KAKUZI LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
1
Kakuzi Limited
Annual Report and Financial Statements
For the year ended 31 December 2016
Table of Contents
Company information
Notice of meeting
Chairman’s statement
Directors’ report
Statement of Directors’ responsibilities
Statement on corporate governance
Report of the independent auditor
Financial statements:
Consolidated profit or loss and other comprehensive income
Consolidated statement of financial position
Company statement of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Notes
Five year record
Major stockholders and distribution schedule
Form of proxy (Annual General Meeting)
Page No
1
2 – 3
4 – 6
7 – 8
9
10 - 12
13 – 17
18
19
20
21
22
23
24 – 65
66
67
68
Kakuzi Limited
Company Information
For the year ended 31 December 2016
COUNTRY OF INCORPORATION
The Company is incorporated in Kenya under the Companies Act.
DIRECTORS
The Directors who held office during the year and at the date of this report were:-
Mr. K W Tarplee* Chairman (until 28th March 2017)
Mr. G H Mclean* Chairman
Mr. C J Flowers* Managing Director
Mr. K R Shah
Mr. N Nganga
Mr. D M Ndonye
Mr. S N Waruhiu
Mr. A N Njoroge
* British
Appointed 2 August 2016
REGISTERED OFFICE
REGISTRARS
Main Office
Punda Milia Road, Makuyu
P O Box 24
01000 THIKA
Telephone (060) 2033012
E-mail: mail@kakuzi.co.ke
Custody & Registrars Services Limited
Bruce House, 6th Floor
Standard Street
P O Box 8484
00100 NAIROBI
Telephone (020) 2230242
Facsimile (020) 2211773
SUBSIDIARY COMPANIES
AUDITOR
Estates Services Limited
Kaguru EPZ Limited
(100% holding)
(100% holding)
PricewaterhouseCoopers
PwC Tower
Waiyaki Way/Chiromo Road, Westlands
P O Box 43963
00100 NAIROBI
SECRETARY
BANKERS
John L G Maonga
Maonga Ndonye Associates
Jadala Place, Ngong Lane, Ngong Road
P. O. Box 73248
00200 NAIROBI
Telephone (020) 2149923
STOCK UNITS
KCB Bank Kenya Limited
P O Box 30081
00100 NAIROBI
Commercial Bank of Africa Limited
P O Box 45136
00100 NAIROBI
The Company’s stock units are listed on the Nairobi Securities Exchange and the London Stock Exchange.
1
Kakuzi Limited
Notice of Annual General Meeting
NOTICE is hereby given that the Eighty Ninth Annual General Meeting of the Members of the Company will
be held in the Ballroom at Fairmont The Norfolk Hotel, Nairobi on Monday, 15 May 2017 at 12.00 noon for
the following purposes:-
1. To read the notice convening the meeting.
2. To table the proxies and confirm the presence of a quorum.
3. To approve the minutes of the Eighty Eighth Annual General Meeting held on 17 May 2016.
4. To receive, consider and adopt the financial statements for the year ended 31 December 2016
together with the reports of the Chairman, the Directors and the Independent Auditors thereon.
5. To declare a first and final dividend of Shs.6.00. per stock unit (2015: Shs 5.00) for the Financial Year
ended 31 December 2016.
6. To re-elect Directors:-
i) Mr Ketan Rameshchandra Shah, a Director retiring by rotation in accordance with Article 117 of
the Company’s Articles of Association and, being eligible, offers himself for re-election.
ii) Mr Graham Harold Mclean, a Director retiring by rotation in accordance with Article 117 of the
Company’s Articles of Association and, being eligible, offers himself for re-election.
iii) Mr Andrew Ndegwa Njoroge, a Director retiring by rotation in accordance with Article 118 of the
Company’s Articles of Association and, being eligible, offers himself for re-election.
iv) In accordance with the provisions of Section 769 of the Companies Act, 2015, the following
directors, being members of the Board Audit & Risk Committee be elected to continue to serve as
members of the said Committee:-
a) Mr Daniel M Ndonye
b) Mr Stephen N Waruhiu
c) Mr Andrew N Njoroge
d) Mr Nicholas Nganga
e) Mr Graham H Mclean
7. To approve the Directors’ remuneration as shown in the financial statements for the year ended 31
December 2016.
8. To note that Messrs PricewaterhouseCoopers (PwC) shall retire as Auditors of the Company at the
conclusion of this meeting. Consequently, and as recommended by the Directors, to appoint Deloitte &
Touche as the auditors of the Company for the financial year ending 31 December 2017 and to
authorise the directors to fix the Auditors’ remuneration.
SPECIAL BUSINESS
9. To consider and, if thought fit, to pass the following Ordinary Resolution:-
Conversion of Stock Units to Ordinary Shares
To approve the conversion of the issued Stock Units of Kshs 5/- per stock unit each to Ordinary Shares
of Kshs 5/- each in compliance with Section 322 of the Companies Act, 2015 and that henceforth,
issuance of shares shall be Ordinary Shares of Kshs 5/- each.
2
Kakuzi Limited
Notice of Annual General Meeting (Continued)
10. To consider and, if thought fit, to pass the following Special Resolutions:-
a) Change of Company Name
“THAT the name of the Company be and is hereby changed from Kakuzi Limited to Kakuzi Public
Limited Company (Kakuzi PLC) in compliance with Section 53 of the Companies Act, 2015”.
b) Adoption of New Articles of Association of the Company
“That the regulations contained in the document now submitted to this meeting and, for the purpose
of identification, initialled by the Chairman of the Company be approved and adopted as the new
Articles of Association of the Company in substitution for and to the exclusion of all existing Articles
of Association thereof.”
11. To transact any other business of an Annual General Meeting of which due notice has been received.
BY ORDER OF THE BOARD
J L G MAONGA
COMPANY SECRETARY
28 March 2017
Note:
A member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and vote on
his/her behalf and such proxy need not be a member of the Company.
3
Kakuzi Limited
Chairman’s Statement
For the year ended 31 December 2016
RESULTS
The results for the year show an increased profit before tax of Ksh 758 million against a restated profit for
2015 of Ksh 667 million. The 2015 profits have been restated due to changes in the Accounting Standards.
The earnings per stock unit increased from Ksh 23.45 to Ksh 28.70. The improved profit reflects the
favourable market demand for our two core crop products (avocado and macadamia) as well as the
continued growth of these operations in keeping with Kakuzi’s agricultural development strategy. The
Company has fully adopted the amendments to the International Accounting Standard (IAS) 41 –
Agriculture. All permanent plantings are now classified under IAS 16 – Property, Plant and Equipment as
bearer plants to be depreciated over their expected useful life.
DIVIDEND
Kakuzi continues to have a strong cashflow and balance sheet with profits above those of last year. The
Company Directors have recommended a dividend of Ksh 6.00 per stock unit compared to Ksh 5.00 for
2015.
OVERVIEW
Kakuzi continues to operate well in today’s business environment in Kenya. Global political uncertainty,
changeable climatic conditions and market volatility all present their varying challenges to our operations,
however we remain firm in our commitment to developing our core agricultural strategy to diversify our
income stream and extend both our avocado and macadamia footprint in Kenya.
Kakuzi’s diverse operational spectrum forms the basis of our commercial strategy and we are committed to
the development of our business over the long-term and to the sustainability of our environment.
The custodial philosophy adopted by the Kakuzi Board has at its core the future sustainability of our crops,
water resources, employees and the community in which we operate, in a process of continuous
improvement through successive generations.
OPERATIONS
Extreme weather patterns during 2016 led to above average rainfall in key tea producing countries, which
resulted in a global record in tea production and, thus, a significant decline in price. Unprecedented
demand for avocado and the resultant under-supply in the market meant record prices. These same
weather patterns caused significant drought in South Africa which had a huge impact on macadamia
production leading to an under-supply in the market therefore maintaining high prices.
As a result of the excellent growing conditions Kakuzi’s tea crop in Nandi Hills was 20% up over last year
(1,732 tonnes vs 1,446 tonnes). Kenya’s national production achieved record levels which had a negative
impact on price and resulted in production costs in excess of prices.
Avocado performed exceptionally well given the good yield profile and unprecedented market demand for
the fruit. Avocado export production was in line with 2015 with a total of 1.79 million cartons shipped.
Market demand was at an all-time high in EU countries and some exceptional prices were achieved.
Logistics remained a challenge at times during the season which led to delayed arrivals in Europe and
some associated insurance claims. Kakuzi continues to focus on producing a quality product and has
extended its orchard footprint by another 58 hectares, totalling 483 hectares. The intention is to have a
total planted area of 640 hectares by 2020.
Smallholder export volumes declined slightly due to unprecedented demand for the fruit creating
competition for their production from opportunistic exporters.
The construction of a state-of-the-art macadamia cracking facility was completed within budget and in time
to process our own harvest for the year (476 tonnes of Nut In Shell). Macadamia volumes increased as
Kakuzi’s young orchards continue to mature and, once again, exceptional market prices were maintained,
fuelled by a significant drop in volume in South Africa. Thus, prices remained firm and at levels similar to
last year. The macadamia crop volume increased as per expectation and rose to 91% above 2015 levels.
Kakuzi currently has 953 hectares of macadamia orchard, up by 97 hectares on last year. The objective is
to have established a total 1,030 hectares by 2020.
4
Kakuzi Limited
Chairman’s Statement (continued)
For the year ended 31 December 2016
Livestock sales proved challenging as a result of an over-supplied market - 33% down on the previous
year. The objective for 2017 is to enhance sales through the building of our own butchery thereby providing
a value-added service to our customers. The stocking rate has been maintained at circa 4,400 head
through improved grazing management and despite a strategic reduction in grazing land in order to
accommodate the Company’s Arable Joint Project development.
The forestry programme at Kakuzi continues well with focus on clearing and replanting new forestry plots.
Demand for our products has been satisfactory although, following a review of the price points on
transmission poles, a new sales strategy is to be adopted to reignite the sales of this valuable product. The
strategy to promote wood products and sales through the construction of a roadside yard to capture the
passing trade continues to grow and now represents 33% of total sales. Kakuzi has a total of 1,129
hectares planted to commercial forestry.
Our pineapple and Joint Project operations made returns in line with expectation. Kakuzi’s recently
adopted Arable Joint Project sets out to make full potential of black cotton soil areas. The first commercial
scale production of various trial crops was achieved during the year with some very positive results with
maize and sorghum.
GOVERNANCE
The new Companies Act 2015 and the new Code of Corporate Governance practices 2015 contain various
requirements which Kakuzi is in the process of implementing. There will also be a change to the Articles of
Association of the Company. The Directors have attended a training session on the new Act as per its
recommendations.
CSR & SUSTAINABILITY
The Company’s Corporate Social Responsibility initiatives continue to grow in both stature and importance
under the guidance of a recently-appointed Corporate Affairs Manager. In addition to the community based
activities, various food safety compliance certification audits were successfully completed to include Global
GAP, Nature’s Choice, Field to Fork and FSSC for Kakuzi’s avocado packhouse. These audits all require
dedicated professionalism and it is a tribute to both the proficiency and aptitude of management that a
variety of audits have been passed with such distinction. The Rainforest Alliance audit will be added to the
list in 2017.
Kakuzi’s avocado smallholder programme continues to be an important strategic CSR project. The
Company has every confidence in the service it provides: the support, advice and transparent returns that
add value, not least provide well deserved recognition, to the farmers who work so hard to produce the
fruit.
Water security and conservation remains a critical component of daily management activity on Kakuzi, thus
ensuring water catchments, riparian areas and indigenous forest are preserved for future generations. This
activity is strongly supported by water harvesting and recycling initiatives conducted in villages to ensure
effective rainwater harvesting which, in turn, assists in the production of a healthy food source for
employees.
STRATEGIC GOALS & DEVELOPMENTS
Kakuzi continues to make good progress towards its key strategic goals. Avocado and macadamia orchard
expansion remains as outlined above and expansion of our existing packhouse and cracking facilities will
be carried out as the increasing crop volumes dictate. The Board continues to review further development
in line with its strategic objectives as and when opportunities present themselves. A joint project agreement
to produce broilers on Kakuzi has been concluded and the development of this scheme will commence in
the second quarter of 2017.
5
Kakuzi Limited
Chairman’s Statement (continued)
For the year ended 31 December 2016
BOARD ANNOUNCEMENTS
After eight years as the chairman of the Board, Mr Kenneth Tarplee has stepped down from this position to
remain as a non-executive director.
In August 2016 Mr Andrew Njoroge was appointed to the Kakuzi Board as a non-executive Director. He
brings to the Board a wealth of experience in finance, compliance and capital markets.
STAFF & DIRECTORS
The Kakuzi staff have shown immense commitment throughout the year and worked tirelessly in an
uncertain atmosphere of weather and market forces. The operations teams are well supported by a highly
capable and efficient finance and administration staff in Nairobi. The rise of a more litigious and legal
compliance environment has led to the appointment of a Legal Officer in our Nairobi office.
