KK Annual Report

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011 ANNUAL REPORT & FINANCIAL STATEMENTS - 2011
ANNUAL REPORT & FINANCIAL STATEMENTS - 2011
VISION & MISSION

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 and well trained human resource base; To deliver the highest shareholder value
TABLE OF CONTENTS
Directorate & Administration Notice of Annual General Meeting Chairman & Group Managing Directors Report Consolidated Financial Statements (US Dollars) Board of Directors Group Management Team Corporate Governance Corporate Social Responsibility Financial Highlights Directors Report Statement of the Directors Responsibilities Report of the independent auditor Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Principal Shareholders and Share Distribution Proxy Form 2 3 4-5 6-8 9 10 11 12 13 14 15 16-17 18 19 20 21 22-23 24-25 26 27-68 69
DIRECTORATE & ADMINISTRATION

BOARD OF DIRECTORS
J I Segman D Oyatsi P N Jakobsson T M Davidson Chairman and Group Managing Director Appointed on 10 August 2007 Appointed on 10 August 2007 Appointed on 25 September 2007 Resigned on 13 April 2010 Appointed on 01 January 2011 Appointed on 01 December 2008 Appointed on 03 February 2006 Appointed on 06 April 2011
J Mathenge P Lai D Ndonye
SECRETARY
Ms W Jumba Livingstone Associates Deloitte Place, Waiyaki Way, Muthangari P O Box 30029, GPO 00100 Nairobi Appointed Secretary on 01 January 2011
REGISTERED OFFICE
ICEA Building Kenyatta avenue P O Box 44202, GPO 00100 Nairobi
BANKERS
Major bankers include: BNP Paribas Paris Kenya Commercial Bank Limited CfC-Stanbic Bank Kenya Limited NIC Bank Standard Bank London PLC Commercial Bank of Africa Bank of Africa Limited Ecobank Limited PTA Bank Limited
AUDITORS
PricewaterhouseCoopers Certified Public Accountants The Rahimtulla Tower Upper Hill Road P O Box 43963, 00100 Nairobi
NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that the 53rd Annual General Meeting of the Company will be held at the Hilton Hotel, Nairobi, Kenya on Friday, 27 April 2012 at 11.00 a.m. AGENDA ORDINARY BUSINESS 1. 2. 3. To table the proxies and note the presence of a quorum. To read the notice convening the meeting. To receive the audited Financial Statements for the year ended 31 December 2011 together with the reports of the Chairman and Group Managing Director, Directors and Auditors thereon. Dividend: To confirm an interim dividend of Kshs 0.57 per share which was paid during the year in respect of the financial year ended 31 December 2011. To consider and approve a final dividend of Kshs 0.43 per share for the year ended 31 December 2011 payable on or about 15 May 2012 to the shareholders on the Register of Members at the close of business on 2 May 2012 and to approve the closure of the Register of Members from the close of business on 30 April 2012 to the close of business on 2 May 2012 (both days inclusive) for the purpose of processing the dividend. To approve the Directors remuneration as indicated in the Financial Statements for the year ended 31 December 2011. Re-election of Directors: To re-elect Mr P N Jakobsson, a director retiring by rotation in accordance with the Companys 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 re-election. To re-elect Mr J G Mathenge, a director retiring by rotation in accordance with the Companys 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 re-election. 2. 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: 28 February 2012 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 Companys website www.kenolkobil.com 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. All proxies must be duly completed by the member and must be lodged with the Company Secretary, Livingstone Associates, P.O. Box 30029, 00100 Nairobi, or posted in time to reach not later than 11.00 am on Wednesday, 25 April 2012. Alternatively, duly signed proxies can be scanned and emailed to wjumba@deloitte.com in PDF format. 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 Companys website www.kenolkobil.com 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 31st December 2011 have been published in two daily newspapers with nation-wide circulation.
4. a)
b)
5.
6. a)
3.
b)
CHAIRMAN & GROUP MANAGING DIRECTORS REPORT

I am very pleased to present to you the Annual Accounts of KenolKobil Limited representing, yet again, a strong improvement in most lines of business over 2010, despite challenges across most markets where the Group operates. For the first time ever, the Group total sales volume crossed 3 Million cubic metres, representing an increase in sales volume of over 50%. Net Sales went up by 119%, whilst cost of sales was up by 123%. Gross Profit in the year under review went up by 62% to K.Shs. 12.3B (USD139M) from K.Shs.7.6B (USD 96M) in 2010, representing 5.5% of Net sales compared to 7.5% in 2010. This is due to a much higher increase in sales under the African Trading desk where margins per unit are relatively low. The total Gross margin has gone up, mainly due to stronger contribution coming from sectors as Trading, Resell, LPG, Export, Lubricants, Fuel Oil, Non-Fuels and Aviation. The Group EBITDA (Earning Before Interest, Tax, Depreciation & Amortization) has gone up by 77% from K.Shs. 3.8B (USD 48M) in 2010 to K.Shs. 6.7B (USD 76M) in 2011. Fixed assets have now been restated to historical values upon change of the group policy from revaluation of fixed assets. Net Profit before Income Tax has gone up substantially by K.Shs. 2.1B. (USD 19M) from K.Shs. 2.8B. (USD 36M) in 2010 to K.Shs. 4.9B (USD 55M) in 2011, representing an increase of 74% in 2011. Profit after Income Tax in 2011 is up 71% compared to 2010 and stood at K.Shs 3.27B or USD 37M. The Group effective Income Tax Rate in 2011 was 33.6% about the same as in 2010. In the year under review, there was an increase in exchange losses in 2011 by K.Shs. 582M over 2010, mainly arising from fluctuation of local currencies in most countries of operation. Due to the rapid and steep Kenya Shilling fluctuation against the U.S. Dollar, Kenya operation suffered the highest exchanges loss in the year, of K.Shs. 982M, which included substantial Realised losses on hedged forward positions taken on K.Shs/USD exchange. The effect of Realised Loss started in the month of December 2011 and spilled over into the subsequent Financial Year, of which effect, can be seen in Statement of Comprehensive income. Interest expenses in 2011 were up 160% compared to 2010, while Interest Income was up 79%. The Group Medium Term Borrowing is K.Shs. 1.5B borrowed in October 2011, mainly by KenolKobil Head Office and some from previous years by Kobil Rwanda and Kobil Ethiopia for capital expenditure. The Groups balance sheet has continued to grow in strength. The shareholders equity now stands at K.Shs 11.6B (USD 137M) on the back of a strong performance and continued investment in the region. The total asset base grew by 51.4% in 2011 to K.Shs 46B. The Group changed its accounting policy from revaluing of Fixed Assets to reporting them at Historical Cost Values resulting in a reduction in the Fixed Assets values in the Balance Sheet by K.Shs 1.8B (USD 22M) compared with the previously reported 2010 values. The Board recognises that challenges in the Downstream business will always be experienced. It keeps the Board and Management on its toes, to always be creative in managing market volatility. KenolKobils Management continued its strategy of Geographical expansion outside Kenya and focus on certain high margin business lines coupled with development of new business lines over the recent years, such as African Trading Desk, Non-Fuels, LPG, Fuel Oil among others
CHAIRMAN & GROUP MANAGING DIRECTORS REPORT

and this has proved itself a winning strategy. The Groups performance in 2010 and 2011 Financial Years is the best evidence of this successful strategy. As we projected at the end of 2010, high levels of oil prices have been with us during the year under review and we project the same levels will prevail and may escalate to new all time record within 2012. Fluctuations in oil prices will continue to be among major aspects of the Groups Board and Management focus, particularly in view of the Groups physical inventories level required at any given time. The Boards decision to focus on increase of total Groups storage capacity has made quite decent progress with the new terminals coming on board in Dar-es-Salaam (Tanzania), Bujumbura (Burundi), Lubumbashi (DRC), Jinja (Uganda), Lusaka (Zambia) and others. Following the Boards decision to expand and develop the African Trading Desk, the Company has launched 2 new Trading desks in Dar-es-Salaam and in Harare, run by Oil Traders who have gained the expertise in Head Office. Since the launch, both have been quite active and profitable. We also continue to invest in modern LPG Storage and Filling Plants. In 2010 we opened two, one in Kampala (Uganda) and another in Kigali (Rwanda) and the Group is in progress of putting LPG Plants in Lusaka (Zambia) and Kisumu (Kenya). During the year under review the Group launched a very successful brand building campaign dubbed Life is a Journey, and in Kenya, throughout most of the year, we ran the sales campaigns Deal Poa, K-gas Waka Waka and K-Card promotion, all targeting new clients in the Retail Sector. To improve on the Groups Information Technology, we completed implementation of Oracle Management Information System in Uganda, Zambia and Tanzania, in addition to Head Office, Kenya and Rwanda. In the coming year we plan to implement the same across all the rest, namely Ethiopia, Burundi and Lubumbashi - DRC. The Board continues to hold a strong view of the expected economic growth in Africa and in particular, in all countries the Group operates. We believe that the Group expansion along the East Coast of Africa, being close to sources of oil, mainly Arab Gulf, while developing supply routes into the markets, have been a winning strategy. The Company will continue to position itself as a leading Oil Marketer, while exploring values in all business lines that have been developed in the last few years. The Board is confident in the managements ability to continue delivering growth in value to its Shareholders. On behalf of the Board of Directors, I wish to take this opportunity to thank the KenolKobil team and all Stakeholders who have been so instrumental to the continuous success of the KenolKobil Group. Jacob I. Segman Chairman & Group Managing Director 10th March 2012
CONSOLIDATED INCOME STATEMENT (US Dollars)

(Management Accounts)
For the year ended 31 December 2011
2011 USD000 88.90 2,502,145 (2,363,414) 138,731 3,162 (13,532) (39,819) (12,998) 75,544 (7,149) 2,957 (15,889) 36 55,498 (18,672)
2010 USD000 78.85 1,289,151 (1,192,803) 96,348 1,318 (13,233) (29,108) (7,268) 48,056 (7,057) 1,860 (6,902) 12 35,970 (11,683)
Rate of exchange(average): Ksh/USD Net Sales Cost of sales Gross profit Other income Distribution costs Administrative expenses Net foreign exchange losses EBITDA Depreciation and amortisation Interest income Interest expense Share of profit in Associate Profit before income tax Income tax expense Profit for the year (of which USD 32,121,000 has been dealt with in the accounts of the Company) Attributable to: Equity holders of the Company Earnings per share Basic (USD per share)
36,826
24,287
36,826 0.03
24,287 0.02
Year ended 31 December
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (US Dollars)

2011 USD000 88.90 36,826 (16,440) (654) 19,732 2010 USD000 78.85 24,287 (190) (1,502) 22,595
Rate of exchange(average): Ksh/USD Profit for the year Other comprehensive income for the year, net of tax; Movement in hedge reserve Currency translation differences Total other comprehensive income for the year Attributable to: Equity holders of the Company
19,732
22,595
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (US Dollars)


