2019 / 2020 Annual Report and Financial Statements

KTDA MANAGEMENT SERVICES LTD TEA MACHINERY & ENGINEERING KTDA POWER COMPANY LTD CHAI TRADING COMPANY LTD COMPANY LTD Global Leader in Quality Teas ABOUT KTDA

Smallholder tea farmers More than 630,000 smallholder farmers

54 tea factory companies Owned by smallholder tea farmers Tea cultivation, Hydropower KTPC payments, processing generation POWER & marketing

Tea blending, Microfinance packaging & services marketing

Tea machinery & engineering Tea trading & company warehousing

Focus on CSI Insurance & activities brokerage FOUNDATION

Vision Mission

To be the preferred investment vehicle To invest in tea and other related profitable for the smallholder tea farmers in ventures for the benefit of shareholders and Eastern Africa other stakeholders

Core values

Customer focus Innovation

High standards of ethical Equal opportunity practices employer Sustainability Social responsibilities Team work KTDA AT A GLANCE

127,000 630,000+ Hectares of tea grown Number of farmers by smallholder farmers

69 Number of KTDA 56 years managed factories of producing the best quality teas

1.45 billion Kilos of green leaf delivered to factories in 2019/20 326 million Kilos of made tea in 2019/20

2.1 million 1Million Indigenous trees planted 2 Feet by KTDA Foundation in tea growing areas Area of warehouse built to store farmers’ tea and other goods

4 million 10,000+ Kenyans supported KTDA employees by smallhoder tea industry

14 16 Number of hydropower Number of tea plants at various stages growing counties of implementation CONTENTS

Performance Highlights...... 5

Corporate Information...... 6

Notice of the Annual General Meeting...... 7

Board of Directors’ Profiles...... 8

Chairman’s Report...... 12

Chief Executive Officer’s Statement...... 16

Subsidiary Company Heads...... 24

Senior Management ...... 26

Corporate Governance Statement...... 27

Corporate Scene...... 30

Directors’ Report...... 31

Statement of Directors’ Responsibilities ...... 33

Report of the Independent Auditor...... 34

Consolidated Statement of Profit or Loss...... 37

Consolidated Statement of Comprehensive Income...... 38

Company Statement of Profit or Loss and Other Comprehensive Income...... 39

Consolidated Statement of Financial Position...... 40

Company Statement of Financial Position...... 41

Consolidated Statement of Changes in Equity...... 42

Company Statement of Changes in Equity...... 43

FINANCIAL STATEMENTS Consolidated Statement of Cash Flows...... 44

Company Statement of Cash Flows...... 45

Notes to the Financial Statements...... 46 - 91 PERFORMANCE HIGHLIGHTS

GROUP INCOME 2014 - 2020 Ksh (M) TOTAL PAYMENT IN BILLION KSH - 2014 - 2020 Ksh (B )

30,000 27,184 25,369 25,723 25,000 24,769 24,046 70 61.91 62.35 20,000 60 57.44 18,266 51.85 50 46.45

15,000 14,170 s 43.25 40 35.50 Ks h

10,000 30 illion s B 20 5,000 10 0 2014 2015 2016 2017 2018 2019 2020 0 2014 2015 2016 2017 2018 2019 2020

GROUP PROFIT BEFORE TAX AFTER EXCEPTIONAL ITEMS 2014 - 2020 Ksh (M) DIVIDENDS PAYOUT 2014 - 2020 Ksh (M)

3000 2,858 2,710 800 2,531 2,500 700 691 683 734 2,084 2,018 600 2,000 532 514 1,602 500 1,500 1,399 382 400

1,000 300 272

200 500 100 0 2014 2015 2016 2017 2018 2019 2020 0 2014 2015 2016 2017 2018 2019 2020

GROUP TOTAL ASSETS 2014 - 2020 Ksh (M) GROUP NET WORTH 2014 - 2020 Ksh (M)

40,000 36,066 18,000 16,973 35,683 35,000 34,309 16,000 15,793 15,174 29,381 29,505 13,686 14,076 30,000 14,000 13,426 12,035 25,000 12,000 22,267 19,183 20,000 10,000

15,000 8,000 6,000 10,000 4,000 5,000 2,000 0 2014 2015 2016 2017 2018 2019 2020 0 2014 2015 2016 2017 2018 2019 2020

AVERAGE PERCENTAGE RETURN TO FARMER (7 YEARS) TOTAL INCOME FROM SALE OF TEA - Ksh BILLION (7 YEARS) 90 80 83.97 85.74 80 78.31 79.02 75 76 75 70 69.77 73 63.53 71 60 70 52.97 67 67 66 50 65 40

30 60 B illion s Ks h

20 55 10 50 2014 2015 2016 2017 2018 2019 2020 0 2014 2015 2016 2017 2018 2019 2020

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 5 CORPORATE INFORMATION

Registered Office

KTDA Farmers Building, Moi Avenue/Ronald Ngala Lane Email: [email protected] P.O. Box 30213 GPO 00100, Tel: 3227000, Website: www.ktdateas.com Fax: 211240, 210636

Directors

Mr. P. T. Kanyago, MBS, EBS Zone 4/Chairman Mr. S. C. Tonui Zone 9 Mr. P. K. Ngetich OGW, MBS Zone 8/Vice Chairman Mr. J. N. Achoki Zone 10 Eng. J. M. Wakimani Zone 1 Mr. B. O. Matonda Zone 11 Eng. E. Gakuya Zone 2 Mr. S. K. Mbatia Zone 12 Mr. F.M. Mark Zone 3 M/s. I. Gaha Independent Director Mr. P. M. Migwi Zone 5 Mr. L. S. Tiampati MBS CEO/Managing Director Mr. S. M. Mwafrika Zone 6 Mr. B. K. Ngari Group Finance & Strategy Mr. P. M. Ringera HSC Zone 7 Director

Board Audit Committee Ms. I. Gaha - Chairperson Main Bankers Mr. F. M. Mark Mr. P. M. Ringera Mr. S. C. Tonui M r . S . K . M b a t i a NCBA Bank PLC Ms. S. Kasinga - Independent Director Mama Ngina Street Branch P.O. Box 30437, Tel: +254 20 2228802 Secretary Dr. J. K. Omanga Nairobi

Cooperative Bank of Kenya Management Coop House Branch P.O. Box 48231-00100, Tel: +254 20 3276000 Mr. L. S. Tiampati - Group Chief Executive Officer / Managing Director Nairobi Mr. B. K. Ngari - Group Finance & Strategy Director Dr. J. K. Omanga - Group Company Secretary Mr. A. Otochi - Managing Director – Kenya Tea Packers Ltd Limited D r. C . M b u i - Managing Director - Chai Trading Company Ltd KTDA Plaza Corporate Branch Mr. A. A. Njagi - Managing Director- KTDA Management Services Ltd P.O Box 74145 -00200 Mr. S. Rugutt - Finance Director –KTDA Management Services Ltd Tel: +254 20 241852/ M s . P. M w a n g i - General Manager/Director - Majani Insurance Brokers Ltd +254 20 210088 Ms. A. Gathuku - General Manager/Director – Greenland Fedha Ltd Nairobi Mr. J. Sayi - General Manager/Director – KTDA Power Company Ltd Mr. S. Ngera - General Manager /Director–Tea Machinery & Eng. Co Ltd Absa Bank Kenya PLC Mr. W. Muthaura - General Manager – Human Resources & Administration Barclays Plaza Branch Mr. J. Bett - General Manager - Sales and Marketing (MS) P.O. Box 40984, Mr. D. Mbugua - General Manager – ICT Tel: +254 20 3267000 Nairobi Mr. F. Miano - General Manager – Technical Services D r. S . G i k a n g a - General Manager - Chai Trading Company Ltd Mr. L. Munyao - General Manager - Group Audit Citi Bank Mr. G. Godana - General Manager Operations (MS) Nairobi Branch M r . N . K i t h a e - Group Head Corporate Affairs P.O .Box 30711-00100 M r . B . K a n a m p i u - Group Head Procurement and Logistics Tel: +254 20 2718704 M r . W . K a r a n j a - Group Head Enterprise Risk Management Nairobi Mr. S. Matara - Head, KTDA Foundation Stanbic Bank Chiromo Branch Independent Auditor P.O Box 30550-00100 Tel: +254 20 3638113 PricewaterhouseCoopers LLP, PwC Towers Waiyaki Way/Chiromo road, Nairobi Westlands, P.O. Box 43963 - 00100, Tel: +254 20 2855000 NAIROBI, KENYA

6 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTICE OF THE ANNUAL GENERAL MEETING FOR THE YEAR ENDED 30 JUNE 2020

NOTICE IS HEREBY GIVEN THAT THE TWENTIETH (20TH) ANNUAL GENERAL MEETING OF THE SHAREHOLDERS WILL BE HELD AT THE SAFARIPARK HOTEL, JAMBO CONFERENCE HALL, NAIROBI, ON FRIDAY 18TH DECEMBER 2020, AT 10.00 AM TO TRANSACT THE FOLLOWING BUSINESS: -

ORDINARY BUSINESS

1. To receive and adopt the financial statements for the year ended 30th June 2020, together with the reports of the Chairman, Directors and Auditors thereon.

2. To consider and if deemed appropriate to declare a final dividend of Kshs. 733,950,900/- @ Kshs 1,452.22 per share payable to members on the Register at the close of business on 30th June 2020.

3. To approve the Directors’ remuneration of Kshs 4,200,000/- for the year ending 30th June 2020.

4. To appoint Messrs PWC LLP as Auditors of the Company by virtue of Section 721 (2) of the Companies Act, 2015 and to authorize the directors to fix the auditors remuneration for the ensuing financial year.

(PWC LLP have expressed their willingness to continue as Company Auditors)

5. To appoint Directors representing Zones 1, 3, 9 and 10 following their nomination by directors of their respective zones, at the concluded elections held on 23rd October 2020.

i. Eng. Joseph M. Wakimani - Zone 1 ii. Mr. Francis Macharia Mark - Zone 3 iii. Mr. Samuel C. Tonui - Zone 9 iv. Mr. Wilfred M. Nyakundi - Zone 10

SPECIAL BUSINESS

1. To consider and approve capitalisation of Kshs. 451,680,199 divided into 22,584,010 shares @ Kshs. 20/ each, and the proportionate issuance of the said shares to the existing shareholders as at 30th June 2020, which arises from historical credit balances.

2. In accordance with Section 53 of the Companies Act 2015, to consider and approve the inclusion of the abbreviation PLC (Public Liability Company) after the name of the Company to read KENYA TEA DEVELOPMENT AGENCY HOLDINGS PLC and also known as KTDA HOLDINGS PLC.

Note: Companies Act 2015 requires words/abbreviations Public Limited Company/PLC to follow the name of the Company.

3. To consider and approve the inclusion of new sub-articles of the Company’s Articles of Association to read as follows:

60 (a) “Meetings of the Company may be held in physical, electronic and other technological forms as may be determined by the Board of Directors” 96 (a) “Meetings of the Board of directors may be held in physical, electronic and other technological form as may be determined by the Board of Directors”

BY ORDER OF THE BOARD

CS. Dr. JOHN KENNEDY OMANGA (REG. NO. 654) COMPANY SECRETARY

Dated at Nairobi this 29th Day of October 2020

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 7 BOARD OF DIRECTORS

Mr. Kanyago holds an MBA in Mr. Ng’etich holds a Diploma Industrial Management from in Agriculture from Siriba Col- Pacific States University. He is lege, Maseno. He also holds a Fellow of the Chartered Cer- a Certificate in Management tificate of Accounts (FCCA), Today Programme from In- Fellow of Certified Public Ac- dustrial Society, London, UK, countant of Kenya (FCPA-K), a Certificate in Marketing from Fellow of Kenya Institute of the Chartered Institute of Mar- Management (FKIM), and also keting, UK, and a Certificate a Certified Public Secretary of in Marketing from Marketing Kenya (CPS-K). Society of Kenya, as well as an He serves on the boards of Advanced Certificate in Man- Peter Kanyago, MBS, East Africa Cables Ltd., and Philip Ng’etich, OGW, agement from the Kenya Insti- EBS – Chairman / Corporate Insurance Compa- MBS – Vice-Chairman / tute of Management (KIM). Director Zone 4 ny Limited. Mr. Kanyago previ- Director, Zone 8 Mr Ng’etich was Senior Tea ously served as the Chairman Officer in various regions from of Ecobank Kenya Limited. He 1974 to 1977. He was also the is the Chairman of East Afri- founder Manager of Ketepa can Elevator Co. Ltd. and Ken- from January 1978 where he ya Open Golf Ltd. worked until his retirement as Managing Director/CEO in 2002. Mr Ng’etich was the first Chairman of the Tea Research Foundation, an offshoot of the Tea Research Institute of East Africa of Kenya, from February Isabella Gaha is a KTDA (H) 1981 to October 1984. Limited independent direc- tor. She holds an MBA from IE Business School in Madrid, Spain and a Bsc degree in Mechanical Engineering from Eng. Wakimani holds an MSc the Jomo Kenyatta University degree in Highway Engineer- of Agriculture and Technol- ing from the University of Bir- ogy. She is a Certified Public mingham, UK and a Bsc De- Accountant of Kenya (CPAK), gree in Civil Engineering from a member of ICPAK, IOD, the University of Nairobi. He ACCA and CISA. She is the has over 30 years’ experience Isabella Gaha (Ms) Chair of the Group Audit and Independent Director in Engineering Design, Con- Risk Committee. struction and Management. She has previously worked He is a member of the Insti- at PricewaterhouseCoopers, tute of Highways and Trans- Liberty Group, Strathmore portation (UK), a registered University and Wilken Kenya. Eng. Joseph Wakimani professional engineer (PE), Director, Zone 1 with the Engineers Board of Kenya and a corporate mem- Eng. Gakuya holds a Bsc ber of the Institute of Engi- (Hons) degree in Mechanical neers of Kenya(MIEK). Engineering from the Univer- He is currently an engineer- sity of Nairobi. He is a regis- ing consultant and is a direc- tered engineer with the Engi- tor of Frame Consulting Engi- neers Board of Kenya (EBK). neers Ltd. He also Chairs the He has wide experience in Board of Thika Water & Sewer- manufacturing and engineer- age Company. ing and has held high ranking Eng Wakimani previously positions in several manufac- worked at Chevron Kenya as turing companies in Kenya, Area Maintenance and Con- among them Delmonte (K) struction Manager in charge of Eng. Erastus Gakuya Ltd, Firestone EA and KTDA five countries. Director, Zone 2 (Authority).

8 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 DIRECTORS’ PROFILES

Mr. Macharia holds a Bach- Mr. Mwafrika holds a degree elor’s degree in Education in Project Planning & Man- (Mathematics) from McGill agement from the University University, Canada and is also of Nairobi and a Diploma in a graduate of Kenya Science Human Resource Manage- Teacher’s College. He has ment from the same univer- served as principal of various sity. secondary schools and is a He is a director of Hankeni former lecturer at Kenya Sci- Construction Company Ltd, ence Teacher’s College. Embu Farmers Sacco Ltd Mr. Macharia has served as a and Mt Kenya Nuts. He is the board member of Karuri Sec- Chairman of Kwivotora self- Francis Macharia Mark ondary School and a member Samuel Mwafrika help group and has previous- Director , Zone 3 of the Kangema District Edu- Director, Zone 6 ly worked with HZ Construc- cation Board. He also served tion Company and Mugoya as CDF committee member of Construction Company. Kangema Constituency.

Mr. Macharia is a long serv- ing Chairman of Kihoto In- vestment Company Limited, a director of Forty Welfare As- sociation, as well as a promi- nent businessman in Nairobi. Mr. Ringera is a graduate of Kenyatta University. He worked as a teacher in vari- Mr Migiwi has served in the ous institutions and retired Kangaita Tea Factory board in at the rank of principal. He various capacities from 1997 to has also served as an exam- date. He’s also a director of Kir- iner and assistant chief ex- inyaga Regional Power Com- aminer at the Kenya National pany as well as various KTDA Examination Council. subsidiaries. He has previously He is the treasurer of the worked at the Kenya Farmers Meru Central District Devel- Association and has been a opment Forum. teacher. Paul Ringera, HSC Director, Zone 7

Peter Mwai Migwi Director, Zone 5

Mr. Tonui holds an MBA and a Bachelors degree. He is a reg- istered accountant and mem- ber of the Institute of Certified Mr. James Achoki holds a Public Accountants of Kenya Masters degree in Leader- (ICPAK). ship and Policy in Education He has worked in the NGO from Moi University and a sector for over 25 years as a BA Degree in Education. He Finance Manager and is a long has over 20 years’ experi- serving treasurer of ACK El- ence in teaching and has doret Sacco and Nile Invest- served as principal of sever- ment Cooperative Society. al secondary schools around Mr. Tonui sits on the Board of the country. Samuel Tonui Management of Rusenya High Director, Zone 9 School and is a council mem- ber of Theological College, James Achoki Kapsabet, where he currently Director, Zone 10 serves as the treasurer.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 9 DIRECTORS’ PROFILES

Mr. Matonda trained as Mr Mbatia is a trained ac- a teacher at Kabianga countant. He has served Teachers College. He the tea industry in various later became a Head- capacities since 1993 and master and rose through is currently the Chairman the ranks to become an of Kapsara Tea Factory. Education Officer. He is a He is also the Modera- former Director of Gusii tor of Makutano Catholic Mwalimu Sacco. Church and has previous- ly served as the Parish Chairman of Suwerwa Catholic mission. Mr Mba- Benjamin Matonda Stephen Kibarabara tia also sits on the board – Director, Zone 11 Mbatia of management of St Director, Zone 12 Francis Girls High School- Suwerwa and Amani Sec- ondary School. Mr. Tiampati holds an MSc degree in Marketing and Product Management from the Cranfield Institute of Dr. Omanga holds a doc- Technology (UK), a degree in torate of Business Admin- Business Administration from istration (DBA) from the the University of Nairobi and Commonwealth Univer- a diploma from the Chartered sity, specializing in corpo- Institute of Marketing (UK). rate governance (Hono- Prior to joining KTDA, Mr. ris Causa). He also holds Tiampati served as the Man- a Bachelor of Laws (LLB) aging Director of Ketepa. He degree from the University Lerionka Tiampati, MBS has also worked as Head of College of Law Nagpur Uni- Group CEO / MD Marketing at Standard Char- versity, India and a diplo- tered Bank, Marketing Devel- ma in Law from the Kenya opment Manager at Magadi CS. Dr. John Kennedy School of Law. Soda Company and Head of Omanga He previously worked at Marketing at the Agricultural Group Company Postal Corporation of Kenya, Development Corporation. Secretary Kenya Posts and Telecom- munications Corporation and Kenya National Assur- ance Company. Mr. Ngari holds an MBA in Fi- He is an advocate of the nance and a Bsc degree from High Court of Kenya and a the University of Nairobi. He registered Certified Public is a qualified Chartered Ac- Secretary. He is a commis- countant (ACA). He was pre- sioner of Oaths and a No- viously the GM, Finance and tary Public. He was admit- Strategy at Postal Corpora- ted as an Advocate of the tion of Kenya, prior to which High Court of Kenya in 1992 he was the Commercial Con- and registered as CPS (K) in troller at Kenya Airways. He 1994. also held various positions He is a member of com- in Lonrho East Africa Group monwealth Lawyers Asso- Benson Ngari prior to joining Kenya Air- ciation, Law Society of Ken- Group Finance and ways. He trained and worked ya and Institute of Certified Strategy Director with Ernst and Young in the Public Secretaries of Kenya UK and in Kenya as an audi- and is also the lega tor. l advisor of the Agricultural Society of Kenya (ASK).

10 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 A wholly owned subsidiary company of KTDA (H) Ltd.

A world class organisation in tea trading & logistics management

WAREHOUSING SERVICES TEA TRADING & VALUE FREIGHT AND LOGISTICS ADDITION MANAGEMENT

♦ Operates almost 1,000,000 square feet ♦ We are among the top 5 tea buyers at ♦ We provide total logistics solutions to of warehouse space in Mombasa the Mombasa Tea Auction exporting to our clients in clearing and forwarding, various market destinations across the shipping, cargo consolidation and ♦ We mainly specialize in tea warehousing world transport services. as well as other general commodities ♦ Our Dubai based office at DMCC Tea ♦ We offer contract blending services in Centre coordinates tea sales activities our modern tea blending facilities across the Gulf Region, Middle East & CIS Countries ♦ We also offer collateral warehousing services.

HEAD OFFICE: KTDA (H) Ltd Miritini Complex P.O. Box 93324 - 80102 Mombasa Tel: +254 20 2037927 Cell: +254 722 280054 / 722 203423 / 722203433 Email: [email protected] Website: www.chaitrading.com During the year, there were various engagements with stakeholders on issues ranging from the Tea Bill, tea regulations, tea payment model and governance structures. We will strive to positively address these issues for the benefit of our smallholder farmers. Peter T. Kanyago, MBS, EBS Chairman CHAIRMAN’S REPORT

ESTEEMED SHAREHOLDERS It is my honour and pleasure to present to you our 20th Annual Report and Audited Fi- nancial Statements for the year ended 30th June, 2020. The low tea prices achieved at the tea auction in Mombasa and the other global tea auctions affected the KTDA Group 6.0% performance in the period under review. Average tea prices achieved by KTDA man- aged tea factory companies at the auction were USD 2.38 compared to USD 2.57 last year. All our managed tea factory companies and a significant number of our subsidiary 3.6% companies are directly affected by the upward or downward movement in tea prices.

In addition to the low tea prices, the Covid-19 pandemic had a significant impact on our business. This was due to the slowdown in trading activity in our key tea markets as a 2018 2019 result of widespread lockdowns and restriction of movement. Fertilizer manufacturers Drop in the growth were also impacted by these lockdowns and we had to cancel our fertilizer procure- rate of agriculture ment this year.

ECONOMIC ENVIRONMENT

Agriculture is still the dominant economic sector in Kenya, accounting for slightly over a third of the total value of the economy in 2019. The sector grew at a slower rate of 3.6 per cent in 2019 compared to 6.0 per cent in 2018. The decelerated growth was occa- sioned by insufficient rainfall in the first half of the year that led to constrained agricul- tural production. The year 2019 was characterized by moderate build up in inflationary pressures that mainly emanated from increased food prices. Consequently, inflation rose from 4.7 per cent in 2018 to 5.2 per cent in 2019.

In an effort to boost economic activity, the Central Bank of Kenya maintained the downward pressure on the Central Bank Rate (CBR) from 8.5 per cent in July of 2019 to 4.7% to 5.2% 7.0 per cent in June 2020. Interest on commercial bank loans and advances averaged increase in 12.5%, which was largely favourable to economic activity. inflation rate

The flip side is that the interest rates on deposits placed in commercial banks continued to be subdued in the year under review. This negatively affected interest earnings for companies in the group. The Kenyan Shilling weakened against the US Dollar closing the year at Kshs103.56 compared to Kshs 101.15 last year, a drop of 2.4%. A weaker shil- ling is favourable to our business given that the bulk of our exports are in USD.

