ANNUAL REPORT & FINANCIAL STATEMENTS 2014-2015
CONTENTS 03 WHO WE ARE 11CHAIRMAN S STATEMENT 04 CORPORATE INFORMATION 15 REPORT OF DIRECTORS 05 BOARD OF DIRECTORS 16 STATEMENT OF DIRECTORS RESPONSIBILITIES 08 MANAGEMENT TEAM 17 REPORT OF THE AUDITOR-GENERAL ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
18 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 22 NOTES 19 STATEMENT OF FINANCIAL POSITION 51 ICDC SUBSIDIARIES AND ASSOCIATE COMPANIES AS AT 30TH JUNE 2015 20 STATEMENT OF CHANGES IN EQUITY 21 STATEMENT OF CASH FLOWS
WHO WE ARE ABOUT ICDC Established in 1954, ICDC has over 60 years of experience and stability in promoting projects that create wealth and jobs for Kenyans in diverse sectors of the economy. We enjoy a heritage of expertise and stability as we promote businesses with the potential to become tomorrow s blue chip companies. We are especially excited by projects in Manufacturing, Agro-processing, Infrastructure Development (ICT Infrastructure and other Constructions), Energy and ICT Software Development. We are keen to provide you with creative and flexible financial solutions tailored to meet your unique investment needs. OUR VISION To be Africa s World Class Development Finance Institution (DFI) Focusing on industrial growth and development in Kenya as well as having a significant impact on creating jobs and raising household incomes for a profit. OUR MISSION To be the Catalyst for Wealth Creation By investing in opportunities with the potential to create tomorrow s blue chip companies. BRAND PROMISE Creation of Sustainable Wealth. CORE VALUES Reliability, Customer Focus, Creativity, Integrity. 03 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
CORPORATE INFORMATION REGISTERED OFFICE Uchumi House Aga Khan Walk PO Box 45519-00100 Nairobi, Kenya BANKERS Kenya Commercial Bank Limited Moi Avenue P.O. Box 30081-00100 Nairobi, Kenya CORPORATION SECRETARY Grace M. Magunga PO Box 45519-00100 Nairobi, Kenya Commercial Bank of Africa Limited Wabera Street P.O.Box 30437 00100 Nairobi, Kenya CORPORATE CONTACTS Telephone: (254) 020-2229213/2771000 Mobile: 0727534572/0736229213 Email: info@icdc.co.ke Website: Co-operative Bank of Kenya Limited Uchumi House Aga Khan Walk P.O.Box 40310 00100 Nairobi, Kenya AUDITORS The Auditor-General P. O. Box 40092-00100 GPO Nairobi, Kenya 04
BOARD OF DIRECTORS 1. Martin K. Muragu, - MBS Chairman (Retired on 18th March 2016) Mr. Muragu is the Chairman of Industrial & Commercial Development Corporation (ICDC) since September 2009. With a long career in financial services, working at senior executive level, Muragu has extensive experience of over 30 years in project financing. He was the Head of Projects Finance at the Development Bank of Kenya and a Consultant for Small Enterprises Finance Company Ltd. He has promoted and facilitated establishment of numerous successful private enterprises which have contributed to the creation of employment and wealth for many Kenyans. He was awarded the Moran of the Order of the Burning Spear medal (MBS) by His Excellency the former President of the Republic of Kenya, Hon. Mwai Kibaki, C.G.H, M.P for his distinguished service in the financial services sector. Mr. Muragu holds a Bachelor of Science degree in Industrial Engineering from the University of Missouri, Columbia, USA and a Bachelor of Science degree in Statistics & Applied Economics from Makerere University, Kampala, Uganda. 2. Peter M. Kimurwa - Executive Director (Resigned on 22nd July 2015) Mr. Kimurwa is the Executive Director of Industrial & Commercial Development Corporation (ICDC) and a Board member since July 2010. He is a specialist in Strategy, Business Development and Financial Management. His extensive career has seen him work in various managerial positions being responsible for investments, strategic planning and implementation of various projects. He has worked in Senior Management positions at East African Breweries Limited, Linksoft Communications Limited, BOC Kenya Limited, British American Tobacco Eastern Africa Limited and PricewaterhouseCoopers. He is the Executive Director of ICDC. He sits as a director in Centum Investments Co. Ltd., General Motors E.A. Ltd., Rift Valley Bottlers Ltd., Kisii Bottlers Ltd., and Mount Kenya Bottlers Ltd. Mr. Kimurwa holds a Bachelor of Commerce degree from Kenyatta University and a Master of Business Administration degree from INSEAD University in Fontainebleau, France. He is a Certified Public Accountant, (CPA-K). 3. Daniel Mutua - Alternate to CS, The National Treasury Mr. Mutua was appointed to the Board in 2006. He is an alternate director to the Cabinet Secretary, The National Treasury and is a Senior Assistant Director of Investments. He has over 21 years work experience in the public sector specialising in Public Private Partnerships and Investment Analysis. He has served in various government offices including the Public Service, Teachers Service Commission, Ministry of Labour, Office of the Vice President and Ministry of Finance. He also sits on the Boards of Export Processing Zone Authority, Chepkoilel University College Council and Mbusyani Secondary School. Mr. Mutua holds a Bachelor of Education degree in Business Economics from Kenyatta University, a Master of Business Administration degree from ESAMI and a Master of Science degree in Management from the Netherlands. 05 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
