amount 847,942 10, ,722 Impairment tests for goodwill Goodwill is allocated to the Group s cash-generating units (CGUs) identified according to country of operation. A CGU summary of the goodwill allocation is presented below: Shs 000 Shs 000 Cost- Kobil Uganda Limited 26,098 26,098 Cost - Kobil Petroleum Limited 808, ,936 Cost Kobil Burundi SA 12,908 12, , ,942 The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial projections approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates. The growth rates do not exceed the long-term average growth rates for the respective businesses in which the CGUs operate. 57

58 20 Intangible assets (continued) Kenya Uganda Burundi EBITDA margin 1 4% 5% 5% Growth rate 2 4% 3% 3% Discount rate 3 15% 15% 15% 1 Budgeted EBITDA margin 2 Weighted average growth rate used to extrapolate cash flows beyond the projected period. 3 Pre-tax discount rate applied to the cash flow projections These assumptions have been used for the analysis of each CGU within the business segment. Management determined budgeted EBITDA margin based on past performance and its expectations for the market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pretax and reflect specific risks relating to the relevant segments. Based on the annual impairment test for goodwill in accordance with the above allocation to the CGU, there is no impairment of goodwill at 31-Dec-2013 and (b) Company Shs 000 Shs 000 Computer software Year ended 31 December Opening net book amount 15,301 28,026 Additions Amortisation (8,900) (12,893) Closing net book amount 6,401 15,301 At 31 December Cost 101, ,832 Accumulated amortisation and impairment (95,431) (86,531) Net book amount 6,401 15,301 58

59 21 Investment in subsidiaries (at cost) The Company s interest in its subsidiaries, all of which are unlisted and all of which have the same year end as the Company, were as follows: Company Country of % interest incorporation incorporation Shs 000 Shs 000 Kobil Petroleum Ltd USA 100 5,172,440 5,172,440 Kobil Uganda Limited Uganda ,526 82,526 Kobil Tanzania Limited Tanzania , ,564 Kobil Zambia Limited Zambia Kobil Rwanda SARL Rwanda Kobil Petroleum Rwanda Limited Rwanda Kobil Ethiopia Limited Ethiopia , ,871 Kobil Burundi SA Burundi , ,837 Kobil Mozambique Mozambique ,137,032 6,137, Available-for-sale investment Group Shs 000 Shs 000 At start of year 2,344 2,448 Translation and fair value loss (95) (104) Available for sale investment in 2012 represents an investment in government bonds by Kobil Ethiopia. 2,249 2, Investment in associates Group Shs 000 Shs 000 At start of year 18,203 20,581 Share of profit (1,774) (2,383) Exchange differences (1,083) 5 At end of year 15,346 18,203 The investment in associate represents the investment of 25.5% of the ordinary shares of Lublend Limited made by Kobil Zambia Limited. Lublend Limited effectively became an associate entity on 17 December Investments in associates at 31 December 2013 include goodwill of Shs 12,191,

60 23 Investment in associates (continued) Lublend Limited is a private company and there is no quoted market price available for its shares. Lublend s place of business and country of incorporation is Zambia. There are no contingent liabilities relating to the group s interest in the associate. Set out below are the summarised financial information for Lublend Limited as at 31 December 2013 which is accounted for using the equity method; Year ended 31 December Country of % interest Assets Liabilities Revenues incorporation held Shs 000 Shs 000 Shs Zambia 25.5% 48,503 59,041 76, Zambia 25.5% 44,021 44,889 77,914 The information above reflects the amounts presented in the financial statements of the associate (and not KenolKobil Limited s share of those amounts) adjusted for differences in accounting policies between the group and the associate. 24 Inventories Group Company Shs 000 Shs 000 Shs 000 Shs 000 Refined products on hand 6,528,533 8,884,066 4,951,058 7,729,755 All inventories are stated at the lower of cost and net realisable value. 25 Receivables and prepayments Group Company Shs 000 Shs 000 Shs 000 Shs 000 Trade receivables 6,507,183 9,737,346 4,739,753 9,026,547 Less: provision for impairment losses (704,751) (1,016,651) (397,227) (859,444) Trade receivables - net 5,802,432 8,720,695 4,342,526 8,167,103 Prepayments 762,484 1,012, ,686 1,091,186 Other receivables 4,191,679 3,351,908 3,536,179 1,550,466 10,756,595 13,084,886 8,490,391 10,808,755 Receivables from related parties (Note 29) - - 2,426,013 1,310,316 Loan to Kobil Petrol Limited (Note 29) - - 5,784,286 5,784, ,210,299 7,094,602 Total 10,756,595 13,084,886 16,700,690 17,903,357 Provision for impairment losses movement At start of year (1,016,651) (876,669) (859,443) (813,384) Charged to income statement (162,905) (140,208) (15,077) (46,060) Amounts recovered Provisions released 476, ,294 - Currency translation differences (2,232) At end of year (704,751 ) (1,016,651 ) (397,226 ) (859,444 ) 60

