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CYTONN INVESTMENTS MANAGEMENT PLC

Annual Report 2017

WWW.CYTONN.COM


www.cytonncollege.ac.ke

Cytonn College of Innovation & Entrepreneurship. Providing exceptional learning experiences for individual and societal transformation.

Our courses are designed to equip students with technical, entrepreneurial and soft skills that will ensure their suitability for the opportunities in the job market and provide them with knowledge that will enable them build and run businesses.

Opening in June 2018

E D U C AT I O N S E R V I C E S

Creating Sharp Minds


TABLE OF CONTENTS

Highlights

03

Leadership & Governance

33

Our Business Structure

4

Governance Structure

34

Macroeconomic Indicators

6

Board of Directors

35

Cytonn at a Glance

7

Senior Leadership

37

Cytonn Foundation

9

Corporate Governance Statement

39

Three Year Historical Performance

10

Internal Audit & Risk Management

43

Chairman’s Statement

11

CEO’s Statement

13

Internal Audit

44

Financial Controller’s Statement

16

Risk Management Governance Framework

45

Principal Risks & Mitigation Measures

46

Strategic Pillars

18

People

19

Products

20

Distribution

25

Processes

26

Cytonn Foundation

47

27

Training & Mentorship

28

Entrepreneurship

29

Financial Literacy

30

Donations

2017 Audited Financial Statements

31

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

2


Highlights


OUR BUSINESS STRUCTURE Cytonn is setup to capture the opportunity in providing institutional grade investment products to our investors, in real estate, financial services, hospitality and education. Alternative investments have, and continue to deliver attractive returns to investors, while our development projects create jobs, grow the local economy and improve standards of living. Our large mixed-use development projects have an aspect of hospitality and education, and are hence complimentary to our real estate developments and investments. There exists a fragmentation in the real estate investment space in Kenya and East Africa. On the one hand, there is global capital searching for attractive investment opportunities in the region in real estate, but has no development capability and with only very few institutional developers to partner with. On the other hand, there is a huge demand for development, across all real estate themes, but the existing development capability cannot attract and structure real estate investments or attract global capital. This is illustrated below:

Cytonn Investments has over Kshs 82.0 bn in projects under mandate, primarily in real estate projects that are at various stages in the development cycle. Cytonn Investment has diversified business lines that include: 1 Real Estate – At Cytonn Investments, we seek to deliver the best risk-adjusted returns in real estate to our investors. As such, we have built a team with comprehensive real estate capabilities that enable us to find, evaluate, structure and deliver world-class real estate investment products to our investors in the East African region. Our capabilities include fundraising, market research and acquisition, concept design, project management and agency and facility management.

Supply Side/ Developers

Private Equity (PE) Players to Couple Supply & Demand

Demand Side

DEVELOPERS

CYTONN & PE PLAYERS

INSTITUTIONALS & HIGH-NET WORTH

By matching demand in the economy, which is 200,000 units per annum, to supply from institutional grade real estate developers in the region, private equity players provide expertise and execution capability to reduce the housing deficit in Kenya.

In order to bridge that gap and reduce the fragmentation, we have two arms, which allow us to be a large scale mid-income housing developer with financing capability: Cytonn Investments, which is responsible for raising capital and structuring and Cytonn Real Estate, which develops institutional grade real estate to deliver the returns and build safe, secure neighborhoods. Through our real estate developments, we seek to create housing for the middle-class, reduce the deficit of 200,000 units per annum and create jobs (directly and indirectly through our developments), and improve the standards of living. The detailed breakdown is as follows: A) The Investments Business – Cytonn Investments: Cytonn Investments is an alternative investment management firm, with a presence in East Africa, United States and Finland through our part. Cytonn Investments provides alternative investment solutions in real estate, private equity and structured products to individual high net-worth investors, global and local institutions and Kenyans in the diaspora.

2 Private Equity - We seek value by identifying potential companies and growing them through capital provision, partnering with management to drive strategy and institutionalizing their processes. Our areas of focus are Financial Services, Education, Hospitality and Technology. The current investments in private equity are structured to provide strategic support to our real estate business. 3 Structured Products - Together with our capable investment team, we have pre-packaged high yielding investment solutions that ensure consistent and above market returns to investors. This allows us to raise funds in the local market, by providing investors with access to high-yielding investment only available through investment in alternative assets such as real estate backed fixed-income notes, such as the Cytonn Project Notes.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

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OUR BUSINESS STRUCTURE (cont’d) Given the huge growth potential in the region and few investment grade assets in real estate, private equity and structured products, our niche is developing such products for our clients to enable them achieve above average returns. To achieve this, we have motivated teams that work tirelessly to make sure our products offer the best returns. They include: ● Investments Research: This department conducts extensive research and produce publications on the different asset classes and gives actionable recommendation for investors, ● Alternative Investments: This department provides well researched investment opportunities in the alternative space with a bias towards Real Estate, Financial Services, Education, Hospitality and Technology, ● Public Markets: This team provides well researched portfolio recommendations in both the equities and fixed income market in Sub-Sahara Africa, ● Fund Operations: This department is in charge of administering the clients’ portfolio, and, ● Project Finance: This team seeks to couple investor capital with the developer, and are responsible for fundraising and debt capital for real estate projects.

b. Market research: After the location has been identified, the team conducts market research in the region to advise on the best use of the development to maximize on the returns, c. Investment analysis: At this stage, the team develops models to further analyze the viability of the project and the expected returns, d. Preparation of business case: At this stage, (1) a level one model is done by RDO (Research and Deal Origination) and presented to MIC (Management Investment Committee) for approval. (2) The approved model is then shared with the Real Estate Investment (REI) Analyst who runs a detailed model. (3) The REI Analyst then seeks approval from the respective project manager. (4) On approval, the REI Analyst presents the detailed model back to the MIC who will either approve or reject the model. They then share the model with BIC (Board Investment Committee) who then validate the process and finally approve or reject the deal, before the legal team is included, e. Land Purchase/ Joint Venture Agreement (JVA): At this stage, the legal team comes in and conducts the necessary due diligence on the property before the land is purchased or the JVA drawn, f. Implementation: After the project is approved, it is assigned to a Special Purpose Vehicle (SPV) which is in charge of the development.