BOARD OF DIRECTORS (CONTINUED) 4. Samson O. Olala, OGW - Alternate to PS, Ministry of Industrialisation and Enterprises Development Mr. Olala was appointed to the Board in 2014. He is an alternate to the Principal Secretary, Ministry of Industrialisation and Enterprise Development. He is a Senior Chief Finance Officer at the Ministry. He has vast experience in the field of Financial Management and Administration. Mr. Olala has worked as Head of Finance departments in various government offices including the Ministry of Cooperative Development, Public Service Commission of Kenya, Ministry of Agriculture, Ministry of Water and Irrigation. Mr. Olala has previously served on boards of National Irrigation Board, National Water and Pipeline Corporation, Kenya Agricultural Research Institute and Agro Chemical & Foods Company. He was conferred the Order of the Grand Warrior of Kenya (OGW) by His Excellency the former President of the Republic of Kenya, Hon. Mwai Kibaki, C.G.H, M.P, for his exemplary service to the Nation. He holds Bachelors of Arts degree in Economics from the University of Nairobi and a Diploma in Financial Management from Kenya College of Accountancy. 5. Bernard Njuguna - Director (Retired on 1st October 2015) Mr. Njuguna was appointed to the Board in October 2009. He is an entrepreneur with vast business knowledge and extensive experience of over 22 years, managing businesses in the fast moving consumer goods sector. He has held several senior managerial positions in his career and was Area Manager at Total Kenya before going into private business. He is currently the Managing Director of Outlook Ltd. Mr. Njuguna holds a Bachelor of Arts degree in Economics and Sociology from the University of Nairobi 6. Grace M. Magunga - Corporation Secretary Mrs. Magunga is the Corporation Secretary since 2006. She has wide experience spanning over 25 years in Legal Practice and Corporate Secretarial Services, gained at ICDC. She is also the Company Secretary of Mount Kenya Bottlers Ltd., Kisii Bottlers Ltd., Rift Valley Bottlers Ltd.,Almasi Beverages Limted Funguo Investment Ltd., Kenya National Trading Corporation Ltd., Funguo Registrars Ltd., Focus Container Freight Station and Organic Growers and Packers (EPZ) Ltd. She holds a Bachelor of Law degree from University of Nairobi and a Diploma in Legal Practice. She is a Certified Public Secretary, (CPS K).She also holds a Masters Degree in Human Resource Management from Jomo Kenyatta University. 7. Waqo Dulacha Ejersa - Director Dr. Waqo Dulacha Ejersa was appointed to the Board in April 2015. He is a health practitioner with 18 years experience serving in various capacities in the Kenyan health sector. He has vast experience in Global Health leadership and has been involved in providing strategic direction in the health arena. Dr. Waqo was the Provincial Director, Ministry of Public Health and Sanitation, and has been the County Director of Health for Narok County. He is the Head of the National Malaria Control Program. Dr. Waqo holds a Masters degree in Public Health from the University of Melbourne Australia, a Bachelor of Science Degree in Medicine and a Bachelor of Science in Surgery from the University of Nairobi. He is currently pursuing a PHD in Public Policy and Administration. 06
BOARD OF DIRECTORS (CONTINUED) 8. Sophia Lepuchirit - Director Sophia Lepuchirit was appointed to the Board in April 2015. Sophia Lepuchirit has 30 years work experience in Administration and Management, having served in a number of executive leadership positions in Public Service Commission and Central Bank of Kenya. She has served as a member of the Board of Jomo Kenyatta Foundation (JKF), Chairperson Kerio Valley Development Authority, a member of the National Anti-Corruption Campaign Steering Committee, office of the Attorney General. Currently she is a trainer/ consultant. She is the pioneer girl from Samburu Community to join University of Nairobi upon successful completion of the A Level Certificate of Education. Sophia Lepuchirit holds a Bachelor of Arts Degree in International Relations and Public Administration from the University of Nairobi. A Postgraduate diploma in Anticorruption and Good Governance from Eastern Africa:-Marquette University- Les Aspin center for Government- Washington DC U.S.A.Currently she is pursuing a Master s degree in Strategic Management at the Africa Nazarene University. 9. David Ndegwa Wachira - Director Mr. David Ndegwa Wachira, OGW, was appointed to the Board in April 2015. He has a wealth of experience in corporate planning and financial management having worked in various roles in the banking sector within Kenya and the region. He was the Chief Executive Officer Consolidated Bank of Kenya Ltd and he served in other senior managerial positions including Barclays Africa, Barclays Bank of Kenya Ltd and Barclays Bank Tanzania Ltd. Previously he also worked with the Rehabilitation Advisory Services Ltd, Co-operative Bank of Kenya, Tana and Athi Rivers Development Authority, Department of settlement Government of Kenya, Cornell University USA, University of New England, Australia, and the University of Nairobi. Currently he is the Board s Chairman Higher Education Loans Board (HELB) and a Board member at Karen Hospital. Mr. Wachira holds a Master of Science degree in Economics and Business Management and a Postgraduate Diploma in Agricultural Economics from the University of New England, Australia. He has a Bachelor of Science degree in Agriculture from the University of Nairobi and a Diploma in Finance and Banking from Cornell University, USA. 10. Ambassador Julius L. Sunkuli - Director Hon. Amb. Julius L. Ole Sunkuli, EGH, EBS was appointed to the Board in April 2015. He is a lawyer with over 20 years work experience and has held numerous leadership roles in the Government of Kenya. Amb. Sunkuli worked for the judiciary as a District Magistrate and Resident Magistrate respectively in Kericho. He was elected as a Member of Parliament for Narok West Constituency and served as an Assistant Minister in the Office of the President. He served as the Minister of State in the Office of the President and was appointed as Kenya s Ambassador to the People s Republic of China. Currently he is in private practice as an advocate of the High court of Kenya. Amb. Sunkuli holds a Bachelor of Law Degree from the University of Nairobi and an Advanced Diploma in Legal Practice from the Kenya School of Law. 07 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
