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205 AV RUVYIRONZA

B.P. 466 Bujumbura, Burundi n

Tel: +257 22 24 35 92 a Fax: +257 22 24 35 93 m

Website: www.kenolkobil.com u H

Kobil Zimbabwe onsibility P.O. Box MP 526 esp Harare, Zimbabwe R Website: www.kenolkobil.com l ia c o S

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E KenolKobil Limited Annual Report & Financial Statements Vision To be the leading brand in all markets we operate in and a major player in Africa

Mission • To develop, improve and increase quality and total value of our products and services • To become a market leader through continuous innovation, customer focus and to provide the highest quality products and services •To maintain a highly motivated, well trained human resources base •To deliver the highest shareholders’ value Beneficiaries of the Kenol Scholarship Fund on an educational tour at the Mamba Village, Nairobi.

Contents

Page:

Directorate & Administration 2

Notice of the Annual General Meeting 3-4

Chairman’s Report 5-7

Board of Directors 8-9

Group Management Team 10

Corporate Governance 11

Corporate Social Responsibility 12

Financial Highlights 13

Directors’ Report 14

Statement of the Directors’ Responsibilities 15

Report of the Independent Auditor 16

Consolidated Profit & Loss Account 17

Consolidated Statement of Comprehensive Income 18

Consolidated Balance Sheet 19

Company Balance Sheet 20

Consolidated Statement of Changes in Equity 21

Company Statement of Changes in Equity 22

Consolidated Cash Flow Statement 23

Notes to the Consolidated Financial Statements 24-62

Principal Shareholders 63

KenolKobil Limited Annual Report and Financial Statements 2009 1 Directorate & Administration

BOARD OF DIRECTORS

J I Segman Chairman and Group Managing Director (Appointed Chairman on 07 April 2010)

C Field-Marsham Appointed on 28 September 2001 D Oyatsi Appointed on 10 August 2007 P N V Jakobsson Appointed on 10 August 2007 T M Davidson Appointed on 25 September 2007 J Mathenge Appointed on 01 December 2008 P Lai Appointed on 03 February 2006

SECRETARY

Ms C Munene Appointed Secretary on 24 January 2006 Livingstone Associates Ring Road, Westlands P O Box 30029, 00100 Nairobi

REGISTERED OFFICE

ICEA Building Kenyatta avenue P O Box 44202, 00100 Nairobi

BANKERS

Major bankers include: Kenya Commercial Bank Limited BNP Paribas – Paris Societe Generale – Paris NIC Bank Bank of Africa Limited CfC-Stanbic Bank Kenya Limited Ecobank Limited PTA Bank Limited

AUDITOR

PricewaterhouseCoopers Certified Public Accountants The Rahimtulla Tower Upper Hill Road P O Box 43963, 00100 Nairobi

2 KenolKobil Limited Annual Report and Financial Statements 2009 Tanzanian President, H.E. Jakaya Kikwete visits Kobil Vingunguti in Tanzania.

Notice Of Annual General Meeting

NOTICE is hereby given that the 51st Annual General Meeting SPECIAL BUSINESS of the Company will be held at Hilton Hotel, Nairobi, Kenya on Thursday, 20 May 2010 at 10:30 am. 8. Amendment to the Articles of Association

AGENDA To consider and, if thought fit, to pass the following resolutions as Special Resolution:- ORDINARY BUSINESS “That the Articles of Association of the Company be and are hereby amended as follows: 1. To table the proxies and note the presence of a quorum. A) That Article 124 be and is hereby amended by deleting the word ‘twelve’ in the Article thereof and 2. To read the notice convening the meeting. inserting the word ‘six’ instead.”

3. To receive the audited Financial Statements for B) That Article 126 be deleted in its entirety and the year ended 31 December 2009 together with replaced with the following new article:- the reports of the Chairman and Group Managing Director, Directors’ and Auditors’ thereon. 126. a) Any dividend or other money payable in cash on or in respect of shares may be paid by 4. Dividend: i) direct debit, bank transfer or other automated To consider and approve a first and final dividend system of bank transfer, electronic or mobile of Kshs 3.25 per share for the year ended 31 money transfer system transmitted to such bank December 2009 payable on or about 11 June 2010 or electronic or mobile telephone address as to the shareholders on the Register of Members at shown in the share register of the Company or the close of business on Friday, 21 May 2010 and to approve the closure of Register of Members from the ii) by cheque or warrant payable at such place of close of business on Friday, 21 May 2010 to Monday, business as the Company shall specify in writing, 24 May 2010 (both days inclusive) for the purpose of sent by post to the address of the member processing the dividend. or person entitled to it as shown in the share register of the Company or if two or more 5. To approve the Directors’ remuneration for the year persons are registered as joint holders of the ended 31 December 2009. shares, to the registered address of the joint holder who is first named in the share register 6. Re-election of directors: of the Company or in the case of two or more persons being entitled thereto in consequence of a) To re-elect Mr T M Davidson, a director retiring by the death or bankruptcy of the holder, to any one rotation in accordance with the Company’s Articles of such persons at such address as the persons of Association and the Capital Markets Authority being entitled to receive payment may in writing Guidelines on Corporate Governance Practices by direct. Public Listed Companies in Kenya and, being eligible, offers himself for re-election. b) Every such cheque or warrant or funds transfer shall be made payable to or to the order of the person b) To re-elect Mr D Oyatsi, a director retiring by to whom it is sent or to such person who may be rotation in accordance with the Company’s Articles entitled to the same. Payment of the cheque or of Association and the Capital Markets Authority warrant, if purporting to be endorsed or enfaced, by Guidelines on Corporate Governance Practices by the addressee or as the case may be, confirmation of Public Listed Companies in Kenya and, being eligible, payment having been made by the transmitting entity offers himself for re-election. to the addressee of a direct debit, bank transfer or other automated system of bank transfer or via a 7. To note that Messrs PricewaterhouseCoopers mobile money transfer system, shall in each case continue in office as Auditor by virtue of Section be a good discharge to the Company. Every such 159 (2) of the Companies Act (Cap. 486) and to payment whether by cheque or warrant or electronic authorise the Directors to fix their remuneration. funds transfer or mobile money payments system shall be sent at the risk of the person entitled to the money represented by it.”

KenolKobil Limited Annual Report and Financial Statements 2009 3 Notice Of Annual General Meeting

C) That Article 134 be deleted in its entirety and be deemed to have been served at 9:00am on the replaced with the following new Article:- business day following the date when transmitted or sent. 134. The Accounts may be sent or otherwise made In proving the giving of a notice it shall be sufficient available by electronic means and not by post. This to prove that the notice was published in a daily Article shall not require a copy of the Accounts to paper of nationwide circulation, or that the envelope be sent or otherwise made available by electronic containing the notice was properly addressed, means to any person whose electronic or postal stamped and posted, or that the applicable means address the Company is not aware, nor to more than of telecommunication or electronic communication the first named of any joint holders of any shares. was properly addressed and transmitted, dispatched The Company may also send the accounts to all or sent. persons entitled thereto by publishing the Accounts on the Company’s official website provided that The failure of any person or entity to receive any the Company shall send to every Member or notice served shall not in any way invalidate any publish a summary of the Financial Statements and proceedings or actions taken by the Company for Auditors Report in two daily newspapers with which the notice was given.” national circulation for two consecutive days drawing attention to the website on which the Accounts in 9. Sub-division of the Par Value of the ordinary existing full may be read, and the address to which a request shares for a printed copy of the Accounts may be submitted to the Company Secretary and upon any such To consider and, if thought fit, to pass the following publication the Accounts shall be deemed to have resolutions as an Ordinary Resolution:- been sent to every Member or other person entitled to received a copy of the Accounts. “That the par value of each of the 150,000,000 (one hundred and fifty million) ordinary shares of D) That Articles 137 and 139 be deleted in their entirety the Company part of which had been issued and and replaced with the following new Article:- credited as fully paid, be and is hereby subdivided from Kshs 0.50 each to Kshs 0.05 each and thus 137. Every notice or other document given by the the authorized ordinary share capital shall be Kshs Company shall be in writing. To the extent 75,000,000/- (Kenya shillings seventy five million) permissible by law the Company may serve any divided into 1,500,000,000 ordinary shares of Kshs notice to be given to its Members by: 0.05 each.”

a) Publishing such notice in two daily newspapers BY ORDER OF THE BOARD with nationwide circulation; or b) Sending such notice through the post addressed CATHERINE W MUNENE (MRS) to such Member at his registered postal address; COMPANY SECRETARY or c) By facsimile transmission to such Member at his Date: 7th April 2010 registered facsimile address; or d) By electronic mail to such Member at his Note: registered electronic mail address. 1. In accordance with Section 136 (2) of the Companies Provided that where the Company elects to send Act (Cap 486), every member entitled to attend and such notice to such Member at his registered vote at the above meeting is entitled to appoint a facsimile or electronic mail address the Company proxy to attend and vote on his or her behalf. shall ensure that such notice is also published in two 2. A proxy need not be a member of the Company. daily newspapers with nationwide circulation. 3. To be valid, a form of proxy, which is provided with this report, must be duly completed by the member Any notice which has been published in a daily and must be lodged with the Company Secretary, newspaper in accordance shall be deemed to have Livingstone Associates, P O Box 30029, 00100 been served at 9:00am on the next business day Nairobi, or posted in time to reach not later than following the date when it was published. 10.30 am on Tuesday, 18 May 2010. Any notice sent by facsimile or electronic mail shall

4 KenolKobil Limited Annual Report and Financial Statements 2009 KenolKobil Limited was recognized as Kenya’s Most Improved Corporation Tax Payers for the year 2009

Chairman & Group Managing Director’s Report

“The Board strongly believes that all economies the Group operates in, will continue to show recovery and even stronger economic growth in the coming years.”

am pleased to present to you the Annual Accounts of KenolKobil Limited. For and the first time, the Group is reporting a full Audited calendar year, January to December 2009 (12 months), including its Subsidiary Kobil Petroleum Limited.I Last year the Company published its Financial Audit report ended December 31st December 2008, covering a period of 15 months, following the successful acquisition of Kobil Petroleum Limited and change of year end from September to December.

During the calendar year, the Group went through some challenging times. In the First Half of the year, and in particular First Quarter 2009, the Group experienced loss for the first time in many years. The loss was mainly in Kenya, as a result of a sharp drop in Oil prices and the overall economic and business environment. Shareholders must not forget the unprecedented high level of Oil prices and subsequent sharp drop which had seen WTI touching the lows of USD30s/Bbl in the First Quarter 2009.

Notwithstanding these, by the end of the year, as a result of a very strong Second Half performance across the Group, and particularly in Kenya’s operation, strong performance of cost for 2009 dropped by 71%, there is always more room for all Subsidiaries outside Kenya throughout the year, substantial improvement. drop in cost of financing coupled with capital gain from disposal of Non-Performing and Non-Core Assets, the Group Constraints in Supply and Storage chain in Kenya continued managed to report strong and above expectation results. to impact on performance, but thanks to great and creative Supply and Operations Teams led by Mr. Steve Muthuma and For the full year under review compared with 12 months of Mr. Wilson Wambugu respectively, the Group developed and 2008, Net profit before Tax has gone up by 34% and Profit perfected alternative distribution solutions across the Region. after Tax was up by 47%. Sales for the full year compared to January to December 2008 were down by 17%, mainly due Gross margins improved considerably in the Second Half of to lower cost of Oil. The top-line Gross Profit was down 11% 2009 in Kenya, Uganda and Tanzania, but were quite encouraging driven by the same. The Gross Profit in 2009 expressed as a throughout the year in Rwanda and Zambia, though in Zambia percentage of Net sales, has gone up to 6.2% from 5.8% in Gross Margins in 2009 were lower than in 2008. Ethiopia 2008. continued to be a unique environment from Gross Margins on Fuel’s point of view. Management still considers it to be Among other objectives set early in the year, the Group focused in its developmental stage, though it has managed to develop on a challenging objective of reducing Financing Cost. I am glad high petroleum products sales volume and high Gross Margin to report that KenolKobil’s Group Accounts and Finance Team, business lines such as Lubricants, Bitumen among others. led by the Group Finance Director Ms. Pat Lai, has made great Return on investment particularly in our operations in Rwanda, progress in reducing this cost item. Management recognizes Zambia and Uganda was strong. Tanzania continued to play its that, like in many aspects of the business, even though Financing crucial role in the Distribution channels to Rwanda, Uganda,

KenolKobil Limited Annual Report and Financial Statements 2009 5 Chairman & Group Managing Director’s Report

