Defined Contributions
Annual Report & 2019 Financial Statements ii Kenya Power Pension Fund | Defined Contributions Annual Report & Financial Statements | 2019 1
TABLE OF CONTENTS
Scheme Information 3 About Kenya Power Pension Fund 4 Fund Highlights 6-7 Statement of changes in Net Assets 8 Chairman’s Report 9-11 Ripoti ya Mwenyekiti 12-15 Secretary’s Statement 16-18 Taarifa ya Katibu 19-21 Board of Trustees 22-25 Statement of Corporate Governance 26-33 Report of the Board of Trustees 35-36
FINANCIAL STATEMENTS
Independent Auditor’s Report 37-38 Statement of Changes in Net Assets Available For Benefits 39 Statement of Net Assets Available For Benefits 40 Statement of Changes in Members’ Funds Available For Benefits 41 Statement of Cash Flows 42 Notes to The Financial Statements 43-82
Annual Report & Financial Statements | 2019 3
SCHEME INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2019
TRUSTEES Ernest Nadome - Chairman Wilson Kimutai Jared Othieno - Retired on 30th January 2020 David Monandi - Retired on 30th January 2020 Imelda Bore Kosgey Kolil Vincent Ochieng’ Zilpa Ayara Johnstone Sakwa Bernard Ngugi - Joined on 30th January 2020 Cecilia Kalungu - Joined on 30th January 2020
AG. CEO & TRUST SECRETARY Edwin Ruttoh
REGISTERED OFFICE Retirement Benefits Scheme Trustees Stima Plaza Annex Kolobot Road, Parklands P.O. Box 1548-00600 Nairobi
INVESTMENT MANAGERS PRINCIPAL LEGAL ADVISORS Co-optrust Investment services Limited Kaplan & Stratton Advocates P.O. Box 48231 -00100 Nairobi P.O. Box 40111 - 00100 Nairobi
GenAfrica Asset Managers AUDITOR P.O. Box 79217 - 00200 Nairobi Ernst & Young LLP Certified Public Accountants CUSTODIAN Kenya Re Towers, KCB Group Limited Upperhill Off Ragati Road. P.O. Box 30664 - 00100 Nairobi P.O. Box 44286 - 00100 Nairobi
BANKERS ACTUARY Co-operative Bank of Kenya Limited Zamara Actuaries, Administrators & P.O. Box 48231 Nairobi Consultants Limited P. O. Box 52439 - 00200 Nairobi Standard Chartered Bank Kenya P. O. Box 40984 – 30003-00100 Nairobi 4 Kenya Power Pension Fund | Defined Contributions
ABOUT KENYA POWER PENSION FUND
The Kenya Power & Lighting Company Limited, Staff Retirement Benefits Scheme 2006 (“the Fund”) was established on 1 July 2006. The Fund was formed for the employees of the Kenya Power & Lighting Company Limited (“Kenya Power”) as a result of the closure of Kenya Power’s Defined Benefit Scheme (“DB Fund”) as per the recommendations of the actuarial report of 31 December 2005. The Fund is governed by a Trust Deed and Rules which has been approved by the Retirement Benefits Authority (RBA).
The main purpose of the Fund is to provide benefits to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for the dependants of deceased members. The Fund is approved by Kenya Revenue Authority for the purposes of the Income Tax (Retirement Benefits) Rule No. 4 and is treated as tax exempt. However, investment income generated from contributions in excess of the KShs 20,000 per month is subject to tax.
To be the best-in-class occupational pension scheme in Africa
Vision
Mission
To deliver value and quality of life Core Values in retirement for • Integrity our members • Accountability • Courtesy • Efficiency • Stewardship Annual Report & Financial Statements | 2019 5
MEMBERS FUND STRUCTURE The members of the Fund comprise of active in-service The Fund is managed by a Board of Trustees and is established employees and deferred members for Kenya Power and Lighting under a Trust as required by the Retirement Benefits Act. The Company Ltd (KPLC), Kenya Electricity Transmission Company day to day running of the Fund is carried out by the Secretariat Ltd. (KETRACO) and Nuclear Power and Energy Agency (NuPEA). of the DB Fund that supports the Board in meeting its objectives. Eligible members are permanent and pensionable employees. The Secretariat headed by the CEO and Trust Secretary works in liaison with the Fund service providers that include fund FUND BENEFITS managers, custodians, actuaries, lawyers and auditors The Fund is a Defined Contributions Scheme. Any member who retires on his normal retirement date is entitled to one third cash lumpsum and an annuity for life purchased from an insurance company selected by the member. The annuity is derived from two thirds of his Fund Credit according to the annuity rates applicable at the time of retirement .
CUSTODIAN AUDITORS
MEMBERS FUND MANAGERS BOARD (In service members, OF TRUSTEES deferred members, retiree pensioners, beneficiary pensioners)
SECRETARIAT ACTUARY 6 Kenya Power Pension Fund | Defined Contributions
FUND HIGHLIGHTS RETURN ON INVESTMENTS
The Trustees have adopted 16% an investment policy and strategies in pursuance of 14.1% 14% maximizing the long-term 12% 11.4% return on investment while 10% mitigating against long-term volatility. The investment 8% 6.8% 7.0% framework also takes into 6% consideration the age profile of the members to ensure 4%
% Return on Investments 1.4% that liquidity requirements are 2% honoured. 0% 2015 2016 2017 2018 2019 Year
INCREASE IN NET ASSETS
The assets of the Fund grew by Ksh 2.38 billion during the year (2018: 0.78 million). 2.5 2.38 2.08 The increase in growth as 2.0 compared to the previous year 1.50 was attributed to better return 1.5 1.23 on invested assets and in 1.0 0.78 particular quoted equities.
0.5 Amount (KShs Billions) 0 2015 2016 2017 2018 2019 Year
FUND GROWTH
The Fund has continued to grow steadily over the years. 20 The growth is attributable 16.58 to good investment returns 15 13.42 14.20 11.34 as well as contribution 9.83 10 received from sponsors.
Fund Value The Fund value stood at (KShs Billions) 5 16.58 Billion. 0 2015 2016 2017 2018 2019 Year Annual Report & Financial Statements | 2019 7
FUND HIGHLIGHTS
MEMBERSHIP GROWTH AS AT 31 DECEMBER 2019
The Fund membership grew 8,300 8,274 to 8,274 from 8,134 recorded 8,100 8,134 in the previous year which 7,900 was a 1% growth. 7,700 7,541 7,500 7,300 7,180 7,100 Total Number 6,900 6,792 6,700 6,500 2015 2016 2017 2018 2019
Year
ADMINISTRATIVE EXPENSES
The Fund has put in place financialmanagement 1.00% measures to ensure that the administrative expenses 0.78% 0.80% 0.74% are below 1% of the total 0.60% 0.51% 0.56% fund value. % 0.40% 0.40%
0.20% 0% 2015 2016 2017 2018 2019 Year
BUSINESS HIGHLIGHTS/KPIS
Net returns on investments Increase in Net Assets Net Surplus from dealing with members KSh 1,992.13 m KShs 2,375.95 m KShs 512.85 m 2018 Kshs 213.65 m 2018 Kshs 782.87 m 2018 Kshs 690.77 m
Contributions Receivable Benefits Payable Fund Value KShs 1,516.77 m KShs 1,003.92 m KShs 16,576.19 m 2018 Kshs 1,448.28 m 2018 Kshs 757.51 m 2018 Kshs 14,200.24
Active Members Deferred Members Returns on Investments 8,274 453 14.1% In 2018 8,134 In 2018, 410 2018 - 1.4% 8 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CHANGES IN NET ASSETS
2015 2016 2017 2018 2019 KShs’ 000 KShs’ 000 KShs’ 000 KShs’ 000 KShs’ 000 Contributions receivable 1,089,401 1,262,584 1,347,245 1,448,280 1,516,770 Benefits payable (471,383) (391,275) (505,138) (757,511) (1,003,922) Net surplus from dealing with members 618,019 871,309 842,107 690,769 512,848 Returns on Investments Investment income 686,089 722,938 1,342,091 243,725 2,039,307 Investment management expenses (21,015) (20,364) (34,056) (30,078) (47,177) Net returns on investments 665,075 702,575 1,308,035 213,647 1,992,130 Other income - 4,624 - - - Administrative expenses 50,434 (63,766) (54,127) (110,725) (123,165) Taxation Charge (7,164) (11,106) (13,956) (10,825) (16,336) Increase In Net Assets For The Year 1,225,495 1,503,636 2,082,059 782,866 2,375,954 Statement of Net Assets Assets Investments Investment property 2,034,372 700,000 750,000 759,830 760,300 Inventory Property - 3,179,836 3,237,796 2,984,332 2,769,650 WIP Property 1,807,395 - - - - Government securities 2,991,934 4,038,498 5,042,350 4,781,292 6,662,601 Short term deposits 346,540 502,142 72,202 399,427 656,966 Corporate bonds 849,441 773,661 668,506 550,605 841,531 Investment in quoted equity 1,469,825 1,348,923 2,716,354 3,068,867 3,795,420 Investment in unquoted equity 281,332 287,938 392,964 491,044 548,981 Offshore - - - 243,003 215,538 Other assets - - - - - Bank and cash balances 140,137 175,796 90,144 130,726 138,513 Due from related parties - - - 61,150 - Other receivables 8,206 375,466 565,337 795,234 973,356 Tax Recoverable - - - 2,788 - Total assets 9,929,180 11,382,260 13,535,653 14,268,003 16,765,569 Liabilities
Benefits payable 1,158 - - 25,877 58,017 Due to related parties 1,926 7,527 8,849 - - Other payables, provisions and accruals 92,945 34,604 104,238 41,890 62,732 Tax Payable 53 3,396 3,774 - 6,050 Total Liabilities 96,082 45,527 116,861 67,767 189,380 Net assets available 9,833,098 11,336,734 13,418,793 14,200,236 16,576,189 Represented by - - - - - Members funds: Trust fund 9,833,098 11,336,734 13,418,793 14,200,236 16,576,189 Annual Report & Financial Statements | 2019 9
CHAIRMAN’S REPORT
Despite challenging macro- economic factors in both the local and international markets over the last four years, we have successfully delivered on some of our key strategic priority areas.
Ernest Nadome -Chairman
Dear members, The quoted equities market was on an upward trend, with the It gives me great pleasure to present to you the annual report performance benchmark indices registering positive growth, which provides highlights of the Fund performance in the 12 compared to the year 2018. The all-inclusive NSE All Share Index months’ period ending 31st December 2019. recorded a 17.2% gain while the NSE 25 Share Index was up 15.5%. The NSE 20 Share Index was down 6.3%. During the year ECONOMIC HIGHLIGHTS there was increased foreign investor participation. Kenya has made significant political, structural and economic In the year under review, the bonds turnover edged up 15.8% reforms that have largely driven sustained economic growth, to settle at Kshs. 1.3 trillion from Kshs. 1.1 trillion recorded social development and political gains over the past decade. The previous year due to increased reallocation of funds to fixed gross domestic product growth (GDP) was subdued during the income assets. The Bond Market turnover for quarter 4 2019 year, estimated at 5.7% in 2019 compared to 6.3% in 2018. This stood at Kshs. 106.46 Billion, compared to Kshs. 118.17 Billion was attributed to low agricultural output as caused by erratic registered in quarter 4 2018, registering a 9.91% decrease. and unexpected weather patterns as well as weak private sector investment during the year. The interest rate caps prevailed for The yields on the 91-day, 182-day and 364-day T-bills declined by a larger part of the year which contributed to slow private sector 0.14%, 0.86% and 0.12% to close at 7.2%, 8.15% and 9.83% in credit growth. 2019, respectively.
During the year inflation was 5.8% compared to 4.7% in 2018 2019 delivered robust and sustained growth in the African PE majorly as a result of high food and fuel prices according to data ecosystem, as highlighted by the latest fundraising, deals and by the Kenya National Bureau of Statistics (KNBS). The Kenya exit figures released by the African Private Equity and Venture shilling strengthened by 0.5% against the USD in 2019. The Capital Association. Private equity activity on the continent strengthening was mainly supported by strong forex reserves, picked up in terms of deal volume and fundraising compared to agricultural exports and increased diaspora remittances in the 2018, while the exits landscape remained stable. The number of year. exits recorded in 2019 remained stable compared to 2018. 10 Kenya Power Pension Fund | Defined Contributions
CHAIRMAN’S REPORT
The total deal volume in Africa reached its highest since 2014, economic activity. The Sub-Saharan African region remained on at 198 PE deals with a value of USD 3.4 billion, indicating a recovery path growing by 2.4% during the period under review that activity on the continent continues to be encouraged by compared to a growth of 3% in 2018. investors’ interest in and commitment to Africa’s growth. Exits to Trade Buyers represented the most common exit route in 2019 PERFORMANCE ON STRATEGIC PLAN (44%), a shift from the two previous years where exits to PE (2016-2020) and other financial buyers was the most common exit route. The year 2019 marked the fourth year of our 2016-2020 strategic Kenya attracted Venture Capital deals worth Kshs. 74.3 billion in period. We continued to embed our strategy, focusing on long- the past five years, second highest in Africa after South Africa. term success and the sustainability of our Fund. The strategy Private Equity and venture capital industry continues to grow was anchored on five pillars; optimize our performance, execute exponentially, and it is expected that 2020 will be better despite project investment, mobilize our asset base, enhance member global macroeconomic headwinds. offering and strengthen our organization. The strategic plan will ensure that the Fund maximizes investment performance as well The real estate sector recorded an average growth of 4.8% in the enhance our member offering. first three quarters which was 0.3% points higher than the same period in 2018, as per the Kenya National Bureau of Statistics I am happy to report that, despite challenging macro-economic (KNBS). This was attributed to positive demographic growth factors in both the local and international markets over the last as well as continued enhancement of infrastructure which four years, we have successfully delivered on some of our key positioned Nairobi as an economic hub, hence attracting foreign strategic priority areas. direct investments. However, the average total return was 2.2% lower than what was recorded in 2018. The slowdown was due PENSION INDUSTRY AND to reduced property transactions as a result of rapid changes REGULATORY ENVIRONMENT in the operating environment; change of currency, increased The Retirement Benefits Authority, (RBA) is responsible for the dependency ratio, reduced disposable income, inflation, low regulation and supervision of the retirement benefits sector. productivity in agricultural and manufacturing industry and The Authority regulates the establishment and management unstable job market among other factors. of retirement benefits schemes, development of the industry and advises the government on matters relating to retirement The residential property market continued to decline and was benefits. characterized by a falling demand and increasing oversupply. The average rental yield declined by 0.4% compared to 2018. LEGISLATIVE CHANGES DURING THE YEAR According to quarter 3,2019 Hass Composite Property Sales The Budget Statement for the Fiscal Year 2019/2020 was read Index, residential properties prices fell by 3.4%, which was a on 10th June 2019. Various amendments were introduced to consecutive quarter decline after falling by 3.2% in quarter 2 the Occupational Retirement Benefits Schemes (Regulations, 2019. These declines were as a result of the continued credit 2000). These changes were subsequently gazette and below is a crunch along with hash economic times which negatively highlight of the changes: impacted the purchasing power of buyers. Apartments continued to gain more popularity than detached units due to their a. Schemes shall allow members to make additional affordability and high returns. voluntary contributions for purposes of funding a medical scheme to be accessed after retirement. On a global scale, the year recorded its slowest pace ever since b. The medical funds shall be segregated and invested as the global financial crisis. Rising trade barriers, associated per the investment policy of the fund for this purpose uncertainty weighed on business sentiment and activity globally c. The scheme rules shall provide that a member may especially in China and other emerging economies. The global transfer a portion of his/her benefits to a medical-cover economic growth continued its gradually slowing path as U.S.- provider where the member has been unable to build a China trade tensions persisted and Brexit issues remained post-retirement medical fund from additional voluntary unresolved. The monetary easing by several major central banks contributions. did not have much effect on stabilizing and strengthening global Annual Report & Financial Statements | 2019 11
CHAIRMAN’S REPORT
The Fund has established an elaborate compliance tool which AWARDS AND RECOGNITION tracks the compliance levels against the legislative and During the year, the Fund participated in the Financial Reporting regulatory requirements. In addition, it continues to monitor (FiRe Awards) and emerged the winner in the Not-For-Profit processes to ensure that all the changes are adhered to category. The awards seek to promote integrated reporting while taking advantage of the improvements in the operating through enhancing accountability, transparency and integrity environment. in compliance with appropriate financial reporting framework FUND’S FINANCIAL PERFORMANCE and other disclosures on governance, social and environmental reporting by private and public sectors domiciles in East Africa. The Fund achieved an annual gross return of 14.19% in 2019 The annual FiRe Awards are organized by the Public Sector (1.4% in 2018). The total asset market value of the Fund as at Accounting Standards Board (PSASB), Capital Markets Authority the end of the year stood at Kshs. 16.5 billion up from Kshs.14.2 (CMA), Nairobi Securities Exchange (NSE), and the Institute of billion at the end of 2018. The increase was attributed to both Certified Public Accountants of Kenya (ICPAK). the pension contributions as well as investment income earned during the period. OUTLOOK The Trustees will continue to monitor the changes in the macro The Board of Trustees endeavor to prudently invest available environment and align its investment strategies to take advantage funds in an optimized portfolio that yields favorable returns. The of investment opportunities as well as mitigate against the overall investment policy is geared towards the achievement investments risks. To enhance our member offering, the Fund is of superior investment returns while mitigating against in the process of implementing an income drawdown product market volatility. The objective is to realize long-term return which will be an alternative to annuity purchase. Additionally, on investments in excess of inflation through diversified asset a post retirement medical fund will be established which will allocation as well as continuous performance monitoring. allow members to make additional voluntary contributions CORPORATE GOVERNANCE towards their medical expenses after retirement. The Board of Trustees is committed to ensuring that systems, APPRECIATION procedures and practices within the Fund reflect a high On behalf of the Board, it is my pleasure to thank the Sponsor standard of corporate governance. An effective corporate and all our stakeholders for their unwavering support to the Fund governance system is critical in fostering a culture that values as it navigates through the challenging economic and investment ethical behavior, integrity and respect to protect members and environment. I also wish to thank my fellow Board members other stakeholders’ interests at all times. The detailed report for their selfless contribution and support during the year, the highlighting the instituted corporate governance systems is on Secretary to the Board and his team for working tirelessly to pages 26-33 of this report. ensure prudent management of the day to day operations of the Fund; and to you, our members, thank you for your continued BOARD COMPOSITION support, encouragement and continuous feedback. During the period under review, there were no changes in the Board composition. The Fund remains compliant with the requirement of the Retirement Benefits Act.
DECLARED INTEREST The Trustees declared an annual interest rate of 13.38% in 2019 (0.8% in 2018). The Fund maintained the quarterly interest Ernest Nadome, declaration policy during the year which ensures that the Fund Chairman maintains a zero reserve and therefore members exiting the Fund during the year obtain a prorated rate of return at the point of exit. 12 Kenya Power Pension Fund | Defined Contributions
RIPOTI YA MWENYEKITI
Licha ya hali ngumu ya kiuchumi katika masoko ya humu nchini na yale ya kimataifa kwa kipindi cha miaka minne iliyopita, tumefanikiwa kutangaza matokeo mazuri katika baadhi ya sehemu muhimu za uwekezaji wetu.