GROUP FINANCIAL PERFORMANCE 734m

683m Group revenues grew by 2.8% to Kshs 24.73 billion compared to Kshs 24.06 billion last year, driven mainly by increased tea sales volumes. Increased tea production led to high 2019 2020 stocks at the peak of Covid-19 and exerted considerable pressure on working capital within the Group. The Board has proposed a dividend of Kshs 734 million compared to last year’s Kshs 683 million, a welcome performance in an otherwise very difficult year.

Tea farmers were paid an average rate of Kshs 35.42 per kg of green leaf compared to Kshs 41.27 paid last year. This was achieved from an unprecedented crop volume of 1.45 billion kilos of green leaf delivered by farmers. This translated to a total payment to farmers of Kshs 51.8 billion compared to Kshs 46 billion last year, an increase of 12.6%. The total revenues this year were Kshs 79.0 billion compared to Kshs 69.8 billion last Increase in dividends year, a 13% increase.

We continue to address the escalating cost of production through various ongoing initiatives, the latest being the seasonal labour outsourcing and energy efficiency pro- grams.

The four small hydro projects that had been commissioned by the close of last year continued to operate well and we have picked good lessons in running them. Another four small hydro projects which are under construction, Lower Nyamindi, South Mara, Iraru and Nyambunde were expected to be operational this calendar year but have been affected by Covid-19 disruptions that hindered travel by overseas based engi- neers to commission the turbines. Others projects are in various stages of feasibility evaluations, design and construction.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 13 CHAIRMAN’S REPORT

These projects continue being funded through equity contribution and external financing, with KTDA Hold- ings providing the guarantee. Development of Chai Trad- ing Logistics Centre next to the Nairobi Inland Container Depot in Embakasi, funded by the International Finance Corporation (IFC) is projected to be completed early 2021. The investment will realize the opportunity for the group to utilize the Standard Gauge Railway terminal in Nairobi for in-house and third party warehousing and lo- gistics.

Construction of the speciality green tea research fac- tory at the KTDA Kangaita farm was concluded. It was Investing in wood fuel plantations for better energy security funded by the Japanese government through Japan In- ternational Cooperation Agency (JICA) with the support of the government of Kenya. Covid-19 disruption has held up the travel of engineers from Japan to commission the green tea machinery. We hope that the factory will com- mence operations early 2021, barring further escalation of the Covid-19 pandemic.

The company replanted a total of 116 acres of old tea bushes at the Kangaita farm, with newer higher yielding varieties. The exercise will continue until all the old clones are replaced.

The company continued implementing its corporate social investment programs (CSI) through the KTDA Foundation. We received invaluable support from our various partners, key among them; Taylors of Harrogate, IDH-Sustainable Trade, IKEA Foundation, Unilever, Ford Foundation, Oxfam-UK, Rainforest Alliance (RA), Ethi- Metumi small hydropower plant canal cal Tea Partnership and the Global Alliance for Improved Nutrition. Their support has contributed to the on-going socio-economic transformation of our farmer communi- ties as well as conservation of the environment.

During the year, there were various engagements with stakeholders on issues ranging from the Tea Bill, tea reg- ulations, tea payment model and governance structures. The Board appreciates feedback on these and other is- sues and will continuously strive to positively address them for the benefit of our stakeholders. Those who adapt to change in the fast moving world will have a fighting chance to survive into the future.

I wish to take this opportunity to thank the Board of Di- rectors, staff, farmers, financiers, the government and other partners for their continued support

KTDA Foundation on 12th November, 2020 donated 11,000 assorted indigenous trees and participated in a tree planting activity in Upper Imenti Forest in Kithoka. The tree planting project was a partnership between KTDA Foundation, the Rainforest Alliance and Mount Kenya Trust. PETER T. KANYAGO, MBS, EBS CHAIRMAN

14 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 KULA KIASI KINGI NA AINA TOFAUTI YA MATUNDA KILA SIKU!

KTDA Foundation and the Global Alliance for Improved Nutrition are working on a programme to promote healthy eating habits among smallholder tea farmers It has been a difficult year for business both locally and globally. Despite the Covid-19 pandemic that has disrupted global supply chains, the Group has performed exceptionally well.

Lerionka S. Tiampati, MBS Group Chief Executive Officer CHIEF EXECUTIVE OFFICER’S STATEMENT

KTDA GROUP PERFORMANCE

It is my pleasure to present the 20th Annual Report and Audited Financial Statements of the company for the year ended 30th June 2020. This was another very difficult year for the Group as indeed was for many other organizations locally and globally. The Covid-19 pandemic was an unprecedented occurrence in the recent history of the world. The Group nevertheless performed exceptionally well under these circumstances. 7.4% decline in Group revenues grew from Kshs 24.06 billion in the previous financial year to Kshs tea prices 24.73 billion in the current year, a growth of 2.8%. Profit before tax was Kshs 2.71 billion compared to Kshs 2.86 billion last year, a drop of 5.2%, a demonstration of prudent management in the face of inflation and numerous challenges experienced in the year.

Tea prices continued with their downward slide at the Mombasa Tea Auction, marking the third year of low tea prices since 2018. Average tea prices realised by KTDA-managed tea factory companies declined from an average of USD 2.57 last year to USD 2.38 this year. The cause for this price drop is majorly the global over-supply of tea in Kenya and other East African tea producing countries. Low tea prices have a major impact on the overall performance of the Group as most revenue earnings are reliant on the tea business.

The Covid-19 pandemic that occurred from around March 2020 interrupted 2.8% demand in the key consuming countries. This was due to lockdowns and travel Increase in restrictions imposed by various countries as well disruption in tea transport and Group revenues shipping logistics to the various buyers around the globe. In addition, the social, political and economic challenges experienced in our key tea consuming markets of Pakistan, Iran, Sudan and the UK suppressed the purchasing power of buyers and consumers.

We are glad to observe that with the collaboration of various government authorities, our tea business continued to operate from the farm to the processing units and onwards to the market. This ensured that tea as an essential food product was available to consumers in our various markets around the globe and tea farmers continued to receive a regular income from their tea.

KTDA Management Services Ltd 8.8% The company which manages 69 tea processing factories registered revenues of increase in KTDA Kshs 2.1 billion up from Kshs 1.93 billion last year. The bulk of the revenues are from MS income management fees from managed tea factories charged at the rate of 2.5% of net sales. The profit before tax was Kshs 57 million compared to Kshs 15 million last year. The company has continued undertaking various activities and initiatives for the benefit of its managed factories.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 17 CHIEF EXECUTIVE OFFICER’S STATEMENT

Performance of the KTDA managed tea factory companies

Green tea leaf produced across all factories increased to 1.45 billion kilogrammes from 1.13 billion kilogrammes the previous year, a 28.3% increase attributed to abundant rainfall and improved green leaf collection logistics. This is the highest production ever recorded in the history of smallholder tea farming. This tea was processed into 326.7 million kilos of made tea out of which 310 million kilos were sold, compared to 268 million kilos in the prior year.

The factories realised total revenues of Kshs 79.02 billion compared to Kshs 69.8 28.3% Increase in green billion last year, an increase of 13.2% at average prices of USD 2.38 and USD 2.57 leaf production respectively. The average cost of production reduced by 6.6% from KShs 88.98 to KShs 83.09 per kilogram of made tea mainly driven by higher cost absorption from higher volumes and cost containment measures instituted.

The total payment to farmers was Kshs 51.85 billion compared to Kshs 46.45 billion last year, an increase of 11.6%. Average percentage of net income paid to farmers stood at 66% across all managed factories. Efficiency and cost management will continue to be the focus in light of the continuing low tea prices due to global over supply.

Factory expansions

KTDA managed factory companies have continued to undertake expansion of their factory capacities to enable them process increased crop volumes efficiently and 13.2% with minimal green leaf losses. New factory capacity expansion works are almost Increase in factory complete at Matunwa, satellite factory of Nyansiongo and Sombogo, satellite Revenues factory of Tombe tea factories respectively.

In addition to the existing continuous withering technology units installed in various factories, a prototype automated withering machine with improved features and benefits was installed and commissioned at Kionyo. Continued adoption of this technology will have a significant impact in reducing withering operational costs and ultimately the cost of production, as well as quality improvement.

11.6% Increase in total payment to farmers

New automated withering machine

Strategic initiatives

Our subsidiaries continue to implement strategic initiatives contained in their strategic plans. KTDA Management Services in conjunction with its managed factories is undertaking various strategic initiatives to improve efficiency and create more value for the tea farmers as follows; a) Product Diversification 66% Over the years, KTDA-managed factories have predominantly produced Black Average % of net CTC type of tea which is exported to our traditional markets of Pakistan, Egypt income paid to and the United Kingdom, among others. farmers

18 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CHIEF EXECUTIVE OFFICER’S STATEMENT

In order to mitigate against market concentration risks and ensure sustainable Principles of Sustainable incomes for farmers, a number of tea factories have ventured into production of Agriculture black orthodox type of tea as well as green, purple, white and oolong teas. 1 These new products will open up new markets in Russia, Iran, Germany, Morocco, USA and Canada among others. Effective Planning and The construction of the Japan International Co-operation Agency (JICA) part Management System - funded green tea experimental processing line at Kangaita farm commenced Advances the outcome area “Farm productivity within the year. Once fully functional, it will produce Japanese green tea, Sencha and profitability tea and other new products which will open up other new markets. 2

Biodiversity Conserva- tion - Prevent defor- estation and protect biodiversity.

3

Natural Resource Conservation - Aims to ensure health of the soil and water is maintained and reduce Kangaita green tea factory pesticide and fosil fuel use b) Nutrient management & financial literacy The project run jointly by the International Finance Corporation (IFC) and KTDA MS was completed during the financial year. Recommendations were made 4 relating to soil and fertilizer types, strengthening of the factories fuel supply chain, management of environmental and social impacts for implementation by stake holders. Factories continue to train farmers on business and finance management Improved Livelihoods to improve their farm operations. and Human Wellbe- ing - Protection of c) Sustainable agriculture human and labor rights In 2006, KTDA resolved to adopt sustainable agriculture practices to ensure for workers and their families that farming is done in a responsible manner by conserving biodiversity and safeguarding the social and environmental well-being of the farmers and other stakeholders. This has led to improving the local economy for present and future generations of small-scale tea farmers and local communities.

This has been an ongoing initiative and plans are underway to finalize digitization of farm inspections under the Rain Forest Alliance which will eliminate paper work and reduce inspection costs.

A number of projects have been initiated to assist farmers and the entire organisation in areas of health, environment conservation and women empowerment. Farmer Field School programs continued to run with a total of 331 schools being formed and graduated within the year. c) Farm management services Farm management services have been initiated in 19 factories to serve absentee farmers and those unable to manage their farms for various reasons. A total of 38.73 Million Kgs 38.73 million kilogrammes of green leaf has been delivered from managed farms amount of greef since implementation of the programme. leaf delivered from managed farms

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 19 CHIEF EXECUTIVE OFFICER’S STATEMENT

e) Electronic Weighing Solution Various factories have adopted weighbridges, part of the Electronic Weighing Solution (EWS) Phase II meant to improve leaf collection services. Currently, 67 factories have adopted EWS Phase II module with 56 fully implemented and operational. A total of 56 factories have adopted the weighbridges with 53 of them being fully operational.

56 Number of factories that have adopted weighbridges

Weighbridge system at a factory

f) Environmental management To ensure business sustainability while at the same time taking care of the environment, factories are required to plant one (1) hectare of wood fuel for every 21,554 four (4) hectares of tea. Tea factories have acquired 21,554 acres of land for fuel Acres acquired for wood development out of which 16,134 acres have been planted with trees as wood fuel at June 2020. This is part of the strategy to make the factories self-reliant on affordable and renewable energy in the future.

Restoration of forest cover due to deforestation is ongoing with planting of 1,456,357 tree seedlings, 345,000 exotic and indigenous trees and 60,000 assorted fruit trees in the last financial year.

g) Integrated Business Process Implementation of integrated business process solution, (SAP – ERP) to manage the group business continued with an additional six (6) factories going live in September 2020. This is in addition to three (3) factories which had already gone live on the SAP platform in the pilot phase. The objective is to enhance operational efficiency through process automation in all factory companies to be concluded in December 2021. 12% Increase in PBT for Chai Trading Company Limited Chai Trading Com- pany Ltd The company continues to focus on its business of warehousing, logistics and tea trading. It recorded a turnover of Ksh 11.7 billion this year compared to Ksh 17.5 billion in the previous year, representing a 33% drop. The drop is attributed to low tea prices, closure of Pakistan/Afghanistan border and lockdowns in the main tea market, Pakistan.

The company achieved an impressive profit before tax of Ksh 870 million compared to Kshs 778 million last year, a 12% growth. This growth is attributed to increase in income on auction and overseas tea sales, warehousing and handling as well as interest income from investments. The completion of construction at the new Chai Logistics Centre next to the Inland Container Depot (ICD) in Embakasi, Nairobi is expected to diversify warehousing and logistics business and open up 9 new opportunities for the Group. The project completion was delayed due to the Factories Covid-19 pandemic, but is due for completion in February 2021. live on SAP

20 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CHIEF EXECUTIVE OFFICER’S STATEMENT

850% Chai Trading Logistics Centre next to ICD, under construction Growth in turnover for KTDA DMCC KTDA DMCC

The company continues to open up new markets in the Middle East and former Soviet republics. During the year under review, the company posted revenues of Arab Emirates Dirhams (AED) 266 million compared to the previous year AED 28 million which represents 850% growth in turnover. The company posted a profit before tax of AED 2.4 million compared to AED 521,010 in the year 2018/19. The growth is attributed to the transfer of some overseas business from CTCL Mombasa to KTDA DMCC in Dubai for ease of serving the nearby markets of UAE, Middle East, Iran and Kazakhstan. There was significant business growth in these markets during this period.

Kenya Tea Packers Limited

The company continues to be a local tea brand leader in a very competitive market. It recorded a turnover of Ksh 2.4 billion compared to Ksh 2.6 billion last year, a 7.7% drop attributed to lower tea prices. It posted an impressive profit before tax of Ksh 290.4 million compared to Ksh 225.7 million last year, a growth of 29%. The company could have done better on the top line but was negatively impacted by the effects of Covid-19 leading to closure of hotels, restaurants and travel 29% restrictions. The company continues to focus its efforts on product diversification, Increase in PBT for new product development as well as export business growth. Ketepa Ltd

Diverse KETEPA products

Majani Insurance Brokers Ltd

The company continues to provide flexible insurance brokerage services for the Group. It registered revenues of Kshs 396 million compared to Kshs 388 million Growth in revenue for Majani Insurance last year, a growth of 2%. It posted profit before tax of Kshs 249 million in the year Brokers Ltd under review compared to Kshs 248 million last year. Completion of the ongoing construction works for the new Majani Plaza was interrupted by Covid-19 but will be completed within this financial year (2020/21) and earn the company additional rental income.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 21 CHIEF EXECUTIVE OFFICER’S STATEMENT

The Insurance Amendment Act 2019 enacted in July 2019 is expected to negatively impact interest income which has been an important source of revenue for insurance brokers.

Greenland Fedha Limited

The company continues to offer non-deposit taking microfinance services to tea farmers. It recorded revenues of Kshs 867 million compared to Ksh 997 million in the previous financial year, a drop of 13%. It posted profit before tax of Ksh 533 million compared to Ksh 579 million last year, a drop of 8%. It disbursed 177,809 a total of 177,809 loan contracts compared to 170,573 contracts last year. Low Greenland Fedha’s tea prices reduced the number and value of loans that farmers could access. loan contracts The company negotiates for financing from international and local financiers disbursed during the for onward lending to farmers. period

Easy access to affordable credit for our tea farmers remains the key objective of the company. The mobile banking platform Pesa Ulipo, continues to play a big role in reaching farmers quickly and cost effectively. This came in handy for farmers during the Covid-19 lockdown period when travel restrictions were imposed across the country.

Tea Machinery and Engineering Company Limited

The company is a key in-house value chain player in manufacturing and 23% fabrication of tea machinery and spares. The company earned revenues of Kshs increase in revenue 372 million compared to Kshs 303 in the previous financial year, an increase for Tea Machinery of 23% . Profit before tax stood at Kshs 8.4 million in the year under review and Engineering compared to Kshs 53.4, a decrease of 84.3%. The company was affected by Company Ltd. Covid-19 and the low tea prices which resulted in reduced orders and long outstanding debtors. The company is still focussed on being a key supplier of machinery to tea factories in the East African region.

Tea dryer manufactured by TEMEC

KTDA Power Company Limited

The company continues to focus on development of renewable energy for use by the tea factory companies with the surplus exported to the national grid. The four functional small hydro plants continue to supply electricity to tea factories as well as the national grid. Development of an additional six plants is ongoing with completion expected within the next financial year.

22 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CHIEF EXECUTIVE OFFICER’S STATEMENT

The company registered revenues of Kshs 220 million compared to Kshs 159 million last year, a growth of 38.4%. It posted a pre-tax profit of Kshs 106.2 million compared to Kshs 41.8 million last year, an impressive growth of 154%. The company could have performed even better were it not for challenges faced in project completion caused by delays in land acquisition and Covid-19 restrictions. 154% Sustainability and Corporate Social Investments (CSI) Increase in pre-tax profit for KTDA Power A key part of our business strategy recognizes the benefit to our business of investing in practices that enhance environmental sustainability and social economic development of our farmers. Through KTDA Foundation and other partners, we will continue to maximize on opportunities to become more sustainable while minimizing the negative impact that our core operations have on the environment and the communities we work with.

Human Resources Environmental sustainability and Our human capital resources remained focused and strong during the year. social economic Covid-19 greatly tested the way we work with a large number of our staff working development remotely. New regulations which threaten to disrupt employment of staff in our Group were challenged in Parliament and at the courts. We are proud of the role played by our staff during this period of uncertainty. We will continue to focus on the new normal relating to Covid-19 as well as new regulatory requirements in order to deliver services to the smallholder tea farmers.

Risk Management Human capital The Group continues to entrench a strong risk management culture across resources all companies. Enterprise Risk Management is a key pillar through which the Group intends to achieve its strategic objectives. The Group continues to implement its Enterprise Risk Management Framework in accordance with best practices (COSO 2004 and 2017 Frameworks and ISO 31000 Risk Management Standards). Risks are identified, analysed, evaluated and reported to the various company boards and management. They are regularly presented with principal risks and uncertainties facing the companies and these are also reported at our Group Risk Assurance and Governance Committee.

Key risks faced by the Group in the year were Economic, Financial, Reputational, Concentration, Technological and Energy Security risks. The Covid-19 pandemic Enterprise Risk was unexpected and challenged the very core of our business, that is the health Management and security of our staff. The Group was able to successfully mitigate these Framework risks which pose a serious threat to our business going forward.

Future Direction

The Group will continue to focus on its value chains ensuring that each company remains financially strong and relevant in the chain. Enhanced stakeholder management, adoption of new technologies and diversification of products and services will be key in navigating the future. Increased focus will be placed on staff welfare, training and development as well as prudent financial management of each company in the group.

I would like to thank the Shareholders, Board of Directors, management, staff and all stakeholders for their continuing support through a very challenging and Enhanced stakeholder ever changing business environment. management, adoption of new technologies and diversification of products and services

LERIONKA S. TIAMPATI, MBS CHIEF EXECUTIVE OFFICER

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 23 SUBSIDIARY COMPANY HEADS

Mr. Njagi holds a Master’s de- Ms. Mwangi holds a Bachelor of gree in Business Administration Commerce degree (Insurance op- (MBA) and a Bachelor of Sci- tion) from the University of Nai- ence degree in Agriculture both robi. from the University of Nairobi. She’s also a finalist of the Univer- sity of Nairobi for a Master’s De- Mr Njagi joined KTDA as a gree (MBA) in Strategic Manage- management trainee and rose ment. through the ranks to his current She is an Associate of Insurance position. He has over 27 years’ Institute of Kenya (AIIK), Associ- experience in tea business ate of Insurance Institute of Lon- management. don (ACII) and a Chartered Insur- Alfred Njagi Pauline Mwangi er, UK. Managing Director, General Manager, She joined Majani Insurance Bro- KTDA MS Ltd. Majani Insurance kers Ltd in 1998 after its formation Brokers Ltd and has worked in various depart- Dr. Mbui holds a PhD in Business ments of the organization. Administration and an MBA Prior to her current appoint- in Marketing from the Jomo ment, she served as Head of sales Kenyatta University of Agricul- & Business Development within ture and Technology (JKUAT). the organization. He also holds a B.Com Degree (Nairobi University), a Post Ms. Gathuku holds an MBA in Graduate degree in Business Strategic Management and a Management from University Bachelor of Commerce Degree of South Africa (UNISA) and a in Business Administration from Diploma in Advanced Manage- the University of Nairobi. ment from Strathmore Business She has over 21 years experi- Dr. Charles Mbui School (SBS) / Barcelona Busi- ence in microfinance operations and has previously worked at Managing Director, ness School (BBS) Spain. Faulu Kenya and K-Rep De- Chai Trading Dr. Mbui has over 26 years’ ex- Company Ltd velopment Agency as General perience in business manage- Manager. ment gained at senior levels in Ms. Gathuku has previously leading companies in the pri- Anne Gathuku, General Manager, served on the Board of Direc- vate sector. tors of the Association of Micro- Greenland Fedha Ltd finance Institutions in Kenya (AM- FI-Kenya). Mr. Otochi holds a degree in Mar- keting from University of Nairobi Mr Sayi holds a Masters degree and a diploma from Chartered in Project Planning and Manage- Institute of Marketing(UK). He ment and a Bsc(Hons) degree has over 26 years’ experience in in Mechanical Engineering, both management having held senior from the University of Nairobi. positions in Barclays Bank, KCC, He has over 28 years engineer- Wellcome (K)Ltd, Premier Foods ing practice experience. He pre- Ltd, Ogilvy & Mather and Ketepa. viously worked as a technical Prior to his current position, he services engineer at Firestone served as General Manager, Sales East Africa (1969), later Bridge- and Marketing at KTDA(MS) stone/Firestone and at Bata Albert Otochi - Shoe Company as the head of Managing Director, Japheth Sayi General Manager, engineering department. Mr. Ketepa Ltd KTDA Power Sayi currently chairs the Kenya Company Ltd Small Hydropower Association’s standards technical subcommit- Mr Ng’era holds an MBA in Op- tee. erations Management and a BSC (Hons.)- Mechanical Enginering both from The University of Nai- Mr Matara holds an MA degree robi. He has over 24 years’ expe- in Project Planning and Manage- ment and a BA degree, both from rience in engineering. the University of Nairobi. He has Mr Ng’era has previously more than 16 years’ experience in worked at KTDA (MS) as the the development sector. Maintenance Manager; Mainte- He has previously worked with nance and Projects Engineer at AMREF, ActionAid, Aga Khan Glaxosmithkline; Industrial Engi- University and I Choose Life Af- neer at Firestone East Africa and rica. He is a member of the Kenya Samuel Mbugua Ng’era Workshop Engineer at Richfied Association of Fundraising Pro- General Manager, Engineers. fessionals. Temec Ltd Sudi Matara Head, KTDA Foundation