DRC (Eastern and Lubumbashi areas) and Zambia. During the These are currently undergoing the re-branding process. year under review, the Aviation Sector was disappointing due The Group Management still sees room for future growth in to certain pricing aspects to do with Jet A1 East/West, Platts Burundi, through assets acquisitions and organic growth. quotations arbitrage. Unlike in the past, East/West arbitrage has narrowed considerably, so much such that, at certain times The “Move South Strategy” has seen KenolKobil joining it was negative. hands with Engen to acquire the Shell and BP operation in Zimbabwe. It is quite unfortunate that the Zimbabwean Management has noted the high contribution of certain Government, through the National Indigenisation and business lines such as the “high volume-low margins per Economic Empowerment Fund, has recently blocked the deal. unit - African Trading Desk”, as well as Lubricants, Liquefied KenolKobil, being an African Down-stream and Mid-stream Oil Petroleum Gas, Bitumen, Non-Fuels and Export to countries Company, continues to formulate a proposal which will secure in the Region such as Sudan, Eastern Congo and others. approval for investment in Zimbabwe. Management believes that KenolKobil should and will be represented in Zimbabwe. The results for the year include a Shs.307 million capital gain from Sale of Non-Performing and Non-Core assets. In Kenya, which is still KenolKobil’s biggest operation, ullage constraints in Pipeline and Storage system is expected to Organisational Re-structuring continue, but we expect KenolKobil’s Business relationship Shareholders would recall that the Group’s Board of Directors with the Kenya Pipeline Company (KPC) to improve, and that decided to implement a New Organisational structure this will affect positively the Group’s distribution cost in Kenya in January 2009. I am glad to report to you that the New and the Neighbouring countries. I take this opportunity and Structure, though only one year old, has had a very positive call upon KPC’s Management to recognize its unique situation impact on the Group’s Performance especially in the area with KenolKobil Group and look forward to develop a working of less centralised and high devolution decision making, with relationship, founded by legal framework. more authority to local Management Teams. Consequently, local Management Teams reacted rapidly to specific issues The Group will continue developing the LPG business line with and allowed more time to the Head Office team to focus on developing new storage and filling plants. In Kigali, Rwanda, the strategic development of the Group. project is already completed and in Kampala, Uganda, a new plant is under construction. Other Investment and growth Prospects opportunities are expected to be in Non-Fuel, Lubricants and The Board strongly believes that all economies the Group Trading Desk sectors. operates in, will continue to show recovery and even stronger economic growth in the coming years. The KenolKobil Group At the same time the Group will continue to review its assets is well positioned to realize the benefits of such recovery & and look for any opportunity to unlock capital gain from growth. At the same time we expect more divestment by disposal of Non-Core or Non-Performing assets. As was in Western Multinationals within Eastern, Central and Southern the 2009 Financial Year, Management expects to sell certain African Regions, which are of interest to the KenolKobil Non-Core properties within the Financial year 2010, which Group. will unlock substantial capital gains.

Through its Mergers and Acquisitions Team, led by Mr. Finally, looking forward on Oil prices in the coming year, given the Patrick Kondo, Management will continue to position the current and forward Supply and Demand curve, Management Group towards additional acquisitions of Shares and Assets. projects that Oil prices will continue to be firm and will hedge Management foresees the Group getting quite busy in up towards USD 95-105/Bbl by end year 2010. screening new opportunities across Eastern and Southern Africa. Specifically, the Group eyes Mozambique for its strategic supply position to other land locked countries. Jacob I. Segman Chairman & Group Managing Director Our strong performance in Rwanda, Exports to Eastern DRC and convincing political stability in the Region, in particular 12 April 2010 Burundi’s decision last year to join EAC, urged KenolKobil to move into Burundi. The Group made several acquisitions in the country, and now has 14 Service Stations across the country.

6 KenolKobil Limited Annual Report and Financial Statements 2009 The newly refurbished Kobil service station at Valley Arcade, Nairobi.

Chairman & Group Managing Director’s Report

CONSOLIDATED PROFIT & LOSS ACCOUNT

Year ended Year ended Period ended 31 Dec 2009 31 Dec 2008 31 Dec 2008 Audited Management Audited

FOR THE PERIOD ENDED 31 DECEMBER Shs’000 Shs’000 Shs’000 12 Months 12 months 15 Months

Sales 96,692,834 117,047,152 134,518,341 Cost of sales (90,654,847 ) (110,238,210 ) (126,909,694)

Gross profit 6,037,987 6,808,942 7,608,647

Other Income 307,084 (1,758 ) (1,758 ) Distribution costs (1,082,467 ) (965,757 ) (953,094) Administrative expenses (2,875,458 ) (2,813,378 ) (3,212,122)

2,387,146 3,028,049 3,441,673

Finance costs (586,091 ) (1,645,295 ) (1,641,685) Finance income 131,797 63,428 79,283 Share of profit in Associate 604

Profit before income tax 1,933,456 1,446,182 1,879,811

Income tax (638,951 ) (564,011 ) (724,492)

Profit for the year 1,294,505 882,171 1,155,319

Earnings per share -Basic (Shs per share) Shs 8.80 Shs 5.99 Shs 8.37 -Diluted (Shs per share) Shs 8.77 Shs 5.98 Shs 8.34

KenolKobil Limited Annual Report and Financial Statements 2009 7 Board Of Directors

1. Mr. J. Segman Chairman & Group Managing Director

Mr J. Segman has over 31 years experience in the oil industry, having worked for various companies in Israel, Iran and Kenya. He has been central to the expansion of Kenol since he joined the KenolKobil team in 1990. Prior to his appointment as the Managing Director, Mr Segman worked as the Deputy Managing Director and General Manager, Marketing and Operations. He holds a BA Degree in Economics from Israel University and an MBA from the United States International University. Mr. Segman was appointed the Company’s Acting Chairman on January 24, 2006.

2. Mr. J. Mathenge Non-Executive Director

Mr. Mathenge joined the board on December 1, 2008. He is the Vice Chairman of Magadi Soda Company Limited, and has extensive experience in the oil industry. Mr. Mathenge joined the oil industry in 1979 and progressed through the key departments till being appointed to the position of Managing Director and Country Chairman of Caltex Oil Kenya Limited between 1998 and 2003. He is also conversant with the regional oil market, having worked at the Caltex Petroleum Regional Co-ordination office for East and North Africa Region based in Dallas, Texas, USA. He holds Bachelors and Masters degrees in Economics from the University of Nairobi and is a Director, Chairman and member of several corporate organisations, professional bodies and community development programmes.

3. Mr. T. M. Davidson Non-Executive Director

Mr Davidson was appointed a Non-Executive Director on September 25, 2007. He is an experienced career banker, having successfully served as the Chief Executive Officer of the Kenya Commercial Bank for four and a half years until he took an early retirement in early 2007. He has also served for over 30 years in senior capacities within the CitiBank Group in London, including Managing Citibank in Kenya, and in South Africa being the Regional Head Office. A Kenyan by birth, Mr Davidson is a Council Member of several leading enterprises including the De- posit Protection Fund. He has also served as the Chairman of the Kenya Bankers’ Association on two occasions, and has previously served in the Board of the Federation of Kenya Employers.

8 KenolKobil Limited Annual Report and Financial Statements 2009 The Kenya Boys Choir entertains during the Annual Staff Luncheon.

4. Mr. D. Oyatsi Non-Executive Director

Mr Oyatsi was appointed a Non-Executive Director on August 10, 2007. Mr Oyatsi is an Advocate of the High Court of Kenya, and Managing Partner of Shapley, Barret & Co., Advocates. Mr Oyatsi’s main practice is Commercial Law. He is currently Commissioner of Kenya Law Reform Commission and Non Executive Director of Metropolitan Life Insurance Kenya Ltd. During 1999-2002, he acted as a Non Executive Director of Capital Market Authority and between 1999-2003, as a Non Executive Director of Telkom Kenya Ltd.

5. Mr. P. N. Jakobsson Non-Executive Director

Mr Jakobsson has for the last nine years been the Managing Director of a Property company and Investment company active in Stockholm, Sweden founded by his grandfather in 1938. Apart from being experienced in Property Development and Management, Mr Jakobsson has vast experience in the Downstream Oil Industry in Africa.

6. Mr. C. Field-Marsham Non-Executive Director

Mr Field-Marsham is the Founder and an Executive Director of both Kestrel Capital (East Africa) a licensed investment bank in Kenya, and Panafrican Truck & Equipment, the distributor in Kenya and Tanzania for Komatsu construction and mining equipment. He is also an Executive Director of Kenya Fluorspar, a mining company in Kenya. He is a Director of AMREF Canada. AMREF is the leading African health development organization, headquartered in Kenya with operations across Africa.

7. Ms. P. Lai Group Finance Director

Ms Lai was appointed Kenol’s Finance Director in February 2006. She has experience at senior management level in accounting and finance, having previously worked in South Africa. Ms Lai is a Chartered Accountant and holds a Bachelor of Commerce and Bachelor of Accountancy degree from the University of Witwatersrand, South Africa.

KenolKobil Limited Annual Report and Financial Statements 2009 9 Group Management Team

n past years, the Group Management structure was based on a central team, jointly controlling the whole group. However, with effect from 01 January 2009, the Management Team has been divided with Mr. Segman in his capacity of Group Managing Director, with three regional structures reporting to him as well as other Group operational functions namely Supply, Internal IAudit and Group Finance. A separate management team dedicated to Kenya, headed by Mr. David Ohana as the General Manager (Kenya) runs the operations of Kenya.

The subsidiaries and foreign operations are managed under two regional heads, namely, Mr. Patrick Kondo, the Group Mergers & Acquisitions and Regional Support Manager, and Mr. George Mwangi, the Group Export and Regional Support Manager.

The profiles of the Group Management in the various structures are as follows: Group Structure

MR. J. I. SEGMAN (ISRAELI) MR. F. MWANGI (KENYAN) Chairman & Group Managing Director Marketing & Operations Manager - Kobil Zambia Qualification: BA Degree in Economics, MBA Qualification: B. Engineering (Mechanical) Year of Employment: 1990 Year of Employment: 1997 MS. P. LAI (SOUTH AFRICAN) MR. F. EZAVI (ISRAELI/FRENCH) Group Finance Director Managing Director, Kobil Tanzania Ltd Qualification: B Com, B Accountancy, Chartered Accountant (SA) Qualification: Degree in Architecture Year of Employment: 2006 Year of Employment: 2003 MR. G. N. MWANGI (KENYAN) MR. P. K. NGUGI (KENYAN) Group Export & Regional Support Manager Managing Manager - Kobil Tanzania Ltd Year of Employment: 1976 Qualification: BSc Mechanical Engineering; MBA MR. P. KONDO (KENYAN) Year of Employment: 1996 Group Mergers & Acquisitions and Regional Support Manager Qualification: BSC Eng. (Surveying & Photogrammetry) MR. D. SEGAL (ISRAELI) Year of Employment: 1990 General Manager - Kobil Uganda Ltd Qualification: BSc Degree in Chemistry MR. S. MUTHUMA (KENYAN) Year of Employment: 2003 Group Trading & Supply Optimization Manager MR. P. O. OCHIENG (KENYAN) Qualification: BA Degree in Economics Marketing & Operations Manager - Kobil Uganda Ltd Year of Employment: 1992 Qualification: BSc Mechanical Engineering MR. K. MUGENDA (KENYAN) Year of Employment: 1997 Group Internal Audit Manager MR. A. WOLMARK (ISRAELI) Qualification: BCom, CPA (K) General Manager - Kobil Ethiopia Ltd Year of Employment: 1989 Qualification: BA in Business Administration MR. J. J. KARIUKI (KENYAN) Year of Employment: 2008 International Finance Manager MR. T. GIRMA (ETHIOPIAN) Qualification: BSC International Business Operations Manager - Kobil Ethiopia Ltd Administration and CPA(K) Qualification: BSc Degree in Elecrical Engineering; MBA Year of Employment: 1993 Year of Employment: 2007 MR. D. S. OHANA (ISRAELI) MR. I. GRANATSTEIN (ISRAELI) General Manager - Kenya General Manager - Kobil Petroleum Rwanda SARL Qualification: BA Degree in Economics & Business Administration Qualification: Masters Degree in International Business Studies Year of Employment: 2002 Year of Employment: 2006 MR. I. GACHURIA (KENYAN) MR. S. L. SINGH (INDIAN) Assistant General Manager - Kenya Head of Marketing & Operations - Kobil Petroleum Rwanda SARL Qualification: Bachelor of Science, Diploma in Petroleum Management Qualification: Bachelor of Science Year of Employment: 1988 Year of Employment: 2008 MR. J. K. THOMAS (INDIAN) Managing Director, Kobil Zambia Ltd Qualification: PGDM (MBA) with specialization in Finance & Marketing; Bachelors Degree in Civil Engineering Year of Employment: 1998

10 KenolKobil Limited Annual Report and Financial Statements 2009 A KenolKobil marketing campaign 2009.

Corporate Governance

he KenolKobil Board of Directors has continued Audit Committee to be committed to high corporate governance This committee comprises of 3 non-executive directors, and standards and business values and ethics within the by invitation, 2 executive directors and the Group internal organization to abide by the laws governing in the audit manager. The company’s external Auditors attend the countriesT where it operates. audit committee meeting by invitation.