LOOKING AHEAD
A new generation of politics in Europe and the US has created a level of volatility that impacts currencies in
our key markets. In August 2017 Kenya is going to the polls once again and as with any electoral event of
this nature outcomes are hard to predict. Management are highly focussed on achieving Kakuzi’s strategic
goals and adapt very professionally to any outside influences. I have every confidence in their individual
and collective abilities.
Kakuzi expects similar avocado production levels to those of last year, subject to weather. The avocado
market has firmed in the first quarter and that of macadamia is stable as it waits for news of cropping
volumes. Tea prices have improved due to the shortage in supply although the lower crop negates, to
some extent, the better prices.
The 2014/15 Union Agreements have posed numerous challenges to both management and employees
and are yet to be concluded. A complex legal dispute resolution is ongoing. Negotiations regarding the
2016/17 agreements are yet to commence.
On behalf of the Board, I would like to thank all staff who have continued their commitment to Kakuzi. Staff
have performed admirably in particular with regard to the completion of the cracking facility project.
Additionally, there have been difficult and diverse pressures to deal with that have been resolved with
immense patience and skill. I must also sincerely thank the Directors who have ensured that the interests
of Kakuzi’s shareholders are met with professionalism and transparency. Their advice and direction has
been invaluable in assisting Management to progress in a positive manner throughout the year and I have
every confidence that this will continue into the coming year.
G H MCLEAN
CHAIRMAN
28 March 2017
6
Kakuzi Limited
Directors’ Report
For the year ended 31 December 2016
The directors submit their report together with the audited financial statements for the year ended 31
December 2016, which disclose the state of affairs of Kakuzi Limited (the “Group”). The annual report and
financial statements have been prepared in accordance with sections 147 to 163 of the repealed
Companies Act - Cap 486, which remain in force under the transition rules contained in the Sixth Schedule,
the Transitional and Saving Provisions of the Companies Act 2015.
PRINCIPAL ACTIVITIES
The principal activities of the company comprise:
The cultivation of tea
Growing, packing and selling of avocados
Livestock farming
Growing and selling of pineapples
Forestry development
Growing, cracking and selling of macadamia nuts
RESULTS AND DIVIDEND
The net profit for the year of Shs 562,425,000 (2015: Shs 459,714,000) has been added to retained
earnings. The directors recommend the approval of a first and final dividend of Shs 6.00 (2015: Shs 5.00)
per stock unit.
The results for the year are set out on pages 18 to 65 in the attached financial statements.
ANNUAL GENERAL MEETING
The Eighty Ninth Annual General Meeting of the Company will be held in the Ballroom at Fairmont The
Norfolk Hotel, Nairobi on Monday, 15 May 2017 at 12.00 noon.
DIRECTORS
The directors who held office during the year and at the date of this report are set out on page 1.
The directors’ interests in the share capital of the company are listed below: -
At 31 December 2016
Beneficial Non-Beneficial
Stock units
Stock units
At 31 December 2015
Beneficial Non-beneficial
Stock units
Stock units
Mr. K W Tarplee
Mr. G H Mclean
Mr. C J Flowers
Mr. K R Shah
Mr. N Nganga
Mr. D M Ndonye
Mr. S N Waruhiu
Mr. A N Njoroge
-
100
-
200
1,000
-
-
-
-
100
-
200
1,000
-
-
-
75
-
-
-
-
-
-
-
75
-
-
-
-
-
-
-
7
Kakuzi Limited
Directors’ Report (continued)
For the year ended 31 December 2016
In accordance with Article 117 of the Company’s Articles of Association, Mr Ketan Rameshchandra Shah
and Mr Graham Harold Mclean will retire by rotation as directors at the Annual General Meeting and, being
eligible, will offer themselves for re-election.
In accordance with Article 118 of the Company’s Articles of Association, Mr Andrew Ndegwa Njoroge, a
Director will retire at the Annual General Meeting and, being eligible, will offer himself for re-election.
In accordance with the provisions of Section 769 of the Companies Act, 2015, the following directors, being
members of the Board Audit & Risk Committee will be elected at Annual General Meeting to continue to
serve as members of the said Committee:-
a) Nr Nicholas Nganga
b) Mr Daniel M Ndonye
c) Mr Stephen N Waruhiu
d) Mr Andrew N Njoroge
e) Mr Graham H Mclean
AUDITOR
To note that Messrs PricewaterhouseCoopers (PwC) shall retire as Auditors of the Company at the
conclusion of the Annual General Meeting. Consequently, and as recommended by the Directors, to
appoint Messrs Deloitte & Touche as the auditors of the Company for the financial year ending 31
December 2017.
By order of the Board
K R Shah
Director
28 March 2017
8
Kakuzi Limited
Statement of Directors’ Responsibilities
For the year ended 31 December 2016
The Kenyan Companies Act 2015 requires the directors to prepare financial statements for each financial
year which give a true and fair view of the financial position of the Company at the end of the financial year
and its financial performance for the year then ended. 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 reasonable 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
accordance with International Financial Reporting Standards and in the manner required by the Kenyan
Companies Act 2015. They also accept responsibility for:
i. Designing, implementing and maintaining internal control as they determine necessary to enable the
preparation 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
In preparing the financial statements, the directors have assessed the Company’s ability to continue as a
going concern and disclosed, as applicable, matters relating to the use of going concern basis of
preparation of the financial statements. Nothing has come to the attention of the directors to indicate that
the Company will not remain a going concern for at least the next twelve months from the date of this
statement.
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 28 March 2017 and signed on its behalf by:
K R Shah
Director
C J Flowers
Director
9
Kakuzi Limited
Statement on Corporate Governance
For the year ended 31 December 2016
This statement describes how the Group applies the main principles of The Capital Markets Authority,
Code of Corporate Governance Practices for Issuers of Securities to The Public 2015 (“the Code”).
The code succeeded the Guidelines on Corporate Governance Practices by Public Listed Companies in
Kenya 2002, which the Group was compliant with the exception of the following non-prescriptive
guidelines:
Rule 3.1.3 (i) The nominating committee is constituted as a committee of the entire board, and new board
appointments are considered by the full board.
Rule 3.1.4 (i) The remuneration of directors is considered by the nominating committee which comprises
the whole board.
In implementing the Code, the directors have taken account of the group’s size and structure and the fact
that there is a controlling shareholder, Camellia Plc.
The Group acknowledges the code and has embarked on a gap analysis exercise between its current
practices and recommendations of the code. The Group will consider the recommendations carefully and
implement as appropriate during 2017.
The Board
The Board currently comprises eight directors, three of whom are independent non-executive directors. Of
the remaining directors, two are executive and three are non-executives, including a non-executive
Chairman. The names and brief details of each director appear on the Group’s website.
The Board has established a Nomination & Remuneration committee and an Audit & Risk committee.
Terms of reference of the Audit & Risk committee have been reviewed and are considered to be in line with
the code. The Nomination and Remuneration committee terms of reference will be reviewed in 2017 to
ensure they are aligned with the code.
Under the code, the Board is advised to undertake a performance evaluation during the year by way of an
internal review. This will be considered in the year 2017.
The Board is responsible for managing the Group’s business and has adopted a schedule of matters
reserved for its approval. The schedule is reviewed annually and covers, inter alia, the following areas:
Internal controls
Strategy
Acquisitions and disposals
Financial reporting and control
Approval of expenditure above specified limits
Approval of transactions and contracts above specified limits
Responsibilities for corporate governance
Board membership and committees
Approval of changes to capital structure
Debt financing
A report summarising the Group’s financial and operational performance including detailed information on
each of its businesses is sent to directors every three months. Each director is provided with sufficient
information in advance of Board meetings to enable the directors to make informed judgments on matters
referred to the Board. The Board met four times in 2016.
10
Kakuzi Limited
Statement on Corporate Governance (continued)
For the year ended 31 December 2016
Nomination & Remuneration committee
The Nomination & Remuneration committee is chaired by Mr Nicholas Nganga. Its other members are the
rest of the Board members. The principal responsibilities of the Nomination & Remuneration committee are
set out below:
Review the balance and composition (including gender and diversity) of the Board, ensuring that
they remain appropriate
Be responsible for overseeing the Board’s succession planning requirements including the
identification and assessment of potential Board candidates and making recommendations to the
Board for its approval
Keep under review the leadership needs of, and succession planning for, the Company in relation
to both its executive and non-executive directors and other senior executives.
The committee met once during the year.
Audit & Risk committee
The Audit & Risk committee has been chaired by Mr Nicholas Nganga. The other members of the
committee have been Mr Daniel Ndonye, Mr Stephen Waruhiu, Mr Andrew Njoroge and Mr Graham
Mclean. During 2016, the committee met on two occasions.
Principal responsibilities
The principal responsibilities of the Audit and Risk committee are set out below and were undertaken
during the year:
To review and monitor the financial statements of the Group and the audit of those statements – to
monitor compliance with relevant financial reporting requirements and legislation
To monitor the effectiveness and independence of the external auditor
To review effectiveness of the Group’s internal control system. The committee regularly reviews
the effectiveness of internal audit activities carried out by the Group’s audit function and senior
management
To review non-audit services provided by the external auditors.
Significant issues in relation to financial statements
The audit committee assesses whether suitable accounting policies have been adopted and whether
management has made appropriate estimates and judgements. In the year under review, the audit
committee considered the following significant matters in relation to the financial statements:
Biological assets – One of the key areas of judgment that the committee considered in reviewing the
financial statements was the adoption of the amended IAS 41 including the valuation of biological assets in
accordance with the standard.
External auditors
To assess the effectiveness of the external audit process, the external auditor is required to report to the
Audit & Risk committee and confirm their independence in accordance with ethical standards and that they
had maintained appropriate internal safeguards to ensure their independence and objectivity. In addition to
the steps taken by the Board to safeguard auditor objectivity, PricewaterhouseCoopers operates a five
year rotation policy for audit partners for a listed entity.
The Group’s external audit function was tendered in 2015/2016, as part of the parent company’s tender.
The Audit & Risk committee has undertaken a review of the Group’s external audit requirements following
a recommendation on audit rotation by the Code and has endorsed the recommendation of the Board to
the shareholders to appoint Deloitte & Touche as auditors of the Group following retirement of
PricewaterhouseCoopers at the forthcoming Annual General Meeting.
The committee has reviewed the non-audit services provided by the external auditor and satisfied itself that
the scale and nature of those services were such that the external auditors objectivity and independence
were safeguarded.
11
Kakuzi Limited
Statement on Corporate Governance (continued)
For the year ended 31 December 2016
The committee confirms that the annual report and accounts, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the Group’s
performance, business model and strategy.
Share capital structure
The share capital of the Group is set out in note 13 of these financial statements
Internal control and risk management systems
The directors acknowledge that they are responsible for maintaining a sound system of internal control.
During the year, the Audit & Risk committee, on behalf of the Board, reviewed the effectiveness of the
framework of the Group’s system of internal control.
Accountability and delegation of authority are clearly defined with regular communication between the
Board and management.
The performance of each division is continually monitored centrally including a critical review of annual
budgets, forecasts and monthly sales, profits and cash reports.
Financial results and key business statistics and variances from approved plans are carefully monitored.
However, any system of internal control can provide only reasonable, and not absolute, assurance against
material mis-statement or loss.
Communication with Shareholders
The Group is committed to equitable treatment of its shareholders including the non-controlling and foreign
shareholders. The Group ensures that all shareholders receive full and timely information about its
performance. This is achieved through the distribution of the annual report and financial statements and a
half yearly interim financial report as well as through compliance with the relevant continuing obligations
under the Capital Markets Authority Act. The Group’s results are advertised in the press and released to
the stock exchange within the prescribed period at each half-year and year end.
By order of the Board
K R Shah
28 March 2017
C J Flowers
28 March 2017
12
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAKUZI
LIMITED
Report on the audit of the consolidated financial statements
Our opinion
We have audited the accompanying consolidated financial statements of Kakuzi Limited (the
Company) and its subsidiaries (together, the Group) set out on pages 18 to 65 which comprise the
consolidated statement of financial position at 31 December 2016 and the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statements of
cash flows for the year then ended, together with the separate statement of financial position of the
Company at 31 December 2016 and the statement of changes in equity of 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 financial statements give a true and fair view of the financial position of the Group
and the Company at 31 December 2016 and of the financial performance and cash flows of the
Group 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
responsibilities 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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate company opinion on these matters.
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: A Eriksson E Kerich B Kimacia K Muchiru M Mugasa A Murage F Muriu P Ngahu R Njoroge S N Ochieng' B Okundi K Saiti R Shah 13
13
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAKUZI
LIMITED (CONTINUED)
Key audit matter
How our audit addressed the key audit
matter
Measurement of bearer plants and biological
assets
the end of year
The measurement of bearer plants and biological
assets at
involves significant
judgements and estimates by the directors which
could have material impact on the financial position
and the results of the Group and the Company.