24 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 TEA GROWERS PAYMENT JUNE 2020 FINANCIAL YEAR

COUNTY / NUMBER AREA UNDER MADE TEA NET REVENUE TOTAL PAYMENT TOTAL PAYMENT GREEN LEAF PRODUCTION (M) KGS - 6 YEARS FACTORIES IN COUNTY OF TEA (HA) PRODUCED (‘000’ (KSHS MIL- TO GROWERS TO GROWERS 1,600 GROWERS KGS) LIONS) (KSHS MIL- (KSHS MIL- 1,454 JUNE 2020 JUNE 2020 LIONS) LIONS) 1,400 JUNE 2020 JUNE 2019 1,233 1,200 1,180 1,130 1. BOMET COUNTY 1,039 KAPKOROS/TIRGAGA/ OLENGURUONE*/MOTIGO 39,595 8,589 24,183 5,313 3,228 2,953 1,000 977

KAPSET/ROROK 14,449 4,283 9,135 1,885 1,105 1,053 s 800 g MOGOGOSIEK/KOBEL/BOITO 30,255 6,714 16,311 3,435 2,085 2,147 K 600

SUB-TOTAL 84,299 19,586 49,630 10,633 6,418 6,153 llion 2. EMBU COUNTY M i 400 KATHANGARIRI 8,458 1,122 3,889 1,091 789 677 200

MUNGANIA 9,628 1,723 5,734 1,553 1,121 962 0 RUKURIRI 10,159 1,639 5,530 1,506 1,097 1,070 2015 2016 2017 2018 2019 2020 SUB-TOTAL 28,245 4,484 15,153 4,150 3,006 2,709 3. KERICHO COUNTY KAPKATET/TEBESONIK 20,863 4,023 9,027 1,932 1,163 915 GREEN LEAF PRODUCTION (M) KGS - 6 YEARS 1,600 LITEIN/CHELAL 18,324 3,776 9,375 1,950 1,191 949 1,454 1,400 MOMUL 17,053 2,369 7,188 1,801 1,288 1,016 1,233 TEGAT/TOROR 21,718 6,510 10,108 2,118 1,299 944 1,200 1,180 1,130 1,039 SUB-TOTAL 77,958 16,678 35,698 7,801 4,941 3,824 1,000 977 4. KIAMBU COUNTY

s 800 g

GACHEGE 4,766 1,202 4,139 988 679 597 K 600

KAGWE 6,890 2,004 6,387 1,650 1,153 988 llion KAMBAA 4,812 1,615 4,843 1,278 861 674 M i 400 MATAARA 4,305 1,746 4,548 1,126 785 591 200

THETA/NDARUGU 8,609 2,428 8,446 2,096 1,442 1,126 0 SUB-TOTAL 29,382 8,994 28,363 7,138 4,920 3,976 2015 2016 2017 2018 2019 2020 5. KIRINYAGA COUNTY KANGAITA 7,101 1,332 4,857 1,336 919 916 AVERAGE SELLING PRICE IN USD PER KG KIMUNYE 9,189 1,524 6,255 1,736 1,231 975 - 6 YEARS TREND 3.50 MUNUNGA 9,711 1,751 6,158 1,715 1,176 1,056 3.13 3.14 3.01 2.88 NDIMA 8,913 1,360 5,120 1,354 953 869 3.00 2.69 2.60 2.51 2.59 2.38 THUMAITA 11,102 1,440 5,893 1,564 1,119 921 2.50 2.16 2.08 1.87 SUB-TOTAL 46,016 7,406 28,284 7,706 5,398 4,737 2.00

6. KISII COUNTY 1.50

KIAMOKAMA/RIANYAMWAMU 21,595 2,682 5,132 1,073 596 562 1.00 Tea Prices in USD Tea NYAMACHE/ITUMBE 26,196 3,639 6,182 1,332 759 727 0.50

OGEMBO/EBEREGE 23,377 3,330 5,304 1,105 623 563 0.00 SUB-TOTAL 71,168 9,651 16,618 3,510 1,978 1,852 2015 2016 2017 2018 2019 2020 7. MERU COUNTY KTDA Average Prices Other Local Producers Average Prices GITHONGO 5,121 1,026 4,273 1,206 848 848 IMENTI 6,071 1,587 5,622 1,604 1,129 1,165 TOTAL INCOME IN BILLION KSH - 6 YEARS KIEGOI/IGEMBE 10,899 1,936 6,113 1,542 1,062 885 90 85.74 83.97 79.02 KINORO 9,344 2,016 5,871 1,551 1,104 1,092 80 78.31 69.77 KIONYO 9,797 2,327 5,366 1,417 970 1,020 70 63.53 MICHIMIKURU 10,125 2,269 4,916 1,114 671 907 60 SUB-TOTAL 51,357 11,162 32,160 8,435 5,785 5,917 50 8. MURANG’A COUNTY 40 GACHARAGE 5,518 1,233 4,287 1,195 830 718 30 Billions Kshs GATUNGURU 8,240 1,567 5,068 1,298 874 790 20 GITHAMBO 9,749 1,908 5,251 1,352 905 759 10 IKUMBI 7,135 1,519 5,411 1,420 1,004 875 0 KANYENYAINI 9,366 1,693 4,870 1,227 767 759 2015 2016 2017 2018 2019 2020 KIRU 7,710 1,599 5,325 1,376 877 816 TOTAL PAYMENT IN BILLION KSH - 6 YEARS MAKOMBOKI 6,565 2,196 6,838 1,844 1,311 1,173 70 61.91 62.35 NDUTI 5,973 1,208 4,305 1,084 741 651 60 57.44 NGERE 8,540 2,642 8,374 2,209 1,613 1,409 51.85 50 NJUNU 4,511 1,201 4,741 1,222 874 689 46.48

s 43.25 40

SUB-TOTAL 73,307 16,767 54,471 14,227 9,795 8,638 Ks h

9. NANDI COUNTY 30 illion s

CHEBUT/KAPTUMO 12,781 7,619 8,493 1,771 1,111 1,123 B 20 SUB-TOTAL 12,781 7,619 8,493 1,771 1,111 1,123 10 10. NYAMIRA COUNTY GIANCHORE 14,481 1,809 3,521 761 442 432 0 2015 2016 2017 2018 2019 2020 KEBIRIGO 15,475 1,954 3,877 850 487 421 In the last 6 years total cummulative payments to the NYANKOBA 17,820 1,919 3,955 881 531 436 farmers is Ksh 323.24 Billion. NYANSIONGO 13,597 2,780 5,957 1,275 826 609 SANGANYI 17,964 3,030 4,919 1,069 651 519 AVERAGE % OF NET INCOME PAID OUT TO THE GROWER TOMBE 22,108 2,842 4,009 844 472 473 JUNE 2020 SUB-TOTAL 101,445 14,334 26,239 5,679 3,409 2,889 2% Factory Costs 11. NYERI COUNTY 2% Labour CHINGA 7,494 1,538 4,589 1,205 764 706 3% Furnace Oil 2% Electricity GATHUTHI 8,185 1,473 4,224 1,179 748 644 2% 66% Fuelwood 3% Green Leaf GITUGI 5,979 1,049 3,542 1,006 658 532 Leaf Collection 3% Payment packing expenses IRIAINI 6,442 1,118 3,873 993 627 557 2% Admin costs FF RAGATI 7,551 1,394 4,431 1,135 740 649 4% Admin costs HO 4% SUB-TOTAL 35,651 6,572 20,660 5,518 3,537 3,089 Admin costs Mgt Fees 0% Depreciation 12. THARAKA NITHI COUNTY 7% WERU 9,918 1,664 5,086 1,234 881 894 SUB-TOTAL 9,918 1,664 5,086 1,234 881 894 KENYA TEA EXPORT MARKETS – % SHARE 13. TRANS NZOIA COUNTY Pakistan 34.6% KAPSARA 2,074 709 2,256 465 241 171 Egypt 19.3% SUB-TOTAL 2,074 709 2,256 465 241 171 UK 10.1% UAE 5.5% 14.VIHIGA / KAKAMEGA COUNTIES Sudan 4.4% MUDETE 11,767 1,794 3,614 754 430 502 Russia 3.9% SUB-TOTAL 11,767 1,794 3,614 754 430 502 Yemen 3.2% Kazakhstan 2.4% GRAND TOTAL 635,368 127,421 326,724 79,021 51,851 46,475 Afghanistan 1.7% Others 14.9% * OLENGURUONE IS IN NAKURU COUNTY 0 5 10 15 20 25 30 35 40 RELATED COMPANIES

KTDA MANAGEMENT SERVICES LIMITED Kenya Tea Packers Tea Growing, Processing, Renewable Energy Generation Tea Trading & Insurance Brokerage Micro Finance Tea Blending, Packing & Tea Machinery Fabrication Corporate Social Marketing & Support Services and Management Warehousing Services Services Marketing & Engineering Responsibility Global Leader in Quality Teas www.ktdateas.com SENIOR MANAGEMENT

Simeon Rugutt Wilson Muthaura John Bett Finance Director - KTDA General Manager General Manager, Management Services Human Resources & Administration Sales & Marketing (MS)

Lincoln Munyao Francis Miano Guyo Godana Dr. Simon Gikang’a General Manager - Group Audit General Manager - Technical General Manager Operations (MS) General Manager, (Freight) Services Chai Trading Company Limited

David Mbugua Brown Kanampiu Ndiga Kithae Waweru Karanja General Manager – ICT Group Head of Procurement Group Head of Corporate Affairs Group Head of Enterprise and Logistics Risk Management

BLACK CTC TEA MANUFACTURING PROCESS

1 2 3 4 5 6

WITHERING CTC FERMENTATION DRYING SORTING PACKING

Controlled process Cut, tear and curling The crushed leaves are The fermented tea Tea is graded by par- Tea is packed in special through which (CTC) of the leaf. spread on perforated belt is dried using hot ticle size and shape. paper sacks ready for moisture content in Breaking of the leaf under controlled conditions air which stops the (see last page for tea transport and sale fresh leaves is reduced cells allows oxidation of temperature, humidity, fermentation process grades) using, dry air. to start and aeration. Chemicals in and imparts the crushed leaves react in the black colour of tea presence of air turning the tea golden brown.. CORPORATE GOVERNANCE STATEMENT

orporate governance is the process and and experience. structure used to direct and manage business Caffairs of the company with the ultimate All KTDA Holdings’ subsidiaries (CTCL, KTDA MS, objective of increasing shareholder value. This is KETEPA, MIB, KTDA DMCC, Foundation, TEMEC, achieved by establishing a system of clearly defined KTPC and GLF) have a similar mix of directors (Non- authorities and responsibilities, which result in the Executive, Independent and Executive). Majority of system of internal controls that is regularly tested to the 54 KTDA MS-managed tea factory companies ensure effectiveness. have adopted affirmative action principles and have appointed independent (female) directors on their The Directors of KTDA [H] attach great importance boards. The few remaining are in the process of to the need to conduct the business and operations adopting the same. of the KTDA [H] Group, the KTDA MS managed tea factory companies with integrity and in accordance The roles of the Chairman and Managing Director are with the highest standards of governance practices separate. The Chairman provides overall leadership to and endorses the internationally developed and the Board without limiting the principles of collective accepted principles of good corporate governance. responsibility for board decisions.

KTDA Group recognizes the emphasis placed on The Managing Director is responsible to the Board directors and management’s responsibilities in the and takes responsibility for the effective and efficient Companies Act 2015 management of the Agency. The Board retains the overall responsibility for financial and operating The Board has adopted the code of best practice decisions and for monitoring performance of senior for corporate governance issued by the Centre management. The directors’ responsibilities are set of Corporate Governance of Kenya (CGK) and is out in the statement of Directors Responsibilities on focused on ensuring compliance with the guidelines Page 33. and principles of corporate governance. A code of conduct in pursuance of good corporate governance The Board meets every two months and has a formal practices and a directors manual/charter have been schedule of matters reserved to it. Directors are prepared for guidance of the board and employees required to disclose all areas of conflict of interest in carrying out their responsibilities. to the Board and are excluded from deliberating and voting on such areas of conflict. The Board has RESPONSIBILITIES access to the Company Secretary and independent The shareholders’ role is to appoint the board of professional advice in appropriate circumstances. directors and external auditors. The shareholders The key functions of the board is the identification consider and approve the company’s audited of current and future risks and to ensure that the accounts and approve payment of dividends to the necessary systems and controls are in place to enable shareholders. such risks to be measured, controlled and effectively monitored. BOARD OF DIRECTORS The Board of Directors is responsible and accountable The Board approves annual business plans and for the governance of the company, and is mandated budgets proposed by management; appoints the to conduct the business and operations of KTDA Managing Director/CEO, who reports to the Board [H] with integrity and in accordance with generally and ensures that succession is planned. It assesses accepted corporate governance principles. the viability of the company as a going concern, considers and recommends the payment of dividends It also provides policy direction in developing to shareholders, approves the company’s financial strategic business plans, goals and objectives as statements and is responsible for the integrity and well as evaluating management’s performance in reasonable presentation thereof. pursuing and achieving those goals. New directors undergo a formal induction process to Management is responsible for overseeing the day- ensure that they are fully familiar with the Agency’s to-day affairs for the company and implementing policies, organization structure and corporate the company’s operational and strategic policies and governance principles. Directors are subject to objectives. retirement by rotation.

The composition of the Board is set out on Page BOARD COMMITTEES 6. The KTDA [H] Board consists of twelve Non- The Board has constituted several committees Executive Directors, an independent director (in to assist in discharging its responsibilities and recognition of affirmative action enshrined in the obligations. However, the Board is cognizant of the Constitution of Kenya and best practices) and two fact that this does not detract it from its ultimate Executive Directors (the Managing Director (CEO) & accountability for the performance and governance Finance & Strategy Director). The Board is chaired of the company. The committees of the Board consist by a Non-Executive Director. All the Non-Executive of Non-Executive and Executive Directors and they and Independent Directors are independent of report regularly to the Board on their activities. management and have a diverse range of expertise Other members of management and outsourced

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 27 CORPORATE GOVERNANCE STATEMENT

service providers and experts may attend committee addition to the regular monitoring and reporting on meetings by invitation. Business Risks, we are progressively linking ERM to the group’s strategic plan and strategic objectives, The main committees of the Board are: Finance, with these two functions expected to work closer Investment and Strategy, Staff and Remuneration, together as the business environment continues to Risk Assurance & Governance, Nomination change. and Remuneration and International Business Development. The Risk Assurance and Governance ERM has also been entrenched deeper into Committee is Chaired by an independent director business performance initiatives as well as Quality and is made up of only non-executive directors. Management Systems, whereby our ISO 9001:2015 certification ensures that risks and opportunities are MANAGEMENT COMMITTEES addressed for each and every operating procedure. The Company has established Management Committees to oversee specific aspects of the In addition to using an enhanced risk-based approach group’s business and operations. These are in investing of surplus funds, we continue to monitor Management Tender Committee, Human Resources key risk indicators in all our functions, and are & Development Committee, Project Steering enhancing our compliance and business continuity Committee, Business Process Review and Risk management systems in accordance with industry Assessment Team, Marketing and Operations best practice. Committee and SAP implementation Committee. BUSINESS CONDUCT INTERNAL CONTROLS The Agency’s business is conducted within a The directors acknowledge their responsibilities as developed control framework, underpinned by policy set out on Page 33 for the Group’s systems of internal statements, documented procedures and control financial controls, including taking reasonable steps manuals. All operations are customer focused and in to ensure that systems are being maintained. Internal line with the requirements of ISO 9001:2015 Quality control systems are designed to meet the particular Management Systems. The Board has established needs of the Agency and the risks to which it is a management structure, which clearly defines exposed with procedures intended to provide roles, responsibilities and reporting lines. Delegated effective internal financial control. The board has authorities are documented and communicated reviewed the Agency’s internal control policies and accordingly. procedures and is satisfied that they are effective. PERFORMANCE REPORTING RISK MANAGEMENT The business performance of the Group is reported In today’s fast changing business environment, regularly to its management and the Board. Enterprise Risk Management has taken an increasingly Performance trends, forecasts as well as actual proactive role in all facets of the organisation. In

28 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CORPORATE GOVERNANCE STATEMENT performance against budgets are discussed in the and other obligations as a minimum.We passionately monthly Heads of Department and quarterly Board believe that all accidents and incidences are meetings. preventable so the company does its business safely and responsibly. Financial information is prepared using appropriate accounting policies, which are applied consistently. Staff Training & Development Operational procedures and controls have been KTDA believes that our people are an important established to facilitate complete, accurate and timely asset to the company. Our key to success is to fully processing of transactions and the safeguarding of develop and utilize the talents, strength, knowledge assets. These controls include segregation of duties, and skills of employees. We have implemented a regular reconciliation of accounts and valuation of well-established safety and health training program assets. which includes fire safety, emergency evacuation, occupational first aid, hygiene and staff wellness. The REMUNERATION POLICY company has also established emergency teams at The remuneration for non-executive directors factories and head office. These teams will assist in consists of directors fees paid on quarterly basis, identifying shortcomings that exist within ourselves monthly honoraria, sitting, mileage and other which eventually improves on how to respond on allowances for attending board and committee emergencies. meetings. Information and disclosures relating to the directors’ remunerations and salary emoluments paid to key management staff are contained in note 31(v) to the financial statements. The Company endeavors to review and approve competitive remuneration packages, which are designed to attract, retain and motivate staff. Salary packages are reviewed annually to ensure that they are competitive in line with the market rates.

SOCIAL RESPONSIBILITY STATEMENT The KTDA Foundation is the vehicle through which KTDA Holdings, its subsidiaries and KTDA MS managed factories carry out Corporate Social Responsibilities (CSR) for the benefit of over 612,000 small scale tea farmers. Greenland Fedha staff during the KTDA Holdings 2019 end year party

The Foundation runs programs along four pillars: Environmental Compliance Education, Health, Environment and Capacity The company in compliance with the national enhancement for Economic Empowerment. KTDA environmental waste regulations has increased its Holdings, working through the KTDA Foundation legal duty to ensure the best waste management endeavors to ensure business sustainability as a way options especially with the view of the plastic to deepen relationships with our farmers, clients and (carrier and flat bags) ban. KTDA values the principle partners throughout the tea value chain. of minimization of the waste generated by adopting cleaner production methods through conservation The Foundation is committed to partnering with of raw materials and energy, reducing emissions other organisations who share similar objectives to and wastes, enabling the recovery and re-use of work towards social development and empowerment certain materials where possible, and incorporating of the tea farming community. environmental concerns in the design in its new product improvement innovations. ETHICAL STANDARDS The Group conducts business in compliance with Looking Ahead ethical standards of business practice. The Agency Even with frequent legislative changes on the has prepared codes of conduct for directors and horizon, key areas associated with employees’ safety employees. The Code requires all to conduct and health will include:- business with the highest standards of personal and • Strengthening existing policies, practices and corporate integrity. processes to mitigate risks in typically all areas of our operations; HEALTH, SAFETY AND ENVIRONMENT REPORT • Continually engage with the HSE champions in all our sites in order to register positive change; HSE Policy and Golden Rules • Providing more coaching for all line managers to KTDA is committed to prevention of injury, ill build confidence in managing risks and health and activities that could be associated • Considerations of initiatives that will remunerate with environmental degradation. The company staff who commit to high standards on safety believes in the spirit of continual improvement of its culture. Health,Safety and Environment (HSE) management and performance together with complying with legal

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 29 CORPORATE SCENE

The commissioning of 2020 KTDA Foundation National Tea Majani Insurance Brokers General Manager Pauline Mwangi (4th from Scholarship Programme at Litein, Kericho County. Pictured is left) receives a dummy key for the new Majani Plaza from Bruce Kong of KTDA Foundation representative Elizabeth Njenga, KTDA Zone CRJE (East Africa) Ltd during a hand over of the building from the con- 9 Board Member Mr. Samuel Tonui (2nd left) and some of the tractor. The 13-storey tower along Koinange Street, Nairobi CBD features beneficiaries. 90 students benefitted from the programme. commercial and office space.

In solidarity with Kenyans, KTDA Holdings, its subsidiaries and KTDA-managed factories made a donation to the Kenya Covid-19 fund. Present during the awarding of the cheque were Ms. Jane W. Karuku, Chairperson, Kenya Covid-19 Fund and Managing Director, Kenya Breweries Lim- ited, Mr. Jeremy Awori, board member Kenya Covid-19 Fund and CEO, Absa Bank Kenya (right), and Mr. Lerionka Tiampati, CEO KTDA Holdings Limited.

KTDA team led by Francis Miano, GM Technical Services (3rd from Iran ambassador to Kenya Dr Jafar Barmaki (left) samples various right), with the trophy won by Kapsara Tea Factory during the En- tea grades when he visited Rorok Tea Factory. Beside him is Bomet ergy Management Awards held on Friday, 30th October 2020. governor Dr Hilary Barchok. Kenya and Iran are working to improve trade ties with tea seen as a key export commodity to the Middle East country.

30 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 DIRECTORS’ REPORT

The directors submit their report together with the audited financial statements for the year ended 30 June 2020, which discloses the state of affairs of Kenya Tea Development Agency Holdings Limited (“the Com- pany”) and its subsidiaries (together the “Group”).

PRINCIPAL ACTIVITIES

The principal activities of the Group are:

• The management of the small holder tea factory companies, marketing of their teas and value adding to ensure the best returns for the tea factories; • Provision of insurance brokerage services; • Warehousing, clearing and forwarding services; • Blending, packing and distribution of tea through appointed agencies; • Fabrications, installations, maintenance of products, supply of parts and specialized consumables; • Managing the regional power companies owned by factories; • Fostering of tea production in the country; and • Providing financial services to low income households within the tea sector in Kenya.

BUSINESS REVIEW

The Group’s performance

The Group’s profit for the year has decreased from Shs 2.07 billion reported in prior year to Shs 1.78 billion. The 14% decline is mainly attributed to the following:

• increase in costs due to inflation and staff rationalisation amounting to Shs 133 million; • one off write-back of cash received from imperial bank of Shs 334 million in the previous year; • recognition of depreciation on Right of Use asset of Shs 141 million and interest expense on lease liabilities of Shs 69 million on adoption of IFRS 16 and; • provision for expected credit losses on financial assets of Shs 87 million

Decline in gross profit was netted off by 3% increase is revenue attributed to an increase in management fees charged on tea sales (i.e. management fees from factories). Sales volume increased from 267 million kilograms in the previous year to 310 million kilograms in the current year. This was offset by a decrease in revenue from sale of loose tea and DSO sales and a decrease in the average price of tea per kilogram which reduced from USD 2.57 in prior year to USD 2.38 in the current year, representing a 9% decrease in the tea prices.

The ongoing global COVID-19 pandemic is having a devastating effect on livelihoods, businesses and econo- mies around the world. Restrictions on movement and social distancing measures implemented by Govern- ment have resulted in a slowdown in economic growth with some sectors more heavily impacted than others. The measures have subsequently been relaxed and the Groups operations are not significantly affected.