MANAGEMENT TEAM 1. Peter M. Kimurwa - Executive Director (Resigned on 22nd July 2015) Mr. Kimurwa is the Executive Director of Industrial & Commercial Development Corporation (ICDC) and a Board member since July 2010. He is a specialist in Strategy, Business Development and Financial Management. His extensive career has seen him work in various managerial positions being responsible for investments, strategic planning and implementation of various projects. He has worked in Senior Management positions at East African Breweries Limited, Linksoft Communications Limited, BOC Kenya Limited, British American Tobacco Eastern Africa Limited and PricewaterhouseCoopers. He is the Executive Director of ICDC. He sits as a director in Centum Investments Co. Ltd., General Motors E.A. Ltd., Rift Valley Bottlers Ltd., Kisii Bottlers Ltd., and Mount Kenya Bottlers Ltd. Mr. Kimurwa holds a Bachelor of Commerce degree from Kenyatta University and a Master of Business Administration degree from INSEAD University in Fontainebleau, France. He is a Certified Public Accountant, (CPA-K). 2. Mbatha Mbithi - Chief Manager Operation Ms. Mbithi is the Chief Manager Operations, a position she has held since September 2009. She has a solid background in Finance and Banking having worked in middle and senior management level positions in five commercial banks. Prior to joining ICDC, she was Head of Credit at Family Bank Ltd. She also sits on the Boards of Uchumi Supermarkets Ltd., Development Bank of Kenya Ltd. and IDB Capital Ltd. She holds a Master of Business Administration degree in Strategic Management from Moi University and a Bachelor of Science Degree in International Business Administration from the United States International University. She is a member of the Kenya Institute of Management. 3. Grace Magunga - Corporation Secretary Mrs. Magunga is the Corporation Secretary since 2006. She has wide experience spanning over 25 years in Legal Practise and Corporate Secretarial Services, gained at ICDC. She is also the Company Secretary Almasi Beverages Limted Funguo Investment Ltd., Kenya National Trading Corporation Ltd., Funguo Registrars Ltd., Focus Container Freight Station and Organic Growers and Packers (EPZ) Ltd. She holds a Bachelor of Law degree from University of Nairobi and a Diploma in Legal Practice. She is a Certified Public Secretary, (CPS K).She also holds a Masters Degree in Human Resource Management from Jomo Kenyatta University. 4. Joseph Mwaura - Special Projects Manager Mr. Mwaura is the Manager in charge development projects of Eldoret SME Industrial Park - a Vision 2030 Flagship project. He is the immediate former Finance Manager of the Corporation, a docket that he held for the last nine years. He has over 27 years experience in Finance and Accounting gained at ICDC, Kenya Wine Agencies Ltd and Kenya National Trading Corporation Ltd. He holds a Bachelor of Commerce degree in Accounting from the University of Nairobi. He is a Certified Public Accountant, (CPA K). 08
5. Faith Nene - Human Resources & Administration Manager Mrs. Nene is the Human Resources & Administration Manager since September 2005. She has a wide range of experience in Human Resource management spanning over 20 years working at ICDC and has knowledge of all facets of HR and Administration. She holds a Master of Science degree in Human Resources Management from the University of Manchester, UK as well as a Bachelor of Arts degree in Government & Philosophy from the University of Nairobi. She is a member of Institute of Human Resource Management (IHRM). 6. Haggai William - Strategy & Risk Manager Mr. Haggai is the Strategy and Risk Manager since July 2015. He has vast knowledge in Information systems management, Enterprise Risk Management, Strategic planning, Operations Management, and Performance Monitoring and Evaluation drawn from close to 19 years experience with IDB Capital Ltd (formerly Industrial Development Bank Limited). Mr. Haggai holds a Masters of Business Administration degree in Operations Management and a Bachelor of Commerce degree in Management Science from the University of Nairobi. He is also a Quality Management Systems Auditor. He has attended a wide range of short courses on development financing both locally and outside the country. He is a member of the Computer Society of Kenya, and the Institute of Directors Kenya. 7. Dismas J.O Oyieko, HSC - Portfolio Manager Mr. Oyieko is the Special Projects Manager since July 2010. Prior to this appointment, he held the position of Loans & Investments Manager. He has over 20 years experience at Senior Management Level, having worked as Head of Department in various portfolios within ICDC. He was awarded the Head of State Commendation in 2004, by His Excellency the former President of the Republic of Kenya, Hon Mwai Kibaki C.G.H, M.P. He holds a Master of Science degree in Development Finance from the University of Birmingham, UK and a Bachelor of Commerce degree in Accounting from the University of Nairobi. 8. Wilson Kamau - Internal Audit Manager Mr. Kamau is the Internal Audit Manager since August 2005. He has experience of over 30 years in Accounting, Finance and Audit having worked in Central Government, Local Government and ICDC. He holds a Master of Business Administration degree from United States International University and a Bachelor of Commerce degree from University of Jabalpur, India. He is a Certified Public Accountant, (CPA K) and has a Certificate in Computer Programming. 09 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
MANAGEMENT TEAM (CONTINUED) 9. Erasto Shako - Equity Manager Mr. Shako is the Equity Manager since July 2010. He has a wide experience of over 25 years in Private Investment Appraisal, Risk Analysis, Enterprise Valuations, Quality Management Systems and Related Engineering Services. He holds a Bachelor of Science degree in Mechanical Engineering from the University of Nairobi. 10. Peter Mwangi - ICT Manager Mr. Mwangi is the Information, Communication & Technology (ICT) Manager since 2006. He has extensive experience in ICT spanning over 21 years having worked in various organizations including Strathmore Business School, Missions for Essential Drugs & Supplies and Africa Online Holdings. He holds a Master of Science degree in Information Systems from University of Nairobi, a Bachelor of Science degree in Mathematics & Physics from Egerton University, a Bachelor of Science degree in Computer Science from University of Natal, South Africa and a Post Graduate Diploma in Computer Science from University of Nairobi. 11.Edward Gitau - Credit Manager Edward Gitau is the Credit Manager since May 2014. He has 25 years experience in finance analysis, investment appraisal, enterprise valuations and investment monitoring. He holds a bachelor s degree in Economics and statistics from the University of Nairobi. He is a certified investments and financial analyst (CIFA) and a member of the institute of certified investments and financial analysts (ICIFA). 12. Kennedy M. Wanderi - Finance Manager Kennedy Wanderi, is the Finance Manager since May 2014. He has wide experience of over 20 years in Finance and Accounting gained at ICDC. He has also served as the ICDC Eldoret Branch Manager. He holds a Master of Business Administration degree in Finance and Banking, and a Bachelor of Business Management degree from Moi University. He is a Certified Public Accountant. 10