(i) Biological assets
As discussed in note 6 of the financial statements,
biological assets comprise
forestry plantations,
livestock and growing agricultural produce on bearer
plants and are measured at fair value less costs to
sell. The fair value models accrue the additional value
related
the biological asset as biological
transformation takes place rather than at the time of
harvest.
to
As shown in Note 3, the key assumptions and
estimates include expected future market prices,
costs to sell and applicable adjustments for the age
and condition of the assets. The actual outcome of
future estimates could be materially different from the
management estimates.
focuses on
the reasonableness and
Our audit
consistency of the assumptions and estimates made
by the directors in the measurement of biological
assets, including the adequacy of disclosures in the
financial statements.
Where the fair value was determined by an
independent professional valuer, we
assessed the capabilities, objectivity and
competence of the independent valuer.
Where necessary, we held discussions
with the independent valuer to understand
the basis of their valuation.
We also validated the underlying data of
acreage and age of plantations used by
the valuer to the company’s operational
management
including
comparison with historical trends.
information,
Where fair value was calculated using
market approach models, we tested the
basis and operation of those models and
the data and assumptions used. Our work
included:
• Comparing
the
principal
assumptions made with our own
actual
knowledge
and
the
historical
company and market
trends,
including sensitivity testing;
experience
the
of
• Testing
the operation of
the
models used to calculate the fair
value; and
• Validation of the underlying data
inputs
supporting
the
the
the company’s
models against
financial
operational
and
information and external sources.
in
We checked the consistency of application
of the fair value approaches and models
over the years.
We evaluated the sufficiency and accuracy
of the disclosures in the notes of the
financial statements.
14
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAKUZI
LIMITED (CONTINUED)
Key audit matter
(ii) Bearer plants
How our audit addressed the key audit
matter
During the year, the company reclassified bearer
plants from biological assets to property, plant and
equipment in compliance with changes in financial
reporting standards. The reclassification involved a
restatement of the prior year financial statements.
Bearer plants such as avocado, macadamia,
pineapples and tea plantations are used in the
production of agricultural produce and are
expected to bear produce for more than one period
with
likelihood of being sold as
agricultural produce except for incidental scrap.
the remote
As explained under note 2(f) of the financial
statements, the measurement of bearer plants
involves directors making significant judgment on
the maturity of bearer plants for capitalisation
purposes and the applicable useful lives for the
depreciation of the capitalised costs.
We assessed compliance with the transition
provisions of the amended financial reporting
standards, and consistency of application of
the accounting policies over the years.
the
We evaluated
reasonableness of
management assumptions and judgements in
relation to the depreciation period of bearer
plants based on the company’s replanting
schedules and general industry information.
We checked the accuracy of calculations
based on the revised accounting policy for
bearer plants and confirmed that the carrying
amounts of bearer plants are in accordance
with the new accounting policy.
on
audit
focused
Our
the
reasonableness of the directors judgments based
replanting and
on
production
industry
information.
the company’s historical
records,
assessing
general
and
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report but does not include the financial statements and our
auditor’s report thereon.
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
information identified above and, in doing so, consider whether the other information is materially
inconsistent 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.
15
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAKUZI
LIMITED (CONTINUED)
Responsibilities of management and those charged with governance for the consolidated
financial statements
The directors are responsible for the preparation and fair presentation of the financial statements 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 ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for overseeing the Group’s financial reporting process.
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
professional 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 evidence 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
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’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 continue as a going concern.
16
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAKUZI
LIMITED (CONTINUED)
Auditor’s responsibilities for the audit of the financial statements (continued)
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 financial statements. We
are responsible for the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
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.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the Group’s financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
Report on other legal requirements
As required by the Kenyan Companies Act 2015 we report to you, based on our audit, that:
i)
ii)
iii)
we have obtained all the information and explanations which to the best of our knowledge
and belief were necessary for the purposes of our audit;
in our opinion proper books of account have been kept by the company, so far as appears
from our examination of those books;
the company’s statement of financial position and statement of comprehensive income are
in agreement with the books of account.
The engagement partner responsible for the audit resulting in this independent auditor’s report is
FCPA Michael Mugasa - P/No.1478.
Certified Public Accountants
Nairobi
28 March 2017
17
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Consolidated statement of comprehensive income
Sales
Gains arising from changes in fair value less costs to sell of non-current
biological assets
Cost of sales
Gross profit
Other income/(expense)
Distribution costs
Operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Year ended 31 December
Notes
2016
Shs’000
2015
Shs’000
Restated
5
6
7
8
8
2,651,199
2,481,844
67,236
83,071
2,718,435
(1,421,914)
2,564,915
(1,326,377)
1,296,521
1,238,538
6,706
(620,635)
(3,236)
(655,224)
682,592
580,078
76,551
(1,364)
88,502
(1,239)
757,779
667,341
11
(195,354)
(207,627)
562,425
459,714
Items that are not reclassified to profit or loss:
Remeasurement of post employment benefit obligations (net of tax)
11
5,936
4,955
Total comprehensive income
568,361
464,669
Earnings per share (Shs):
Basic and diluted earnings per stock unit
12
28.70
23.45
The notes on pages 24 to 65 are an integral part of these financial statements
18
Kakuzi Limited
Financial Statements
As at 31 December 2016
Consolidated statement of financial position
EQUITY
Share capital
Other reserves
Retained earnings
Proposed dividend
Total equity
Non current liabilities
Deferred income tax
Post employment benefit obligations
Notes
31 December
2016
31 December
2015
Restated
31 December
2014
Restated
13
12
15
16
Shs’000
Shs’000
Shs’000
98,000
14,872
3,615,786
117,600
98,000
8,936
3,170,961
98,000
98,000
3,981
2,809,247
73,500
3,846,258
3,375,897
2,984,728
742,902
58,516
801,418
655,083
57,885
712,968
637,220
58,085
695,305
Total equity and non current liabilities
4,647,676
4,088,865
3,680,033
Non current assets
Property, plant and equipment
Biological assets
Prepaid operating lease rentals
Financial assets held to maturity
Non current receivables
Current assets
Biological assets – growing agricultural
produce
Inventories
Receivables and prepayments
Current income tax
Cash and bank balances
Financial assets held to maturity
Current liabilities
Payables and accrued expenses
Current income tax
Post employment benefit obligations
17
6(i)
18
20
22
6(ii)
21
22
24
20
23
16
2,309,714
640,135
4,389
30,768
30,061
2,128,735
614,618
4,394
46,153
23,469
1,930,615
570,175
4,399
61,538
22,405
3,015,067
2,817,369
2,589,132
164,303
171,112
266,150
1,821
1,430,576
15,385
110,633
83,562
255,692
-
1,175,434
15,385
87,237
62,122
129,888
-
973,690
15,385
2,049,347
1,640,706
1,268,322
398,762
-
17,976
416,738
227,024
128,071
14,115
369,210
150,147
16,519
10,755
177,421
Net current assets
1,632,609
1,271,496
1,090,901
4,647,676
4,088,865
3,680,033
The notes on pages 24 to 65 are an integral part of these financial statements
The financial statements on pages 18 to 65 were approved for issue by the board of directors on 28 March
2017 and signed on its behalf by:
K R Shah
Director
19
C J Flowers
Director
Kakuzi Limited
Financial Statements
As at 31 December 2016
Company statement of financial position
Notes
31 December
2016
EQUITY
Share capital
Other reserves
Retained earnings
Proposed dividend
Total equity
Non current liabilities
Deferred income tax
Post employment benefit obligations
13
12
15
16
31 December
2015
Restated
Shs’000
31 December
2014
Restated
Shs’000
98,000
8,936
3,166,820
98,000
98,000
3,981
2,805,106
73,500
Shs’000
98,000
14,872
3,611,645
117,600
3,842,117
3,371,756
2,980,587
742,902
58,516
801,418
655,083
57,885
712,968
637,220
58,085
695,305
Total equity and non current liabilities
4,643,535
4,084,724
3,675,892
Non current assets
Property, plant and equipment
Biological assets
Prepaid operating lease rentals
Investment in subsidiaries
Financial assets held to maturity
Non current receivables
Current assets
Biological assets – growing agricultural
produce
Inventories
Receivables and prepayments
Current income tax
Cash and bank balances
Financial assets held to maturity
Current liabilities
Payables and accrued expenses
Current income tax
Post employment benefit obligations
17
6(i)
18
19
20
22
6(ii)
21
22
24
20
23
16
2,309,714
640,135
4,389
4,295
30,768
30,061
2,128,735
614,618
4,394
4,295
46,153
23,469
1,930,615
570,175
4,399
4,295
61,538
22,405
3,019,362
2,821,664
2,593,427
164,303
171,112
266,150
1,768
1,430,576
15,385
110,633
83,562
255,692
-
1,175,434
15,385
87,237
62,122
129,888
-
973,690
15,385
2,049,294
1,640,706
1,268,322
407,145
-
17,976
425,121
235,407
128,124
14,115
377,646
158,530
16,572
10,755
185,857
Net current assets
1,624,173
1,263,060
1,082,465
4,643,535
4,084,724
3,675,892
The notes on pages 24 to 65 are an integral part of these financial statements.
The financial statements on pages 18 to 65 were approved for issue by the board of directors on 28 March
2017 and signed on its behalf by:
K R Shah
Director
C J Flowers
Director
20
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Consolidated statement of changes in equity
Year ended 31 December 2016
At start of year
- As previously stated
- Effect of IAS 41 amendments adoption
(Note 6)
Total comprehensive income for the year:
Profit for the year
Other comprehensive income
Total
Transactions with owners:
Dividends:
- Final for 2015
- Proposed for 2016
Total
Share
capital
Shs’000
Other
reserves
Shs’000
Retained
earnings
Shs’000
Proposed
dividend
Shs’000
Total
equity
Shs’000
98,000
8,936 3,238,934
98,000
3,443,870
-
-
(67,973
)
-
(67,973
)
98,000
8,936 3,170,961
98,000
3,375,897
-
-
-
-
-
-
-
5,936
5,936
562,425
-
562,425
-
-
-
562,425
5,936
568,361
-
-
-
-
(117,600)
(117,600)
(98,000)
117,600
19,600
(98,000)
-
(98,000)
At end of year
98,000
14,872 3,615,786
117,600
3,846,258
Year ended 31 December 2015 restated
At start of year
98,000
3,981 2,809,247
73,500
2,984,728
Total comprehensive income for the year:
Profit for the year
Other comprehensive income
Total
Transactions with owners:
Dividends:
- Final for 2014
- Proposed for 2015
Total
-
-
-
-
-
-
-
4,955
4,955
459,714
-
459,714
-
-
-
459,714
4,955
464,669
-
-
-
-
(98,000)
(98,000)
(73,500)
98,000
24,500
(73,500)
-
(73,500)
At end of year
98,000
8,936 3,170,961
98,000
3,375,897
The notes on pages 24 to 65 are an integral part of these financial statements.
21
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Company statement of changes in equity
Share
capital
Shs’000
Other
reserves
Shs’000
Retained
earnings
Shs’000
Proposed
dividend
Shs’000
Total
equity
Shs’000
Year ended 31 December 2016
At start of year
- As previously stated
- Effect of IAS 41 amendments adoption
(Note 6)
As restated
Total comprehensive income for the
year:
Profit for the year
Other comprehensive income
Total
Transactions with owners:
Dividends:
- Final for 2015
- Proposed for 2016
Total
98,000
8,936 3,234,793
98,000
3,439,729
-
-
(67,973
)
-
(67,973
)
98,000
8,936 3,166,820
98,000
3,371,756
-
-
-
-
-
-
-
5,936
5,936
562,425
-
562,425
-
-
-
562,425
5,936
568,361
-
-
-
-
(117,600)
(117,600)
(98,000)
117,600
19,600
(98,000)
-
(98,000)
At end of year
98,000
14,872 3,611,645
117,600
3,842,117
Year ended 31 December 2015 restated
At start of year
98,000
3,981 2,805,106
73,500
2,980,587
Total comprehensive income for the year:
Profit for the year
Other comprehensive income
Total
Transactions with owners:
Dividends:
- Final for 2014
- Proposed for 2015
Total
-
-
-
-
-
-
-
4,955
4,955
459,714
-
459,714
-
-
-
459,714
4,955
464,669
-
-
-
-
(98,000)
(98,000)
(73,500)
98,000
24,500
(73,500)
-
(73,500)
At end of year as restated
98,000
8,936 3,166,820
98,000
3,371,756
The notes on pages 24 to 65 are an integral part of these financial statements.
22
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Consolidated statement of cash flows
Notes
2016
Year ended 31 December
Restated
2015
Shs’000
Shs’000
Operating activities
Cash generated from operations
Interest received
Interest paid
Income tax paid
25
8
8
866,421
76,551
(1,364 )
(239,971 )
634,155
77,432
(1,239 )
(80,336 )
Net cash from operating activities
701,637
630,012
Investing activities
Purchase of property, plant and equipment
Purchase of biological assets and development
Proceeds from disposal of property, plant and equipment
Proceeds from redemption of available for sale investments
17
6
20
(342,098 )
(22,282 )
500
15,385
(336,953 )
(37,082 )
3,882
15,385
Net cash used in investing activities
(348,495 )
(354,768 )
Financing activities
Dividend paid
12
(98,000 )
(73,500 )
Net cash used in financing activities
(98,000 )
(73,500 )
Increase in cash and cash equivalents
255,142
201,744
Movement in cash and cash equivalents
At start of year
Increase
1,175,434
255,142
973,690
201,744
At end of year
24
1,430,576
1,175,434
The notes on pages 24 to 65 are an integral part of these financial statements.