Management will continue to review the situation. The Board of Directors and management are not aware of any material uncertainties that call into question the entity’s ability to continue as a going concern.

In light of the above the directors are of the opinion that the Group will be operating as a going concern and have prepared these financial statements on a going concern basis.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 31 DIRECTORS’ REPORT

Key performance indicators

The table below highlights some of the key performance indicators for two years:

Group Performance indicators 2020 2019 Revenue (Shs million) 24,729 24,059 Gross profit 25% 24% Operating profit % 11.7% 12.4% Profit before tax % 10.9 % 11.9 % EBITDA 13 % 14% Net profit margin (net profit/net sales) 7% 9% Profit per share (Shs)(profit for the year/issued shares 3.5 4.1 Return on assets % 5% 6% Debt to assets ratio 22% 18% Current ratio 1.65: 1 1.62: 1 Quick ratio 1.40: 1 1.43: 1

DIVIDEND

The Group’s and Company’s profit after tax for the year of Shs 1,775,984,000 (2019: Shs 2,074,174,000) and Shs 750,979,000 (2019: Shs 1,505,725,000) respectively has been added to retained earnings. During the year the company paid a divided of Shs 683,358,000 (2019: 691,404,000). The directors propose a final dividend of Shs 733,951,000 (2019: Shs 683,358,000).

DIRECTORS

The directors who held office during the year and to the date of this report are set out on page 6.

DISCLOSURES TO AUDITOR

With respect to each director at the time this report was approved:

(a) there is so far as the director is aware, no relevant audit information of which the company’s auditor is unaware; and (b) the director has taken all steps that the director ought to have taken as a director so as to be aware of any relevant audit information and to establish that the Group’s and Company’s auditor is aware of that information.

TERMS OF APPOINTMENT OF AUDITORS

PricewaterhouseCoopers LLP continue in office in accordance with the Company’s Articles of Association and Section 719 of the Kenyan Companies Act, 2015.

The directors monitor the effectiveness, objectivity and independence of the auditor. This responsibility in- cludes the approval of the audit engagement contract and the associated fees on behalf of the shareholders.

By order of the Board

SECRETARY

29 October, 2020

32 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Kenyan Companies Act, 2015 requires the directors to prepare financial statements for each financial year that give a true and fair view of the financial position of the Company as at the end of the financial year and of its profit or loss for that year. The directors are responsible for ensuring that the Company keeps proper accounting records that are sufficient to show and explain the transactions of the Company; disclose with rea- sonable accuracy at any time the financial position of the Company; and that enables them to prepare financial statements of the Company that comply with prescribed financial reporting standards and the requirements of the Kenyan Companies Act, 2015. They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors accept responsibility for the preparation and presentation of these financial statements in ac- cordance with International Financial Reporting Standards and in the manner required by the Kenyan Compa- nies Act, 2015. They also accept responsibility for: i. Designing, implementing and maintaining internal control as they determine necessary to enable the prep- aration of financial statements that are free from material misstatements, whether due to fraud or error; ii. Selecting suitable accounting policies and then apply them consistently; and iii. Making judgements and accounting estimates that are reasonable in the circumstances.

Having made an assessment of the Group’s and Company’s ability to continue as a going concern, the direc- tors are not aware of any material uncertainties related to events or conditions that may cast doubt upon the Group’s and Company’s ability to continue as a going concern.

The directors acknowledge that the independent audit of the financial statements does not relieve them of their responsibility.

Approved by the Board of Directors on 29 October, 2020 and signed on its behalf by:

______Lerionka S. Tiampati Peter T. Kanyago Chief Executive Officer Chairman

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 33

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KENYA TEA DEVELOPMENT AGENCY HOLDINGS LIMITED

Report on the audit of the financial statements

Our opinion

We have audited the accompanying financial statements of Kenya Tea Development Agency Holdings Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 37 to 91, which comprise the consolidated statement of financial position at 30 June 2020 and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, together with the Company statement of profit or loss and other comprehensive income, Company statement of financial position at 30 June 2020, the statement of changes in equity and statement of cash flows for the Company for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion the accompanying financial statements of Kenya Tea Development Agency Holdings Limited give a true and fair view of the financial position of the Group and the Company at 30 June 2020 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our respon- sibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.

We are independent of the company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code.

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

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other informa- tion identified above and, in doing so, consider whether the other information is materially inconsist- ent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

With effect from 11 December 2019, PricewaterhouseCoopers, a partnership carrying on business under registration number BN.287839 was con- verted to PricewaterhouseCoopers LLP (LLP-2Y1AB7), a limited liability partnership under the Limited Liability Partnerships Act, 2011

PricewaterhouseCoopers CPA. PwC Tower, Waiyaki Way/Chiromo Road, Westlands P O Box 43963 – 00100 Nairobi, Kenya T: +254 (20)285 5000 F: +254 (20)285 5001 www.pwc.com/ke

Partners: E Kerich B Kimacia M Mugasa A Murage F Muriu P Ngahu R Njoroge S O Norbert’s B Okundi K Saiti

34 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act 2015, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and Com- pany’s ability to continue as a going concern, disclosing, as applicable, matters related to going con- cern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain profes- sional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evi- dence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to con- tinue 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. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Group’s financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 35

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on other matters prescribed by the Ken yan Companies Act, 2015

In our opinion the information given in the report of the directors on page 31 – 32 is consistent with the financial statements.

PricewaterhouseCoopers LLP (LLP-2Y1AB7) Certified Public Accountants Nairobi ______2020

CPA Kang’e Saiti – Practising Certificate No. 1652. Signing partner responsible for the independent audit

36 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Year ended 30 June

Notes 2020 2019 Shs’000 Shs’000

Revenue 5 24,728,756 24,058,563

Cost of sales (18,558,097) (18,304,983)

Gross profit 6,170,659 5,753,580

Other income 6 802,347 1,024,608 Administrative expenses 9 (2,302,368) (2,138,981) Other operating expenses (1,727,569) (1,634,336) Loss arising from changes in fair value less costs to 18 (45,280) (19,616) sell of biological assets

Operating profit 8 2,897,789 2,985,255

Finance costs 7 (380,087) (413,343) Finance income 7 192,197 286,297

Profit before income tax 2,709,899 2,858,209

Income tax expense 10 (933,915) (784,035)

Profit for the year 1,775,984 2,074,174

Attributable to: Equity holders of the Company 1,743,535 2,047,147 Non-controlling interest 32,449 27,027

1,775,984 2,074,174

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 37 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 30 June

Notes 2020 2019 Shs’000 Shs’000

Profit for the year 1,775,984 2,074,174

Other comprehensive income: Items that will not be subsequently reclassified to profit or loss, net of tax:

Gain/(loss) on fair valuation of financial assets 22 111,301 (736,879)

Deferred tax on fair valuation of financial assets (5,565) 36,844 Remeasurements of post-employment benefits gains 30 (8,619) 12,519 Deferred tax on remeasurements of post-employment benefits 30 2,155 (3,756)

Other comprehensive income / (loss) for the year 99,272 (691,272)

Total comprehensive income for the year 1,875,256 1,382,902

Attributable to:

Equity holders of the Company 1,843,657 1,354,986 Non-controlling interest 31,599 27,916

1,875,256 1,382,902

38 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Year ended 30 June

2020 2019 1,151,776 KShs’000 KShs’000

Management fees 5 568,578 521,723 Other income 6 1,151,673 1,721,776

1,720,251 2,243,499

Administrative expenses 9 (302,424) (280,804) Other expenses (414,553) (364,588) Loss arising from changes in fair value less costs to sell of biological assets 18 (45,280) (19,616)

Operating profit 957,994 1,578,491

Finance income 7 83,120 113,340

Profit before income tax 1,041,114 1,691,831

Income tax expense 10 (290,135) (186,106)

Profit for the year 750,979 1,505,725

Other comprehensive income: Items that will not be subsequently reclassified to profit or loss, net of tax;

Gain/(loss) on revaluation of financial assets 22 111,593 (736,679) Deferred tax on revaluation of financial assets (5,580) 36,834 Re-measurement of post-employment benefits gains 30 (396) 1,794 Deferred tax on re-measurements of post-employment 30 99 (538) benefits at 25%

Other comprehensive income/(loss) 105,716 (698,589)

Total comprehensive income for the year 856,695 807,136

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 39 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June Notes 2020 2019 KShs’000 Restated KShs’000 Capital and reserves Share capital 12 10,108 10,108 Other reserve 363,562 263,440 Retained earnings 16,370,308 15,310,131

16,743,978 15,583,679 Non-controlling interest 229,303 209,018 Total equity 16,973,281 15,792,697 Non-current liabilities Borrowings 25 4,249,590 2,824,563 Non – current payables 29 1,583,000 2,373,565 Lease liabilities 26 214,478 - Finance lease obligation 28 - 22,282 Provisions for other liabilities and charges 30 149,592 143,447

6,196,660 5,363,857

Total equity and non-current liabilities 23,169,941 21,156,554 Represented by Non-current assets Property, plant and equipment 15(a) 3,512,853 3,163,383 Investment properties 16 4,582,996 4,282,911 Right-of-use asset 26 513,882 - Intangible assets 17 212,813 304,940 Biological assets 18 14,634 84,091 Non-current receivables 20 2,677,863 1,741,315 Financial assets – FVTOCI 22 2,513,941 2,402,348 Deferred income tax 14 785,405 1,023,680

14,814,387 13,002,668 Current assets Inventories 21 3,221,091 2,456,093 Financial assets - FVTOCI 22 3,098 3,390 Trade and other receivables 23 9,503,954 10,338,649 Current income tax 124,797 50,757 Cash and cash equivalents 24 8,398,961 8,457,730

21,251,901 21,306,619 Current liabilities Borrowings 25 1,399,275 1,629,913 Bank overdrafts 25 2,301,968 1,626,077 Trade and other payables 29 8,839,487 9,878,535 Lease liabilities 26 355,617 - Finance lease obligation 28 - 18,208

12,896,347 13,152,733

Net current assets 8,355,554 8,153,886

23,169,941 21,156,554

The financial statements on pages 37 to 91 were approved for issue by the board of directors on 29 October, 2020 and signed on its behalf by:

L. S. Tiampati, MBS P.T. Kanyago, MBS, EBS Chief executive officer Chairman

40 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 COMPANY STATEMENT OF FINANCIAL POSITION

At 30 June

Notes 2020 2019 Shs’000 Shs’000

Capital and Reserves Share capital 1 2 10,108 10,108 Other reserves 13 366,288 260,572 Retained earnings 10,685,305 10,617,684

Shareholders’ funds 11,061,701 10,888,364

Non-current liabilities Borrowings 25 861,694 - Provisions for other liabilities and charges 30 27,070 45,829 Non – current payables 29 1,583,000 2,373,565

2,471,764 2,419,394

Equity and non-current liabilities 13,533,465 13,307,758

REPRESENTED BY Non-current assets Property, plant and equipment 15(b) 1,029,178 578,924 Investment properties 16 6,314,622 6,273,022 Intangible assets 17 3,444 - Biological assets 18 14,634 84,091 Investment in subsidiaries 19 1,811,038 1,646,038 Non-current receivables 20 6,315 94,018 Financial assets – FVTOCI 22 2,513,941 2,402,348 Deferred income tax 14 580,446 795,237

12,273,618 11,873,678

Current assets Inventories 21 9,388 5,636 Trade and other receivables 23 2,426,332 2,319,493 Cash and cash equivalents 24 5,673,543 5,317,311

8,109,263 7,642,440 Current liabilities

Borrowings 25 216,630 - Trade and other payables 29 6,534,492 6,110,904 Current income tax 98,294 97,456

6,849,416 6,208,360

Net current assets 1,259,847 1,434,080

NET ASSETS 13,533,465 13,307,758

The financial statements on pages 37 to 91 were approved for issue by the board of directors on 29 October, 2020 and signed on its behalf by:

L. S. Tiampati, MBS P.T. Kanyago, MBS, EBS Chief executive officer Chairman

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share Other Retained Non-con- Total capital reserves earnings trolling equity interest Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Year ended 30 June 2019

At start of year 10,108 955,601 14,020,114 187,790 15,173,613

Impact of adoption of IFRS 9, net of tax - - 25,557 (755) 24,802 Impact of adoption of IFRS 15 - - (91,283) - (91,283) Profit for the year - - 2,047,147 27,027 2,074,174 Other comprehensive income: Fair value loss on financial assets - (700,002) - (33) (700,035) Re-measurement of post-employment benefits; net of tax - 7,841 - 922 8,763

Total other comprehensive income - (692,161) - 889 (691,272)

Total comprehensive income for the year - (692,161) 1,981,421 27,161 1,316,421

Transactions with owners: - Final dividends paid - - (691,404) (5,933) (697,337)

At end of year 10,108 263,440 15,310,131 209,018 15,792,697

Year ended 30 June 2020

At start of year 10,108 263,440 15,310,131 209,018 15,792,697

Profit for the year - - 1,743,535 32,449 1,775,984 Other comprehensive income: Fair value gain on financial assets eferred tax) - 105,734 - 2 105,736 Re-measurement of post-employment benefits, net of tax - (5,612) - (852) (6,464)

Total other comprehensive income / (loss) - 100,122 - (850) 99,272

Total comprehensive income for the year - 100,122 1,743,535 31,599 1,875,256

Transactions with owners: - Final dividends paid - - (683,358) (11,314) (694,672)

At end of year 10,108 363,562 16,370,308 229,303 16,973,281

42 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 COMPANY STATEMENT OF CHANGES IN EQUITY

Share Other re- Retained Total equity capital serves earnings Shs’000 Shs’000 Shs’000 Shs’000 Year ended 30 June 2019

At start of year 10,108 959,161 9,805,338 10,774,607

Impact of adoption of IFRS 9, net of tax - - (1,975) (1,975) Profit for the year - - 1,505,725 1,505,725 Other comprehensive income:

Fair value loss on financial assets – FVTOCI - (699,845) - (699,845)

Remeasurement of post-employment benefits, net - 1,256 - 1,256 of tax

Total other comprehensive income - (698,589) - (698,589)

Total comprehensive income for the year - (698,589) 1,503,750 805,161

Transactions with owners: - Final dividends paid - - (691,404) (691,404)

At end of year 10,108 260,572 10,617,684 10,888,364

Year ended 30 June 2020

At start of year 10,108 260,572 10,617,684 10,888,364

Profit for the year - - 750,979 750,979

Other comprehensive income: Fair value loss on financial assets, net of tax - 106,013 - 106,013

Remeasurement of post-employment benefits - (297) - (297)

Total other comprehensive income - 105,716 - 105,716

Total comprehensive income for the year - 105,716 750,979 856,695

Transactions with owners:

- Final dividends paid (2019) - - (683,358) (683,358)

At end of year 10,108 366,288 10,685,305 11,061,701

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 43 CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 30 June

2020 2019 Notes Shs’000 Shs’000

Cash flows from operating activities Cash generated from operations 31 (a) 543,704 3,553,330 Interest received 7 192,197 283,076 Interest paid 7 (218,780) (413,343) Income tax paid (562,861) (898,480)

Net cash (used in) / generated from operations (45,740) 2,524,583

Cash flows from investing activities Proceeds from sale of financial assets FVTOCI - 562 Purchase of property, plant and equipment 15 (623,292) (403,696) Purchase of investment property 16 (221,496) (252,986) Purchase of intangible assets 17 (11,214) (6,250) Proceeds from disposal of property, plant and equipment 4,668 42,242 Proceeds from sale of biological assets 18 24,177 - Dividend received 6 51,527 646

Net cash used in investing activities (775,630) (619,482)

Cash flows from financing activities Proceeds from borrowings 25 2,634,899 2,265,861 Payment of borrowings 25 (1,656,043) (2,764,552) Dividend paid (683,358) (691,404) Lease payments 26 (208,788) - Finance lease obligation 28 - (42,689)

Net cash generated from / (used in) financing activities 86,710 (1,232,784)

Net (decrease) / increase in cash and cash equivalents (734,660) 672,317

At start of year 6,102,920 4,702,558 Movement in restricted cash 24 242,909 728,045

At end of year 24 5,611,169 6,102,920

44 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 COMPANY STATEMENT OF CASH FLOWS

Year ended 30 June

2020 2019 Notes Shs’000 Shs’000

Cash flows from operating activities Cash generated from / (used in) operations 31 (b) 79,217 (559,520) Interest received 7 83,120 113,340 Income tax paid (84,319) (173,179)

Net cash generated from / (used in) operations 78,018 (619,359)

Cash flows from investing activities Purchase of property, plant and equipment 15 (516,999) (211,047) Purchase of investment property 16 (23,237) (70,590) Proceeds from disposal of property, plant and equipment 680 2,108 Proceeds from sale of biological assets 18 24,177 - Investment in subsidiary companies 19 (165,000) - Dividend received 6 590,053 701,276

Net cash (used in) / generated from investing activities (90,326) 421,747

Cash flows from financing activities Proceeds from borrowings 25 1,052,500 - Payment of borrowings 25 (602) (56,228) Dividend paid (683,358) (691,404)

Net cash generated from / (used in) financing activities 368,540 (747,632)

Net increase / (decrease) in cash and cash equivalents 356,232 (945,244)

At start of year 4,588,578 4,805,777 Movement in restricted cash 24 242,909 728,045

At end of year 24 5,187,719 4,588,578

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 45 NOTES TO THE FINANCIAL STATEMENTS

1. General information rospective method where the comparative period is not restated. Kenya Tea Development Agency Holdings Limited is incorporated in Kenya under the Companies Act as On adoption of IFRS 16, the Group and Company a public limited liability Company, and is domiciled in recognised lease liabilities in relation to leases which Kenya. The address of its registered office is: had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities KTDA Farmers Building were measured at the present value of the remaining Moi Avenue / Ronald Ngala lane, Nairobi, Kenya. lease payments, discounted using the lessee’s incre- mental borrowing rate of 12%. For the Kenyan Companies Act reporting purposes, the balance sheet is represented by the statement In applying IFRS 16 for the first time, the Group and of financial position and the profit and loss account Company have used the following practical expedi- by the statement of comprehensive income, in these ents permitted by the standard: financial statements. • applying a single discount rate to a portfolio of 2. Summary of significant accounting policies leases with reasonably similar characteristics; • relying on previous assessments on whether leas- The principal accounting policies adopted in the es are onerous as an alternative to performing an preparation of these financial statements are set out impairment review – there were no onerous con- below. These policies have been consistently applied tracts as at 1 July 2019; to all years presented, unless otherwise stated. • accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 (a) Basis of preparation as short-term leases; • excluding initial direct costs for the measurement The financial statements are prepared in compliance of the right-of-use asset at the date of initial ap- with International Financial Reporting Standards plication; and (IFRS). The measurement basis applied is the histori- • using hindsight in determining the lease term cal cost basis, except where otherwise stated in the where the contract contains options to extend or accounting policies below. The financial statements terminate the lease. are presented in Kenya Shillings (Shs), rounded to the nearest thousand. The Group and Company has elected not to reassess whether a contract is / or contains a lease at the date The preparation of financial statements in conform- of initial application. Instead, for contracts entered ity with IFRS requires the use of certain critical ac- into before the transition date, the Group and Com- counting estimates. It also requires management to pany relied on its assessment made applying IAS 17 exercise its judgement in the process of applying the and Interpretation 4 Determining whether an Ar- Group’s accounting policies. The areas involving a rangement contains a Lease. higher degree of judgement or complexity, or where assumptions and estimates are significant to the fi- The right-of-use assets were measured at the amount nancial statements, are disclosed in Note 3. equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to Changes in accounting policy and disclosures that lease recognised in the statement of financial statement as at 30 June 2019. See note 26 for further (i) New standards, amendments and interpretations details adopted by the Group and Company IFRS 16: Leases was issued in January 2016. The The associated lease liabilities have been recognised standard results in almost all leases being recog- under non-current liabilities and current liabilities nised on the statement of financial position, as the based on the timing of the expected cash outflows. distinction between operating and finance leases See Note 26 for further details. is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability Based on the above, as at 1 July 2019: to pay rentals are recognised. The only exceptions are short term and low-value leases. The accounting • Right-of-use assets of KShs 654,976,000 were for lessors will not significantly change. recognised and presented in the statement of fi- nancial position within ‘’Right-of-use assets”. The standard is mandatory for financial years com- • Lease liabilities of KShs 654,976,000 were recog- mencing on or after 1 January 2019. nised.