2011 USD000 Rate of exchange (closing): Ksh/USD Rate of exchange(average): Ksh/USD EQUITY Share capital Share premium Other reserves Retained earnings Proposed dividend Total equity Non-current liabilities Borrowings Deferred income tax Total non-current liabilities 85.05 88.90 865 60,745 (14,399) 82,332 7,441 136,984 17,985 17,985 154,969 REPRESENTED BY: Non-current assets Prepaid operating lease rentals Property, plant and equipment Deferred tax asset Intangible assets Available for sale investment Investment in associate Current assets Inventories Receivables and prepayments Derivative financial asset Current income tax Cash and cash equivalents Current liabilities Payables and accrued expenses Current income tax Borrowings Derivative financial liability Dividends payable Net current assets 2010 USD000 80.85 78.85 910 63,900 (1,709) 66,074 9,466 138,641 1,175 2,342 3,517 142,158
7,697 44,422 5,660 10,479 29 242 68,529 282,281 150,867 410 38,468 472,026 143,109 9,381 204,294 27,916 886 385,586 86,440 154,969
6,668 36,306 10,724 222 53,920 157,709 136,974 684 26,383 321,750 58,681 4,991 169,173 667 233,512 88,238 142,158
BOARD OF DIRECTORS
Mr. J. Segman
Chairman & Group Managing Director
Mr. J. Mathenge
Non-Executive Director
Mr. P.N. Jakobsson

Mr. D. Oyatsi
Mr. T.M. Davidson
Ms. P. Lai
Group Finance Director
Mr. D. Ndonye
GROUP MANAGEMENT TEAM

Mr. Jacob I. Segman - Chairman & Group Managing Director Ms. Pat Lai - Group Finance Director Mr. George Mwangi - Group Exports & Regional Support Manager Mr. Patrick Kondo - Group Mergers and Acquisitions & Regional Support Manager Mr. Steve Muthuma - Group Trading & Supply Optimization Manager Mr. James J. Kariuki - International Finance Manager Mr. David Ohana - General Manager - Kenya Mr. Isaac Gachuria - Assistant General Manager - Kenya Ms. Evelyn Kariuki - Head of Marketing and Fuel Business Development - Kenya Mr. Wilson Wambugu - Head of Operations and Projects Development - Kenya Mr. Werner Griessel - General Manager, Kobil Uganda Ltd Mr. Fabrice Ezavi - Managing Director, Kobil Tanzania Ltd Mr. Mathew Mbugua - Marketing Manager, Kobil Tanzania Ltd Mr. Jerry Thomas - Managing Director, Kobil Zambia Ltd Mr. Elias Kamundi - Marketing and Operations Manager, Kobil Zambia Ltd Mr. Patrick Ngugi - Country Manager, Kobil Petroleum, Rwanda Ltd Mr. Sehmi Lakhbir Singh - Country Manager, KenolKobil Congo SPRL Mr. Avi Bigal - General Manager, Kobil Ethiopia Ltd Mr. Francis Mwangi - Country Manager, Kobil Burundi SA
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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 organizations performance and maximizing shareholders value. The Groups 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 Groups 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 companys 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 Companys strategy, objectives, and values and ensures procedures and practices are in place to implement governance and effective control over the companys 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 Companys progress with respect to strategic direction and operational effectiveness. Board Committees Three 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 Committee This committee comprises of 3 Non-Executive Directors, and by invitation, 2 Executive Directors. The external auditors 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. Remuneration 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 company, including the Employee Share Ownership Plan (ESOP scheme). The committee held 2 meetings during the year. Nominations Committee This committee comprises of 3 Non-Executive Directors and 1 Executive Director. The duties are to review, advice and make recommendations on Board nominations and resignations in the company. The committee held 1 meeting 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.
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CORPORATE SOCIAL RESPONSIBILITY

history of dialogue while Tanzania held the Annual Kobil Rally that drew participants from all over the world. In Rwanda, we continued to support the Genocide Survivors Kitty and sponsored a rally driver during the Mountain Gorilla Rally. We also partnered with the Rwanda National Police during the Police community week to paint zebra crossings during the Traffic Week and fight Gender Based Violence (GBV) in the country. In addition, we sponsored the August 2011 Annual Trade Show, with an aim to support the local business community Private Sector Federation (PSF). In Burundi we continued to work with stakeholders in supporting sporting activities that are geared towards promoting good health and efficiency in the civil service and community at large. In this regard, we supported the Ministry of Commerce, Trade and Tourism with some uniform kits for the Inter-ministry basketball tournament. Further, we supported Mother Teresas Childrens home in Bujumbura. In Zambia we continued to support Chilenje Orphanage, a transit home for lost and abandoned children and children whose parents feel they cannot take care of them. In addition we sponsored the Polo Cross sport and the Mazabuka Cricket teams. The KenolKobil Groups support to community initiatives is on the basis of need, resource availability, sustainability and project relevance to our corporate philosophy. In this regard, and as we grow our footprint in the African continent, we will continue to support community based initiatives with the hope of living up to our corporate slogan KenolKobil Cares for You.
In the year 2011, the KenolKobil Group continued to involve itself in various Corporate Social Responsibility initiatives that were geared towards sustainable socioeconomic, cultural and environmental development. In line with our slogan KenolKobil Cares for You, we enriched the lives of the communities where we have business presence among them, Kenya, Rwanda, Burundi, Ethiopia, Uganda, Tanzania and Zambia. In Kenya, we awarded scholarships to twelve needy students through the KenolKobil Education Fund. The students received a school fees bursary up to the University level, with an opportunity to work in the Company after completing their education. In 2011, Annette Ounga, one of our beneficiaries was employed to work in the Engineering department. In addition, we continued to support Light and Hope for the Disabled Children in Korogocho, a densely populated slum, with foodstuff. The Company also contributed Kshs. 1.5 million towards the Kenyans for Kenya Initiative, in support of famine relief efforts for an estimated 3.5 million Kenyans. Kobil Uganda was the proud principal sponsor of the Bika bya Buganda football tournament finals in which 41 clans competed for the crown. In Ethiopia we supported the Ethiopian Nations, Nationalities and Peoples Day to observe the countries rich
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FINANCIAL HIGHLIGHTS
Net Sales Profit Attributable to Shareholders
250,000
250,000
Shs M
Shs M
200,000 150,000 100,000 50,000
200,000 150,000 100,000 50,000
06
07
09
10 20
06
07
09
10
08
11
08
20
20
20
20
Earnings per Share
20
20
20
20
Capital Expenditure
1,400
Shs M
1,200 1,000 800 600 400 200
2.50 2.00
Shs
1.50 1.00 0.50
08
09
10
06
11
07
06
07
20
20
08
09
10 20
20
20
20
20
20
20
20
20
20
20
20
11
20
11
13
DIRECTORS REPORT
The Directors submit their report together with the Audited Financial Statements for the year ended 31 December 2011, 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 are the importation of crude oil for refining, trading, storage and distribution of refined and other petroleum products. RESULTS AND DIVIDEND The net profit for the year of Shs 3,273,831,000 (2010: (Restated) Shs 1,915,045,000) has been added to retained earnings. During the year, an interim dividend of Shs 838,904,000 was paid (2010: Nil). The directors recommend the approval of a final dividend of Shs 632,857,000 (2010: 765,316,000) at the Annual General Meeting. The results of the year are set out fully on pages 18 to 68 in the attached financial statements. DIRECTORS The Directors who held office during the year and to the date of this report were: J I Segman P Lai D Oyatsi P N Jakobsson J Mathenge T M Davidson D. Ndonye AUDITOR The Companys auditor, PricewaterhouseCoopers, has indicated its willingness to continue 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 28 February 2012. By order of the Board Chairman and Group Managing Director
Appointed on 07 April 2011
SECRETARY 28 February 2012
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STATEMENT OF DIRECTORS RESPONSIBILITIES

The Kenyan Companies Act requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and of the Company as at the end of the financial year and of the Groups profit or loss. It also requires the Directors to ensure that the Group keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Group. They are also responsible for safeguarding the assets of the Group. The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Kenyan Companies Act. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Group and of the Company and of the Groups profit in accordance with International Financial Reporting Standards. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement. Nothing has come to the attention of the Directors to indicate that the Company and its subsidiaries will not remain a going concern for at least twelve months from the date of this statement.
Director 28 February 2012
Director
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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 68. These financial statements comprise the consolidated statement of financial position at 31 December 2011 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 2011 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. Auditors 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 auditors 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 Companys 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 Companys 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 2011 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.
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REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF KENOLKOBIL LIMITED

Report on other legal requirements The Kenyan Companies Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm 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; in our opinion proper books of account have been kept by the Company, so far as appears from our examination of those books; and
ii)
iii) the Companys statement of financial position and statement of comprehensive income are in agreement with the books of account.
Certified Public Accountants Nairobi
29 February 2012
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CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2011

Notes Net Sales Cost of sales Gross profit Other income Distribution costs Administrative expenses Net foreign exchange losses EBITDA Depreciation and amortisation Interest income Interest expense Share of profit in Associate Profit before income tax Income tax expense Profit for the year (of which Shs 2,855,552,000 has been dealt with in the accounts of the Company) Attributable to: Equity holders of the Company Non controlling Interest 3,273,831 3,273,831 Earnings per share Basic (Shs per share) Diluted (Shs per share) 11 11 2.22 2.21 1,915,045 1,915,045 1.30 1.29 10 9 9 23 6 5 2011 Shs000 222,440,715 (210,107,493) 12,333,222 281,028 (1,202,978) (3,539,947) (1,155,478) 6,715,847 (635,550) 262,883 (1,412,563) 3,166 4,933,783 (1,659,952) Restated 2010 Shs000 101,649,560 (94,052,548) 7,597,012 103,861 (1,043,432) (2,295,156) (573,059) 3,789,226 (556,428) 146,697 (544,195) 928 2,836,228 (921,183)
3,273,831
1,915,045
The notes on pages 27 to 68 are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year ended 31 December 2011
Notes 2011 Shs000 3,273,831 14 14 (1,461,538) (58,104) 1,754,189 Restated 2010 Shs000 1,915,045 (14,993) (118,439) 1,781,613
Profit for the year Other comprehensive income for the year, net of tax; Movement in hedge reserve Currency translation differences Total other comprehensive income for the year Attributable to: Equity holders of the Company Non controlling Interest
1,754,189 1,754,189
1,781,613 1,781,613
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2011