23
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes
1 General information
Kakuzi Limited is incorporated in Kenya under the Kenyan Companies Act as a public limited liability
company, and is domiciled in Kenya. The address of its registered office is:
Main Office
Punda Milia Road, Makuyu
P O Box 24
01000 THIKA
Kenya
The Company’s stock units are listed on the Nairobi Securities Exchange and the London Stock
Exchange.
For Kenyan Companies Act reporting purposes, the balance sheet is represented by the statement of
financial position and the profit or loss by the statement of comprehensive income, in these financial
statements.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements
are set out below. These policies have been consistently applied to all the years presented, unless
otherwise stated.
(a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise
stated in the accounting policies below. The financial statements are presented in Kenya Shillings (Shs),
rounded to the nearest thousand.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires the Directors to exercise judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or where
assumptions and estimates are significant to the financial statements, are disclosed in Note 3.
Changes in accounting policy and disclosures
(i) New and amended standards adopted by the Group
The following standards and amendments have been applied by the Group for the first time for the
financial year beginning 1 January 2016:
Amendments to IAS 1, ‘Presentation of Financial Statements’: The amendments are made in the context of
the IASB’s Disclosure Initiative, which explores how financial statement disclosures can be improved. The
amendments, effective 1 January 2016, provide clarifications on a number of issues, including:
Materiality – an entity should not aggregate or disaggregate information in a manner that obscures
useful information. Where items are material, sufficient information must be provided to explain the
impact on the financial position or performance.
Disaggregation and subtotals – line items specified in IAS 1 may need to be disaggregated where this is
relevant to an understanding of the entity’s financial position or performance. There is also new
guidance on the use of subtotals.
Notes – confirmation that the notes do not need to be presented in a particular order.
24
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2
Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(i) New and amended standards adopted by the Group (continued)
OCI arising from investments accounted for under the equity method – the share of OCI arising from
equity-accounted investments is grouped based on whether the items will or will not subsequently be
reclassified to profit or loss. Each group should then be presented as a single line item in the statement
of other comprehensive income.
Annual Improvements to IFRSs 2012-2014 Cycle. The latest annual improvements, effective 1 January
2016, clarify:
IFRS 5 – when an asset (or disposal group) is reclassified from ‘held for sale’ to ‘held for distribution’ or
vice versa, this does not constitute a change to a plan of sale or distribution and does not have to be
accounted for as such.
IFRS 7 – specific guidance for transferred financial assets to help management determine whether the
terms of a servicing arrangement constitute ‘continuing involvement’ and, therefore, whether the asset
qualifies for de recognition.
IFRS 7 – that the additional disclosures relating to the offsetting of financial assets and financial
liabilities only need to be included in interim reports if required by IAS 34.
IAS 19 – that when determining the discount rate for post-employment benefit obligations, it is the
currency that the liabilities are denominated in that is important and not the country where they arise.
IAS 34 – what is meant by the reference in the standard to ‘information disclosed elsewhere in the
interim financial report’ and adds a requirement to cross-reference from the interim financial statements
to the location of that information and make the information available to users on the same terms and at
the same time as the interim financial statements.
The above amendment and improvements did not have a significant effect on the Group’s financial
statement.
Amendment to IAS 16 and IAS 41; IAS 41 Agriculture now distinguishes between bearer plants and other
biological assets. Bearer plants must be accounted for as property plant and equipment and measured
either at cost or revalued amounts, less accumulated depreciation and impairment losses.
A bearer plant is defined as a living plant that:
is used in the production or supply of agricultural produce
is expected to bear produce for more than one period, and
has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
Agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at
fair value less costs to sell with changes recognised in profit or loss as the produce grows.
The Group has applied the amendment and there has been significant impact on the Group’s financial
statements. The Group’s avocado, macadamia, tea and pineapple plantations qualify as bearer plants
under the new definition in IAS 41. For more information about the change in accounting policy for the
avocado, macadamia, tea and pineapple plantations refer to note 6.
Amendment to IAS 27;The IASB has made amendments to IAS 27 Separate Financial Statements which
will allow entities to use the equity method in their separate financial statements to measure investments in
subsidiaries, joint ventures and associates.
25
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(i) New and amended standards adopted by the Group (continued)
IAS 27 currently allows entities to measure their investments in subsidiaries, joint ventures and associates
either at cost or as a financial asset in their separate financial statements. The amendments introduce the
equity method as a third option. The election can be made independently for each category of investment
(subsidiaries, joint ventures and associates). Entities wishing to change to the equity method must do so
retrospectively. The amendment did not have a significant effect on the Group’s financial statement.
Amendments to IFRS 11; The amendments to IFRS 11 clarify the accounting for the acquisition of an
interest in a joint operation where the activities of the operation constitute a business. They require an
investor to apply the principles of business combination accounting when it acquires an interest in a joint
operation that constitutes a business.
This includes:
measuring identifiable assets and liabilities at fair value
expensing acquisition-related costs
recognising deferred tax, and
recognising the residual as goodwill, and testing this for impairment annually.
Existing interests in the joint operation are not re-measured on acquisition of an additional interest,
provided joint control is maintained.
The amendments also apply when a joint operation is formed and an existing business is contributed. The
amendment did not have a significant effect on the Group’s financial statement.
Amendments to IAS 16 and IAS 38; The IASB has amended IAS 16 Property, Plant and Equipment to
clarify that a revenue-based method should not be used to calculate the depreciation of items of property,
plant and equipment.
IAS 38 Intangible Assets now includes a rebuttable presumption that the amortisation of intangible assets
based on revenue is inappropriate. This presumption can be overcome if either
The intangible asset is expressed as a measure of revenue (ie where a measure of revenue is the
limiting factor on the value that can be derived from the asset), or
It can be shown that revenue and the consumption of economic benefits generated by the asset are
highly correlated.
Amendments made to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in associates
and joint ventures clarify that:
The exception from preparing consolidated financial statements is also available to intermediate parent
entities which are subsidiaries of investment entities
These amendments did not have a significant effect on the Group’s financial statements.
An investment entity should consolidate a subsidiary which is not an investment entity and whose main
purpose and activity is to provide services in support of the investment entity’s investment activities.
26
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(ii) New standards and interpretations adopted by the Group (continued)
Entities which are not investment entities but have an interest in an associate or joint venture which is
an investment entity have a policy choice when applying the equity method of accounting. The fair
value measurement applied by the investment entity associate or joint venture can either be retained,
or a consolidation may be performed at the level of the associate or joint venture, which would then
unwind the fair value measurement.
As these amendments merely clarify the existing requirements, they do not affect the Group’s accounting
policies or any of the disclosures.
(iii) New standards and interpretations not yet adopted by the Group
As at the date of approval of these financial statements, the following new and revised standards and
interpretations were in issue but not yet effective:
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial
assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the
guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9
retains but simplifies the mixed measurement model and establishes three primary measurement
categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The
basis of classification depends on the entity’s business model and the contractual cash flow
characteristics of the financial asset. Investments in equity instruments are required to be measured at
fair value through profit or loss with the irrevocable option at inception to present changes in fair value in
OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss
impairment model used in IAS 39. For financial liabilities there were no changes to classification and
measurement except for the recognition of changes in own credit risk in other comprehensive income,
for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge
effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship
between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one
management actually use for risk management purposes.
Contemporaneous documentation is still required but is different to that currently prepared under IAS 39.
The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is
permitted. The Group is yet to assess IFRS 9’s full impact.
IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes
principles for reporting useful information to users of financial statements about the nature, amount, timing
and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is
recognised when a customer obtains control of a good or service and thus has the ability to direct the use
and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning
on or after 1 January 2018 and earlier application is permitted.
IFRS 16 – Leases. After ten years of joint drafting by the IASB and FASB they decided that lessees
should be required to recognise assets and liabilities arising from all leases (with limited exceptions) on
the balance sheet. Lessor accounting has not substantially changed in the new standard.
27
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(iii) New standards and interpretations not yet adopted by the Group (continued)
The model reflects that, at the start of a lease, the lessee obtains the right to use an asset for a period
of time and has an obligation to pay for that right. In response to concerns expressed about the cost
and complexity to apply the requirements to large volumes of small assets, the IASB decided not to
require a lessee to recognise assets and liabilities for short-term leases (less than 12 months), and
leases for which the underlying asset is of low value (such as laptops and office furniture).
A lessee measures lease liabilities at the present value of future lease payments. A lessee measures
lease assets, initially at the same amount as lease liabilities, and also includes costs directly related to
entering into the lease. Lease assets are amortised in a similar way to other assets such as property,
plant and equipment. This approach will result in a more faithful representation of a lessee’s assets and
liabilities and, together with enhanced disclosures, will provide greater transparency of a lessee’s
financial leverage and capital employed.
One of the implications of the new standard is that there will be a change to key financial ratios derived
from a lessee’s assets and liabilities (for example, leverage and performance ratios).
IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4, ‘Determining whether an Arrangement contains a
Lease’, SIC 15, ‘Operating Leases – Incentives’ and SIC 27, ‘Evaluating the Substance of Transactions
Involving the Legal Form of a Lease’. The amendment is effective for annual periods beginning on or
after 1 January 2019.
Amendment to IAS 12; Amendments made to IAS 12 in January 2016 clarify the accounting for deferred
tax where an asset is measured at fair value and that fair value is below the asset’s tax base. Specifically,
the amendments confirm that:
A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the
end of the reporting period.
An entity can assume that it will recover an amount higher than the carrying amount of an asset to
estimate its future taxable profit.
Where the tax law restricts the source of taxable profits against which particular types of deferred tax
assets can be recovered, the recoverability of the deferred tax assets can only be assessed in
combination with other deferred tax assets of the same type.
Tax deductions resulting from the reversal of deferred tax assets are excluded from the estimated
future taxable profit that is used to evaluate the recoverability of those assets.
The amendment to IAS 12 is effective 1 January 2017.
Disclosure Initiative – Amendments to IAS 7; Effective 1 January 2017, entities will be required to explain
changes in their liabilities arising from financing activities. This includes changes arising from cash flows
(e.g. drawdowns and repayments of borrowings) and on cash changes such as acquisitions, disposals,
accretion of interest and unrealized exchange differences.
Changes in financial assets must be included in this disclosure if the cash flows were, or will be included in
cash flows from financing activities. This could be the case, for example, for assets that hedge liabilities
arising from financing liabilities.
Entities may include changes in other items as part of this disclosure, for example, by providing a, net debt,
reconciliation. However, in this case the changes in other items must be disclosed separately from the
changes in liabilities arising from financing activities. The information may be disclosed in tabular format as
a reconciliation from opening and closing balances, but a specific format is not mandated.
28
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(iii) New standards and interpretations not yet adopted by the Group (continued)
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have
a material impact on the Group.
(b) Consolidation of subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The Group
controls an entity when the group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Executive Directors, who are responsible for allocating resources and assessing performance of the
operating segments and making strategic decisions.
(d) Revenue recognition
Revenue comprises the fair value of the consideration received and receivable for the sale of goods and
services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax (VAT),
returns, rebates and discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that
future economic benefits will flow to the Group and when specific criteria have been met for each of the
Group’s activities as described below. The amount of revenue is not considered to be reliably measurable
until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical
results, taking into consideration the type of customer, the type of transaction and the specifics of each
arrangement.
i. Sales are recognised upon delivery of products to the customer, the customer has accepted the
products and collectability of the related receivables is reasonably assured.
Interest income is recognised using the effective interest method.
ii.
iii. Dividends are recognised as income in the period in which the right to receive payment is
established.
(e) Functional currency and translation of foreign currencies
(i) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The financial statements are
presented in Kenyan Shillings which is the Group’s functional currency.
29
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(e) Functional currency and translation of foreign currencies (continued)
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency of the respective entity using
the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year-end exchange rates
of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of
comprehensive income.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are
presented in the income statement of comprehensive income within ‘finance income or cost’. All other
foreign exchange gains and losses are presented in the statement of income statement of
comprehensive income within ‘other income’ or ‘other expenses’.
(f) Property, plant and equipment
All categories of property, plant and equipment are initially recorded at historical cost and subsequently
stated at cost less depreciation. Historical cost includes expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to
the income statement within ‘cost of production’ during the financial period in which they are incurred.
Bearer plants are classified as immature until the produce can be commercially harvested. At that point
they are reclassified and depreciation commences. Immature plantations are measured at accumulated
cost. The Group has applied the amendments made to the accounting standards in relation to the
accounting for bearer plants from 1 January 2015; refer to Note 6 for further information.