In accordance with the transition provisions in IFRS The adoption of IFRS 16 had no impact on the Group’s 16, the Group has elected to use the modified ret-

46 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

and Company’s retained earnings. As permitted by Inter-company transactions, balances and unrealised the transition provision in the new standard, compar- gains on transactions between Group companies are ative amounts have not been restated. eliminated. Unrealised losses are also eliminated un- less the transaction provides evidence of an impair- (ii) New standards and interpretations not yet ment of the asset transferred. Accounting policies of adopted subsidiaries have been changed where necessary to Certain new accounting standards, amendments ensure consistency with the policies adopted by the and interpretations have been published that are not Group. mandatory for 30 June 2020 reporting periods and have not been early adopted by the Group. These (ii) Change in ownership interests in subsidiaries standards are not expected to have a material im- without change of control pact in the current or future reporting periods and The Group treats transactions with non-controlling on foreseeable future transactions. interests as transactions with equity owners of the Group. For purchases from non-controlling interests, (b). Consolidation the difference between any consideration paid and the relevant share acquired of the carrying value of (i) Subsidiaries net assets of the subsidiary is recorded in equity. Subsidiaries are all entities (including structured en- Gains or losses on disposals to non-controlling inter- tities) over which the Group has control. The Group ests are also recorded in equity. controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement (iii) Disposal of subsidiaries with the entity and has the ability to affect those re- When the Group ceases to have control or signifi- turns through its power over the entity. Subsidiaries cant influence, any retained interest in the entity is are fully consolidated from the date on which control remeasured to its fair value, with the change in car- is transferred to the Group. They are deconsolidated rying amount recognized in profit or loss. The fair from the date that control ceases. value is the initial carrying amount for the purposes of subsequently accounting for the retained interest The Group uses the acquisition method of account- as an associate, joint venture or financial asset. In ad- ing to account for business combinations. The con- dition, any amounts previously recognized in other sideration transferred for the acquisition of a sub- comprehensive income in respect of that entity are sidiary is the fair values of the assets transferred, the accounted for as if the Group had directly disposed liabilities incurred and the equity interests issued by of the related assets or liabilities. This may mean that the Group. The consideration transferred includes amounts previously recognized in other comprehen- the fair value of any asset or liability resulting from a sive income are reclassified to profit or loss. contingent consideration arrangement. Acquisition- related costs are expensed as incurred. Identifiable (iii) Group companies assets acquired and liabilities and contingent liabili- The results and financial position of all the Group en- ties assumed in a business combination are measured tities (none of which has the currency of a hyperin- initially at their fair values at the acquisition date. On flationary economy) that have a functional currency an acquisition-by-acquisition basis, the Group rec- different from the presentation currency are trans- ognises any non-controlling interest in the acquirer lated into the presentation currency as follows: either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. (i) assets and liabilities for each statement of fi- nancial position presented are translated at the Investments in subsidiaries are accounted for at cost closing rate at the end of the reporting period; less impairment. Cost is adjusted to reflect changes (ii) income and expenses for each income state- in consideration arising from contingent considera- ment amount are translated at average ex- tion amendments. Cost also includes direct attribut- change rates (unless this average is not a rea- able costs of investment. sonable approximation of the cumulative effect of the rates prevailing on the transaction dates, The excess of the consideration transferred, the in which case income and expenses are trans- amount of any non-controlling interest in the ac- lated at the dates of the transactions); and quiree and the acquisition-date fair value of any pre- (iii) all resulting exchange differences are recog- vious equity interest in the acquiree over the fair val- nised in other comprehensive income in the cur- ue of the identifiable net assets acquired is recorded rency translation reserve. as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously On consolidation, exchange differences arising from held interest measured is less than the fair value of the translation of the net investment in foreign en- the net assets of the subsidiary acquired in the case tities are taken to statement of other comprehen- of a bargain purchase, the difference is recognised sive income. When a foreign operation is sold, such directly in the statement of profit or loss. exchange differences are recognised in the income statement as part of the gain or loss on sale.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 47 NOTES TO THE FINANCIAL STATEMENTS

er, the type of transaction and the specifics of each (c) Functional currency and translation of foreign arrangement. currencies Revenue is recognised as follows: (i) Functional and presentation currency (i) Rental Income – This is revenue from tenants Items included in the financial statements of each who occupy the Group properties. The Group of the Group’s entities are measured using the cur- rents out property to tenants who are billed rency of the primary economic environment in which based on tenancy agreements the entity operates (‘the Functional Currency’). The (ii) Management fees income – This is revenue consolidated financial statements are presented in from management services offered to KTDA Kenya Shillings, which is the Group’s Functional Cur- factories and Regional Power Companies. The rency. Group sells teas on behalf of factories and earns a management fee of 2.5% of the net tea sales (ii) Transactions and balances of the respective factory. The Group also offers Foreign currency transactions are translated into the management services offered to regional pow- Functional Currency using exchange rates prevailing er companies. Management services include fi- at the dates of the transactions or valuation where nance and administration services for which the items are re-measured. Foreign exchange gains and companies earns a management fee of 5% of losses resulting from the settlement of such transac- the RPC’s net revenue. Currently, the amount is tions and from the translation at year-end exchange billed to factories once the teas from the respec- rates of monetary assets and liabilities denominated tive factory has been sold. in foreign currencies are recognised in the income (iii) Freight and Warehousing revenue – this is reve- statement. nue recognized from transportation and storage of teas for the Factories and various other cus- Foreign exchange gains and losses that relate to bor- tomers. Currently, the amount is charged to the rowings and cash and cash equivalents are present- customers once the teas have been delivered to ed in the income statement within ‘finance income the warehouses for storage. or cost’. All other foreign exchange gains and losses (iv) Interest and fee & commission income – This are presented in the income statement within ‘other revenue is recognised from the interest earned income’ or ‘other expenses’. from the outstanding loans that are issued to customers. Currently, the amount is charged at Translation differences related to changes in amor- an interest rate to the customers for the out- tised cost are recognised in profit or loss, and other standing loans as at the end of the year. The changes in carrying amount are recognised in other interest income on the loans should be earned comprehensive income. using the effective interest rate (v) Consultancy and project management income Translation differences on non-monetary financial – This is revenue from offering of consultancy assets and liabilities, such as equities held at fair val- and project management services to regional ue through profit or loss, are recognised in profit or power companies. The Company offers consul- loss as part of the fair value gain or loss. Translation tancy services in the following areas; feasibility differences on non-monetary financial assets, such study, design, tendering, contracting & negotia- as equities classified as available-for-sale financial tions and project execution. The Company earns assets, are included in other comprehensive income. a consultancy fee of 10% and project manage- ment fee of 2.5% of the project contract price (d) Revenue recognition respectively. Currently, each phase of the project is treated as a separate milestone (performance The Group recognises revenue for direct sales of obligation) of which a contract price is appor- goods and services. Revenue is recognised as and tioned. Revenue is recognised on completion of when the Group satisfies a performance obligation each project milestones. by transferring control of a product to a customer. (vi) Installations revenue – this is revenue recognized Revenue is shown net of value-added tax (VAT), re- from installations done on machines to custom- turns, rebates and discounts and after eliminating ers. sales within the Group. (e) Property, plant and equipment Revenue is recognised when the amount of rev- enue can be reliably measured, it is probable that All property, plant and equipment are stated at his- future economic benefits will flow to the entity and torical cost less depreciation. Historical cost includes when specific criteria have been met for each of the expenditure that is directly attributable to the acqui- Group’s activities as described below. The amount of sition of the items. revenue is not considered to be reliably measurable until all contingencies relating to the sale have been Subsequent costs are included in the asset’s car- resolved. The Group bases its estimates on historical rying amount or recognised as a separate asset, results, taking into consideration the type of custom- as appropriate, only when it is probable that future

48 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

economic benefits associated with the item will flow would otherwise meet the definition of an investment to the Group and the cost of the item can be meas- property and the lessee uses the fair value model to ured reliably. All other repairs and maintenance are recognise the asset. This classification alternative is charged to the income statement during the finan- available on a property-by-property basis. However, cial period in which they are incurred. once this classification alternative is selected for one such property interest held under an operating lease, Freehold land is not depreciated. Depreciation on all property classified as investment property shall be other assets is calculated using the straight line accounted for using the fair value model. method to allocate their cost less their residual val- ues over their estimated useful lives, as follows: (g) Intangible assets

Buildings 40 years Intangible assets acquired separately are measured Leasehold improvements 10 years on initial recognition at cost. Subsequently, amortisa- Motor vehicles 4 years tion and accumulated impairment losses are netted Equipment and furniture 8 – 10 years from the cost. Expenditure on internally generated Computers 3.3 years intangible assets, excluding capitalised development Plant and machinery 13.3 years costs, is reflected in profit or loss in the year in which Road works 5 years it is incurred. Tea plantation Remaining useful life Intangible assets with finite lives are amortised on The assets’ residual values and useful lives are re- a straight-line basis over their useful economic lives viewed, and adjusted if appropriate, at each state- from the date they are available for use, up to a maxi- ment of financial position date. mum of three years. Intangible assets are assessed for impairment whenever there is an indication that An asset’s carrying amount is written down immedi- an intangible asset may be impaired. ately to its estimated recoverable amount if the as- set’s carrying amount is greater than its estimated The amortisation period and the amortisation meth- recoverable amount. od for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Gains and losses on disposal of property, plant and equipment are determined by reference to their car- Changes in the expected useful life or the expected rying amount and are included in the income state- pattern of consumption of future economic benefits ment. embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, (f) Investment property and are treated as changes in accounting estimates. The amortisation expense on intangible assets with Investment properties include properties held for ap- finite lives is recognised in profit or loss in- theex preciation of capital or as a source of rental income pense category consistent with the function of the or both. They are measured Investment properties intangible asset. Periodic software maintenance are measured initially at cost, including transaction costs are recognised as an expense when incurred. costs, and excluding the costs of day to day servic- ing of an investment property. Subsequent to initial Gains or losses arising from derecognising of an in- recognition, investment properties are stated at fair tangible asset are measured as the difference be- value, which reflects market conditions at the report- tween the net disposal proceeds and the carrying ing date. Gains or losses arising from changes in the amount of the asset and are recognised in profit or fair values of investment properties are included in loss when the asset is derecognised. profit or loss in the year in which they arise. (h) Impairment of non-financial assets Investment properties are derecognised when either they have been disposed of or when the investment Assets that have an indefinite useful life are not sub- property is permanently withdrawn from use and no ject to amortisation and are tested annually for im- future economic benefit is expected from its dispos- pairment. Assets that are subject to amortisation al. Any gains or losses on the retirement or disposal are reviewed for impairment whenever events or of an investment property are recognised in profit or changes in circumstances indicate that the carrying loss in the year of retirement or disposal. amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s Transfers are made to or from investment property carrying amount exceeds its recoverable amount. only when there is a change in use. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. A property interest that is held by a lessee under an operating lease may be classified and accounted for For the purposes of assessing impairment, assets as investment property if, and only if, the property are grouped at the lowest levels for which there are

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 49 NOTES TO THE FINANCIAL STATEMENTS

separately identifiable cash flows (cash-generating purchases and sales of financial assets are recog- units). Non-financial assets other than goodwill that nised on trade-date, the date which the Group com- suffered impairment are reviewed for possible rever- mits to purchase or sell the asset. sal of the impairment at each reporting date. At initial recognition, the Group measures a finan- (i) Financial assets and liabilities cial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial Measurement methods liability not at fair value through the profit or loss, transaction costs that are incremental and directly Amortised cost and effective interest rate attributable to the acquisition or issue of the finan- The amortised cost is the amount at which the fi- cial asset or financial liability, such fees and commis- nancial asset or financial liability is measured at ini- sions. Transaction costs of financial assets and finan- tial recognition minus the principal repayments, plus cial liabilities are carried at fair value through profit or minus the cumulative amortisation using the ef- or loss are expensed in profit or loss. Immediately fective interest method of any difference between after the initial recognition, an expected credit loss that initial amount and, for financial assets, adjusted allowance (ECL) is recognised for the financial as- for any loss allowances. sets measured at amortised cost and investments in debt instruments measured at FVOCI, which results The effective interest rate is the rate that exactly dis- in an accounting loss being recognised in profit or counts estimated future cash payments or receipts loss when an asset is newly originated. through the expected life of the financial asset or financial liability to the gross carrying amount of When the fair value of financial assets and liabilities a financial asset (i.e. its amortised cost before any differs from the transaction price on initial recogni- impairment allowance) or to the amortised cost of tion, the entity recognises the difference as follows: a financial liability. The calculation does not consid- er expected credit losses and includes transaction (a) When the fair value is evidenced by a quoted costs, premiums or discounts and fees paid or re- price in an active market for an identical asset or ceived that are integral to the effective interest rate, liability (i.e. Level 1 input) or based on a valuation such as origination fees. For purchased or originat- technique that uses only data from observable ed credit-impaired financial assets – assets that are markets, the difference is recognised as a gain or credit-impaired at initial recognition, the Group cal- loss. culates the credit- adjusted effective interest rate, (b) In all other cases, the difference is deferred and which is calculated based on the amortised cost the timing of recognition of deferred day one of the financial asset instead of its gross carrying profit or loss is determined individually. It is ei- amount and incorporates the impact of expected ther amortised over the life of the instrument, credit losses in estimated future cash flows. deferred until the instrument’s fair value can be determined using market observable inputs, or When the Group revises the estimates of future cash realised through settlement. flows, the carrying amount of the respective finan- cial asset or financial liability is adjusted to reflect Financial assets the new estimate discounted using the original ef- fective interest rate. Any changes are recognised in (i) Classification and measurement the profit or loss account. The Group classifies its financial assets in the follow- ing measurement categories: Financial assets and liabilities are offset and the net • Amortised cost amount reported in the statement of financial posi- • Fair value through other comprehensive income tion when there is a legally enforceable right to off- • Fair value through profit or loss set the recognised amounts and there is an inten- tion to settle on a net basis or realise the asset and (ii) Impairment settle the liability simultaneously. The Group assesses on a forward-looking basis the expected credit losses (“ECL”) associated with its Interest income assets carried at amortised cost and with the expo- sure arising from loan commitments and financial Interest income and interest expense on interest guarantee contracts. The Group recognises a loss al- bearing financial instruments is calculated by apply- lowance for such losses at each reporting date. The ing the effective interest rate to the gross carrying measurement of ECL reflects: amount. • An unbiased and probability-weighted amount that is determined by evaluating a range of Initial recognition and measurement possible outcomes; Financial assets and financial liabilities are recog- • The time value of money; and nised when the entity becomes a party to the con- • Reasonable and supportable information that is tractual provisions of the instrument. Regular way available without undue cost or effort at the re-

50 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

porting date about past events, current conditions stantially all of the risks and rewards. These transac- and forecasts of future economic conditions. tions are accounted for as “pass through” transfers that result in derecognition if the Group: (iii) Modification of loans The Group sometimes renegotiates or otherwise (i) Has no obligation to make payments unless it modifies the contractual cash flows of loans to cus- collects equivalent amounts from the assets tomers. When this happens, the Group assesses (ii) Is prohibited from selling or pledging the assets; whether or not the new terms are substantially dif- and ferent to the original terms. The Group does this by (iii) Has an obligation to remit any cash it collects considering, among others, the following factors: from assets without material delays • If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash Financial liabilities flows to amounts the borrower is expected to be able to pay. (i) Classification and subsequent measurement • Insertion of collateral, other security or credit en- In both the current period and prior period, financial hancement that significantly affect the credit risk liabilities are classified as subsequently measured at associated with the loan. amortised cost, except for: • Financial liabilities at fair value through profit or If the terms are substantially different, the Group loss such as derivatives, financial liabilities held derecognises the original financial asset and recog- for trading (e.g. short positions in the trading nises a “new” asset at fair value and recalculates a booking) and other financial liabilities designated new effective interest rate for the asset. The date of as such at initial recognition. Gains or losses on fi- renegotiation is consequently considered to be the nancial liabilities designated at fair value through date of initial recognition for impairment calculation profit or loss are presented partially in other com- purposes, including for the purpose of determining prehensive income (the amount of change in the whether a significant increase in credit risk has oc- fair values of the financial liability that is attribut- curred. able to changes in the credit risk of that liability) and partially profit or loss (the remaining amount However, the Group also assesses whether the new of change in the fair value of the liability); financial asset recognised is deemed to be credit- • Financial liabilities arising from the transfer of fi- impaired at initial recognition, especially in circum- nancial assets which did not qualify for derecog- stances where the renegotiation was driven by the nition, whereby a financial liability is recognised debtor being unable to make the originally agreed for the consideration received for the transfer. In payments. Differences in the carrying amount are subsequent periods, the Group recognises any also recognised in profit or loss as a gain or loss on expense incurred on the financial liability; and derecognition. • Financial guarantee contracts and loan commit- ments If the terms are not substantially different, the rene- gotiation or modification does not result in derecog- (ii) Derecognition nition, and the Group recalculates the gross carrying Financial liabilities are derecognised when they are amount based on the revised cash flows of the finan- extinguished (i.e. when the obligation specified in cial asset and recognises a modification gain or loss the contract is discharged, cancelled or expires). in profit or loss. The new gross carrying amount is re- calculated by discounting the modified cash flows at The exchange between the Group and its original the original effective interest rate of credit-adjusted lenders of debt instruments with substantially differ- effective interest rate for POCI financial assets. ent terms, as well as substantial modification of the terms of the existing financial liabilities, are account- (iii) Derecognition ed for as an extinguishment of the original financial Financial assets, or a portion thereof, are derecog- liability and the recognition of a new financial liabil- nised when the contractual rights to receive the cash ity. The terms are substantially different if the dis- flows from the assets have expired, or when they counted present value of the cash flows under the have been transferred and either: new terms, including any fees paid net of any fees (i) the Group transfers substantially all the risks and received and discounted using the original effective rewards of ownership, or interest rate, is at least 10% different from the dis- (ii) the Group neither transfers nor retains sub- counted present value of the remaining cash flows stantially all the risks and rewards of ownership and of the original financial liability. In addition, other the Group has not retained control. qualitative factors, such as the currency that the instrument is denominated in, changes in the type The Group enters into transactions where it retains of interest rate, new conversion features attached the contractual rights to receive cash flows from to the instrument and change in covenants are also assets but assumes a contractual obligation to pay taken into consideration. If the exchange of debt in- those cash flows to other entities and transfers sub- struments or modification of terms is accounted for

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 51 NOTES TO THE FINANCIAL STATEMENTS

as an extinguishment, any costs or fees incurred are recognised in profit or loss on a straight-line basis recognised as part of the gain or loss on the extin- over the lease period. guishment. If the exchange of modification is not ac- counted for as an extinguishment, any costs or fees The Group’s and Company’s accounting policy for incurred adjust the carrying amount of the liability leases under which the Group and Company was les- and are amortised over the remaining term of the see was, up to 30 June 2019, as follows: modified liability. Leases in which a significant portion of the risks and Offsetting financial assets and financial liabilities rewards of ownership are retained by the lessor are classified as operating leases. Payments made under Financial assets and liabilities are offset and the net operating leases are charged to profit or loss on a amount reported in the statement of financial posi- straight-line basis over the period of the lease. tion when there is a legally enforceable right to off- set the recognised amounts and there is an inten- (k) Inventories tion to settle on a net basis or realise the asset and settle the liability simultaneously. Inventories are stated at the lower of cost and net realisable value. Cost is determined by the weight- (j) leases ed average method. The cost of finished goods and work in progress comprises raw materials, direct On the commencement date of each lease (exclud- labour, other direct costs and related production ing leases with a term, on commencement, of 12 overheads (based on normal operating capacity), months or less and leases for which the underlying but excludes borrowing costs. Net realisable value is asset is of low value) the Group and Company rec- the estimated selling price in the ordinary course of ognise a right-of-use asset and a lease liability. business, less the costs of completion and applicable variable selling expenses. The lease liability is measured at the present value of the lease payments that are not paid on that date. (l) Share capital The lease payments include fixed payments, vari- able payments that depend on an index or a rate, Ordinary shares and preference shares are classified amounts expected to be payable under residual val- as ‘share capital’ in equity. ue guarantees, and the exercise price of a purchase option if the Group and Company is reasonably cer- (m) Cash and cash equivalents tain to exercise that option. The lease payments are discounted at the interest rate implicit in the lease. If Cash and cash equivalents includes cash in hand, de- that rate cannot be readily determined, the Group’s posits held at call with banks, other short term highly and Company’s incremental borrowing rate is used. liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts Subsequently, the lease liability is measured at am- are shown within borrowings in current liabilities on ortised cost, subject to remeasurement to reflect the statement of financial position. any reassessment, lease modifications, or revised fixed lease payments. (n) Bank deposits

The right-of-use asset is initially measured at cost Bank deposits with maturities greater than 3 months comprising the initial measurement of the lease li- do not qualify to be disclosed as cash and cash ability, any lease payments made on or before the equivalents. commencement date, any initial direct costs in- curred, and an estimate of the costs of restoring the (o) Employee benefits underlying asset to the condition required under the terms of the lease. (i) Retirement benefit obligations The Group operates a defined contribution retire- Right-of-use assets are depreciated over the lease ment benefit scheme for its permanent employees. term on a straight-line basis. If the Group and Com- A defined contribution scheme is a pension plan un- pany is reasonably certain to exercise a purchase der which the Group pays fixed contributions into a option, the right-of-use asset is depreciated over separate entity. The Group has no legal or construc- the underlying asset’s useful life. The useful life was tive obligations to pay further contributions if the as below: fund does not hold sufficient assets to pay all em- - Warehousing 5 – 10 years ployees the benefits relating to employee service in - Offices 10 years the current and prior periods.

For leases with a term, on commencement, of 12 A defined benefit plan is a pension plan that is not a months or less and leases for which the underlying defined contribution plan. asset is of low value, the total lease payments are

52 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

(ii) Gratuity ity of withdrawal. In the case of an offer made to The Group pays a gratuity to management staff on encourage voluntary redundancy, the termination contract. The gratuity is paid at the end of the con- benefits are measured based on the number of em- tract period at the rate of 25% of total basic salary ployees expected to accept the offer. Benefits falling over the contract period. An accrual is made for gra- due more than 12 months after the end of the report- tuity based on the rate of 25%. ing period are discounted to their present value.

Service gratuity is provided in the financial state- (p) Income tax expense ments as it accrues to each employee for Chai Trad- ing and Kenya Tea Packers Limited. A provision is The tax expense for the period comprises current made for the estimated liability for such entitlements and deferred income tax. Tax is recognised in the in- as a result of services rendered by employees up to come statement except to the extent that it relates the financial reporting date. to items recognised in other comprehensive income or directly in equity. In this case, the tax is also rec- The unionisable staff of some Group entities who ognised in other comprehensive income or directly resign or retire at retirement age or whose services in equity respectively. are terminated for reasons other than gross miscon- duct are entitled to service gratuity payments in ac- i. Current income tax cordance with the prevailing Collective Bargaining Agreement. A provision is made for the estimated The current income tax charge is calculated on the liability for the services rendered up to the financial basis of the tax enacted or substantively enacted at reporting date, using actuarial principles. the reporting date. Management periodically evalu- ates positions taken in tax returns with respect to Typically defined benefit plans define an amount of situations in which applicable tax regulation is sub- pension benefit that an employee will receive on re- ject to interpretation. It establishes provisions where tirement, usually dependent on one or more factors appropriate on the basis of amounts expected to be such as age, years of service and compensation paid to the tax authorities.

The liability recognised in the statement of financial ii. Deferred income tax position in respect of unionisable staff gratuity is the present value of the defined benefit obligation at Deferred income tax is recognised, using the liability the end of the reporting period. The defined benefit method, on temporary differences arising between obligation is calculated annually by independent ac- the tax bases of assets and liabilities and their car- tuaries using the projected unit credit method. The rying values in the financial statements. However, if present value of the defined benefit obligation is de- the deferred tax liabilities are not recognised if they termined by discounting the estimated future cash arise from the initial recognition of goodwill; deferred outflows using interest rates of government bonds income tax is not accounted for if it arises from ini- that have terms to maturity approximating to the tial recognition of an asset or liability in a transaction terms of the related pension obligation. other than a business combination that at the time of the transaction affects neither accounting nor taxa- Actuarial gains and losses arising from experience ble profit or loss. Deferred income tax is determined adjustments and changes in actuarial assumptions using tax rates and laws that have been enacted or are charged or credited to equity in other compre- substantively enacted at the reporting date and are hensive income in the period in which they arise expected to apply when the related deferred income tax liability is settled. Past-service costs are recognised immediately in income. Deferred income tax assets are recognised only to the extent that it is probable that future taxable prof- (iii) Other entitlements its will be available against which the temporary dif- The estimated monetary liability for employees’ ac- ferences can be utilised. crued annual leave entitlement at the statement of financial position date is recognised as an expense Deferred income tax is provided on temporary dif- accrual. ferences arising on investments in subsidiaries and associates, except where the timing of the reversal of (iv) Termination benefits the temporary difference is controlled by the Group Termination benefits are payable when employment and it is probable that the temporary difference will is terminated by the Group before the normal retire- not reverse in the foreseeable future. ment date, or whenever an employee accepts vol- untary redundancy in exchange for these benefits. Deferred income tax assets and liabilities are offset The Group recognises termination benefits when it when there is a legally enforceable right to offset is demonstrably committed to a termination when current tax assets against current tax liabilities. the entity has a detailed formal plan to terminate the employment of current employees without possibil-

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 53 NOTES TO THE FINANCIAL STATEMENTS

(q) Borrowing costs Where necessary, comparative figures have been ad- General and specific borrowing costs directly attrib- justed to conform to changes of presentation in the utable to the acquisition, construction or production current year. of qualifying assets, which are assets that necessar- ily take a substantial period of time to get ready for their intended use or sale, are added to the cost of 3. Critical accounting estimates and judgements those assets, until such time as the assets are sub- stantially ready for their intended use or sale. Estimates and judgements are continually evaluated and are based on historical experience and other fac- Investment income earned on the temporary in- tors, including experience of future events that are vestment of specific borrowings pending their- ex believed to be reasonable under the circumstances. penditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other (i) Critical accounting estimates and assumptions borrowing costs are recognised in profit or loss in The Group makes estimates and assumptions con- the period in which they are incurred. cerning the future. The resulting accounting esti- mates will, by definition, seldom equal the related (r) Dividends actual results. The estimates and assumptions that have a significant risk of causing a material adjust- Dividends payable to the Group’s and Company’s ment to the carrying amounts of assets and liabilities shareholders are charged to equity in the period in within the next financial year are addressed below. which they are declared. Income taxes (s) Biological assets The Group is subject to income taxes and significant judgment is required in determining the Group’s pro- Biological assets are measured on initial recognition vision for income taxes. There are many transactions and at each statement of financial position date at and calculations for which the ultimate tax determi- fair value less estimated costs to sell. Any gains or nation is uncertain during the ordinary course of busi- losses arising on initial recognition of biological as- ness. The Group recognises liabilities for anticipated sets and from subsequent changes in fair value less tax audit issues based on estimates of whether addi- estimated costs to sell are recognised in the income tional taxes will be due. Where the final tax outcome statement in the year in which they arise. of these matters is different from the amounts that were initially recorded, such differences will impact The fair value of tree plantations is determined based the income tax and deferred tax provisions in the pe- on the net present values of expected future cash riod in which such determination is made. flows, discounted at current market-determined pre- tax rates. Biological assets Critical assumptions are made by the directors in All costs of planting, upkeep and maintenance of determining the fair values of biological assets. The biological assets are recognised in the income state- carrying amounts of the biological assets and key as- ment under cost of production in the period in which sumptions made in estimating these amounts are set they are incurred. out in Note 18.