At 31 December EQUITY Share capital Share premium Other reserves Retained earnings Proposed dividend Total equity Non-current liabilities Borrowings Deferred income tax Total non-current liabilities 15 17 Notes 13 14 2011 Shs000 73,588 5,166,350 (1,366,477) 7,144,143 632,857 11,650,461 1,529,666 1,529,666 13,180,127 REPRESENTED BY: Non-current assets Prepaid operating lease rentals Property, plant and equipment Deferred tax asset Intangible assets Available for sale investment Investment in associate Current assets Inventories Receivables and prepayments Derivative financial asset Current income tax Cash and cash equivalents Current liabilities Payables and accrued expenses Current income tax Borrowings Derivative financial liability Dividends payable Net current assets Restated 2010 Shs000 73,588 5,166,350 (138,123) 5,342,073 765,316 11,209,204 94,974 189,324 284,298 11,493,502 Restated 2009 Shs000 73,588 5,166,350 (92,193) 4,192,344 478,322 9,818,411 75,929 247,809 323,738 10,142,149
18 19 17 20 22 23
654,652 3,778,098 481,414 891,249 2,448 20,581 5,828,442
539,086 2,935,354 867,069 17,920 4,359,429 12,750,781 11,074,320 55,288 2,133,091 26,013,480 4,744,344 403,501 13,677,675 53,887 18,879,407 7,134,073 11,493,502
599,622 2,839,736 855,227 16,685 4,311,270 13,172,275 8,018,283 14,993 112,060 3,806,455 25,124,066 14,787,916 245,259 4,204,867 55,145 19,293,187 5,830,879 10,142,149
24 25 26 27 28 15 26
24,007,999 12,831,260 34,867 3,271,736 40,145,862 12,171,394 797,893 17,375,238 2,374,288 75,364 32,794,177 7,351,685 13,180,127
The financial statements on pages18 to 68 were approved for issue by the Board of Directors on 28 February 2012 and signed on its behalf by:
Director
Director
20
COMPANY STATEMENT OF FINANCIAL POSITION As at 31 December 2011

At 31 December EQUITY Share capital Share premium Other reserves Retained earnings Proposed dividend Total equity Non-current liabilities Borrowings Deferred income tax Total non-current liabilities REPRESENTED BY: Non-current assets Prepaid operating lease rentals Property, plant and equipment Deferred tax asset Intangible asset Investment in subsidiaries Loans to related parties Current assets Inventories Receivables and prepayments Loan to related party Derivative financial asset Cash and cash equivalents 15 17 Notes 13 14 2011 Shs000 73,588 5,166,350 (985,586) 5,634,493 632,857 10,521,702 1,445,850 1,445,850 11,967,552 18 19 17 20 21 30 133,867 334,148 675,864 28,026 6,165,464 398,097 7,735,466 24 25 30 26 27 22,208,138 12,829,593 5,784,286 2,393,109 43,215,126 Current liabilities Payables and accrued expenses Borrowings Current income tax Dividends payable Derivative financial liability 28 15 26 19,463,897 16,479,367 590,124 75,364 2,374,288 38,983,040 Net current assets 4,232,086 11,967,552 Restated 2010 Shs000 73,588 5,166,350 186,940 4,250,702 765,316 10,442,896 51,428 51,428 10,494,324 58,696 200,147 6,858 5,954,499 16,416 6,236,616 8,448,404 3,651,897 5,784,286 1,834,313 19,718,900 3,039,121 12,065,900 302,284 53,887 15,461,192 4,257,708 10,494,324 Restated 2009 Shs000 73,588 5,166,350 114,431 3,513,670 478,322 9,346,361 25,493 25,493 9,371,854 73,519 186,320 7,285 5,890,642 45,757 6,203,523 1,366,333 3,047,834 3,784,085 14,993 2,960,739 11,173,984 4,005,858 3,789,181 155,469 55,145 8,005,653 3,168,331 9,371,854
The financial statements on pages18 to 68 were approved for issue by the Board of Directors on 28 February 2012 and signed on its behalf by:
Director
Director
21
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2011
Share capital Notes Shs000 Year ended 31 December 2010 At start of the year (as previously stated) Release of revaluation reserve As restated Comprehensive income for the year Profit for the year Other comprehensive income: Movement in hedge reserve Currency translation differences Total other comprehensive income Total comprehensive income Transactions with owners Movement in ESOP reserve Dividends: - Final for 2009 paid - Final proposed for 2010 Total transactions with owners (765,316 ) (478,322) 765,316 (478,322) 14 87,502 87,502 14 14 (14,993 ) (118,439 ) (133,432 ) (133,432 ) 1,915,045 (14,993 (118,439) (133,432) 1,781,613 1,915,045 1,915,045 73,588 73,588 5,166,350 5,166,350 316,649 (408,842 ) (92,193 ) 5,419,719 (1,227,375 ) 4,192,344 478,322 478,322 11,454,628 (1,636,217) 9,818,411 Share premium Shs000 Attributable to equity holders of the Company Other Retained Proposed reserves earnings dividends Shs000 Shs000 Shs000 Total equity Shs000
87,502
(765,316 )
286,994)
(390,820)
At end of year
73,588
5,166,350
(138,123 )
5,342,073
765,316
11,209,204
22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued) For the year ended 31 December 2011
Share capital Notes Shs000 Year ended 31 December 2011 At start of the year (as previously stated) Release of revaluation reserve As restated Comprehensive income for the year Profit for the year Other comprehensive income: Movement in hedge reserve (net of tax) Currency translation differences (net of tax) Total other comprehensive income Total comprehensive income Transactions with owners Movement in ESOP reserve Dividends: - Final for 2010 paid - Interim for 2011 paid - Final Proposed for 2011 Total transactions with owners 12 (838,904 ) (632,857 ) (765,316) 632,857 (765,316) (838,904) 14 291,288 291,288 (58,104 ) (1,519,642 ) (1,519,642 ) 3,273,831 (58,104) (1,519,642) 1,754,189 14 (1,461,538 ) (1,461,538) 3,273,831 3,273,831 73,588 73,588 5,166,350 5,166,350 244,494 (382,617 ) (138,123 ) 6,455,764 (1,113,691 ) 5,342,073 765,316 765,316 12,705,512 (1,496,308) 11,209,204 Share premium Shs000 Attributable to equity holders of the Company Other Retained Proposed reserves earnings dividends Shs000 Shs000 Shs000 Total equity Shs000
73,588
5,166,350
291,288 (1,366,477 )
(1,471,761 ) 7,144,143
(132,459) 632,857
(1,312,932) 11,650,461
At end of year
23
COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2011
Share capital Notes Shs000 Year ended 31 December 2010 At start of the year (as previously stated) Release of revaluation reserve As restated Comprehensive income for the year Profit for the year Other comprehensive income: Movement in hedge reserve Total other comprehensive income Total comprehensive income Transactions with owners Movement in ESOP reserve Dividends: - Final for 2009 paid - Final proposed for 2010 Total transactions with owners 12 (765,316 ) (478,322) 765,316 (478,322) 14 87,502 87,502 14 (14,993 ) (14,993 ) (14,993 ) 1,502,348 (14,993) (14,993) 1,487,355 1,502,348 1,502,348 73,588 73,588 5,166,350 5,166,350 458,138 (343,707 ) 114,431 3,681,070 (167,400 ) 3,513,670 478,322 478,322 9,857,468 (511,109) 9,346,361 Share premium Shs000 Attributable to equity holders of the Company Other Retained Proposed reserves earnings dividends Shs000 Shs000 Shs000 Total equity Shs000
87,502
(765,316 )
(286,994)
(390,820)
At end of year
73,588
5,166,350
186,940
4,250,702
765,316
10,442,896
24
COMPANY STATEMENT OF CHANGES IN EQUITY (Continued) For the year ended 31 December 2011
Share capital Notes Shs000 Year ended 31 December 2011 At start of the year (as previously stated) Release of revaluation reserve As restated Comprehensive income for the year Profit for the year Other comprehensive income: Movement in hedge reserve Total other comprehensive income Total comprehensive income Transactions with owners Movement in ESOP reserve Dividends: - Final for 2010 paid - Interim for 2011 paid - Final proposed for 2011 Total transactions with owners 12 (838,904 ) (632,857 ) 632,857 (765,316) (765,316) (838,904) 14 289,012 289,012 14 (1,461,538 ) (1,461,538 ) (1,461,538 ) 2,855,552 (1,461,538) (1,461,538) 1,394,014 2,855,552 2,855,552 73,588 73,588 5,166,350 5,166,350 519,289 (332,349 ) 186,940 4,387,080 (136,378 ) 4,250,702 765,316 765,316 10,911,623 (468,727) 10,442,896 Share premium Shs000 Attributable to equity holders of the Company Other Retained Proposed reserves earnings dividends Shs000 Shs000 Shs000 Total equity Shs000
73,588
5,166,350
289,012 (985,586 )
(1,471,761 ) 5,634,493
(132,459) 632,857
(1,315,208) 10,521,702
At end of year
25
CONSOLIDATED STATEMENT OF CASHFLOWS For the year ended 31 December 2011