CHAIRMAN S STATEMENT In the Financial Year (FY) 2014/2015, the global economy registered a growth of 3.3 per cent similar to what was registered in 2013/2014. Whereas various major economies and regions reported divergent levels of economic growth, global growth was supported by a fall in crude oil prices, lower inflation rates and increased internal demands in individual economies. Kenya s economy is estimated to have expanded by 5.3 per cent in this period compared to a growth of 5.7 per cent in 2013/2014. From the demand side, growth was mainly driven by an increase in private final consumption and a rapid growth in capital investment. From the supply side, the major drivers of the economy were agriculture, forestry and fishing; construction; wholesale and retail trade; education; and finance and insurance. It is in this context that I am pleased to report the performance of ICDC during the financial year 2014/2015. Martin K. Muragu MBS Chairman The growth of the Kenyan economy was driven by positive contributions from a wide range of sectors. Primarily, the sectors in which ICDC participates as its sectors of focus registered significant growth. Overall, Agriculture was subdued due to the erratic rains experienced in the year. Building and construction, Tourism, Transport and Storage, Information and Communication Technology, and Energy registered a resurgence in this period. Manufacturing however grew by 3.4 per cent compared to 5.6 per cent the previous year. It recorded an increase of 2.9 per cent in the number of jobs created in formal employment. Total amount approved by financial institutions for projects in the manufacturing sector amounted to Kshs 237.9 billion. Kenya s economy is estimated to have expanded by 5.3 per cent in this period compared to a growth of 5.7 per cent in 2013/2014. It recorded an increase of 2.9 per cent in the number of jobs created in formal employment. The total credit approved for projects in the manufacturing sector amounted to Kshs 237.9 billion. OPERATING ENVIRONMENT During the financial year under review, the main macroeconomic indicators remained relatively stable. The Kenya Shilling generally held firm against the major trading currencies despite its depreciation against the US dollar, Sterling pound and Euro. A significant decline in the international tourism earnings and a widening trade deficit worked against the Shilling over this period. Weighted average commercial banks lending rate remained relatively high but stable to reach a maximum of 15.99 per cent in 2014/2015 despite the Central Bank Rate (CBR) remaining moderately low at 8.5 throughout the year. The central bank introduced Kenya Banks Reference Rate (KBRR) in early July 2014, which was expected to significantly bring down the cost of borrowing. The KBRR was initially set at 9.13 per cent and replaced the base lending rate, which commercial banks previously used to guide their pricing of loans and advances. The high interest rates slowed the uptake of credit facilities from commercial banks and other non-bank financial institutions. The manufacturing sector which is one of the primary sectors of focus for ICDC enjoyed modest growth that was primarily driven by slightly cheaper and stable electricity supply, restrained inflation and resilient domestic demand. 11 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
CHAIRMAN S (CONTINUED) Modest decrease in energy prices during the last quarter of the year contributed to reduction in input costs. The expansion in non-food manufacturing was mainly driven by increased production of cement, pharmaceutical products, fabricated metal products, and manufacture of furniture. On the other hand, the manufacturing industry experienced some limitations in 2014/2015 among them suppressed external demand of industrial non-food and processed products. This is significant to ICDC because a large portfolio of ICDC investments fall within this sector. ICDC undertakes investments geared towards generating value, creating jobs and supporting economic growth. These start-up enterprises are sensitive to changes in the macroeconomic environment and consequently, challenges in the operating environment directly impact the nascent enterprises within the ICDC sectors of focus. OVERVIEW OF OPERATIONS Despite the challenges in the operating environment, the Corporation made new significant investments in various sectors of the economy. ICDC continued to play its key role of identifying and promoting projects in the primary sectors of focus including Agro-processing, Manufacturing, Financial services, Education, Energy, Health among others. Overall, new investments amounting to Kshs 514 million compared to Kshs 850 million invested the previous year were made. Due to the complexity of financing start-ups, there were undisbursed commitments of Kshs 1.1billion which will be realised in the coming financial year. The investments made during the period were dispersed across sectors and geographically. The Corporation made investments in different economic sectors. These included equity investment in a real estate company operating in Nairobi County. This is in line with the desire to address the deficit of urban housing. The Corporation also provided a credit facility to a fish processing company in Kisumu County primarily to improve market access by the fishing community. As part of supporting the tourism sector, the