Ernest Nadome -Mwenyekiti
Wapendwa wanachama, huko kulisababishwa hasa na uwepo thabiti wa fedha na mali Ni furaha kubwa kwangu kuwasilishieni ripoti hii ambayo ya kusawazisha uchumi, mauzo ya bidhaa za kilimo katika nchi inaguzia mambo Muhimu ya utendaji wa Hazinakatika muda wa za ng’ambo na kuongezeka kwa kiwango cha pesa zilizotumwa miezi kumi na miwili ulioishia tarehe 31 Desemba 2019. nchini na Wakenya wanaoishi ng’ambo mwaka huo.
MAELEZO MUHIMU YA KIUCHUMI Soko la hisa nukuzi liliimarika, huku vipengee vinavyoashiria utendaji vikisajili ukuaji, ikilinganishwa na mwaka wa 2018. Nchi ya Kenya imefanya mabadiliko makubwa ya kisiasa, Kiwango cha Hisa Jumla la soko la hisa la Nairobi (NSE all share kimfumo na kiuchumi ambayo yamesababisha ukuaji endelevu index) kinachojumuisha kila kipengee kilisajili ukuaji wa 17.2% wa kiuchumi, maendeleo ya kijamii na kupiga hatua kisiasa katika huku Kiwango cha hisa cha 25 (NSE 25 share index) ikikua kwa mwongo uliopita. Ukuaji wa (GDP) ulididimia katika mwaka huo, 15.5%. Kiwango cha hisa cha 20 (NSE 20 share index) kilipungua ikikadiriwa kuwa 5.7% mwaka wa 2019 ikilinganishwa na 6.3% kwa 6.3%. Katika mwaka husika, kulikuwa na ongezeko la mwaka wa 2018. Hii ilitokana na mapato ya chini yanayotokana shughuli za uwekezaji wa kigeni. na kilimo, hali iliyosababishwa na mitindo isiyotarajiwa ya hali ya hewa pamoja na udhaifu katika uwekezaji kwenye sekta ya Katika kipindi cha mwaka husika, mapato ya vifungo vya hazina kibinafsi mwaka huo. Vikomo vya viwango vya riba vilitekelezwa yailifikia asilimia kumi na tano nukta nane (15.8%) kufikia shilingi kwa sehemu kubwa ya mwak,a jambo lililochangia kujikokota za Kenya 1.3 trilioni ikilinganishwa na shilingi za Kenya 1.1 kwa ukuaji wa mikopo katika sekta ya kibinafsi. trilioni iliyosajiliwa mwaka uliotangulia kutokana na kuongezeka kwa uwekezangi kwa rasilimali zisizohamishika. Mapato ya Katika mwaka huo, mfumuko wa bei ya bidhaa ulikuwa 5.8% vifungo vya hazina robo nne ya mwaka wa 2019 ilifikia shilingi ikilinganishwa na 4.7% mwaka wa 2018 hasa kutokana na bei za Kenya bilioni 106.46, ikilinganisha na shilingi za Kenya bilioni za juu za chakula na mafuta kulingana na data kutoka Shirika la 118.17 zilizosajiliwa kwenye robo nne ya mwaka wa 2018; Kitaifa la Takwimu la Kenya (KNBS). Shilingi ya Kenya iliimarika ikisajili kupungua kwa asilimia tisa nukta tisa 9.9%. kwa 0.5% dhidi ya Dola ya Marekani mwaka wa 2019. Kuimarika Annual Report & Financial Statements | 2019 13
RIPOTI YA MWENYEKITI
Mapato ya siku 91, siku ya 182 na siku ya 364 ya bili ya T (T-bills) kama kituo kikuu cha Kiuchumi, huku ikivutia uwekezaji wa moja zilipungua kwa asilimia sufuri nukta moja nne (0.14%), asilimia kwa moja wa kimataifa. Hata hivyo, uwastani wa matokeo ya sufuri nukta nane sita (0.86%) na asilimia sufuri nukta moja mbili jumla ulikuwa ni 2.2% chini ya ule uliosajiliwa mwaka wa 2018. (0.12%) ili kufikia kwa asilimia saba nukta mbili (7.2%), asilimia Upungufu huo ulitokana na kupungua kwa miamala ya nyumba nane nukta moja tano (8.15%) na asilimia tisa nukta nane tatu za makazi ikiwa kama matokeo ya mabadiliko ya haraka katika (9.83%) mwaka wa 2019 mtawalia. mazingira ya utendakazi; mabadiliko ya sarafu, kuongezeka kwa uwiano wa utegemezi, kupungua kwa mapato, mfumko wa bei, Mwaka wa 2019 ulionyesha ukuaji kwa mfumo wa ikolojia kupungua kwa uzalishaji kwenye sekta ya kilimo na viwanda ya hisa binafsi katika bara Afrika, kama ilivyo thibitishwa na pamoja na soko tete la kazi kati ya hali nyinginezo. michango, mikataba na tarakimu za mwisho zilizotolewa kupitia kwa African Private Equity and Venture Capital Association. Soko la makazi liliendelea kupungua, hii lilisababishwa na kupungua kwa uhitaji na kuongezeka kwa nyumba. Mapato Shughuli za uwekezaji kwenye sekta ya kibinafsi katika wastani ya kodi yalipungua kwa 0.4% ukilinganisha na 2018. bara hili ziliimarika katika sehemu ya mikataba na michango Kulingana na Faharisi Kamili ya Hass ya Mauzo ya Nyumba, zikilinganishwa na mwaka wa 2018, huku mipango ya kuondoka ya robo ya 3 ya mwaka wa 2019, bei za nyumba za makazi ikibaki shwari. Idadi ya kuondoka kwa mikataba iliyorekodiwa zilipungua kwa 3.4%. Huu ulikuwa upunguaji wa 3.2% kwa robo mwaka wa 2019 ilibakia thabiti ikilinganishwa na mwaka wa ya pili ya mwaka wa 2019. Upunguaji huo ulitokana na matatizo 2018. ya mikopo yanayoendelea pamoja na hali ngumu ya kiuchumi ambayo iliathiri pakubwa uwezo wa kununua nyumba. Nyumba Idadi ya jumla ya mikataba barani Afrika ilifikia kiwango cha juu za ghorofa za makazi ziliendelea kupata umaarufu kuliko nyumba kabisa tangu mwaka wa 2014, hadi mikataba ya hisa binafsi za makazi za kivyake kutokana na uwezo wa kuzinunua, pamoja 198 iliyo na thamani ya Dola ya Marekani bilioni tatu nukta nne, na mapato mazuri ya kifedha. ikionyesha kwamba shughuli hapa barani zinaendelea kuhimizwa na mahitaji ya wawekezaji pamoja na uwajibikaji kwenye ukuaji Kimataifa, mwaka husika ulisajili mapato madogo zaidi tangu wa bara la Afrika. Uondokaji wa wawekezaji uliwakilisha njia kutokea kwa kipindi kile cha shida ya kifedha duniani. Kuongezeka inayotumika sana ya kuondoka mwaka wa 2019 (44%), tofauti na kwa vikwazo vya kibiashara na utatanishi pia ukaathiri biashara miaka miwili iliyopita ambapo uondokaji huo wa hisa binafsi na na shughuli za kilimwengu, hususan huko Uchina na uchumi wanunuzi wengine wa kifedha ilikuwa ndio njia kuu ya kuondoka. zingine sawia. Ukuaji wa uchumi ullimwenguni uliendelea Kenya ilivutia mipango ya mtaji wa kuanzia biashara iliyokuwa kuinuka pole pole wakati ambapo migongano ya kibiashara na thamani ya Shilingi za Kenya Bilioni 74.3 katika miaka mitano ya Marekani na Uchina ulipoendelea na masuala ya mataifa iliyopita, ya pili ya kiwango cha juu barani Afrika ikifuata Afrika ulaya(Brexit) kubakia tata. Usahilishaji wa kifedha kutoka kwa Kusini. Benki Kuu za mataifa mengi duniani haukuwa na athari kubwa Shughuli za hisa za kibinafsi na sekta ya kuanzisha biashara katika kusawazisha na kuimarisha shughuli za uchumi wa inaendelea kukua na tunatarajia kwamba mwaka huu wa 2020 kilimwengu. Eneo la Kusini mwa Jangwa la Sahara Barani Afrika utakuwa mwaka mwingine mzuri licha ya changamoto za uchumi lilibakia kwenye hali ya kuinuka huku likionyesha ukuaji wa 2.4% duniani. wakati wa kipindi kinachotathminiwa ukilinganishwa na ukuaji wa 3% mwaka wa 2018. Sekta ya mali isiyohamishika ilisajili ukuaji wa kiwango wastani wa 4.8% katika vipindi vya robo tatu za mwaka ambao MATOKEO YA MPANGO KIMKAKATI (2016-2020) ulikuwa ni wa pointi 0.3% zaidi kuliko kipindi sawia cha mwaka Mwaka wa 2019 ulikuwa ndio mwaka wa nne wa kipindi cha wa 2018, kulingana na Shirika la Kitaifa la Takwimu la Kenya mpango kimkakati wa 2016-2020. Mpango huo ulikuwa na nguzo (KNBS). Hii ilichangiwa pakubwa na ukuaji wa kidemografia tano kuu; kuboresha utendakazi wetu, utekelezaji wa uwekezaji pamoja na uimarishaji wa miundo mbinu ambao iliweka Nairobi wa mradi, uhamasishaji wa rasilimali zetu zenye thamani, kuimarisha michango ya wanachama na kuboresha shirika 14 Kenya Power Pension Fund | Defined Contributions
RIPOTI YA MWENYEKITI
letu. Tunaendelea kukumbatia mkakati wetu, huku tukizingatia MATOKEO YA KIFEDHA YA HAZINA manufaa ya muda mrefu na malengo ya Hazina. Mpango Hazina ilipata mapato ya jumla ya kila mwaka ya 14.19% katika makakti huu utahakikisha kuwa Hazina inashughulikia matokeo mwaka wa 2019 (1.4% mnamo 2018). Jumla ya rasilimali ya ya uwekezaji pamoja na kuimarisha michango ya wanachama. thamani ya soko la sasa ya Hazina kufikia mwisho wa mwaka Tunaendelea kukumbatia mkakati wetu, huku tukizingatia ilikuwa Kshs. Bilioni 16.5 zaidi kutoka Kshs. Bilioni 14.2 manufaa ya muda mrefu pamoja na uendelevu wa biashara yetu. katika mwisho wa mwaka wa 2018. Ongezeko hilo lilitokana na michango ya pensheni pamoja na mapato ya uwekezaji Ninafurahia kutangaza kwamba, licha ya hali ngumu ya kiuchumi yaliyopatikana katika kipindi hicho cha mwaka. katika masoko ya humu nchini na yale ya kimataifa kwa kipindi cha miaka minne iliyopita, tumefanikiwa kutangaza matokeo Bodi ya wadhamini inapangilia vyema kuwekeza fedha za hazina mazuri katika baadhi ya sehemu muhimu za uwekezaji wetu. zilizopo kwenye uwekezaji unaozalisha mapato mazuri. Sera ya jumla ya uwekezaji inalenga kupata mapato bora ya uwekezaji SEKTA YA PENSHENI NA huku ikilinda dhidi ya hali tete ya soko. Malengo ya uwekezaji MAZINGIRA YA UDHIBITI ni kupata mapato ya muda mrefu kwenye uwekezaji zaidi ya Mamlaka ya Manufaa ya Uzeeni (RBA), inawajibikia usimamizi mfumko wa bei kupitia kwa mgao anuai wa rasilimali pamoja na na udhibiti wa sekta ya manufaa ya uzeeni. Mamlaka inadhibiti ukaguzi endelevu wa matokeo. Hazina na kusimamia mipango ya manufaa ya uzeeni, maendeleo ya sekta pamoja na kuishauri serikali kuhusu masuala UTAWALA WA KIUSHIRIKA yanayohusiana na manufaa ya uzeeni. Bodi inajizatiti ili kuhakikisha kwamba mifumo, taratibu na michakato kwenye Hazina inaakisi viwango vya juu vya usimamizi MABADILIKO YA KISHERIA KATIKA wa kiushirika. Mfumo unaofaa wa usimamizi wa kiushirika ni MWAKA HUSIKA muhimu sana katika kukuza tamaduni ya hulka ya maadili yenye Taarifa ya Bajeti ya Mwaka wa Kifedha wa 2019/2020 ilisomwa thamani, uadilifu na heshima ili kulinda wanachama pamoja na mnamo tarehe 10 Juni 2019. Mabadiliko kadhaa kwenye wahitaji ya washikadau wengine wakati wowote ule. Ripoti ya Mipango ya Manufaa ya Kikazi ya Uzeeni yalianzishwa. kina inayoelezea mfumo uliowekwa wa usimamizi wa kiushirika Mabadiliko haya kwenye Manufaa ya Uzeeni (Mipango ya uko kwenye ukurasa wa 26-33. Manufaa ya Kikazi Uzeeni, 2000) yaliingizwa katika gazeti rasmi la serikali. Yafuatayo ndiyo mabadiliko hayo: MUUNDO WA BODI Katika kipindi kinachotathminiwa, hapakuwa na mabadiliko a. Hazina itawaruhusu wanachama kufanya michango ya yoyote kwenye muundo wa Bodi Kuu. Hazina inazingatia maagizo ziada na ya hiari kwa ajili ya kusimamia mpango wa ya mahitaji ya Sheria ya Manufaa ya Uzeeni. bima ya afya baada ya kustaafu. b. Fedha hizo za bima ya afya zitatengwa na kuwekezwa KIWANGO CHA RIBA KILICHOTANGAZWA kulingana na sera ya uwekezaji wa hazina hiyo c. Masharti ya Hazina yataruhusu kuwa mwanachama Wadhamini walitangaza riba kiwango cha asilimia kumi na anaweza kuhamisha sehemu ya akiba yake kwa mtoaji tatu nukta tatu nane13.38% mwaka wa 2019 ambayo ilikuwa wa huduma ya bima ya afya ikiwa mwanachama huyo ni kiwango kilichoimarika kwa asilimia sufuri nukta nane ameshindwa kuandaa hazina ya kimatibabu ya baada ya (0.8%) mwaka wa 2018). Riba ilitangazwa na kugawanywa kustaafu kwa kila robomwaka kwa mujibu wa sera iliyopo. Sera hii inahakikisha kwamba wanachama wanaotoka kwenye Hazina Hazina imeweka chombo cha uzingatiaji ambacho kinakagua wakati wa mwaka hupata kiwango kilichopendekezwa cha riba viwango vya uzingatiaji dhidi ya taratibu za bunge pamoja na wanapoondoka. yale ya kiudhibiti. Zaidi ya hayo, itaendelea kukagua michakato ili kuhakikisha kwamba mabadiliko yote yanafuatwa huku kukizingatiwa maboresho ya mazingira ya kikazi. Annual Report & Financial Statements | 2019 15
RIPOTI YA MWENYEKITI
TUZO NA UTAMBUZI SHUKRANI Hazina pia ilishiriki katika Tuzo za Ripoti ya Fedha (FiRe Awards) Kwa niaba ya Bodi, ni furaha yangu kumshukuru Mdhamini na na kuibuka mshindi kwenye kitengo cha Isiyo kwa minajili ya washikadau wetu wote kwa usaidizi mkubwa kwa Hazina wakati Faida (Not-For-Profit category). Tuzo hii hutafuta kuhamasisha inapojaribu kupinda na kupenyeza katika hali ngumu ya kiuchumi mfumo wa utoaji ripoti wa pamoja kwa kuimarisha uwajibikaji, na kiuwekezaji. Kadhalika, ningependa kuwashukuru wanabodi uwazi na uaminifu kwa kufuata mfumo sahihi wa taarifa za wenzangu kwa kujitolea kwao kwa kipindi cha mwaka mzima kifedha na maelezo mengine juu ya utawala, taarifa za kijamii na uliopita na kuendelea kuniunga mkono; Katibu wa Bodi Kuu ripoti kuhusu mazingira katika sekta binafsi na za umma katika pamoja na kikosi chake wanaofanya kazi kwa bidii ili kuhakikisha eneo la Afrika Mashariki. Tuzo za kila mwaka za FiRe huandaliwa kwamba kuna usimamizi bora na umakinifu katika shughuli za na Bodi ya Viwango vya Uhasibu wa Sekta ya Umma (PSASB), kila siku za Hazina. Na kwenu wanachama wetu, asanteni sana Mamlaka ya Masoko ya Mitaji (CMA), Soko la Ubadilishaji kwa usaidizi wenu endelevu, kututia moyo na kwa kuendelea Hisa la Nairobi (Nairobi Securities Exchange (NSE), na Taasisi kutupa maoni yenu. ya Mahasibu wa Umma Walioidhinishwa nchini Kenya (ICPAK).
MTAZAMO Wadhamini wataendelea kufuatilia maendeleo katika mazingira ya kibiashara kwa ujumla na kutekeleza mikakati ya uwekezaji ili kutumia vyema fursa za uwekezaji na hali kadhalika kupunguza dhidi ya athari za uwekezaji. Ili kuongeza toleo kwa wanachama Mwenyekiti wetu, Hazina iko katika mchakato wa kutekeleza mpango wa Ernest Nadome kuwakubalia wanachama kulipwa pensheni (income drawdown) kutoka kwa Hazina badala ya kutoka kwa kampuni za bima. Kadhalika, Hazina itaweka mpango ambao utaruhusu washiriki kuchangia gharama zao za matibabu wanapo staafu. 16 Kenya Power Pension Fund | Defined Contributions
SECRETARY’S STATEMENT
Despite the challenging economic environment that predominated the financial year, the Fund’s total assets grew by 16.7% closing at Kshs.16.5 billion up from Kshs.14.2 billion recorded in 2018.