Compliance and maintenance of high standards is core to The duties and responsibilities are to review, advice and organization’s performance and maximizing shareholders’ make recommendations on financial information, budgets, risk value. management, policies and audit issues. It reviews auditors’ independence, internal controls and The Group’s general practice is one of not stating views on compliance with the Code of Conduct and Ethics. either national or international political matters, and continues It also reviews adherence to statutory and regulatory to abstain from participation in politics, and interference in requirements. political matters. Further, the company and all its subsidiaries, all its stakeholders and employees, are guided by the Group’s This committee held 4 meetings during the year Code of Conduct approved by the Board and Management. The Code of Conduct stipulates the business values and the Remuneration Committee acceptable behavior standards for all stakeholders regarding This committee comprises of 3 non-executive directors and the company’s business procedures, systems and core ethics. one (1) executive director.

The duties are to review, advice and make recommendations Board of Directors on remuneration issues in the company, including the Employee The Board consists of 5 non-executive Directors and 2 Share Ownership Plan (ESOP scheme). executive Directors. The Directors all possess qualification and a wide range of expertise and experience to enable them The committee held 3 meetings during the year to contribute in their capacities as directors to the group. Nominations Committee Duties: This committee comprises of 3 non-executive directors and The Board gives direction on the Company’s strategy, one (1) executive director. objectives, and values and ensures procedures and practices are in place to implement governance and effective control The duties are to review, advice and make recommendations over the company’s assets and operations. on Board nominations and resignations in the company.

The Board is able to discharge its responsibilities and authorities The committee held 2 meeting during the year with regular reports from management, monthly management accounts, reports from each Board Committee, specific Compliance proposals for major capital expenditure and reviews in depth, The company complies with statutory and regulatory any strategic opportunities for mergers and acquisitions. requirements, including stock exchange requirements, code of conduct. The Board of Directors meets quarterly or as required to continually review and monitor the Company’s progress with Directors’ remuneration respect to strategic direction and operational effectiveness. Following the Government guidelines on directors’ remuneration, non-executive directors are paid an annual fee Board Committees and sitting allowance for meetings attended. Approval of the Three Board Committees, with written terms of reference to fees is to be tabled at the Annual General Meeting. 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.

KenolKobil Limited Annual Report and Financial Statements 2009 11 Corporate Social Responsibility

hroughout 2009, the KenolKobil Group We continued our support of the Mama Ngina Children’s continued with its spirited effort to support Home, whose assistance we started in 1999. We have over the less fortunate members in the society in the years made a very solid investment at the home for the line with our motto, KenolKobil Cares for You!! benefit of the children, which we hope will continue being put T to good use for the welfare of the children. Throughout the years, KenolKobil has continued to support Corporate Social Responsibility (CSR) projects over a long- We are again proud that one of the children from the Home, term arrangement because we believe in planting a seed of Eric Ngondi, graduated last year from the Jomo Kenyatta Uni- help and see it germinate, grow and bear fruits that are ben- versity of Agriculture and Technology. As the pioneer university eficial to the society. granduand from the home, we were priviledged to offer Eric an opportunity to work with us, and we are sure that Eric also In this regard, we are happy to report that our KenolKobil Ed- has a very bright career with us. Eric joins a group of other ucation Scholarship Fund, which was established in 2001 to as- granduands from the Home who we have employed in several sist bright children from under-priviledged family backgrounds areas of our operation. access quality education that would help them turn from their unfortunate situations to being prominent members of the Across the Group, each of the subsidiaries have also imple- society, witnessed its pioneer student graduate with an hon- mented their CSR activities which they continue to implement. ours degree from the Strathmore University. Kobil Uganda has been consistent with its long-term sponsorship of the Bika bya Buganda Football Tournament, as well as We are proud of this achievement by Alice Muthoni, who we sponsoring a team in the Jinja Independence Rally. Kobil Tan- started assisting in 2002 while she was at Alliance Girls’ High zania once again succesfully held the 2009 Kobil Rally, which School. Our staff have been involved in mentoring and provid- is an important event as it counts towards the African Rally ing support for Alice and the rest of the Fund beneficiaries, Championships. Kobil Ethiopia staff participated the Great including visiting them in their schools whenever possible. Ethiopia Run, which was a major success, while Kobil Zambia and Kobil Rwanda, just like the Kenyan operation, have men- We are also proud to report that in recognition of Alice as the tored and employed several disadvantaged young people and first granduad of the fund, we have offered her employment in transformed them into responsible employees and members our marketing department, where we are sure she is moulding of the society. a bright career with us. As the KenolKobil Group grows, we will remain true to our Just like the KenolKobil Group has grown over the last decade, motto, KenolKobil Cares for You!! by continuously seeking for the KenolKobil Education Scholarship Fund has helped trans- opportunities to give back to the communities it does form the lives of many young children, and is keen on mentor- business with. ing them into responsible citizens.

The current beneficiaries population observes both gender and regional balance in recognition of the country’s population diversity.

In 2009, we also partnered with the Save a Child’s Heart (SACH) foundation to sponsor underpriviledged children undergo heart surgery in Israel. Our partnership with SACH pioneered in 2008, and we are happy that we have made a difference in the lives of these young and innocent children, and given them an opportunity to live normal lives. All the children we have helped have had successful operations, and we are optimistic of our continued support.

12 KenolKobil Limited Annual Report and Financial Statements 2009 Beneficiaries of the Kenol Scholarship Fund on an educational tour of the Animal Orphanage.

Financial Highlights

Net Sales Profit attributable to shareholders

160,000 1,400

140,000 1,200

120,000 1,000

100,000 800

80,000

600

60,000

400 40,000

Shs Millions Shs Millions 200 20,000

- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Shareholders’ Funds Earning per share

14,000 10.00

9.00 12,000

8.00

10,000 7.00

6.00 8,000

5.00

6,000 4.00

4,000 3.00

2.00

Shs Millions 2,000 Shs 1.00

- - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Number of employees Capital Expenditure

500 700

450 600

400

500 350

300 400

250

300 200

150 200

100 Numbers Shs Millions 100 50

0 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

KenolKobil Limited Annual Report and Financial Statements 2009 13 Directors’ Report

he directors submit their report together with the audited financial statements for the year ended 31 December 2009, Twhich disclose the state of affairs of the group and of the company. 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 1,294,505,000 (2008 fifteen month period Shs 1,155,319,000) has been added to retained earnings. During the year, no interim dividends were paid (2008: Shs 748,607,000). The directors recommend the approval of a final dividend of Shs 478,322,000 (2008: Shs 515,116,000).

DEVELOPMENTS DURING THE YEAR The company changed its name from Kenya Oil Company Limited to KenolKobil Limited. The company acquired 100% shareholding of Oil Burundi SA with the name change to Kobil Burundi SA. The company, in a joint venture with Engen, acquired the Shell & BP operation in Zimbabwe. Approvals by the Zimbabwe government is still outstanding for this investment.

DIRECTORS The directors who held office during the year and to the date of this report were:

J I Segman (Israeli) - Chairman and Group Managing Director C Field-Marsham (Canadian) D Oyatsi (Kenyan) P N Jakobsson (Swedish) T M Davidson (British) J Mathenge (Kenyan) P Lai (South African)

Mr J I Segman was appointed Chairman on 7th April 2010

AUDITOR The Company’s auditor, PricewaterhouseCoopers, has expressed their willingness to continue in office in accordance with Section 159(2) of the Kenyan Companies Act.

BY ORDER OF THE BOARD

SECRETARY

7 April 2010

14 KenolKobil Limited Annual Report and Financial Statements 2009 A Golden Handshake to seal the acquisition of 10 service stations in Burundi in 2010

Statement Of Directors’ Responsibilities

he 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 Group’s profit or loss. It also requires the directors to ensure that the company keeps proper accounting records that disclose, with Treasonable accuracy, the financial position of the company. They are also responsible for safeguarding the assets of the company.

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in accordance with International Financial Reporting Standards and the requirements of the 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 Group’s profit or loss 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 month from the date of this statement.

______Director Director

7 April 2010

KenolKobil Limited Annual Report and Financial Statements 2009 15 Report Of The Independent Auditor To The Members Of Kenolkobil Limited

We have audited the accompanying consolidated financial Opinion statements of KenolKobil Limited (the company) and its In our opinion the accompanying financial statements give a subsidiaries (together, the Group), as set out on pages 17 to 62. true and fair view of the state of the financial affairs of the These financial statements comprise the consolidated balance Group and of the Company at 31 December 2009 and of the sheet at 31 December 2009 and the consolidated profit profit and cash flows of the Group for the year then ended in and loss account, consolidated statement of comprehensive accordance with International Financial Reporting Standards income, consolidated statement of changes in equity and and the Kenyan Companies Act. the consolidated statement of cash flows for the year then ended, together with the balance sheet of the company Report on other legal requirements standing alone as at 31 December 2009 and the statement The Kenyan Companies Act requires that in carrying out of changes in equity of the company for the year then ended, our audit we consider and report to you on the following and a summary of significant accounting policies and other matters. explanatory notes. We confirm that:

Directors’ responsibility for the financial statements i) we have obtained all the information and explanations which The directors are responsible for the preparation and fair to the best of our knowledge and belief were necessary for presentation of these financial statements in accordance the purposes of our audit; with International Financial Reporting Standards and with the requirements of the Kenyan Companies Act. This responsibility ii) in our opinion proper books of account have been kept includes: designing, implementing and maintaining internal by the company, so far as appears from our examination of control relevant to the preparation and fair presentation of those books; financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying iii) The company’s balance sheet is in agreement with the appropriate accounting policies; and making accounting books of account. estimates that are reasonable in the circumstances.

Auditor’s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in Certified Public Accountants 7 April 2010 accordance with International Standards on Auditing. Those Nairobi standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

16 KenolKobil Limited was recognized as Top Importer of petroleum and oil products 2009.

Consolidated Profit And Loss Account For the year ended 31 December 2009

15 month Year ended period ended Notes 31-Dec-2009 31-Dec-2008 Shs’000 Shs’000

Sales 5 96,692,834 134,518,341 Cost of sales (90,654,847 ) (126,909,694 )

Gross profit 6,037,987 7,608,647

Other income 6 307,084 (1,758 )

Distribution costs (1,082,467 ) (953,094 ) Administrative expenses (2,875,458 ) (3,212,122 )

2,387,146 3,441,673

Finance costs 9 (586,091 ) (1,641,685 ) Finance income 131,797 79,823 Share of profit of associate 24 604 -

Profit before income tax 1,933,456 1,879,811

Income tax expense 10 (638,951 ) (724,492 )

Profit for the year / period (of which Shs 827,325,000 has been dealt with in the accounts of the Company) 1,294,505 1,155,319

Earnings per share - Basic (Shs per share) 11 8.80 8.37 - Diluted (Shs per share) 11 8.77 8.34

KenolKobil Limited Annual Report and Financial Statements 2009 17 Consolidated statement of comprehensive income For the year ended 31 December 2009

15 month Year ended period ended Notes 31-Dec-2009 31-Dec-2008 Shs’000 Shs’000

Profit for the year/ period 1,294,505 1,155,319

Other comprehensive income: Items net of tax Revaluation (deficit) / surplus 14 (12,910 ) 224,256 Movement in hedge reserve 14 14,993 39,600 Currency translation differences 14 (205,426 ) 103,701

Total comprehensive income for the year/ period 1,091,162 1,522,876

Attributable to: Equity holders of the Company 1,091,162 1,522,876 Minority Interest - -

1,091,162 1,522,876

The notes on pages 24 to 62 are an integral part of these consolidated financial statements.

18 KenolKobil Limited Annual Report and Financial Statements 2009 KenolKobil Ltd has spread its wings across Africa.

Consolidated Balance Sheet At 31 December 2009

Notes 2009 2008 Shs’000 Shs’000 EQUITY Share capital 13 73,588 73,588 Share premium 5,166,350 5,166,350 Other reserves 14 316,649 581,991 Retained earnings 5,419,719 4,578,815 Proposed dividend 478,322 515,116

Total equity 11,454,628 10,915,860

Non-current liabilities Borrowings 15 75,929 131,882 Deferred income tax 17 465,113 359,101 Total non-current liabilities 541,042 490,983

11,995,670 11,406,843 REPRESENTED BY: Non-current assets Prepaid operating lease rentals 18 733,908 869,135 Property, plant and equipment 19 4,512,380 4,863,638 Intangible assets 20 855,227 855,612 Available for sale investment 23 - 8,820 Investment in Associate 24 16,685 -

6,118,200 6,597,205 Current assets Inventories 26 13,172,275 10,816,330 Receivables and prepayments 27 8,064,874 7,846,153 Derivative financial asset 28 14,993 - Current income tax 112,060 11,022 Cash and cash equivalents 29 3,806,455 2,437,882 25,170,657 21,111,387 Current liabilities Payables and accrued expenses 30 14,787,916 9,406,802 Current income tax 245,259 410,855 Borrowings 15 4,204,867 6,464,817 Dividends payable 55,145 19,275 19,293,187 16,301,749 Net current assets 5,877,470 4,809,638 11,995,670 11,406,843

The financial statements on pages 17 to 62 were approved for issue by the board of directors on 7 April 2010 and signed on its behalf by: Director: Director:

KenolKobil Limited Annual Report and Financial Statements 2009 19 Company Balance Sheet At 31 December 2009

Notes 2009 2008 Shs’000 Shs’000 EQUITY Share capital 13 73,588 73,588 Share premium 5,166,350 5,166,350 Other reserves 14 458,138 491,783 Retained earnings 3,681,070 3,320,707 Proposed dividend 478,322 515,116

Total equity 9,857,468 9,567,544

Non-current liabilities Deferred income tax 17 75,366 70,593

9,932,834 9,638,137 REPRESENTED BY: Non-current assets Prepaid operating lease rentals 18 78,312 176,330 Property, plant and equipment 19 742,508 868,196 Intangible asset 20 7,285 20,578 Investment in subsidiaries 22 5,890,642 5,874,766 Loans to subsidiaries 25 45,757 101,509

6,764,504 7,041,379 Current assets Inventories 26 1,366,333 2,904,373 Receivables and prepayments 27 3,047,834 1,639,738 Loan to related party 32 3,784,085 3,569,940 Derivative financial asset 28 14,993 - Cash and cash equivalents 29 2,960,739 1,599,695

11,173,984 9,713,746 Current liabilities Payables and accrued expenses 30 4,005,859 1,884,014 Borrowings 15 3,789,181 5,047,469 Current income tax 155,469 166,230 Dividends payable 55,145 19,275 8,005,654 7,116,988 Net current assets 3,168,330 2,596,758 9,932,834 9,638,137

The financial statements on pages 17 to 62 were approved for issue by the board of directors on 7 April 2010 and signed on its behalf by: Director: Director:

20 KenolKobil Limited Annual Report and Financial Statements 2009 The Kobil Uganda sponsored team at the Jinja Independence Rally 2009.

