2010 KenolKobil Limited Annual Report & Financial Statements
Vision
ů To be the leading brand in all markets we operate in, and a major player in Africa.
Mission
ů To develop, improve and increase quality and total value of our products and services.
ů To become a market leader through continuous innovation, customer focus and to provide the highest quality products and services.
ů To maintain a highly motivated, well trained human resource base.
ů To deliver the highest Shareholders’ values.
2 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
TABLE OF CONTENTS
Directorate & Administration 4
Notice of the Annual General Meeting 5
Chairman & Group Managing Director’s Report 6 - 7
Board of Directors 8
Group Management Team 9
Corporate Governance 10
Corporate Social Responsibility 11
Financial Highlights 12
Director’s Report 14
Statement of the Directors’ Responsibilities 15
Report of the Independent Auditor 16 - 17
Consolidated Income Statement 18
Consolidated Statement of Comprehensive Income 19
Consolidated Statement of Financial Position 20
Company Statement of Financial Position 21
Consolidated Statement of Changes in Equity 22
Company Statement of Changes in Equity 23
Consolidated Statement of Cash Flows 24
Notes to the Financial Statements 25 - 70
Principal Shareholders and share distribution 71 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
DIRECTORATE & ADMINISTRATION
BOARD OF DIRECTORS J I Segman Chairman and Group Managing Director
C Field-Marsham Appointed on 28 September 2001 Resigned on 16 November 2010 D Oyatsi Appointed on 10 August 2007 P N Jakobsson Appointed on 10 August 2007 T M Davidson Appointed on 25 September 2007 Resigned on 13 April 2010 Appointed 01 January 2011 J Mathenge Appointed on 01 December 2008 P Lai Appointed on 03 February 2006
SECRETARY Ms W Juma Appointed Secretary on 01 January 2011 Livingstone Associates Deloitte Place, Waiyaki Way, Muthangari P O Box 30029, GPO 00100 Nairobi
REGISTERED OFFICE ICEA Building Kenyatta avenue P O Box 44202, GPO 00100 Nairobi
BANKERS Major bankers include:
BNP Paribas – Paris NIC Bank CfC-Stanbic Bank Kenya Limited Kenya Commercial Bank Limited Bank of Africa Limited Societe Generale – Paris Ecobank Limited PTA Bank Limited
AUDITOR PricewaterhouseCoopers Certified Public Accountants The Rahimtulla Tower Upper Hill Road P O Box 43963, 00100 Nairobi
4 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the 52nd Annual divided into 2,000,000,000 (Two Billion) Ordinary General Meeting of the Company will be held at the shares by the creation of an additional 500,000,000 InterContinental Hotel, Nairobi, Kenya on (Five hundred Million) new Ordinary Shares of Kshs Thursday, 28 April 2011 at 11.00 a.m. 0.05 each to rank “pari passu” in all respects with the existing Ordinary Shares in the capital of the AGENDA Company.”
ORDINARY BUSINESS 9. Allotment of Shares to the Employee Share Ownership Plan (ESOP) 1. To table the proxies and note the presence of a quorum. To consider and, if thought fit, to pass the following 2. To read the notice convening the meeting. resolution as an Ordinary Resolution:- 3. To receive the audited Financial Statements for the year ended 31 December 2010 together with “Subject to approval by the Capital Markets the reports of the Chairman and Group Managing Authority, to allot 140,000,000 (One Hundred and Director, Directors’ and Auditor thereon Fourty Million) Ordinary shares of Kshs 0.05 each 4. Dividend: out of the authorized but unissued share capital of To consider and approve a first and final dividend the Company to the Trustees of the KenolKobil of Kshs 0.52 per share for the year ended 31 Employee Share Ownership Plan. December 2010 payable on or about 11 May 2011 to the shareholders on the Register of Members at BY ORDER OF THE BOARD the close of business on Friday, 29 April 2011 and to approve the closure of the Register of Members from the close of business on Friday, 29 April 2011 WINNIEFRED JUMBA to the close of business on Monday, 2 May 2011 COMPANY SECRETARY (both days inclusive) for the purpose of processing Date: 24 March 2011 the dividend. 5. To approve the Directors’ remuneration for the Note: year ended 31 December 2010 as indicated in the 1. In accordance with Section 136 (2) of the Companies Act Financial Statements for the year ended 31 (Cap 486), every member entitled to attend and vote at the December 2010. above meeting is entitled to appoint a proxy to attend and 6. Re-election of directors: vote on his or her behalf and a proxy need not be a a) To re-elect Ms Patricia Lai, a director retiring by member of the Company. A form of proxy may be rotation in accordance with Article 96 of the obtained from the Company’s website Company’s Articles of Association and the Capital www.kenolkobil.com or from the Registered Office of the Markets Authority Guidelines on Corporate Company, ICEA Building, 10th Floor, Kenyatta Avenue, Governance Practices by Public Listed Companies Nairobi. in Kenya and, being eligible, offers herself for In the case of a member being a limited Company, this re-election. form must be completed under its Common Seal or under b) To re-elect Mr T M Davidson, a director retiring in the hand of an officer or attorney duly authorised in accordance with Article 101 of the Company’s writing. Articles of Association, and being eligible, offers 2. All proxies must be duly completed by the member and himself for re-election. must be lodged with the Company Secretary, Livingstone 7. To re-appoint Messrs PricewaterhouseCoopers in Associates, P O Box 30029, 00100 Nairobi, or posted in office as Auditor by virtue of Section 159 (2) of the time to reach not later than 10.00 am on Tuesday, 26 April Companies Act (Cap. 486) and to authorise the Directors 2011. Alternatively, duly signed proxies can be scanned to fix their remuneration for the ensuing financial year. and emailed to [email protected] in PDF format. 