Notes 2011 Shs000 Restated 2010 Shs000
Operating activities Cash generated from /(absorbed in) operations Interest received Interest paid Income tax paid Net cash generated from operating activities Investing activities Prepayment for operating lease rentals Purchase of property, plant and equipment Purchase of intangible asset Purchase of investment Proceeds from disposal of property, plant and equipment Proceeds from disposal of prepaid operating lease Net cash used in investing activities Financing activities Net proceeds from borrowings Dividends paid Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Movement in cash and cash equivalents At start of year Increase/ (decrease) Effects of exchange rate changes on cash and cash equivalents
29 9 9
1,542,966 262,883 (1,412,563) (1,244,807) (851,521)
(8,665,447) 146,697 (544,195) (634,544) (9,697,489) (312,182) (565,234) (20,417) 729 1,500 (895,604)
18 19 20 22
(525,910) (1,174,432) (31,353) (2,448) 162,599 (1,571,544)
5,132,254 (1,582,743) 3,549,511 1,126,446
9,491,854 (479,580) 9,012,274 (1,580,819)
2,133,091 1,126,446 12,199
3,677,897 (1,580,819) 36,013
At end of year
27
3,271,736
2,133,091
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2011
1. General information KenolKobil Limited, 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 44202 00100 NAIROBI The Companys shares are listed on the Nairobi Stock 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 adopted 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 financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, available for sale financial assets and derivative instruments 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 judgement in the process of applying the Groups accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. Changes in accounting policy and disclosures (i) New and amended standards but not relevant to the Group The following new standards and amendments to standards are mandatory for the first time for the financial period beginning 1 January 2011. Standard IAS 1 IFRS 7 Title Presentation of financial statements Financial instruments: Disclosures
The amendment to IAS 1, Presentation of financial statements is part of the 2010 Annual Improvements and clarifies that an entity shall present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The application of this amendment has no significant impact as the Group and Company was already disclosing the analysis of other comprehensive income on its statement of changes in equity. The amendments to IFRS 7, Financial Instruments - Disclosures are part of the 2010 Annual Improvements and emphasises the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. The amendment has also removed the requirement to disclose the following; Maximum exposure to credit risk if the carrying amount best represents the maximum exposure to credit risk; Fair value of collaterals; and Renegotiated assets that would otherwise be past due but not impaired.
27
2. Summary of significant accounting policies (continued) (a) Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (i) New and amended standards but not relevant to the Group (continued) The application of the above amendment has simplified financial risk disclosures made by the Group and Company. Other amendments and interpretations to standards became mandatory for the year beginning 1 January 2011 but had no significant effect on the Groups financial statements. (ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group Numerous new standards, amendments and interpretations to existing standards have been issued but are not yet effective. Below is the list of new standards that are likely to be relevant to the Group and Company. Standard IAS 1 IFRS 9 IFRS 10 IFRS 12 IFRS 13 Title Presentation of financial statements Financial instruments Consolidated financial statements Disclosure of interests in other entities Fair value measurement Applicable for financial years beginning on/after 1 July 2012 1 January 2013 1 January 2013 1 January 2013 1 January 2013
IAS 1, Presentation of financial statements The amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. Entities will be required to separate items presented in other comprehensive income (OCI) into two groups, based on whether or not they may be recycled to profit or loss in the future. Items that will not be recycled will be presented separately from items that may be recycled in the future. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The title used by IAS 1 for the statement of comprehensive income has changed to statement of profit or loss and other comprehensive income, though IAS 1 still permits entities to use other titles. IFRS 9, Financial instruments IFRS 9, was issued in November 2009 and October 2010 and replaces those parts of IAS 39 relating to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entitys business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entitys own credit risk is recorded in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch. The Group and Company is yet to assess IFRS 9s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2013.
28
2. Summary of significant accounting policies (continued) (a) Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) IFRS 10, Consolidated financial statements This is a new standard that replaces the consolidation requirements in SIC-12 ConsolidationSpecial Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. Standard 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 and provides additional guidance to assist in the determination of control where this is difficult to assess. The revised definition of control focuses on the need to have both power and variable returns before control is present. The Group will need to consider the new guidance. IFRS 12, Disclosure of Interests in other entities IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including interests in subsidiaries, associates, joint arrangements, special purpose entities and other off balance sheet vehicles. The Group is yet to assess IFRS 12s full impact. IFRS 13, Fair value measurement IFRS 13 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 all IFRSs. The requirements, which are largely aligned between IFRS 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 IFRS. The Group is yet to assess IFRS 13s full impact. 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 or Company (b) Consolidation (i) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date the control ceases. The Group uses 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 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. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interests proportionate share of the acquirees net assets. Investments in subsidiaries 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.
29
2. Summary of significant accounting policies (continued) (b) Consolidation (continued) (i) Subsidiaries (continued) The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value over any previous equity interest in the acquiree over the fair value of the Groups share of the identifiable net assets acquired is recorded as goodwill. If this 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 profit or loss. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii) 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 by the equity method of accounting and are initially recognised at cost. The Groups investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 23). The Groups share of its associates post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Groups 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 obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Groups interest in the associates. Unrealised losses are also 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. (c) Functional currency and translation of foreign currencies (i) Functional and presentation currency Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Kenya Shillings, which is the Companys functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using 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 the income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or cost.
30
2. Summary of significant accounting policies (continued) (c) Functional currency and translation of foreign currencies (continued) (ii) Transactions and balances (continued) 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. (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 end of the reporting period; (ii) income and expenses for each income statement amount 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. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that are recorded in equity are recognised in the income statement as part of the gain or loss on sale. 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. (d) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decisionmaker (CODM). The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Management Team, who make strategic decisions. All transactions between business segments are conducted on an arms length basis, with intra-segment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance. (e) Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Groups activities. Revenue is shown net of value-added tax (VAT), returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Groups activities as described overleaf:
31
2. Summary of significant accounting policies (continued) (e) Revenue recognition (continued) Revenue is recognised as follows: (i) Sales of goods are recognised in the period in which the Group has delivered products to the customer, the customer has full discretion over the channel to sell the products, and there is no unfulfilled obligation that could affect the customers acceptance of the products. Delivery does not occur until the products have been accepted by the customer. (ii) Interest income is recognised using the effective interest method. (iii) Dividends are recognised as income in the period in which the right to receive payment is established. (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 assets 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. 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 - Buildings on leasehold land - Motor vehicles - Plant and machinery - Furniture and equipment 40 years shorter of 40 years or the period of the lease 5 years 15 years 10 years
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An assets carrying amount is written down immediately to its estimated recoverable amount if the assets 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. (g) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Groups 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.
32
2. Summary of significant accounting policies (continued) (g) Intangible assets (continued) (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 so that it will be available for use; Management intends to complete the software product and use or sell it; 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) Financial assets (i) Classification The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates such designation at every reporting date: (a) 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 arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 month after the statement of financial position date. These are classified as non-current assets. (b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in the loans and receivables category. They are included in non-current assets unless management intends to dispose of the investment within 12 month of the statement of financial position date. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group 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 are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are carried at amortised cost using the effective interest method.
33
2. Summary of significant accounting policies (continued) (h) Financial assets (continued) (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. (iv) Impairment of financial assets a) Assets carried at amortised cost The Group assesses 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. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: a) b) c) d) e) f) significant financial difficulty of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal payments; the Group, for economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for that financial asset because of financial difficulties; or observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: adverse changes in the payment status of borrowers in the portfolio; national or local economic conditions that correlate with defaults on the assets in the portfolio.
The Group first assesses whether objective evidence of impairment exists. For loans and receivables, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instruments fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtors credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. b) Assets classified as available-for-sale The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. 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-forsale 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 the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated income statement.
34
2. Summary of significant accounting policies (continued) (i) 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 the income statement on a straight-line basis over the period of the lease. The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the leases commencement at the lower of the fair value of the lease 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 charge is charged to the income statement 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. (j) Inventories Inventories are stated at the lower of cost and net realisable value. Cost of crude oil and refined products is determined by the weighted average cost method (taking into account the cost of purchase plus incidental costs incurred to bring the inventory to the present location). Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (k) Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are a classified as current assets. If not, they are presented as non-current assets. (l) 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. Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (m) 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. (n) 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. Bank overdrafts are shown within borrowings in current liabilities.
35
2. Summary of significant accounting policies (continued) (o) Employee benefits (i) Retirement benefit obligations The Group operates defined contribution retirement benefit schemes for all its employees. The Group and all its employees, where applicable, 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 all employees the benefits relating to employee service in the current and prior periods. The assets of the scheme are held in a separate trustee administered fund, which is funded by contributions from both the Group and employees. The Groups contributions to the defined contribution schemes are charged to the income statement in the year to which they relate. (ii) Other entitlements The estimated monetary liability for employees accrued annual leave entitlement at the statement of financial position date is recognised as an expense accrual. (iii) Share options 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. In addition, the Company has an Options agreement with the CEO under which he is entitled to receive options for units amounting to 4% of the companys shares in respect of the financial years 2011 to 2014 that was issued on 1 May 2011. 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. (p) Current and deferred income tax Income tax expense is the aggregate of the charge to the income statement in respect of current income tax and deferred income tax. Current income tax is the amount of income tax payable on the taxable profit for the period determined in accordance with the relevant tax legislation. Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from the 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 nor loss, it is not accounted for. Deferred income tax is determined using tax rates enacted or substantively enacted at the statement of financial position date and are expected to apply when the related deferred income tax liability is settled.
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2. Summary of significant accounting policies (continued) (p) Current and deferred income tax (continued) Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except 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 future. (q) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method; any differences between 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. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 month after the statement of financial position date. (r) Dividend distribution Dividends distribution to the Companys shareholders is recognised as a liability in the period in which they are declared. Dividends are declared upon an approval at the annual general meeting. Proposed dividends are shown as a separate component of equity until declared. (s) 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. Restructuring provisions comprise lease termination penalties and employee termination payments. 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. (t) Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so the nature of the item being hedged. The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments used for hedging purposes are disclosed in Note 26. The movements on the hedging reserve in shareholders equity are shown in Note 14. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedge item is more than 12 month; it is classified as a current asset or liability when the remaining maturity to the hedge item is less than 12 month. (i ) Cash flow hedge The effective portions of changes in the fair value of derivatives that are designated and qualify as cash flow hedge are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other gains/ losses (net).
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2. Summary of significant accounting policies (continued) (t) Derivative financial instruments and hedging activities (continued) (ii ) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised in the income statement within other gains/ (losses) net. (u) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 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 Fair value estimation The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These include the use of recent arms length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuers specific circumstances. Prior years restatements The Group previously accounted for its property plant and equipment at fair value less subsequent depreciation based on periodic valuations by external independent valuers. Arising from a policy change in the current year, property plant and equipment has now been restated to their historical values. The effect of these changes are outlined under note 19 (c): 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-inuse 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. 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. Income taxes The Group is subject to income taxes in various jurisdictions. Significant judgment is required in determining the Groups 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 income tax and deferred income tax provisions in the period in which such determination is made. (ii) Critical judgements in applying the entitys accounting policies In the process of applying the Groups accounting policies, management has made judgements in determining: whether assets are impaired; and provisions and contingent liabilities.