Consolidated Statement Of Changes In Equity For The Year Ended 31 December 2009

Attributable to equity holders of the Company

Notes Share Share Other Retained Proposed Total capital premium reserves earnings dividends equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Period ended 31 December 2008 At start of the year 50,848 16,650 278,031 4,638,905 - 4,984,434

Comprehensive income for the period

Profit for the period - - - 1,155,319 - 1,155,319

Other comprehensive income: Revaluation surplus 19 - - 393,805 - - 393,805 Deferred income tax on revaluation surplus 17 - - (169,549 ) - - (169,549 ) Transfer of excess depreciation net of tax 14 - - (37,953 ) 37,953 - - Revaluation released on disposal net of tax 14 - - (10,361 ) 10,361 - - Movement in hedge reserve 14 - - 39,600 - - 39,600 Currency translation differences - - 103,701 - - 103,701

Total other comprehensive income - - 319,243 48,314 - 367,557

Total comprehensive income - - 319,243 1,203,633 - 1,522,876

Transactions with owners Issue of shares on acquisition of Kobil 22,740 5,149,700 - - - 5,172,440 Movement in ESOP reserve 14 - - (15,283 ) - - (15,283 ) Dividends: - Interim for 2008 paid 12 - - - (748,607) - (748,607 ) - Proposed for 2008 12 - - - (515,116) 515,116 - 22,740 5,149,700 (15,283 ) (1,263,723) 515,116 4,408,550

At end of year 73,588 5,166,350 581,991 4,578,815 515,116 10,915,860

Year ended 31 December 2009 At start of the year 73,588 5,166,350 581,991 4,578,815 515,116 10,915,860

Comprehensive income for the year

Profit for the year - - - 1,294,505 - 1,294,505

Other comprehensive income: Revaluation deficit 19 - - (18,443 ) - - (18,443 ) Deferred income tax on revaluation surplus 17 - - 5,533 - - 5,533 Transfer of excess depreciation net of tax 14 - - (24,721 ) 24,721 - - Movement in hedge reserve 14 - - 14,993 - - 14,993 Currency translation differences - - (205,426 ) - - (205,426 )

Total other comprehensive income - - (228,064 ) 24,721 - (203,343 )

Total comprehensive income - - (228,064 ) 1,319,226 - 1,091,162

Transactions with owners Movement in ESOP reserve 14 - - (37,278 ) - - (37,278 )

Dividends: - Final for 2008 paid 12 - - - - (515,116 ) (515,116 ) - Proposed for 2009 12 - - - (478,322 ) 478,322 -

- - (37,278 ) (478,322 ) (36,794 ) (552,394 )

At end of year 73,588 5,166,350 316,649 5,419,719 478,322 11,454,628

KenolKobil Limited Annual Report and Financial Statements 2009 21 Company Statement Of Changes In Equity For The Year Ended 31 December 2009

Attributable to equity holders of the Company

Notes Share Share Other Retained Proposed Total capital premium reserves earnings dividends equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Period ended 31 December 2008 At start of the year 50,848 16,650 297,579 3,646,792 - 4,011,869

Comprehensive income for the period

Profit for the period - - - 911,466 - 911,466

Other comprehensive income: Revaluation surplus 19 - - 256,909 - - 256,909 Deferred income tax on revaluation surplus 17 - - (60,850 ) - - (60,850 ) Transfer of excess depreciation net of tax 14 - - (26,172 ) 26,172 - - Movement in hedge reserve 14 - - 39,600 - - 39,600

Total other comprehensive income - - 209,487 26,172 - 235,659

Total comprehensive income - - 209,487 937,638 - 1,147,125

Transactions with owners

Issue of shares on acquisition of Kobil 22,740 5,149,700 - - - 5,172,440 Movement in ESOP reserve 14 - - (15,283 ) - - (15,283 )

Dividends: - Interim for 2008 paid 12 - - - (748,607 ) (748,607 ) - Proposed final for 2008 12 - - - (515,116 ) 515,116 -

22,740 5,149,700 (15,283 ) (1,263,723 ) 515,116 4,408,550

At end of year 73,588 5,166,350 491,783 3,320,707 515,116 9,567,544

Year ended 31 December 2009 At start of the year 73,588 5,166,350 491,783 3,320,707 515,116 9,567,544

Comprehensive income for the year

Profit for the year - - - 827,325 - 827,325

Other comprehensive income:

Transfer of excess depreciation net of tax 14 - - (11,360 ) 11,360 - - Movement in hedge reserve 14 - - 14,993 - - 14,993

Total other comprehensive income - - 3,633 11,360 - 14,993

Total comprehensive income - - 3,633 838,685 - 842,318

Transactions with owners

Movement in ESOP reserve 14 - - (37,278 ) - - (37,278 )

Dividends: - Final for 2008 paid 12 - - - - (515,116 ) (515,116 ) - Proposed for 2009 12 - - - (478,322 ) 478,322 -

- - (37,278 ) (478,322 ) (36,794 ) (552,394 )

At end of year 73,588 5,166,350 458,138 3,681,070 478,322 9,857,468

22 KenolKobil Limited Annual Report and Financial Statements 2009 A celebration to unveil the new Kobil Service Station in Mongu, Zambia.

Consolidated Statement Of Cash Flows For The Year Ended 31 December 2009

15 month Year ended period ended Notes 31-Dec-2009 31-Dec-2008 Shs’000 Shs’000 Operating activities Cash generated from operations 31 5,263,285 2,133,858 Interest received 131,797 79,823 Interest paid 9 (451,292 ) (661,430 ) Income tax paid (794,040 ) (451,326 )

Net cash generated from operating activities 4,149,750 1,100,925

Investing activities Prepayment of operating lease rentals 18 (306,670 ) (391,345 ) Purchase of property, plant and equipment 19 (352,374 ) (474,328 ) Purchase of intangible asset 20 - (14,532 ) Acquisition of Kobil Burundi S.A 21 (15,876 ) - Purchase of available for sale investment 23 - (8,820 ) Purchase of associate - Lublend Limited 24 (8,099 ) - Proceeds from disposal of property, plant and equipment 403,338 11,111 Proceeds from disposal of prepaid operating lease 119,146 -

Net cash used in investing activities (160,535 ) (877,914 )

Financing activities Net proceeds/repayment of borrowings (2,315,903 ) 708,143 Dividends paid (479,246 ) (748,316 )

Net cash absorbed by financing activities (2,795,149 ) (40,173 )

Net increase in cash and cash equivalents 1,194,066 182,838

Movement in cash and cash equivalents At start of year 2,437,882 1,868,505 On acquisition of Kobil Petroleum Limited - 480,207 Increase 1,194,066 182,838 Effects of exchange rate changes on cash and cash equivalents 45,949 (93,668 )

At end of year 29 3,677,897 2,437,882

Non-cash transaction: Kenol acquired 100% of the issued share capital of Kobil Petroleum Limited on 1 January 2008 through an issue of 45,480,000 Kenol shares as consideration at a price of Shs 113.73 per share. The consideration amounted to Shs 5,172,440,000

KenolKobil Limited Annual Report and Financial Statements 2009 23 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

1 General information

KenolKobil Limited, formerly Kenya Oil Company 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 company’s shares are listed on the Nairobi Stock Exchange.

On 17 September 2008, the directors resolved to change the financial year end of the Company and Group from 30 September to 31 December. Therefore the comparative financial statements were prepared for a period of 15 months.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these 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 measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenya Shillings (Shs), rounded to the nearest thousand, except where indicated otherwise.The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the board of directors to exercise its judgement in the process of applying the Group’s 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 adopted by the Group IFRS 8, ‘Operating segments’ – effective 1 January 2009 - IFRS 8 replaces IAS 14, ‘Segment reporting’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. In addition, the segments are reported in a manner that is more consistent with the internal reporting provided to the chief operating decision-maker. The application of the IFRS has an impact on the presentation of segment information disclosed (see note 5).

IAS 1 (revised). ‘Presentation of financial statements’ – effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. As a result the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

IFRS 7 ‘Financial Instruments – Disclosures’ (amendment) – effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of the amendment results in additional disclosures but does not have an impact on the measurement basis adopted by the Group.

IFRS 2 (amendment), ‘Share-based payment’: It clarifies that vesting conditions are service conditions and performance conditions only. All cancellations, whether by the entity or by other parties, should receive the same accounting treat- ment.

24 KenolKobil Limited Annual Report and Financial Statements 2009 Members of staff share a light moment during the Annual Staff Luncheon 2010.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(a) Basis of preparation (continued)

(ii) Amendments effective in 2009 but not relevant In 2009, the following amendments became effective for the first time but have not had an impact on the Group’s and Company’s financial statements:

IAS 23 (amendment), ‘Borrowing costs’ - The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset.

(iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group Two new standards (IFRS 3 – Business combinations and IAS 27 – Consolidated and separate financial statements) and numerous amendments to existing standards and new interpretations have been published and will be effective for the company’s accounting periods beginning on or after 1 January 2010, but the company has not early adopted any of them.

The Directors have assessed the relevance of these amendments and interpretations with respect to the Group’s operations and concluded that they will not have a significant impact on the Group’s financial statements for 2010

(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. 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 purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.

The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the profit and loss account.

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 Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 24).

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the profit and loss account, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or

KenolKobil Limited Annual Report and Financial Statements 2009 25 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(b) Consolidation (continued)

(ii) Associates (continued)

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 Group’s 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.

(i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Kenya Shillings, which is the Company’s functional and presentation currency.

(ii) Transactions and balances in Group entities Foreign currency transactions are translated into the functional currency of the respective entities using the exchange rates prevailing at the dates of the transactions. 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 profit and loss account.

(iii) Consolidation of Group entities 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:

a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; b) income and expenses for each profit and loss account 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 c) All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the profit and loss account 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 decision-maker. 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.

(e) Revenue recognition Revenue represents the fair value of the consideration receivable for sales of goods , and is stated net of value-added tax (VAT), rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

26 KenolKobil Limited Annual Report and Financial Statements 2009 The opening of Kobil Rwanda SARL.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(e) Revenue Recognition (continued)

(i) Sales of goods are recognised in the period in which the Group delivers products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.

(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 initially recorded at cost. Buildings, freehold land and plant and equipment are subsequently shown at fair value, based on periodic, but at least every five years, valuations by external independent valuers, less subsequent depreciation for buildings. All other property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation are credited to a revaluation surplus reserve in equity. Decreases that offset previous increases of the same asset are charged against the revaluation surplus; all other decreases are charged to the profit and loss account. Each year the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the profit and loss account) and depreciation based on the asset’s original cost is transferred from the revaluation surplus to retained earnings.

Freehold land is not depreciated. Depreciation on other assets is calculated using the straight line method to write down their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

- Buildings on freehold land 40 years - Buildings on leasehold land shorter of 40 years or the period of the lease - Motor vehicles 5 years - Plant and machinery 15 years - Furniture and office equipment 10 years

An asset’s carrying amount is written down immediately to its estimated recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with their carrying amount and are included in the profit and loss account. On disposal of revalued assets, amounts in the revaluation surplus relating to that asset are transferred to retained earnings.

(g) Intangible assets

(i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.

KenolKobil Limited Annual Report and Financial Statements 2009 27 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(g) Intangible Assets (continued)

(i) Goodwill (continued)

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or Groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.

(ii) Computer software Costs associated with maintaining computer software programmes are recognised as an expense as incurred.

Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant over- heads. These costs are amortised over their estimated useful lives (three to five years).

Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding three years).