B) Cytonn Asset Managers (CAM) On Friday 23rd March 2018, Cytonn Asset Managers Limited, the fund management affiliate of Cytonn Investments, received approval from the Capital Markets Authority of Kenya (CMA) to operate as a Fund Manager, through the granting of a fund management license. Cytonn is excited to be joining the list of fund managers in Kenya and shall do everything we can to contribute to the important work of building and deepening our capital markets. Our capital markets are core to funding businesses, which in turn create jobs and uplift standards of living. C) The Real Estate Business - Cytonn Real Estate Cytonn Real Estate (“CRE”) is the development affiliate of Cytonn Investments. As a development firm, CRE seeks to develop institutional grade real estate product, having a team with extensive and deep experience in real estate development and finance. In order to develop institutional grade real estate, every CRE project goes through an extensive development process, to deliver the highest risk-adjusted return to the investors and the highest quality end-product for buyers. To be able to come up with quality, institutional grade development, the projects undertaken by CRE go through various stages: 1. Research and Deal Origination: We have a capable team that carries out extensive market research prior to undertaking any development to ensure that we have the best location to develop and give our investors above market average returns. They attain this by; a. Identifying the location: The team identifies the best location for development with attractive annual appreciation and thus providing high returns,

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

2. Project Management: The project management team takes over the project management to ensure that the project is delivered within budget, time and quality. They are involved in overseeing the project from concept design, project planning, project execution, monitoring and exit 3. Quality Control/ Quality Assurance: The QA/QC oversee the project implementation alongside the Project Management team as a risk mitigation measure towards performance and other risks arising from the operation of the project 4. Project Procurement: The procurement team is involved in the development to ensure cost effectiveness through sourcing quality goods and services both locally and globally 5. Facilities and Property Management: This involves maintenance, administration and financial planning, thus minimizing costs in the development

MACROECONOMIC INDICATORS The Kenyan economy expanded by an average of 4.9% in 2017 compared to an average of 5.9% in 2016, mainly as a result of subdued growth in the agriculture sector, following the 2016/17 drought; and a slowdown in the growth of the financial intermediation sector brought on by slowing private sector credit growth to an average of 2.4% for the year, compared to the five-year average of 14.4%. The table on page 6 summarizes the seven macro-economic indicators that we track, the 2017 experience & the impact of the same on the operating environment, and the 2018 outlook:


MACROECONOMIC INDICATORS Macroeconomic Indicators

Government Borrowing

Interest Rates

Inflation

Currency

GDP

Investor Sentiment

Security

2017 Experience Effect

2018 Outlook

2017 Experience

2018 Outlook

By the end of 2017, the government was behind its domestic borrowing target for the current fiscal year, having borrowed Kshs 87.9 bn, against a target of Kshs 205.1 bn (assuming a pro-rated borrowing target throughout the financial year of Kshs 410.2 bn budgeted for the full financial year as per the Cabinet-approved 2017 Budget Review and Outlook Paper (“BROP”).

We don’t expect the Government to be under pressure to borrow as it is ahead of its domestic target and has borrowed 72.9% of its full year foreign borrowing target of Kshs 323.2 bn. Furthermore, with the petition by the Treasury to amend the Division of Revenue Act 2017 and to reduce allocation to the counties, and an expected improvement in revenue collections, the borrowing targets for the next fiscal year might be slightly lower

Negative

Positive

The CBK maintained the CBR at 10.0%, while remaining disciplined in the auction market and rejecting expensive bids, following the capping of interest rates

We do not expect any upward pressure on interest rates, with the government ahead of its pro-rated borrowing targets for the fiscal year, and also the expected reduced domestic borrowing target in the next fiscal year

Neutral

Neutral

Inflation declined to 4.5% in the month of December from 7.0% in January after reaching a high of 11.7% in May. For 2017 it averaged 8.0%, on account of a decline in food prices brought about by improved weather conditions towards the close of the year

The inflation rate has been declining in 2018, with the inflation rate in April coming in at 3.7%. We project 2018 inflation to average 7.0% compared to 8.0% in 2017, and within the government target range of 2.5% - 7.5%, which is conducive for economic growth

Neutral

Positive

The Kenya Shilling remained relatively stable in 2017,depreciating by 0.7% against the dollar despite the political uncertainty in the run up to the general election

We expect the currency to remain relatively stable against the dollar supported by sufficient dollar reserve, which currently stands at 6.1 months of import cover. The key concern, however, remains the maturing dollar denominated debt obligation that may reduce the level of forex reserve

Positive

Neutral

GDP growth for 2017 came in at 4.9% compared to 5.9% in 2016. This was a result of slow growth in agricultural sector, financial intermediation and manufacturing sector

We project 2018 GDP growth to come in between 5.4% and 5.6%, driven by a recovery in the agriculture and manufacturing sectors, and continued growth in tourism, real estate and construction sectors

Neutral

Positive

Investor sentiment remained positive, with foreign investors entering the market in search of attractive valuations, despite uncertainty around the 2017 General election

We expect the operating environment to remain conducive for growth, and attractive to foreign investors looking for attractively priced investment opportunities. Closing of ranks of the two major political leaders also points to a conducive operating environment

Positive

Positive

Despite political unrest in 2017, security remained tight as the government put in place strong measures to ensure there are no security threats facing the country

We expect security to be maintained in 2018, especially given that the elections are now concluded, the government has settled into office, and the country's two principals have decided to work together towards a united Kenya

Neutral

Positive

2017 was generally a tougher year, with the drought affecting the agriculture sector growth in the first half of the year, and the prolonged election period leading to a slow-down in the operating environment. The outlook points toward macroeconomic stability in 2018, with 5 out of 7 of the indicators being positive and 2 neutral.

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CYTONN AT A GLANCE

INVESTMENT READY PROJECTS

(KSHS) WORTH OF PROJECTS

OFFICES

MARKET PRESENCE

NORTH AMERICA

EUROPE

AFRICA

Our Clients

Global Locations

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Our clients include global and local institutional investors, individual high net-worth investors and the diaspora.

Global presence with 7 offices across Africa, North America and Europe.


ABOUT US

Cytonn Investments is an alternative investment manager, with presence in East Africa, Europe and the US that provides investors with exposure to the high growth East Africa region. Our investors include global and local institutional investors, individual high net-worth investors and the diaspora.

Vision

Our Purpose We invest in innovative solutions that create wealth and transform lives

To be Africa's leading investment manager by consistently exceeding clients' expectations

How we do it Mission We deliver innovative & differentated financial solutions that speak to our clients' needs

Awards No.1 Alternative Invesments Manager in kenya

Collect funds from our clients

Invest funds in high growth opportunities

Deliver the best possible returns

Our Strategic Pillars

PEOPLE

PRODUCTS

DISTRIBUTION

PROCESSES

Think Business Awards 2017

Best Alternative Invesments Provider International Finance Magazine

Employees

+ 270

Gender Composition Male

51%

Female

49%

With a distribution network of over 300

+ 5,000

Job opportunities created through our real estate projects

Number of Active Clients

2,200+

With Ksh. 13.8 bn of Assets under Management (AUM)

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

8


CYTONN FOUNDATION Cytonn Foundation Main Causes

Training & Mentorship

Entrepreneurship

Through the Cytonn Foundation we have reached more than one thousand Kenyans through programmes that help fight poverty, that increase access to financial literacy education, increase access to training and mentorship.