Freehold land is not depreciated. Depreciation on other assets is calculated using the straight line method to
write cost to their residual values over their estimated useful life as follows:
Buildings, dams and improvements
Plant and machinery
Motor vehicles, tractors, trailers & implements
Furniture, fittings and equipment
Bearer plants:
- Avocado trees
- Macadamia trees
- Pineapple crop
- Tea bushes
Capital work in progress is not depreciated
Immature period
Estimated useful life
20 – 50 years
10 – 13 years
4 – 10 years
3 – 8 years
4 years
6 years
1 year
4 years
25 years
30 years
2 years
50 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting
date.
Property, plant and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units).
Gains and losses on disposal of property, plant and equipment are determined by reference to their
carrying amounts and are taken into account in determining operating profit.
30
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(g) Biological assets
Biological assets comprise forestry, livestock and growing agricultural produce on tea, avocado,
pineapple, and macadamia plantations.
Biological assets are measured on initial recognition and at each reporting date at fair value less costs to
sell. Any gains or losses arising on initial recognition of biological assets and from subsequent changes
in fair value less costs to sell are recognised in the statement of comprehensive income in the year in
which they arise.
The fair value of livestock is determined based on market prices of livestock of similar age, breed and
genetic merit.
The tea bushes, avocado and macadamia trees, and pineapple crops are bearer plants and are
therefore presented and accounted for as property, plant and equipment (see note 2(f)). However, the
produce growing on these trees is accounted for as biological assets until the point of harvest.
Harvested produce is transferred to inventory at fair value less costs to sell when harvested. The
Company has applied the amendments made to the accounting standards in relation to the accounting
for bearer plants from 1 January 2015; refer to Note 6 for further information.
Management has assessed the fair value of growing agricultural produce on avocado, macadamia,
pineapple and tea plantations using estimated market prices less costs to sell based on the biological
transformation of the produce at the reporting date.
The fair value of timber plantations and livestock tea is based on market prices as valued by an external
independent valuer and management respectively.
Purchases and development of biological assets include cost of planting, breeding and upkeep until they
mature.
Subsequently all costs of upkeep and maintenance of mature biological assets are recognised in the
statement of comprehensive income within ‘cost of production’ under cost of production in the period in
which they are incurred.
(h) Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made or receipts under operating leases are charged or
credited to the statement of comprehensive income within ‘cost of production’ on a straight-line basis
over the period of the lease.
(i)
Inventories
Inventories are stated at the lower of cost and net realisable value.
Agricultural produce at the point of harvest is measured at fair value less costs to sell. Any changes
arising on initial recognition of agricultural produce at fair value less costs to sell are recognised in the
statement of comprehensive income in the year in which they arise.
The cost of other inventory is determined by the weighted average method. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the costs of completion and selling
expenses.
31
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(j) Receivables
Receivables are amounts due from customers for merchandise sold or services performed in the ordinary
course of business. If collection is expected in one year or less (or in the normal operating cycle of the
business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method. A provision for impairment of receivables is established when there is objective
evidence that the Group will not be able to collect all the amounts due according to the original terms of
receivables. The amount of the provision is the difference between the carrying amount and the present
value of expected cash flows, discounted at the effective interest rate. The amount of the provision is
recognised in the statement of comprehensive income within ‘cost of production’.
(k) Payables
Payables are obligations to pay for goods and services that have been acquired in the ordinary course of
business from suppliers. Accounts payable are classified as current liabilities if payment is due within one
year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-
current liabilities.
Payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
(l) Share capital
Stock units are classified as equity.
(m) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly
liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts
are shown within borrowings in current liabilities on the statement of financial position.
(n) Financial assets
The Group classifies its financial assets in the following categories: financial assets at fair value through
profit or loss, loans and receivables, held-to-maturity financial assets, and available-for-sale financial
assets. The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition and re-evaluates such
designation at every reporting date:
(i) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair
value through profit or loss at inception. A financial asset is classified in this category if acquired
principally for the purpose of selling in the short term, or if so classifying eliminates or significantly
reduces a measurement inconsistency. Derivatives are also categorised as held for trading. Assets in this
category are classified as current assets. During the year, the Group did not hold any financial assets in
this category.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They are included in current assets, except for maturities greater than 12
months after the end of reporting date. These are classified as non-current assets.
32
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(n) Financial assets (continued)
(iii) Financial assets held-to-maturity
Financial assets held-to-maturity are non-derivative financial assets with fixed or determinable
payments and fixed maturities that the Group’s management has the positive intention and ability to
hold to maturity.
(iv) Financial assets available-for-sale
Financial assets available-for-sale are non-derivatives that are either designated in this category or not
classified in any of the other categories. They are included in non-current assets unless management
intends to dispose of the investment within 12 months of the balance sheet date.
Regular purchases and sales of financial assets are recognised on the trade date, which is the date on
which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair
value, plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are initially recognised at fair value, and
transaction costs are expensed. Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Available for-sale financial assets and financial assets
at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and
held-to-maturity financial assets are carried at amortised cost using the effective interest method.
Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at
fair value through profit or loss’ category are included in the profit and loss account within other
losses/(gains) in the period in which they arise. Unrealised gains and losses arising from changes in the
in other
fair value of non-monetary securities classified as available-for-sale are recognised
comprehensive income. When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments are included in the income statement as gains and losses from
investment securities.
Derivatives, which comprise solely forward foreign exchange contracts, are initially recognised at fair
value on the date the derivative contract is entered into and are subsequently measured at fair value.
The fair value is determined using forward exchange market rates at the balance sheet date. The
derivatives do not qualify for hedge accounting. Changes in the fair value of derivatives are recognised
immediately in the profit and loss account.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is
not active (and for unlisted securities), the Group establishes fair value by using valuation techniques.
These include the use of recent arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash flow analysis and option pricing models refined to reflect the
issuer’s specific circumstances. During the year, the Group did not hold any financial assets in this
category.
33
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(o) Employee benefits
(i) Post employment benefits obligations
For unionised employees, the Group has an unfunded obligation to pay terminal gratuities under its
Collective Bargaining Agreement with the union. Employees who resign after completing at least ten years
(Nandi Hills employees) or employees who retire and have completed at least five years (Makuyu
employees) of service are entitled to twenty one days pay (Nandi Hills employees) or eighteen days
(Makuyu employees) for each completed year of service respectively. The liability recognised in the
statement of financial position in respect of this defined benefit scheme is the present value of the
defined benefit obligation at the reporting date. The obligation is estimated annually using the projected
unit credit method by independent actuaries. The present value is determined by discounting the
estimated future cash outflows using interest rates of government bonds. The currency and estimated
term of these bonds is consistent with the currency and estimated term of the post-employment benefit
obligation. The obligation relating to employees who have reached the minimum retirement age and
completed the required years of service and are still in employment are classified as payable within the
next twelve months.
Remeasurement of post employment benefit obligations arising from experience adjustments and changes
in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in
which they arise.
The Group operates a defined contribution post-employment benefit scheme for management employees.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a
separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund
does not hold sufficient assets to pay all employees the benefits relating to employee service in the
current and prior periods.
The assets of the defined contribution post-employment benefit scheme are held in a separate trustee
administered fund, which is funded by contributions from both the Group and the employees. The Group
and all its employees also contribute to the statutory National Social Security Fund, which is a defined
contribution scheme.
The Group’s contributions to both these defined contribution schemes are charged to the statement of
comprehensive income within ‘cost of production’ in the year in which they fall due.
(ii) Other entitlements
The estimated monetary liability for employees’ accrued annual leave entitlement at the reporting date
is recognised as an expense accrual.
(p) Current and deferred income tax
The tax expense for the period comprises current and deferred income tax. Tax is recognised in the
statement of comprehensive income except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity respectively.
(i) Current income tax
The current income tax charge is calculated on the basis of the tax enacted or substantively enacted at the
reporting date. Directors periodically evaluate positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate
on the basis of amounts expected to be paid to the tax authorities.
34
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
2 Summary of significant accounting policies (continued)
(p) Current and deferred income tax (continued)
(ii) Deferred income tax (continued)
Deferred income tax is recognised, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying values in the financial statements. Deferred income tax
is determined using tax rates and laws that have been enacted or substantively enacted at the reporting
date and are expected to apply when the related deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable
profits will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and
associates, except where the timing of the reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes assets and
liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity
or different taxable entities where there is an intention to settle the balances on a net basis.
(q) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost using the effective interest method; any differences between
proceeds (net of transaction costs) and the redemption value is recognised in the statement of
comprehensive income within ‘cost of production’ over the period of the borrowings.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the reporting date.
(r) Dividends
Dividends on stock units are charged to equity in the period in which they are declared. Proposed
dividends are shown as a separate component of equity until declared.
3 Critical accounting estimates and judgements
The estimates and assumptions that have significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are addressed below:
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including experience of future events that are believed to be reasonable under the
circumstances.
35
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
3 Critical accounting estimates and judgements (continued)
(a) Critical accounting estimates and assumptions
(i) Bearer plants
Critical judgement has been made in determining the useful life and maturity period of the bearer plants.
The useful life of the bearer plant is based on experience and expected productivity of the plant and the
expected replanting schedules.
(ii) Biological assets
Critical assumptions are made by the directors and the independent valuer in determining the fair
values of biological assets. The key assumptions relate to estimate of future market prices as adjusted
for age and condition of the assets.
(iii) Growing agricultural produce
Critical judgement has been made in determining the fair value of growing agricultural produce on
bearer plant. The key assumptions include the market prices and stage of growth at reporting date
based on past experience.
(iv) Post-employment benefits obligations
Critical assumptions are made by the actuary in determining the present value of the service gratuities
to non-management employees. The carrying amount of the provision and the key assumptions made
in estimating the provision are set out in Note 16.
(b) Critical judgements in applying the entity’s accounting policies
In the process of applying the Group’s accounting policies, the Directors have made judgements in
determining:
the classification of financial assets and leases
whether financial and non-financial assets are impaired
the recoverability of tax assets.
4
Financial risk management objectives and policies
The Group’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, prices for
its agricultural produce, foreign currency exchange rates and interest rates. The Group’s overall risk
management programme focuses on the unpredictability of financial and agricultural markets and seeks
to minimise potential adverse effects on its financial performance, but the Group does not hedge any
risks.
Financial risk management is carried out by the finance department under policies approved by the
Board of Directors. These policies provide principles for overall risk management, as well as policies
covering specific areas such as foreign exchange risk, interest rate risk and credit risk.
36
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
4
Financial risk management objectives and policies (continued)
Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US dollar and Euro. Foreign exchange risk arises
from future commercial transactions, and recognised assets and liabilities.
At 31 December 2016, if the Shilling was weaker/stronger by 5% (2015: 5%) against the US dollar with
all other variables held constant, the consolidated post tax profit would have been Shs 17,931,550
(2015: Shs 12,535,180) higher/lower mainly as a result of US dollar deposits and trade receivables.
At 31 December 2016 if the Shilling was weaker/stronger by 5% (2015: 5%) against the Euro with all
other variables held constant, the consolidated post tax profit would have been Shs 366 higher/lower
(2015: Shs 318).
(ii) Price risk
The Group does not hold any financial instruments subject to price risk.
(iii) Interest rate risk
The Group has borrowings and bank overdraft facilities at variable rates, which exposes the Group to
cash flow interest rate risk. The Group regularly monitors financing options available to ensure optimum
interest rates are obtained. For the year ended 31 December 2016, an increase/decrease of 5% (2015:
5%) would have resulted in a decrease/increase in post tax profit of Shs Nil (2015: Shs Nil).
The Group has interest earning deposits, whose income would be subject to interest rate risk. An
increase/decrease in interest rates of 5% (2015: 5%) would have resulted in an increase/decrease in
post tax profit of Shs 7,030,917 (2015: Shs 5,734,657).
Credit risk
Credit risk arises from deposits with banks, as well as trade and other receivables. The Group does not
have any significant concentrations of credit risk. The Group has policies in place to ensure that sales
are made to customers with an appropriate credit history.
The amount that best represents the Group’s and Group’s maximum exposure to credit risk at
31 December 2016 is the carrying value of the financial assets in the statement of financial position.
Collateral is held only for staff loans amounting to Shs 28,421,823 (2015: Shs 30,268,776) included in
other receivables. The Group does not grade the credit quality of receivables. All receivables that are
neither past due or impaired are within their approved credit limits, and no receivables have had their
terms renegotiated.
37
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
4
Financial risk management objectives and policies (continued)
Credit risk (continued)
None of the assets are past due or impaired except for the following amounts (which are due within 30
days of the end of the month in which they are invoiced):
Past due but not impaired:
by up to 30 days
by 31 to 60 days
by 61 to 90 days
over 90 days
2016
Shs’000
-
4,892
2,129
4,375
2015
Shs’000
-
1,912
1,084
3,070
Total past due but not impaired
11,396
6,066
Individually impaired
-
-
Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash balances, and the availability of
funding from an adequate amount of committed credit facilities. Due to the dynamic nature of the
underlying businesses, the finance department maintains flexibility in funding by maintaining availability
under committed credit lines.