(t) Provisions Fair values of financial assets Fair values of certain financial assets recognized in Provisions are recognised when: The Group has a the financial statements may be determined in whole present legal or constructive obligation as a result of or part using valuation techniques based on assump- past events; it is probable that an outflow of resourc- tions that are not supported by prices from current es will be required to settle the obligation; and the market transactions or observable market data. amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and The fair value of financial instruments that are not employee termination payments. Provisions are not quoted in active markets are determined by using recognised for future operating losses. Provisions valuation techniques. Where valuation techniques are measured at the present value of the expendi- (for example models) are used to determine fair tures expected to be required to settle the obligation values, they are validated and periodically indepen- using a pre-tax rate that reflects current market as- dently reviewed by qualified senior personnel. To the sessments of the time value of money and the risks extent practical, models use observable data. specific to the obligation. The increase in the provi- sion due to passage of time is recognised as interest Fair valuation of investment properties expense. Estimates are used in adjusting inputs in the valua- tion of investment properties which include assump- (u) Comparatives tions made in adjusting values of recent sales of

54 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS neighbouring properties. seeks to minimise potential adverse effects on its fi- Useful lives of property, plant and equipment nancial performance. Critical estimates are made by the management in determining depreciation rates for equipment and Risk management is carried out by the finance de- motor vehicles. The rates used are set out in Note 2 partment under policies approved by the Board of (e) above. Directors.

Impairment of restricted cash Market risk Critical estimates have been made by management in determining the receivable amount of funds held (i) Foreign exchange risk in two banks that have been placed under receiver- The Group purchases and sells made tea and im- ship. ports packaging and other materials in US dollars and is exposed to foreign exchange risk arising from Impairment losses on loans and advances various currency exposures, primarily with respect to The measurement of the expected credit loss allow- the US dollar. Foreign exchange risk arises from fu- ance for financial assets measured at amortised cost ture commercial transactions, and recognised assets and FVOCI is an area that requires the use of com- and liabilities. plex models a nd significant assumptions about fu- ture economic conditions and credit behaviour (e.g. Currency exposure arising from liabilities denomi- the likelihood of customers defaulting and the result- nated in foreign currencies is managed primarily ing losses). through the holding of bank balances in the relevant foreign currencies. A number of significant judgements are also required in applying the accounting requirement At 30 June 2020, if the Shilling had weakened/ for measuring ECL, such as: strengthened by 10% against the US dollar with all • Determining criteria for significant increase in other variables held constant, consolidated post tax credit risk; profit for the year would have been Shs 73,088,000 • Choosing the appropriate models and assump- (2019: Shs 70,508,000) higher/lower, mainly as a re- tions for the measurement of ECL; sult of US dollar receivables, borrowings and bank • Establishing the number and relative weightings balances. of forward-looking scenarios for each type of product and the associated ECL; (ii) Price risk • Establishing groups of similar financial assets for The Group is exposed to equity securities price risk the purposes of measuring ECL; because of investments in quoted shares classified • Determining the relevant period of exposure to either as available-for-sale or at fair value through credit risk when measuring ECL for revolving profit or loss. To manage its price risk arising from credit facilities; and investments in equity and debt securities, the Group • Determining the appropriate business models diversifies its portfolio, in accordance with limits set and assessing the “solely payments of principal by the board. All quoted shares held by the Group and interest (SPPI)” requirements for financial are traded on the Nairobi Stock Exchange (NSE). assets. At 30 June 2020, if the NSE Index had increased/ (ii) Critical judgements in applying the entity’s ac- decreased by 10% with all other variables held con- counting policies stant and all the Group’s equity instruments moved according to the historical correlation to the index, In the process of applying the Group’s accounting consolidated post tax profit for the year would have policies, management has made judgements in de- been Shs 729,000 higher/lower (2019: Shs 139,000). termining: • the classification of financial assets and leases (iii) Cash flow and fair value interest rate risk • whether land and buildings meet the criteria to The Group’s interest bearing financial liabilities - ex be classified as investment property posed to cash flow interest rate risk relate to bank • whether assets are impaired. overdrafts and some borrowings as these are at vari- able rates. The Group also has short term deposits 4. Financial risk management objectives and poli- that earn interest at variable rates. cies The Group regularly monitors financing options avail- The Group’s activities expose it to a variety of fi- able to ensure optimum interest rates are obtained. nancial risks, including credit risk and the effects of changes in debt and equity market prices, foreign At 30 June 2020, an increase/decrease of 100 basis currency exchange rates and interest rates. The points in interest rates would have resulted in an de- Group’s overall risk management programme focus- crease/increase in consolidated pre-tax profit of Shs es on the unpredictability of financial markets and 81,622,000 (2019: Shs 29,348,000).

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 55 NOTES TO THE FINANCIAL STATEMENTS

clude observable data about the following events; Credit risk • Significant financial difficult of the debtor Credit risk is the risk of financial loss to the Group if • Breach of contract a customer or counterparty to a financial instrument • It is probable the debtor will enter bankruptcy or fails to meet its contractual obligations, and arises other financial reorganisation principally from the receivables from customers and • The disappearance of an active market for the fi- related parties, amounts due from Group’s short nancial asset because of financial difficulties term deposits and cash and bank balances. (i) Credit risk measurement Credit risk is the risk of financial loss to the Group if a customer, related party or counterparty to a financial Loans and advances instrument fails to meet its contractual obligations. The estimation of credit exposure is complex and re- quires the use of models, as the value of a product Management has established a credit policy under varies with changes in market variables, expected which each new customer is analysed individually cash flows and the passage of time. The assessment for creditworthiness before the Group’s standard of credit risk of a portfolio of assets entails further payment and delivery terms and conditions are of- estimations as to the likelihood of defaults occurring, fered. The Group’s review includes external ratings, of the associated loss ratios and of default correla- where available, and in some cases bank references. tions between counterparties. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only The Group has developed models to support the on a prepayment basis. quantification of the credit risk. These rating and scoring models are in use for all key credit portfo- The Group has used the simplified approach for lios and form the basis for measuring default risks. measuring the loss allowance for trade and other re- In measuring credit risk of loans and advances at a ceivables using the lifetime ECL model. All changes counterparty level, the Group considers three com- in loss allowance are recognised in profit or loss as ponents: (i) the ‘Probability of Default’ (PD) by the impairment gains or losses. client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its In assessing whether the credit risk of a financial as- likely future development, from which the Grouo set has increased significantly, the Group compares derive the ‘Exposure at Default’ (EAD); and (iii) the the risk of default occurring on the financial asset likely recovery ratio on the defaulted obligations as at the reporting date with the risk of default oc- (the ‘Loss Given Default’) (LGD). The models are re- curring on the financial asset as at the date of initial viewed regularly to monitor their robustness relative recognition. In doing so the Group considers reason- to actual performance and amended as necessary to able and supportable information that is indicative optimise their effectiveness. of significant increases in credit risk since initial rec- ognition and that is available without undue cost or Credit risk grading effort. The Group uses internal credit risk gradings that re- flect its assessment of the probability of defaults of Default is defined as having occurred if the debtor is individual counterparties. The Group uses internal in breach of contractual obligations or if information rating models tailored to the various categories of is available internally and externally that suggests counterparty. Borrower and loan specific informa- that the debtor is unlikely to be able to meet its ob- tion collected at the time of application (such as dis- ligations. posable income, the level of collateral for retail expo- sures, and turnover and industry type for wholesale Where the Group does not have reasonable and sup- exposures) is fed into this rating model. This is sup- portable information to identify significant increases plemented with external data such as credit bureau in credit risk and/or to measure lifetime credit losses scoring information on individual borrowers. In ad- when there has been a significant increase in credit dition, the models enable expert judgment from the risk on an individual basis, lifetime expected credit Credit Risk Officer to be fed into the final internal losses are recognised on a collective basis. For such credit rating for each exposure. This allows for the purposes, the Group groups financial assets on the considerations which may not be captured as part of basis of shared credit risk characteristics, such as the the other data input into the model. type of instrument, industry in which debtors oper- ates of type of collateral issued. The following are additional considerations for loans held by the Group: A financial asset is credit impaired when one or more events that have detrimental impact on the estimat- After the date of initial recognition, for farmers, the ed future cash flows of the financial assets have oc- payment behaviour of the borrower is monitored on curred. a periodic basis to develop a behavioural score. Any other know information about the borrower, which Evidence that a financial asset is credit impaired in- impacts their creditworthiness – such as reduction

56 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS in tea delivered to the factories and previous delin- The assessment of SICR incorporates forward-look- quency history – is also incorporated into the behav- ing information and is performed on a quarterly basis ioural score. at a portfolio level for all retail financial instruments held by the Group. The criteria used to identify SICR (ii) Expected Credit loss measurement are monitored and reviewed periodically for appro- IFRS 9 outlines a “three-stage” model for impairment priateness by the independent credit team. based on changes in credit quality since initial recog- nition as summarised below: Definition of default and credit-impaired assets The Group defines a financial instrument as inde- • A financial instrument that is not credit impaired fault, which is fully aligned with the definition of at initial recognition is classified in “Stage 1” and credit-impaired, when it meets one or more of the has its credit risk continuously monitored by the following criteria: probability that the loss will inccur in the next 12 months. The borrower meets unlikeliness to pay criteria, which • If a significant increase in credit risk (“SICR” since indicates the borrower is in significant financial diffi- initial recognition is identified, the financial instru- culty. These are instances where: ment is moved to “Stage 2” but is not yet deemed • The borrower is in long-term forbearance to be credit impaired. • The borrower is deceased • If the financial instrument is credit-impaired, the • The borrower is insolvent or becoming probable financial instrument is then moved to “Stage 3. that the borrower will enter bankruptcy - Financial instruments in Stage 1 have their ECL • Concessions have been made by the lender relat- measured at an amount equal to the portion of ing to the borrower’s financial difficulty lifetime expected credit losses that result from default events possible within the next 12 months. Measuring expected credit loss – inputs, assump- Instruments in Stage 2 or 3 have their ECL meas- tions and estimation techniques ured based on expected credit losses on a lifetime The expected credit loss (ECL) is measured on ei- basis. ther a 12-month (12M) or Lifetime basis depending • A pervasive concept in measuring ECL in accord- on whether a significant increase in credit risk has ance with IFRS 9 is that it should consider for- occurred since initial recognition or whether an asset ward-looking information. is considered to be credit impaired. Expected credit • Purchased or originated credit-impaired financial losses are the discounted product of the Probability assets are those financial assets that are credit- of Default (PD), Exposure at Default (EAD), and Loss impaired on initial recognition. Their ECL is always Given Default (LGD). measured on a lifetime basis (Stage 3) • A financial instrument that is not credit impaired The ECL is determined by projecting the PD, LGD at initial recognition is classified in “Stage 1” and and EAD for each future month and for each indi- has its credit risk continuously monitored by the vidual exposure or collective segment. These three Group. components are multiplied together and adjusted for The key judgements and assumptions adopted by the likelihood of survival (i.e. the exposure has not the Group in addressing the requirements of the prepaid or defaulted in an earlier month). The dis- Standard are as follows: count rate used in the ECL calculation is the original effective interest rate or an approximation thereof. Significant increase in credit risk (SICR) The Group considers a financial instrument to have Forward-looking economic information is also in- experienced a significant increase in credit when one cluded in determining the 12-month and lifetime PD, or more of the following quantitative, qualitative or EAD and LGD. These assumptions vary by product backstop criteria have been met: type.

Quantitative criteria The assumptions underlying the ECL calculation – The standard also sets out a rebuttable presumption such as how the maturity profile of the PDs and how that the credit risk on a financial asset has increased collateral values change etc. – are monitored and re- significantly since initial recognition when contrac- viewed on a quarterly basis. tual payments are more than 30 days past due for term loans. The Group has defined default as any Forward-looking information incorporated in the loan that is due and not paid and there is no pos- ECL models sibility of recovering the same. Where the loan has been classified as default but signs has been estab- The assessment of SICR and the calculation of ECL lished that the loan is recoverable, the adjustments both incorporate forward-looking information. The are made and loan treated as current. The Group has Group has performed historical analysis and identi- adopted this as the definition of default to determine fied the key economic variables impacting credit risk the significant increase in credit risk. and expected credit losses for each portfolio. These economic variables and their associated impact on Qualitative criteria PD, EAD and LGD vary by financial instrument.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 57 NOTES TO THE FINANCIAL STATEMENTS

ness on a quarterly basis. The most significant period-end assumptions used for the ECL estimate as at 30 June 2019 are as fol- ii) Credit risk exposure lows: Maximum exposure to credit – risk – Financial assets • Proration in qualifying KGs on current deliveries subject to impairment with the previous year deliveries • Adjusting the qualyfiying rate based on factors an- The following table contains an analysis of the credit ticipated risk exposure of financial assets for which an ECL al- lowance is recognised. The gross carrying amount Other forward-looking considerations not otherwise of financial assets below also represents the Group’s incorporated within the above scenarios, such as maximum exposure to credit risk on these assets. the impact of any regulatory, legislative or political changes, have been considered, but are not deemed to have a material impact on the Group therefore no adjustment has been made to the ECL for such fac- tors. This is reviewed and monitored for appropriate-

Loans and advances - Group 2020 Stage 1 Stage 2 Stage 3 Total 12 – month ECL Lifetime ECL Lifetime ECL Shs’000 Shs’000 Shs’000 Shs’000

Investment grade 3,734,839 - - 3,734,839 Standard monitoring 120,922 38,353 - 159,275 Default - - 91,479 91,479

Gross carrying amount 3,855,761 38,353 91,479 3,985,593 Loss allowance (77,458) (19,177) (91,479) (188,114)

Carrying amount 3,778,303 19,176 - 3,797,479

Loans and advances 2019 Stage 1 Stage 2 Stage 3 Total 12 – month ECL Lifetime ECL Lifetime ECL Shs’000 Shs’000 Shs’000 Shs’000

Investment grade 4,676,792 63,907 - 4,740,699 Standard monitoring 62,214 96,554 - 158,768 Default - - 81,959 81,960

Gross carrying amount 4,739,006 160,461 81,959 4,981,426

Loss allowance (94,780) (62,464) (81,959) (239,203)

Carrying amount 4,644,226 97,997 - 4,742,223

58 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Collateral and other credit enhancements Customers green leaf deliveries is held as a collateral in respect of the above assets.

Lending limits The Group maintains strict control limits on loans and advances to customers. The limits for various products are listed below:

Product Limits

Bonus flex monthly 80% of previous year’s cumulative kilos as of September. This is subject to an overall limit of KES 1,500,000 Bonus advance Maximum loans shall depend on crop production but will not exceed KES 1,500,000. Bonus extra loan 50% of borrower’s bonus paid in September of the previous year. This is subject to an overall limit of KES 1,500,000. Director loan Shs 350,000 Monthly loan Shs 500,000 Staff loan Shs 500,000 Bonus shikilia Maximum loans shall depend on crop production but will not exceed KES 1,500,000. ii) Impairment and provisioning policies

The loss allowance recognised in the period is impacted by a variety of factors as follows:

• Transfers between Stage 1 and Stage 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit impaired in the period, and the consequent “step up” or “step down” between 12-month and lifetime ECL; and • Additional allowance for new financial instruments recognised during the period, as well as releases for financial instruments de-recognised in the period.

The following tables explain the changes in the loss allowance in the year due to these factors:

Year ended 30 June 2019 Stage 1 Stage 2 Stage 3 Total 12 – month ECL Lifetime ECL Lifetime ECL Shs’000 Shs’000 Shs’000 Shs’000

At start of the year 144,866 33,855 85,504 264,225 IFRS 9 impact on loans and advances (46,262) - - (46,262) ECL for the year (3,824) 28,608 (3,544) 21,240

At end of year 94,780 62,463 81,960 239,203

Year ended 30 June 2020

At start of the year 94,780 62,463 81,960 239,203 IFRS 9 impact on loans and advances (23,366) (37,241) 9,518 (51,089)

At end of year 71,414 25,222 91,478 188,114

The gross carrying amount of financial assets with exposure to credit risk at the balance sheet date was as follows:

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 59 NOTES TO THE FINANCIAL STATEMENTS

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Cash and cash equivalents (Note 24) 8,398,961 8,457,730 5,673,543 5,317,311 Loans and advances, net (Note 23) 3,797,479 4,742,223 - - Trade receivables (Note 23) 3,583,338 3,184,938 160,681 304,984 Receivables from related companies (Note 32 (ii)) 4,557,979 3,855,217 2,249,126 2,086,691 Other receivables (Note 23) 172,527 220,511 9,561 8,108

20,510,284 20,460,619 8,092,911 7,717,094

Trade receivables The age analysis of the trade receivables at the end of each year were as follows;

Group Gross carrying Loss allowance Net carrying amount amount At 30 June 2020 Shs’ 000 Shs’ 000 Shs’ 000

Aged debtor balances Current 1,579,235 (6,074) 1,573,161 30-90 days 1,176,676 ( 1 3 , 9 7 6 ) 1,162,700 90-180 days 709,164 ( 2 1 , 9 9 6 ) 6 8 7 , 1 6 8 Over 180 days 577,961 (417,652) 160,309

4,043,036 (459,698) 3,583,338

At 30 June 2019

Aged debtor balances Current 1,405,875 - 1,405,875 30-90 days 1,047,507 (18,066) 1,029,441 90-180 days 631,316 (19,819) 611,497 Over 180 days 519,143 (381,018) 138,125

3,603,841 (418,903) 3,184,938

Company At 30 June 2020

Aged debtor balances Current 157,901 - 157,901 30-90 days 2,780 - 2,780 90-180 days 26,664 (26,664) -

187,345 (26,664) 160,681

At 30 June 2019

Aged debtor balances Current 224,308 - 224,308 30-90 days 4,167 - 4,167 90-180 days 102,415 (25,906) 76,509

330,890 (25,906) 304,984

60 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Loans and advances The age analysis of the loans and advances at the end of each year were as follows;

Gross carry- Loss Net carrying ing amount allowance amount At 30 June 2020 Shs’ 000 Shs’ 000 Shs’ 000

Current 3,734,840 (71,412) 3,663,428 1 – 2 years 120,922 (6,046) 114,876 2 – 3 years 38,352 (19,177) 19,175 3 – 4 years 29,835 (29,835) - Older than 4 years 61,644 (61,644) -

Total 3,985,593 (188,114) 3,797,479

At 30 June 2019

Current 4,165,392 - 4,165,392 1 – 2 years 533,770 - 533,770 2 – 3 years 138,052 (94,991) 43,061 3 – 4 years 74,172 (74,172) - Older than 4 years 70,040 (70,040) -

Total 4,981,426 (239,203) 4,742,223

(iv) Write off policy he Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expecta- tion of recovery include (i) ceasing enforcement activity and (ii) where the Group’s recovery methods foreclos- ing on collateral and the value of the collateral is such that there is no reasonable expectations of recovering in full. The Group may write-off financial assets that are still subject to enforcement activity. During the year there were no outstanding contractual amounts of such assets written-off (2019: Shs 712,000). The Group still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reason- able expectation of recovering in full.

Liquidity risk Prudent liquidity risk management includes maintaining sufficient cash and marketable securities, and the availability of funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the Group companies maintain flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.