Corporation advanced a credit facility to a hotel located in Nairobi County for refurbishment and renovation works. To support agro-processing and value addition in agriculture, the Corporation invested in a rice milling plant in Kirinyaga County. The plant will significantly increase the uptake of produce from the local farming community. ICDC also invested by way of credit in renewable energy Company that turns pineapple waste into briquettes in Kiambu County. This is in recognition of the new to support green energy initiatives. Kshs 857 million representing a 10% improvement over the profit of Kshs 602 million realized during the previous period, 2013/2014. The balance sheet of the Corporation grew significantly from Kshs 21.4 billion the previous year to Kshs 25.2 billion. The growth of our assets was driven mainly by the new investments and appreciation in value of our quoted investments. In recognition of the important role played by the SME sector in creating wealth and jobs for Kenyans, the Corporation is putting up a state of the art SME Industrial Park in Eldoret which is forecast to be completed in the next two years. The Industrial park will provide agro based businesses with a comprehensive one stop shop for manufacture of products, value addition to agricultural produce and a host of other auxiliary services required for manufacturing and agroprocessing. The SME Industrial Park is strategically located in Eldoret which is at the centre of Kenya s agricultural industry. The Industrial Park will offer investors strategic business environment with accessibility to raw materials and ready market. Going forward, the Corporation will continue to identify and support enterprises within its key sectors of focus that have a significant socio-economic impact. The primary focus of the Corporation is to undertake project financing which entails supporting entrepreneurs in development of viable business proposals and partnering with them by way of loan and or equity investment. The Corporation will also look into creating partnerships with the commercial banks that will enable the investors access additional funding from the commercial banks on the basis of guarantees issued by the Corporation. CORPORATE GOVERNANCE As a State Corporation, ICDC regards good corporate governance as a primary tenet to good performance. In this regard, our operations are undertaken in cognizance of regulations and statutory requirements necessary to put us in good stead with our stakeholders. The Corporation first and foremost seeks to fulfil its mandate of facilitating Industrial and Commercial Development and undertakes its role in a manner that is beneficial to the general public. Our operations are driven by the desire to maximize shareholder value while safeguarding the rights and interests of all stakeholders. The culture of good Corporate Governance permeates all levels of the Corporation from top Management to the lowest level and this has led to the continued success of the Corporation. These investing activities translated into a profit of Kshs 1.52 billion which comprised profit from operations of Kshs. 663 million and a gain on disposal of investments totalling 12
CHAIRMAN S (CONTINUED) BOARD OF DIRECTORS The Directors who held office during the year under review to the date of this report are listed under the board of directors section in this report. The Board currently comprises nine (9) directors including the Chairman and the Executive Director. Six (6) of the directors including the Chairman are independent while two directors represent the ministries of Industrialization and Enterprise Development and The National Treasury. The independent Directors bring on board a wealth of experience and objective guidance on matters of strategy, management of corporate risk and resource utilization. The Board as the custodian of the Corporations resources recognises its responsibility for providing leadership, strategic and business direction, and control and is accountable to the Stakeholders for financial performance. The Board oversees risk Management, is responsible for investment decisions and ensures high compliance with relevant laws and regulations. In line with good corporate governance, the Board has constituted three standing committees with specific terms of reference to assist in discharging its duties. COMMITTEES OF THE BOARD These committees include the Board Risk and Audit Committee (BRAC), the Board Human Resources and General Purpose Committee and the Board Finance and Investment Committee (FIC). The Board Risk and Audit Committee consists of four (4) nonexecutive directors and reviews the Corporation s internal and independent audit reports, reviews and approves the annual financial statements, considers significant financial reporting issues and makes recommendations to the Board concerning their approval and contents. The Committee also monitors the integrity and effectiveness of the Corporation s system of internal control and is responsible for monitoring the independence of the External Auditors. The Human Resource and General Purpose Committee consists of four (4) Directors including the Executive Director. It addresses issues pertaining to staff welfare and any other issues as may be delegated by the Board from time to time. A recurrent agenda before this committee is employee remuneration, development, and motivation. It ensures that the correct incentives and reward mechanisms are in place in the corporation whilst maintaining the principles of equity and appropriateness of compensation. In the year under review, the Committee made recommendations on review of the performance management system recommending the adoption of the Balanced Score Card system. The committee reviews the human resources practices and policies and recommends changes geared towards attracting, retaining and motivating staff so as to sustain operations in an increasingly competitive business environment. The Finance and Investment Committee currently has Four (4) members which includes the Executive Director. The objective of the Committee is to oversee the investment of Corporation s funds, formulate investment