Edwin Ruttoh - Secretary
Since the beginning of our current strategic period in 2016, the two world’s biggest economies. Despite these challenges, the Fund has endeavored to deliver value and quality of life in the return for the year stood at 14.1% against a benchmark of retirement to our members. Despite the challenging economic 9.3%. environment that predominated the financial year, the Fund’s total assets grew by 16.7% closing at Kshs. 16.5 billion up We continue to diversify our assets, not only to maximize return from Kshs. 14.2 billion recorded in 2018. Our ability to identify, on investments, but also to ensure an adequate level of liquidity create and grow investment opportunities across all our target in order to meet our retirement benefits obligations. The Fund sectors has been the foundation of our success and we remain has invested in alternative assets, including private equity and committed to our vision of being the best-in-class occupational real estate, which have proven to enhance investment returns to scheme in the whole of Africa. the Fund. Even though the Fund did not invest in any new private equity during this financial year, it invested additional resources FUND PERFORMANCE AND INVESTMENTS into the existing private equity funds where income from The performance for the year ended 31st December 2019 was dividends and interest distributions from investee companies achieved against the background of a challenging operating were realized. environment, characterized by a depressed private sector credit growth and prolonged geopolitical uncertainty. These factors In the real estate space, demand across all segments was on a had considerable impact on the economy, weighing down downturn as characterized by stagnation in prices, longer letting investment spending and contributing to a sluggish transaction and sales velocity periods. Despite these challenges, the Fund environment. Notable impact was on the equities front, where made progress in the sale of Bogani Park houses during the for the better part of the year the asset class underperformed year. The property portfolio constituted 21% of the overall Fund but received a lifeline in the fourth quarter following the rate cap therefore its low performance weighed down the returns for the repeal and optimism around improved trade relations between Fund during the period. Annual Report & Financial Statements | 2019 17
SECRETARY’S STATEMENT
We maintain our focus in scaling our investments across the an integrated system. Some products such as mobile app, bulk various sectors of interest. While doing so, we will not only SMS and USSD services were introduced. ensure compliance with the Retirement Benefits Authority limits and the Investment Policy Statement, but also maintain ISO 9001-2015 CERTIFICATION a constant engagement with all the stakeholders within the Quality Management System (QMS) has become the core of our investment space with a view of refining our tactical asset operations since the first ISO 9001:2008 certification in 2014. allocation. The Fund is currently certified under the ISO 9001:2015 which is due to expire in 2020. Amongst our key quality management MEMBER ENGAGEMENT principles is customer focus and continuous improvement To enhance member offering, which is one of the Fund’s strategic which guides our efforts in working towards and exceeding the objectives, we engaged the members in various initiatives. The members’ expectations. We have bolstered our collaborations Fund conducted pre-retirement training for members approaching through internal management reviews and stakeholder retirement to equip them with adequate information on their involvement to meet the set standards of quality and excellence. benefits and importance of financial planning. Furthermore, the need for personalized service to members triggered the Fund to RISK MANAGEMENT set up customer service desks at various Kenya Power offices. Risk management is all about understanding the uncertainties This platform not only provided wider and more personalized facing the Fund, developing strategies to minimize their impact attention, but also addressed their concerns. Over and above the or benefit from them while achieving purpose and strategy. As education programs, the Fund organized Union representative an organization, the Trustees and management are cognizant and Human Resource Officers meetings in Nairobi and Kisumu. of the importance of effective risk management. We have The forums updated them on the Funds’ setup, strategic institutionalized risk management practices into our processes initiatives, as well as obtain feedback on how the Fund can as this is important to the financial wellbeing of our members. improve on its services. During the year, we performed quarterly risk assessments to determine the exposure of risks to the Fund and the materiality of The KPPF Customer Service Week took place in October at such risks with a view of addressing them. In addition, the Fund Stima Plaza, and other regions across the country. As part of our completed the process of developing the business continuity commitment to delivery of quality services to our members, the plan whose principal objective is to ensure service continuity. Fund undertook various activities such as training of Secretariat staff on improving customer service and setting up of customer help desks.
INFORMATION COMMUNICATION TECHNOLOGY (ICT) As the Fund strives to ensure growth in all its investments, we have been very keen to execute every aspect of our operations while upholding quality services, efficiency and embracing technological changes as we serve our members. During the year, we automated most of our business processes to address gaps in the day-to day operations. This was driven by the need to provide self-services to our members as well as to develop 18 Kenya Power Pension Fund | Defined Contributions
SECRETARY’S STATEMENT
OUTLOOK The dedication of the Secretariat staff cannot go unrecognized, their efforts, integrity and hard work during the period has The future offers a considerable upside for the economy and for sustained our success. the Fund and we remain focused on implementing our strategic plan. We are confident in our ability to take advantage of any I take this opportunity to also thank our members for their opportunities that may arise and employing informed resource immeasurable support. I remain confident in our ability to allocation that will deliver superior returns to our members. We continue to deliver value and quality of life to our members. will continue to optimally position the Fund for a digitized future through the implementation of the ICT strategy and the business continuity plan.
APPRECIATION I would like to thank the Sponsor for the unwavering support and commitment towards the Fund. I also acknowledge with appreciation the Board of Trustees whose guidance has been Edwin Ruttoh Secretary invaluable during the year. Annual Report & Financial Statements | 2019 19
TAARIFA YA KATIBU
Licha ya kuwepo kwa mazingira magumu ya kiuchumi yaliyokuwa yameuandama mwaka huo wa kifedha, rasilimali yote ya Hazina ilikua kwa 16.7% katika mwaka huo, na kufikia Kshs. 16.5 billion zaidi kutoka Kshs. 14.2 billion zilizopatikana kwenye mwaka wa 2018.
Edwin Ruttoh - Katibu
Tangu kuanza kwa kipindi chetu cha sasa cha kimkakati mnamo ngazi ya dhamana ya usawa, wakati ambapo kipindi kirefu cha mwaka wa 2016, Hazina hii imeazimia kutoa thamani na ubora mwaka huo, kitengo cha rasilimali hakikuzalisha vyema lakini ili wa maisha baada ya kuustaafu kwa wanachama wetu. Licha imarika na kufanya vizuri katika robo ya nne ya mwaka baada ya ya kuwepo kwa mazingira magumu ya kiuchumi yaliyokuwa kuondolewa kwa kanuni za ukomo wa kiwango cha riba, na pia yameuandama mwaka huo wa kifedha, rasilimali yote ya Hazina matumaini yaliyotokana na mahusiano mema ya kiuchumi kati ya ilikua kwa 16.7% katika mwaka huo, na kufikia Kshs. 16.5 billion chumi mbili kuu duniani. Licha ya changamoto hizi, matokeo ya zaidi kutoka Kshs. 14.2 billion zilizopatikana kwenye mwaka mapato ya mwaka huo yalikuwa 14.1% dhidi ya kiashiria wa 2018. Uwezo wetu wa kutambua, kuunda na kukuza fursa za cha 9.3%. uwekezaji katika sekta zetu zote tunazozilenga umekuwa ndio msingi wa mafanikio na tumejitolea kindakindaki kwa maazimio Tunaendelea kuwekeza rasilimali zetu, sio tu kuthibiti mapato yetu ya kuwa bora katika Africa kwa mipango ya kushughulikia ya uwekezaji wetu, lakini pia kuhakikisha kuwepo kwa kiwango masuala ya utendakazi kizuri cha fedha ili kuyafikia majukumu yetu ya manufaa ya kustaafu. Hazina yetu imewekeza katika rasilimali mbadala, MATOKEO NA UWEKEZAJI WA HAZINA ikiwa ni pamoja na dhamana ya kibinafsi pamoja na makao, Matokeo ya mwaka uliomalizikia tarehe 31 Desemba 2019 ambayo kufikia sasa imeonyesha kuimarika kwa mapato ya yalipatikana dhidi ya mazingira magumu sana ya kufanyia uwekezaji kwa Hazina hiyo. Hata kama hazina hiyo haikuwekeza kazi, yaliyokuwa yamezongwa na kudumaa kwa mikopo katika katika dhamana nyingine yoyote mpya kwenye mwaka huu wa sekta ya kibinafsi na kipindi kirefu cha sintaufahamu ya siasa kifedha, iliwekeza rasilimali za ziada kwenye hazina za dhamana ya kimaeneo. Hali hizi zilikuwa na athari kubwa katika uchumi, zilizokuwepo ambapo mapato kutoka kwa usambazaji wa wawekezaji kupunguza makadirio ya matumizi ya uwekezaji na migawo na riba ya kampuni zinazowekezewa yalipatikana. hali kadhalika kuchangia pakubwa katika hali na mazingira tete ya kimiamala. Athari kubwa iliyoonekana wazi ilikuwa kwenye Katika sekta ya makao, uhitaji wa vitengo vyote ulipungua kama ilivyoshuhudiwa kwa kushuka kwa bei, mikopo ya muda mrefu 20 Kenya Power Pension Fund | Defined Contributions
TAARIFA YA KATIBU
pamoja na vipindi vya mikakati ya kutafuta fedha za mauzo. TEKNOLOJIA YA HABARI NA MAWASILIANO Licha ya changamoto hizi, Hazina yetu ilifaulu katika mauzo ya (TEHAMA) nyumba kadhaa za Bogani Park katika mwaka huo. Uwekezaji Huku Hazina ikijitahidi kuhakikisha ukuaji katika mipango kwa sekta ya makao ulihusisha 20% ya rasilimali ya Hazina yake yote ya uwekezaji, tumekuwa makini sana kuendeleza na matokeo yaliyokuwa ya chini yalisababisha kupungua kwa vipengele vyote vya utendakazi wetu ili kupata huduma bora, mapato ya jumla katika kipindi hicho. ufanisi na kujiambatanisha na mabadiliko ya kiteknolijia wakati tunapoendelea kuwahudumia wateja wetu. Kumekuwa na Tunaendelea kujikita katika kukuza uwekezaji wetu kwenye sekta maendeleo ya kiteknolojia duniani kote, na sisi hatujaachwa mbali mbali . Huku tunapofanya hivyo,tunazingatia viwango nyuma. vya Halmashauri ya Manufaa ya Uzeeni pamoja na Sera ya Uwekezaji, na pia kuwa na ushirikiano unaofaa na washikadau Katika mwaka huo tuliboresha huduma zetu kwa kuifanya wote tunaohusiana nao kwenye uwekezaji wa rasilimali. michakato yetu yote kuwa ya kiotomatiki ili kutuwezesha kuongeza ufanisi kwa shughuli zetu za kila siku. Maamuzi haya USHIRIKISHWAJI WA MWANACHAMA yalitokana na lengo la kuwafanya wanachama kujishughulikia Ili kuimarisha ushiriki na wanachama, ambayo ni mojawapo ya wenyewe na tulizingatia sana kuunda mfumo ulioweka shughuli malengo yetu ya kimkakati, tuliwashirikisha wanachama katika zetu pamoja. Tuliweka pamoja taratibu za shughuli zetu zote, na miradi mbali mbali. Hazina hiyo iliwashirikisha wanachama kuunda kipindi cha bidhaa za kidijitali kwa ajili ya wanachama wanaokaribia kustaafu kwenye programu ya mafunzo ili kujihudumia wenyewe kama vile Programu za rununu, kibunda kuwawezesha kuwa na taarifa muhimu kuhusu mapato yao ya cha arafa, na huduma za USSD. kustaafu pamoja na umuhimu wa kijipanga kifedha. Isitoshe, mahitaji ya kuhudumiwa kibinafsi yalisababisha Hazina yetu UTHIBITISHO WA ISO 9001-2015 kuleta dawati la huduma katika ofisi mbali mbali za Kenya Power Kutokea uthibitisho wa kwanza wa ISO 9001:2008 mnamo 2014, ili kuyashughulikia masuala tofauti tofauti ya wanachama. Licha Mfumo wa Kusimamia Ubora (QMS) umekuwa ndio kiungo kikuu ya kuyaelewa masuala ya baadhi ya wanachama, jukwaa hili cha utendakazi wetu. Kutoka kwa vipindi viwili (2) vya miaka lilitoa fursa muafaka ya kila mwanachama aliyefika kupewa mitatu ya uthibitisho, Hazina yetu ilithibitishwa upya chini ya huduma za kibinafsi. Zaidi ya programu hiyo ya kutoa mafunzo, uthibitisho wa ISO 9001:2015. Kipindi cha hivi karibuni zaidi Hazina yetu pia iliandaa vikao vya wanachama wa vyama vya kiliisha mapema ya mwaka wa 2020 na mshirika wetu wa wafanyikazi pamoja na wasimamizi wao jijini Nairobi na Kisumu uthibitisho tayari ameanzisha mchakato wa kuthibitishwa upya. ili kuwaelimisha kuhusu mpangilio mzima wa Hazina, miradi ya Usimamizi na mwelekeo wa Mfumo wa Kusimamia Ubora (QMS) kimkakati, majukumu na wajibu wake. Malengo ya mikutano wa Hazina ni jukumu la ofisi ya Mkurugenzi Mkuu Mtendaji chini hiyo ilikuwa ni kuwawezesha maafisa wa Usimamizi wa ya usimamizi wa kamati ya ISO. Wafanyikazi kupata taarifa inayofaa ya Hazina na hali kadhalika kupata maoni kuhusu jinsi tutakavyoboresha huduma zetu. Miongoni mwa kanuni zetu za usimamizi wa ubora ni Uzingatiaji wa wateja pamoja na maendeleo endelevu yatakayosaidia Wiki ya Huduma za Wateja ya KPPF ilianza mnamo wiki ya pili ya kuongoza jitihada zetu za kiutendakazi na hata kuyapitisha mwezi wa Oktoba, kama ishara ya kujitolea kwetu katika utoaji matarajio ya wanachama wetu. Tumeimarisha ushirikiano wa huduma bora kwa wateja wetu. Hazina ilifanya shughuli wetu kupitia kwa tathmini za usimamizi wa ndani pamoja na nyingi ikiwa ni pamoja na kuwafunza wafanyikazi kuhusu ushirikiano wa wadau ili kuboresha Mfumo wetu wa Kusimamia huduma kwa wateja, ili kuimarisha haraka za utoaji wa huduma. Ubora. Hatua hii imeendelea na itadumu ili kuhakikisha kwamba Na kama ilivyopendekezwa katika miaka ya kifedha ya hapo bidhaa na huduma kwa wanachama na washikadau wetu awali, shughuli hizi zilisambazwa kwa maeneo mengine kote zinafikia viwango vya juu vya ubora na ufanisi unaotarajiwa. nchini. Annual Report & Financial Statements | 2019 21
TAARIFA YA KATIBU
USIMAMIZI WA ATHARI pia kutumia rasilimali zetu ili kuyatimiza matarajio na kutoa matokeo mazuri kwa wanachama wetu. Kwa kipindi kijao Usimamizi wa athari unahusu kuelewa hatari zinazoikumba tutaendelea kuiweka Hazina katika mchakato mustakabali wa Hazina, pamoja na mikakati ya kimaendeleo ili kupunguza athari kidijitali kupitia kwa utekelezaji wa mkakati wa TEHAMA na yake na kupata manufaa kutoka kwa malengo na mikakati mpango wa kuendeleza biashara. iliyowekwa. Kama shirika, wakuu wa Hazina pamoja na wasimamizi wanafahamu sana umuhimu wa usimamizi unaofaa SHUKRANI ili kukabiliana na athari. Tumepangilia kanuni zetu za usimamizi wa athari na kuiingiza kwenye michakato yetu kwa kuwa ni Ningependa kumshukuru Mdhamini wetu kwa usaidizi wake wa muhimu katika kulinda fedha za wanachama wetu na uchumi dhati na kujitolea ili kuifaa Hazina. Kadhalika, ninafurahia sana mpana kwa jumla. Katika mwaka huo, tulifanya utathmini wa kuitambua Bodi Kuu ambayo mwongozo wake ulitufaa pakubwa athari kwenye kila robo ya mwaka ili kujua athari inayokabili katika mwaka huo uliokuwa mgumu sana. Bila ya shaka, ni Hazina hii na hatari ya athari hiyo kwa lengo la kuzishughulikia. kujitolea kwa wafanyikazi wetu, uadilifu wao na uongozi Zaidi ya hayo, Hazina ilikamilisha utaratibu wa kuimarisha ulioimarisha mafanikio yetu. Ninachukua fursa hii kuwashukuru mpango wa uendelevu wa kibiashara, lengo kuu likiwa ni sana wanachama wetu kwa uungaji mkono, wa dhati Katika siku kuhakikisha uendelevu wa huduma kwenye Hazina. za usoni, ninauamini uwezo wetu wa kuwapatia wanachama wetu thamani. MTAZAMO Katika kipindi kilichopita, tulizingatia umuhimu wa washikadau wetu na tukaweka mikakati ya kuwezesha utakimilifu wetu. Tuna matumaini ya siku za usoni kuwa uchumi utaimarika maradufu na Hazina yetu itaendelea kutekeleza mipango na mikakati yetu. Edwin Ruttoh Tuna imani na uwezo wetu wa kutumia fursa zinazojitokeza na Katibu 22 Kenya Power Pension Fund | Defined Contributions
BOARD OF TRUSTEES
TRUSTEES WHO SERVED DURING THE YEAR
Ernest Nadome - Chairman He was appointed to the Board in September, 2003. He holds a Master of Arts (MA) in Labour Management Relations(UON), Bachelor of Arts (B.A) Degree (Hons(UoN).
He is the General Secretary of the Kenya Electrical Trades & Allied Workers Union (KETAWU) a position he has held for the past 17years. He is well versed in energy, human resources,social protection and labour matters, having worked for The Kenya Power and Lighting Company Ltd and Kengen for 16 years. He is the Chairman of the Board of Trustees for the DC Fund and also Chairman of the Board of Trustees for the Kengen Company Limited Staff Retirement Benefits Scheme (DC Scheme) and a Trustee of Kengen Company Limited Staff Retirement Benefits Scheme (DB Scheme). He is the 1st Assistant Secretary General for Central Organization of Trade Union (COTU-K) and the out going Director of The National Industrial Training Authority Board (NITA).In addition, he is also the founder Director of the newly established parastatal,Kenya National Qualification Frame Work Authority(KNQF)and a member of The National Labour Board. .
He is a Certified Pension Fund Trustee.
Wilson Kimutai He was appointed to the Board on 31st August, 2018. He has over 20 years’ experience in investment banking and fund management. He has progressive experience in investment environments and in various capacities notably in operations management and dealership in stockbrokerage. He holds a Bachelor of Arts degree in Mathematics from Kenyatta University and Global Executive Master of Business Administration from United States International University. He is also a director of Quadrix Capital Management Limited and Seriani Asset Managers Limited. Currently, he is a member of the Board of Directors in Kenya Power and Lighting Company Ltd since 19th December 2014. He is a Certified Pension Fund Trustee.
Eng. Jared Othieno He was appointed to the Board on 31st August 2018. He has a Master of Business Administration (MBA) and a BSc. Electrical Engineering degree from the University of Nairobi. He was the acting Managing Director and CEO and has served at Kenya Power for over 31 years, and retired as a Trustee on 30th January 2020. He is a Certified Pension Fund Trustee. Annual Report & Financial Statements | 2019 23
BOARD OF TRUSTEES
Imelda Bore She was appointed to the Board on 31st August 2018. She holds a Master of Laws (LL.M) from the University of Nairobi, a Bachelor’s degree in Law (LL. B) from Moi University, a Post Graduate Diploma in Law, and a Higher National Diploma in Human Resources Management. She is also a certified Public Secretary (CPS K), a member of ICSPS and an advocate of the High Court. She has served at Kenya Power for over 9 years. Currently she is the General Manager, Corporate Affairs & Company Secretary in Kenya Power and Lighting Company Ltd. She is a Certified Pension Fund Trustee.