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4. Financial risk management The Groups activities expose it to a variety of financial risks, including credit risk and the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Groups overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its 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 and non-derivative financial instruments and investment of excess liquidity. 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. The Group manages foreign exchange risk arising from future commercial transactions and recognised assets and liabilities using forward contracts (which have been entered into in 2011), and had not designated some derivative instruments as hedging instruments. Currency exposure arising from the net assets of foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. At 31 December 2011, 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 1,367,167,000 (2010: Shs 353,847,000) higher/lower, mainly as a result of US dollar receivables, borrowings, derivatives and bank balances. (ii) Cash flow and fair value interest rate risk The Group has borrowings at variable rates, which expose the Group to cash flow interest rate risk. The Group regularly monitors financing options available to ensure optimum interest rates are obtained. At 31 December 2011, an increase/decrease of 0.5% points would have resulted in an decrease/increase in consolidated post tax profit of Shs 78,166,000 (2010: Shs 79,507,000), mainly as a result of higher/lower interest charges on variable rate borrowings.
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4. Financial risk management (continued) Credit risk Credit risk is managed on a group basis. Credit risk arises from derivative financial instruments and deposits with banks, as well as trade and other receivables. Neither the Group nor the Company has any significant concentrations of credit risk. The Group assesses the credit quality of each 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. Group 2011 Shs000 Cash equivalents Trade receivables Loans to related parties Other receivables 3,271,736 6,465,838 4,655,252 14,392,826 2010 Shs000 2,133,091 6,461,610 2,684,028 11,278,729 Company 2011 Shs000 2,393,109 4,338,522 9,349,248 4,069,119 20,149,998 2010 Shs000 1,834,313 2,339,254 5,800,702 260,674 10,234,943
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 2011 Shs000 Past due but not impaired: - by up to 30 days - by 31 to 90 days Total past due but not impaired Impaired and fully provided for 183,387 509,728 693,115 (876,669) 2010 Shs000 784,252 1,094,532 1,878,784 (496,862) Company 2011 Shs000 49,076 80,391 129,467 (813,384) 2010 Shs000 56,541 236,804 293,345 (111,585)
All receivables past due by more than 90 days are considered to be impaired, and are carried at their estimated recoverable value.
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4. Financial risk management (continued) Liquidity risk Prudent liquidity risk management includes maintaining sufficient cash and marketable securities, and the availability of funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Groups liquidity reserve on the basis of expected cash flow. The table below analyses the Groups and the Companys 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. Less than 1 year Shs000 (a) Group At 31 December 2011: - finance leases Between 1 and 2 years Shs000 Over 2 years Shs000
- borrowings (excluding finance leases)
17,371,050 12,171,394 4,188
1,030,805 14,112 -
459,338 25,411 -
- trade and other payables
At 31 December 2010: - finance leases
- borrowings (excluding finance leases) - trade and other payables
13,673,535 4,744,344
4,140
56,395
16,558
22,021 -
(b) Company At 31 December 2011:
- trade and other payables At 31 December 2010:
- borrowings (excluding finance leases)
19,463,896
16,479,367
986,512 -
459,338 -
- borrowings (excluding finance leases) - trade and other payables
12,065,900 3,039,121
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4. Financial risk management (continued) Capital management The Groups objectives when managing capital are to safeguard the Groups 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. 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 2011 Shs000 Total borrowings Less: cash and cash equivalents Net debt Total equity Total capital Gearing ratio 2010 Shs000 Company 2011 Shs000 2010 Shs000 12,065,900 (1,834,313) 10,231,587 10,442,896 20,674,483 49%
18,904,904 13,772,649 17,925,217 (3,271,736) (2,133,091) (2,393,109) 15,633,168 11,650,461 27,283,629 57% 11,639,558 11,209,204 22,848,762 51% 15,532,108 10,521,702 26,053,810 60%
5. Segment information Management has determined the operating segments based on the reports reviewed by the Group Management Team in making strategic decisions. The Group Management Team considers the business from a Line of business persepective. The reportable operating segments derive their revenue primarily from the importation of crude oil for refining, trading, storage and distribution of refined and other petroleum products. The Group Management Team assesses the performance of the operating segments based on a measure of adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). 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.
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5. Segment information (continued) The segment information provided to the Group Management Team for the reportable segments for the year ended 31 December 2011 is as follows: Inland Market Shs 000 Total segment revenue Revenue from external customers Adjusted EBITDA Depreciation and amortisation Finance cost Income tax expense Share of profit from associates Profit after tax 94,211,640 94,211,640 2,355,240 (568,700) (515,092) (427,774) 843,674 Export, Trading, Aviation Shs 000 123,782,674 123,782,674 2,962,862 (29,624) (580,517) (791,564) 1,561,157 Other Business Lines Shs 000 4,446,401 4,446,401 1,397,745 (37,226) (54,071) (440,614) 3,166 869,000 Total Shs 000 222,440,715 222,440,715 6,715,847 (635,550) (1,149,680) (1,659,952) 3,166 3,273,831
The segment information provided to the Group Management Team for the reportable segments for the year ended 31 December 2010 is as follows: Inland Market Shs 000 Total segment revenue Revenue from external customers Adjusted EBITDA Depreciation and amortisation Finance cost Income tax expense Share of profit/(loss) from associates Profit after tax 53,928,507 53,928,507 2,052,781 (495,576) (961) (505,971) 1,050,273 Export, Trading, Aviation Shs 000 44,708,006 44,708,006 888,545 (29,568) (344,996) (166,582) 347,399 Other Business Lines Shs 000 3,013,047 3,013,047 847,899 (31,284) (51,541) (248,630) 928 517,373 Total Shs 000 101,649,560 101,649,560 3,789,226 (556,428) (397,498) (921,183) 928 1,915,045
The Groups 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 intergrated 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 our revenue and geographical information is unavailable as the cost to develop it would be excessive.
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6. Other income Group 2011 Shs000 114,813 106,451 59,764 281,028 7. Expenses by nature The following items have been charged/ (credited) in arriving at profit before income tax: Group 2011 Shs000 1,293,285 400,897 226,321 385,648 268,732 77,983 15,732 33,166 2010 Shs000 1,030,822 343,419 204,540 (176,354) 167,621 11,320 25,399 2010 Shs000 577 (7,959) 72,876 38,367 103,861
Gain on disposal of property, plant and equipment Loss on disposal of prepaid lease rentals Rental income Facility fees
Employee benefits expense (Note 8) Amortisation of operating lease rentals (Note 18) Depreciation of property, plant and equipment (Note 19) Receivables provision for impairment losses (Note 25) Repairs and maintenance of property, plant and equipment Inventory written down Auditors remuneration - Company - Group (including Company)
8. Employee benefits expense The following items are included within employee benefits expense: Group 2011 Shs000 904,449 49,463 22,397 291,288 25,688 1,293,285 2010 Shs000 722,020 40,312 17,448 87,502 163,540 1,030,822
Salaries and wages Retirement benefits costs: - Defined contribution scheme - National Social Security Funds Employee Share Ownership Plan (ESOP) costs Other staff costs
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9. Finance income /(costs) 2011 Shs000 Interest income Interest expense Net foreign exchange losses Net finance costs 10. Income tax expense Group 2011 Shs000 1,658,126 1,826 1,659,952 Restated 2010 Shs000 850,583 71,759 (1,159) 921,183 262,883 (1,412,563) (1,155,478) (2,305,158) 2010 Shs000 146,697 (544,195) (573,059) (970,557)
Current income tax Movement in deferred income tax (Note 17) Prior year (over) / under provision of current income tax Income tax expense
The tax on the Groups profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2011 Shs000 Profit before income tax Tax calculated at a tax rate of 30% (2010: 30%) Effect of different tax rates in Kobil Zambia, Kobil Petroleum Limited (Kenya) and Kobil Burundi (35%), (37.5%) and (1% of turnover) respectively Prior year (over) / under provision of current income tax Prior year (over) / under provision of deferred income tax Expenses not deductible for tax purposes Effect of unutilised tax losses Income not subject to tax Deferred tax asset not recognised Income tax expense 4,933,783 1,480,135 64,374 (43,571) 196,760 (232) (37,430) (84) 1,659,952 Restated 2010 Shs000 2,697,823 809,347 36,532 (1,159) (696) 95,616 299 (9,894) (8,862) 921,183
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11. Earnings per share 2011 Profit attributable to equity holders of the Company (Shs 000) Number of ordinary shares in issue Basic earnings per share (Shs) 3,273,831 1,471,761,200 2.22 2010 1,915,045 1,471,761,200 1.30
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. 2011 Profit attributable to equity holders of the Company (Shs000) Number of ordinary shares in issue Adjustment for Group Employee Share Ownership Plan Weighted average number of ordinary shares for diluted earnings per share Diluted earnings per share (Shs) This computation does not take into account gains/losses recognised directly in equity. 12. Dividends At the annual general meeting scheduled to take place on 27-April-2012, a final dividend payment of Shs 0.43 per share will be proposed (2010: Shs 0.52). This amount to Shs 632,857,000 (2010: 765,316,000). During the year, an interim dividend of Shs. 0.57 per share was paid (2010: Nil), this amounts to Shs. 838,904,000 (2010: 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. 13. Share capital 2011 Number of Ordinary ordinary share capital shares Shs000 Authorised Issued 2,000,000,000 1,471,761,200 100,000 73,588 2010 Number of Ordinary ordinary share capital shares Shs000 1,500,000,000 1,471,761,200 75,000 73,588 3,273,831 1,471,761,200 4,159,510 1,475,920,710 2.21 2010 1,915,045 1,471,761,200 3,941,360 1,475,702,560 1.29
At the annual general meeting held on 28 April 2011, the shareholders approved the increase of the authorised nominal share capital from Shs 75,000,000 divided into 1,500,000,000 ordinary shares of Shs 0.05 each to Shs 100,000,000 divided into 2,000,000,000 ordinary shares of Shs 0.05 each by creation of an additional 500,000,000 new ordinary shares of Shs 0.05 each.
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14. Other Reserves
a) Group Year ended 31 December 2010 At start of year Release of revaluation reserve As restated Currency translation differences Movement in the ESOP reserve Movement in hedge reserve Net gain/ (loss) recognised At end of year Year ended 31 December 2011 At start of year Release of revaluation reserve As restated Currency translation differences Movement in the ESOP reserve Movement in hedge reserve Net gain/ (loss) recognised At end of year 382,798 (382,798) 101,495 101,495 291,288 291,288 392,783 85,445 85,445 85,445 (325,246 ) 183 (325,063 ) 244,492 (382,615) (138,123) (58,104) 291,288 (1,461,538) (1,228,354) (1,366,477) 407,835 (407,835) 13,993 13,993 87,502 87,502 101,495 85,445 85,445 85,445 (205,617 ) (1,007 ) (206,624 ) (118,439 ) (118,439 ) (325,063 ) 14,993 14,993 (14,993) (14,993) 316,649 (408,842) (92,193) (118,439) 87,502 (14,993) (45,930) (138,123) Revaluation surplus Shs000 ESOP reserve Shs000 Fair value reserves Shs000 Translation reserve Shs000 Hedge reserve Shs000 Total Shs000
(58,104 ) - (1,461,538) (58,104 ) (1,461,538) (383,167 ) (1,461,538)
The hedge reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the underlying hedging instrument matures (usually within 6 months from inception), consistent with the relevant accounting policy. Losses of Shs 237 million have been recognised in the income statement during the year.
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14. Other Reserves (Continued)
b) Company Year ended 31 December 2010 At start of year Release of revaluation reserve As restated Movement in the ESOP reserve Movement in hedge reserve Net gains/ (loss) recognised At end of year Year ended 31 December 2011 At start of year Release of revaluation reserve As restated Movement in the ESOP reserve Movement in hedge reserve Net gains/ (loss) recognised At end of year 332,347 (332,347) 101,495 101,495 289,012 289,012 390,507 85,445 85,445 519,287 (332,347) 186,940 289,012 (1,461,538) (1,172,526) (985,586) 343,707 (343,707 ) 13,993 13,993 87,502 87,502 101,495 85,445 85,445 85,445 14,993 14,993 (14,993) (14,993) 458,138 (343,707) 114,431 87,502 (14,993) 72,511 186,940 Revaluation surplus Shs000 ESOP reserve Shs000 Fair value reserves Shs000 Hedge reserve Shs000 Total Shs000
- (1,461,538) - (1,461,538) 85,445 (1,461,538)
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15. Borrowings The borrowings are made up as follows: Group 2011 Shs000 Non-current Bank borrowings Finance leases Total Non-current Current Bank borrowings - borrowings in KShs - borrowings in USD - borrowings in TShs - borrowings in Ushs - borrowings in Ebirr - borrowings in Zkw - borrowings in Rwf - borrowings in BIF Commercial paper Finance leases Total current Total borrowings 1,490,143 39,523 1,529,666 56,395 38,579 94,974 1,445,850 1,445,850 2010 Shs000 Company 2011 Shs000 2010 Shs000
3,778,721 11,486,586 641,283 (7) 44,085 136,633 10,572 59,118 1,214,059 4,188 17,375,238 18,904,904
3,271,656 8,861,297 390,139 16,953 46,403 103,368 983,719 4,140 13,677,675 13,772,649
3,778,721 11,486,587 1,214,059 16,479,367 17,925,217
2,231,014 8,851,167 983,719 12,065,900 12,065,900
The bank borrowings are secured by certain land and buildings of the Group with a value in excess of Shs. 548 million (2010: Shs. 450 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 Groups long term borrowings due to inability to forecast interest rate and foreign exchange rate changes.
Group 2011 Shs000 Between 1 and 2 years Between 2 and 5 years 1,030,805 459,338 1,490,143 2010 Shs000 56,395 56,395
Company 2011 Shs000 986,512 459,338 1,445,850 2010 Shs000 -
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15. Borrowings (continued) Letter of credit (LC) facilities available to the Group are USD 581 million (2010: US$ 227 million). Unutilised LC facilities at year end amount to USD 391 million (2010: USD 139 million).
Finance lease liabilities minimum lease payments
Group 2011 Shs000 2010 Shs000 4,140 16,558 22,021 42,719
Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years
4,188 14,112 25,411 43,711
16. Employees Share Ownership Plan (ESOP) As at 31 December 2011, 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 5 year. 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. The Company has an options agreement with the CEO under which he is entitled to receive options for units amounting to 4% of the Companys shares in respect of the financial years 2010 to 2014 that was issued on 1 May 2011. The CEO options are priced at the ruling subscription price at the end of 2009. The same terms are applicable as the other options issued under the executive option scheme.
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16. Employees Share Ownership Plan (ESOP) (continued) A summary of the status of all schemes as at 31 December 2011 and 31 December 2010 and changes during the years ended on these dates is presented below:
Employee Share Ownership Scheme Outstanding at 1 January Granted Exercised / vested Forfeited Outstanding at 31 December
2011 No. of Units 3,941,360 1,596,388 (1,097,490) (280,748) 4,159,510
2010 No. of Units 3,772,000 1,188,480 (842,450) (176,670) 3,941,360
Executive Option Scheme Number of options At 1 January Granted Exercised Forfeited Expired At 31 December Exercisable at 31 December 72,268,000 72,438,450 (327,433) 144,379,017 54,387,970
2011 weighted average exercise price Shs 8.109 5.288 7.384 6.665 -
Number of options 51,785,390 21,762,610 (1,280,000) 72,268,000 32,486,750
2010 weighted average exercise price Shs 9.543 4.715 8.400 8.109 -
There were no options exercised during the year (2010: Nil). The options outstanding at 31 December 2011 had a weighted average exercise price of Shs 6.665 (2010: Shs 8.109) and a weighted average remaining contractual life of 5 years (2010: 5 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
17. Deferred income tax Deferred income tax is calculated using the enacted income tax range rates of between 30% and 37.5% (2010: 30% 37.5%). The movement on the deferred income tax account is as follows: Group 2011 Shs000 At start of year Charge to profit and loss account (Note 10) Credit to equity At end of year 189,324 1,826 (672,564) (481,414) 2010 Shs000 247,809 71,759 (130,244) 189,324 2009 Shs000 359,101 111,545 (222,837) 247,809 2011 Shs000 51,428 (727,292) (675,864) Company 2010 Shs000 25,493 77,032 (51,097) 51,428 2009 Shs000 70,593 9,697 (54,797) 25,493
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 2011 At 1 January 2011 Shs000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Unrealised exchange differences and hedge losses Currency translation differences Charged/ Credited to income statement Shs000 Credited to equity Shs000 At 31 December 2011 Shs000
171,351 141,059 8,328 320,738
47,843 (118,060) 8,612 (61,605)
(16,399) (637,674) (220) (654,293)
202,795 (614,675) 16,720 (395,160)
Deferred income tax assets Provisions Tax losses Unrealised exchange differences
(114,953 ) (11,602 ) (4,859 ) (131,414 )
19,447 5,668 38,316 63,431 1,826
29,597 (6,648) (41,220) (18,271) (672,564)
(65,909) (12,582) (7,763) (86,254) (481,414)
Net deferred income tax liability/(asset)
189,324
52
17. Deferred income tax (continued) Group (Continued) 2010 At 1 January 2010 Shs000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Unrealised exchange differences Currency translation differences Charged/ (Credited) to income statement Shs000 Credited to equity Shs000 At 31 December 2010 Shs000
350,929 5,653 356,582
(7,087) 98,812 2,675 94,400 (13,136) (9,819) 314 (22,641) 71,759
(172,491) 42,247 (130,244) (130,244)
171,351 141,059 8,328 320,738 (114,953) (11,602) (4,859) (131,414) 189,324
Deferred income tax assets Provisions Tax losses Unrealised exchange differences Net deferred income tax liability
(101,817 ) (1,783 ) (5,173 ) (108,773 ) 247,809
2009
At 1 January 2009 Shs000
Charged/ (Credited) to income statement Shs000
Credited to equity Shs000
At 31 December 2009 Shs000
Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Currency translation differences
145,992 381,794 1,670 529,456
77,095 (31,115) 3,983 49,963 (14,833) 42,242 34,173 61,582 111,545
127,842 (350,679) (222,837) (222,837)
350,929 5,653 356,582 (101,817) (1,783) (5,173) (108,773) 247,809
Deferred income tax assets Provisions (including hedge reserve) Tax losses Unrealised exchange differences
(86,984 ) (44,025 ) (39,346 ) (170,355 )
Net deferred income tax liability
359,101
53
17. Deferred income tax (continued) Company 2011 At 1 January 2011 Shs000 Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Provisions Unrealised exchange differences Net deferred tax liability 2010 Charged/ (Credited) to income statement Shs000 Credited to equity Shs000 At 31 December 2011 Shs000
(38,316 ) 89,744 51,428 At 1 January 2010 Shs000
(3,100) 8,070 (78,593) (73,623) Charged/ (Credited) to income statement Shs000
(19,297) (634,372) (653,669) Credited to equity Shs000
(22,397) (30,246) (623,221) (675,864) At 31 December 2010 Shs000
Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Provisions Unrealised exchange differences Net deferred tax liability
57,227 (22,967 ) (8,767 ) 25,493
(6,130) (15,349) 98,511 77,032
(51,097) (51,097)
(38,316) 89,744 51,248
2009
At 1 January 2009 Shs000
Charged/ (Credited) to income statement Shs000
Credited to equity Shs000