(h) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(i) Financial assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss,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:

(i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term, or if so classifying eliminates or significantly reduces a measurement inconsistency. Derivatives are also categorised as held for trading. Assets in this category are classified as current assets.

(ii) 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 balance sheet date. These are classified as non-current assets.

(iii) 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 balance sheet date.

28 KenolKobil Limited Annual Report and Financial Statements 2009 Members of the Management Team cut the 50th Anniversary cake.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(i) Financial Assets (continued)

(iii) Available-for-sale financial assets (continued)

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. Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the right to receive cash flows from the financial assets 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 are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the profit and loss account as gains and losses from investment securities.

(j) Impairment of financial assets

(i) 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) significant financial difficulty of the issuer or obligor; b) a breach of contract, such as a default or delinquency in interest or principal payments; c) the group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; e) the disappearance of an active market for that financial asset because of financial difficulties; or f) 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.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s 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 instrument’s 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 debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.

KenolKobil Limited Annual Report and Financial Statements 2009 29 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(j) Impairment of financial assets (continued)

(ii) 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 refer to (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-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the separate consolidated income statement. Impairment losses recognised in the separate consolidated income statement on equity instruments are not reversed through the separate consolidated income statement. 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 separate consolidated profit and loss account.

(k) Accounting for leases Leases of property, plant and equipment where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are capitalised at the inception of the lease at the lower of their fair value and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. 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 profit and loss account over the lease period. Property, plant and equipment acquired under finance leases are depreciated over the estimated useful life of the asset.

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 profit and loss account on a straight-line basis over the period of the lease.

(l) 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.

(m) Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A provision for impairment of receivables is established and recognised in the profit and loss account when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The change in the provision is recognised in the profit and loss account under administrative expenses.

(n) Payables Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(o) 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.

30 KenolKobil Limited Annual Report and Financial Statements 2009 Kobil Zambia celebrates its expansion into the Western region.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(p) Cash and cash equivalents

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 on the balance sheet.

(q) Employee benefits

(i) Retirement benefit obligations The Group operates defined contribution retirement benefit schemes for all its employees. 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 Group and all its employees, where applicable, also contribute to the various National Social Security Funds, of the countries in which it operates, which are defined contribution schemes.

The Group’s contributions to the defined contribution schemes are charged to the profit and loss account in the year to which they relate.

(ii) Other entitlements The estimated monetary liability for employees’ accrued annual leave entitlement at the balance sheet 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 the Company. 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 1% of the company’s shares at the end of each year for the periods ended 30 September 2006, 30 September 2007, 31 December 2008 and 31 December 2009. The direct cost to the Group of fulfilling its obligations under the above schemes is charged to the profit and loss account when incurred.

The cost of issued share options is recognised in the profit and loss account 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.

(r) Income tax Income tax expense is the aggregate of the charge to the profit and loss account 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.

KenolKobil Limited Annual Report and Financial Statements 2009 31 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(r) Income tax

Deferred income tax is determined using tax rates enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax liability is settled.

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.

(s) 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 profit and loss account over the period of the borrowings.

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 balance sheet date.

(t) Dividends Dividends distribution to the Company’s 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.

(u) 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 28. 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 months; it is classified as a current asset or liability when the remaining maturity to the hedge item is less than 12 months.

(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 other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account within other gains/ losses (net)

(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 profit and loss account within other gains/ (losses)-net.

32 KenolKobil Limited Annual Report and Financial Statements 2009 Kobil Ethiopia staff with their medals after participating in the Great Ethiopian Run.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

2 Summary of significant accounting policies (Continued)

(v) 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 arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

Impairment of goodwill The Group tests annually whether goodwill amounting to Shs 847 million (2008: Shs 835 million) has suffered any impairment, in accordance with the accounting policy stated in Note 2(g). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (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 Group’s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is un- certain during the ordinary course of business, such as the determination of tax losses carried forward for the purposes of deferred tax asset calculation. 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. The current and deferred income tax liabilities arising in countries other than Kenya amount to Shs 77 million and Shs 188 million respectively.

(ii) Critical judgements in applying the entity’s accounting policies In the process of applying the Group’s accounting policies, management has made judgements in determining: • the classification of financial assets and leases • whether land and buildings meet the criteria to be classified as investment property • whether assets are impaired • provisions and contingent liabilities • Fair value of assets acquired in the acquisition of Oil Burundi S.A..

4 Financial risk management

The Group’s 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 Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance.

KenolKobil Limited Annual Report and Financial Statements 2009 33 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

4 Financial risk management (continued)

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 2010), but has not designated any such contracts 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 2009, if the US dollar had weakened/strengthened by 5% against the Kenya shilling with all other variables held constant, consolidated post tax profit for the year would have been Shs 292,249,000 (2008: Shs 100,136,000) and the Company post tax profit would have been Shs 37,236,000 (2008: Shs 116,418,000) higher/lower, mainly as a result of US dollar payables, borrowings 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 2009, an increase/decrease of 50 basis points would have resulted in an decrease/increase in consolidated post tax profit of Shs 16,377,000 (2008: Shs 32,983,000), mainly as a result of higher/lower interest charges on variable rate borrowings.

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.

The amount that best represents the Group’s and Company’s maximum exposure to credit risk at 31 December 2009 and 2008 is made up as follows:

34 KenolKobil Limited Annual Report and Financial Statements 2009 The Kenol range of lubricant products.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

4 Financial risk management (continued)

Credit risk (continued) Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Cash equivalents 3,805,759 2,428,327 2,960,729 1,599,645 Trade receivables 5,982,947 5,768,260 2,209,390 135,338 Loans to subsidiaries - - 45,757 101,509 Loans to related party - - 3,784,085 3,569,940 Other receivables 1,144,382 1,676,759 571,214 1,433,695

10,933,088 9,873,346 9,571,175 6,840,127

No collateral is held for any 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).

Of the amounts shown as trade receivables above, debtors amounting to Shs 407 million are carried at fair value. These are estimated based on expected future cash flows and past credit history of customers. All the balances fall in level III of the fair value measurement hierarchy. There are no other financial assets carried at fair value.

Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Past due but not impaired: - by up to 30 days 1,188,513 2,105,857 916,095 1,127,718 - by 31 to 90 days 492,570 1,013,050 5,352 8,832 Total past due but not impaired 1,681,083 3,118,907 921,447 1,136,550

Impaired and fully provided for (817,048 ) (699,199 ) (145,819 ) (117,214 )

All receivables past due by more than 90 days are considered to be impaired, and are carried at their estimated recoverable value.

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 Group’s liquidity reserve on the basis of expected cash flow.

The table below analyses the Group’s and the Company’s financial liabilities that will be settled on a net basis into relevant maturity Groupings based on the remaining period at the balance sheet 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.

KenolKobil Limited Annual Report and Financial Statements 2009 35 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

4 Financial risk management (continued)

Liquidity risk (continued) Less than Between Over 2 1 year 1 and 2 years years Shs’000 Shs’000 Shs’000

(a) Group

At 31 December 2009: - borrowings (excluding finance leases) 4,705,243 32,228 13,358 - finance leases 3,757 15,030 20,198 - trade and other payables 14,787,916 - -

At 31 December 2008: - borrowings (excluding finance leases) 7,260,043 103,940 - - finance leases 4,064 16,257 22,821 - trade and other payables 9,406,802 - -

(b) Company

At 31 December 2009: - borrowings (excluding finance leases) 4,243,883 - - - trade and other payables 4,005,859 - -

At 31 December 2008: - borrowings (excluding finance leases) 5,653,165 - - - trade and other payables 1,884,014 - -

Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new capital or sell assets to reduce debt.

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.

36 KenolKobil Limited Annual Report and Financial Statements 2009 Staff members awarded merit recognition for outstanding performance in 2009

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

4 Financial risk management (continued)

Capital management (continued) Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Total borrowings 4,280,796 6,596,699 3,789,181 5,047,469 Less: cash and cash equivalents (3,806,455 ) (2,437,882 ) (2,960,739 ) (1,599,695 )

Net debt 474,341 4,158,817 828,442 3,447,774

Total equity 11,454,628 10,915,860 9,857,468 9,567,544

Total capital 11,928,969 15,074,677 10,685,910 13,015,318

Gearing ratio 4% 28% 8% 26%

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 geographical and functional perspective. Geographically, the business consists of Kenya, East African countries (EAC) subsidiaries (Uganda, Tanzania, Rwanda and Burundi) and other subsidiaries (Zambia and Ethiopia). Kenya is further segregated into inland sales and other sales.

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.

The measure also excludes the effects of equity-settled share-based payments and unrealised gains/losses on financial instruments.

KenolKobil Limited Annual Report and Financial Statements 2009 37 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

5 Segment information (continued)

The segment information provided to the Group Management Team for the reportable segments for the year ended 31 December 2009 is as follows:

Kenya Kenya E.A.C Other Total Inland Other subsidiaries subsidiaries Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Total segment revenue 27,855,855 53,128,666 8,931,366 8,251,680 98,167,567 Inter-segment revenue - (500,911 ) (973,822 ) - (1,474,733 )

Revenue from external customers 27,855,855 52,627,655 7,957,544 8,251,680 96,692,834

Adjusted EBITDA 838,314 1,204,470 699,060 319,744 3,061,588

Depreciation and amortisation of prepaid operating lease rentals and intangible assets (397,254) (56,232 ) (158,428 ) (62,528 ) (674,442 ) Interest expense (309,184) (56,984 ) (60,528 ) (24,596 ) (451,292) Interest income 103,527 17,873 6,550 3,847 131,797 Income tax expense (95,076) (232,529 ) (220,138 ) (91,208 ) (638,951 ) Share of profit from associates - - - 604 604

Profit after tax 256,093 626,329 279,734 132,349 1,294,505

Total assets 8,376,136 17,201,095 3,485,336 2,226,290 31,288,857

Total assets include: Investment in associate - - - 16,685 16,685 Additions to non-current assets (other than financial instruments and intangible assets) 286,146 40,505 209,480 122,912 659,044 Additions to intangible assets - - 12,908 - 12,908

Total liabilities 4,541,190 12,792,790 1,427,733 1,072,516 19,834,229

38 KenolKobil Limited Annual Report and Financial Statements 2009 Non fuel business at the newly refurbished Kobil Service Station at Valley Arcade, Nairobi.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

5 Segment information (continued)

The segment information provided to the Group Management Team for the reportable segments for the fifteen month period ended 31 December 2008 is as follows:

Kenya Kenya E.A.C Other Total Inland Other subsidiaries subsidiaries Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Total segment revenue 34,860,020 75,751,797 13,488,718 11,634,689 135,735,224 Inter-segment revenue - (1,216,883 ) - - (1,216,883 )

Revenue from external customers 34,860,020 74,534,914 13,488,718 11,634,689 134,518,341

Adjusted EBITDA 1,287,335 1,638,870 710,760 548,602 4,185,567

Depreciation and amortisation of prepaid operating lease rentals and intangible assets (412,698) (58,418 ) (201,707 ) (71,071 ) (743,894 ) Interest expense (488,327) (84,307 ) (43,490 ) (45,306 ) (661,430 ) Interest income 61,760 10,663 7,251 149 79,823 Income tax expense (141,345) (270,478 ) (192,666 ) (120,003 ) (724,492 )

Profit after tax 224,096 404,940 228,662 297,620 1,155,319

Total assets 9,834,649 12,001,427 3,428,089 2,444,427 27,708,592

Total assets include: Investment in associate - - - - - Additions to non-current assets (other than financial instruments and intangible assets) 403,600 57,132 213,095 191,846 865,673 Additions to intangible assets 721,356 102,112 - - 823,468

Total liabilities 4,765,368 9,119,037 1,757,506 1,150,821 16,792,732

KenolKobil Limited Annual Report and Financial Statements 2009 39 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

6 Other income Group 2009 2008 Shs’000 Shs’000

Gain/ (loss) on disposal of property, plant and equipment 307,084 (1,758 )

7 Expenses by nature

The following items have been charged/ (credited) in arriving at profit before income tax:

Group 2009 2008 Shs’000 Shs’000

Employee benefits expense (Note 8) 776,868 934,550 Amortisation of operating lease rentals (Note 18) 292,887 342,544 Depreciation of property, plant and equipment (Note 19) 368,262 375,203 Receivables – provision for impairment losses (Note 27) 172,441 1,018,187 Repairs and maintenance of property, plant and equipment 169,877 138,308 Excess provisions relating to prior periods no longer required (207,000 ) - Auditors’ remuneration - Company 8,443 7,500 - Group (including company) 22,680 29,330

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 Contin- gent 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.

In prior years, a provision was recognised with respect to various legal actions that the company was defendant in. In the opinion of the directors, some of these provisions are now no longer required following favourable resolution of the legal cases. Therefore, the profit and loss account includes a credit of Shs 207,000,000 with respect to provisions made in the prior year.