3. In accordance with Article 134 of the Companies Articles SPECIAL BUSINESS of Association a copy of the entire Annual Report and Accounts may be viewed on and obtained from the 8. Increase in Nominal Share Capital Company’s website www.kenolkobil.com or from the Registered Office of the Company, ICEA Building, 10th Subject to receipt of the necessary regulatory Floor, Kenyatta Avenue, Nairobi. An abridged set of the approvals, to consider and, if thought fit, to pass Statement of Financial Position, Comprehensive Income the following resolution as an Ordinary Resolution:- Statement, Statement of Changes in Equity and “That the Nominal Share Capital of the Company Statement of Cashflow for year ended 31st December be increased from Kshs 75,000,000/- (Kenya 2010 have been published in two daily newspapers with Shillings Seventy Five Million) divided into nationwide circulation. 1,500,000,000 (One Billion Five Hundred Million) Ordinary shares of Kshs 0.05 each to Kshs 100,000,000/ - ( Kenya Shillings One Hundred
5 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
CHAIRMAN & GROUP MANAGING DIRECTOR’S REPORT
In the Year under review, Finance cost went up by K.Shs. 531 million mainly due to the signifi- cant increase in Exchange losses of K.Shs. 438 million resulting from the weakness of local currencies in almost all countries of operation. Kenya suffered the highest exchange loss of K.Shs. 361 million, which included K.Shs. 135 million losses due to Hedging positions taken on K.Shs/USD exchange. Interest expenses in 2010 were up 21% compared to 2009, while Interest Income, went up 11.4% respectively. The Group Medium Term Borrowing is only K.Shs. 94 million borrowed by Kobil Rwanda and Kobil Ethiopia for capital expenditure. The Group has no long term borrowings at all, but is considering taking some with the view of restructuring the borrowing-mix.
The Group’s Balance Sheet has continued to grow. In 2010, Shareholders equity surpassed the K.Shs. 12.7 billion mark due to a strong business performance as well as continued I am pleased to present to you the Annual investments and expansion in the region. The Accounts of KenolKobil Ltd, representing Group’s total asset base grew by 3% in 2010 to successful Financial year, January – December K.Shs. 32 billion and the Current Ratio 2010. improved to 1.38:1 whilst Debt to Equity ratio leveled out at 1:1. Net Sales went up by 5.2%, whilst cost of sales was up by 3.7%. Gross profit has gone up by Management recognizes the persistent 28% to K.Shs. 7.7 billion in 2010 from K.Shs. challenges of Downstream Business in particu- 6.0 billion in 2009, representing 7.6% of Net lar the difficult operating environment in Kenya sales compared to 6.2% in 2009. The average due to Government interference in the Industry. Gross margin per unit has gone up, mainly due The Board is happy to report to Shareholders to stronger contribution coming from sectors that it’s two fold strategy, i.e. Geographical as African Trading Desk, Resell, L.P.G, Export, expansion outside Kenya, that started late Lubricants, Fuel Oil and Non-Fuels and 1999 and focus on certain niche Business lines improved performance in aviation. coupled with focus on development of certain Business lines over the recent years, such as The Group’s Earning Before Interest, Tax, African Trading desk, Non-Fuels, LPG, Fuel Oil Depreciation & Amortization (EBITDA), has business among others, has proved itself as a gone up by 59% from K.Shs. 2.7 billion in 2009 winning strategy,hence the influence of the very (excluding Capital gain/other income of K.Shs. disturbing Kenyan Oil Industry operating 307 million) to K.Shs. 4.4 billion in 2010. environment, has had minimal effect on the KK Depreciation and Amortization increased by Group. only K.Shs. 25 million. As per Company Policy, the Group’s assets revaluation is expected to High levels of oil prices are expected to prevail be done in 2011 and will result in higher depre- and seem to become part of the Oil Industry. It ciation charge in coming years and stronger is expected to drive inflation up across the Balance sheet. In a meeting on 24th March countries the Group operates in. If the same 2011, the Board of Directors decided to review trend continues, we expect to see the growth in and reconsider this Policy. demand slowing down. Quite interesting to glance at oil prices data and realize the level of Profit before Income Tax has gone up by K.Shs. 764 million from K.Shs. 1.9 Billion