Financial Literacy

Training & Mentorship

500+ Entrepreneurship

Fresh graduates trained and mentored through the Cytonn Young Leaders Programme (CYLP) with Cytonn absorbing over 40%

40+

500+

Individuals trained through Cytonn Entrepreneurs Hub (Cytonn eHub)

Entrepreneurs attended Cytonn eHub discussion forum

+

1,000

People impacted by food donations through our social intiative dubbed ‘Shillingi kwa shilingi’

200+

Children touched through our donations to children’s homes

Financial Literacy

+ 600 Individuals trained through our Wealth Management Training programme

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

100+ Media professionals trained on investments, real estate and financial statements analysis

200+

High school students benefited from our sponsorship to improve Friends School Dandora


THREE YEAR HISTORICAL PERFORMANCE INCOME STATEMENT 2015

2016

2017

Proceeds from Sale of Real Estate Projects

16.6

317.9

612.6

Services Income

181.7

226.1

399.5

Other Income

59.1

46.4

362.4

Investment Income

26.3

69.3

130.8

Operating Fair Value Gains

686.9

551.6

886.0

Total Operating Income

970.6

1,211.3

2,391.3

Cost of Sales

(20.0)

(338.1)

(690.3)

(233.9)

(648.5)

(1,098.9)

(7.3)

(98.2)

(285.6)

Profit Before Tax

709.4

126.5

406.5

Income Tax Expenses

(14.0)

(20.9)

(8.5)

695.4

105.7

398.0

2015

2016

2017

Non - Current Assets

5,608.1

9,104.6

11,468.1

Current Assets

1,075.4

2,715.6

6,187.8

Total Assets

6,683.5

11,820.2

17,655.9

Non-Current Liabilities

2,098.4

2,362.9

3,059.0

877.0

4,126.2

9,057.7

Total Liabilities

2,975.4

6,489.1

12,116.7

Total Equity

3,708.1

5,331.1

5,539.2

6,683.5

11,820.2

17,655.9

Kshs Million

Staff and Operating Costs Financing Costs

Profit After Tax

BALANCE SHEET Kshs Million

Current Liabilities

Total Equity & Liabilities

KEY FINANCIAL PERFORMANCE Total Operating Income (Kshs. Million)

2,391.3

2500 2000

1000

970.6

4,500

1,211.3

500

17,655.9

000

6,000

1500

Total Assets ( Kshs. Millions)

Net Asset Value (Kshs. Million) 7,500

5,331.1

5,539.2

000

11,820.2

000

3,708.1

3,000

000

1,500

000

6,683.5

0

2015

2016

2017

2015

2016

2017

2015

2016

2017

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

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CHAIRMAN’S STATEMENT

Prof. Daniel Mugendi- Chairman

The strategic focus for the coming year will be diversification to other sectors such as Education, Technology and Hospitality.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


CHAIRMAN’S YEAR IN REVIEW

Overview I am pleased to report that the Group has continued to deliver impressive performance in 2017 despite the challenging operating environment, occasioned by prolonged drought, the extended electioneering period and the low credit to the private sector. We continued to build a strong track record led by a prudent business strategy and a strong corporate governance structure. Strategic Focus The Group has remained on course with its strategy of providing financial solutions with above average returns. The Group has positioned itself as a market leader in the real estate industry by working to deliver aspirational real estate products in all segments of the market. We are pleased to be one of the companies with attractive alternative investment products, and we were recognized by Think Business and International Finance Awards in the year 2017. Given the long-term nature of the real estate business, the Group is diversifying into other complimentary sectors of the economy, among them: Education, Hospitality and Procurement. Corporate governance So as to ensure that we are focused on the clients’ interests, we have put in place proper governance structures, with a Board of Directors consisting of members from diverse backgrounds, each bringing in unique skill-sets to the firm. Real estate developments are under a special purpose vehicle structure, and to ensure that the interest of both the equity partners and home owners are taken care of, we have put in place a separate of Board of Directors for each vehicle. In order to ensure proper oversight, the board members sit in different Board Committees, which include the Investments & Strategy Committee, Audit Risk & Compliance Committee, Governance, Human Resource & Compensation Committee, and Technology & Innovation Committee, all of which are important in providing strategic leadership and oversight to our operations. During the year, there were some changes to the Board of Directors. Dr. Nancy Onyango resigned as she proceeded to be appointed the Director of Internal Audit & Inspection at the

International Monetary Fund (IMF). Mr. Madhav Bhandari, Managing Partner for Baker Tilly Merali’s, joined the Audit, Risk and Compliance Committee. We welcome Mr. Bhandari to the Team and thank Dr. Onyango for her invaluable service, and wish her well as she continues her trailblazing career. As we seek to enhance governance to support our expansion strategy, we have proposed that each upcoming business initiative shall be empowered to constitute its own Board of Directors, which shall be conducted in accordance with the stipulated Board of Directors appointment framework and corporate governance policy. We also now have a Board Charter, which clearly defines the respective roles, responsibilities and authorities of our Board of Directors. It also sets out clearly the key values and principles of the Board of Directors as they guide management in setting the direction and control of the organization. To further enhance investor confidence and ensure additional oversight, the company subjected itself to a Global Credit Rating, where we got an initial rating of BB (KE) with a stable outlook and this will enable us better improve our corporate governance structures and strengthen investor confidence in the firm. Also, in the first quarter of 2018, the company got the Capital Markets Authority approval to offer public markets products, which include an equity Fund, Balanced Fund, Money Market Fund, portfolio management for pensions, and a Real Estate Investment Trust (REIT), through the granting of a Fund Management License to Cytonn Asset Managers. In Conclusion On behalf of the Board of Directors, I would like to thank our clients for your continued support, and the management and staff members for their continued commitment and hard work in delivering to our clients. I would also like to express sincere gratitude to the Board of Directors for supporting us throughout the year, even as we continue to expand and increase our footprint locally and within the region.


CEO’S STATEMENT

Edwin H. Dande - CEO & Managing Partner

Step by step relentlessly. If you are always taking a step as big and as fast as you can towards a goal, you are always getting closer to your target.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