The table below analyses the Group’s and the Company’s financial liabilities that will be settled on a net basis into relevant maturity Groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 61 NOTES TO THE FINANCIAL STATEMENTS

Group Less than 1 More than 1 Total year year Shs’000 Shs’000 Shs’000 At 30 June 2020: - Bank overdraft and borrowings (Note 25) 3,701,243 4,944,222 8,645,465 - Lease liabilities (Note 26) 355,617 342,264 697,881 - Trade and other payables (Note 29) 8,839,487 1,583,000 10,422,487

12,896,347 6,869,486 19,765,833

At 30 June 2019: - Bank overdraft and borrowings (Note 25) 3,255,990 3,466,241 6,722,231 - Finance lease obligation (Note 28) 18,208 25,116 43,324 - Trade and other payables (Note 29) 9,878,535 2,373,565 12,252,100

13,152,733 5,864,922 19,017,655

Company Less than 1 More than 1 Total year year Shs’000 Shs’000 Shs’000 At 30 June 2020: - Bank borrowings (Note 25) 216,630 1,158,694 1,375,324 -Trade and other payables (Note 29) 6,534,492 1,583,000 8,117,492

6,751,122 2,741,694 9,492,816

At 30 June 2019:

- Trade and other payables (Note 29) 6,110,904 2,373,565 8,484,469

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

Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group’s assets and liabilities that are measured at fair value at 30 June:

62 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Group Level 1 Level 2 Level 3 Total balance Shs’000 Shs’000 Shs’000 Shs’000 At 30 June 2020 Financial assets af FVTOCI – Equity investments 1,098 - - 1,098 – Government debt investments - 2,000 - 2,000 – Unquoted shares - 2,507,532 6,409 2,513,941

Total assets 1,098 2,509,532 6,409 2,517,039

At 30 June 2019 Financial assets at FVTOCI – Equity instruments 1,390 - - 1,390 – Government debt investments - 2,000 - 2,000 – Unquoted shares - 2,395,939 6,409 2,402,348

Total assets 1,390 2,397,939 6,409 2,405,738

Company Level 1 Level 2 Level 3 Total Balance Shs’000 Shs’000 Shs’000 Shs’000 At 30 June 2020 Financial assets at FVTOCI – Unquoted shares - 2,507,532 6,409 2,513,941

At 30 June 2019 Financial assets at FVTOCI – Equity securities - 2,395,939 6,409 2,402,348

The fair value of financial instruments traded in active markets is based on quoted market prices at the state- ment of financial position date. A market is regarded as active if quoted prices are readily and regularly avail- able from an exchange, dealer, broker, industry Group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily NSE equity investments classified as trading securities or available-for-sale.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Specific valuation techniques used to value financial instruments include: • Quoted market prices or dealer quotes of similar instruments; • The fair value of government bonds and corporate debt is calculated as the present value of the estimated future cash flows based on Nairobi Securities Exchange yield curve; • Other techniques, such as discounted cash flow analysis and earnings multiple, are used to determine fair value for the remaining financial instruments.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Level 3 investments are shares in tea factory companies in Kangaita and Kagochi. The cost approxi- mates the fair value and there was no movement in the year.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 63 NOTES TO THE FINANCIAL STATEMENTS

5. Revenue Analysis of revenue by category:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs ‘000 Recognised at a point in time: Tea sales 19,470,178 19,243,168 - - Management fees 2,120,864 1,915,681 568,578 521,723 Interest income 866,633 997,062 - - Fees and commission income 444,701 442,054 - - Fabrications 130,641 145,920 - - Agency fees 234,776 149,092 - -

Recognised over time: Warehousing income 1,454,407 1,157,157 - - Installation and maintenance 6,556 8,429 - -

24,728,756 24,058,563 568,578 521,723

6. Other income

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs ‘000

Rent income 114,271 112,893 275,578 272,373 Fair value gain on investment property (Note 16) 78,589 101,323 18,363 144,036 Corporate guarantee income 102,005 93,335 149,883 155,513 Gain on sale of property, plant and equipment 4,590 4,459 680 2,109 Green leaf sales income 97,246 95,513 97,246 95,513 Technical consultancy income 59,839 75,550 - - Dividend income 51,527 646 590,053 701,276 Funds recovered from Imperial bank - 334,212 - 334,212 Stock provision writeback (Note 21) 33,343 - - - Foundation income 35,936 40,565 - - Fees & commission 44,853 35,252 - - Fertilizer admin fees 88,838 47,580 - - Miscellaneous income 91,310 83,280 19,870 16,744

802,347 1,024,608 1,151,673 1,721,776

64 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

7 Finance costs/(income)

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000 Finance costs: Interest expense – lease liabilities 68,999 - - - Interest expense on borrowings 218,780 413,343 - - Net foreign exchange loss on borrowings 92,308 - - -

380,087 413,343 - -

Finance income: I n t e r e s t i n c o m e o n d e p o s i t s (192,197) (283,076) (83,120) (113,340)

Net foreign exchange gains on borrowings - (3,221) - -

(192,197) (286,297) (83,120) (113,340)

Net finance costs 187,890 127,046 (83,120) (113,340)

8 (a) Expenses by nature

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Changes in inventories consumed 18,558,097 18,304,983 - - Depreciation on property, plant and equipment (Note 15) 232,283 256,810 25,306 37,567 Depreciation on right-of-use asset (Note 26) 141,094 - - - Amortisation of intangible assets (Note 17) 103,153 105,333 492 214 Provision for expected credit losses (Note 23) 86,889 87,985 758 17,713 Employee benefits expense (Note 9) 2,302,368 2,138,981 302,424 280,804 Auditors’ remuneration 12,640 12,011 2,813 2,679 Increase in provision for inventory (Note 21) 14,355 39,273 - - Marketing selling& distribution cost 368,525 374,357 18,541 35,746 Board & Travel expenses 106,761 138,136 62,974 84,078 ICT Service 73,723 114,518 10,906 16,096 Office expenses, Maintenance & Services 188,389 192,987 65,613 42,321 Legal fees 24,055 19,098 11,240 9,456 Consultancy and professional services 15,856 10,553 10,325 4,510 Impairment of tea bushes (Note 15) 41,439 35,748 41,439 35,748 Other expenses 185,045 232,506 77,465 78,460 Staff rationalisation 133,362 15,021 86,681 -

Total cost of sales, administrative expenses and other 22,588,034 22,078,300 716,977 645,392 expenses

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 65 NOTES TO THE FINANCIAL STATEMENTS

9 Employee benefits expense:

The following items are included within employee benefits expense:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Salaries and wages 1,833,914 1,666,760 249,435 223,534 Other staff costs 314,149 308,322 24,889 29,583 Retirement benefits costs: - Defined contribution scheme 151,779 161,874 27,982 27,561 - National Social Security Fund 2,526 2,025 118 126

2,302,368 2,138,981 302,424 280,804

The average number of employees is as follows;

2020 2019 2020 2019

Average number of employees 1,499 1,625 48 43

10. Income tax expense (Group)

2020 2019 Shs’000 Shs’000

Current income tax 696,780 697,440 Deferred income tax (Note 14) 234,865 87,311 Over /(under) provision of current tax in prior year 2,270 (716)

Income tax expense 933,915 784,035

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise us- ing the statutory income tax rate as follows: 2020 2019 Shs’000 Shs’000

Profit before income tax 2,709,899 2,858,209

Tax calculated at statutory tax rate - 25% (2019 -30%) 677,475 857,463 Tax effect of: Income not subject to tax (44,906) (168,523) Expenses not deductible for tax purposes 128,463 95,811 Over/(under) provision of current income tax in prior year 2,270 (716) Impact of change in tax rate 170,613 -

Income tax expense 933,915 784,035

66 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

10. Income tax expense (Company)

2020 2019 Shs’000 Shs’000

Current income tax 80,486 76,140 Deferred income tax (Note 14) 209,649 109,966

Income tax expense 290,135 186,106

The tax on the Company’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2020 2019 Shs’000 Shs’000

Profit before income tax 1,041,114 1,691,831

Tax calculated at statutory tax rate - 25% (2019 -30%) 260,279 507,549 Tax effect of: Income not subject to tax (147,513) (144,479) Expenses not deductible for tax purposes 48,219 (176,964) Impact of change in tax rate 129,150 -

Income tax expense 290,135 186,106

11. Dividends per share At the annual general meeting, a final dividend in respect of the year ended 30 June 2020 of Shs 1,452.22 per share (2019 Shs 1,352 per share), amounting to a total of Shs 733,950,900 (2019: Shs 683,358,000) is to be proposed.

12. Share capital

Group and Company Number of Number of shares Ordinary shares Shs’000

Balance at 1 July 2018, 30 June 2019 and 30 June 2020 505,400 10,108

The total authorised number of ordinary shares is 50 million with a par value of Shs 20 per share of which 505,400 are issued and fully paid.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 67 NOTES TO THE FINANCIAL STATEMENTS

13. Other reserves

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Fair value reserve – Financial assets - FVTOCI 363,562 263,440 366,288 260,572

The financial instruments revaluation reserve represents the surplus on revaluation of financial instruments and re-measurement of post-employment benefits net of deferred tax and is non-distributable.

14. Deferred income tax Deferred income tax is calculated using the enacted income tax rate of 25% (2019: 30%). The movement on the deferred income tax account is as follows:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

At start of year (1,023,680) (1,090,935) (795,237) (868,773) Credit to income statement (Note 10) 234,865 87,311 209,649 109,966 (Credited/ charged to OCI 3,410 (33,088) 5,142 (36,429) Impact of IFRS 9 - 13,032 - -

At end of year (785,405) (1,023,680) (580,446) (795,237)

Analysed as follows:

Deferred income tax liabilities 26,626 127,656 30,623 68,781

Deferred income tax assets (812,031) (1,151,336) (611,069) (864,018)

At end of year (785,405) (1,023,680) (580,446) (795,237)

68 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Consolidated deferred income tax assets and liabilities, deferred income tax charge/(credit) in the income statement, and deferred income tax charge to other comprehensive income are attributable to the following items:

At 1 July 2019 Charge /(credit) Charge At 30 June to profit/loss to OCI 2020 Shs’000 Shs’000 Shs’000 Shs’000 2020 (Group) Accelerated capital allowances 102,429 (154,475) - (52,046) Right of use assets - 128,470 - 128,470 Unrealised exchange gain (13,450) (9,991) - (23,441) Provisions and reserves (41,805) 74,004 5,565 37,764 Other temporary differences (1,090,696) 349,994 - (740,702) Biological assets 25,227 (21,569) - 3,658 Post-employment benefits (5,385) 10,955 (2,155) 3,415 Lease liabilities - (142,523) - (142,523)

(1,023,680) 234,865 3,410 (785,405)

At 1 July Charge / Charge to Impact of At 30 June 2018 (credit) to OCI IFRS 9 2019 profit/loss Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 2019 (Group) Accelerated capital allowances 94,831 7,598 - - 102,429 Unrealised exchange gain 11,090 (24,540) - - (13,450) Provisions and reserves (216,715) 198,722 (36,844) 13,032 (41,805) Other temporary differences (1,003,665) (87,031) - - (1,090,696) Post-employment benefits (7,588) (1,553) 3,756 - (5,385) Biological assets 31,112 (5,885) - - 25,227

(1,090,935) 87,311 (33,088) 13,032 (1,023,680)

Company deferred income tax assets are attributable to the following items:

Deferred income tax asset (Company) 2020 2019 Shs’000 Shs’000

Accelerated capital allowances 19,293 37,366 Provisions and reserves (614,726) (864,018) Other deductible temporary differences 11,230 5,650 Biological assets 3,658 25,227 Post-employment benefits 99 538

(580,446) (795,237)

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 69 NOTES TO THE FINANCIAL STATEMENTS

15 (a) Property, plant and equipment – Group

Buildings Plant & Vehicles & Tea Work in Total and free- machinery equipment bushes progress hold land Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Group

At 1July 2018 Cost 2,639,766 1,231,673 1,222,967 324,875 14,683 5,433,964 Accumulated depreciation (432,173) (887,692) (1,006,443) (50,056) - (2,376,364)

Net book amount 2,207,593 343,981 216,524 274,819 14,683 3,057,600

Year ended 30 June 2019 Opening net book amount 2,207,398 343,981 216,524 274,819 14,683 3,057,406 Additions 66,027 50,558 69,102 - 218,009 403,696 Adjustment-Cost (1,533) 2,402 (3,236) - - (2,367) Transfers to intangible assets - - - - (3,222) (3,222) Disposals - (11,231) (17,474) - - (28,705) Depreciation charge (65,744) (98,203) (77,713) (13,080) (2,070) (256,810) Adjustment - depreciation 1,233 (6,997) 8,032 1 - 2,268 Depreciation on disposals - 11,090 15,580 - - 26,670 Impairment of Tea bushes - - - (38,862) (38,862) Depreciation on impairment - - - 3,114 - 3,114

Net book amount 2,207,576 291,600 210,815 225,992 227,400 3,163,383

At 30 June 2019 Cost 2,704,260 1,273,403 1,271,359 286,013 229,470 5,764,504 Accumulated depreciation (496,684) (981,803) (1,060,544) (60,021) (2,070) (2,600,121)

Net book amount 2,207,576 291,600 210,815 225,992 227,400 3,163,383

Year ended 30 June 2020 Opening net book amount 2,207,576 291,600 210,815 225,992 227,400 3,163,383 Additions 24,945 38,320 52,738 - 507,289 623,292 Transfers to intangible assets - 12,926 - - (12,926) - Disposals - (41) (16,783) - - (16,824) Depreciation charge (67,114) (86,998) (66,586) (11,585) - (232,283) Depreciation on disposals - 17 16,707 - - 16,724 Impairment of tea bushes - - - (47,015) - (47,015) Depreciation on Impairment - - - 5,576 - 5,576

Net book amount 2,165,407 255,824 196,891 172,968 721,763 3,512,853

At 30 June 2020 Cost 2,729,205 1,324,608 1,307,314 286,013 721,763 6,368,903 Accumulated depreciation (563,798) (1,068,784) (1,110,423) (113,045) - (2,856,050)

Net book amount 2,165,407 255,824 196,891 172,968 721,763 3,512,853

70 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

15 (b) Property, plant and equipment – Company

Buildings & Plant & Vehicles & Tea Work in Total freehold land machinery equipment bushes progress Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Company At 1 July 2018 Cost 177,836 380,447 111,652 324,875 1,053 995,863 Accumulated depreciation (52,721) (340,692) (111,418) (50,056) - (554,887)

Net book amount 125,115 39,755 234 274,819 1,053 440,978

Year ended 30 June 2019 Opening net book amount 125,115 39,755 234 274,819 1,053 440,978 Additions 29 7,031 - - 203,987 211,047 Transfers to KTDA MS Ltd Disposals - (5,013) (7,116) - - (12,129) Depreciation charge (2,243) (19,493) (2,751) (13,080) - (37,567) Adjustment cost 1 2,402 (3,236) - - (833) Adjustment Depreciation 13 (6,997) 8,032 1 - 1,049 Depreciation disposal - 5,013 7,116 - - 12,129 Impairment of tea bushes - - - (38,862) - (38,862) Depreciation of tea bushes - - - 3,114 3,114

Net book amount 122,915 22,698 2,279 225,992 205,040 578,924

At 30 June 2019 Cost 177,866 384,867 101,300 286,013 205,040 1,155,085 Accumulated depreciation (54,951) (362,169) (99,021) (60,021) - (576,161)

Net book amount 122,915 22,698 2,279 225,992 205,040 578,924

Year ended 30 June 2020

Opening net book amount 122,915 22,698 2,279 225,992 205,040 578,924 Additions - 4,809 14,000 - 498,190 516,999 Disposals - - (3,798) - - (3,798) Depreciation charge (2,233) (8,626) (2,862) (11,585) - (25,306) Depreciation disposal - - 3,798 - - 3,798 Impairment of tea bushes - - - (47,015) - (47,015) Depreciation of tea bushes - - - 5,576 - 5,576

Net book amount 120,682 18,881 13,417 172,968 703,230 1,029,178

At 30 June 2018 Cost 177,866 389,676 111,502 238,998 703,230 1,621,272 Accumulated depreciation (57,184) (370,795) (98,085) (66,030) - (592,094)

Net book amount 120,682 18,881 13,417 172,968 703,230 1,029,178

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 71 NOTES TO THE FINANCIAL STATEMENTS

16. Investment properties

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 4,282,911 3,928,602 6,273,022 6,058,396 Additions 221,496 252,986 23,237 70,590 Fair value gains 78,589 101,323 18,363 144,036

At end of year 4,582,996 4,282,911 6,314,622 6,273,022

The investment properties were valued by Advent Valuers and Legend Valuers who are independent valuers, on 30 June 2019 and 30 June 2020 respectively.

Some properties that are classified as investment properties in the Company are treated as PPE at consolida- tion level since they are occupied by subsidiaries.

The following represents the fair value measurements as at 30 June 2020

2020 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 Group - Investment property - 4,582,996 - 4,582,996

Company - Investment property - 6,314,622 - 6,314,622

2019 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 Group - Investment property - 4,282,911 - 4,282,911

Company - Investment property - 6,273,022 - 6,273,022

There were no transfers between any levels during the year.

Level 2 fair values of investment property have been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot and size of the building.

72 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

17. Intangible assets – computer software

Group Company Shs’000 Shs’000 At 1 July 2018 Cost 668,782 39,758 Accumulated amortisation (263,217) (39,544)

Net book value 405,565 214

Year ended 30 June 2019 Opening net book amount 405,565 214 Additions 6,250 - Transfer from WIP 3,222 - Amortization (105,333) (214) Write off (4,764) -

Closing net book amount 304,940 -

At 1 July 2019 Cost 673,490 39,758 Accumulated amortization (368,550) (39,758)

Net book value 304,940 -

Year ended 30 June 2020 Opening net book amount 304,940 - Additions 11,214 3,936 Amortization (103,153) (492) Write off (187) -

Closing net book amount 212,813 3,444

At 30 June 2020 Cost 673,644 43,694 Accumulated amortization (460,831) (40,250)

Closing net book amount 212,813 3,444

Software development costs comprise expenditure directly associated with the production identifiable and unique software products controlled by the Group that will generate economic benefits exceeding costs beyond one year.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 73 NOTES TO THE FINANCIAL STATEMENTS

18. Biological assets (Group and Company)

Tree plantation Shs’000 Year ended 30 June 2019 At start of year 103,707 Losses arising from changes in fair value less cost to sell (19,616)

At end of year 84,091

Year ended 30 June 2020

At start of year 84,091 Proceeds from sale (24,177) Loss on disposal (45,280)

At end of year 14,634

The table below presents the group’s biological assets that are measured at fair value at 30 June:

2020 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000

Tree plantation - - 3,895 3,895 -Immature - - 10,739 10,739

- - 14,634 14,634

2019 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000

Tree plantation - - 65,034 65,034 -Immature - - 19,057 19,057

- - 84,091 84,091

There were no transfers between any levels during the year.

The following unobservable inputs were used to measure the group’s tea bushes and trees:

Description Fair Valuation Unobservable Range of Relationship of value technique inputs unobservable unobservable inputs to inputs fair value As at 30 June 2020 Tree plantation 14,634 Annuity Population 3 per acreage The higher the tree per acreage, the higher the fair value

74 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

18. Biological assets (Group and Company)

As at 30 June 2019 Tree plantation 84,091 Annuity Population 3 per acreage The higher the tree per acre- age, the higher the fair value

Tree plantations are carried at fair value less cost to sell. The fair value of tree plantations were determined based on the discounted net present values of expected net cash flows from those assets, discounted at a current market-determined pre-tax rate. In determining the fair values of tea bushes and tree plantations, the directors have made certain assumptions about the yields and market prices of green leaf and cut trees in fu- ture years, and the cost of running the estates.

The key assumptions made concerning the future are as follows: • Climatic conditions will remain the same; • The market price cut trees in Kenya shilling terms will remain constant; and • No account has been taken of inflation.

The discount rate applied to expected net cash flows was 10 year bond with a yield rate of 12.18% maturing in 2024 and a risk rate of 6% for immature trees(age 4 years) and 10 year bond with yield rate of 8.79% matur- ing in 2020 for mature trees per annum. The Group has 75 acres at Kangaita farm in Kirinyaga County and has harvested the trees in Gituamba farm in remaining with approximately 2,920 trees.

19. (i) Investment in subsidiaries – Company

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

Cost Cost Company % interest held 2020 2019 Shs’000 Shs’000 Kenya Tea Packers Limited 83.3% 395,318 395,318 Majani Insurance Brokers Limited 100% 5,200 5,200 Chai Trading Company Limited 100% 325,000 325,000 Tea Machinery and Engineering Co. Limited 100% 350,000 350,000 Greenland Fedha Limited 100% 160,000 160,000 KTDA Power Company Limited 100% 575,020 410,020 KTDA Management Services Limited 100% 500 500 KTDA Foundation 100% - -

1,811,038 1,646,038

The consolidated financial statements include the financial statements of all subsidiary’s companies prepared to the end of the financial year. KTDA Foundation is a company limited by guarantee. Therefore, no invest- ment has been made in the Foundation.

The movement in the year is as summarised below:

2020 2019 Shs’000 Shs’000

At start of year 1,646,038 1,646,038 Additions (KTDA Power) 165,000 -

At end of year 1,811,038 1,646,038

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 75 NOTES TO THE FINANCIAL STATEMENTS

20. Non-current receivables

These are made up of car loans and loans to staff by Kenya Tea Packers Limited and Kenya Tea Development Agency Holdings Limited and advances to KTDA Power. Car loans are repayable within a maximum of six years subject to economic useful life of the vehicle. The average interest rate of the car loans within the year was 7% per annum. (2019: 7% per annum)

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Loans to staff 40,168 37,137 10,737 12,496 Less: loans receivable within 1 year (Note 23) (19,363) (17,341) (4,422) (4,534)

Long-term loans 20,805 19,796 6,315 7,962

Advances (Note 32 ((iii) (b)) 2,657,058 1,721,519 - 86,056

2,677,863 1,741,315 6,315 94,018

21. Inventories

Tea stocks 2,790,648 1,984,922 - - Stationery, spares and other consuma- 308,613 378,667 3,665 - bles Other stocks 189,300 145,619 5,723 5,636 Provision for impairment for the year (67,470) (53,115) - -

3,221,091 2,456,093 9,388 5,636

The cost of inventories recognised as an expense and included in the ‘cost of sales’ amounted to Shs 18,558,097,000 (2019 Shs 18,304,983,000).

Movements on the provision for impairment of inventory are as follows:

2020 2019 Shs’000 Shs’000

At start of year 53,115 13,842 Provision in the year 47,698 39,273 Utilised in the year (33,343) -

At end of year 67,470 53,115

76 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

22. Financial assets

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000 Current – available for sale

Treasury bonds 2,000 2,000 - - Equity investments 1,098 1,390 - -

3,098 3,390 - -

Non-current

Unquoted equity shares 2,513,941 2,402,348 2,513,941 2,402,348

2,517,039 2,405,738 2,513,941 2,402,348

The unquoted equity shares include an investment in Family Bank Limited shares. There was a revalua- tion gain of Shs 111,677,000 for the year ended 30 June 2020 (2019: Fair value loss of Shs 736,879,000). In addition, there is an investment by KTDA of Shs 6,409,000 in tea factory companies in Kangaita and Ragati, Majani Insurance Brokers Limited of Shs 3,098,000.

The movement in the investments is as follows: Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 2,405,738 3,142,617 2,402,348 3,139,027 Fair value gain / (loss) 111,301 (736,879) 111,593 (736,679)

2,517,039 2,405,738 2,513,941 2,402,348

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 77 NOTES TO THE FINANCIAL STATEMENTS

23. Trade and other receivables

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Trade receivables 4,043,036 3,603,841 187,345 330,890 Less: Provision for impairment losses (459,698) (418,903) (26,664) (25,906)

Net trade receivables 3,583,338 3,184,938 160,681 304,984 Loans and advances (Greenland Fedha) 3,985,593 4,981,426 - - Less: provisions for impairment losses (188,114) (239,203) - - Amounts due from related parties (Note 32(iii) 1,900,921 2,133,698 2,249,126 2,000,935 ((a)) Staff loans 19,363 17,341 4,422 4,534 Other receivables 153,164 203,170 5,139 3,574 Prepayments 49,689 57,279 6,964 5,466

9,503,954 10,338,649 2,426,332 2,319,493

Movements on the provision for impairment of trade receivables are as follows:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000 At start of year 418,903 406,161 25,906 8,193 Expected credit loss for the year 86,889 87,985 758 17,713 Unutilised amounts (46,094) (75,243) - -

At end of year 459,698 418,903 26,664 25,906

The provision movement in loans and advances is disclosed in Note 4 (iv).

The carrying value of receivables approximates their fair values.