Kosgey Kolil He was appointed to the Board on 30th September 2008. He holds a Master of Science in Commerce (Finance & Investment) and a Bachelor of Commerce (Finance option) degree. He is a Certified Public Accountant of Kenya (CPA K) and a member of the Institute of Certified Public Accountants of Kenya (ICPAK). He also holds a Post Graduate Diploma in Labour Policy Studies. Mr. Kosgey is the Deputy General Secretary of the Kenya Electrical Trades & Allied Workers Union (KETAWU) and sits in the Board of the Productivity Centre of Kenya (PCK) as a nominee of the Central Organization of Trade Union (COTU-K). Prior to joining KETAWU he worked in Kenya Power and Lighting Company Ltd for 16 years in Finance where he gained a wide experience in finance and accounting. He is a Certified Pension Fundrustee. T
David Monandi He was appointed to the Board on 31st August 2018. He holds an Executive MBA (JKUAT), Bachelor of Arts (BA) from the University of Nairobi, a Higher National Diploma (HND) in Human Resources Management and is a registered member with IHRM. He was the acting General Manager, Human Resource and Administration and has served at Kenya Power for over 22 years. Mr. Monandi is also a Certified Pension Fund Trustee. He retired from the Board on the 30th January 2020. 24 Kenya Power Pension Fund | Defined Contributions
BOARD OF TRUSTEES
Johnstone Sakwa He was appointed to the Board in July 2016. He holds a Business Administration Degree, (Marketing), a Higher Diploma in Electrical Engineering and is also a Registered Graduate Technician Engineer. Currently, he works as the In-Charge of Dagoretti Feeder Based Business Unit in Nairobi West Region of Kenya Power. He is a Certified Pension Fund Trustee and a pastor with the Open Blessing Church.
Zilpa Ayara She was appointed to the Board in July 2016. She holds Bachelor of Commerce Degree (Marketing), a Diploma in Business Management, a Call Center Quality Assurance Certificate and Credit/Debt Control Management Certificate. She currently works at the Kenya Power Contact Center as a Quality Control Officer. She is a member of Kenya Institute of Management (KIM). She is the chairman of the PTA (Parents Teachers Association, member Board of Management at Huruma Girls High School), a Board Member of Upper Hill School and the Chairperson of AIC- Jericho Church Members Welfare. She is a Certified Pension Fund Trustee.
Vincent Ochieng’ He was appointed to the Board in June 2018. He is the Chairman of the Kenya Electrical Trades & Allied Workers Union (KETAWU) as well as Branch Secretary Western region. He is also a Chairman of the Development Committee of Nanga Catholic Church. Currently, he works at Kenya Power as the Debt Control in Finance Department, based in Western Kenya Region - Kisumu. He is a Certified Pension Fund Trustee. Annual Report & Financial Statements | 2019 25
BOARD OF TRUSTEES
Edwin Ruttoh – Secretary He was appointed as the Secretary to the Board in November 2019. He holds a Bachelor of Commerce degree in Accounting. He has over 15 years of experience in Finance, Investments and Accounting fields. He is a Certified Public Accountant of Kenya (CPA-K) and a member of the Institute of Certified Public Accountant of Kenya (ICPAK). He has attended several international and local trainings and development programs including those in investments, leadership and governance.
TRUSTEES WHO JOINED AFTER FINANCIAL YEAR 2019
Bernard Ngugi He was appointed to the Board on 30th January 2020. He holds a Master of Business Administration (Finance) and Bachelor of Commerce (Accounting). He is a Certified Public Accountant of Kenya and a member of the Institute of Certified Public Accountants of Kenya (ICPAK). He is also a Certified Public Secretary of Kenya and a member of the Institute of Certified Public Secretaries of Kenya (ICPS). Additionally, he holds a Graduate Diploma from the Chartered Institute of Purchasing and Supplies (CIPS) and is a member of the Kenya Institute of Supplies Management (KISM). He has over 30 years of service in Kenya Power spread across financial and revenue accounting, internal audit, and supply chain management. Currently he is the Managing Director & CEO of Kenya Power & Lighting Company Ltd.
Cecilia Kalungu-Uvyu She was appointed to the Board on 30th January 2020. She holds a Master of Business Administration in Human Resource Management, Bachelor’s degree in Human Resource Management from USIU-A and a Certificate in HR Practice from Cornell University. She is a member of Institute of Human Resource Management (IHRM) and the Chartered Institute of Personnel & Development (CIPD), UK. She has over 14 years’ experience as a human resources professional having worked in several organizations. Currently she is the General Manager, Human Resource & Administration, Kenya Power & Lighting Company Ltd. She is a Certified Pension Fund Trustee. 26 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CORPORATE GOVERNANCE
INTRODUCTION processes within the legal framework and in line with the best governance practices. Corporate Governance refers to the manner in which the Board of Directors, management and the various stakeholders interact BOARD OF TRUSTEES in shaping the organization corporate performance in line with The primary role of the Board is to set the strategic direction its strategic objectives. of the Fund as well as put in place policies that provide the The Retirement Benefits (Good Governance Practices) Guidelines, necessary oversight in the management of the Fund. The Board 2018 were issued on 11th October 2018. The objective of the has adopted best practice guidelines aimed at strengthening the guidelines is to provide a framework to facilitate schemes to Fund and providing necessary guidelines to uphold the highest establish and maintain minimum standards of best practices governance, legal, and ethical standards. in the governance of schemes; to enable and equip sponsors, trustees and service providers to better perform their functions; BOARD MANUAL and to provide governance criteria for evaluating the performance The Board Manual acts as a reference guide for all governance of trustees and service providers. matters and it establishes:
The Fund has instituted systems and structures to ensure that • The corporate governance frameworkTrustee code of highest standards of good corporate governance business ethics, conduct compliance with legal regulations as well as the Trust Deed and • Policies and practices to ensure that the Fund’s operations Rules are maintained. always meet the expectations of the stakeholders • Explicates the collective and individual powers, duties, Among the principles that continue to guide the Board in its obligations, responsibilities and liabilities of the Trustees. corporate governance practices are the following:
The manual is reviewed periodically to incorporate any necessary • Well-articulated Board and management duties and changes to ensure consistency with the Board’s objectives, best accountabilities practices, rules and regulations. • Ensuring appropriate competencies and appropriate skills mix within the Board and Secretariat staff • Establishment of independent Board Committees and BOARD RESPONSIBILITIES undertaking annual board evaluations The Trustees’ roles and responsibilities are set out in the Board • Optimising investment returns through the adoption of Manual and are summarized below: strategies that enable and promote the long-term success • Formulation and approval of the Fund’s vision, mission and of the Fund core values • Timely, transparent and relevant communication to provide • Development and formulation of the Fund’s strategy, stakeholders with a clear understanding of the Fund business plan and principles of investments • Implementation of strong audit independent procedures, • Approval of the annual budget, the financial statements applying internationally recognized accounting principles, and the interest to be credited to the members’ balances ensuring the undertaking of a well-scoped annual audit • Review and evaluation of investment manager’s and maintenance of robust internal controls performance and approval of risk management strategy • Upholding the highest levels of integrity in the Fund’s • Settlement of major litigation/claims culture and practices through a well-defined and • Appointment of all service providers implemented code of conduct and ethics for the Board, • Approval of banking/authority levels, policies, procedures staff and suppliers and manuals During the year, the Fund performed a legal audit whose aim • Periodic formulation and review of ICT policies, procedures, was to assess and report on the adequacy and effectiveness of strategies and work plans. the organization’s governance, policies, systems, practices, and Annual Report & Financial Statements | 2019 27
STATEMENT OF CORPORATE GOVERNANCE
BOARD CHAIRMAN The following Trustees served during the year: The Board of Trustees elects the Chairman in accordance with Ernest Nadome Member elected - provisions of the Fund’s Trust Deed and Rules. As part of good (Chairman) representing Workers Union corporate governance, the board has ensured that the roles members and responsibilities of the Chairman are distinct and separate Wilson Kimutai Sponsor appointed from those of the Administrator of the Fund which creates Eng. Jared Othieno* Sponsor appointed the necessary independence in the discharge of respective Imelda Bore Sponsor appointed responsibilities. David Monandi* Sponsor appointed Koskey Kolil Member elected - The Chairman is responsible for the overall Board leadership and representing Workers Union its effectiveness. He sets the agenda for Board meetings, chairs members all meetings and the Fund’s Annual General Meeting (AGM). He Vincent Ochieng’ Member elected - also ensures adequate induction of new Trustees, orients them representing Workers Union on the Board’s role, key tasks, processes, policies, and awareness members of conflict of interest, and ensures that all Trustees undergo Zilpa Ayara Member elected training to keep them abreast with good corporate governance Bernard Ngugi** Sponsor appointed practices and developments in the industry. He ensures that all Cecilia Kalungu-Uvyu** Sponsor appointed key tasks of the Board are achieved satisfactorily and maintains *retired on 30th January 2020. an independent working relationship with the Administrator of ** joined on 30th January 2020. the Fund.
Changes in the regulatory framework have limited the term a BOARD STRUCTURE AND COMPOSITION Trustee can serve to a maximum of two terms, of three years The Board strives to ensure that the skill set is diverse and each. Member elected Trustees serve a 3-year renewable term, updated to steer the Fund to greater heights within an ever- while sponsor-appointed Trustees can be re-appointed or maybe changing operating environment. Areas of expertise of the withdrawn at any time by the Sponsor. current board members include governance, human resources, legal, finance and risk management. BOARD TRAINING & INDUCTION PROGRAMS Board development encompasses proper induction of new The Board is composed of nine Trustees, four (4) of whom Trustees and regular training to enhance their skills. The Board are Sponsor-appointed and five (5) are member-elected. The ensures that all Trustees are kept abreast of both emerging trends composition of the Board is in compliance with the Retirement and pension industry developments, and that their expertise is Benefits (Occupation Retirement Benefits Schemes) Regulations constantly upgraded. Every year the Secretary in liaison with 2000 issued by RBA, which provides guidelines on the Board’s the Board carries out a Trustees training needs analysis and size and composition. prepares a training calendar to be implemented during the year.
The guidelines require schemes not to have less than four (4) and Induction of newly appointed Trustees is organized by the not more than nine (9) Trustees. Also, the number of Trustees Secretary to the Board. On appointment, each Trustee is provided elected by the members should be at least 50% of the Board with sufficient information to enable them to perform their roles composition. optimally. 28 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CORPORATE GOVERNANCE
As at 31st December 2019, all the Trustees had been vetted and membership and Chairmanship regularly reviewed by the Board certified in accordance with the Capacity Building of Trustees of to ensure effective operations. The Chairman of the committees Retirement Benefits Schemes Prudential Guideline Number RBA appraises the full Board of their activities on a quarterly basis. 001 of 2013. The details of the committees are as follows: BOARD REMUNERATION AND COMPENSATION a) Risk & Audit Committee The Board’s compensation is determined and approved by the This committee was chaired by Kosgey Kolil with Imelda Sponsor. The Trustees’ remuneration is reviewed periodically Bore, Wilson Kimutai and Vincent Ochieng’ as members. to ensure that it is reasonable. The details of the remuneration for 2019 are as shown on note 11 of the notes to the financial The responsibilities of the committee include but are not limited statements on page 65. to: BOARD EVALUATION • Reviewing the effectiveness and reliability of management The Board undertakes self-evaluation of its performance every information systems, risk and internal controls systems year while the externally facilitated reviews are done every two and the efficiency and effectiveness of both external and years. The aim of the exercise is to assess the performance internal audit levels of the Board, ensure sustainable governance structure as • Liaison with internal and external auditors in their well as provide feedback on areas of improvement. undertakings of respective assignments • Reviewing and recommending to the Board, the appropriate BOARD MEETINGS risk management policies and procedures The Board and its committees meet at least quarterly in a year in • Monitoring the implementation of risk management accordance with the annual board work plan. The work plan sets strategies out the key agenda to be discussed in every meeting. • Advising the Board on any issues pertaining to the appointment, remuneration and dismissal of auditors All Board and Committee meetings are managed seamlessly via • Making recommendations to the Board on IT governance the e-Board system where the Trustees can access and preview including ICT policies planning necessary information on the items to be discussed prior to any meeting. This has been valuable in enabling Trustees prepare b) Strategy, Finance & Investment Committee adequately, hold meetings efficiently, save on time and eliminate This committee was chaired by Wilson Kimutai with Eng. the manual way of reviewing and approving documents. Jared Othieno, Zilpa Ayara and Johnstone Sakwa as members. The responsibilities of the committee include but BOARD COMMITTEES are not limited to: The Board has established four (4) standing committees through • Reviewing and making recommendations to the Board on which it delegates specific functions with defined formal terms proposed new investments, capital developments of reference without abdicating its ultimate responsibility. The • Monitoring portfolio performance and implementation of committees assist the Board in discharging its responsibilities investment strategies and obligations. The committees include: • Advising the Board on appointment of investment managers, custodians and bankers and monitoring and a. Risk and Audit evaluating the performance of these service providers b. Strategy, Finance & Investment • Reviewing and making recommendations on the annual c. Project Implementation budgets for the Fund including monitoring the performance d. Governance, Human Resources & Compensation • Advising on the development and implementation of the strategic plan In constituting the committees, individual areas of expertise • Making recommendations to the board concerning new and qualifications form the basis for appointment with the strategic initiatives, alliances and potential partnerships Annual Report & Financial Statements | 2019 29
STATEMENT OF CORPORATE GOVERNANCE
c) Governance, HR & Compensation Committee The responsibilities of this committee include but are not This committee was chaired by David Monandi with Zilpa limited to: Ayara, Imelda Bore and Vincent Ochieng’ as members. • Giving advice, guidance and support to the Project Manager The responsibilities of this committee include but are not and the other consultants on all project related matters to limited to: ensure that the project is well implemented • Overseeing the implementation of the project in accordance • Orientation and induction of new Trustees including training with the directives and approvals from the Board and development • Monitoring the progress of implementation of the project • Reviewing and advising the Board on the annual • Ensuring that appropriate mechanisms are in place to procurement plans and the management, on procurement ensure close cooperation amongst all the consultants matters involved in the implementation of the project • Overseeing the governance, compliance and communication function of the Fund MEETINGS ATTENDANCE • Responsible for staff and operational policies in order to align the Fund’s operations with best practices. The Board of Trustees meets regularly as per the Board calendar. Below is a summary of meeting attendance by Trustees for the d) Project Implementation Committee year ended 31 December 2019: This committee was chaired by Johnstone Sakwa with Jared Othieno, Kosgey Kolil and David Monandi as members.
Trustee’s Name Full Risk & Strategy Governance, Project Board Audit Finance & HR Staff Implementation Investments Compensation Total Meetings 9 4 5 7 2 Ernest Nadome 9 - - - - Wilson Kimutai 7 3 5 - - Eng. Jared Othieno 5 - 2 - 0 David Monandi 9 - - 7 1 Imelda Bore 8 2 - 4 - Kosgey Kolil 9 4 - - 2 Zilpa Ayara 8 - 3 6 - Johnstone Sakwa 9 - 5 - 2 Vincent Ochieng’ 9 4 - 7 -
BOARD ELECTIONS • Reviewing the status of implementation of the Fund’s strategic plan for the year The Retirement Benefits (Occupational Retirement Benefits • Approval of the Board’s annual work plan Schemes) Regulations 2000, requires that election of Trustees • Reviewing and evaluation of Fund Performance be conducted every three years. No elections were conducted • Monitoring and evaluation of Bogani Park project during the year. • Reviewing and actioning of reports from Board committees BOARD ACTIVITIES IN 2019 • Reviewing and approving various policies, including the Board Manual In carrying out its mandate during the year, the Board engaged • Reviewing and approving the Fund budget in various key activities which included: • Reviewing and monitoring compliance to industry regulations and legislation. 30 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CORPORATE GOVERNANCE
RISK MANAGEMENT STRUCTURE in accordance with their impact and likelihood. A risk register is maintained and updated quarterly by the Secretariat and The risk management structure of the Fund is composed of the submitted to the Risk & Audit committee for initial review before Board of Trustees, Risk & Audit committee, Internal auditor and being presented to the Board. During the year, the Fund identified the management team. Their respective roles are shown below: major risks and put in place mitigation measures. a) Board Details of the investment and financial risks have been reported The Board bears the overall responsibility of risk under our Note No. 3 as per IFRS 7 disclosure requirements on management. In discharging its duties, it ensures that nature and extent of risks arising from financial instruments both the Fund has put in place proper risk management qualitative and quantitative. policies that provide guidance to either, avoid, mitigate or eliminate potential risk. This has over the years aided the Board in decision making within acceptable risk RISK AWARENESS appetite. The Board’s commitment to risk management has been evidenced by the awareness created and training given to the Board of b) Risk & Audit Committee Trustees, Management and the Staff of the Fund. In addition, The mandate of this committee is to develop, implement the Fund has inculcated a culture of risk-based thinking amongst and monitor risk management framework under the staff members, by ensuring that risk management is an agenda guidance of the Board. The committee also ensures that in all departmental and management meetings. risk management system implemented by management meets the requirements as set out in the policy. They Nature of Risk Description Mitigation Measures review the work of the internal auditor and advice the Low return on Risk of non- a. Regularly monitor Board based on the findings of the internal audit. They investments attainment of target changes on macro- also monitor opportunities arising from these risks for returns mainly due economic environment consideration. to challenges in the b. Monitoring and macro economic evaluation of Fund environment Managers performance c) Internal Auditor Unsuccessful real Non- adherence to a. Comprehensive The Board has appointed an independent internal auditor estate projects agreed timelines, feasibility studies to review the effectiveness and efficiency of the risk quality and budget and risk analysis management processes. The internal audit report is for all projects presented to the Risk & Audit committee for review and b. Proper planning and implementation. budgeting including budget reviews c. Conducting proper d) Management Team due diligence before The Management team’s role is to implement the risk engaging third parties management framework established by the Board of d. Insurance covers Trustees. It develops a risk register which identifies to cushion the the various risks, their root causes, mitigating factors, Fund against impacts and as well as their owners. The register also unforeseen events identifies opportunities arising from these risks which Data security This is unauthorized a. Robust system are further analyzed and recommended to the Board for and integrity access to data security against consideration. and information unauthorized access contained in systems and cyber attacks that impacts the b. User training and RISK IDENTIFICATION AND ASSESSMENT integrity of the data awareness The Fund has put in place a system of identifying risks that can c. Non- disclosure hinder the attainment of set objectives. The risks are assessed agreements with service providers both quantitatively and qualitatively, measured and mapped Annual Report & Financial Statements | 2019 31
STATEMENT OF CORPORATE GOVERNANCE
STATEMENT OF CONFLICT OF INTEREST SUCCESSION PLANNING The Board is conscious of its responsibilities to members, Succession planning encompasses an ongoing process of service providers, employees and the community, and as such at systematically identifying, assessing and developing talent the beginning of every meeting, the Trustees sign a declaration to ensure continuity in specific positions within the Fund. It of conflict of interest which indicates that they do not have any incorporates a comprehensive framework designed to prepare interest in the agendas to be discussed in the meeting. the Board and staff to take over positions or responsibilities and fill vacancies that may occur. This is to ensure a smooth CODE OF CONDUCT transition and continuity. The Board of Trustees observe rules and regulations governing the Conduct of Trustees as contained in the Board manual. Each The term of office for Trustees Johnstone Sakwa and Zilpa Ayara, Trustee is bound by the overriding fiduciary duty to act in good representing the middle management and gender respectively, faith in the pursuit of the best interests of members of the Fund. expired on 23rd July 2019. Elections for the middle management The Trustees derive their authority and position from a legitimate representative Trustee to be held early 2020 after the Board nomination procedure and operates within the framework of a approved a recommendation for staggering of terms in order to collective Board. ensure that Trustees do not leave office at the same time.