61 25 Receivables and prepayments (continued) The creation and release of provision for impaired receivables have been included in other expenses in the income statement. Amounts charged to the provision account are generally written off, when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group and Company does not hold any collateral as security. The fair value of trade and other receivables approximates their carrying value. 26 Cash and cash equivalents Group Company Shs 000 Shs 000 Shs 000 Shs 000 Cash at bank and in hand 1,775,058 2,191,005 1,252,341 1,247,806 For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand and deposits held at call with banks 27 Payable and accrued expenses Group Company Shs 000 Shs 000 Shs 000 Shs 000 Trade payables 4,256,813 7,662,787 2,838,327 5,473,386 Payables to related companies (Note 29) - - 9,999,584 9,296,698 Accrued expenses 636, , , ,088 Other payables 601, , , ,465 Accrued leave 96,817 82,330 31,354 32,777 5,591,360 9,113,256 13,772,500 15,956,414 61

62 28 Cash generated from operations Reconciliation of profit before income tax to cash generated from operations Group Shs 000 Shs 000 Profit / (loss) before income tax 563,918 (8,964,664 ) Adjustments for: Interest income (Note 9) (43,932) (78,392) Interest expense (Note 9) 1,671,759 2,351,185 Depreciation (Note 19) 264, ,706 Amortisation of prepaid operating lease rentals (Note 18) 578, ,833 Amortisation of intangible assets (Note 20) 12,528 17,068 Gain on sale of property, plant and equipment (830,093) (5,809) Share of loss in associate (Note 23) 1,774 2,383 ESOP reserve movement recognised through the income statement (257,440) 357,020 Effects of adjustments processed in the current year - 77,924 Movement in AFS - (104) Changes in working capital receivables and prepayments 2,328,291 (253,626) inventories 2,355,533 15,056,188 payables and accrued expenses (3,521,895) (3,058,137) Cash generated from operations 3,122,960 6,086, Related parties and related parties transactions The Group has shareholding by various companies as shown on page 56. There are various other companies that are related to the Group through common shareholdings and/or common directorships. In January 1986, certain operations of KenolKobil Limited (formerly Kenol) were integrated with those of Kobil Petroleum Limited-Kenya Branch (Kobil). Under the joint operation, the Head Office departments of the two entities were integrated and depot operations combined. Effectively from January 2008 Kobil Petroleum Limited - Kenya Branch (Kobil) became a subsidiary of KenolKobil Limited. Since then, operations are primarily carried out under KenolKobil Limited. 62

63 29 Related parties and related parties transactions (continued) The following transactions were carried out with related parties: (i) Sales of goods (Company) Shs 000 Shs 000 Kobil Uganda Limited 2,004,244 2,681,555 Kobil Tanzania Limited 2,637,072 6,997,572 Kobil Petroleum Rwanda SARL 2,824,863 3,171,740 Kobil Ethiopia Limited - 10 Kobil Burundi SA 2,081,234 1,510,235 Total 9,547,413 14,361,112 (ii) Key management compensation (Group and Company) Salaries and other short term employment benefits 183, ,456 Post-employment benefits - - Total 183, ,456 (iii) Loans and receivables from related parties(company) Due from Kobil Petroleum Limited Kenya Branch 5,784,286 5,784,286 Kobil Uganda Limited 758, ,509 Kobil Tanzania Limited 911, ,563 Kobil Ethiopia Limited 32,328 39,556 Kobil Burundi Limited 596, ,351 Kobil Rwanda Limited 344, ,089 Kobil Zambia Limited 145,143-2,788,157 1,792,068 Total 8,572,443 7,576, Shs 000 Shs 000 Non-current receivables from related parties 362, ,742 Current receivables from related parties 8,210,299 7,094,612 Total 8,572,442 7,576,354 The amounts due from Kobil Petroleum Limited Kenya Branch are interest free and unsecured. The balance is denominated in Kenya Shillings and are payable on demand. The receivables from related parties arise mainly from sale transactions. The loans to the subsidiaries are denominated in US dollars. They are unsecured in nature and are interest bearing. No provisions are held against lances from related parties (2012: nil). 63