policies, strategies and assist the Board in matters pertaining to finance and investments, review interim financial reports and other functions as may be delegated by the Board. The committee exercises oversight over implementation of the investment strategy. CONTINUOUS PERFORMANCE REVIEW In order to ensure that the roles and responsibilities of the Board of Directors are effectively performed, the Board conducts a Board Evaluation each year in line with the provisions of corporate governance as stipulated by the State Corporations Advisory Committee (SCAC). The outcome of the evaluation are shared among the Directors for continuous improvement and SCAC for oversight. The Board signs performance contracts with the parent ministry setting targets for each financial year. These targets are cascaded to Management and all employees of the Corporation under the performance contracting regime. Periodic and annual evaluation of performance is undertaken as a means of ensuring focus on set performance targets. CORPORATE SOCIAL RESPONSIBILITY ICDC operates in a socially responsible manner. Our social responsibility goes beyond social interventions such as responding to the needs of the society and provision of financial help to deserving cases. We extent our social responsibility further through the enterprises we support and partner with. All our investment go into socially beneficial enterprises. We also ensure that our operations and those of our partners are undertaken in an environmentally sustainable manner. FUTURE OUTLOOK ICDC has reviewed its strategic plan focusing on provision of financial intervention to sectors that have been identified in the Kenya Vision 2030 as priority sectors for realization of the vision. ICDC is focusing on supporting new investments in manufacturing, agro-processing, infrastructure development (ICT infrastructure & other constructions), energy and ICT software development in line with the Government Vision 2030 strategy of delivering accelerated economic growth, higher living standards and better healthcare. 13 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
CHAIRMAN S (CONTINUED) The Corporation will continue to build partnerships with other Government agencies and private sector players as we work towards realization of the vision. Another critical point of focus for the Corporation is partnership with the County Governments. The Corporation is looking to establish development partnerships with the devolved units and support them through undertaking feasibility studies, resource mapping and establishing investment vehicles that will help drive the industrial development agenda of the County Governments. ACKNOWLEDGEMENT I wish to recognize the role played by various entities in realizing the results reported in this annual report. I take cognizance of the continued commitment of the Corporations staff to hard work, resilience and team spirit. I appreciate our esteemed customers, the parent ministry- Ministry of Industrialization and Enterprise Development, The National Treasury, our business partners and investee companies, and other stakeholders for their support and contribution to ICDC s success. Finally, I would like to sincerely thank my fellow board members for their commitment to duty and the support they have accorded me. Martin K. Muragu Chairman 14
REPORT OF DIRECTORS The Directors submit their report together with the audited financial statements for the year ended 30 June 2015 which show the state of the Industrial and Commercial Development Corporation s affairs. PRINCIPAL ACTIVITY The principal activities of the Corporation are investing in venture capital, lending for commercial and industrial purposes and offering consultancy and related management advisory services. RESULTS FOR YEAR ENDED 30 JUNE 2015 2014 KShs.000 KShs.000 Profit before taxation 1,519,306 602,394 Taxation - - Profit for the year transferred to retained earnings 1,519,306 602,394 DIVIDEND A dividend of Shs 35,000,000 was paid to the Government of Kenya in relation dividends declared out of profits of past years up to June 1999 The Directors do not recommend the payment of a dividend (2014: Nil). DIRECTORS The members of the Board of Directors who served during the year are shown on page 5-6. AUDITORS The Auditor General is responsible for the statutory audit of the Corporation in accordance with Section 14 and 39(i) of the Public Audit Act, 2003, which empowers the Auditor General to nominate other auditors to carry out the audit on his behalf. PricewaterhouseCoopers was nominated by the Auditor General to carry out the audit of the Industrial and Commercial Development Corporation for the year ended 30 June 2015. BY ORDER OF THE BOARD Grace M. Magunga Corporate Secretary P. O Box 45519 00100 Nairobi Date: 18 th December, 2015 15 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
STATEMENT OF DIRECTORS RESPONSIBILITIES The Industrial and Commercial Development Corporation Act and the Public Audit Act 2003, require the Directors to prepare financial statements in respect of the Corporation, which give a true and fair view of the state of affairs of the Corporation at the end of the financial year and the operating results for that year. The Directors are also required to ensure that the Corporation keeps proper accounting records which disclose with reasonable accuracy the financial position of the Corporation. The Directors are also responsible for safeguarding the assets of the Corporation. The Directors are responsible for the preparation and presentation of the Corporation s financial statements, which give a true and fair view of its state of affairs of the Corporation at the end of the financial year ended 30 June 2015. This responsibility includes: (i) maintaining adequate financial management arrangements and ensuring that these continue to be effective throughout the reporting period; (ii) maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Corporation ; (iii) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements, and ensuring that they are free from material misstatements, whether due to error or fraud; (iv) safeguarding the assets of the Corporation; (v) selecting