At 31 December 2009 Shs000
Deferred income tax liabilities Property, plant and equipment: - on historical cost basis - on revaluation surplus Provisions Unrealised exchange differences Net deferred tax liability
(8,051 ) 120,001 (14,407 ) (26,950 ) 70,593
74 (8,560) 18,183 9,697
65,204 (120,001) (54,797)
57,227 (22,967) (8,767) 25,493
54
18. Prepaid operating lease rentals Group 2011 Shs000 At start of year Release of revaluation As restated Additions Disposals Amortisation for the year Currency translation differences At end of year 19. Property, plant and equipment (a) Group Freehold land Shs000 At 1 January 2009 Cost or valuation Accumulated depreciation Net book amount Year ended 31 December 2009 Opening net book amount Release of revaluation As restated Additions Disposals Currency translation differences Depreciation charge Closing net book amount At 31 December 2009 Cost or valuation Accumulated depreciation Net book amount 573,998 573,998 Buildings Shs000 2,613,715 (220,365) 2,393,350 Motor vehicles Shs000 57,637 (15,998) 41,639 Plant & equipment Shs000 1,956,044 (241,699) 1,714,345 Furniture & office equipment Shs000 284,272 (143,966) 140,306 674,562 (135,476) 539,086 525,910 (4,730) (400,897) (4,717) 654,652 2010 Shs000 733,908 (134,286) 599,622 312,182 (9,459) (343,419) (19,840) 539,086 2009 Shs000 869,137 (134,286) 734,851 306,670 (119,146) (292,886) (29,867) 599,622 2011 Shs000 63,489 (4,793) 58,696 261,237 (3,500) (182,566) 133,867 Company 2010 Shs000 78,312 (4,793) 73,519 93,186 (108,009) 58,696 2009 Shs000 176,330 (4,793) 171,537 109,705 (117,704) (90,019) 73,519
Total Shs000 5,485,666 (622,028) 4,863,638
573,998 (302,821) 271,177 (4,286) (50,419) 216,472 216,472 216,472
2,393,350 (692,076) 1,701,274 240,954 (83,147) (114,475) (51,849) 1,692,757 2,339,708 (646,951) 1,692,757
41,639 (6,446) 35,193 3,143 (3,028) (9,930) 25,378 (12,451) 37,829 25,378
1,714,345 (779,630) 934,715 91,867 (8,821) (67,385) (100,015) 850,361 1,222,777 (372,416) 850,361
140,306 (72,679) 67,627 16,410 (3,809) (25,460) 54,768 21,641 33,127 54,768
4,863,638 (1,853,652) 3,009,986 352,374 (96,254) (239,116) (187,254) 2,839,736 3,788,147 (948,411) 2,839,736
55
19. Property, plant and equipment (continued) (a) Group (Continued) Freehold land Shs000 Year ended 31 December 2010 Opening net book amount Release of revaluation As restated Additions Disposals Transfers Currency translation differences Charge for the year Closing net book amount At 31 December 2010 Cost or valuation Accumulated depreciation Net book amount Year ended 31 December 2011 Opening net book amount Release of revaluation As restated Additions Disposals Currency translation differences Revaluation Charge for the year Closing net book amount At 31 December 2011 Cost or valuation Accumulated depreciation Net book amount 495,313 (302,893) 192,420 211,030 (605) (6,223) 396,622 396,622 396,622 2,386,320 (557,772) 1,828,548 722,625 (40,895) (56,432) (1,769) (91,671) 2,360,475 3,087,308 (726,833) 2,360,475 48,004 (5,895) 42,109 16,969 (4,089) 401 (13,706) 41,685 98,484 (56,799) 41,685 1,602,060 (732,529) 869,531 191,217 2,228 (46,447) 2,078 (96,283) 922,324 1,493,134 (570,810) 922,324 63,314 4,595,011 518,721 (302,249) 216,472 (24,052) 2,296,161 (603,404) 1,692,757 361,954 (6,059) (166,628) (53,476) 1,828,548 2,589,620 (761,072) 1,828,548 64,369 (38,991) 25,378 26,864 1,734 (11,867) 42,109 33,854 8,255 42,109 1,543,971 (693,610) 850,361 148,595 (69) 5,094 (19,355) (115,095) 869,531 1,401,370 (531,839) 869,531 89,158 4,512,380 Motor vehicles Shs000 Plant & equipment Shs000 Furniture & office equipment Shs000
Buildings Shs000
Total Shs000
(34,390) (1,672,644) 54,768 27,821 (83) 965 (56,623) (24,102) 2,746 2,839,736 565,234 (152) (264,924) (204,540) 2,935,354
192,420 192,420 192,420
(25,961) 4,191,303 28,707 (1,255,949) 2,746 2,935,354
(60,568) (1,659,657) 2,746 32,521 (402) 46,638 150 (24,661) 56,992 2,935,354 1,174,432 (43,763) (62,063) 459 (226,321) 3,778,098
161,317 5,236,865 (104,325) (1,458,767) 56,992 3,778,098
56
19. Property, plant and equipment (continued) b) Company Freehold land Shs000 At 1 January 2009 Cost or valuation Accumulated depreciation Net book amount Year 31 December 2009 Opening net book amount as previously stated Revaluation surplus reversal As restated Additions Transfers Disposals Charge for the year Closing net book amount At 31 December 2009 Cost or valuation Accumulated depreciation Net book amount Year 31 December 2010 Opening net book amount Revaluation surplus reversal As restated Additions Transfers Disposals Charge for the year Closing net book amount At 31 December 2010 Cost or valuation Accumulated depreciation Net book amount 108,375 (102,216) 6,159 6,159 6,159 6,159 108,375 (102,216) 6,159 6,159 6,159 6,159 473,663 (264,160) 209,503 25,373 (7,191) (60,227) (66,580) 100,878 191,709 (90,831) 100,878 374,744 (273,866) 100,878 76,103 (18,355) (37,417) 121,229 253,646 (132,417) 121,229 4,512 4,512 3,620 (1,927) 6,205 8,132 (1,927) 6,205 6,205 6,205 10,000 (3,227) 12,978 19,794 (6,816) 12,978 245,793 (185,487) 60,306 8,730 7,191 (685) (26,103) 49,439 53,184 (3,745) 49,439 234,927 (185,488) 49,439 5,652 1,317 (26,462) 29,946 58,491 (28,545) 29,946 35,853 (4,324) 31,529 1,140 (9,030) 23,639 30,895 (7,256) 23,639 18,257 (5,382) 23,639 5,432 9,556 (83) (8,689) 29,835 36,093 (6,258) 29,835 868,196 (556,187) 312,009 38,863 (60,912) (103,640) 186,320 290,079 (103,759) 186,320 742,508 (556,188) 186,320 97,186 (7,482) (83) (75,795 ) 200,147 374,183 (174,036) 200,147 108,375 108,375 Buildings Shs000 479,181 (5,518) 473,663 Motor vehicles Shs000 6,174 (1,662) 4,512 Plant & equipment Shs000 245,793 245,793 Furniture & office equipment Shs000 158,839 (122,986) 35,853
Total Shs000 998,362 (130,166) 868,196
57
19. Property, plant and equipment (continued) b) Company (continued) Freehold land Shs000 Year ended 31 December 2011 Opening net book amount Revaluation surplus reversal As restated Additions Transfers Disposals Charge for the year Closing net book amount At 31 December 2011 Cost or valuation Accumulated depreciation Net book amount 6,159 6,159 387,585 (150,013) 237,572 22,490 (11,109) 11,381 85,784 (37,143) 48,641 44,950 (14,555) 30,395 546,968 (212,820) 334,148 108,375 (102,216) 6,159 6,159 395,075 (273,846) 121,229 137,497 (21,154) 237,572 12,978 12,978 2,854 (4,451) 11,381 216,588 (186,642) 29,946 26,139 (7,444) 48,641 23,319 6,516 29,835 11,606 (1,388) (203) (9,455) 30,395 756,335 (556,188) 200,147 178,096 (1,388) (203) (42,504) 334,148 Motor vehicles Shs000 Plant & equipment Shs000 Furniture & office equipment Shs000
Buildings Shs000
Total Shs000
In the opinion of the directors, there are no impairments of property, plant and equipment. c) Prior year adjustments The Group previously accounted for its property plant and equipment at fair value less subsequent depreciation based on periodic valuations by external independent valuers. Arising from a policy change in the current year, property plant and equipment has now been restated to their historical values. The effect of these changes are: Prior year adjustment 2010 As Release of previously revaluation stated reserve Shs000 Shs000 Property plant and equipment Prepaid operating lease rentals Retained earning Revaluation reserve Translation reserve Deferred tax 4,595,011 674,562 (6,455,764) (382,798) 325,246 (536,738) (1,659,657) (135,477) 1,113,691 382,798 (183) 347,414 As restated Shs000 2,935,354 539,086 (5,342,073) 325,063 (189,324) As previously stated Shs000 4,512,380 733,908 (5,419,719) (407,835) 205,617 (465,113) 2009 Release of revaluation stated Shs000 As restated Shs000
(1,672,644) 2,839,736 (134,286) 599,622 1,227,375 (4,192,344) 407,835 1,007 206,624 217,303 (247,810 )
58
20. Intangible assets (a) Group Goodwill Shs000 At 1 January 2009 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2009 Opening net book amount Additions Amortisation Closing net book amount At 31 December 2009 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2010 Opening net book amount Additions Amortisation Currency translation differences Closing net book amount At 31 December 2010 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2011 Opening net book amount Additions Amortisation Reclassification Currency translation differences Closing net book amount At 31 December 2011 Cost Accumulated amortisation and impairment Net book amount 835,034 835,034 835,034 12,908 847,942 847,942 847,942 847,942 847,942 847,942 847,942 847,942 847,942 847,942 847,942 Computer software Shs000 62,753 (42,175) 20,578 20,578 (13,293) 7,285 62,753 (55,468) 7,285 7,285 20,417 (8,469) (106) 19,127 83,064 (63,937) 19,127 19,127 31,353 (8,332) 1,388 (229) 43,307 115,576 (72,269) 43,307
Total Shs000 897,787 (42,175) 855,612 855,612 12,908 (13,293) 855,227 910,695 (55,468) 855,227 855,227 20,417 (8,469) (106) 867,069 931,006 (63,937) 867,069 867,069 31,353 (8,332) 1,388 (229) 891,249 963,518 (72,269) 891,249
59
20. Intangible assets (continued) (a) Group (continued) Impairment tests for goodwill Goodwill is allocated to the Groups cash-generating units (CGUs) identified according to country of operation. A CGU summary of the goodwill allocation is presented below: 2011 Shs000 Cost- Kobil Uganda Limited Cost - Kobil Petroleum Limited Cost Kobil Burundi SA 26,098 808,936 12,908 847,942 2010 Shs000 26,098 808,936 12,908 847,942 2009 Shs000 26,098 808,936 12,908 847,942
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. EBITDA margin1 Growth rate2 Discount rate3
1 2
Kenya 2% 3% 10%
Uganda 5% 2% 15%
Burundi 5% 2% 15%
Budgeted EBITDA margin. 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 pre-tax and reflect specific risks relating to the relevant segments. Based on the annual impairment test for goodwill in accordance with the above allocation to CGUs, there is no impairment of goodwill at 31 December 2011, 2010 and 2009.
60
20. Intangible assets (continued) (b) Company Computer software Shs000 62,753 (42,175 ) 20,578 20,578 (13,293 ) 7,285 62,753 (55,468 7,285 7,285 7,482 (7,909 ) 6,858 70,235 (63,377 ) 6,858
At 1 January 2009 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2009 Opening net book amount Additions Amortisation Closing net book amount At 31 December 2009 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2010 Opening net book amount Additions Amortisation Closing net book amount At 31 December 2010 Cost Accumulated amortisation and impairment Net book value Year ended 31 December 2011 Opening net book amount Additions Amortisation Reclassifications Closing net book amount At 31 December 2011 Cost Accumulated amortisation and impairment Net book value
6,858 26,543 (6,763 ) 1,388 28,026 101,664 (73,638 ) 28,026
61
21. Investment in subsidiaries (at cost) The Companys interest in its subsidiaries, all of which are unlisted and all of which have the same year end as the Company, were as follows: Country of % interest incorporation incorporation Kobil Petroleum Ltd Kobil Uganda Limited Kobil Tanzania Limited Kobil Zambia Limited Kobil Rwanda Limited Kobil Petroleum Rwanda Limited Kobil Ethiopia Limited Kobil Burundi SA USA Uganda Tanzania Zambia Rwanda Rwanda Ethiopia Burundi 100 100 100 100 100 100 100 100 2011 Shs000 5,172,440 82,526 129,564 794 498,871 281,269 6,165,464 22. Available-for-sale investment Group 2011 Shs000 At start of year Reclassification to investment in associate Additions 2,448 2,448 2010 Shs000 2009 Shs000 8,820 (8,820) 2010 Shs000 5,172,440 82,526 129,564 794 489,442 79,733 5,954,499 2009 Shs000 5,172,440 82,526 129,564 794 489,442 15,876 5,890,642
Available for sale investment in 2011 represents an investment in goverment bonds by Kobil Ethiopia. 23. Investment in associates Group 2011 Shs000 At start of year Transfer from available for sale investments (Note 22) Acquisition Share of profit Exchange differences At end of year 17,920 3,166 (505) 20,581 2010 Shs000 16,685 928 307 17,920 2009 Shs000 8,820 8,099 604 (838 16,685
Investments in associates at 31 December 2011 include goodwill of Shs 12,191,000. The investment in associate represents the investment made by Kobil Zambia Limited in Lublend Limited. Lublend Limited effectively became an associate entity on 17 December 2010.
62
23. Investment in associates (continued) Key financial data of Lublend Limited for the year ended 31 December 2011, 31 December 2010 and 31 December 2009 is as follows; Year ended 31 December 2011 2010 2009 24. Inventories Group 2011 Shs000 Refined and crude products on hand 24,007,999 2010 Shs000 12,750,781 2009 Shs00 13,172,275 2011 Shs00 22,208,138 Company 2010 Shs000 8,448,404 2009 Shs000 1,366,333 Country of incorporation Zambia Zambia Zambia % interest held 25.5 25.5 25.5 Assets Shs000 94,413 51,618 60,308 Liabilities Shs000 61,534 69,742 41,767 Revenues Shs000 43,351 76,259 100,856
All inventories are stated at the lower of cost and net realisable value. 25. Receivables and prepayments Group 2011 Shs000 Trade receivables Less: provision for impairment losses Net trade receivables Prepayments Other receivables Receivables from related parties 7,342,507 (876,669) 6,465,838 1,710,170 4,655,252 12,831,260 Provision for impairment losses movement At start of year (Charged) / credited to income statement Amounts recovered Provisions utilised (496,862) (385,648) 14,094 (8,253) (876,669) (817,048) 176,354 71,823 72,009 (496,862) (699,199) (172,441) 43,110 11,482 (817,048) (111,585) (701,799) (813,384) (145,819) (37,589) 71,823 (111,585) (117,214) (66,041) 37,436 (145,819) 2010 Shs000 6,958,472 (496,862) 6,461,610 1,928,682 2,684,028 11,074,320 2009 Shs00 6,753,404 (817,048) 5,936,356 937,545 1,144,382 8,018,283 2011 Shs00 5,151,906 (813,384) 4,338,522 1,255,089 4,069,119 3,166,863 12,829,593 Company 2010 Shs000 2,450,839 (111,585) 2,339,254 894,385 260,674 157,584 3,651,897 2009 Shs000 2,355,209 (145,819) 2,209,390 169,383 571,214 97,847 3,047,834
63
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. Derivative financial assets / liabilities Group 2011 Shs000 (i) Derivative financial assets Derivative financial instruments Designated at fair value on initial recognition (ii) Derivative financial liabilities Derivative financial instruments Designated at fair value on initial recognition (2,374,288) (2,374,288) (2,374,288) (2,374,288) 14,993 14,993 14,993 14,993 2010 Shs000 2009 Shs000 2011 Shs000 Company 2010 Shs000 2009 Shs000
27. Cash and cash equivalents Group 2011 Shs000 Cash at bank and in hand Less: Restricted cash Cash and cash equivalents for cash flow statement purposes 3,271,736 3,271,736 2010 Shs000 2,133,091 2,133,091 2009 Shs000 3,806,455 (128,558) 3,677,897 2011 Shs000 2,393,109 2,393,109 Company 2010 Shs000 1,834,313 1,834,313 2009 Shs000 2,960,739 2,960,739
Restricted cash in 2009 related to amounts held in bank accounts that were not controlled by the Group. For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand and deposits held at call with banks, net of restricted cash.
64
28. Payables and accrued expenses Group 2011 Shs000 Trade payables Payables to related companies Accrued expenses Other payables Accrued leave 4,244,002 623,972 7,256,459 46,960 12,171,394 29. Cash generated from operations Reconciliation of profit before income tax to cash generated from operations 2011 Shs000 Profit before income tax Adjustments for: Interest income (Note 9) Interest expense (Note 9) Depreciation (Note 19) Amortisation of prepaid operating lease rentals (Note 18) Amortisation of intangible assets (Note 20) Gain on sale of property, plant and equipment Share of profit in associate (Note 23) ESOP reserve movement recognised through the income statement Hedge losses charged to the Income statement Loss on disposal of prepaid rentals Changes in working capital receivables and prepayments inventories payables and accrued expenses movement in restricted cash Cash utilised in operations 4,933,783 (262,883) 1,412,563 226,321 400,897 8,332 (118,836) (3,166) 291,288 237,046 4,730 2010 Shs000 2,836,228 (146,697) 544,195 204,540 343,419 8,469 (577) (928) 87,502 7,959 2010 Shs000 2,807,040 1,207,784 691,022 38,498 4,744,344 2009 Shs000 10,011,049 487,096 4,269,326 20,445 14,787,916 2011 Shs000 2,405,750 9,360,576 414,088 7,247,915 35,568 19,463,897 Company 2010 Shs000 95,905 2,407,784 49,304 476,075 10,053 3,039,121 2009 Shs000 1,480,224 2,066,544 274,611 168,797 15,682 4,005,858
(1,756,940) (11,257,218) 7,427,049 1,542,966
(3,056,037) 421,494 (10,043,572) 128,558 (8,665,447)
65
30. Related parties and related parties transactions The Group has shareholding by various companies as shown on page 69. 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. i) Purchase of goods During the year, the following purchases were made from Kobil Petroleum Limited Kenya branch and Kobil Tanzania Limited by Group companies. 2011 Shs000 KenolKobil Limited Kobil Uganda Limited Kobil Tanzania Limited Kobil Rwanda SARL Kobil Petroleum Rwanda Limited Kobil Zambia Limited Kobil Ethiopia Limited Kobil Burundi SA 3,866,798 2,037,506 5,039,996 2,296,464 7,760 801,875 14,050,399 ii) Loans to related parties 2011 Shs000 Due from Kobil Petroleum Limited Kobil Uganda Limited Kobil Tanzania Limited Kobil Ethiopia Limited Kobil Burundi Limited 5,784,286 235,321 153,449 9,328 398,097 6,182,383 The amounts due from Kobil Petroleum Limited are interest free and unsecured. The loans to the other subsidiaries are denominated in US dollars. The loans are provided with interest and are not required to be repaid within one year and are unsecured. 2010 Shs000 5,100,544 366,838 101,718 788,277 30,922 81,597 250,694 6,720,590 2009 Shs000 370,766 13,919 829,238 78,781 95,394 86,635 1,474,733
Company 2010 Shs000 5,784,286 16,416 16,416 5,800,702 2009 Shs000 3,784,085 45,757 45,757 3,829,842
66
30. Related parties and related parties transactions (continued) ii) Loans to related parties (continued) 2011 Shs000
The loans granted are in accordance with the Company housing scheme
2010 Shs000 -
2009 Shs000 -
Loans to directors
67,148
iii) Receivables from subsidiaries 2011 Shs000 Kobil Uganda Limited Kobil Petroleum Rwanda Limited Kobil Ethiopia Limited Kobil Burundi SA Kobil Tanzania Limited Kobil Zambia Limited 787,961 573,831 38,348 297,248 1,415,440 54,035 3,166,863 iv) Key management compensation 2011 Shs000 Salaries and other short term employment benefits Post-employment benefits 333,715 7,221 340,936 v) Directors remuneration 2011 Shs000 Fees for services as a director Other emoluments (included under key management compensation above) Total remuneration of directors of the Company 8,045 80,674 88,719
Company 2010 Shs000 31,097 31,187 17,966 11,259 20,458 45,617 157,584 2009 Shs000 10,015 12,934 38,901 13,941 (1,242) 22,938 97,487
2010 Shs000 284,733 7,355 292,088
2009 Shs000 216,859 6,075 222,934
2010 Shs000 5,828 62,132 67,960
2009 Shs000 5,140 42,587 47,727
During the year, the Company undertook transactions with entities connected to Directors as follows: 2011 Shs000 Shapley Barret Kestrel Capital 21,820 21,820 2010 Shs000 15,899 1,740 17,639 2009 Shs000 12,376 12,376
67
30. Related parties and related parties transactions (continued) vi) Sale of assets to Directors 2011 Shs000 Sale of asset to Directors 31. 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$ 17.8 million (2010: US $ 9.7 million). In addition, at year end, the Company had transit bonds and performance guarantees totalling Shs 1,674 million (2010: Shs 1,494 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. 32. Commitments (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognised in the financial statements as follows: 72,037 2010 Shs000 2009 Shs000 -
Group 2011 Shs000 Property, plant and equipment 466,056 2010 Shs000 62,445 2009 Shs000 57,659 2011 Shs000 -
Company 2010 Shs000 26,333 2009 Shs000 26,479
(b) Operating lease commitments Capital expenditure contracted for at the reporting date but not recognised in the financial statements as follows: Group 2011 Shs000 Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 280,328 1,264,439 1,228,301 2,773,069 2010 Shs000 290,746 1,025,224 2,284,646 3,600,616 2009 Shs00 275,557 977,132 2,208,483 3,461,172 2011 Shs00 102,543 401,002 503,545 Company 2010 Shs000 209,391 401,002 1,158,532 1,768,925 2009 Shs000 96,710 355,469 1,021,041 1,473,220
68
PRINCIPAL SHAREHOLDERS AND SHARE DISTRIBUTION