CEO’S YEAR IN REVIEW

As Warren Buffet says, you only discover who is swimming naked when the tide goes out; the tide went out in 2017 due to the tough operating environment, which was as a result of the prolonged electioneering period and the low credit growth to the private sector, which was brought about by the interest rate cap legislation. However, as we have always believed at Cytonn, the best time to grow is when markets are difficult and people are distracted; at such times, it is a lot easier to get pristine assets at attractive prices and also get good talent looking for opportunities. We made progress around our four key pillars: • People: We got great people joining the firm, and primarily through our Cytonn Young Leaders Program (CYLP), altogether increasing the number of fulltime staff to 457 at the end of the year (this includes a sales force of 228), from 199 at the beginning of the year (including a sales force of 54). The focus is now to hire the top-level and mid-level managers to take the business to the next level. • Products: We made some strides in our investments, by launching 2 projects worth Kshs 35 bn, took a significant position in NIC Group to become the 5th largest shareholder, and acquired a 4-acre parcel of land in Kilimani. As part of our related industry diversification strategy, we put together a strategy and team for Cytonn’s education and hospitality initiatives. • Distribution: We increased our total sales force from 163 as at the end of 2016 to 432 by the close of the year, and they continue to raise funds for our investments, even as they sell real estate to realize our returns on the developments. In terms of growth, the internal team of Financial Advisors grew from 54 staff at the end of 2016 to 228 staff at the end of 2017, and Independent Financial Advisors grew from 109 as at the end of 2016 to 204 at the end of 2017. In a bid to serve our clients better, we are focusing on regional expansion into the Kenyan Counties, and we opened the Mt. Kenya Regional Office in Nyeri County. We have also embarked on the process of setting up the Western and Rift Valley Regional Offices in Kisumu and Nakuru, respectively. • Processes: We continue to make investments in our strategic support services; we have hired heads of finance, internal audit, and continue to make significant investments in technology. All these resulted in strong financial performance for the group, with Total Assets growing by 49.4% to Kshs. 17.7 bn as at 31st December 2017, from Kshs 11.8 bn the prior year, and profitability grew by 276.7% to Kshs. 398.0 mn for FY’2017, from Kshs 105.7 mn for FY’2016. Total Assets Under Management grow by 32.2% from Kshs 10.4 bn in 2016 to Kshs 13.8 bn at the end of 2017. The bulk of the growth in earnings and assets were driven by our investments in both quoted equities and real estate. In real estate, our main business area, the total value of projects under mandate grew to Kshs 82 billion across 10 investment ready projects. Two of our projects broke ground in the year 2017, namely Taraji Heights, a mixed-use development that sits on a 2.8-acre piece of land valued at Kshs 2.5 bn in Ruaka, and The Ridge, a comprehensive mixed-use development worth Kshs 12.0 bn, which sits on a 10.0-acre parcel of land in Ridgeways. In Q2’2017, we launched RiverRun Estates, a master-planned mixed-use development set on 100-acres, in the heart of Ruiru, valued at Kshs 15 bn. During Q3’2017, we launched our Kshs 20 bn Kilimani-based iconic mixed-use development project, Cytonn Towers. We continue with the development and construction of the rest of the projects, among them being The Alma in Ruaka

In recognition of the work being done by the company, we emerged the winners for the Investments Manager - Alternative Investment & Private Equity award category for the Think Business Investment Awards 2017, an improvement from the 1st runners-up position in the 2016 awards. We were also named Best Alternative Investment Provider by the International Finance Magazine. We have also recently been named #24 of the top 100 firms to work for as per a report by Brighter Monday. In terms of our Corporate Social Responsibility (CSR) initiatives, we continue to focus on our three core areas of Training & Mentorship, Entrepreneurship, and Financial Literacy: 1. Under Training & Mentorship, CYLP is our source of talent development both for ourselves and for your talent that needs internship. As at the end of 2017, we have trained 536 university graduates in CYLP, of which 180 have jobs at Cytonn, 2. Cytonn eHub, a focus area under Entrepreneurship, is a 12-week training and mentorship program for young and upcoming entrepreneurs that seeks to enhance knowledge and capabilities on how to start, develop and run successful enterprises. During the year 2017, we took 12 budding entrepreneurs through eHub, and all successful participants got a chance to showcase and pitch their business to investors at the Cytonn Annual eHub Investor Forum, 3. Under Financial Literacy, we continue to enhance financial knowledge and empower individuals with skills that allow them to make informed decisions with their financial resources; this is achieved through our weekly Private Wealth Management Training (largely covering financial planning and structured products). Challenges Anything that is worth doing has its fair share of challenges and Cytonn was not spared. Some of the challenges encountered in 2017, and how we mitigated them, were as follows: • Dealing with negative news through a number of organized social media and blogger attacks. We addressed this challenge through the launch of an initiative dubbed ‘Open To Talk’ where we had sessions with staff and clients and addressed any concerns. We will continue to have these sessions to engage our staff, clients and the larger public, • Lower product uptake occasioned by the harsh economic times, but we took the opportunity to focus on execution and acquire assets at discounted prices, • Our strategy on talent driven by CYLP, and our culture of excellence and openness, enabled us attract and retain the right talent in a very competitive environment. We are continuously looking in the market and overseas to get the best talent, and also hiring from CYLP, • As we grow in number, it is becoming difficult to infuse our culture. To sustain culture, we have unique company norms that bring us together, which we adhere to faithfully. Key Initiatives Going Forward Going forward we shall be focused on the following key initiatives to propel the firm to the next level of growth:

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

14


• Capital Raising: We are going to be focused on capital raising through a listing at a recognized exchange, and also raising funds from the regulated markets through Cytonn Asset Managers, our licensed fund management affiliate, • Kenya Regional Expansion: We are currently present in the Nairobi Metropolitan Area through 4 offices, and the Mt. Kenya Region through our office in Nyeri County. We shall be expanding our network nationally through an additional 4 offices in Nakuru, Eldoret, Kisumu and Mombasa, all of which we expect to open by end of the year, • Sub Saharan Africa Regional Expansion: Our medium-term goal is to be brand that offers exposure to the high growth Sub Saharan Africa Region to investors. This year, we will begin to execute that strategy as we look to enter the West African Market, • Portfolio Diversification: We are working to diversify our portfolio to reduce the concentration into real estate by diversifying into related areas such as the education and hospitality sectors,

• Mergers and Acquisitions: We are always on the lookout for any acquisitions in our sectors. We look at acquisitions that will give us entry into new markets or new product lines, such as the acquisition of a stake in Superior Homes Kenya Plc, which gave us access to master-planned communities in satellite towns, and the acquisition of Seriani Asset Managers, which quickened our entry into regulated investment products. In Conclusion I would like to thank our clients, our committed team of staff and our Board of Directors, all of whom have contributed to the success in 2017 and in bringing the firm this far. We live in a region that has immense opportunities for committed entrepreneurs; let’s stay focused in 2018, and as usual let’s focus on pulling together to deliver excellent products for our clients, fulfilling careers for our staff, exceeding stakeholder expectations, and doing so with integrity.