and applying appropriate accounting policies; and (vi) making accounting estimates that are reasonable in the circumstances. The Directors accept responsibility for the Corporation s financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards (IFRS), and in the manner required by the PFM Act and the State Corporations Act. The Directors are of the opinion that the Corporation s financial statements give a true and fair view of the state of its transactions during the financial year ended 30 June 2015, and of its financial position as at that date. The Directors further confirm the completeness of the accounting records maintained for the Corporation, which have been relied upon in the preparation of its financial statements as well as the adequacy of the systems of internal financial control. Nothing has come to the attention of the Directors to indicate that the Corporation will not remain a going concern for at least the next twelve months from the date of this statement. Approval of the financial statements The Corporation s financial statements were approved by the Board on 18 th December, 2015 and signed on its behalf by: Chairman Director 16
REPORT OF THE INDEPENDENT AUDITOR TO THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF INDUSTRIAL AND COMMERCIAL DEVELOPMENT CORPORATION REPORT ON THE FINANCIAL STATEMENTS The accompanying financial statements of Industrial and Commercial Development Corporation set out on pages 18 to 50, which comprise the statement of financial position as at 30 June 2015, and the statement of profit and loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information have been audited on my behalf by PWC Kenya, auditors appointed under Section 39 of the Public Audit Act, 2003 and in accordance with the provisions of Article 229 of the Constitution of Kenya and Section 14 of Public Audit Act, 2013. The auditors have duly reported to me the results of their audit and on the basis of their report, I am satisfied that all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of the audit were obtained. MANAGEMENT S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The management is also responsible for the submission of the financial statements to the Auditor-General in accordance with the provisions of Section13 of the Public Audit Act, 2003. AUDITOR-GENERAL S RESPONSIBILITY My responsibility is to express an opinion on these financial statements based on the audit and report in accordance with the provisions of Section 15 of the Public Audit Act, 2003 and submit the report in compliance with Article 229 (7) of the Constitution of Kenya. The audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Those standards require compliance with ethical requirements and that the audit be planned and performed to obtain reasonable assurance about whether 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 judgment, 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 entity 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 Corporation s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my qualified audit option. BASIS FOR QUALIFIED OPINION Grants and Loans Included in the financial statements are grants and loans from the Government of Kenya amounting to Kshs.894.630,000 (2014: Kshs.886,182,000) and related interest expense of Kshs.8,448,000 (2014: Kshs.8,448,000). The grants and loans relate to amounts advanced or given as grants to the Corporation by the Government of Kenya, most of them more than 25 years ago but there were no agreements to support these balances. Furthermore, the grants are included in liabilities. In addition, it was not possible to determine whether the conditions for the grants have been met and whether they should have been taken to income in previous years in accordance with ISA 20 -Accounting for Government Grants and Disclosure of Government Assistance. Consequently, it has not been possible to verify the terms of the loans and grants including interest rates, or to confirm the accuracy of the balances split between loans and grants or whether these are correctly classified as liabilities and the legality and propriety of the interest expense. QUALIFIED OPINION In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in the all material respects, the financial position of the Corporation as at 30 June 2015, and of its financial performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards and comply with the Industrial and Commercial Development Corporation Act, Cap 445 of the Laws of Kenya. FCPA Edward R.O. Ouko, CBS AUDITOR-GENERAL Nairobi 19 February 2016 17 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year ended 30 June 2015 2014 Notes Revenues Operating income 5 985,368 773,685 Other income 6 69,720 261,804 Total revenues 1,055,088 1,035,489 Operating expenses Administration costs 7(a) 312,547 316,186 Depreciation of property and equipment 12 29,894 30,420 Amortisation of intangible assets 11 810 1,104 Provision for losses 18 40,711 76,937 Total operating expenses 383,962 424,647 Operating profit 8 671,126 610,842 Finance cost 9 (8,448) (8,448) Profit from operations 662,678 602,394 Gain on disposal of unquoted investments 856,628 - Profit before taxation 1,519,306 602,394 Income tax expense 10 - - Profit after taxation 1,519,306 602,394 Other comprehensive income for the year Items that may be subsequently reclassified to profit or loss Reversal of fair value on disposed investments (856,628) 2,105 Fair value gain / (loss) in quoted investments 16 3,719,010 2,973,723 Fair value (loss) / gain in unquoted investments 15 (616,089) 713,649 Revaluation gain on property and equipment - 6,818 Total other comprehensive income 2,246,293 3,696,295 Total comprehensive income 3,765,599 4,298,689 The notes on pages 22 to 60 are an integral part of these financial statements 18