STAKEHOLDERS’ ENGAGEMENT GOING CONCERN The Fund is committed to maintaining mutually beneficial The Board confirms the financial statements are prepared on a engagements with all stakeholders achieved through going concern basis. The Trustees are satisfied that the Fund has consultation, involvement, collaboration and empowerment as adequate resources to continue in business for the foreseeable maybe appropriate. future.
The Board has developed a stakeholder’s engagement policy. The In preparing the financial statements, the Board is responsible policy identifies the key stakeholders, their interests, information for assessing the Fund’s ability to continue as a going concern, disclosure and frequency, key strategic priorities for improving disclosing, as applicable, matters relating to going concern and stakeholder relationships and conflict management. This is done using the going concern basis of accounting unless the Board through quarterly newsletters, annual audited accounts, Annual either intend to liquidate the Scheme or to cease operations. General Meeting, customer service events among others.
COMMUNICATION TO MEMBERS The Fund has adopted different channels of communication such as member education seminars, annual general meetings, customer service help desks, newsletters, periodic submission of reports and publishing of all relevant information on the Fund’s website.
A feedback mechanism has been established where members provide their complaints and suggestions regarding provision of the Fund services. Such feedback is reviewed, and corrective action is taken. 32 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CORPORATE GOVERNANCE
CORPORATE SOCIAL RESPONSIBILITY sustainable health system, capable of efficiently delivering and managing health care services, is vital to improving the The Fund continues to express its commitment to corporate health status of Kenyans. It is evident that burns are one of the social responsibility. We believe that the success, strength and economic burdens that costs Kenya millions of shillings in annual sustainability of our operations anchors on the ability to bring hospitalization costs. Additionally, statistics are overwhelming together the needs of the business and that of the society. In this with over 180,000 burns reported annually, 40% being children regard, the Fund is obligated to contribute towards societal and from poor families across the country. In the recent years, the economic development, as well as behave ethically to improve Fund has recognized this as a problem and provided support the quality of life in the communities and the society at large. In through creating awareness. In the year under review, the Fund the year under review, the fund conveyed its social responsibility participated in the burns awareness week. Apart from being the through health and environment sector. golden sponsor of the event, we also sensitized the public on fire safety and some of the actions to take in the event of fire. The Fund has in place a Corporate Social Responsibility Policy The fund also donated health equipment which included beds, which guides the operations. It has also set a committee which mattress to Burns Unit at Kenyatta National Hospital. Also, the oversees the execution of the policy. Fund supported fire burns victim who had undergone corrective HEALTH surgery. Strengthening the health system in Kenya is at the core of the government’s reform agenda. A strong, well-functioning and
Secretariat staff participating in the Burns Donation of hospital beds by the Secretariat staff to the Awareness Walk Kenyatta National Hospital Burns Unit
ENVIRONMENTAL POLICY Similarly, the organization has adopted green technology to ensure efficient utilization of natural resources, such as water Kenya Power Pension Fund recognizes that environmental and energy. degradation and climate change is a serious global problem. As an organization, we are committed to minimizing our impact on the environment and climate. To meet this goal, we not only SUSTAINABLE WATER USAGE adhere to laid down environmental principles and regulations, Hydrological variability of water’s distribution and climate but also ensure that every activity carried out by the Fund changes are natural driving forces that, when combined with the supports the same. To this effect, apart from creating a safe and pressures from economic growth and major population change, healthy workplace to its personnel, the Fund provides bespoke make the sustainable development of our water resources a environmental training and guidance to our employees. challenge. Annual Report & Financial Statements | 2019 33
STATEMENT OF CORPORATE GOVERNANCE
Despite the current water crisis, there could be enough water Environmental Protection Agency’s Water Sense program, to meet the world’s growing needs, but only if there is a global a low-flow faucet that reduces water flow about 30% can step to change the way this vital resource is used, managed, save a home 700 gallons of water a year. Therefore, the and shared. Fund installs low-flow fittings and taps to conserve water in our offices and its developments. Kenya Power Pension Fund is firmly committed to sustainable water management, along with embedding ethical business ENERGY USAGE practices and policies within the sector. To this end, the Fund Improving energy efficiency is a valuable near-term step along has continuously adopted the following sustainable water the road to sustainability. It can deliver increased productivity, a strategies: reduction in pollution, lower consumption of natural resources, and improved financial performance - all this without affecting a. Recycling and re-using water; Water re-use represents a the benefits that are derived from energy use. To this effect, the major opportunity to support our nation’s communities and Fund has adopted strategies to reduce the cost of energy. economy by bolstering safe and reliable water supplies These strategies include: for human consumption, agriculture, business, industry, recreation, and healthy ecosystems. To this effect, the Fund • The use of solar panels for lighting common areas and ensures that its projects are developed with drainage and heating water in our projects. Solar panels are cheaper wastewater treatment plants to recycle waste and use the to maintain, thus reducing the cost of electricity incurred water for ground maintenance. Additionally, the plants by the Fund keep the waste material under control and handles various diseases that may arise, air and water pollution. b. Rainwater harvesting system; to ensure that rainwater • Use of free natural light; The Fund installs sensors and running off land surfaces is harvested, stored, and utilized, lighting control systems in workspaces with many lights the fund ensures that all its projects are fitted with that are occupied occasionally, to reduce energy waste underground tanks. Though not consumable, the harvested by only lighting areas when they are in use. Similarly, water is used in general cleaning of the common areas and efficiency measures such as turning off equipment maintaining the gardens. Aside from being an alternative and lights that are not in use, switching to compact source of water, water harvesting reduces water bills and fluorescent bulbs, and using more fuel-efficient vehicles helps in maintaining serene gardens in our projects. are implemented. c. Water conservancy sanitary fittings and taps; The average faucet runs 2.2 gallons per minute, while low-flow models run 1.5 gallons per minute. According to the U.S.
Bogani Park housing project uses solar panels which produce renewable clean power 34 Kenya Power Pension Fund | Defined Contributions
STATUTORY INFORMATION Annual Report & Financial Statements | 2019 35
REPORT OF THE BOARD OF TRUSTEES FOR THE YEAR ENDED 31 DECEMBER 2019
BACKGROUND BOARD OF TRUSTEES The Kenya Power & Lighting Company Limited Staff Retirement The Trustees of the Scheme who held office during the year are Benefits Scheme 2006 – Defined Contributions Trustees are listed on page 3. pleased to submit their annual report together with the audited financial statement for the year ended 31 December, 2019in AUDITOR accordance with section 34 of the Kenyan Retirement Benefits Ernst and Young LLP having expressed their willingness, will Act. continue to be in office in accordance with Section 34(3) of the Retirements Benefits Act and subject to Rule No. 19 (a) (iv) of the PRINCIPAL ACTIVITIES Scheme’s Trust Deed and Rules. The principal activities of the Scheme are provision of cash benefits and pensions to the members upon attainment of the FINANCIAL STATEMENTS retirement age of sixty years, and where applicable, benefits The audited financial statements were approved and authorized for dependants of deceased members. This is achieved through by the Board of Trustees on 27 March 2020. prudent funds investment.
FINANCIAL REVIEW The statements of changes in net assets available for benefits shows an increase in the net assets of the scheme for the year of KShs. 2,375,954,486 (2018: increase of KShs 782,865,940) and the statement of net assets available for benefits shows the scheme’s total net assets of KShs. 16,576,190,426 (2018: KShs. 14,200,235,940). 36 Kenya Power Pension Fund | Defined Contributions
REPORT OF THE BOARD OF TRUSTEES FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
The Kenyan Retirement Benefits Act requires the Trustees to prepare financial statements for each financial year which show a true and fair view of the financial transactions of the Scheme for the year and of disposition at year end of its assets and liabilities. It also requires the Trustees to ensure that the Scheme keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Scheme. They are also responsible for safeguarding the assets of the Scheme.
The Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Retirement Benefits Act, and for such internal control as Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. They are also obligated to send to the members a summary of its audited financial accounts together with the members’ benefit statements.
The Trustees accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and the Scheme’s rules. The Trustees are of the opinion that the financial statements give a true and fair view of the financial affairs of the Scheme and of its operating results. The Trustees further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.
The Trustees certify that, to their best knowledge and belief, the information furnished to the auditor for the purpose of the audit was correct and complete in every respect.
Nothing has come to the attention of the Trustees to indicate that the Scheme will not be able to meet its obligations for at least the next twelve months from the date of this statement and the requirements of Kenyan Retirement Benefits Act.
…………………………… ……..……………………….. …………………………………. Ernest Nadome Kosgei Kolil Edwin Ruttoh Chairman Trustee Secretary
27 March 2020 Annual Report & Financial Statements | 2019 37
INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 31 DECEMBER 2019
OPINION In preparing the financial statements, the trustees are We have audited the accompanying financial statements of responsible for assessing the Scheme’s ability to continue as Kenya Power and Lighting Company Limited Staff Retirement a going concern, disclosing, as applicable, matters related to Benefits Scheme 2006 - Defined Contributions (“the Scheme”) going concern and using the going concern basis of accounting set out on pages 39 to 82, which comprise the statement of unless trustees either intends to liquidate the Scheme or to net assets available for benefits as at 31 December 2019, and cease operations, or has no realistic alternative but to do so. the statement of changes in net assets available for benefits, statement of changes in members’ funds and statement of THE TRUSTEES ARE RESPONSIBLE FOR cash flows for the year then ended, and notes to the financial OVERSEEING THE SCHEME’S FINANCIAL statements, including a summary of significant accounting REPORTING PROCESS. policies. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from In our opinion, the financial statements present fairly, in all material misstatement, whether due to fraud or error, and to material respects, the financial position of Kenya Power and issue an auditor’s report that includes our opinion. Reasonable Lighting Company Limited Staff Retirement Benefits Scheme assurance is a high level of assurance, but is not a guarantee 2006 - Defined Contributions as at 31 December 2019, and its that an audit conducted in accordance with International financial performance and its cash flows for the year then ended Standards on Auditing (ISAs) will always detect a material in accordance with International Financial Reporting Standards misstatement when it exists. Misstatements can arise from and the requirements of Kenyan Retirement Benefits Act. fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence BASIS FOR OPINION the economic decisions of users taken on the basis of these We conducted our audit in accordance with International financial statements. Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities As part of an audit in accordance with ISAs, we exercise for the Audit of the Financial Statements section of our report. professional judgment and maintain professional skepticism We are independent of the Scheme in accordance with the throughout the audit. We also: International Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are Identify and assess the risks of material misstatement of the relevant to our audit of the financial statements in Kenya and financial statements, whether due to fraud or error, design and we have fulfilled our other ethical responsibilities in accordance perform audit procedures responsive to those risks, and obtain with IESBA Code. We believe that the audit evidence we have audit evidence that is sufficient and appropriate to provide a basis obtained is sufficient and appropriate to provide a basis for our for our opinion. The risk of not detecting a material misstatement opinion. resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, RESPONSIBILITIES OF TRUSTEES FOR THE misrepresentations, or the override of internal control. FINANCIAL STATEMENTS The Trustees are responsible for the preparation and fair Obtain an understanding of internal control relevant to the audit presentation of these financial statements in accordance in order to design audit procedures that are appropriate in the with International Financial Reporting Standards and the circumstances, but not for the purpose of expressing an opinion requirements of the Kenyan Retirement Benefits Act and for on the effectiveness of the Scheme’s internal control. such internal controls as trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 38 Kenya Power Pension Fund | Defined Contributions
INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Evaluate the appropriateness of accounting policies used and the We communicate with those charged with governance reasonableness of accounting estimates and related disclosures regarding, among other matters, the planned scope and timing of made by management. the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Conclude on the appropriateness of the trustee’s use of the going concern basis of accounting and, based on the audit evidence We also provide the directors with a statement that we obtained, whether a material uncertainty exists related to events have complied with relevant ethical requirements regarding or conditions that may cast significant doubt on the Scheme’s independence, and to communicate with them all relationships ability to continue as a going concern. If we conclude that a and other matters that may reasonably be thought to bear on our material uncertainty exists, we are required to draw attention independence, and where applicable, related safeguards. in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify The engagement partner responsible for the audit resulting our opinion. Our conclusions are based on the audit evidence in this independent auditor’s report is CPA Herbert C Wasike- obtained up to the date of our auditor’s report. However, future Practicing Certificate Number 1485 events or conditions may cause the Scheme to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Nairobi 31/3/2020 Annual Report & Financial Statements | 2019 39
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED 31 DECEMBER 2019
CONTRIBUTIONS AND BENEFITS Notes 2019 2018 KShs ‘000 KShs ‘000
Contributions received Normal contribution 4 1,265,357 1,225,214 Excess contribution/taxable contribution 4 251,413 223,065
Total contributions 1,516,770 1,448,279
Benefits payable 5 (1,003,922) (757,511)
Net surplus from dealing with members 512,848 690,768
RETURNS ON INVESTMENTS
Term deposits with financial institutions 6 (i) 31,556 22,075 Government securities at fair value through profit and loss 6 (ii) 612,989 559,790 Government securities at amortised cost 6 (iii) 51,780 40,447 Quoted equity investments at fair value through profit and loss 6 (iv) 1,175,302 (556,217) Corporate bonds at fair value through profit or loss 6 (v) 57,371 78,332 Gain on sale of inventory property 6(vi) 45,940 68,616 Unquoted investment at fair value through profit or loss 6(vii) 18,683 63,290 Offshore investments at fair value through profit or loss 6(viii) 43,978 (26,997) Expected credit loss write back/(expense) - term deposits 6 (ix) 2,189 (1,895) Expected credit loss expense - property receivables 6 (x) (482) (3,715)
Investment income 2,039,306 243,726
Investment management expenses 7 (47,177) (30,078)
Net returns on investments 1,992,129 213,648
Other income 8 10,477 -
ADMINISTRATION EXPENSES 9 (123,165) (110,725)
INCREASE IN NET ASSETS FOR THE YEAR BEFORE TAXATION 2,392,289 793,691
TAXATION CHARGE 13 (16,336) (10,825)
INCREASE IN NET ASSETS FOR THE YEAR 2,375,953 782,866 40 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AS AT 31 DECEMBER 2019
2019 2018 Notes KShs ‘000 KShs ‘000
ASSETS INVESTMENTS Property Inventory 14 2,769,650 2,984,331 Property inventory – work-in-progress 14 760,300 759,830 Government securities at fair value through profit and loss 14 5,821,070 4,230,883 Government securities at amortised cost 14 841,531 550,409 Unquoted equities at fair value through profit or loss 14 548,981 491,044 Quoted equities at fair value through profit and loss 14 3,795,420 3,068,867 Corporate bonds at fair value through profit or loss 14 244,244 550,605 Offshore equity investments at fair value through profit or loss 14 215,538 243,003 Term deposits with financial institutions 14 656,966 399,133
15,653,700 13,278,105
CURRENT ASSETS Receivables 25 973,356 795,234 Tax recoverable 28 - 2,788 Amounts due from related parties 26 - 61,150 Bank and cash balances 23 138,513 130,726
1,111,869 989,898
TOTAL ASSETS 16,765,569 14,268,003
LIABILITIES CURRENT LIABILITIES Amounts due to related parties 26 62,581 - Benefits payable 27 58,017 25,877 Other payables and accruals 29 62,732 41,890 Tax payable 28 6,050 -
TOTAL LIABILITIES 189,380 67,767
NET ASSETS AVAILABLE FOR BENEFITS 30 16,576,189 14,200,236
REPRESENTED BY MEMBERS FUNDS: SCHEME BALANCE 16,576,189 14,200,236
The financial statements were approved by the Board of Trustees on 27 March 2020 and were signed on its behalf by:
…………………………… ………………………..… …………………… Ernest Nadome Kosgei Kolil Edwin Ruttoh Chairman Trustee Secretary Annual Report & Financial Statements | 2019 41
STATEMENT OF CHANGES IN MEMBERS’ FUNDS AVAILABLE FOR BENEFITS AS AT 31 DECEMBER 2019
2019 2018 KShs ‘000 KShs ‘000
At 1 January 14,200,236 13,418,794 Adjustment on change of accounting policy - (1,424)
Restated 14,200,236 13,417,370 Increase in net assets for the year 2,375,953 782,866
16,576,189 14,200,236
42 Kenya Power Pension Fund | Defined Contributions
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Notes KShs ‘000 KShs ‘000
Increase in net assets for the year 2,392,289 793,691 Adjustment for: Fair value gain on government securities at fair value through profit or loss 6 (ii) (22,320) (105,072) Gain/(loss) on disposal of government securities at fair value through profit or loss 6 (ii) (42,226) 8,262 Gain on disposal of government securities at amortised cost 6 (iii) (51,780) (40,447) (Gain)/loss on disposal of quoted equities at fair value through profit or loss 6 (iv) (27,922) 1,320 Fair value (gain)/loss on equity investment at fair value through profit or loss 6 (iv) (926,928) 707,165 Loss/(gain) on disposal of corporate bonds at fair value through profit or loss 6 (v) 10,723 (15,205) Fair value (gain)/loss on corporate bonds at fair value through profit or loss 6 (v) (37) 19,511 Gain on disposal of inventory property 6 (vi) (56,269) (76,787) Fair value loss/(gain) on unquoted investments at fair value through profit or loss 6 (vii) 16,728 (37,842) Fair value loss/(gain) on offshore at fair value through profit or loss 6 (viii) (47,931) 26,997 Gain or loss on disposal of offshore at fair value through profit or loss 6 (viii) 3,953 - Expected credit loss allowance - term deposits 6 (ix) (2,189) 1,895 Expected credit loss allowance - property receivables 6 (x) 482 3,715
Operating surplus before working capital changes 1,246,573 1,287,203 Increase inventory property sales receivable 25(a) (178,604) (236,049) Increase in amounts due from related parties 26 61,150 (59,843) (Decrease)/Increase in amounts due to related parties 26 62,581 (8,849) Decrease in benefits payable 27 32,140 (32,951) Increase in payables and accruals 29 20,842 (5,553)
Cash flows used in operations 1,244,682 943,958
Tax paid 28 (7,498) (15,352)
Net cash generated from operating activities 1,237,184 928,606
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of inventory properties – work-in -progress 14 (470) (9,830) Purchase of inventory properties 14 - (244,154) Proceeds from sale of Inventory property 6 270,950 574,406 Purchase of government securities at fair value through profit or loss 14 (1,819,141) (1,357,285) Proceeds from sales of government securities at fair value through profit or loss 14 293,500 1,762,095 Purchase of government securities at amortised cost 14 (847,167) (783,940) Proceed from sale of government securities at amortised cost 14 607,825 777,445 Purchase of quoted equity investments at fair value through profit or loss 14 (150,499) (1,386,726) Proceeds from sale of quoted equity investment at fair value through profit or loss 14 378,796 325,728 Purchase of unquoted equity investments 14 (75,115) (60,238) Proceeds from sale of unquoted equity investment 14 450 - Purchase of offshore investment at fair value through profit or loss 14 71,443 (270,000) Proceeds from corporate bonds at fair value through profit or loss 14 295,675 113,595
Net cash used in investing activities (973,753) (558,904)
INCREASE IN CASH AND CASH EQUIVALENTS 265,620 367,513
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 24 529,859 162,346
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 24 795,479 529,859 Annual Report & Financial Statements | 2019 43
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019
REPORTING ENTITY The Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme 2006 (Defined Contributions) was established by The Kenya Power and Lighting Company Limited (the sponsor) under irrevocable trust as a scheme for the purpose of providing pension and other benefits to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for the defendants of deceased members. The scheme is registered by the Kenya Retirement Benefits Authority, and is domiciled in Kenya. The address of its registered office is as follows:
Retirement Benefits Scheme Trustees Stima Plaza Annex Kolobot Road, Parklands P.O. Box 1548-00600 Nairobi
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation of financial statements The principal accounting policies adopted in the preparation of the financial statements are set out below and as described under section 34 (2) of the Kenyan Retirement Benefits Act. These policies have been consistently applied over the periods presented unless otherwise stated:
(i) Basis of preparation The financial statements are presented in Kenya Shillings and rounded off to the nearest thousand (KShs ‘000), and are prepared under the historical cost convention except for measurement at fair value of certain investments.