The ten major shareholdings in the Company and the respective number of shares held at 31 January 2012 is as follows: Name of shareholder 1 2 3 4 5 6 7 8 9 10 Wells Petroleum Holdings Limited Petroholdings Limited Highfield Limited Chery Holding Limited Energy Resources Capital Limited CFC Stanbic Nominees Kenya Ltd (A/c NR13302) Standard Chartered Nominees Non Resd A/c 9867 Standard Chartered Nominees (Non Resd AC KE10036) KenolKobil Ltd Employee Share Ownership Plan (ESOP) CFC Stanbic Nominees Ltd (A/c R48703)
Number of shares
% Shareholding 24.91% 17.34% 12.46% 7.89% 5.99% 2.87% 1.51% 0.72% 0.61% 0.57%
366,614,280 255,211,080 183,350,000 116,080,400 88,185,720 42,233,302 22,168,000 10,653,200 9,000,000 8,362,700
Distribution of shareholders Number of shares Less than 500 shares 500 5,000 shares 5,001 10,000 shares 10,001 100,000 shares 100,001 1,000,000 shares Over 1,000,000 shares Total 299,342 7,962,230 7,565,682 47,480,111 107,455,078 1,300,998,757 1,471,761,200 Number of shareholders 1,393 3,950 903 1,406 355 92 8,099 % Shareholding 0.02 0.54 0.51 3.22 7.30 88.39 100
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 Friday, 27 April 2012 and at any adjournment thereof.
Signed/Sealed this
day of
2012
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, 00100 Nairobi to reach not later than 11.00 am on Wednesday, 25 April 2012. Alternatively, duly signed proxies can be scanned and emailed to wjumba@deloitte.com in PDF format. Any person appointed to act as proxy need not be a member of the Company. 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.
2. 3.
Livingstone Associates Deloitte Place, Waiyaki Way, Muthangari P. O. Box 30029, 00100 Nairobi