Directors monitor rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.
The table below analyses the Group’s and Group’s financial liabilities that will be settled on a net basis
into relevant maturity groupings based on the remaining period at the reporting 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.
Group
At 31 December 2016:
- Trade and other payables
- Tax payable
At 31 December 2015:
- Trade and other payables
- Tax payable
Less than 1
year
Shs’000
Between 1
and 2 years
Shs’000
Between 2
and 5 years
Shs’000
Over 5 years
Shs’000
398,762
-
227,024
128,071
-
-
-
-
-
-
-
-
-
-
-
-
38
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
4
Financial risk management objectives and policies (continued)
Liquidity risk (continued)
Group
At 31 December 2016:
- Trade and other payables
- Tax payable
At 31 December 2015:
- Trade and other payables
- Tax payable
Capital management
Less than 1
year
Shs’000
Between 1
and 2 years
Shs’000
Between 2
and 5 years
Shs’000
Over 5 years
Shs’000
407,145
-
235,407
128,124
-
-
-
-
-
-
-
-
-
-
-
-
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 limit the
amount of dividends paid to shareholders.
The Group ensures that funds are available for capital developments by capping the dividends payable.
The dividends paid and proposed are shown in Note 12.
Fair value estimation
IFRS 13 requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
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 fair value of financial instruments that are not traded in an active market (for example, over-the-
counter derivatives) 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.
39
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
5 Segmental reporting
Directors have determined the operating segments based on the reports reviewed by the Executive Directors to make strategic decisions.
The Group operates in two geographical areas in Kenya, Makuyu and Nandi Hills, under several operating segments. The principal operating segments currently
consist of Avocados, Tea and Forestry. Macadamia will become a reportable operating segment in future (currently under all other segments) as it is expected to
materially contribute to Group sales in the future. The business activities of livestock, fresh pineapples, macadamia and joint projects and are included under “all other
segments” as they individually fall below the threshold of 10% of Group sales.
Segment assets consist primarily of property, plant and equipment, biological assets, inventories, receivables and prepayments. Unallocated assets are property,
plant and equipment, and inventories relating to Main Office and Engineering Stores. Segmental liabilities consist primarily of borrowings, payables and accrued
expenses. Unallocated liabilities are taxes, borrowings and non-current liabilities. The segment information for the reportable segments for the year ended 31
December 2016 and 31 December 2015 is as follows:
2016
2015
2016
2015
Tea
Avocados
2016
Forestry
2015
Shs’000 Shs’000
Shs’000
Shs’000
Shs’000
Shs’000
2016
2015
All other segments
Shs’000
Shs’000
2016
2015
Consolidated
Shs’000
Shs’000
Sales to external customers
Sales - continuing operations
Comprising
Major external customers sales
All other external customers sales
Geographical analysis
UK & Continental Europe
Kenya
Others
290,632 295,790
1,869,507 1,800,467
211,062
169,296
279,998
216,291 2,651,199 2,481,844
290,632 295,790
-
-
1,835,513 1,767,127
33,340
33,994
-
211,062
-
169,296
153,039
76,791 2,279,184 2,139,708
126,959 139,500 372,015 342,136
290,632 295,790
1,869,507 1,800,467
211,062 169,296 279,998 216,291 2,651,199 2,481,844
-
-
290,632 295,790
-
-
1,835,513 1,767,127
33,340
-
33,994
-
-
211,062
-
-
169,296
-
-
- 1,835,513 1,767,127
126,959 139,500 662,647 637,926
76,791
153,039
76,791 153,039
290,632 295,790
1,869,507 1,800,467
211,062
169,296
279,998 216,291 2,651,199 2,481,844
40
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
5 Segmental reporting (continued)
Profit/(loss)
Gross profit /(loss) before depreciation and
fair value changes in non-current biological
assets
Depreciation charge
Changes in fair value of non-current
biological assets
Gross profit
Distribution costs
Segment profit
Other unallocated income and expenses
Other income/(expense)
Interest income
Admin expenditure
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the year
Assets (all located in Kenya)
Segment assets
Unallocated assets
Liabilities
Segment liabilities
Unallocated liabilities
Additions
Property, plant and equipment
Biological assets
2016
2015
Tea
Forestry
Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000
Consolidated
2016
Avocados
2015
2016
2015
2016
2015
All other segments
2016
2015
2,911
(14,030 )
59,280 1,465,961 1,389,935
(56,630 )
(60,187 )
(14,914 )
64,838
(5,601 )
39,569
(3,349 )
42,684
(81,203 )
(16,759 ) 1,576,394
(161,021 )
(63,109 )
1,472,025
(138,002 )
-
(11,119 )
-
(11,119 )
-
-
-
44,366 1,405,774 1,333,305
(649,800 )
(609,977 )
683,505
795,797
-
44,366
34,442
93,679
-
93,679
43,346
79,566
-
79,566
32,794
(5,725 )
(10,658 )
(16,383 )
39,725
83,071
67,236
(40,143 ) 1,482,609 1,417,094
(655,224 )
(620,635 )
761,870
(45,567 ) 861,974
(5,424 )
2,651
-
-
(8,468 )
2,183
(6,285 )
2,857
-
-
47,223
(14,692 )
32,531
-
-
-
795,797
(205,155 )
590,642
-
-
-
683,505
(212,656 )
470,849
-
-
-
93,679
(24,150 )
69,529
-
-
-
79,566
(24,755 )
54,811
4,055
75,187
(186,088 )
(123,229 )
31,768
(91,461 )
(6,093 )
6,706
87,263
75,187
(186,088 )
(178,556 )
(142,953 ) 757,779
44,476
(195,354 )
(98,477 ) 562,425
(3,236 )
87,263
(178,556 )
667,341
(207,627 )
459,714
806,910 1,090,148 1,011,763
964,400
655,801
574,987 1,187,713 1,064,184 3,662,187 3,693,719
1,402,227 764,356
5,064,414 4,458,075
97,647
58,692
34,535
38,750
-
-
298,891
23,897
431,073 121,339
787,083 960,839
1,218,156 1,082,178
3,065
-
3,065
2,511
-
2,511
64,211
-
64,211
59,545
-
59,545
16,273
19,733
36,006
8,147
17,712
25,859
258,549
2,549
261,098
266,750
19,370
286,120
342,098 336,953
37,082
364,380 374,035
22,282
41
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company
(i) Non current assets
Changes in carrying amounts of non-current biological assets comprise:
Year ended 31 December 2016
Livestock
Shs’000
Plantation
Shs’000
Total
Shs’000
At start of year
Increase due to purchases and development
Gains arising from changes in fair value less
costs to sell
Decrease due to harvest and sales
128,218
2,141
32,794
(40,018)
486,400
20,141
34,442
(23,983)
614,618
22,282
67,236
(64,001)
At end of year
123,135
517,000
640,135
Year ended 31 December 2015
At start of year
Increase due to purchases and development
Gains arising from changes in fair value less
costs to sell
Decrease due to harvest and sales
115,925
19,370
39,725
(46,802)
454,250
17,712
43,346
(28,908)
570,175
37,082
83,071
(75,710)
At end of year
128,218
486,400
614,618
(ii) Current assets
Growing agricultural produce on bearer plants as at the
reporting date
Avocado
Macadamia
Pineapples
Tea
2016
Shs’000
111,823
28,448
22,434
1,598
2015
Shs’000
64,903
18,318
23,324
4,088
164,303
110,633
42
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company (continued)
Biological assets are carried at fair value.
Plantations comprise forestry. The fair value of forestry is determined by external independent valuation
based on recent market transaction prices.
The fair value of livestock is determined based on market prices of livestock of similar age, breed and
genetic merit.
The fair value of growing agricultural produce is estimated using the market approach. The key
assumptions made in the determination of the fair value are:
climatic conditions will remain the same and hence productivity will be similar to prior years
the biological transformation process of the growing agricultural produce will remain consistent to prior
produce
the market price will remain constant based on estimated future market prices
the actual costs to sell will not change significantly from estimated costs
The following table presents Group’s biological assets that are measured at fair value:
Level 1
Shs’000
Level 2
Shs’000
Level 3
Shs’000
Total
Shs’000
Year ended 31 December 2016
Livestock
Avocado
Tea
Forestry
Macadamia
Pineapple
Year ended 31 December 2015
Livestock
Avocado
Tea
Forestry
Macadamia
Pineapple
-
-
-
-
-
-
-
-
-
-
-
-
-
-
123,135
-
1,598
517,000
-
22,434
-
111,823
-
-
28,448
-
123,135
111,823
1,598
517,000
28,448
22,434
664,167
140,271
804,438
128,218
-
4,088
486,400
-
23,324
-
64,903
-
-
18,318
-
128,218
64,903
4,088
486,400
18,318
23,324
642,030
83,221
725,251
There were no transfers between any levels during the year.
43
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company (continued)
The following unobservable inputs at the respective year ends were used to measure the Group’s avocado growing agricultural produce
Year ended 31 December 2016
Description
Fair value at
31 December
Valuation
techniques
Unobservable
inputs
Range of
unobservable
inputs
Relationship of
unobservable inputs to fair value
Shs’000
Avocado
Produce
111,823 Market approach Yield - Kgs
per Hectare
17,000 The higher the yield, the higher the value
Net price per
carton
€4.45 – €5.26
The higher the market price, the higher the fair value
Stage of growth
12% – 15% The higher the stage of growth, the higher the fair value
Year ended 31 December 2015
Description
Fair value at
31 December
Valuation
techniques
Unobservable
inputs
Range of
unobservable
inputs
Relationship of
unobservable inputs to fair value
Shs’000
Avocado
produce
64,903 Market approach Yield - Kgs
per Hectare
17,000 The higher the yield, the higher the value
Net price per
carton
€3.05 – €3.60
The higher the market price, the higher the fair value
Stage of growth
12% - 15% The higher the stage of growth, the higher the fair value
44
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6
Biological assets – Group and Company (continued)
The following unobservable inputs at the year end were used to measure the Group’s macadamia growing agricultural produce
Year ended 31 December 2016
Description
Fair value at
31 December
Valuation
techniques
Unobservable
inputs
Range of
unobservable
inputs
Relationship of
unobservable inputs to fair value
Shs’000
Macadamia
Produce
28,448
Market approach Yield Kgs/Ha
1,805 The higher the yield, the higher the value
Net price per kg
of NIS
Stage of growth
Ksh.93.00 The higher the market price, the higher the fair value
40% - 45% The higher the stage of growth, the higher the fair value
Year ended 31 December 2015
Description
Fair value at
31 December
Valuation
techniques
Unobservable
inputs
Range of
unobservable
inputs
Relationship of
unobservable inputs to fair value
Shs’000
Macadamia
Produce
18,318
Market approach Yield Kgs/Ha
1,441 The higher the yield, the higher the value
Net price per kg
of NIS
Stage of growth
Ksh.93.00 The higher the market price, the higher the fair value
40% - 45% The higher the stage of growth, the higher the fair value
45
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company (continued)
Areas planted with the various crops at the year end:
Forestry plantations
Cattle numbers at the year end
Output of agricultural produce during the year:
Tea (green leaf)
Avocado
Pineapple
Macadamia
2016
Hectares
2015
Hectares
1,798
1,773
Head
4,552
Head
4,510
Metric tonnes Metric tonnes
7,437
7,102
1,656
476
6,215
9,362
1,752
237
Cubic metres
Cubic metres
Timber harvested during the year was:
5,353
5,540
Agricultural produce of tea bushes is the harvested green leaf which is processed soon after harvest in a
factory to made tea. Timber is included under inventory.
Financial risk management strategies
The Group is exposed to financial risks arising from changes in the prices of the agricultural products it
produces.
There are no future markets available for the majority of crops grown by the Group. The Group’s
exposure to this risk is mitigated by the geographical spread of its market and regular review of available
market data on sales and production.
The Group monitors closely the returns it achieves from its crops and considers replacing its biological
assets when yields decline with age or markets change.
Further financial risk arises from changes in market prices of key cost components. Such costs are
closely monitored.
46
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company (continued)
Fair value of the agricultural output after deducting costs to sell:
Tea (green leaf)
Avocado
Pineapple
Macadamia
Others
2016
Shs’000
2015
Shs’000
290,624
1,130,107
53,160
142,523
213,722
294,089
951,562
49,797
73,690
234,449
1,830,136
1,603,587
Change in accounting policy
As explained in note 2(d) and (e), the Group has adopted the amendments made to IAS 16 and IAS 41
in relation to bearer plants this year. These amendments have resulted in changes in accounting
policies and adjustments to the amounts recognised in the financial statements.
In June 2014, the IASB made amendments to IAS 16 Property, Plant and Equipment and IAS 41
Agriculture which distinguish bearer plants from other biological assets. Bearer plants are solely used to
grow produce over their productive lives and are seen to be similar to an item of machinery. They will
therefore now be accounted for under IAS 16. However, agricultural produce growing on bearer plants
will remain within the scope of IAS 41 and continue to be measured at fair value less cost to sell.