40 KenolKobil Limited Annual Report and Financial Statements 2009 Kobil Uganda recognizes the Best Performing Dealer for 2009.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

8 Employee benefits expense Group 2009 2008 Shs’000 Shs’000 The following items are included within employee benefits expense: Salaries and wages 667,090 762,030 Retirement benefits costs: - Defined contribution scheme 40,205 37,002 - National Social Security Funds 17,895 16,871 Employee Share Ownership Plan (ESOP) costs (Note 14) (37,278 ) 21,154 Other staff costs 88,956 97,493

776,868 934,550 9 Finance costs

Interest expense 451,292 661,430 Net foreign exchange losses 134,799 980,255

586,091 1,641,685 10 Income tax expense

Current income tax 503,057 843,673 Deferred income tax (Note 17) 63,945 (177,345 ) Prior year under provision of current income tax 24,349 3,659 Prior year under provision of deferred income tax (Note 17) 47,600 54,505

638,951 724,492

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: Group 2009 2008 Shs’000 Shs’000

Profit before income tax 1,933,456 1,879,811 Tax calculated at a tax rate of 30% (2008: 30%) 580,037 563,943 Effect of different tax rates in Kobil Zambia and Kobil Kenya (35%) / (37.5%) 19,763 26,325 Prior year under provision of current income tax 24,349 3,659 Prior year under provision of deferred income tax 47,600 54,505 Expenses not deductible for tax purposes 75,817 151,168 Effect of unutilised tax losses 4,411 - Tax effect of: Income not subject to tax (114,942 ) (75,108 ) Deferred tax asset not recognised 1,916 -

Income tax expense 638,951 724,492

KenolKobil Limited Annual Report and Financial Statements 2009 41 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

11 Earnings per share

Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

2009 2008

Profit attributable to equity holders of the Company (Shs ‘000) 1,294,505 1,155,319

Weighted average number of ordinary shares in issue 147,176,120 138,080,120

Basic earnings per share (Shs) 8.80 8.37

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. 2009 2008

Profit attributable to equity holders of the Company (Shs‘000) 1,294,505 1,155,319

Number of ordinary shares in issue 147,176,120 138,080,120

Add weighted average number of shares under option (Employee scheme – Note 16) 377,200 395,538

Weighted average number of ordinary shares for diluted earnings per share 147,553,320 138,475,658

Diluted earnings per share (Shs) 8.77 8.34

This computation does not take into account gains/losses recognised directly in equity.

As at 31 December 2009, the group had 5,178,539 options under the executive scheme that could potentially dilute basic EPS in the future but were not included in the calculation of diluted EPS because they are anti-dilutive for the period presented.

12 Dividends

At the annual general meeting scheduled to take place on 20 May 2010, a dividend payment of Shs 3.25 per share will be proposed (2008: Shs 3.50). This amounts to Shs 478,322,000 (2008: 515,116,000). During the year, no interim dividend was paid (2008: Shs 748,607,000).

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 5% or 10% depending on the residence of the individual shareholder.

42 KenolKobil Limited Annual Report and Financial Statements 2009 A fleet of contracted fuel tankers awaiting loading at a depot.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

13 Share capital Number of ordinary Ordinary share shares capital shs’000 Balance at 1 October 2007 101,696,120 50,848 Issued shares in the purchase of Kobil Petroleum Limited 45,480,000 22,740

Balance at 31 December 2008 and 2009 147,176,120 73,588

The total authorised number of ordinary shares is 150,000,000 with a par value of Shs 0.50 per share.

14 Other Reserves Group Revaluation ESOP Fair value Translation Hedge Total surplus surplus surplus reserve reserve 15 month period ended 31 December 2008 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At start of Period 269,524 66,554 85,445 (103,892) (39,600) 278,031

Revaluation surplus 393,805 - - - - 393,805 Deferred income tax on surplus (169,549 ) - - - - (169,549 ) Transfer of excess depreciation (56,239 ) - - - - (56,239 ) Deferred tax on excess depreciation 18,286 - - - - 18,286 Revaluation released on disposal (16,577 ) - - - - (16,577 ) Deferred tax on released revaluation 6,216 - - - - 6,216 Currency translation differences - - - 103,701 - 103,701 Movement in the ESOP reserve - (15,283 ) - - - (15,283 ) Movement in hedge reserve - - - - 39,600 39,600

Net gain/ (loss) recognised 175,942 (15,283 ) - 103,701 39,600 303,960 At end of period 445,466 51,271 85,445 (191 ) - 581,991

Group Revaluation ESOP Fair value Translation Hedge Total surplus surplus surplus reserve reserve Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Year ended 31 December 2009

At start of year 445,466 51,271 85,445 (191) - 581,991

Revaluation (18,443 ) - - - - (18,443 ) Deferred income tax on revaluation 5,533 - - - - 5,533 Currency translation differences - - - (205,426 ) - (205,426 ) Transfer of excess depreciation net of tax (37,605 ) - - - - (37,605 ) Deferred income tax on transfer 12,884 12,884 Movement in the ESOP reserve - (37,278 ) - - - (37,278 ) Movement in hedge reserve - - - - 14,993 14,993

Net gain/ (loss) recognised (37,631) (37,278) - (205,426 ) 14,993 (265,342 ) At end of year 407,83 5 13,993 85,445 (205,617 ) 14,993 316,649

KenolKobil Limited Annual Report and Financial Statements 2009 43 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

14 Other Reserves (continued)

Company Revaluation ESOP Fair value Hedge Total surplus surplus surplus reserve Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 15 month period ended 31 December 2008

At start of period 185,180 66,554 85,445 (39,600 ) 297,579

Revaluation surplus 256,909 - - - 256,909 Deferred income tax on surplus (60,850 ) - - - (60,850 ) Transfer of excess depreciation (37,389 ) - - - (37,389 ) Deferred income tax on transfer 11,217 - - - 11,217 Movement in the ESOP reserve - (15,283 ) - - (15,283 ) Movement in hedge reserve - - - 39,600 39,600

Net gains/ (loss) recognised 169,887 (15,283 ) - 39,600 194,204

At end of period 355,067 51,271 85,445 - 491,783

Company Revaluation ESOP Fair value Hedge Total surplus surplus surplus reserve Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Year ended 31 December 2009

At start of year 355,067 51,271 85,445 - 491,783

Transfer of excess depreciation (16,228 ) - - - (16,228 ) Deferred income tax on transfer 4,868 4,868 Movement in the ESOP reserve - (37,278 ) - - (37,278 ) Movement in hedge reserve - - - 14,993 14,993

Net gains/ (loss) recognised (11,360 ) (37,278 ) - 14,993 (33,645 )

At end of year 343,707 13,993 85,445 14,993 458,138

The revaluation surplus represents solely the surplus on the revaluation of buildings, freehold land, plant and equipment net of deferred income tax and is non-distributable.

44 KenolKobil Limited Annual Report and Financial Statements 2009 Staff members recognized in 2009 for their long service to the company.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

15 Borrowings

The borrowings are made up as follows:

Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Non-current Bank borrowings 40,701 92,804 - - Finance leases 35,228 39,078 - -

Total Non-current 75,929 131,882 - -

Current Bank borrowings - borrowings in KShs 562,655 2,229,975 487,750 1,330,610 - borrowings in US$ 3,451,174 3,089,195 3,301,431 2,772,859 - borrowings in TShs 112,592 117,062 - - - borrowings in Ushs 28,904 51,230 - - - borrowings in Ebirr 27,730 - - - - borrowings in Zkw 18,055 24,497 - - - borrowings in Rwf - 4,794 - - Commercial paper - 944,000 - 944,000 Finance leases 3,757 4,064 - -

Total current 4,204,867 6,464,817 3,789,181 5,047,469

Total borrowings 4,280,796 6,596,699 3,789,181 5,047,469

The bank borrowings are secured by certain land and buildings of the Group with a value in excess of Shs 233 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 balance sheet date.

It is impracticable to assign fair values to the Group’s long term borrowings due to inability to forecast interest rate and foreign exchange rate changes.

KenolKobil Limited Annual Report and Financial Statements 2009 45 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

15 Borrowings (continued)

Maturity of non-current borrowings (excluding finance lease liabilities): Group 2009 2008 Shs’000 Shs’000

Between 1 and 2 years 28,775 92,804 Between 2 and 5 years 11,926 -

40,701 92,804

Letter of credit (LC) facilities available to the Group are US$ 243 million (2008: US$ 339.9 million). Unutilised LC facilities at year end amount to US$ 46 million (2008: US 240.1 million).

Finance lease liabilities – minimum lease payments Group 2009 2008 Shs’000 Shs’000

Not later than 1 year 3,757 4,064 Later than 1 year and not later than 5 years 15,030 16,257 Later than 5 years 20,198 22,821

38,985 43,142

The present value of the future minimum lease payments above, approximates Shs 24 million.

16 Employees’ Share Ownership Plan (ESOP)

As at 31 December 2009, 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 year of age • have been in continuous service for at least 12 months, 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 years.

46 KenolKobil Limited Annual Report and Financial Statements 2009 A bowser used for fuelling planes at the Jomo Kenyatta International Airport.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

16 Employees’ Share Ownership Plan (ESOP) (continued)

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.

CEO Option agreement

The company has an options agreement with the CEO under which he is entitled to receive options for units amounting to 1% of the company’s shares in respect of each of the financial years 2006 to 2009. The CEO options are governed by the same terms and pricing as the other options issued under the executive option scheme.

A summary of the status of all schemes as at 31 December 2009 and 31 December 2008 and changes during the years ended on these dates is presented below:

Employee Share Ownership Scheme 2009 2008 Number of units Number of units

Outstanding at 1 January / 1 October 395,538 476,344 Granted 142,340 149,863 Exercised / vested (120,717 ) - Forfeited (39,961 ) (230,669 )

Outstanding at 31 December 377,200 395,538

Executive Option Scheme Number 2009 weighted Number 2008 weighted of average of average options exercise price options exercise price

Outstanding at 1 January 3,294,278 111.45 2,691,702 92.69 Granted 1,931,761 68.60 1,731,626 114.8 Exercised - - (1,129,050 ) 71.85 Forfeited (47,500 ) 114.80 - - Outstanding at 31 December 5,178,539 95.43 3,294,278 111.45 Exercisable at 31 December - - - -

There were 120,717 (2008: nil) share options exercised during the year. The options outstanding at 31 December 2009 had a weighted average exercise price of Shs 95.43 (2008: Shs 111.45) and a weighted average remaining contractual life of 5 years (2008: 3 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 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.

KenolKobil Limited Annual Report and Financial Statements 2009 47 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

17 Deferred income tax

Deferred income tax is calculated using the enacted income tax range rates of between 30% and 37.5% (2008: 30% - 37.5%). The movement on the deferred income tax account is as follows: Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 359,101 111,629 70,593 53,466 On acquisition of Kobil Petroleum Limited - 156,715 - - Charge / (credit)to profit and loss account (Note 10) 111,545 (122,840 ) 4,773 (60,694 ) (Credit) /charge to equity (5,533 ) 213,597 - 77,821

At end of year 465,113 359,101 75,366 70,593

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 - 2009 At 1 January Charged/ credited At 31 2009 (credited) to equity December to P&L 2009 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax liabilities Property, plant and equipment: - on historical cost basis 145,992 77,095 - 223,087 - on revaluation surplus 381,794 (31,115 ) (5,533 ) 345,146 Currency translation differences 1,670 3,983 - 5,653

529,456 49,963 (5,533 ) 573,886 Deferred income tax assets Provisions (including hedge reserve) (86,984 ) (14,833 ) - (101,817 ) Tax losses (44,025 ) 42,242 - (1,783 ) Unrealised exchange differences (39,346 ) 34,173 - (5,173 )

(170,355 ) 61,582 - (108,773 )

Net deferred income tax liability 359,101 111,545 (5,533 ) 465,113

48 KenolKobil Limited Annual Report and Financial Statements 2009 Beneficiaries of the KenolKobil Education Scholarship Fund on an educational tour of the Nairobi Ostrich Farm.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

17 Deferred income tax (continued)

Group - 2008 At 1 October On Charged/ Charged At 31 2007 acquisition (credited) to equity December of Kobil to P&L 2008 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax liabilities Property, plant and equipment: - on historical cost basis 91,331 85,104 (30,443 ) - 145,992 - on revaluation surplus 147,112 89,635 (24,502 ) 169,549 381,794 Unrealised exchange differences 53,136 27,644 (120,126 ) - (39,346 ) Currency translation differences (6,456 ) - 8,126 - 1,670

285,123 202,383 (166,945 ) 169,549 490,110

Deferred income tax assets Provisions (including hedge reserve) (74,460 ) (45,668 ) (10,904 ) 44,048 (86,984 ) Tax losses (99,034 ) - 55,009 - (44,025 )

(173,494 ) (45,668 ) 44,105 44,048 (131,009 )

Net deferred income tax liability 111,629 156,715 (122,840 ) 213,597 359,101

Company - 2009 At 1 January Charged/ Charged At 31 2009 (credited) to equity December to P&L 2009 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax liabilities Property, plant and equipment: - on historical cost basis (8,051 ) 74 - (7,977 ) - on revaluation surplus 120,001 (4,924 ) - 115,077 Provisions (14,407 ) (8,560 ) - (22,967 ) Unrealised exchange differences (26,950 ) 18,183 - (8,767 )

Net deferred income tax liability 70,593 4,773 - 75,366

KenolKobil Limited Annual Report and Financial Statements 2009 49 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

17 Deferred income tax (continued)

Company - 2008 At 1 October Charged/ credited At 31 2007 (credited) to equity December to P&L 2008 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax liabilities Property, plant and equipment: - on historical cost basis (6,015 ) (2,036 ) - (8,051 ) - on revaluation surplus 70,368 (11,217 ) 60,850 120,001 Movement in hedge reserve (16,971 ) - 16,971 - Provisions (16,313 ) 1,906 - (14,407 ) Unrealised exchange differences 22,397 (49,347 ) - (26,950 )

Net deferred tax liability 53,466 (60,694 ) 77,821 70,593

Deferred income tax of Shs 12,884,000 (2008: Shs 18,286,000) and Shs 4,868,000 (2008: Shs 11,217,000) respectively for the Group and the Company in 2009, was transferred within shareholders’ equity from revaluation reserves to retained earnings (see Note 14). This represents deferred income tax on the difference between the actual depreciation on the property and the equivalent depreciation based on the historical cost of the property and revaluation surplus on disposed assets.