FINANCIAL CONTROLLER’S STATEMENT

Alex Magu - Acting Financial Controller

The group recorded a strong balance sheet growth with Total Assets increasing by 49.4% to Kshs. 17.7 billion as at 31st December 2017 from Kshs. 11.8 billion recorded in the prior year which was mainly driven by the growth in the real estate asset class.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

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FINANCIAL PERFORMANCE REVIEW

Business Review The financial year 2017 was characterized by a tough economic environment for businesses in Kenya, brought about by low credit growth to the private sector, which hit a low of 2.4% in 2017, and the prolonged electioneering period. With our commitment to deliver attractive returns to all stakeholders, we saw this as an opportunity to invest in our growth while the rest of the market was distracted and businesses were on a slow. The investments made by the firm can be bucketed into three key areas: First was the continued investment in our ongoing projects, and the acquisition of assets at attractive valuations, in both real estate and financial services; these included investments in our latest Kilimani development, while also actively trading listed financial services counters, namely KCB Group and NIC Group. Second was the investment in our diversification strategy, as we expand into complimentary businesses to our real estate, such as education and hospitality. Diversification was also achieved through growth in the region, with the opening of our Mt. Kenya Office in Nyeri. Third was the investment in our future, through growth of staff, with a focus on filling key management positions, and the growth in our distribution network. Group Financial Performance As indicated above, in line with the firm’s commitment to deliver attractive returns to all our stakeholders, the Group achieved impressive growth across our main business segments. The Group’s Profit After Tax increased by 276.7% to Kshs. 398.0 million for period ending 31st December 2017, from Kshs. 105.7 million in 2016. In terms of Balance Sheet growth, the Group’s Total Assets increased by 49.4% to Kshs. 17.7 billion as at 31st December 2017, from Kshs. 11.8 billion in 2016. The strong financial performance across the Group was driven by significant growth in proceeds from sale of real estate properties and product uptake, and investments in financial services through our Quoted Private Equity Investments, which are detailed below.

income realized from our investments in quoted stocks at Kshs. 238.9 million, and dividends received at Kshs. 103.2 million for the period ended 31st December 2017. With the objective of seeking long term capital appreciation and attractive returns in financial services, the Group through our Quoted Private Equity initiative has continued to build significant stakes in the financial services sector, through investments in KCB Group and NIC Group. In NIC Group, we are currently the fifth largest shareholder. This performance highlights the attractive investment opportunity in real estate and financial services in the region. Recorded as part of the operational expenses, it is important to note that the group, in exercising prudence towards investor funds and to provide for any losses, incurred a one-off cost of Kshs. 178.2 million being an impairment loss from investments (made in Imperial Bank Limited and Nakumatt Holdings Limited), with Kshs 95.6 mn being for Imperial Bank Limited and Kshs 82.6 mn being for Nakumatt Holdings Limited. The Group recorded a strong balance sheet growth with Total Assets increasing by 49.4% to Kshs. 17.7 billion as at 31st December 2017 from Kshs. 11.8 billion recorded in the prior year. This was mainly driven by the growth in the real estate asset class with Investment Property increasing by 20.8% to Kshs. 10.8 billion as at 31st December 2017 compared to Kshs. 8.9 billion in 2016 and Development Properties increasing by 244.6% to Kshs. 5.0 billion as at 31st December 2017 compared to Kshs. 1.5 billion in 2016. The growth in real estate asset class represents the Group’s investment strategy in real estate through strategic joint venture partnerships and acquisition of prime land for development. With a commitment to grow across the Region, the Group made significant investments in distribution expansion, expanding its footprint to the Mt. Kenya Region and deepening its reach in Nairobi Region with an additional two distribution centers and increase in workforce to over 220 Financial Advisors. We are confident that this will widen our reach in the region in line with our expansion strategy.

Detailed Financial Performance Outlook Revenue from sale of our real estate developments increased by 92.7% to Kshs. 612.6 million for the period ending 31st December, 2017, from Kshs. 317.9 million reported in the prior year. This was as a result of increased uptake in our real estate developments and speedy construction progress. Our Investment Property in real estate projects and investments in quoted stocks that we held until the end of the year had fair value gains increase by 60.6% to Kshs. 886.0 million for the period ended 31st December 2017, from Kshs. 551.6 million recorded in the previous year. Notably, the Group’s Other Income increased by 681.0% to Kshs. 362.4 million for the period ended 31st December 2017 from Kshs. 46.4 million recorded in the previous year. This was driven by

Profit After Tax

276.7% The Group’s Profit After Tax increased by 276.7% to Kshs. 398.0 million for period ending 31st December 2017 from Kshs. 105.7 million in 2016.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Total Revenue

86.1% Total revenue increased by 86.1% to Kshs. 1,012.1 million for the period ending 31st December, 2017 from Kshs. 543.9 million reported in 2016.

The structure of the Group’s consolidated financial statements will significantly change over the next years reflecting the Group’s diversification in line with the Cytonn 2.0 Strategy. The Group diversified into the hospitality and education sector in 2017 to amplify its overall returns and manage real estate associated risks in the medium to long term. Going forward, we believe that we are well positioned to continue with a strong financial performance and to deliver attractive returns to our shareholders through the investments we make in various sectors.

Total Assets

49.4% The group recorded a strong balance sheet growth with Total Assets increasing by 49.4% to Kshs. 17.7 billion as at 31st December 2017 from Kshs. 11.8 billion recorded in 2016.

Net Asset Value

3.9% Net Asset Value increased by 3.9% to Kshs. 5.5 billion as at 31st December 2017 compared to Kshs. 5.3 billion in 2016.


Strategic Pillars


PEOPLE Team Growth

Alignment

We continue to grow the team through experienced hires and the CYLP programme. The company was ranked as the number 24 best company to work for in Kenya. This was through a survey by Brighter Monday.

Ensuring that we all row in the same direction for the sake of our clients the team alignment is key. We continue to give staff members ownership of the company through the Employee Share Ownership Plan. As well as award top achievers with a round trip ticket to Dubai.

To maintain the culture, we continued with our cake cutting and book reading events. In the last year we studied ‘What it Takes by Charles Ellis’ and ‘Good to Great by James Collins’.

 Patricia Wanjama presenting the managing partner’s runners up award to Charles Bett

Empowerment With a young team the company continues to develop the staff members through participating in press debates and releases. The team also attended a Leadership training that was organized for all staff members.

Male

51%

Female

49%

 Cytonn employees pose for a photo during our market outlook report release

 Patrick Mumu during one of our market report realeases

Rewards We have always recognized hard work and dedicati. We have incorporated various recognitions to be able to reward employees for their efforts. Staff who performed well were recognized and rewarded through promotions, progressions and salary increments in addition to access to various types of employee benefits. Furthermore, Cytonn Investments was ranked 24th among top 100 companies as an employer of choice on a report released by Brighter Monday.

Ranked No. 24 among the top 100 best employers of choice

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


PRODUCTS

P R I VAT E EQUITY

STRUCTURED PRODUCTS

REAL E S TAT E

 The Alma

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PRIVATE EQUITY

As part of the alternative investment space, Cytonn invests in various sectors through private equity. These sectors include financial services, hospitality, education, technology and real estate. The investments are carried out through the following affiliates:

- Zurit

Real Estate

- Superior Homes Kenya Plc

Education Investment

Cytonn Education Services

Hospitality Investment

Cytonn Hospitality

Zurit Zurit, an investment affiliate of Cytonn Investments focused on home Improvement. The main aim of this brand is to offer the best solutions for individual home owners and bulk buyers such as contractors. Zurit seeks to efficiently provide quality lifestyle at affordable prices as it grows to become Africa's most prefered home improvement partner. The main aim of the brand is to offer the best solutions for individual home owners and bulk buyers such as contractors. Our showroom will be located on Mombasa Road, and is expected to open its doors in June 2018.