in 2009 to 2.7 increase in Murban Crude and Refined products Billion in 2010, representing an increase of 40% prices. For example Murban Crude in early Jan. in 2010. Excluding Capital gain (other income) in 2010 was at USD 76/Bbl. and closed the year at 2009 of K.Shs. 307 million, the Profit before USD 91/Bbl. and as end of March 2011, it Income Tax in 2010, went up by 65.8% reached over USD 112/Bbl. while most of the compared to 2009, representing much stronger Refined products jumped close to 30% in 2010. operating profit before Tax in 2010. Fluctuation in oil price continued to be a major factor in crystallizing average margins on Profit after Income Tax in 2010 is up 37.2% petroleum products; hence the quality of compared to 2009. The Group effective management of the Group’s physical inventories Income Tax Rate in 2010 was 34.1%, down and sales policies have considerable effect on from 39.2% in 2009, excluding the effect of the Group’s profitability. In order to improve gain on disposal of assets, K.Shs. 307 million management of inventories, the Board has being a Non Taxable Income. decided to focus on increasing Group’s total
6 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
CHAIRMAN & GROUP MANAGING DIRECTOR’S REPORT
storage capacity for Fuels and Gas. Management We also developed new facilities across the has made substantial progress in that area and Group, including modern LPG Storage and Filling expects more development to be made in the plant in Uganda and Rwanda. Plans are put up for near future. a much bigger facility in Dar-es-Salaam, Tanza- nia. Further, Management will continue develop- The KenolKobil Group Assets rationalization ing new products and services including Fuel exercise which we initiated recently with the aim management systems as K-Card or I-Fuel, among of enhancing productivity of our various assets others. continues and will now focus strongly on Non-Fuel Business development. A number of To streamline our expanding operation, we have projects have been completed across the Group, aggressively been implementing the Oracle including fast food, offices, shopping and service Management Information System (MIS) across areas while more are being planned. the Group to ensure that our business activities are well integrated. In addition to Kenya, we have In 2010, we continued to implement aspects of so far successfully implemented Oracle in the Organizational re-structuring process, which Rwanda and Zambia and are currently rolling out began in January 2009. As part of the ongoing the system in Uganda. Our target is to have the process, I was officially appointed Chairman of entire length and breadth of our operations on a the Board effective 7th April 2010, after acting in single MIS platform. this capacity since 2006. I took up the new challenge and with the support of the Board and The Board holds the view that the economic KenolKobil’s Management, will continue to steer situation in all Group operation will continue to the Company in the right direction towards new grow after relatively quick recovery in 2009 and highs of success and prosperity. 2010. In fact, the Board is bullish about the African growth story and expects it to gain steam To realize the benefits of the re-structuring, we as we go along. It seems that Sub Saharan continued to strengthen support teams and Africa’s economy will continue to perform certain teams in high yield’s Business lines, strongly and continue to attract foreign invest- coupled with decentralized Management as we ment in all sectors among them Downstream Oil experience the fruit of these changes, especially Industry, as we have seen recently in East and in quality and speed of business decision making Southern Africa. across the Group. The Group will continue implementing its two fold On the expansion front, we continued to strategy as stated before and quite certain that it strengthen Kobil Burundi S.A, after acquiring all will position KenolKobil Ltd. strongly to become assets of Oil Burundi as a going concern. We The Leading Player in all markets it operates in recently acquired a depot complex comprising of and will continue delivering growth in value to fuels facilities, warehouse and an office block in Shareholders. Bujumbura. The Management has a strong view of Burundi’s future and believes it is on the right Finally, on behalf of the Board of Directors, I want path towards consistent stability and economic to take this opportunity to thank each one of you, growth. in the great KenolKobil team and all who have been instrumental to this continuous success In line with our “Move South Expansion story of our Group. Strategy”, we continue to scout for business opportunities in the Southern Africa markets. In July 2010, we registered a Company, Kobil Jacob I. Segman Mocambique Limited and have subsequently set Chairman & Group Managing Director up an office in Harare, Zimbabwe to oversee 2 April 2011 mainly over-land Trading business using the ports of Mozambique. While we develop over-land Trading activities in Zimbabwe as an extended arm of the African Trading desk, we shall screen the market for Downstream assets acquisition and/or joint ventures.