78 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

24. Cash and cash equivalents

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Cash at bank and in hand 1,191,625 3,880,091 224,991 855,057

Short term bank deposits 7,207,336 4,577,639 5,448,552 4,462,254

8,398,961 8,457,730 5,673,543 5,317,311

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Cash and bank balances as above 8,398,9611 8,457,730 5,673,543 5,317,311 Bank overdrafts (Note 25) (2,301,968) (1,626,077) - - Restricted cash (485,824) (728,733) (485,824) (728,733)

5,611,169 6,102,920 5,187,719 4,588,578

Included in the cash and cash equivalents balances is an amount of Shs 486 million deposit held in SBM Bank (formerly Chase Bank Limited), which is a financial institution that was placed under receivership.

An analysis of this balance is as follows:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000 Principal amount invested, including 728,733 1,456,778 728,733 1,456,778 interest reinvestments Amount received from SBM Bank (for- (242,909) (728,045) (242,909) (728,045) merly Chase bank)

485,824 728,733 485,824 728,733

KTDA Holdings had initially invested a total of Shs 4.3 billion on behalf of the factories. It was agreed that KTDA Holdings take up these deposits with effect from the respective dates of receivership- 13 October 2015 for Imperial Bank and 7 April 2016 for Chase Bank. KTDA Holdings will bear any loss from unrecovered principal amounts.

Consequently, this amount has been included in the KTDA Holdings Limited bank balances, with a correspond- ing amount recognised in liabilities.

As these funds are not available for immediate use by the Group they have been treated as restricted cash. There was a receipt of Shs 243 million in October 2019 from Chase Bank, while the balance of Shs 485 million is expected to be received in two instalments. Shs 243 million was received in August 2020 with one instalment yet to be received.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 79 NOTES TO THE FINANCIAL STATEMENTS

25. Borrowings

Non-current Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Bank borrowings 4,249,590 2,824,563 861,694 -

Current Bank borrowings 1,399,275 1,629,913 216,630 -

Total borrowings 5,648,865 4,454,476 1,078,324 -

Bank overdraft 2,301,968 1,626,077 - -

Reconciliation of liabilities arising from financing activities:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

At start of the year 4,454,476 4,953,167 - - Additions 2,634,899 2,265,861 1,052,500 56,228 Interest expense 218,780 416,564 72 527 Principal payment (1,656,043) (2,764,552) (602) (56,228) Interest paid (218,780) (413,343) (72) (527) Revaluation losses/(gains) 215,533 (3,221) 26,426

At end of the year 5,648,865 4,454,476 1,078,324 -

The Group has overdraft facilities listed below:

Chai Trading Company Limited has overdraft facilities with a limit of US dollars 16,000,000 (2019: US dollars 16,000,000). The carrying amount of the bank overdraft approximates to the fair value. The effective interest rate at the reporting date was 4.74% (2019: 5.53%).

The facilities are annual facilities subject to review on the following dates:

• Stanbic Bank - 1 July 2020 • Citi Bank - 1 January 2021 • Absa Bank Kenya Plc – 1 August 2020

80 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Tea Machinery Co Ltd has an overdraft facility with Family Bank Ltd of Shs 40M at an effective interest rate of 12% (2019: 13%). The facility is to be reviewed on 20 May 2021. The overdraft limit was not exceeded without the lender’s authority at any time during the year. There is also a letter of credit with a limit of USD 93,756.88 and trade financing facility of Shs 80,000,000.

The Group has borrowing facilities with the following institutions: i. The loan from FMO is denominated in US Dollars and is unsecured. It is in two trenches one from FMO of USD 7.5M and FMO Massif of USD 7.5M. FMO Massif trench attracts an interest rate of 3.80% plus the USD 6 months Libor rate (2019: 3.75% plus the USD 6 months Libor rate) and has a Corporate guarantee. The new FMO trench with no Corporate guarantee attracts an interest rate of 4.55% plus the USD 6 months Libor rate. The facility was renewed and enhanced on 9th November 2018 and is repayable over 5 years. ii. The loan from Citi Bank was denominated in Kshs and is unsecured. It attracts an interest rate of 2.25 plus ruling CBR. The loan facility was advanced on 14th September 2017 and was repaid in full in March 2020. iii. The loan from Absa Bank Kenya Plc is in a revolving Multi currency denominated in both US Dollars and Kshs at 70:30 respectively and is unsecured. USD attracts an interest rate of 5% plus the USD 3 months Libor rate (2019: 4.75% plus the USD 3 months Libor rate). The Kshs loan facility attracts an interest rate of 4% plus ruling CBR (2019: 4% plus ruling CBR) was advanced on 14th August 2018. iv. Included in the borrowings are loans for KTDA Power Co Ltd on behalf of Regional Power Companies from IFC/ Proparco. These are also under receivables from the same companies. International Finance Corporation (IFC) amounting to Shs 1,681,170,000 (2019: Shs 1,105,571,000). The loan is denominated in US Dollars and has a limit of USD 40,000,000. The borrowing attracts interest at 3.5 %+6 months libor and has an 8-year repayment period; and PROPARCO amounting to Shs 630,842,000 (2019: Shs 415,059,000). The loan is denominated in US Dollars and has a limit of USD 15,000,000 The borrowing attracts interest at 3.5% + 6 months libor rate and has an 8-year repayment period. The loan balance as at 30.06.2020 was revalued upwards by Shs 86,419,000. v. KTDA Holdings (Company) has a facility with Absa Bank Kenya PLC for an asset finance of USD 126,202 .The facility is secured by a charge over certain vehicle.Loan from IFC of USD 10M has a corporate guar- antee and attracts interest at 3 months libor plus 4% p.a.

As at 30 June 2020, the Company was in breach of certain Absa Bank Kenya Plc loan covenants. The breach arose due to the company not complying with laid down ratios as below:

• the Company’s external borrowings not to exceed 50% of the outstanding loans and the total debt and cash balances, but currently at 52%; and • obligation as a percentage of net operating earnings (after operating costs) not to exceed 10%, but cur- rently at 19% respectively.

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 81 NOTES TO THE FINANCIAL STATEMENTS

26. Leases - Group

The Company has adopted IFRS 16 from 1 July 2019 but has not restated comparatives for the year ended 30 June 2019, as permitted under the specific transitional provisions in the standard. Upon adoption, the reclas- sifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. Lease liabilities have been recognised with corresponding adjustment to right- of-use assets on initial application of the standard.

Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year.

2020 2019 Shs’000 Shs’000

As at 1 July 2019 - Adoption of IFRS 16 654,976 - Depreciation expense (141,094) -

As at 30 June 2020 513,882 -

Set out below are the carrying amounts of lease liabilities and the movements during the period:

2020 2019 Shs’000 Shs’000

At 1 July 2019 - - Adoption of IFRS 16 654,976 - Transfer from finance lease obligations (Note 28) 40,490 - Additions 14,418 - Interest on lease liabilities 68,999 - Lease payments (208,788) -

As at 30 June 2020 570,095 -

Current 355,617 - Non-current 214,478 -

570,095 -

The following are the amounts recognised in profit or loss:

Depreciation expense of right-of-use assets 141,094 - Interest expense on lease liabilities 68,999 - Expense relating to short-term leases 24,383 -

Total amount recognised in profit or loss 234,476 -

82 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

27. Effect of change of accounting policy - leases

As explained in Note 2 (a) (i), the Company changed its accounting policy for leases where the Company is a lessee. The new policy is described in Note 2 (j). As permitted by the transition provisions in the new standard, comparative amounts have not been restated. The Company’s accounting policy for leases under which the Company was a lessee was, up to 30 June 2019, as described in Note 2 (j).

Right-of-use assets and lease liabilities in respect of operating leases (excluding leases with a term, on com- mencement, of 12 months or less and leases for which the underlying asset is of low value) in force at 1 July 2019 have been recognised in accordance with the transition requirements of IFRS 16, as described in Note 2(a) (i). The resulting adjustment passed at 1 July 2019 because of applying IFRS 16 was as follows:

1 July 2020 Shs’000

Lease liabilities (654,976) Right of use asset 654,976

Net adjustment to retained earnings at 1 July 2019 -

28. Finance lease obligations – Group

2020 2019 Shs’000 Shs’000

Obligations due for settlement within 1 year - 18,208 Obligations due for settlement within 2 to 5 years - 22,282

- 40,490

Movement in finance lease obligations is as follows; At start of year 40,490 83,179 Transfer to leases liabilities (Note 26) (40,490) - Repayments - (42,689)

At end of year - 40,490

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 83 NOTES TO THE FINANCIAL STATEMENTS

29. Trade and other payables

Group Company

2020 2019 2020 2019 Current Shs’000 Shs’000 Shs’000 Shs’000

Trade payables 1,536,978 1,928,117 28,292 163,340 Amounts due to related companies (Note 31(iv) 6,458,085 6,001,910 6,240,712 5,695,778 Accruals and other payables 844,424 1,948,508 265,488 251,786

8,839,487 9,878,535 6,534,492 6,110,904

Non-current

Due to related parties 1,583,000 2,373,565 1,583,000 2,373,565

The carrying amounts of the above payables and accrued expenses approximate to their fair values.

Included in amount due to related parties, is 2.3B relating to restricted funds which the group absorbed from the factories when Chase and Imperial were put under statutory management. The balance will be paid in equal instalments in 2021 and 2022 respectively.

30. Provision for other liabilities and charges

Provision for liabilities and charges relate to gratuity payable to KTDA Holdings Limited, Chai Trading Com- pany Limited and Kenya Tea Packers Limited employees. For KTDA Holdings Limited, this benefit is payable to senior management, all of whom are on three-year contract terms. The amount payable is 25% of the annual salary. The carrying values of the obligations approximate to their fair values.

For Kenya Tea Packers Limited, Chai Trading Company Limited and KTDA Holdings staff working in Kangaita and Kagochi, the service gratuity represents the present value of future obligations to unionisable staff in ac- cordance with the Collective Bargaining Agreement.

The obligations’ balances at 30 June were as follows;

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Gratuity 149,592 143,447 27,070 45,829

The movement in the unfunded employee ben- efits obligations in the year was as follows;

Group Company 2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

At start of year 143,447 108,100 45,829 27,275 Charge to income statement 60,481 59,041 21,435 20,348 Utilised during the year (62,955) (11,175) (40,590) - Actuarial gain/(loss) on gratuity valuation 8,619 (12,519) 396 (1,794)

At end of year 149,592 143,447 27,070 45,829

84 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Management engaged Actuarial Services (East Africa) Limited to carry out valuation for the current year. The provisions are based on actuarial calculations made by the actuary. At year end, the key assumptions used in the actuarial calculation are as follows;

2020 2019

Discount rate (% p.a.) 12% 12.933% Future salary increases (% p.a.) 11% 10.933% Mortality (pre-retirement) A49-52ultimate A49-52ultimate Retirement Age 60 years 60 years

Before tax Tax charge After tax Shs’000 Shs’000 Shs’000 Year ended 30 June 2020- Group Actuarial gain –expert valuations-through OCI (8,619) 2,155 (6,464)

Year ended 30 June 2019 Actuarial losses –expert valuations-through OCI 12,519 (3,756) 8,763

Year ended 30 June 2020- Company Actuarial gain –expert valuations-through OCI (346) 99 (297)

Year ended 30 June 2019 Actuarial losses –expert valuations-through OCI 1,794 (538) 1,256

The Group also makes statutory contributions to the National Social Security Fund. Contributions are deter- mined by local statute and are shared between the employer and the employee. For the year ended 30 June 2020, the Group contributed Shs 2,526,000 (2019: Shs 2,025,000) which has been charged to the profit and loss account.

Net actuarial losses/(gains) in the net liability /(asset) recognised in other comprehensive income during the year;

Assumptions regarding future mortality experience are set based on actuarial advice, published statistics and experience in the industry. The actuarial valuations losses/ (gains) are included in other comprehensive income.

The tax relating to components of other comprehensive income is as follows:

2020 2019 Shs ‘000 Shs ‘000 Net actuarial gains arising from changes in demographic assumptions (140) (7,721) Net actuarial losses arising from changes in financial assumptions (106) (1,443) Net actual losses from participants movement 8,865 (3,355)

Actuarial losses for the year 8,619 (12,519)

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 85 NOTES TO THE FINANCIAL STATEMENTS

Sensitivity analysis; 2020 2019 Shs 000 Shs 000 Base scenario increases 110,512 86,676 Discount rate increased by 1% p.a 98,682 77,223 Discount rate reduced by 1% p.a 124,463 91,557 Salary escalation rate increased by 1% p.a 124,469 91,551 Salary escalation rate reduced by 1% p.a 98,029 77,059 Demographic assumption rate increased by 10% 110,678 86,960 Demographic assumption rate decreased by 10% 110,345 86,678

Year ended 30 June 2020 Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7 Base Discount Salary rate Discount Salary rate Demographic Demographic rate in- increased rate de- decreased assumption assumption creased by by 1% creased by by 1% increased by increased by 1% 1% 10% 10%

Discount rate 12.00% 13.00% 12.00% 11.00% 12.00% 12.00% 12.00% Salary increases 11.00% 11.00% 12.00% 11.00% 10.00% 11.00% 11.00% Demographic as- No change No change No change No change No change Increased by Decreased by sumptions 10% 10% Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Net liability at start of year 88,103 88,103 88,103 88,103 88,103 88,103 88,103

Net expense recog- nised in the income statement 19,134 19,134 19,134 19,134 19,134 19,134 19,134 Net expense recog- nised in OCI 8,759 (3,071) 22,716 22,710 (3,724) 8,925 8,592 Employer’s contri- bution (5,484) (5,484}) (5,484) (5,484) (5,484) (5,484) (5,484)

Liability at end of 110,512 98,682 124,469 124,463 98,029 110,678 110,345 year

Year ended 30 June 2019 Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7 Base Discount Salary rate Discount Salary rate Demographic Demographic rate increased rate de- decreased assumption assumption increased by 1% creased by by 1% increased by increased by by 1% 1% 10% 10% Discount rate 12.77% 13.77% 12.77% 11.77% 12.77% 12.77% 12.77% Salary increases 11.77% 11.77% 12.77% 11.77% 10.77% 11.77% 11.77% Demographic as- No No Increased Decreased No change No change No change sumptions change change by 10% by 10% Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Net liability at start of year 78,838 78,838 78,838 78,838 78,838 78,838 78,838 Net expense recognised in the income statement 16,878 16,878 16,878 16,878 16,878 16,878 16,878 Net expense rec- ognised in OCI (8,204) (17,657) (3,329) (3,323) (17,821) (7,920) (8,202) Employer’s contri- bution (836) (836) (836) (836) (836) (836) (836)

Liability at end of 86,676 77,223 91,551 91,557 77,059 86,960 86,678 year

86 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

31. a) Cash generated from operations – Group

Reconciliation of profit before income tax to cash generated from operations:

2020 2019 Shs’000 Shs’000

Profit before income tax 2,709,899 2,858,209 Adjustments for: Interest income (Note 7) (192,197) (283,076) Interest expense (Note 7) 218,780 413,343 Interest expense – lease liabilities (Note 7) 68,999 - Depreciation on property, plant and equipment (Note 15 (a)) 232,283 256,810 Depreciation on right-of-use asset (Note 26) 141,094 - Amortisation of intangible assets (Note 17) 103,153 105,333 Impairment of tea bushes (Note 15(a)) 41,439 35,748 Gain on disposal of property, plant and equipment (Note 6) (4,590) (4,459) Loss arising from changes in fair value less costs to sell of biological assets (Note 18) 45,280 19,616 Gain on sale of available for sale assets - 1,687 Dividend income (Note 6) (51,527) (646) Gain on revaluation of investment properties (Note 16) (78,589) (101,323) Changes in working capital - Inventories (764,998) 1,018,794 - Receivable and prepayments 834,695 23,163 - Payables and accrued expenses (1,829,613) (1,040,765) - Provision for other liabilities and charges 6,145 35,347 - Non-current receivables (936,548) 215,548

Cash generated from operations 543,704 3,553,330

31. b) Cash generated from /(used in) operations – Company

Reconciliation of profit before income tax to cash generated from/(used in) operations:

2020 2019 Shs’000 Shs’000

Profit before income tax 1,041,114 1,691,831 Adjustments for: Interest income (Note 7) (83,120) (113,340) Interest expense (Note 7) - Depreciation on property, plant and equipment (Note 15) 25,306 37,567 Amortisation of intangible assets (Note 17) 492 214 Gain on disposal of property, plant and equipment (Note 6) (680) (2,109) Impairment of tea bushes (Note 15 (a)) 41,439 35,748 Revaluation loss on borrowings (Note 25) 26,426 - Loss arising from changes in fair value less costs to sell of bio- logical assets (Note 18) 45,280 19,616 Dividend income (Note 6) (590,053) (701,276) Gain on revaluation of investment properties (Note 16) (18,363) (144,036) Changes in working capital - Inventories (3,752) (2,352) - Trade and other receivables (106,839) 99,167 - Trade and other payables (366,977) (1,496,057) - Provision for other liabilities and charges (18,759) 18,554 - Non-current receivables 87,703 (3,048)

Cash generated from / (used in) operations 79,217 (559,520)

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 87 NOTES TO THE FINANCIAL STATEMENTS

32. Related party transactions

There are companies that are related to Kenya Tea Development Agency Holdings Limited through common shareholdings or common directorships. The following transactions were carried out with related parties:

The following transactions were carried out with related parties:

i) Sale of goods and services Group

2020 2019 Shs’000 Shs’000

Other related parties 985,909 3,892,570

ii) Purchase of goods and services 2020 2019 Shs’000 Shs’000

Other related parties 2,130,907 8,382,568

iii) Amounts due from related parties Group Company

a) Current 2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

K T D A m a n a g e d t e a f a c t o r i e s 1,569,618 1,715,821 35,450 151,065 Majani Insurance Brokers Limited - - 18,219 11,503 Greenland Fedha Limited - - 912,446 918,166 Chai Trading Company Limited - - 30,037 71,182 KTDA Farmers Company Limited 3,678 8,025 1,553 2,484 KTDA Management Services Limited - - 1,109,289 638,928 KTDA Power Company Limited - - 925 9,730 Kenya Tea Packers Limited - - 8,839 4,424 KTDA managed regional power companies 327,625 409,852 - 112,831 KTDA Foundation - - 1,174 3,859 KTDA DMCC - - 1,463 - TEMEC - - 129,731 76,463

1,900,921 2,133,698 2,249,126 2,000,635

b) Non-current Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

KTDA Power Company Limited - - - 86,056 Advances to Regional Power Companies 600,698 435,698 - - KTDA managed regional power companies 2,056,360 1,285,821 - -

2,657,058 1,721,519 - 86,056

Total 4,557,979 3,855,217 2,249,126 2,086,691

88 | KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NOTES TO THE FINANCIAL STATEMENTS

Advances to regional companies

The balances relate to advances to Regional power companies with a plan to capitalise the amount to equity. The regional power companies are private companies with the majority shareholding held by the founding tea factories. The advances as at 30 June 2020 were as follows:

2020 2019 Shs’000 Shs’000

Metumi Power Company 61,578 61,578 Gura Power Company 122,044 122,044 Thuci Power Company Limited 55,040 37,660 Chania Power Company Limited 13,580 13,580 Chemuka Power Company Limited 35,603 35,603 Kirinyaga Power Company Limited 49,340 27,220 Greater Meru Tea Power Company Limited 75,366 41,506 Settet Power Generation Limited 62,908 17,088 Aberdare Power Limited 11,628 11,628 Nyakwana Power Company Limited 64,611 18,791 Imenti Power Company Limited 49,000 49,000

600,698 435,698

iv) Amounts due to related parties Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

KTDA managed Tea factories 6,297,526 5,778,466 6,225,942 5,680,373 Kenya Tea Growers Association 151,788 221,959 - Chai Trading Company Limited - - 9,448 6,026 KTDA managed regional power companies 799 1,485 - - Kenya Tea Packers Limited - - 4 4 Ktda Farmers co ltd 7,972 TEMEC - - 49 449 KTDA Management Services Limited - - 3,039 878 Majani Insurance Brokers - - 2,230 7,266 Greenland Fedha - - - 782

6,458,085 6,001,910 6,240,712 5,695,778

KTDA HOLDINGS LTD ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 | 89 NOTES TO THE FINANCIAL STATEMENTS

v) Key management compensation Group

2020 2019 Shs’000 Shs’000

Salaries and other short-term employment benefits 341,256 335,316

vi) Directors’ remuneration

Fees for services as a director 4,200 5,070 Other emoluments – Non-executive directors 58,774 79,007 Other emoluments – Executive directors 80,148 77,388

143,122 161,465

33. Contingent liabilities

At 30 June 2020, the Group counter guarantees on behalf of third parties and pending litigations amount to Shs 8,321,181,000 (2019: Shs 8,919,668,000). The loans on which these guarantees have been given are charged on the respective factory Company assets. There are counter guarantees between the Group and the respec- tive factories. It is not anticipated that any liability will arise from these guarantees

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Guarantees 8,142,000 8,905,000 8,142,000 8,905,000 Claims on pending litigations 179,181 14,668 74,050 14,668

8,321,181 8,919,668 8,216,050 8,919,668

Factory balances with banks

The Group invests surplus cash on behalf of the factories. These balances are not included in the financial state- ments of Kenya Tea Development Agency Holdings Limited as they belong to the factories. As at 30 June 2020 Shs 9.7 billion (2019: Shs 8.8 billion) has been invested on behalf of the factories with various banks.

Litigation matters – Kericho Governor case

In the financial year 2015/2016, KTDA and its subsidiaries were enjoined in an industry wide case which was brought against them by the Governor of Kericho. The directors are of the opinion that the success of this case is remote and the claims amounting to Shs 85.7 billion will not crystallise

In addition, the Group is a defendant in various legal actions and claims made by third parties, in the opinion of directors, after taking appropriate legal advice, no material liabilities are expected to crystallise from these claims.

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34. Capital commitments

Capital expenditure contracted for at the statement of financial position date but not recognised in the financial statements is as follows:

Group Company

2020 2019 2020 2019 Shs’000 Shs’000 Shs’000 Shs’000

Authorized and contracted for 726,826 374,995 534,611 281,637 Authorized but not contracted for 560,925 963,864 648,337 886,987

1,287,751 1,338,859 1,182,948 1,168,624

35. Impact of the COVID-19 pandemic

The ongoing global COVID-19 pandemic is having a devastating effect on livelihoods, businesses and econ- omies around the world. Restrictions on movement and social distancing measures implemented by Gov- ernment have resulted in a slowdown in economic growth with some sectors more heavily impacted than others. The measures have subsequently been relaxed and the Company’s operations are not significantly affected.

Management continue to review the situation. As at the date of approval of the entity’s 2020 financial statements, the directors are not aware of any material uncertainties that call into question the entity’s ability to continue as a going concern.

In light of the above the directors are of the opinion that the Group and Company will be operating as a going concern and have prepared these financial statements on a going concern basis.

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KTDA Farmers Building, Moi Avenue, P.O Box 30213 - 00100 Nairobi Tel: +254-20-322 7000

KTDA FOUNDATION GREENLAND FEDHA LTD KETEPA LTD MAJANI INSURACE BROKERS LTD

[email protected] www.ktdateas.com @ktdatea Kenya Tea Development Agency ltd