 Superior Homes’ Greenpark real estate development

12.5%

Stake in Superior Homes Limited,

Superior Homes Kenya Plc At the beginning of 2017, we purchased a 12.5% stake in Superior Homes Limited, a real estate developer, concentrating on the development of affordable mid to high-end residential communities. In Superior Homes, we get a partner that has a strong track record in master-planned developments and also construction capabilities, and in us, they get a partner that has a strong track record in structuring real estate investment products, and they also complement our development affiliates, as well as diversifying our real estate development portfolio.

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PRIVATE EQUITY (cont’d)

Cytonn Education Services

Cytonn Hospitality

Cytonn Education Services (CES) has an aim of developing the most compelling brand in private education, providing exceptional learning experiences and creating sharp minds. It is Cytonn Investments’ affiliate for investments into the education sector. Cytonn Education Services, has the mandate to provide the education services component of our comprehensive real estate developments and to set up comprehensive educational institutions within our master planned developments and in other locations within the country.

Cytonn Residences brand and concept design will be replicated on all our Serviced Apartments developments both locally and internationally. This contemporary serviced apartment brand will command its presence in major metropolitan areas within the East African region. Our uniquely designed properties will afford today's savvy travelers top-notch service, style and simplicity in a warm and friendly setting. Properties under Cytonn Residences will be positioned as 3-star facilities with a 4-star appeal.

RANKING

CES will offer Early Childhood Education(ECDE), Primary and Secondary level education, tertiary education focused on Technical Training through Cytonn College of Innovation and Entrepreneurship(CIE), University education from bachelors’ level and other education related services.

CES has begun execution of their mandate, through the setup of our first institution, the Cytonn College of Innovation and Entrepreneurship, whose first campus will be located in Nairobi CBD, and is set to be open for admissions in June 2018

Going forward into the year and in 2019, CES will focus on setting up, The Cytonn Schools, and the expansion of the college to other locations.

3

star facilities

Cytonn Residences has begun executing their mandate through the “acquire to operate model” with Wasini Resorts, set to be operational in August 2018. As for the “build to operate model”, Cytonn Residences has several developments in the pipeline with (i) Project Westlands and The Ridge set to open in 2021, and (ii) Cytonn Towers set to open in 2023.

Cytonn Hospitality works to be Africa’s leading hospitality brand by ensuring consistent client satisfaction, and through its development, investment and operational capabilities, the initiative is well positioned to achieve this.

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STRUCTURED PRODUCTS

Cytonn Quoted Private Equity (QPE) During the year 2017, we made a number of investments and divestments in the Financial Services sector, as part of our quoted equity strategy. Namely;

Cytonn Quoted Private Equity (QPE) vs NASI 66.9%

i) We exited KCB Group, where we held a sizeable stake in the bank, ranking as the 5th largest local institutional investor, following the rally in banking stock shares,

28.4%

ii) We built up a major shareholding position in NIC Group where we currently rank as the 5th largest shareholder, and iii) We have invested a sizeable stake in HF Group, seeking to tap into the mortgage market segment. All these investments were administered through our QPE initiative, whose objective is to seek long-term capital growth and investment return through investing in listed shares of companies in Sub-Saharan Africa in the Financial Services sector. The returns in 2017, as compared to 2016, and the Nairobi Securities Exchange All Share Index (NASI) in both periods are as shown on the side:

 Taraji Heights

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

21.8% 2017 Cytonn QPE

2016 NASI

In 2018, given our outlook remains positive for equities as an asset class, we aim to continue identifying investable companies that are undervalued in the market with a good franchise and sound corporate governance in the Financial Services sector.


REAL ESTATE

Cytonn Real Estate project updates

Amara Ridge is an exclusive private gated community in Karen conveniently located with easy access to Lang’ata Road and Ngong’ Road. We successfully handed over the modern villas in December 2017 and are looking to hand over the classical villas by Q2 2018. All the 10 units are currently sold out, bringing our sales percentage to 100%. The project yields returns of up to 20%.

The Alma is a comprehensive residential development encompassing 453 modern 1, 2 and 3 bedroom apartments. The project is strategically positioned in the heart of the fast-growing Ruaka neighborhood. The project is currently 55% complete with 54.3% of the units sold. The project yields returns of 16% and is purposed to be complete by Q2 2019.

THE RIDGE LUXURIOUS LIFESTYLE

The Ridge is a comprehensive and luxurious mixed-use development located in Ridgeways, Nairobi approximately 10 km from the CBD. Enabling works are 100% complete with the main works to commence in May 2018. 35% of the units have been sold, with the project yielding returns of 25%.

Taraji Heights is a comprehensive mixed-use development nestled in the scenic and serene environment of Ruaka. The project is currently 18% complete with 13% of the units sold. The project yields returns of 23% and is purposed to be complete by Q3 2019.

Nestled in the scenic ravine of the Mbagathi and Ololua Ridges and with frontage to the Mbagathi River and Forest, Situ village derives its name from this unique setup. Tendering for the Main Contractor has been done but construction progress on site has been impended mainly due to issues around the NEMA approvals received. We are continuously working towards closing these issues out to facilitate progress of works on site. So far, the marketing efforts have been very successful having sold 26% of the units despite the legal challenges, with project yielding returns of 14.9%. Newtown is an exceptional master planned development in Athi River, Machakos County, that once complete, will comprise of residential, commercial, educational, logistics, recreational and hospitality precincts. The residential section is 3% sold, with the project yields returns f 21%. The project is currently on the design stage.

RiverRun Estates is a master-planned development on a 100-acre parcel of land on the leafy Ruiru slopes. The project broke ground in April 2018 with 35% of the units sold. The project yields returns of 22% with the main works set to begin in May 2018.

Cytonn Towers is a 37-floor triplex tower mixed-use development, located in Kilimani along Argwings Kodhek Road. The project is currently in the pre-development stage with design of the various components having been finalized. The project is set to break ground in Q4 2018 with 20% of the residential apartment units realized as at now.

* For current product information, please contact 0709 101 000

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DISTRIBUTION At Cytonn, distribution is a key pillar that provides a unique interface between the company and our clients. With superior products, there is need for a robust distribution team. Our team has grown from 30 financial advisors to over 200 financial advisors. With the knowledge that distribution is like a swimming pool, where you dive into the water but can’t see how deep it is, then for sure the team has been wondrous to behold. We have realized great teamwork and unmatched, strong and long-lasting client relationships. This has strengthened our ability to offer the best client service. Training Successful management requires that one learns as fast as the world changes. Acknowledging this and knowing that change is the only constant residing in distribution, the team is consistently being equipped with the right training and skill sets needed to push our offerings in the market. This informed the creation of a Recruitment, Training and Development department which is solely in charge of this fundamental responsibility. The department focuses on both product knowledge and soft skills training. Expansion Our expansion strategy continues to yield positive results by bringing us closer to our clients and ensuring a personal touch with the brand. It is this reason that we boast of 5 active branches in Kenya, 4 in Nairobi and 1 in Nyeri that serves the greater Mt. Kenya region. We intend to diversify both locally and into other African markets. Locally we intend to tap markets in Central Rift though an office in Nakuru, Western through an office in Kisumu and into other regions such as Coast and North Rift. We will continue to ensure that access to our products is made easy via horizontal expansion that is informed by both demand and research. In line with this we have also on-boarded independent agents located country-wide, to boost our access to regional markets. Awards We have made excellent progress in 2017 and numbers don’t lie. In light of this, the company continues to make deliberate efforts to ensure that our team of financial advisors are well oiled and highly motivated to ensure consistent positive performance. This is the reason why we pride ourselves with the best competitive commissions and surprise packages {awards} quarterly/annually. In 2017 over 20 Financial Advisors received various awards where 6 financial advisors and independent agents being awarded with an international trip.