In Uganda, we increased our assets base in December 2010 by acquiring a high volume Depot in Jinja, three additional Service Stations and a three-storey office block in Kampala. The Group will continue focusing on acquiring Fixed Assets as Stations, Storage facilities and others, including stations which are currently long leased to KenolKobil.
7 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
BOARD OF DIRECTORS
Mr. J. Segman Chairman & Group Managing Director
Mr. J. Mathenge Mr. P.N. Jakobsson Non-Executive Director Non-Executive Director
Mr. D. Oyatsi Non-Executive Director
Mr. T.M. Davidson Ms. P. Lai Non-Executive Director Group Financial Director
8 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
GROUP MANAGEMENT TEAM
Mr. Jacob I. Segman Mr. Peter Ochieng Chairman and Group Managing Director Marketing and Operations Manager, Kobil Uganda Ltd Ms. Patricia Lai Mr. Fabrice Ezavi Group Finance Director Managing Director, Kobil Tanzania Ltd Mr. George N. Mwangi Mr. Mathew Mbugua Group Export & Regional Support Manager Marketing Manager, Kobil Tanzania Ltd Mr. Patrick Kondo Mr. Jerry Thomas Group Mergers & Acqusitions and Regional Support Managing Director, Kobil Zambia Ltd Manager Mr. Elias Kamundi Mr. Steve W. Muthuma Marketing and Operations Manager, Kobil Zambia Ltd Group Trading & Supply Optimization Manager Mr. Patrick Ngugi Mr. James J. Kariuki Country Manager, Kobil Petroleum Rwanda SARL International Finance Manager Mr. Sehmi Lakhbir Singh Mr. David Ohana Head of Marketing & Operations, Kobil Petroleum General Manager - Kenya Rwanda SARL Mr. Isaac Gachuria Mr. Avi Wolmark Assistant General Manager - Kenya General Manager, Kobil Ethiopia Ltd Ms. Evelyne Kariuki Mr. Charles Shiroko Head of Marketing and Fuel Business Development Marketing Manager, Kobil Ethiopia Ltd - Kenya Mr. Francis Mwangi Mr. Wilson Wambugu Country Manager, Kobil Burundi SA Head of Operations and Projects Development - Kenya Mr. Ido Granatstein General Manager, Kobil Uganda Ltd
9 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
CORPORATE GOVERNANCE
The KenolKobil Board of Directors has contin- Audit Committee ued to be committed to high corporate govern- ance standards and business values and This committee comprises of 3 non-executive ethics within the organization, to abide by the directors, and by invitation, 2 executive laws governing in the countries where it directors, the external auditor’s representa- operates. tives and the Group internal audit manager.
Compliance and maintenance of high stand- The duties and responsibilities are to review, ards is core to the organization’s performance advice and make recommendations on and maximizing shareholders’ value. financial information, budgets, risk manage- ment, policies and audit issues. The Group’s general practice is one of not stating views on either national or international It reviews auditor‘s independence, internal political matters and continues to abstain from controls and compliance with the Code of participation in politics and interference in Conduct and Ethics. political matters. Further, the company and all its subsidiaries, its stakeholders and employ- It also reviews adherence to statutory and ees, are guided by the Group’s Code of regulatory requirements. Conduct approved by the Board and Manage- ment. The Code of Conduct stipulates the This committee held 4 meetings during the business values and the acceptable behavior year. standards for all stakeholders regarding the company’s business procedures, systems and Remuneration Committee core ethics. This committee comprises of 3 non-executive Board of Directors directors and 1 executive director.