(ii) Statement of compliance The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) and interpretations of those Standards and the Retirement Benefits Act.
(b) New and amended standards and interpretations The scheme applied IFRIC 23 as detailed below for the first time, however there was no effect or changes as a result of the adoption.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
The scheme determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
44 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
The scheme applies significant judgement in identifying uncertainties over income tax treatments. Since the scheme operates in a simple environment, it assessed whether the Interpretation had an impact on its financial statements.
Upon adoption of the Interpretation, the scheme considered whether it has any uncertain tax positions, particularly those relating to income tax. The scheme’s tax filings include income tax filings and the taxation authorities may challenge those income tax treatments. The scheme determined, based on its tax compliance, that it is probable that its tax treatments will be accepted by the taxation authorities. The Interpretation did not have an impact on the financial statements of the scheme.
Several other amendments and interpretations apply for the first time in 2019 as highlighted below, but do not have an impact on the financial statements of the scheme.
Standards issued but not yet effective Effective for accounting period beginning on or after IFRS 16 Leases 1 January 2019 Amendments to IFRS 9: Prepayment Features 1 January 2019 with Negative Compensation Amendments to IAS 28: Long-term Interests 1 January 2019 in Associates and Joint Ventures Amendments to IAS 19: Plan Amendment, 1 January 2019 Curtailment or Settlement Annual Improvements 2015-2017 Cycle 1 January 2019 • IFRS 3 Business Combinations • IFRS 11 Joint Arrangements • IAS 12 Income Taxes • IAS 23 Borrowing Costs
Standards issued but not yet effective The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Scheme’s financial statements are disclosed below. The Scheme intends to adopt these standards, if applicable, when they become effective.
Effective for accounting period beginning on or after Amendments to IFRS 3: Definition of a Business 1 January 2020 Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020 IFRS 17 Insurance contracts 1 January 2023 Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets Effective date deferred indefinitely between an Investor and its Associate or indefinitely Joint Venture
(c) Revenue recognition
The Scheme’s revenue is generated from monthly contributions from members, rental and licence income from investment properties, interest, discounts and rebates from government securities, interest on term deposits, interest on corporate bonds and dividends from quoted and unquoted equities. Annual Report & Financial Statements | 2019 45
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Revenue represents the fair value of consideration received or receivable in the course of the Scheme’s activities. It is recognised when it is probable that future economic benefits will flow to the Scheme and the amount of revenue can be measured reliably. It is stated net of value added tax, rebates and trade discounts.
Investment income Interest income is recognised in the changes in net assets available for benefit as it accrues and is calculated by using the effective interest rate method. Investment income also includes dividend income which is recognised when the right to receive the payment is established. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of changes in net assets available for benefits, except for contingent rental income which is recognised when it arises (where applicable). Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.
Licence income - Service charges, management charges and other expenses recoverable from tenants. Income arising from expenses recharged to tenants is recognised in the period in which the compensation
Dividends are recognised when the Scheme’s right to receive the payment is established
Sale of completed properties A property is regarded as sold when the significant risks and returns have been transferred to the buyer, which is normally on unconditional exchange of contracts. For conditional exchanges, sales are recognised only when all the significantconditions are satisfied.
Realised / unrealized gains and losses Realized / unrealized gains and losses recorded in the changes in net assets available for benefits on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortized cost and are recorded on occurrence of the sale transaction.
(d) Benefits payable Benefits payable are accounted for in the period in which they fall due.
(e) Investment properties Investment property is property held to earn rentals or for capital appreciation or both. Investment property, including interest in leasehold land, is initially recognised at cost including the transaction costs. Subsequently, investment property is carried at fair value representing the open market value at the reporting date determined by annual valuations carried out by external registered Valuers/ directors. Gains or losses arising from changes in the fair value are included in determining the profit or loss for the year to which they relate.
The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property.
Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. 46 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
When the Scheme can reliably determine the fair value of a self-constructed investment property under construction or development, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the increase in net assets.
The difference between the carrying value and the fair value of the properties at the date of reclassification from inventory properties to investment properties is recognised in the increase in net assets.
Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is charged or credited to the changes in net assets available for benefit.
Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Scheme’s accounts for such property in accordance with the policy stated under property and equipment up to the date of the change in use.
(f) Inventory properties Property acquired or being constructed for sale in the ordinary course of business, rather than to be held for rental or capital appreciation, is held as inventory property and is measured at the lower of cost and net realisable value (NRV).
Cost includes: • Freehold and leasehold rights for land • Amounts paid to contractors for construction
Non-refundable commissions paid to sales or marketing agents on the sale of real estate units are expensed when incurred. NRV is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date and discounted for the time value of money if material, less estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventory property recognised in statement of changes in net assets available for benefits on disposal is determined with reference to the specific costs incurred on the property sold and an allocation of any non-specific costs based on the relative size of the property sold.
(g) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Scheme’s business model for managing them. The Scheme initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Annual Report & Financial Statements | 2019 47
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Scheme’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the company commits to purchase or sell the asset.
For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost (debt instruments) • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments) This category is the most relevant to the Scheme. The Scheme measures financial assets at amortised cost if both of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows And • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Schemes financial assets at amortised cost includes government securities, term deposits with financial institutions, cash and bank balances, receivables and amounts due from related parties.
Financial assets at fair value through OCI (Debt instruments) The Scheme measures debt instruments at fair value through OCI if both of the following conditions are met: • The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling And • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely paymentsof principal and interest on the principal amount outstanding 48 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Scheme does not have any financial assets classified as debt instruments at fair value through OCI.
Financial assets designated at fair value through OCI (Equity instruments) Upon initial recognition, the Scheme can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of changes in net assets available for benefits when the right of payment has been established, except when the Scheme benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Scheme does not have any financial assets classified as equity instruments at fair value through OCI.
Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of net assets available for benefit at fair value with net changes in fair value recognized in the statement of changes in net assets available for benefits.
The Scheme has designated government securities, quoted equity investments, corporate bonds and unquoted equity investments under this category.
Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a company of similar financial assets) is primarily derecognised (i.e., removed from the Scheme’s statement of net assets available for member’s benefit) when:
• The rights to receive cash flows from the asset have expired Or • The Scheme has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Annual Report & Financial Statements | 2019 49
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
company has transferred substantially all the risks and rewards of the asset, or (b) the company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Scheme has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the company continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Scheme also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Scheme has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the company could be required to repay.
Impairment of financial assets For receivables and bank balances, the Scheme applies a simplified approach in calculating ECLs. Therefore, the Scheme does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Scheme has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors, banks and the economic environment.
The Scheme considers a financial asset to be in default when internal or external information indicates that the Scheme is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Scheme. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
The company has recognised expected credit losses on the receivables it is holding
Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Scheme’s financial liabilities amount due to related parties and other payables.
Subsequent measurement The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Scheme that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. 50 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Gains or losses on liabilities held for trading are recognised in the statement of changes in net assets available for benefits.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.
The company has not designated any financial liability as at fair value through profit or loss.
Loans and borrowings This is the category most relevant to the Scheme. After initial recognition, amount due to related parties and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs profit or loss. This category generally applies to interest-bearing loans and borrowings.
Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(h) Capital management The Scheme does not hold any capital. Each member has an account where contributions and investment returns are credited. When members withdraw benefits are paid out from this account.
(i) The Scheme’s funding policy When deciding on the Scheme’s funding policy, the Scheme performed illustrative projections for new entrants assumed to join at different ages. A real return of 3% per annum (above inflation), salary increases in line with inflation of 7% per annum and a contribution rate of 15% of Salary is assumed. There is also an assumption that the new entrants will remain in the Scheme to retirement age. The results of the analysis revealed that: Members joining the Scheme at the age of 25 years are expected to achieve a net realisable ration (NRR) above 60% if they contribute above 15.0% of Salary. This is explained by the fact that more contributions are expected from these group of members and the period of investment is also longer.
Members joining at ages older than 25 years have expected NRR of below 60%. This observation is as a result of the fewer expected contributions as well as the shorter period of investment of the contributions. Annual Report & Financial Statements | 2019 51
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
The Scheme also note that members approaching near retirement age are expected to have very low NRR. This will be due to a variety of factors:
• Members opting to preserve their withdrawal benefits outside the Scheme when they change employment. Most of the members who were members of the DB Fund will have most of their service and benefits under the DB Fund rather than the Scheme. The benefits accrued in the DB Fund have not been considered in this analysis. • The Scheme was established in 2006 and therefore the maximum period of service a member could have accrued under the Scheme is approximately 10 years as at the date of this report. For those members who are retiring in the next 10 years, the total service under the Scheme would be 20 years or less. • Therefore, members who are retiring in the next 10 or so years only have a portion of the employment career catered for under the Scheme. Assuming a full working life of 40 years, the Scheme only represents 50% or less of the member’s retirement saving period.
The projected NRR could be increased by one of the following;
• Achieving greater investment returns in relation to inflation and salary growth. • Increasing the contribution level. This could either be done by increasing the contribution rates (members and if viable the Founder contribution rate). The Founder could consider introducing a matching structure, where above a certain amount the Founder matches additional Member contributions with some limits applying. Alternatively, a rigorous Member education could be undertaken to encourage members to subscribe to AVCs. • Increasing working lifetimes. This could be done by increasing the NRA of the Scheme to say 65 years. The Founder would need to be consulted on this to ensure this does not contradict any human resource planning and policies in place. Educating members on ensuring they preserve their benefits to retirement rather than accessing them on terminating employment. This could be done as part of the rigorous member education. Further educating members on the choices available at retirement including cash lump sum, type of annuity etc.
The Scheme’s Strategic and Occupational Strengthening Plan for 2016 – 2020 notes that Kenya Power & Lighting Company is considering increasing contributions to the Scheme by doubling or increasing matching contributions made by the Members. Further, we also note the Scheme’s target of achieving annual portfolio returns of at least 15.0% or the weighted composite index. If achieved, the two would have a positive effect on the Members’ NRRs.
(j) Taxation
Current income tax Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Kenyan Income Tax Act. Income tax expense is the aggregate amount charged/ (credited) in respect of current tax and deferred tax in determining the profit or loss for the year. Current income tax assets or liabilities are based on the amount of tax expected to be paid or recovered in respect of the taxation authorities in the future. Tax is recognised in the statement of changes in net assets available for benefit except when it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income, or to items recognised directly in equity, in which case it is also recognised directly in equity. 52 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Contributions received by the scheme up to a limit of KShs 20,000 per employee per month are invested in a registered Scheme, which is exempt from taxation. Any amount above this limit is invested in an unregistered Scheme whose investment income is taxed at the corporate tax rate of 30%.
(k) Employee entitlements The estimated monetary liability for employees’ accrued annual leave entitlement at the end of the reporting period is recognised as an expense accrual.
Retirement benefit obligations The Scheme operates a defined contribution scheme for its employees. The assets of the scheme are held in separate trustee administered funds, which are funded from contributions from both the Scheme and employees.
The Scheme also contributes to a statutory defined contribution pension scheme, the National Social Security Fund (NSSF). Contributions to this scheme are determined by local statute and are currently at KShs 200 per employee per month.
The Scheme’s contributions to the defined contribution scheme and NSSF are charged to changes in net assets available for benefits as they fall due.
Bonus An accrual is recognised for the amount expected to be paid under short-term cash bonus if the Scheme has a present legal and constructive obligation to pay this amount as a result of past service provided by the employee, the obligation can be estimated reliably and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
(l) Impairment of non-financial assets The Scheme assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Scheme estimates the asset’s recoverable amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Impairment losses of continuing operations are recognised in the changes in net assets available for benefits in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Scheme makes an estimate of recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Annual Report & Financial Statements | 2019 53
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Such reversal is recognised in changes in net assets available for benefit to the amount of an impairment already taken to profit or loss while the remainder will be a revaluation amount through other comprehensive income.
(m) Fair value measurement The Scheme measures financial instruments such as quoted equity investments at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Scheme. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Scheme uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2-Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable • Level 3-Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Scheme determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
External Valuers are involved for valuation of significant assets, such as property and investment properties. Involvement of external Valuers is decided upon annually by the finance and investment manager after discussion with and approval by the Scheme’s trustee committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosures, the Scheme has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 54 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
(n) Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held with financial institutions, other short-term highly liquid investments and bank overdrafts.
(o) Expenses Expenses are recognised in the statement of changes in net assets available for benefits when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliablyandis independent from transactions with equity participants.
This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).
• When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined expenses are recognised in the statement of changes in net assets available for benefit on the basis of systematic and rational allocation procedures. This is often necessary in recognising the equipment associated with the using up of assets such as property and equipment in such cases the expense is referred to as a depreciation or amortisation. These allocation procedures are intended to recognise expenses in the accounting periods in which theeconomic benefits associated with these items are consumed or expire.
• An expense is recognised immediately in the statement of changes in net assets available for benefit when expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the statement of net assets available for benefit as an asset.
2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In the process of applying the accounting policies adopted by the Scheme, the Trustees make certain judgements and estimates that may affect the carrying values of assets and liabilities in the next financial period. Such judgements and estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The Trustees evaluate these at each financial reporting date to ensure that they are still reasonable under the prevailing circumstances based on the information available.
The preparation of the Scheme’s financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.
Key sources of estimation uncertainty Property lease classification– Scheme as lessor The Scheme has entered into commercial property leases on its investment property portfolio. The Scheme has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases. Annual Report & Financial Statements | 2019 55
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Impairment of non-financial assets At each reporting date, the Scheme reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Impairment exists when the carrying amount of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for coming years and do not include restructuring activities that the Scheme is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested.
In assessing whether there is any indication that the tangible and intangible assets may be impaired, the Scheme considers the following indications:
a. there are observable indications that the asset’s value has declined during the period significantly more than would be expected as a result of the passage of time or normal use. b. significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. c. market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially. d. the carrying amount of the net assets of the entity is more than its market capitalisation. e. evidence is available of obsolescence or physical damage of an asset. f. significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.
Estimation of net realizable value for inventory property Inventory property is stated at the lower of cost and net realizable value (NRV). NRV for completed inventory property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Scheme, based on comparable transactions identified by the Scheme for properties in the same geographical market serving the same real estate segment.
NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, estimated costs to complete construction and an estimate of the time value of money to the date of completion.
Valuation of property The fair value of investment property is determined by real estate valuation experts using recognized valuation techniques and the principles of IFRS 13. 56 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Investment property under construction is measured based on estimates prepared by independent real estate valuation experts, except where such values cannot be reliably determined. In one case, the fair value of the investment property under construction could not be reliably determined because it was in an area in which the surrounding properties were under development and reliable estimates could not be made. This property is recorded at cost.
Income taxes Judgement is required in determining the Scheme’s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Scheme recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.
Fair value measurement of financial instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility.
Receivables Critical estimates are made by the trustees in determining the recoverable amount of receivables.
The provision matrix is initially based on the Scheme’s historical observed default rates. The Scheme will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The company’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Scheme’s receivables and bank balances and term deposits with financial institutions is disclosed in note 1.
3. FINANCIAL RISK MANAGEMENT The scheme generates revenues for the members by investing in various income generating activities which involve trading in the securities and investing in other financial assets including government and other securities and offshore investments. These activities expose the Scheme 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 Scheme’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance. Annual Report & Financial Statements | 2019 57
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Risk management is carried out by the Trustees together with the investment managers under policies approved by the Trustees. The investment managers review the market trends and information available to evaluate the potential exposures. They then arrive at strategies to mitigate against market risks. The Trustees provide guidelines for overall risk management, as well as policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investing excess liquidity. The scheme also follows guidelines issued by the Kenyan Retirements Benefits Authority (RBA) in respect of maximum investment in different types of investments.
(a) Market risk
(i) Foreign exchange risk The scheme is exposed to the risk that the fair value or the future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The scheme invests internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Uganda shilling. Foreign exchange risk arises from investment in offshore investments and quoted shares on the Uganda Stock Exchange (USE).
The scheme currency risk is evaluated as low because the foreign investments are long-term and any currency losses are expected to be recouped through interest income earned and which comprises the value of the Scheme. The scheme manages foreign exchange risk by limiting offshore investments to strategic range of 5% of total portfolio as required by the RBA regulations. The quoted investments in the USE are low risk and form an insignificant part of the total portfolio.
At 31 December 2019, the Scheme had invested KShs 656.9 million (2018: 399.1 million).
(ii) Price risk The scheme is exposed to equity securities price risk because of investments in quoted shares classified at fair value through profit or loss. The scheme is also exposed to the risk that the value of debt securities will fluctuate due to changes in market value. To manage its price risk arising from investments in equity and debt securities, the scheme diversifies its portfolio invested in bonds of varying maturities. Diversification of the portfolio is done in accordance with trust deed.
For equities, the scheme has invested in companies in different sectors of the economy, while for debt securities; the scheme has policy which is reviewed after every three years. All quoted shares held by the scheme are traded on the Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE). 58 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
If the price of securities were to appreciate/depreciate by 5% it would have the following effect (approximately):
2019 2018 KShs ‘000 KShs ‘000
Effect on returns from Investment 5% Appreciation 58,765 (27,811) 5% Appreciation (58,765) 27,811 Effect on Scheme balance 5% Appreciation 189,983 153,443 5% Appreciation (189,983) (153,443)
(iii) Interest rate risk The scheme’s interest bearing assets are investments in treasury bonds, corporate bonds, commercial paper and fixed deposits. All of these instruments are at fixed interest rates. The nature of financial instruments held, that is, fixed interest instruments mitigates risk exposure of the scheme. Fluctuations in interest rates will not have a significant effect on the scheme balance.
(b) Credit risk Credit risk arises from receivables, term deposits with financial institutions, and interest bearing investments, deposits with banks, amounts due from related party and cash and cash equivalents. As part of the credit risk management system, the investment managers and the Trustees monitor and review information on significant investments. The Trustees have approved a larger portfolio investment with the Government of Kenya debt securities which have a low credit risk and no default record. The Scheme has an elaborate vetting process before term deposits are placed with a financial institution. The deposits are also spread to mitigate against concentration risks. The vetting process is continuously reviewed to take into consideration of new developments.