 Elizabeth Nkukuu presents an award to Edith Kerubo during the IFA/FA awards at The Chancery

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

6

Financial Advisors & independent agents were awarded with an international trip to Dubai.

20

Financial Advisors received various awards

+

200

Financial Advisors.


PROCESSES over 1,000 families. Procurement In a bid to uphold quality standards in our real estate projects, our real estate project procurement team launched the Cytonn’s Supplier Code of Conduct, highlighting the principles that we expect our suppliers to uphold and giving guidance on the standards that they are expected to meet. This was in a bid to set forth the principles, guidelines and expectations for establishing and maintaining a healthy business relationship with suppliers. At Cytonn, people is one of our core pillars and recognized suppliers is an integral part of this. The strict code of conduct also emphasizes on good business ethics as well as in helping the firm in addressing an array of issues ranging from ethical conduct, health and safety, observation of human rights and labor standards and operating in an environmentally responsible manner. Outstanding customer experience is no longer the exception but is the expectation from customers and to remain competitive we have continuously managed organizational complexity alongside actively identifying and acting upon opportunities for improvement. Technology With technology being the major frontier for process improvement and streamlining, we have invested in technological business transformation as we seek to deliver greater customer satisfaction. We currently have a Wide Area Network centrally managed from our Datacenter and on Network Security we have been able to harden our security through implementation and deployment of internal and perimeter firewall. We recently established new strands; Business Intelligence (BI) and Mobile Applications. We now have the BI platform ready and the mobile application is currently in development. We developed various systems across the business including CRIMS, CRM, CHRIS, CREST, and Board Management System. Our impact is now firm wide, and we are looking to touch on more areas of the business. Currently, the team is ideating and researching on application areas of Artificial intelligence/Machine learning and blockchain technologies. In ensuring that human resource operations are streamlined, we introduced the 360 Degree feedback whereby staff are able to give feedback to their supervisors and peers on their quality of work,

In future, we will continue to emphasize that suppliers’ compliance to the code is an essential prerequisite for business relations between Cytonn and its suppliers. Research and Deal Origination

5

Fully internally developed software products

teamwork, and communication skills. Human Resources The staff numbers rose from 199 in January 2017 to 457 in December 2017 as we also attained 50% gender ratio. We on boarded Cytonn Technologies Business Manager, Internal Audit Manager, Facilities and Property Manager, Finance and Administration Manager - Cash Management Solution (CMS) and Senior Distribution Manager among other staff members. We signed MOUs with university of Embu and Moi university and by December 2017 we had trained 485 interns and offers were extended to 150. We held a CSR event in Kitui where the company donated food worth over Kshs 500,000 to

At Cytonn, real estate research is not just about data collection and analysis, we go further to look at the existing gaps, enhancing market knowledge and informing concept development. It requires understanding the market, identifying an opportunity and tapping into it with the main focus of achieving the highest and best use. So as to enhance operational excellence in real estate research, we launched the research and deal origination (RDO) System, which is used to the manage research and deal origination process for the RDO team. The system has managed to make it easier to record new leads, classify leads as “in progress” or “rejected”.

2 We signed MOUs with various varsities

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Cytonn Foundation


TRAINING & MENTORSHIP Cytonn Young Leaders Programme (CYLP) is an intensive & competitive 12-week training programme that exposes fresh university talent to the office environment and culture. We expose program participants to challenging and fulfilling career options, with an emphasis on leadership and problem solving. The programme holistically moulds the graduates into empowered employees with the necessary job market skills for task execution and ownership of strategies.

 CYLP alumna

We have made big strides with the programme from the inaugural class of 6 interns to having trained 485 interns by December 2017, with offers extended to 150 others. The programme is very important to us as a way of getting the talents to drive our agenda of delivering best returns to our clients. Out of the permanent staff we have, 58% are CYLP graduates in addition to the ongoing classes of 52 interns. In an attempt to get the top talent out of our top universities, we are seeking partnerships that will provide platforms for cooperation between Cytonn and the universities to promote entrepreneurial skill development and strengthening industry academia linkages in promoting sustainable and equitable knowledge economy in Kenya. We signed MoUs with Moi and Embu Universities.  CYLP alumni

 A section of JKUAT students during an education site visit to The Alma project site

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ENTREPRENEURSHIP  A section of the panelists during the Cytonn eHub entrepreneurs forum at Sarova Panafric hotel

In an event that attracted over 150 entrepreneurs, we successfully hosted the second Cytonn eHub Discussion Forum, an annual platform which gives budding entrepreneurs in Kenya the opportunity to share their experiences with a panel of distinguished entrepreneurs and learn from their wealth of experience on ways to improve their businesses. The second season of the Cytonn eHub, an intensive 12-week training programme, saw 20 entrepreneurs join the programme with 17 of them graduating at the end of the programme. The graduation ceremony doubled as the Cytonn eHub Investors Forum, a platform where 10 entrepreneurs got to pitch their business ideas to a panel of investors in a bid to attract possible funding.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

 Cytonn eHub entrepreneurs forum second runners up winners


FINANCIAL LITERACY Cytonn Wealth Management Training (WMT) is an initiative by Cytonn Foundation that aims to enhance financial knowledge and empower individuals and institutions with skills and knowledge, which will allow them to make informed decision on their financial resources. We do this through interactive group training sessions within organizations and/or companies. The training is offered free of charge. We have two categories under WMT; a) Private Wealth Management Training - PWMT

month on Saturdays. For the year 2017, we had a total of 23 training sessions with 445 attendees, compared to 6 training sessions with 124 attendees in 2016 b) Institutional Wealth Management Training - IWMT This is for institutions and investment groups that are interested in the financial literacy training for their teams. We held a total of 6 training sessions for various institutions and chamas with 123 attendees, for the year 2017. We did not have any trainings for the year 2016.

This is for pre-screened individuals, and is conducted twice a

 Moses Njuguna conducts a Wealth Management Training at the Cooperative University of Kenya

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DONATIONS In the spirit of giving back to the society, we are committed to humanity and have always done what we can to help the needy and improve lives through donations and long lasting projects.