64 29 Related parties and related parties transactions (continued) Loans to directors Shs 000 Shs 000 (iv) Loans to directors (Group and Company) Loans to directors - 56,544 The loan granted is in accordance with Company s housing scheme, is unsecured and denominated in Kenya Shillings. (v) Directors remuneration (Group and Company) Shs 000 Shs 000 Fees for services as a director 11,188 5,070 Other emoluments (included under key management compensation above) 62,761 62,273 Total remuneration of directors of the Group 73,949 67,343 During the year, the Company undertook transactions with entities connected to directors as follows: Shs 000 Shs 000 Shapley Barret 11,917 32, Contingent liabilities The Group is a defendant in various legal actions. In the opinion of the directors, after taking appropriate legal advice, the outcome of such actions will not give rise to any significant loss. The Company has also provided corporate guarantees in favour of subsidiaries and other entities to a maximum of US$ 27.2 million (2012: US $ 17.8 million). In addition, at year end, the Company had transit bonds and performance guarantees totalling Shs 864 million (2012: Shs 1,674 million). At every year end, the directors carry out an assessment to ensure that the Company has accounted for all its obligations (both legal and constructive) in accordance with the requirements of IAS 37 (Provisions, Contingent Liabilities and Contingent Assets). Based on the facts available at the time, a provision is recognised if it is deemed to be probable that a payment will be required to be made to settle the obligation. 64

65 31 Commitments (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognised in the financial statements as follows: Group Company Shs 000 Shs 000 Shs 000 Shs 000 Property, plant and equipment 386, , Group Company (b) Operating lease commitments Shs 000 Shs 000 Shs 000 Shs 000 Not later than 1 year 223, , ,115 - Later than 1 year and not later than 5 years 627, , ,820 Later than 5 years 859,105 1,629, , ,344 1,710,889 1,918,204 1,019, ,164 65

66 Principal Shareholders and Share Distribution The ten major shareholdings in the Company and the respective number of shares held at 31 January 2014 as follows: Name of shareholder Number of shares % Shareholding 1 Wells Petroleum Holdings Limited 366,614, % 2 Petro Holdings Limited 255,211, % 3 Highfield Limited 183,350, % 4 Energy Resources Capital Limited 88,185, % 5 CFC Stanbic Nominees Kenya Ltd (A/c NR13302) 45,105, % 6 Standard Chartered Nominees Non Resd A/c ,154, % 7 SCB A/C Pan African Unit Linked FD 39,157, % 8 Standard Chartered Nominees Non Resd A/c KE ,241, % 9 Standard Chartered Nominees Limited Non Resd A/c ,543, % 10 Standard Chartered Nominees A/c ,856, % Distribution of shareholders Number Number of % of shares shareholders Shareholding Less than 500 shares 295,575 1, ,000 shares 8,081,710 4, ,001 10,000 shares 8,470,878 1, , ,000 shares 57,914,259 1, ,001 1,000,000 shares 117,079, Over 1,000,000 shares 1,279,918, Total 1,471,761,200 8,

67 We are committed to quality service for enhanced customer value. 67

68

69 PROXY FORM I/We of Being a member of KenolKobil Limited hereby appoint of whom failing, the Chairman of the Meeting of the Company as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on Thursday, 15 May 2014 and at any adjournment thereof. Signed/Sealed this day of.2014 Important Notes: 1. If you are unable to attend this meeting personally, this Form of Proxy should be completed and returned to: The Company Secretary, Livingstone Associates, Deloitte Place, Waiyaki Way, Muthangari, P O Box 30029, Nairobi to reach not later than am on 13 May Alternatively, duly signed proxies can be scanned and ed to wjumba@deloitte.com in PDF format. 2. Any person appointed to act as proxy need not be a member of the Company. 3. If the appointer is a corporation, the Form of Proxy must be under Seal, witnessed by two directors or one director and the Company Secretary or under the hand of any officer or attorney duly authorised in writing.

70 Livingstone Associates Deloitte Place, Waiyaki Way, Muthangari P. O. Box 30029, Nairobi

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