The amount that best represents the scheme’s maximum exposure to credit risk as at reporting period is made up as follows:
2019 2018 KShs ‘000 KShs ‘000
Government securities 6,662,601 4,781,292 Investment in quoted equities 3,795,420 3,068,867 Investment in unquoted equities 548,981 491,044 Term deposits with financial institutions 656,966 399,133 Corporate bonds 244,244 550,605 Offshore investments 215,538 243,003 Due from related party - 61,150 Receivables 973,356 796,364 Bank and cash balances 138,513 130,726
13,235,619 10,522,184 Annual Report & Financial Statements | 2019 59
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
None of the above financial assets are past due or impaired. The Scheme has diversified its investments hence is not exposed to concentration risk.
(c) Liquidity risk The Scheme is required to make periodic payment in respect of pension payments when members retire from the Scheme, and is therefore exposed to the risk of difficulty in raising funds to make such payments. It therefore invests a portion of its assets in investments that are readily convertible to cash. The investment managers monitor the Scheme’s liquidity on a regular basis and the Trustees review it on a quarterly basis.
The Scheme’s primary long – term risk is that its financial assets will fall short of its financial liabilities (promised benefit payable to members). Therefore, the aim of investments risk management is to minimize the risk of overall reduction in the value of the Scheme and to maximize the opportunity for gains across the whole Scheme portfolio. The Scheme achieves this through asset diversification to reduce exposure to market risk (price risk, currency risk and interest risk) and credit risk to an acceptable level. In addition, the Scheme manages liquidity risk to ensure there is sufficient liquidity to meet its forecast cash flows. The Scheme manages this investment risk as per part of its overall pension Scheme risk management program.
The Scheme’s liabilities are all payable within a year. 60 Kenya Power Pension Fund | Defined Contributions Total 62,581 120,748 841,531 656,966 548,981 189,379 3,795,420 KShs ‘000 KShs 13,020,081 12,830,702 138,513 - - - 6,050 548,981 244,244 973,356 6,695,082 6,699,331 5,821,070 3,795,420 KShs ‘000 KShs > 5 Years ------2,890,141 2,890,141 2,350,681 KShs ‘000 KShs - - - 1 to 5 years
- - - - - 49,962 841,531 656,966 3,259,967 3,259,967 2,840,179 KShs ‘000 KShs - - - 3 to 12 months
- - - - - 62,581 174,891 120,748 630,210 158,207 973,053 138,513 189,379 (14,488) KShs ‘000 KShs < 3 months 6,050 - 303 assets liabilities 36,075 The table financialbelow assetsanalyses andthe financialScheme’s liabilities as at the end of the reporting period that will be settled on a net basis. The amounts disclosed in the
Tax payable Tax Other payables and accruals Government securities at fair value through profit or loss Government securities held at amortised cost deposits with financial institutions Term Quoted equity investments Unquoted equity investments Corporate bonds at fair value through profit or loss Receivables Bank and cash balances Due to related parties table below are the undiscounted cash flows. Balances due equal their carrying balances, as the impact of discounting is not significant. The table below summarizes the maturity profile maturity the summarizes below table The significant. not is discounting of impact the as balances, carrying their equal due Balances flows. cash undiscounted the are below table assets and liabilities as at 31 December 2019. of the Scheme’s Financial financial assets Total Financial financial liabilities Total Liquidity gap as at 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D) Annual Report & Financial Statements | 2019 61 Total 2,788 61,150 399,133 491,044 550,409 3,068,867 KShs ‘000 KShs 10,213,072 130,726 10,280,839 67,767 67,767
- 795,234 550,605 484,404 5,544,865 5,544,865 KShs ‘000 KShs 4,230,883 3,068,867 > 5 Years - - -
- - - 6,640 550,605 2,518,034 1,440,989 2,518,034 KShs ‘000 KShs - - - 1 to 5 years
- - - - 399,133 - 550,409 1,962,126 2,511,394 2,023,276 KShs ‘000 KShs - - - 3 to 12 months
- - - - - 2,788 67,767 61,150 67,767 795,234 130,726 278,500 194,664 126,897 KShs ‘000 KShs < 3 months - - - cost assets liabilities
recoverable
Term deposits with financial institutions at Term amortised Quoted equity investments at fair value through profit or loss Receivables Bank and cash balances financial liabilities Total Government securities at fair value through profit or loss Other payables and accruals The table below summarizes the maturity profile of the Scheme’s assets and liabilities as at 31 December 2018 The table below summarizes the maturity profile of Scheme’s Financial financial assets Total Financial Liquidity gap as at 31 December 2018 Government securities at amortised cost Unquoted equity investments at fair value through profit or loss Corporate bonds at fair value through profit or loss Tax Due from related parties NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D) 62 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
(d) Operational risk Operational risk is the prospect of loss resulting from inadequate or failed procedures, systems or policies, employee errors, systems failures, fraud or other criminal activity and has potential to disrupts business processes. The Trustees have put in place policies that ensure the secretariat follow the laid down procedures, competent employees are employed, disciplinary action against any criminal activity and procurement of insurance policies for any loss of assets
(e) Business risk Business risk is the possibility a company will have lower than anticipated return. Business risk is influenced by numerous factors, including inflation, interest rates and the overall economic climate and government regulations. The Trustees have diversified the investment portfolio through investment in the capital markets and alternative investments to reduce the volatility of returns.
4. CONTRIBUTIONS RECEIVED
2019 2018 KShs ‘000 KShs ‘000
Normal contributions: Employer 985,600 944,075 Employees 531,170 504,204 1,516,770 1,448,279
Normal/ registered contributions 1,265,357 1,225,214 Excess/ taxable contributions: 251,413 223,065
1,516,770 1,448,279
5. BENEFITS PAYABLE
Registered 857,651 679,598 Unregistered 146,271 77,913
Total benefits paid 1,003,922 757,511
Each member of the Scheme has an account into which contributions are received and investment interest credited when declared. Benefits payable purely depends on contributions and return on investments. Annual Report & Financial Statements | 2019 63
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
6. RETURN ON INVESTMENT 2019 2018 KShs ‘000 KShs ‘000
i) Interest on term deposits: 31,556 22,075
ii) Government securities -at fair value through profit or loss: Interest on treasury bonds 548,443 462,980 Gain/(loss) on disposal 42,226 (8,262) Fair value gain 22,320 105,072
612,989 559,790
iii) Government securities- at amortised cost - Treasury bills Gain on disposal 51,780 40,447
iv) Quoted equity investments at fair value through profit or loss Fair value gain /(loss) 926,928 (707,165) Gain/(loss) on sale of quoted equity investment 27,922 (1,320) Dividends received 220,452 152,268
1,175,302 (556,217)
v) Corporate bonds at fair value through profit or loss Interest on corporate bonds 68,057 82,638 Loss on disposal (10,723) (15,205) Fair value gain 37 (19,511)
57,371 78,332
vi) Sale of inventory property 270,950 574,406 Less: Inventory property costs (214,681) (497,619)
Gain on sale of investment property 56,269 76,787 Service charge expense (10,329) (8,171)
Net 45,940 68,616
vii) Un-quoted equity investments at fair value through profit or loss Dividends 35,411 25,448 Fair value (loss)/gains (16,728) 37,842
18,683 63,290
viii) Offshore Investments at fair value through profit or loss Fair value gain/(loss) 47,931 (26,997) Loss on disposal (3,953) -
43,978 (26,997)
ix) Expected credit loss allowance-Term deposit 2,189 (1,895)
x) Expected credit loss allowance -property receivable (482) (3,715)
Total 2,039,306 243,726
64 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
7. INVESTMENT MANAGEMENT EXPENSES 2019 2018 KShs ‘000 KShs ‘000
Investment managers’ fees 35,140 18,835 Custodial fees 9,883 9,244 Alternative investment costs 2,154 1,999
47,177 30,078
Investment management expenses include investment managers’ fees, custodial fees and brokerage fees paid by the scheme. Investment managers are paid a fee of 0.18% of the net asset value held by the investment managers and a performance fee of 0.07% of the market value of the portfolio if the performance meets the bench mark. The composite benchmark is derived with reference to the strategic asset allocation as set out in the Investment Policy Statement. Custodians on the other hand are paid a maximum fee of 0.07% of the net asset value. Applicable transaction costs and bank charges are also payable to the custodian. Brokerage fees are part of the cost of purchase and sale of investments at the Nairobi Securities Exchange Limited (NSE), Uganda Securities Exchange (USE) and Rwanda Stock Exchange (RSE).
8. OTHER INCOME 2019 2018 KShs ‘000 KShs ‘000
Bogani licence 10,477 -
9. ADMINISTRATION EXPENSES 2019 2018 KShs ‘000 KShs ‘000
Auditor’s remuneration 3,357 2,726 Professional fees 869 14,069 Actuarial fees 1,344 1,199 Stationery 988 1,068 Bank charges 281 374 Land rates 498 496 Retirement Benefit Authority levy 5,000 5,000 Other expenses 940 770 Corporate social responsibilities 782 2,000 Investments write off expense 4,249 - Secretariat expenses (note 10) 73,286 57,403 Governance expenses (note 11) 25,181 19,067 Members expenses (note 12) 6,390 6,553
123,165 110,725 Annual Report & Financial Statements | 2019 65
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Administrative expenses are incurred by the Scheme secretariat in the course of carrying out its duties which include; benefits processing and administration, accounting, performance measurement and cash management of the Scheme. The net administrative expense to the total Scheme value is 0.70% (2018: 0.78%) which falls within the 1% that is recommended by the Kenyan Retirement Benefits Authority.
10. SECRETARIAT EXPENSES 2019 2018 KShs ‘000 KShs ‘000
Scheme administration 73,286 57,403
These are expenses relating to the scheme administration and management. This is carried out by the secretariat of The Kenya Power and Lighting Company Limited Staff Retirement Benefit Scheme (Defined Benefits) on behalf of the Scheme and were reimbursed during the year.
11. GOVERNANCE EXPENSES 2019 2018 KShs ‘000 KShs ‘000
Trustees’ training 14,893 8,739 Trustees’ allowances 10,288 10,328
25,181 19,067
Governance expenses are incurred by the Trustees to fulfill their mandate as is required of them by the Trust Deed & Rules and by the Retirement Benefits Act. Trustee’s remuneration includes their sitting allowances for meetings attended monthly. The Trustee allowances are short term in nature and the Scheme does not have: post tenure benefits, other long term benefits and termination benefits.
12. MEMBERS EXPENSES 2019 2018 KShs ‘000 KShs ‘000
Annual general meeting costs 2,093 1,816 Members education costs 4,297 4,737
6,390 6,553
Members expense comprise of annual general meeting expenses and cost of sensitizing and educating members about the Scheme and their benefits. 66 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
13. RETURN ON INVESTMENT 2019 KShs ‘000 KShs ‘000 KShs ‘000 Percentage of registered portion 92.01% 7.99% 100% Registered Unregistered Scheme Scheme Total
Investment Income Realised gains on sale of property 42,268 3,672 45,940 Dividends received 202,831 17,621 220,452 Interest on term deposits 29,034 2,522 31,556 Interest on treasury bonds 480,820 41,771 522,591 Commission Income - - - Corporate bond income 62,618 5,440 68,057 Realized gain on equity investment 25,690 2,232 27,922 Realized gain on bonds 79,634 6,918 86,552 Unquoted equity income 32,581 2,830 35,411 Realized gain on Offshore (3,637) (316) (3,953)
951,839 82,690 1,034,528
Deductions Investment expense (43,407) (3,770) (47,177) Administration expenses (112,601) (9,782) (122,383)
(156,008) (13,553) (169,561)
Less dividend income (202,831) (17,622) (220,452) Taxable income 593,000 51,516 644,516 Tax expense on unregistered fund @ 30% 15,455 Tax expense on unregistered fund/Dividend @ 5% 881
Total Tax 16,336
2018 KShs ‘000 KShs ‘000 KShs ‘000 Percentage of registered portion 92.01% 7.99% 100% Registered Unregistered Scheme Scheme Total
Investment Income Realised gains on sale of property 3,434 281 3,715 Dividends received 140,772 11,496 152,268 Interest on term deposits 18,657 1,523 20,180 Interest on treasury bonds 402,201 32,846 435,047 Corporate bond income 76,398 6,239 82,637 Commission Income - - - Realized gain on equity investment (1,220) (100) (1,320) Realized gain on bonds 25,548 2,087 27,635 Unquoted equity income 23,527 1,921 25,448
689,317 56,293 745,610 Deductions: Investment expense (27,807) (2,271) (30,078) Administration expenses (102,365) (8,360) (110,725) (130,172) (10,631) (140,803) Less dividend income (140,772) (11,496) (152,268)
Taxable income 418,373 34,166 452,539 Tax expense on unregistered fund @ 30% 10,250 Tax expense on unregistered fund/Dividend @ 5% 575
Tax charge 10,825 Contributions received by the scheme up to a limit of KShs 20,000 per employee per month are invested in a registered Scheme, which is exempt from taxation. Any amount above this limit is invested in an unregistered Scheme whose investment income is taxed at the corporate tax rate of 30%. Annual Report & Financial Statements | 2019 67 244,244 760,300 841,531 548,981 31.12.19 KShs ‘000 KShs 3,795,420 2,769,650 5,821,070 Value as at 15,653,700 656,966
- - ECL 2,189 2,189 215,538 allowance KShs ‘000 KShs
- 37 market 22,320 984,867 926,928 (16,728) 4,379 Change in KShs ‘000 KShs
- 42,226 51,780 47,931 27,922 133,657 (10,723) 26,405 KShs ‘000 KShs on disposal on Profit/(loss)
- - - - (450) (3,953) 56,269 55,819 to/(from) Transfer - KShs ‘000 KShs
Sales (295,675) (293,500) (270,950) (607,825) (378,796) KShs ‘000 KShs (6,191,840) (4,273,651)
- - 470 75,115 (71,443) 847,167 150,499 7,390,903 KShs ‘000 KShs 4,498,511 1,819,141 Purchases - 550,605 399,133 759,830 550,409 491,044 01.01.19 KShs ‘000 KShs 4,230,883 3,068,867 2,984,331 Value as at 13,278,105
243,003
at the reporting date. The transaction costs are included in The change in market value of investments comprises carrying amount the as a result fair valuation at reporting date. transaction costs are included the cost of purchases and sales proceeds. Other than treasury b ills unquoted equity investments, all other asset class es exceed 5% net assets available for benefits.
14. INVESTMENTS Total NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
Corporate bonds (note 22) deposits with financial Term institutions (note 23) Inventory property work in progress (note 16) Government securities at fair value through profit or loss (note 18) Government securities at amortised cost (note 18) Unquoted equities investments (note 19) Offshore equity investments at fair value through profit or loss (note 19) Quoted equities (note 21) I nventory property (note 16) 68 Kenya Power Pension Fund | Defined Contributions 759,830 491,044 243,003 399,133 31.12.18 KShs ‘000 KShs 2,984,331 4,230,883 3,068,867 Value as at 13,278,105 ------ECL (1,895) (1,895) 550,605 allowance KShs ‘000 KShs ------4,256 20,683 interest Accrued 550,409 KShs ‘000 KShs ------market 37,842 105,072 (26,997) (610,759) (707,165) Change in KShs ‘000 KShs ------16,427 750,000 (19,511) to/(from) Transfer - (750,000) KShs ‘000 KShs ------76,787 (8,262) (1,320) 10,596 117,206 KShs ‘000 KShs on disposal Profit/(loss)
- - - - Sales 24,020 15,205 (574,406) (325,728) KShs ‘000 KShs (5,007,360) (1,762,095) (1,454,092)
- 9,830 60,238 244,154 270,000 (777,445) (113,594) 5,880,238 KShs ‘000 KShs 1,357,285 1,386,725 1,768,066 Purchases
- - - 72,202 750,000 392,964 783,940 01.01.18 KShs ‘000 KShs 3,237,796 4,538,883 2,716,355 Value as at 12,880,172
503,467 668,505 at the The change in market value of investments comprises carrying amount the as a result fair valuation at reporting date. The transaction costs are included in the cost of purchases and sales proceeds.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D) Investment property (note 14) Property inventory (note 15) Total Property inventory work-in-progress ( note 17) Government securities at fair value through profit or loss (note 17) Government securities at amortised cost (note 17) Unquoted equities investments (note 18) Offshore equity investments at fair value through profit or loss (note 20) Quoted equity investments (note 20) Corporate bonds at fair value through profit or loss (note 21) deposits with Term financial institutions (note 22) Annual Report & Financial Statements | 2019 69
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
15. INVESTMENT PROPERTY 2019 2018 KShs ‘000 KShs ‘000
At 1 January - 750,000 Fair value gains - - Transfer to inventory property - (750,000)
At 31 December - -
The inventory property comprises a leasehold land acquired in 2015 under LR No. 2/31/3. The land was not revalued as at 31 December 2018 because it was transferred to inventory property and it had been earmarked for development and the design team had already started preparing designs in 2018. There was no rental income earned from the inventory property during the year. There were no direct operating expenses arising from investment property.
16. PROPERTY INVENTORY 2019 2018 KShs ‘000 KShs ‘000
1 January 2,984,331 3,237,796 Additions - 244,154 Sale of inventory property (214,681) (497,619)
31 December 2,769,650 2,984,331
Inventory property relates to 28 (2018: 32) residential housing units developed in Bogani Park in Nairobi Karen area for sale. The houses were completed during the year 2016. The sale of inventory property relates to 4 units sold during the year (2018: 6 unit). 17. PROPERTY INVENTORY – WORK-IN-PROGRESS 2019 2018 KShs ‘000 KShs ‘000
1 January 759,830 - Transfer from Investment property - 750,000 Additions 470 9,830
31 December 760,300 759,830
18. GOVERNMENT SECURITIES 2019 2018 KShs ‘000 KShs ‘000
At fair value through profit and loss- Treasury bonds 5,821,070 4,230,883 At amortised cost - Treasury bills 841,531 550,409
6,662,601 4,781,292
The weighted average interest rate realized on the investment in treasury bonds during the year was 12.21% (2018:11.83%). 70 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
19. UNQUOTED EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Gulf Ascent Catalyst 2019 UAP Power Rift Valley Fanisi II Principals Total KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
As at 1 January 6,640 312,673 136,217 563 34,951 491,044 Addition* - - 27,385 12,708 35,022 75,115 Reimbursements** - - - (450) (450) Fair value gain(loss) - 8,015 (5,554) (6,075) (13,114) (16,728)
As at 31 December 6,640 320,688 158,048 7,196 56,409 548,981
2018 As at 1 January 7,470 245,688 98,988 7,440 33,378 392,964 Addition* - - 36,074 4,201 29,605 69,880 Reimbursements** - - (9,642) - - (9,642) Fair value gain(loss) (830) 66,985 10,797 (11,078) (28,032) 37,842
As at 31 December 6,640 312,673 136,217 563 34,951 491,044
*Relates to additional investment in Ascent Rift Valley Fund Ltd, Catalyst Fund II L.P. and Fanisi Capital. ** Relates to reimbursement from Catalyst Fund II LP after entry of new investors.
The Scheme together with The KPLC Staff Retirement Benefit Scheme (2016) jointly acquired a 10% interest in the equity shares of Gulf Power Ltd, an independent power producer. Both Schemes have a direct equity stake on a 50:50 ratio.
As at 31 December 2019, the unquoted equity investments were valued as follows;
Gulf Power Limited The investment in Gulf Power Limited was revalued using the discounted cashflow method at a discount rate of 13%.