The Board consists of 4 non-executive The duties are to review, advice and make Directors and 2 executive Directors. The recommendations on remuneration issues in Directors all possess qualifications and a wide the Group, including the Employee Share range of expertise and experience to enable Ownership Plan (ESOP scheme). them to contribute in their capacities as directors to the group The committee held 2 meetings during the year. Duties: Nominations Committee The Board gives direction on the Group’s strategy, objectives and values, and ensures This committee comprises of 3 non-executive procedures and practices are in place to imple- directors and 1 executive director. ment governance and effective control over the Group’s assets and operations. The duties are to review, advice and make recommendations on Board nominations and The Board is able to discharge its responsibili- resignations in the Group. ties and authorities with regular reports from management, monthly management accounts, The committee held 2 meetings during the reports from each Board Committee, specific year. proposals for major capital expenditure and reviews in depth any strategic opportunities for Compliance mergers and acquisitions. The Group complies with statutory and The Board of Directors meets quarterly or as regulatory requirements, including stock required to continually review and monitor the exchange requirements, code of conduct. Group’s progress with respect to strategic direction and operational effectiveness. Directors’ remuneration
Board Committees Following the Government guidelines on directors’ remuneration, non-executive Three Board Committees, with written terms of directors are paid an annual fee and sitting reference, facilitate effective assistance to the allowance for meetings attended. Approval of Board to enable efficient decision making in the fees is to be tabled at the Annual General executing their duties and responsibilities. Meeting. Delegation of authority to the Board Commit- tees or management does not mitigate or discharge the Board of its duties and responsi- bilities.
. 10
ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
CORPORATE SOCIAL RESPONSIBILITY
In 2010, just like in previous years, the KenolKobil Group continued to be an active and caring member of its host communities by contributing to their wellbeing through various structured Corporate Social Responsibility activities.
In line with our Corporate slogan, KenolKobil Cares for You, we continued to contribute to various sustainable and long term community initiatives in the various countries we have set up business including Kenya, Uganda, Tanzania, Zambia, Rwanda, Ethiopia, and Burundi.
In Kenya, two of the pioneer beneficiaries of the KenolKobil Education Scholarship Fund, Abigael Bundi and Susan Miring’u, graduated from the University of Nairobi and subse- quently got employed in our Marketing and Business Development Department where they are doing exceptionally well.
In addition to the Scholarship Fund, we partnered with the Israeli Embassy to make a one off donation of desks to Kisumu KDN School in Korogocho slum. The school was built by the slum community with financial support from the Embassy. Further, we continued to support Light and Hope Academy for Children with Disability with regular food stuff and other supplies.
Across the Group, Kobil Uganda continued its long term annual sponsorship of the Bika bya Buganda Football Tournament. In addition, Kobil Uganda sponsored the construction of a house for the Officer in Charge at Kitebi Police Station in Kampala.
In Tanzania, Kobil Tanzania fully sponsored a Kobil team which won the 2010 Tanga Rally while in Burundi; Kobil Burundi sponsored a bicycle racing competition during the annual Kenya-Burundi Friendship Week in October 2010. In Rwanda, Kobil Rwanda sponsored Kwita Izina, the famous annual gorilla naming ceremony, as well as contributed towards the genocide survivors’ kitty. In Zambia, Kobil Zambia sponsored the annual River Lure Fishing competition in Copperbelt Province while in Ethiopia; Kobil Ethiopia continued to sponsor the annual Ethiopia Motor Rally.
As the KenolKobil Group expands its business presence in Africa and strengthens its current subsidiaries, Management plans to connect much more with host communities through long term CSR projects. In this respect, we are working on a Group CSR strategy and policy to guide all our sponsorship engagements in line with our motto, KenolKobil Cares for You.
11 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
FINANCIAL HIGHLIGHTS
Net Sales Shareholders’ Funds
160,000 16,000
140,000 14,000
120,000 12,000
100,000 10,000 Shs(m) Shs(m) 80,000 8,000
60,000 6,000
40,000 4,000
20,000 2,000
2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010
Number of Employees Earning Per Share
1.60 600 1.40 500 1.20 400 1.00 300 0.80 Shs 200 Numbers 0.60 100 0.40
0.02
2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010
Profit attributable to shareholders Capital Expenditure
700
2000 600 1800 1600 500 1400 400
Shs(m) 1200 Shs(m) 1000 300 800 200 600 400 100 200 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010
12 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
13 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
DIRECTORS’ REPORT
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RESULTS AND DIVIDEND
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DIRECTORS
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APPROVAL OF FINANCIAL STATEMENTS
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SECRETARY
24 March 2011
14 ANNUAL REPORT & FINANCIAL STATEMENTS - 2010
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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24 March 2011
15 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF KENOLKOBIL LIMITED
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