The Group’s avocado, macadamia, pineapple and tea plantations qualify as bearer plants under the
new definition in IAS 41. As required under IAS 8, the change in accounting policy has been applied
retrospectively. As a consequence, the plantations were reclassified to property, plant and equipment
effective 1 January 2015 and comparative figures have been restated accordingly.
The plantations are now measured at cost and depreciated over their useful life as disclosed in Note 2
(f). As permitted under the transitional rules, the fair value of the plantations at 1 January 2015 of Shs
1,371,087,000 was deemed to be their cost going forward.
47
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
6 Biological assets – Group and Company (continued)
Impact on financial statements
The impact of the restatement of the prior year financial statements is as follows:
(a) Profit or loss account for the year ended 31 December 2015
As previously reported
Adjustments:
- Adjustment of fair value changes less costs to sell on growing agricultural produce
- Depreciation of bearer plants
-
Impact on deferred income tax
Shs 000
527,687
(14,311)
(82,793)
29,131
(67,973)
459,714
Total adjustment
As restated
(b) Statement of financial position:
At 1 January 2015
PPE
Biological assets
Non-current
Shs’000
Shs’000
Current
Shs’000
As previously stated
Reclassification of bearer plants
Reclassification of growing agricultural produce
559,528
1,371,087
-
2,028,499
(1,371,087)
(87,237)
-
-
87,237
As restated
1,930,615
570,175
87,237
Deferred
income tax
liability
PPE
Biological assets
At 31 December 2015
Shs’000
Shs’000
Shs’000
Non-current
Current
Shs’000
As previously stated
684,214
767,473
2,183,617
Prior year adjustments:
- Reclassification of bearer plants
- Reclassification of growing
agricultural produce
- Additions in 2015
2015 adjustments:
- Depreciation on bearer plants
- Fair value gain on growing
agricultural produce
- Deferred tax movement
- Fair value loss on restatement
-
-
-
-
-
(29,131)
-
1,371,087
(1,371,087)
-
72,968
(87,237
)
(72,968)
(82,793)
-
-
-
-
-
-
(37,707)
-
-
87,237
-
-
23,396
-
-
As restated
655,083
2,128,735
614,618
110,633
48
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
7 Other income/(expense)
2016
Shs’000
2015
Shs’000
Net foreign exchange gain/(loss) other than cash and cash equivalents
Gain on disposal of property, plant and equipment
Rental Income
Sundry
590
402
3,956
1,758
(11,272)
3,051
3,998
987
8
Finance income and costs
Finance income
Interest income on short term bank deposits
Foreign exchange gain on cash and cash equivalents
6,706
(3,236)
2016
Shs’000
76,551
-
2015
Shs’000
77,432
11,070
76,551
88,502
Finance costs
Interest expense on bank borrowings, overdrafts and exchange losses
(1,364)
(1,239)
9 Expenses by nature
The following items have been charged/(credited) in arriving at profit before income tax:-
Depreciation on property, plant and equipment (Note 17)
Repairs and maintenance expenditure on property, plant and
equipment
Amortisation of prepaid operating lease rentals (Note 18)
Gain arising from changes in fair value less costs to sell of non-current
biological assets (Note 6)
Cost of inventories sold
Employee benefits expense (Note 10)
Auditor’s remuneration
2016
Shs’000
2015
Shs’000
161,021
138,002
65,008
5
49,259
5
(67,236)
(83,071)
1,160,105
493,930
6,474
1,005,073
417,554
6,225
49
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
10 Employee benefits expense
The following items are included within employee benefits expense:
Salaries and wages
Post employment benefits costs:
Post employment benefit obligations (Note 16)
Defined contribution scheme
National Social Security Fund
11
Income tax expense
Current income tax
Deferred income tax (Note 15)
Deferred income tax relating to other comprehensive income
2016
Shs’000
2015
Shs’000
463,823
392,316
15,116
3,687
11,304
14,359
2,954
7,925
493,930
417,554
2016
Shs’000
110,079
87,819
(2,544 )
2015
Shs’000
191,888
17,863
(2,124 )
Income tax expense
195,354
207,627
The tax on the Group’s profit before income tax differs from the theoretical amount that would arise
using the statutory income tax rate as follows:
Profit before income tax
Tax calculated at the statutory income tax rate of 30%
(2015: 30%)
Tax effect of:
Tax credit arising from investment deduction in the year
Income not subject to tax
Expenses not deductible for income tax purposes
Over provision of deferred income tax in prior years
2016
Shs’000
2015
Shs’000
757,779
667,341
227,334
200,202
(43,915 )
-
11,935
-
-
(293 )
8,829
(1,111 )
Income tax expense
195,354
207,627
50
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
11
Income tax expense (continued)
The Group tax (charge)/credit relating to components of other comprehensive income is as follows:
2016
Shs’000
2015
Shs’000
Remeasurement of post employment benefit obligations:
Actuarial gains/(losses) (Note 16)
Charge to other comprehensive income (Note 15)
8,480
(2,544 )
7,079
(2,124 )
Net charge to other comprehensive income
5,936
4,955
12 Earnings and dividends – Group
i) Basic and diluted earnings per stock unit
Basic earnings per stock unit is calculated on the profit attributable to the members of Kakuzi Limited
and on the 19,599,999 stock units in issue at 31 December 2016 and 31 December 2015 as follows:-
Profit attributable to equity holders of the Group (Shs ‘000)
562,425
459,714
2016
2015
Number of stock units in issue (thousands)
19,600
19,600
Basic and diluted earnings per stock unit (Shs)
28.70
23.45
The Group had no potentially dilutive stock units outstanding at 31 December 2016 and 31 December
2015.
ii) Dividends per stock unit
At the annual general meeting to be held on 15 May 2017, the directors will recommend the payment of
a first and final dividend of 120% of par value equivalent to Shs 6.00 per stock unit (2015: Shs 5.00 per
stock unit) in respect of the year ended 31 December 2016.
51
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
13 Share capital
Number of
stock units
(Thousands)
Ordinary
shares
Shs ‘000
Authorised
At 1 January 2015, 31 December 2015 and 31 December 2016
20,000
100,000
Issued and converted into stock units
At 1 January 2015, 31 December 2015 and 31 December 2016
19,600
98,000
The par value of the stocks is Shs 5 per stock unit. In accordance with the Articles of Association, all
fully paid-up shares of the Group are converted into stock units at the time of issue.
14 Borrowing facilities – Group and Company
2016
Shs’000
2015
Shs’000
The Group has the following undrawn committed borrowing facilities:
Floating rate (expiring within one year)
626,300
626,300
The facilities are subject to annual review at various dates during the year 2016.
The undrawn bank facilities of Shs 626,300,000 are secured by an undertaking, at any time if and when
required by the banks, to execute legal or other mortgages and charges including fixed or floating
charges or assigned in favour of the banks.
15 Deferred income tax – Group and Company
Deferred income tax is calculated using the enacted tax rate of 30% (2015: 30%). The movement on the
deferred income tax account is as follows:
At start of year
Charge to profit or loss
Charge to other comprehensive income
2016
Shs’000
655,083
85,275
2,544
2015
Shs’000
637,220
15,739
2,124
At end of year
742,902
655,083
52
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
15 Deferred income tax – Group and Company (continued)
The following amounts, determined after appropriate offsetting, are shown in the statement of financial
position.
Deferred income tax assets
Deferred income tax liabilities
2016
Shs’000
(101,459 )
844,361
2015
Shs’000
(64,463 )
719,546
742,902
655,083
Consolidated deferred income tax assets and liabilities, and deferred income tax charge/(credit) in the
statement of comprehensive income (SCI) are attributable to the following items:
Year ended 31 December 2016
Property, plant and equipment
Biological assets
Other temporary differences
Balance
1.1.2016
Shs’000
(Restated)
Charged/
(credit) to SCI
Shs’000
Balance
31.12.2016
Shs’000
540,436
179,110
(64,463)
97,722
27,093
(36,996)
638,158
206,203
(101,459)
Net deferred income tax liability
655,083
87,819
742,902
Year ended 31 December 2015
Property, plant and equipment
Biological assets
Other temporary differences
Balance
1.1.2015
Shs’000
(Restated)
Charged/
(credit) to SCI
Shs’000
Balance
31.12.2015
Shs’000
Restated
550,556
125,848
(39,184)
(10,120)
53,262
(25,279)
540,436
179,110
(64,463)
Net deferred income tax liability
637,220
17,863
655,083
53
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
16 Post employment benefit obligations – Group and Company
The amounts recognised in the statement of financial position are determined as follows:
2016
Shs’000
2015
Shs’000
Present value of post employment benefit obligations
76,492
72,000
Split as follows:
Non-current portion
Current portion
58,516
17,976
57,885
14,115
The movement in present value of the post employment benefit obligations is as follows:
At start of year
Net expense recognised in statement of comprehensive income
Benefits paid
At end of year
2016
Shs’000
2015
Shs’000
72,000
6,636
(2,144 )
68,840
7,280
(4,120 )
76,492
72,000
The amounts recognised in the statement of profit or loss within ‘cost of production’ for the year are as
follows:
Current service cost
Interest on obligation
2016
Shs’000
4,847
10,269
2015
Shs’000
5,006
9,353
Total included in employee benefits expenses (Note 10)
15,116
14,359
Actuarial gain recognised in other comprehensive income (Note 11)
8,480
7,079
54
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
16 Post employment benefit obligations Group and Company (continued)
31 December 2016
31 December 2015
Gratuity
(Makuyu)
Shs’000
Gratuity (Nandi
Hills)
Shs’000
Total
Shs’000
Gratuity
(Makuyu)
Shs’000
Gratuity (Nandi
Hills)
Shs’000
Total
Shs’000
At start of year
48,021
23,979
72,000
45,573
23,267
68,840
Current service cost
Interest expense/(income)
3,345
6,929
1,502
3,340
4,847
10,269
3,514
6,324
1,492
3,029
5,006
9,353
10,274
4,842
15,116
9,838
4,521
14,359
Remeasurements:
(Gain)/loss from change in assumptions
Experience (gains)/losses
(1,153 )
(5,384 )
(1,226 )
(717 )
(2,379 )
(6,101 )
(1,153 )
(5,268 )
59
(717 )
(1,094 )
(5,985 )
Benefits paid
At end of year
(6,537 )
(1,943 )
(8,480 )
(6,421 )
(658 )
(7,079 )
(400 )
(1,744 )
(2,144 )
(969 )
(3,151 )
(4,120 )
51,358
25,134
76,492
48,021
23,979
72,000
55
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
16 Post employment benefit obligations Group and Company (continued)
The principal actuarial assumptions used are as follows:
Discount rate (% p.a.)
Future salary increases (% p.a.)
first year
second year
Thereafter
Gratuity (Makuyu)
Gratuity (Nandi Hills)
2016
14.5%
10%
10%
10%
2015
14%
10%
10%
10%
2016
14.5%
10%
10%
10%
2015
14%
10%
10%
10%
Mortality (pre-retirement)
A 1949 - 1952
A 1949 - 1952
A 1949 - 1952
A 1949 - 1952
Withdrawals
Ill-Health
At rates consistent with similar
arrangements
At rates consistent with
similar arrangements
At rates consistent with
similar arrangements
At rates consistent with similar
arrangements
At rates consistent with similar
arrangements
At rates consistent with
similar arrangements
At rates consistent with
similar arrangements
At rates consistent with similar
arrangements
Retirement age
55 years
55 years
55 years
55 years
The sensitivity of the defined obligation to changes in the weighted principal assumptions is:
Impact on post employment benefit obligation
Changes in assumption
Increase/Decrease
in assumption
Discount rate
Salary growth rate
by 1%
by 1%
Shs 3,767,000
Not material
56
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
16 Post employment benefit obligations Group and Company (continued)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and
changes in some of the assumptions may be correlated. When calculating the sensitivity of the post employment benefit obligation to significant actuarial assumptions
the same method (present value of the post employment benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been
applied as when calculating the liability recognised within the statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
Five year summary:
2016
Shs’000
2015
Shs’000
2014
Shs’000
2013
Shs’000
2012
Shs’000
Present value of post employment benefit obligations – Group and Company
76,492
72,000
68,840
52,896
59,661
Net expense recognised in the statement of comprehensive income - Group
- within ‘cost of production’
- within ‘other comprehensive income (gain)/loss
15,116
(8,480 )
14,359
(7,079 )
11,411
8,579
12,216
(16,107 )
23,024
5,074
Net expense recognised in the statement of comprehensive income – Company
- within ‘cost of production’
- within ‘other comprehensive income (gain)/loss
15,116
(8,480 )
14,359
(7,079 )
11,411
8,579
12,216
(16,107 )
14,157
5,074
57
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
17 Property, plant and equipment
Group and Company
Year ended 31 December 2016
Cost
At start of year
Transfers
Additions
Disposals
At end of year
Depreciation and impairment
At start of year
Charge for the year
Disposals
At end of year
Net book amount
Depreciation and impairment at year end
comprises:
Depreciation
Impairment
Buildings,
freehold land,
dams and
improvements
Shs’000
Plant &
machinery
Shs’000
Bearer plants
Shs’000
Motor
vehicles,
tractors,
trailers and
implements
Shs’000
Furniture,
fittings and
equipment
Shs’000
Capital work
in progress
Shs’000
Total
Shs’000
1,089,841
92,465
-
-
953,983
97,979
125,966
(3,766 )
1,182,306
1,174,162
82,793
77,966
-
160,759
466,206
30,338
(3,683 )
492,861
1,021,547
681,301
161,791
63,317
37,526
(4 )
262,630
95,059
20,474
(4 )
115,529
147,101
176,095
-
40,618
(1,768 )
214,945
134,033
20,535
(1,768 )
152,800
51,887
-
39,032
(1,529 )
89,390
42,281
11,708
(1,514 )
52,475
515,510
(253,761 )
98,956
-
2,949,107
-
342,098
(7,067 )
360,705
3,284,138
-
-
-
-
820,372
161,021
(6,969 )
974,424
62,145
36,915
360,705
2,309,714
160,759
-
160,759
487,190
5,671
492,861
114,971
558
115,529
152,800
-
152,800
52,389
86
52,475
-
-
-
968,109
6,315
974,424
Fixed assets stated at cost of Shs 400,691,650 have been fully depreciated. The notional annual depreciation charge in respect of these values would have been
Shs 48,505,771.