Ascent Rift Valley Capital, Catalyst Principals and Fanisi Fund II The private equity managers have calculated the fair value by applying the International Private Equity and Venture Capital (IPEV) Valuation Guidelines of December 2019 that represent current best practice on the valuation of private equity and venture capital investments. The fair values of the Fund’s portfolio companies have all been determined using the market approach by applying the median multiples of similar businesses to EBITDA.
UAP Holdings Limited The shares of UAP Holdings are traded over the counter (OTC) amongst the existing shareholders. Thus indicative price of KShs 160 represent the amount that would be received to sell the asset in an orderly transaction amongst the shareholders as the reporting date. Annual Report & Financial Statements | 2019 71
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
20. OFFSHORE EQUITY INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS 2019 2018 KShs ‘000 KShs ‘000
1 January 243,003 - (Sales)/additions (75,396) 270,000 Fair value gain/(loss) 47,931 (26,997)
31 December 215,538 243,003
The Fund sold offshore of USD 743,871 converted at a rate of 101.36. In 2018, the Fund invested a total of USD 2,664,036 converted at rate of 101.35 in Black Rock Developed World Index Sub-Fund and Black Rock Emerging Markets Index Sub-Fund.
21. QUOTED EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
2019 2018 Units ‘000 Value’000 Units ‘000 Value’000 ARM Cement Plc Ord 1.00 - - 766 4,249 Bamburi Cement Ltd Ord 5.00 468 37,432 468 61,997 Bank of Kigali 500 14,162 500 15,849 Absa Bank Kenya 80 1,068 80 876 BRALIRWA 12 184 12 212 British American Tobacco Kenya Ltd 96 47,849 96 69,381 Crystal ventures 1,200 8,978 1,200 7,252 Diamond Trust Bank Kenya Ltd Ord 4.00 - 50 7,825 East African Breweries Ltd Ord 2.00 2,135 423,806 2,185 381,836 Equity Group Holdings Plc Ord 0.50 13,162 704,177 14,432 502,962 KCB Group Ltd Ord 1.00 14,804 799,441 14,976 560,850 KenGen Co. Ltd Ord. 2.50 1,861 10,644 1,861 13,063 KenolKobil Ltd Ord 0.05 - - 4,309 82,077 Kenya Power & Lighting Co Ltd Ord 2.50 12,153 34,149 12,153 49,462 Kenya Re Insurance Corporation Ltd Ord 2.50 - - 657 9,159 Nation Media Group Plc Ord. 2.50 100 3,980 100 6,850 Safaricom PLC Ord 0.05 40,765 1,284,094 43,234 959,795 Standard Chartered Bank Kenya PLC Ord 5.00 215 43,629 215 41,906 The Co-operative Bank of Kenya Ltd Ord 1.00 23,353 381,827 20,507 293,266
110,904 3,795,420 117,801 3,068,867 The Scheme has invested 12,152,754 (2018: 12,152,754) units of the sponsor (Kenya Power & Lighting Company Limited) quoted shares which were valued at KShs 34,149,238 (2018: 49,461,708) as at reporting date. 72 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
22. CORPORATE BONDS AT FAIR VALUE THROUGH PROFIT OR LOSS
INSTITUTION 2019 2018 Kshs ‘000 Kshs ‘000
ABC Bank Bond 12.60% - 20,415 NCBA Bank 12.75% 65,342 65,319 Centum Ltd Notes Fxd 12.50% 92,865 92,833 CFC Stanbic Bank Trn I Fxd 12.95% 16,920 16,926 CIC Insurance PLC 13.00% - 86,154 Consolidated Bank Ltd Fxd 13.25% - 52,930 East African Breweries Ltd Bond 14.17% 33,042 33,030 East African Breweries Ltd 12.25% 36,075 36,100 I&M Fxd T1 12.80% - 15,079 KENGEN Limited 12.50% - 28,357 NCBA Bank Group plc 12.50% - 103,462
TOTAL 244,244 550,605
The weighted average interest rate realized on the corporate bonds during the year was 12.84% (2018: 12.5%). Annual Report & Financial Statements | 2019 73
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
23. TERM DEPOSITS WITH FINANCIAL INSTITUTIONS The weighted average interest rate for the term deposits is 8.8%. The assets have not been pledged.
Maturity Interest 2019 2018 Date Rate KShs ‘000 KShs ‘000
The Co-operative Bank of Kenya Ltd 27-Jan-20 9.5% 18,000 The Co-operative Bank of Kenya Ltd 17-Feb-20 9.5% 40,000 - NCBA Group plc 20-Jan-20 9.0% 40,000 - KCB Group plc 27-Jan-20 9.0% 40,000 - Kenya Commercial Bank Ltd 20-Jan-20 9.0% 40,000 - The Co-operative Bank of Kenya Ltd 17-Feb-20 9.5% 56,000 - The Co-operative Bank of Kenya Ltd 10-Feb-20 8.0% 81,000 - KCB Group plc 20-Jan-20 8.5% 25,000 - The Co-operative Bank of Kenya Ltd 20-Jan-20 8.6% 1,700 - KCB Group plc 27-Jan-20 9.0% 20,000 - Equity Group Holdings plc 27-Jan-20 9.0% 42,000 - The Co-operative Bank of Kenya Ltd 3-Feb-20 9.0% 30,000 - Equity Group Holdings plc 23-Mar-20 9.3% 41,000 - Equity Group Holdings plc 20-Jan-20 8.0% 48,800 - Equity Group Holdings plc 3-Feb-20 8.0% 24,000 - NCBA Group plc On Call 7.0% 38,000 - The Co-operative Bank of Kenya Ltd On Call 7.5% 15,000 - The Co-operative Bank of Kenya Ltd On Call 6.8% 10,500 - The Co-operative Bank of Kenya Ltd On Call 6.5% 500 - Equity Group Holdings plc On Call 6.5% 25,000 - The Co-operative Bank of Kenya Ltd On Call 7.0% 3,000 - NCBA Group plc On Call 6.5% 6,000 - KCB Group plc On call 8.0% - 44,000 The Co-operative Bank of Kenya Ltd On call 8.5% - 40,000 KCB Group plc On call 8.0% - 34,000 KCB Group plc On call 8.0% - 17,000 Stanbic Bank On call 8.2% - 15,000 KCB Group plc On call 8.5% - 20,000 NCBA Bank Group plc On call 8.5% - 18,000 The Co-operative Bank of Kenya Ltd On call 9.0% - 25,000 KCB Group plc On call 9.0% - 25,000 KCB Group plc On call 9.0% - 5,000 Nic Bank On call 9.0% - 20,000 The Co-operative Bank of Kenya Ltd On call 9.3% - 9,000 The Co-operative Bank of Kenya Ltd On call 9.5% - 12,000 Stanbic Bank On call 9.5% - 5,000 NCBA Bank Group plc On call 7.0% - 5,000 The Co-operative Bank of Kenya Ltd On call 7.4% - 10,000 The Co-operative Bank of Kenya Ltd On call 7.8% - 4,000 KCB Group plc On call 8.0% - 4,000 KCB Group plc On call 8.0% - 5,000 KCB Group plc On call 9.3% - 18,000 KCB Group plc On call 10.0% - 30,000 The Co-operative Bank of Kenya Ltd On call 7.0% 7,087 32,066 Accrued Interest 4,379 4,256
Total Demand Deposits 656,966 401,322 Expected credit loss allowance - (2,189)
656,966 399,133 74 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:
24. CASH AND CASH EQUIVALENTS
2019 2018 Face Market Face Market Value Value Value Value KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Bank balances 138,513 138,513 130,726 130,726 Term deposits 645,500 656,966 365,000 399,133
Total 784,013 795,479 495,726 529,859
25. RECEIVABLES
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:
(A) Property Sales Receivables 2019 2018 KShs ‘000 KShs ‘000
Bogani houses sales* 977,450 798,155 Expected credit loss allowance (5,327) (4,845)
972,123 793,310
(B) Other Receivables
Interest receivable 930 744 Contributions receivable** 303 1,180
1,233 1,924
973,356 795,234
Receivables from Bogani houses sales are amounts due from buyers as of reporting date having secured deposits as per respective sale agreements.
Contributions receivable relate to contributions from the Scheme’s sponsors; Kenya Nuclear Electricity Board (KNEB) and Kenya Electricity Transmission Company Ltd (KETRACO). Interest receivable relates interest due from Gulf power Ltd, an unquoted equity investment. Annual Report & Financial Statements | 2019 75
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following at 31 December:
26. RELATED PARTY DISCLOSURES (i) Amount due to related party Amount due to related party relates to reimbursements due to the KPLC Staff Retirement Benefits Scheme - Defined Benefits. 2019 2018 KShs ‘000 KShs ‘000
Amount due to related party 62,581 -
(ii) Amount due from related party Amount due from related party relates to payments made on behalf of the KPLC Staff Retirement Benefits Scheme - Defined Benefits recoverable as of year end. There were no provisions for bad and doubtful debts in relation to related party balances.
2019 2018 KShs ‘000 KShs ‘000
Amount due from related party - 61,150
(iii) Key management compensation Key management includes the board of Trustees who are entitled to a sitting allowance for Board meetings attendance. The Board of Trustees have no post-employment benefits, share based payments, termination benefits or any other long term benefits the short term compensation to key management personnel is shown below.
2019 2018 KShs ‘000 KShs ‘000
Trustees’ allowances 10,288 10,328 76 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
27. BENEFITS PAYABLE 2019 2018 KShs ‘000 KShs ‘000
Withdrawals payable 58,017 25,877
28. TAX PAYABLE/(RECOVERABLE)
At 1 January (2,788) 1,739 Charge for the year (note 12) 16,336 10,825 Tax paid (7,498) (15,352)
6,050 (2,788)
29. OTHER PAYABLES AND ACCRUALS
Other payables and accruals(a) 53,642 34,975 Bogani property clients’ deposits 6,705 5,710 Bogani property service charge 2,385 1,205
62,732 41,890
(a) Other payables and accruals constitute amounts due to service providers for various services rendered in the year under review
30. SCHEME BALANCE Registered Unregistered Total KShs ‘000 KShs ‘000 KShs ‘000
92.01% 7.99% 100.00% At 1 January 2019 13,065,211 1,135,025 14,200,236 Net increase in net assets for the year 2,186,043 189,910 2,375,953
At 31 December 2019 15,251,254 1,324,935 16,576,189
92.45% 7.55% 100.00% At 1 January 2018 12,405,675 1,013,119 13,418,794 Net increase in net assets for the year 723,760 59,106 782,866 Adjustment on change of accounting policy (1,316) (108) (1,424)
At 31 December 2018 13,128,119 1,072,117 14,200,236
The Scheme is a registered pension scheme under the Kenyan Income Tax Act and is therefore tax exempt. However, income generated from contributions in excess of the KShs 20,000 per month per member statutory limit is subject to tax. Annual Report & Financial Statements | 2019 77
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
31. INCOME AND EXPENDITURE ACCOUNT 2019 2018 KShs ‘000 KShs ‘000
INVESTMENT INCOME 2,039,306 243,726
EXPENDITURE: - Investment management fees (note 7) (47,177) (30,078) Administration expenses (note 9) (123,165) (110,725) Tax charge (note 13) (16,336) (10,825)
Total (186,678) (152,628)
Net income for the year ended 31 December 1,852,628 92,098
32. FAIR VALUE MEASUREMENT The Scheme specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Scheme’s market assumptions. These two types of inputs have created the following fair value hierarchy:
• Level 1 – Quoted market prices in active markets for identical assets or liabilities. This level includes equity securities and debt instruments listed on the Nairobi Securities Exchange Limited. • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly as prices or indirectly as derived from prices. • Level 3 – inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components and investment property
This hierarchy requires the use of observable market data when available. The Scheme considers relevant and observable market prices in its valuations where possible.
For assets where the fair value cannot be measured reliably, cost basis has been used. 78 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
The table below shows an analysis of assets recorded at fair value by level of the fair value hierarchy.
31-12-2019 Level 1 Level 2 Level 3 Total KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000
Quoted equity investments at fair value through profit or loss 3,795,420 - - 3,795,420 Corporate bonds at fair value through profit or loss 244,244 - - 244,244 Government securities at fair value through profit or loss 5,821,070 - - 5,821,070 Unquoted equity investments at fair value through profit or loss 548,981 - - 548,981 Offshore equity investments at fair value through profit or loss 215,538 - - 215,538
10,625,253 - - 10,625,253
31-12-2018
Quoted equity investments at fair value through profit or loss 3,068,867 - - 3,068,867 Corporate bonds at fair value through profit or loss 550,605 - - 550,605 Government securities at fair value through profit or loss 4,230,883 - - 4,230,883 Unquoted equity investments - 6,640 484,404 491,044 Offshore equity investments 243,003 - - 243,003
8,093,358 6,640 484,404 8,584,402
Valuation techniques used in determining fair value of applicable assets are as follows:
The significant unobservable inputs used in the fair value measurement categorized in level 3 of the fair value hierarchy as at 31 December 2017 and 2018 are as shown below.
Assets Level Valuation basis Rate Significant unobservable inputs Investment properties 3 Discounted cash flows 13% Discount rate Unquoted equity investment(i) 3 Discounted cash flows 13% Discount rate Unquoted equity investment(ii) 3 Market Approach - Median multiples of similar business to EBITDA Annual Report & Financial Statements | 2019 79 - - Total 3,980 37,432 44,793 471,655 244,244 KShs ‘000 1,953,466 1,284,094 5,821,070 9,860,734
------Level 3 KShs ‘000 - -
------Level 2 KShs ‘000 - -
- - - 3,980 Level 1 37,432 44,793 471,655 244,244 KShs ‘000 1,953,466 1,284,094 5,821,070 9,860,734
- 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 31 Dec 2019 Date of valuation
31 DECEMBER 2019 Banking sector Commercial & services sector Construction & allied sector NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D) assets and liabilities. The following table provides the fair value measurement hierarchy of Scheme’s Quoted equity Investments at fair value through profit or loss There were no transfers between level 1 and 2 during 2019. Energy & Petroleum sector Insurance sector Investment sector Manufacturing & allied sector & technology Telecommunication Quoted debt securities at fair value through profit or loss Corporate bonds Government securities held at fair value through profit or loss 80 Kenya Power Pension Fund | Defined Contributions Total 6,850 9,159 7,252 66,245 862,897 705,452 451,217 959,795 550,605 KShs ‘000 KShs 4,230,883 7,850,355
------Level 3 - KShs ‘000 KShs -
------Level 2 KShs ‘000 KShs - -
- 6,850 9,159 7,252 Level 1 66,245 862,897 705,452 451,217 959,795 550,605 KShs ‘000 KShs 4,230,883 7,850,355
31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 31 Dec 2018 Date of valuation
- 31 DECEMBER 2018 Banking sector Commercial & services sector Construction & allied sector NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D) Quoted equity Investments at fair value through profit or loss There were no transfers between level 1 and 2 during 2018. Energy & Petroleum sector Insurance sector Investment sector Manufacturing & allied sector & technology Telecommunication Quoted debt securities at fair value through profit or loss Corporate bonds Government securities held at fair value through profit or loss Annual Report & Financial Statements | 2019 81
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
33. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (A) Financial Assets 2019 2018 KShs ‘000 KShs ‘000
Non-current financial assets Financial assets at fair value through profit or loss: Government securities at fair value through profit or loss 5,190,861 3,952,383 Quoted equity investments at fair value through profit or loss 3,795,420 3,068,867 Corporate bonds at fair value through profit or loss 49,962 254,930
9,036,243 7,276,180
Available-for-sale financial assets:: Unquoted equity investments 548,981 491,044 Total non-current financial assets 9,585,224 7,767,224
Current financial assets Financial assets at fair value through profit or loss: Government securities at fair value through profit or loss 630,209 278,500 Corporate bonds at fair value through profit or loss 194,282 295,675
824,491 574,175
Held-to-maturity investments:: Government securities held to maturity 841,531 550,409 Term deposits with financial institutions 656,966 399,113
1,498,497 949,542
Loans and receivables: Other receivables 973,356 795,234 Amount due from related parties - 61,150 973,356 856,384
Total current financial assets 3,296,344 2,380,101
Total financial assets 12,881,568 10,147,325
(B) Financial Liabilities
Financial liabilities at amortised cost: Due to related parties 62,581 - Benefits payable 58,017 25,877 Other payables and accruals 62,732 41,890
Total financial liabilities 183,330 67,767 82 Kenya Power Pension Fund | Defined Contributions
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 [CONT’D)
34. CONTINGENT LIABILITY There were no contingent liabilities of the Scheme as at close of the period.
35. REGISTRATION The Scheme is registered in Kenya under the Retirement Benefits Act.
36. The Trustees are not aware of events after the reporting date that require disclosure in or adjustments to the financial statements as at the date of this report.
37. CURRENCY The financial statements are presented in Kenya Shillings (KShs ‘000).
38. EVENTS AFTER REPORTING DATE Initial cases of Covid-19 infection were reported in China towards the end of 2019. The viral infection has spread to other regions in the world and on 11 March 2020 World Health Organization (WHO) declared the viral disease a pandemic. The first case of Covid-19 was reported in Kenya on 13 March 2020. Since then additional cases have been confirmed and the first death confirmed, as at date of signing this report.
Because of the COVID – 19, the annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being significantly negative in the first quarter of 2020. Before the Coronavirus outbreak, the Kenyan GDP had been projected to accelerate to 5.8% in the FY2020 up from 5.2% for the prior year, but the economy is likely to overheat from the effects of the pandemic as the contraction of output in China and other global majors will likely have devastating impact on commodity prices. Due to travel disruptions, the tourism industry in likely to feel the blunt of the pandemic and the anticipated longer recovery of the economies is likely to have a significant negative spill over on the financial systems around the globe. The Nairobi Securities Exchange index- NSE 20 share index has already dropped to a 17 year low as investors keep booking losses due to the havoc being wrecked around the world by the pandemic.
The aforementioned situation will likely have a debilitating impact on the Scheme’s equity portfolio in the FY2020 if it persists for a longer period. However, the Scheme will endeavour to mitigate against this risk through gradual accumulation to ensure downward averaging of the portfolio cost in the short run. The equity portfolio is though significant is not expected to threaten the Scheme’s going concern status given the strong capital position.
The Fund anticipates increased likelihood of decreased return on investments mainly in the quoted entities investment in year 2020 due to the outbreak of Covid-19 pandemic. The pandemic is projected to slow down economies of many markets, mainly due to lockdown of major cities which will curtail movement of capital and people.
Management has put in place ample measures such as remote working for some employees, with an exception of those offering essential services to ensure continuity in business operations. Management is prudently investing in short term investments to avoid volatility in the market and they believe that these measures will mitigate any going concern uncertainties that may arise due to the outbreak.
Management assesses that it is not practicable to accurately estimate the financial impact on COVID-19 now as the effects are yet to fully materialise. Annual Report & Financial Statements | 2019 83 84 Kenya Power Pension Fund | Defined Contributions Annual Report & Financial Statements | 2019 85 Stima Plaza Annex - Kolobot Road Nairobi, Kenya Tel: +254 20 5029600 SMS Shortcode: 30305 Email:[email protected] www.kppf.co.ke Defined Contributions