18 Prepaid operating lease rentals

Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 869,135 553,462 176,330 206,614 Kobil acquisition - 247,634 - - Additions 306,670 391,345 109,705 112,467 Disposals (119,146 ) - (117,704 ) - Amortisation for the year (292,887 ) (342,544 ) (90,019) (142,751 ) Currency translation differences (29,864 ) 19,238 - -

At end of year 733,908 869,135 78,312 176,330

50 KenolKobil Limited Annual Report and Financial Statements 2009 A Kobil Service Station in Kigali, Rwanda.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

19 Property, plant and equipment

(a) Group Furniture & Freehold Motor Plant & office land Buildings vehicles equipment equipment Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 October 2007 Cost or valuation 237,172 1,873,562 29,606 853,870 226,080 3,220,290 Accumulated depreciation - (270,839 ) (5,169 ) (242,371 ) (92,103 ) (610,482 )

Net book amount 237,172 1,602,723 24,437 611,499 133,977 2,609,808

Period ended 31 December 2008

Opening net book amount 237,172 1,602,723 24,437 611,499 133,977 2,609,808 On acquisition of subsidiary 200,635 771,885 5,677 608,700 8,741 1,595,638 Additions 5,229 280,969 19,653 113,041 55,436 474,328 Disposals - (2,103 ) - (10,766) - (12,869 ) Transfers - (303,605 ) - 303,605 - - Currency translation differences 100,814 (6,993 ) 2,701 87,594 (5,985 ) 178,131 Depreciation charge - (133,824 ) (10,829 ) (178,687 ) (51,863 ) (375,203 ) Revaluation 30,148 184,298 - 179,359 - 393,805

Closing net book amount 573,998 2,393,350 41,639 1,714,345 140,306 4,863,638

At 31 December 2008 Cost or valuation 573,998 2,613,715 57,637 1,956,044 284,272 5,485,666 Accumulated depreciation - (220,365 ) (15,998 ) (241,699 ) (143,966 ) (622,028 )

Net book amount 573,998 2,393,350 41,639 1,714,345 140,306 4,863,638

Year ended 31 December 2009

Opening net book amount 573,998 2,393,350 41,639 1,714,345 140,306 4,863,638 Additions - 240,954 3,143 91,867 16,410 352,374 Disposals (4,286) (83,147 ) - (8,821 ) - (96,254 ) Transfers (573) 31,811 32,545 (26,086 ) (37,697 ) - Currency translation differences (50,418) (85,508 ) (3,028 ) (77,318 ) (4,401 ) (220,673 ) Depreciation charge - (172,332 ) (9,930 ) (160,540 ) (25,460 ) (368,262 ) Revaluation - (28,967 ) - 10,524 - (18,443 )

Closing net book amount 518,721 2,296,161 64,369 1,543,971 89,158 4,512,380

At 31 December 2009 Cost or valuation 518,721 2,629,425 83,395 1,943,403 217,331 5,392,275 Accumulated depreciation - (333,264 ) (19,026 ) (399,432 ) (128,173 ) (879,895 )

Net book amount 518,721 2,296,161 64,369 1,543,971 89,158 4,512,380

KenolKobil Limited Annual Report and Financial Statements 2009 51 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

19 Property, plant and equipment (continued)

(b) Company Furniture & Freehold Motor Plant & office land Buildings vehicles equipment equipment Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 October 2007

Cost or valuation 54,300 451,684 157 346,444 133,371 985,956 Accumulated depreciation - (85,390 ) (126 ) (140,942 ) (91,482 ) (317,940 )

Net book amount 54,300 366,294 31 205,502 41,889 668,016

Period ended 31 December 2008

Opening net book amount 54,300 366,294 31 205,502 41,889 668,016 Additions - 392 6,017 8,774 36,517 51,700 Transfers - 8,598 - 2,451 (11,049 ) - Disposals - (2,104 ) - (4,510 ) - (6,614 ) Depreciation charge - (33,373 ) (1,536 ) (35,402 ) (31,504 ) (101,815 ) Revaluation surplus 54,075 133,856 - 68,978 - 256,909

Closing net book amount 108,375 473,663 4,512 245,793 35,853 868,196

At 31 December 2008

Cost or valuation 108,375 479,181 245,793 6,174 158,839 998,362 Accumulated depreciation - (5,518 ) - (1,662 ) (122,986 ) (130,166 )

Net book amount 108,375 473,663 245,793 4,512 35,853 868,196

Year ended 31 December 2009

Opening net book amount 108,375 473,663 4,512 245,793 35,853 868,196 Additions - 4,438 3,620 12,770 16,721 37,549 Transfers - 17,854 - 7,433 (25,287 ) - Disposals - (54,631 ) - (4,966 ) - (59,597 ) Depreciation charge - (66,580 ) (1,927 ) (26,103 ) (9,030 ) (103,640 )

Closing net book amount 108,375 374,744 6,205 234,927 18,257 742,508

At 31 December 2009

Cost or valuation 108,375 441,324 9,794 261,030 150,273 970,796 Accumulated depreciation - (66,580 ) (3,589) (26,103 ) (132,016 ) (228,288 )

Net book amount 108,375 374,744 6,205 234,927 18,257 742,508

52 KenolKobil Limited Annual Report and Financial Statements 2009 Kobil Zambia presents their donation towards the Royal Kuomboka Ceremony.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

19 Property, plant and equipment (continued)

In the opinion of the directors, there are no impairments of property, plant and equipment

Freehold land, all buildings and plant and equipment for the Group and the company were valued as at 31 December 2008, by independent professional valuers. Valuations were made on the basis of open market value for land and buildings and depreciated replacement costs for plant and equipment. The book values of the properties were adjusted to the revaluations and the resultant surplus net of deferred income tax was credited to the revaluation surplus in shareholders’ equity.

The revaluation reserve is non distributable.

If the buildings, freehold land and plant and equipment were stated on the historical cost basis, the amounts would be as follows:

Land & buildings Plant & equipment 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Group

Cost 3,424,117 3,270,596 1,798,412 1,715,366 Accumulated depreciation (790,043 ) (522,337 ) (826,606 ) (553,756 )

Net book amount 2,634,074 2,748,259 971,806 1,161,610

Company

Cost 473,224 511,081 315,184 299,947 Accumulated depreciation (294,897 ) (218,733 ) (233,782 ) (192,622 )

Net book amount 178,327 292,348 81,402 107,325

KenolKobil Limited Annual Report and Financial Statements 2009 53 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

20 Intangible assets

(a) Group Computer Goodwill software Total Shs’000 Shs’000 Shs’000 At 1 October 2007 Cost 26,098 48,221 74,319 Accumulated amortisation and impairment - (16,028 ) (16,028 )

Net book amount 26,098 32,193 58,291

Period ended 31 December 2008 Opening net book amount 26,098 32,193 58,291 Additions 808,936 14,532 823,468 Amortisation - (26,147 ) (26,147 )

Closing net book amount 835,034 20,578 855,612

At 31 December 2008 Cost 835,034 62,753 897,787 Accumulated amortisation and impairment - (42,175 ) (42,175 )

Net book amount 835,034 20,578 855,612

Year ended 31 December 2009 Opening net book amount 835,034 20,578 855,612 Additions 12,908 - 12,908 Amortisation - (13,293 ) (13,293 )

Closing net book amount 847,942 7,285 855,227

At 31 December 2009 Cost 847,942 62,753 910,695 Accumulated amortisation and impairment - (55,468 ) (55,468 )

Net book amount 847,942 7,285 855,227

Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to country of operation and business segment. A segment-level summary of the goodwill allocation is presented below: 2009 2008 Shs’000 Shs’000

Cost- Kobil Uganda Limited 26,098 26,098 Cost - Kobil Petroleum Limited 808,936 808,936 Cost – Kobil Burundi SA (Note 21) 12,908 -

847,942 835,034

54 KenolKobil Limited Annual Report and Financial Statements 2009 The K-Gas range of products.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

20 Intangible assets (continued)

(a) Group (continued) 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. Key assumptions used for value-in-use calculations:

Kenya Uganda Burundi

EBITDA margin1 2% 5% 5% Growth rate2 3% 2% 2% Discount rate3 10% 15% 15%

1 Budgeted EBITDA margin 2 Weighted average growth rate used to extrapolate cash flows beyond the projected period. 3 Pre-tax discount rate applied to the cash flow projections.

These assumptions have been used for the analysis of each CGU within the business segment. Management determined budgeted EBITDA margin based on past performance and its expectations for the market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant segments.

(b) Company Computer software Shs’000 At 1 October 2007 Cost 48,221 Accumulated amortisation and impairment (16,028 )

Net book amount 32,193

Period ended 31 December 2008 Opening net book amount 32,193 Additions 14,532 Amortisation (26,147 )

Closing net book amount 20,578

At 31 December 2008 Cost 62,753 Accumulated amortisation and impairment (42,175 )

Net book amount 20,578

Year ended 31 December 2009 Opening net book amount 20,578 Additions - Amortisation (13,293 ) Impairment charge -

Closing net book amount 7,285

At 31 December 2009 Cost 62,753 Accumulated amortisation and impairment (55,468 )

Net book amount 7,285

KenolKobil Limited Annual Report and Financial Statements 2009 55 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

21 Acquisition of Oil Burundi SA

KenolKobil Limited acquired 100% of the issued share capital of Oil Burundi SA on 6 October 2009 (name change to Kobil Burundi SA).

Goodwill has been calculated as follows:

Shs’000

Consideration 15,876 Less: Fair value of net identifiable assets (2,968)

Goodwill 12,908

The goodwill has been recognised in the books.

22 Investment in subsidiaries (at cost)

The company’s interest in its subsidiaries, all of which are unlisted and all of which have the same year end as the company, were as follows:

Company Country of % interest 2009 2008 incorporation held Shs’000 Shs’000

Kobil Petroleum Limited – Kenya branch Kenya 100 5,172,440 5,172,440 Kobil Uganda Limited Uganda 100 82,526 82,526 Kobil Tanzania Limited Tanzania 100 129,564 129,564 Kobil Zambia Limited Zambia 100 - - Kobil Rwanda SARL Rwanda 100 794 794 Kobil Petroleum Rwanda SARL Rwanda 100 - - Kobil Ethiopia Limited Ethiopia 100 489,442 489,442 Oil Burundi SA (Note 21) Burundi 100 15,876 -

5,890,642 5,874,766

23 Available-for-sale investment Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 8,820 - - - Reclassification to investment in associate (Note 24) (8,820 ) - - - Purchase of 15% shareholding in Lublend Limited by Kobil Zambia Limited - 8,820 - - - 8,820 - -

56 KenolKobil Limited Annual Report and Financial Statements 2009 Beneficiaries of the Kenol scholarship fund on an educational tour of the Nairobi National Museum.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

24 Investment in associates Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000 At start of year - - - - Transfer from available for sale investments (Note 23) 8,820 - - - Acquisition 8,099 - - - Share of profit 604 - - - Exchange differences (838 ) - - - At end of year 16,685 - - -

Investments in associates at 31 December 2009 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 2009

Key financial data of Lublend limited for the year ended 31 December 2009 is as follows:

Country of % interest Assets Liabilities Revenues incorporation held Shs’000 Shs’000 Shs’000

2009 Lublend Limited Zambia 25.5 60,308 41,767 100,856

25 Loans to subsidiaries

Company 2009 2008 Shs’000 Shs’000 Kobil Zambia Limited - 19,364 Kobil Ethiopia 45,757 82,145

45,757 101,509

The loan to Ethiopia is denominated in US dollars. This loan is provided with interest and is not required to be repaid within one year and is unsecured.

26 Inventories Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000 Refined products on hand (at cost) 13,172,275 10,816,330 1,366,333 2,904,373

All inventories are stated at the lower of cost and net realisable value.