58
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
17 Property, plant and equipment (continued)
Group and Company
Year ended 31 December 2015 (restated)
Cost
At start of year
Transfers
Additions
Disposals
At end of year
Depreciation and impairment
At start of year
Charge for the year
Disposals
At end of year
Net book amount
Depreciation and impairment at year end
comprises:
Depreciation
Impairment
Buildings,
freehold land,
dams and
improvements
Shs’000
Plant &
machinery
Shs’000
Bearer plants
Shs’000
Motor
vehicles,
tractors,
trailers and
implements
Shs’000
Furniture,
fittings and
equipment
Shs’000
Capital work
in progress
Shs’000
Total
Shs’000
1,038,297
51,544
-
-
1,089,841
-
82,793
-
82,793
945,444
19,176
59,200
(69,837 )
953,983
513,200
22,711
(69,705 )
466,206
1,007,048
487,777
151,259
5,458
5,074
-
161,791
83,917
11,142
-
95,059
66,732
152,241
-
33,117
(9,263 )
176,095
126,642
15,955
(8,564 )
134,033
48,254
-
5,298
(1,665 )
51,887
38,545
5,401
(1,665 )
42,281
357,424
(76,178 )
234,264
-
2,692,919
-
336,953
(80,765 )
515,510
2,949,107
-
-
-
-
762,304
138,002
(79,934 )
820,372
42,062
9,606
515,510
2,128,735
82,793
-
460,535
5,671
94,501
558
134,033
-
42,195
86
82,793
466,206
95,059
134,033
42,281
-
-
-
814,057
6,315
820,372
Fixed assets stated at cost of Shs 352,437,990 have been fully depreciated. The notional annual depreciation charge in respect of these values would have been
Shs 44,185,557.
59
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
18 Prepaid operating lease rentals – Group and Company
At start of year
Amortisation charge for the year
At end of year
19
Investment
(a) Investment in subsidiaries
2016
Shs’000
2015
Shs’000
4,394
(5)
4,399
(5)
4,389
4,394
The subsidiary companies are all incorporated in Kenya and have the same year end. Estates
Services Limited and Kaguru EPZ Limited are wholly owned and are dormant.
Year ended 31 December 2016
At start of year
At end of year
Year ended 31 December 2015
At start of year
At end of year
Kaguru
EPZ
Limited
Shs’000
Estates
Services
Limited
Shs’000
Total
Shs’000
1,670
2,625
4,295
1,670
2,625
4,295
Kaguru
EPZ
Limited
Shs’000
Estates
Services
Limited
Shs’000
Total
Shs’000
1,670
2,625
4,295
1,670
2,625
4,295
60
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
20 Financial assets held to maturity – Group and Company
Financial assets held to maturity are carried at their amortised cost. The movement in financial assets
held to maturity is as follows:
At start of year
Redeemed in the year
At end of year
Non current portion
Current portion
21 Inventories – Group and Company
Spare parts and consumable materials
Macadamia nuts
Poles & timber
2016
Shs’000
2015
Shs’000
61,538
(15,385 )
76,923
(15,385 )
46,153
61,538
30,768
15,385
46,153
15,385
46,153
61,538
108,984
29,551
32,577
70,576
-
12,986
Total inventories
171,112
83,562
The cost of inventories recognised as an expense and included in cost of production amounted to Shs
1,160,105,000 (Shs 1,005,073,000).
22 Receivables and prepayments – Group and Company
Trade receivables
Due from related companies (Note 26(v))
Other receivables and prepayments
Less non current portion
2016
Shs’000
38,427
142,159
115,625
2015
Shs’000
25,807
145,642
107,712
296,211
(30,061 )
279,161
(23,469 )
Current receivables & prepayments
266,150
255,692
Non current receivables
30,061
23,469
Non current receivables are due within five years from reporting date and are secured and interest free.
None of the amounts were impaired (2015: Nil).
The carrying amounts of the current receivables approximate to their fair value.
61
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
23 Payables and accrued expenses
Trade payables
Due to related companies (Note 26(v))
Accrued expenses
Other payables
Group
Company
2016
Shs’000
83,268
-
31,261
284,233
2015
Shs’000
31,910
-
19,595
175,519
2016
Shs’000
83,268
8,383
31,261
284,233
2015
Shs’000
31,910
8,383
19,595
175,519
398,762
227,024
407,145
235,407
The carrying amounts of the payables and accrued expenses approximate to their fair values.
24 Cash and bank balances – Group and Company
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following:-
Cash at bank and in hand
Short term deposits
2016
Shs’000
2015
Shs’000
60,945
1,369,631
32,786
1,142,648
1,430,576
1,175,434
62
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
25 Cash generated from operations
Reconciliation of profit before income tax to cash generated from operations:
Profit before income tax
Adjustments for:
Interest income (Note 8)
Interest expense
Depreciation (Note 17)
Amortisation of prepaid operating lease rentals (Note 18)
Profit on sale of property, plant and equipment
Gains arising from changes in fair value less estimated point-sale costs of
biological assets (Note 6)
Decrease in the fair value of biological assets due to sales and harvest and
disposal (Note 6)
Fair value movement in biological asset – growing agricultural produce
Changes in working capital:
- inventories
- receivables and prepayments
- payables and accrued expenses
- post employment benefit obligations
2016
Shs’000
Restated
2015
Shs’000
757,779
667,341
(76,551 )
1,364
161,021
5
(402 )
(77,432 )
1,239
138,002
5
(3,051 )
(67,236 )
(83,071 )
64,001
(53,670 )
75,710
(23,396 )
(87,550 )
(17,050 )
171,738
12,972
(21,440 )
(126,868 )
76,877
10,239
Cash generated from operations
866,421
634,155
63
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
26 Related party transactions – Group and Company
The group is controlled by Camellia Plc, incorporated in England. Camellia Plc is the ultimate parent of
the Group. There are other companies that are related to Kakuzi Limited through common
shareholdings or common directorships. Fellow Subsidiaries within the Camellia Plc Group act as
brokers and managing agents for certain products and operations of the Group.
The following transactions were carried out with related parties:
2016
2015
Shs’000
Shs’000
277,983
276,709
23,851
30,368
82,991
51,379
25,447
78,698
137,210
155,524
44,728
329
42,277
477
45,057
42,754
3,000
328
3,000
258
3,328
3,258
i) Sale of goods to:
Eastern Produce Kenya Limited
ii) Purchase of goods and services from:
Linton Park Plc
Robertson Bois Dickson Anderson Limited
Eastern Produce Kenya Limited
iii) Key management compensation
Salaries and other short-term employment benefits
Post employment benefits
iv) Directors’ remuneration
Fees for services as a director
Other emoluments
64
Kakuzi Limited
Financial Statements
For the year ended 31 December 2016
Notes (continued)
26 Related party transactions – Group and Company (continued)
v) Outstanding balances arising from sale and purchase of goods and service
Group
2016
2015
Group
2016
2015
Shs’000
Shs’000
Shs’000
Shs’000
118,940
23,219
145,642
-
118,940
23,219
145,642
-
142,159
145,642
142,159
145,642
-
-
-
-
-
-
2,570
5,813
2,570
5,813
8,383
8,383
Due from related Companies
Eastern Produce Kenya Limited
Robertson Bois Dickson Anderson Limited
Due to related Companies
Estates Services Limited
Kaguru EPZ Limited
27 Commitments – Group and Company
Capital commitments
Capital expenditure contracted for at the reporting date but not recognised in the financial statements is
as follows:
Property, plant and equipment
2016
Shs’000
2015
Shs’000
2,826
74,228
------------- 000 -------------
65
Kakuzi Limited
Five year record
Turnover
2,651,199
2,481,844
1,689,917
1,384,375
2,043,332
2016
Shs'000
2015
Shs'000
2014
Shs'000
2013
Shs'000
2012
Shs'000
Profit before income tax
Income tax
757,779
(195,354)
667,341
(207,627)
232,799
(72,594)
239,306
(74,248)
567,806
(159,150)
Profit after income tax
Non controlling interest
562,425
-
459,714
-
160,205
-
165,058
-
408,656
(29,299)
Profit attributable to the members of
Kakuzi Limited
562,425
459,714
160,205
165,058
379,357
Dividends: -
Proposed final dividend - for the year
117,600
98,000
73,500
73,500
73,500
Capital and reserves: -
Called up share capital
Reserves and non controlling interest
98,000
3,733,386
98,000
3,268,961
98,000
2,882,747
98,000
2,806,028
98,000
2,703,225
Total equity
3,831,386
3,366,961
2,980,747
2,904,028
2,801,225
Basic earnings per stock unit (Shs)
28.70
23.45
8.17
8.42
19.35
Dividends per stock unit (Shs)
6.00
5.00
3.75
3.75
3.75
Dividend cover
4.78
4.69
2.18
2.25
5.16
Total equity per stock unit (Shs)
195.48
171.78
152.08
148.16
142.92
All amounts are stated in Kenya shillings thousands (shs’000) except where otherwise indicated.
66
Kakuzi Limited
Major stockholders and distribution schedule
MAJOR STOCKHOLDERS
The 10 major shareholders and their holdings at 31 December 2016 were:
Stockholder name
1. John Kibunga Kimani
2. Bordure Limited*
3. Lintak Investments Limited*
4. Standard Chartered Nominees – A/C 9532
5. G H Kluge & Sons Limited
6. Kenyalogy.com Limited
7. CFC Stanbic Nominees Ltd – A/C NR1031143
8. HBSC Global Custody Nominee (UK) Ltd
9. Joe Barrage Wanjui
10. John Okuna Ogango
Number of
stock units
5,659,867
5,107,920
4,828,714
388,334
239,118
204,710
200,383
200,000
122,004
104,400
%
28.88
26.06
24.64
1.98
1.22
1.04
1.02
1.02
0.62
0.53
* Camellia Plc incorporated in England, by virtue of its interests in Bordure Limited incorporated in England
and Lintak Investments Limited incorporated in Kenya, is deemed to be interested in these stock units.
DISTRIBUTION SCHEDULE
The distribution of stock units as at 31 December 2016 was:
Stock units range
Less than 500
501 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 to 1,000,000
Over 1,000,000
Number of
stockholders
Number of
stock units
748
466
50
50
8
3
130,556
864,164
388,842
1,060,154
1,559,782
15,596,501
%
0.67
4.41
1.98
5.41
7.96
79.57
1,325
19,599,999
100.00
67
Kakuzi Limited
Form of Proxy (Annual General Meeting)
I/We
.…………………………………………….………..…………………..…………...………...………….…...…….……..,
of ………………………………..………………………………… being a member of the above-named Group,
hereby appoint: ……………………………………………………………………………………………………..……, of
……..………………………………………………....,or failing him …………………………………………………, of
…………………………………………………………………..., or failing him the duly appointed Chairman of the
meeting, as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Group to be
held on the 15th day of May 2017, and at any adjournment thereof.
As witness my hand this …………………………….. day of …………………………………………………..2017
Signed ………………………………………………………………………………………………………………………
Signed ………………………………………………………………………………………………………………………
Note:
1.
2.
3.
A member entitled to attend and vote is entitled to appoint a proxy to attend and vote in his stead and a
proxy need not be a member of the Group.
In the case of a member being a limited Group, this form must be completed under its common seal or
under the hand of an officer or attorney duly authorized in writing.
Proxies must be in the hands of the Group Secretary not less than 48 hours before the time of holding
the meeting.
68
FOLD 2
STAMP
1
D
L
O
F
Kakuzi Limited
P O Box 24
Thika 01000
Kenya
FOLD 3
INSERT FLAP INSIDE