STATEMENT OF FINANCIAL POSITION Year ended 30 June 2015 2014 Notes Assets Property and equipment 12 1,082,566 1,096,571 Intangible assets 11 3,178 2,434 Investment property 13 1,123,210 925,500 Government securities (Held to maturity) 14 99,648 99,249 Quoted investments (Available for sale) 16 10,321,094 6,602,084 Unquoted investments (Available for sale) 15 9,232,801 10,528,886 Loans 18 985,381 1,123,290 Related companies current account 277 352 Trade and other receivables 17 504,937 246,691 Cash and cash equivalents 20 1,890,929 804,339 Total assets 25,244,021 21,429,396 Reserves Revaluation reserve 21 1,061,087 1,061,087 Fair value adjustment reserve 21 17,558,027 15,311,734 Retained earnings 21 5,467,231 3,947,925 Total reserves 24,086,345 20,320,746 Liabilities Bank overdraft 20 67,874 - Grants and loans 22 894,630 886,182 Payables and accruals 24 105,172 97,468 Dividend payable 26 90,000 125,000 Total liabilities 1,157,676 1,108,650 Total reserves and liabilities 25,244,021 21,429,396 The notes on pages 22 to 60 are an integral part of these financial statements The financial statements on pages 18 to 60 were approved for issue by the board of directors on 18 th December, 2015 and signed on its behalf by: Chairman Director 19 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
STATEMENT OF CHANGES IN EQUITY Revaluation Fair value Retained Total equity reserve adjustment earnings Year ended 30 June 2014 At start of year 1,054,269 11,622,257 3,345,531 16,022,057 Comprehensive income Profit for the year - - 602,394 602,394 Other comprehensive income: Reserves released on disposal of investments - 2,105-2,105 Fair value gain in unquoted investments - 713,649-713,649 Fair value gain in quoted investments - 2,973,723-2,973,723 Revaluation of property and equipment 6,818 - - 6,818 Total other comprehensive income 6,818 3,689,477-3,696,295 Total comprehensive income 6,818 3,689,477 602,394 4,298,689 At end of year 1,061,087 15,311,734 3,947,925 20,320,746 Year ended 30 June 2015 At start of year 1,061,087 15,311,734 3,947,925 20,320,746 Comprehensive income Profit for the year - - 1,519,306 1,519,306 Other comprehensive income: Fair value loss in unquoted investments - (616,089) - (616,089) Fair value gain in quoted investments - 3,719,010-3,719,010 Reserves released on disposal of unquoted investments (856,628) - (856,628) Total other comprehensive income - 2,246,293-2,246,293 Total comprehensive income - 2,246,293 1,519,306 3,765,599 At end of year 1,061,087 17,558,027 5,467,231 24,086,345 The notes on pages 22 to 60 are an integral part of these financial statements 20
STATEMENT OF CASH FLOWS Year ended 30 June Cash flows from activities Notes 2015 2014 Net cash generated from operations 27(a) 583,085 520,892 Cash flows from investing activities: Development of investment property 13 (191,922) (146,370) Purchase of property and equipment 12 (15,889) (7,327) Purchase of intangible assets 11 (1,554) (1,594) Purchase of unquoted investments 15 (180,004) (430,000) Proceeds on disposal of unquoted investments 860,000 - Proceeds on disposal of quoted investments - 1,205 Net cash used in investment activities 470,631 (584,086) Cash flows from financing activities Loan repayment (principal and interest) Government of Kenya and KFW of Germany 22 - (25,000) Dividend payment (35,000) - Net cash used in financing activities (35,000) (25,000) Net increase / decrease in cash and cash equivalents 1,018,716 (88,104) Movement in cash and cash equivalents At start of year 20 804,339 892,533 Increase/(decrease) 1,018,716 (88,104) At end of year 20 1,823,055 804,339 The notes on pages 22 to 60 are an integral part of these financial statements 21 ICDC ANNUAL REPORT AND FINANCIAL STATEMENTS 2014-2015
NOTES 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below: a. Statement of compliance and basis of preparation The financial statements have been prepared on a historical cost basis except for the measurement at re-valued amounts of certain items of property and equipment, investment properties, marketable securities and financial instruments at fair value and impaired assets at their estimated recoverable amounts. The preparation of financial statements in conformity with International Financial Reporting Standards (IFRS) allows the use of estimates and assumptions. It also requires management to exercise judgement in the process of applying the Corporation s accounting policies. The financial statements have been prepared and presented in Kenya Shillings, which is the functional and reporting currency of the Corporation and all values are rounded to the nearest thousand (). The financial statements have been prepared in accordance with the PFM Act, the State Corporations Act, and International Financial Reporting Standards (IFRS). The accounting policies adopted have been consistently applied to all the years presented. (i) Functional and presentation currency Items included in the financial statements of the Corporation 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 (Shs), which is the Corporation 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. cost. All other foreign exchange gains and losses are presented in profit or loss within other income or other expenses. Translation differences on non-monetary financial assets, such as equities classified as availablefor-sale financial assets, are included in other comprehensive income and cumulated in availablefor-sale financial assets reserve. Changes in accounting policy and disclosures (a) New standards, amendments and interpretations adopted by the Corporation The following standards have been adopted by the Corporation for the first time for the financial year beginning on or after 1 July 2014 and have a material impact on the Corporation: Amendment to IAS 32, Financial instruments: Presentation on offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the Corporation financial statements. Amendments to IAS 36, Impairment of assets, on the recoverable amount disclosures for nonfinancial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. Amendment to IAS 39, Financial instruments: Recognition and measurement on the novation of derivatives and the continuation of hedge accounting. This amendment considers legislative changes to over-the-counter derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The Corporation has applied the amendment and there has been no significant impact on the Corporation financial statements as a result. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within finance income or 22