KenolKobil Limited Annual Report and Financial Statements 2009 57 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

27 Receivables and prepayments Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Trade receivables 6,799,995 6,467,459 2,355,209 252,552 Less: provision for impairment losses (817,048 ) (699,199 ) (145,819 ) (117,214 )

Net trade receivables 5,982,947 5,768,260 2,209,390 135,338 Prepayments 937,545 401,134 169,383 70,705 Other receivables 1,144,382 1,676,759 571,214 332,968 Receivables from related parties - - 97,847 1,100,727 8,064,874 7,846,153 3,047,834 1,639,738 Provision for impairment losses movement At start of year (699,199 ) (393,080 ) (117,214 ) (79,245 ) Acquisition of Kobil - (457,986 ) - - (Charged) /credited to profit and loss (172,441 ) (1,018,187 ) (66,041 ) (432,444 ) Amounts recovered 43,110 947,266 37,436 394,475 Provisions utilised 11,482 222,788 - - (817,048 ) (699,199 ) (145,819 ) (117,214 )

28 Derivative financial assets

Derivative financial instruments 14,993 - 14,993 -

The carrying amounts of the financial assets are classified as follows:

Designated at fair value on initial recognition 14,993 - 14,993 -

14,993 - 14,993 -

The derivative financial instruments comprise forward price swap contracts that are designated as hedging instruments.

29 Cash and cash equivalents Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Cash at bank and in hand 3,806,455 2,437,882 2,960,739 1,599,695 Less restricted cash (128,558 ) - - - Cash and cash equivalents for cash flow statement purposes 3,677,897 2,437,882 2,960,739 1,599,695

Restricted cash relates to amounts held in bank accounts that are 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.

58 KenolKobil Limited Annual Report and Financial Statements 2009 The newly refurbished Kobil Service Station on Murang’a Rd, Nairobi.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

30 Payables and accrued expenses Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Trade payables 10,011,049 1,546,460 1,480,224 223,654 Payables to related companies - - 2,066,544 - Accrued expenses 487,096 370,363 274,611 31,671 Other payables 4,269,326 7,452,904 168,798 1,612,932 Accrued leave 20,445 37,075 15,682 15,757

14,787,916 9,406,802 4,005,859 1,884,014

31 Cash generated from operations

Reconciliation of profit before income tax to cash generated from operations: Group 2009 2008 Shs’000 Shs’000

Profit before income tax 1,933,456 1,879,811 Adjustments for: Interest income (131,797 ) (79,823 ) Interest expense (Note 9) 451,292 661,430 Depreciation (Note 19) 368,262 375,203 Amortisation of prepaid operating lease rentals (Note 18) 292,887 342,544 Amortisation of intangible assets (Note 20) 13,293 26,147 (Gain) / loss on sale of property, plant and equipment (307,084 ) 1,758 Share of profit in associate (Note 24) (604 ) - ESOP reserve movement recognised through the Profit and loss account (Note 14) (37,278 ) (15,283 ) Hedge reserve movement recognised through the profit and loss account - 83,648

Changes in working capital - receivables and prepayments (net of Oil Burundi SA assets) (215,753 ) 3,862,687 - inventories (2,355,945 ) (6,097,847 ) - payables and accrued expenses 5,381,114 1,933,505 - Kobil amounts - (839,922 ) - Movement in restricted cash (128,558 ) -

Cash generated from operations 5,263,285 2,133,858

KenolKobil Limited Annual Report and Financial Statements 2009 59 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

32 Related parties and related parties transactions

The Group has shareholding by various companies shown on page 63. 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.

Subsequently in 1993, Kenol and Kobil entered into an operating agreement to integrate their operations. Crude oil and refined products consignments, export, reseller, commercial, and aviation sales and distribution, selling, marketing, administration and financial expenses are shared, unless otherwise agreed, between KenolKobil and Kobil on the basis of agreed market shares of sales volume in their respective classes of business. This sharing arrangement is reviewed on a regular basis and revised as necessary. For the year ended 31 December 2009 the ratio, for agreed items, between KenolKobil and Kobil for consignment sales and related expenses was 80% to 20% (2008: 80% to 20%) and for other sales and related expenses it was 42.5% to 57.5% (2008: 42.5% to 57.5%)

Under a separate arrangement, Kobil has allowed KenolKobil’s subsidiaries to use its brand name outside Kenya.

The following transactions were carried out with related parties:

i) Purchase of goods

During the year, the following purchases were made from Kobil Petroleum Limited – Kenya branch and Kobil Tanzania Lim- ited by Group companies: 2009 2008 Shs’000 Shs’000

Kobil Uganda Limited 370,766 480,987 Kobil Tanzania Limited 13,919 7,249 Kobil Rwanda SARL - 13,490 Kobil Petroleum Rwanda SARL 829,238 585,393 Kobil Zambia Limited 78,781 74,836 Kobil Ethiopia Limited 95,394 54,928 Oil Burundi SA 86,635 -

1,474,733 1,216,883

ii) Advances from company to subsidiary Kobil Petroleum Limited – Kenya branch

Due from Kobil Petroleum Limited 3,784,085 3,569,940

The amounts due from Kobil Petroleum Limited are interest free, unsecured and payable within one year

60 KenolKobil Limited Annual Report and Financial Statements 2009 KenolKobil Ltd hands over a sponsorship package to Ms. Anne Taieth and her Navigator Michael Hughes at the onset of the KCB safari rally in April 2010.

Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

32 Related parties and related parties transactions (continued)

iii) Key management compensation Group 2009 2008 Shs’000 Shs’000

Salaries and other short term employment benefits 252,651 260,807 ESOP costs - 26,968 Post-employment benefits - 4,871

252,651 292,646

iv) Directors’ remuneration

Fees for services as a director 5,140 2,475 ESOP cost - 3,168 Other emoluments (included under key management compensation above) 42,587 39,256

Total remuneration of directors of the Company 47,727 44,899

During the year, the company undertook transactions with entities connected to directors as follows:

2009 2008 Shs’000 Shs’000

Shapley Barret 12,376 2,801 Kestrel Capital Limited - 7,750

12,376 10,551

33 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 to a maximum of US$ 11.541 million (2008: US $ 15.84 million). In addition, at year end, the company had transit bonds and performance guarantees totaling Shs 1,192 million (2008: Shs 1,471 million).

KenolKobil Limited Annual Report and Financial Statements 2009 61 Notes To The Consolidated Financial Statements For The Year Ended 31 December 2009

34 Commitments

(a) Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements as follows:

Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Property, plant and equipment 57,659 227,911 26,479 117,934

(b) Operating lease commitments

Group Company 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000

Not later than 1 year 275,557 380,444 96,710 162,706 Later than 1 year and not later than 5 years 977,132 846,082 355,469 288,599 Later than 5 years 2,208,483 2,284,579 1,021,041 898,982

3,461,172 3,511,105 1,473,220 1,350,287

62 KenolKobil Limited Annual Report and Financial Statements 2009 Principal Shareholders

The ten major shareholdings in the company and the respective number of shares held at 10 March 2010 is as follows:

Name of shareholder Number of shares % Shareholding

1. Wells Petroleum Holdings Limited 36,661,428 24.91% 2. Petroholdings Limited 25,521,108 17.34% 3. Highfield Limited 18,335,000 12.46% 4. Chery Holding Limited 16,785,000 11.40% 5. Energy Resources Capital Limited 8,818,572 5.99% 6. Barclays (Kenya) Nominees Ltd Non-Red (A/c 9203 AM) 5,506,540 3.74% 7. CFC Stanbic Nominees Kenya Ltd (A/c NR13302) 1,711,500 1.16% 8. Kenol employees share ownership plan- JI Segman and C Field-Marsham acting as Trustees 900,000 0.61% 9. Kenya Commercial Bank Nominees Ltd 860,361 0.58% 10. Kestrel Capital Nominees 856,560 0.58%

Distribution of shareholders

Number of shareholders Number of shares % Shareholding

Less than 500 shares 649 124,240 0.08 500 – 5,000 shares 1,335 2,399,018 1.63 5,001 – 10,000 shares 234 1,757,937 1.19 10,001 – 100,000 shares 328 9,181,979 6.24 100,001 – 1,000,000 shares 81 21,035,226 14.29 Over 1,000,000 shares 7 112,677,720 76.56

Total 2,634 147,176,120 100

KenolKobil Limited Annual Report and Financial Statements 2009 63 Notes

64 KenolKobil Limited Annual Report and Accounts 2009 Proxy Form

I/We ______

______of ______

______

Being a member of KenolKobil Limited hereby appoint ______

______

______of ______whom failing, the Chairman of the Meeting of the Company as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on Thursday, 20th May 2010 and at any adjournment thereof.

Signed/Sealed this...... day of...... 2010

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, “Kirungii” Ring Road, Westlands, P O Box 30029, 00100 Nairobi to reach not later than 48 hours before the time appointed for holding the meeting or at any adjournment thereof.

2. Any person appointed to act as proxy need not be a member of the Company.

3. If the appointer is a corporation, the Form of Proxy must be under Seal, witnessed by two directors or one director and the Company Secretary or under the hand of any officer or attorney duly authorised in writing. The Company Secretary Livingstone Associates Ring Road, Westlands P O Box 30029, 00100 Nairobi, Kenya.

Kenya - Head Office Tanzania - Subsidiary Rwanda - Subsidiary Burundi - Subsidiary KenolKobilKenolKobil LimitedLimited - Head OfficeKobilKobil Tanzania Tanzania Limited Limited KobilKobil Petroleum Petroleum Rwanda Rwanda SARL SARLKobilKobil Burundi Burundi S.A. S.A. I.C.E.A.I.C.E.A. Building, Building, Kenyatta Kenyatta Avenue Avenue MafutaMafuta Road, Road, Kurasini, Kurasini PlotByumba No. 5627 Road, Gatsata 205 Av205 Ruvyironza AV Ruvyironza P.O. P.O.Box Box44202 44202 or 30322 or 30322 P.O. BoxP.O. 2238,Box 2238, Dar esDar salaam, es Salaam, Tanzania Tanzania P.O.B.P. Box6074, 6074 Kigali, / 2992Rwanda B.P. 466B.P. Bujumbura,466 Bujumbura, Burundi Burundi 0010000100 GPO, GPO, Nairobi, Nairobi, Kenya Kenya Tel: +255Tel: 2128846 22 2128846 / 7, 2135470 / 7, 2135470 / 1, / 1 Gatsata,Tel: (+250) Byumba 570676 Road - 80 Tel +Tel: 257 +257 22 22244946 24 35 92 Tel: Tel:+254 +254 (0) 20(0) -20 2755000 2755000 / 2249333 / 2249333 Fax: +255Fax: 2128848 22 2128848 / 9 Kigali,Fax: (+250)Rwanda 570683 +Fax: 257 +257 22 22243592 24 35 93 Fax: Fax:+254 +254 (0) 20(0) -20 2230967 2230967 / 2218274 / 2218274 / / E-mail:E-mail: [email protected] [email protected] Tel:E-mail: + 250 [email protected] 78 81 83241 Fax: +Website: 257 22 www.kenolkobil.com 243593 2221614 2221614 Website:Website: www.kenolkobil.com www.kenolkobil.com Fax:Website: + 250 www.kenolkobil.com 78 81 83225 Website: www.kenolkobil.com E-mail:E-mail: [email protected] [email protected] E-mail: [email protected] Website:Website: www.kenolkobil.com www.kenolkobil.com Kobil Zambia Limited Website:Kobil Ethiopiawww.kenolkobil.com Limited (Plc) Kobil Zimbabwe Head Office: Debre - Zeit Road P.O. Box MP 526 Kobil Uganda Limited P.O. Box 2868, Code 1250 Harare, Zimbabwe Uganda - Subsidiary ZambiaPlot No. - Subsidiary1630, Malambo Road Ethiopia - Subsidiary Zimbabwe - Subsidiary Plot No. 4 Wankulukuku Road P.O. Box 320089, Lusaka, Zambia Tel: (+251) 11 4673580 / 507497 Website: www.kenolkobil.com Kobil Uganda Limited Kobil Ethiopia Limited (Plc) P.O. Box MP 526 P.O. Box 27478, Kampala, Uganda KobilTel: Zambia +260 211Limited 246 646 (nine lines) Fax: (+251) 11 4673581 Plot No. 4 Wankulukuku Road Debre - Zeit Road Harare, Zimbabwe Tel: (256-414) 271425, 272765, 272974 HeadFax: Office: +260 211 246 644 E-mail: [email protected] Nalukolongo, Industrial Area, Kabele 06 Website: www.kenolkobil.com (256-312) 502200 Plot No.E-mail: 1630, [email protected] Malambo Road Website: www.kenolkobil.com P.O. Box 27478, Kampala, Uganda Kirkos Sub City Fax: (256-414) 270153 / 272950 IndustrialWebsite: Area www.kenolkobil.com E-mail:Tel: [email protected] +256 312 502200, P.O. Box 320089, Lusaka, Zambia P.O. Box 2868, Code 1250 Website: +256 www.kenolkobil.com 414 272765 / 272974 Tel: +260 1 246646 Addis Ababa, Ethiopia Fax: +256 414 272950 Fax: +260 1 246644 / 9 Tel: +251 11 4674500 / 5 / 6 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.kenolkobil.com Website: www.kenolkobil.com Website: www.kenolkobil.com