KK Annual Report

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KK Annual Report

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ANNUAL REPORT & FINANCIAL STATEMENTS - 2011 ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

VISION & MISSION

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

DIRECTORATE & ADMINISTRATION

J Mathenge P Lai D Ndonye

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

NOTICE OF ANNUAL GENERAL MEETING

BY ORDER OF THE BOARD

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CHAIRMAN & GROUP MANAGING DIRECTORS REPORT

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CHAIRMAN & GROUP MANAGING DIRECTORS REPORT

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CONSOLIDATED INCOME STATEMENT (US Dollars)

For the year ended 31 December 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (US Dollars)

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (US Dollars)

For the year ended 31 December 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

Chairman & Group Managing Director

Mr. P.N. Jakobsson

Mr. T.M. Davidson

Group Finance Director

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

GROUP MANAGEMENT TEAM

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CORPORATE SOCIAL RESPONSIBILITY

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

200,000 150,000 100,000 50,000

200,000 150,000 100,000 50,000

Earnings per Share

1,200 1,000 800 600 400 200

1.50 1.00 0.50

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

Appointed on 07 April 2011

SECRETARY 28 February 2012

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

STATEMENT OF DIRECTORS RESPONSIBILITIES

Director 28 February 2012

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF KENOLKOBIL LIMITED

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF KENOLKOBIL LIMITED

Certified Public Accountants Nairobi

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2011

654,652 3,778,098 481,414 891,249 2,448 20,581 5,828,442

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

COMPANY STATEMENT OF FINANCIAL POSITION As at 31 December 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011

ANNUAL REPORT & FINANCIAL STATEMENTS - 2011