 Prof. Daniel Mugendi, Cytonn’s board chairman, wit students of Friends School, Dandora

Humanitarian Aid Cytonn Investments donated 3,600 kilogrammes of maize, 1,800 kilogrammes of beans and 450 litres of cooking oil to over 1,000 residents of drought-stricken Mbitini Location, Kitui County. The food donation worth over Ksh. 0.5 Million is part of our initiative dubbed ‘Shilingi kwa Shilingi’ that seeks to boost humanitarian aid in various parts of the country that are faced by drought. Improving Friends Secondary School Friends Secondary School in Dandora was the first high school that directly benefited from Cytonn Foundation. We, in partnership with the Nairobi County Government, identified Friends Secondary School as a beneficiary of the sponsorship to improve their education facilities. The school had 5 classes, a laboratory and a staffroom, with some of the classes that should typically have 40 students accommodating more than 80. We developed 4 classrooms, that could accommodate a minimum of 224 students, almost doubling the schools capacity, built a new ablution block, renovated the broken windows for the existing classes and put up a boundary wall. This has enabled the school to have a more conducive studying environment for its students as well as accommodate more streams per class.

 A section of the newly built classrooms

4

6

Classrooms

Washrooms

1

224

Boundary fence

Student spaces

 People lining up for food donations at Mbitini, Kitui County

Visits to Children’s Home We also visited Christ Chapel Children’s Home in Huruma and Grace Community Children’s Home in Kahawa West, Nairobi. The two institutions offer holistic child development for orphans and street children. The initiative, spearheaded by our Human Resource department, provided donations in form of foodstuff and books to the children, in addition to many fun activities and group discussions.

 Cytonn team members pose for a photo with children at Grace community childrens home, Kahawa West

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Elegant Living RiverRun Estates Development In Ruiru

Tel: 0709 101 000 Email: sales@cytonn.com

For more information visit, riverrun-estates.com


Leadership & Governance


GOVERNANCE STRUCTURE SHAREHOLDERS

BOARD OF DIRECTORS

MANAGING PARTNER & CHIEF EXECUTIVE OFFICER

INTERNAL AUDIT

CYTONN REAL ESTATE

CYTONN INVESTMENTS

DISTRIBUTION

STRATEGIC SUPPORT SERVICES

CYTONN TECHNOLOGIES

CYTONN EDUCATION SERVICES

CYTONN RESIDENCES

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BOARD OF DIRECTORS

Prof. Daniel Mugendi, PhD

Madhav Bhalla, LLB

Antti-Jussi Ahveninen, MSc

Chairman, Independent Director

Non-Executive Director

Non-Executive Director

Member of Human resource, Governance & Compensation and Investments & Strategy Committees

Chairman of Audit, Risk & Compliance committee and member of Investments & Strategy Committee

Chairman of Human resource, Governance & Compensation and member of Investments & Strategy Committees

Nasser Olwero, MPhil

James Maina, MA

Michael Bristow, MSc

Non-Executive Director

Non-Executive Director

Independent Director

Chairman of Technology & Innovation Committee and member of Audit, Risk & Compliance committee

Chairman of Investments & Strategy Committee

Member of Human resource, Governance & Compensation and Technology & Innovation Committees

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


Rose Kimotho

Madhav Bhandari, MBA

Edwin H. Dande, MBA

Independent Director

Board Committee Member

Executive Director

Member of Human resource, Governance & Compensation and Technology & Innovation Committees

Member of Audit, Risk & Compliance Committee

Member of Human resource, Governance & Compensation and Investments & Strategy Committees

Dr. Nancy A. Onyango

Elizabeth N. Nkukuu, CFA

Patricia N. Wanjama, CPS

Non-Executive Director

Executive Director

Company Secretary, Executive Director

Resigned on the 3rd of January 2018

Member of Investments & Strategy Committee

Member of Audit, Risk & Compliance and Technology & Innovation Committees

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

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SENIOR LEADERSHIP

Edwin H. Dande, MBA

Elizabeth N. Nkukuu, CFA

Patricia N. Wanjama, CPS

Managing Partner & CEO

Chief Investments Officer

Partner, Head of Legal & Company Secretary

Martin Gitonga, BA

Mex Osoro, BA

Alex Magu, MBA, AMP

Senior Project Manager

Senior Distribution Manager

Acting Financial Controller

Winfred N. Ndung’u, Msc

Anne Joseph, BA, CHRM

Grace W. Weru, BA, CPA (K)

Brand & Administration Manager

Assistant HR Manager

Finance & Administration Manager

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


Shiv A. Arora, BSc.

Maurice Oduor, BBA

Johnson Denge, MISK

Head - Private Equity Real Estate

Investment Manager

Senior Manager, Regional Markets

Gitonga M. Muriithi, MBA, FCIM

Daniel N. Mainye, MBA

Justina W. Gikandi, MBA

Senior Marketing & Brand Manager

Business Manager, Technologies

Facility & Property Management Manager

Benjamin N. Ikenye, MA, AMP

Kimathi K. Muchiri, MSc, CPA (K)

David K. Ndava, BA

Business Manager, Education Services

Internal Audit Manager

General Manager, Hospitality

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CORPORATE GOVERNANCE STATEMENT

The size and composition of the Board is determined by the provisions of the Company’s Articles of Association, Board Charter and applicable law. Below is an outline of the current composition of the board committees:

b) Directors, both executives and non-executives, carry full fiduciary responsibility and owe a duty of care and skill to the Company, its employees and clients. Each Director has a duty to act in good faith, and to disclose any conflicts of interest.

Madhav N. Bhalla Antti-Jussi Ahveninen Nasser J. Olwero

d) The Board shall manage and protect the Company's financial position by ensuring that the financial statements are true and fair and contain proper disclosures and conform to the law; appropriate internal controls and regulatory compliance policies and processes are in place; and non-financial aspects relevant to the business of the Company are identified and monitored.

Madhav Bhandari

The Board Charter also provides for the roles of the Chairman, the Chief Executive Officer and the Company Secretary. The office of the Chairman of the Board and the Chief Executive Officer are separate and independent. Whereas the Chairman is responsible for ensuring the integrity and effectiveness of the Board and its Committees, the Chief Executive Officer’s responsibility is to focus on the operations of the Company, ensuring that it is run efficiently and in accordance with the strategic decisions approved by the Board

Patricia N. Wanjama

The Cytonn Board, through the company memorandum and articles and as part of good corporate governance, is authorized to establish committees to assist it in the execution of its duties, powers and authorities. The Board delegates to each of the committees established, such authority as is required to enable such committees to fulfil their respective functions. In addition, the Executive Directors in each committee act as a Secretary to the Committee and each Board Committee maintains its own Chairman for the conduct of its meetings and its meeting outcomes.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Board Committees

Prof. Daniel Mugendi

c) The Board shall oversee, approve, monitor and review corporate strategy, major plans of action, Company policies, appropriate systems, annual budgets, business plans, succession plans, company values and ethics, and shall establish broad performance indicators to enable it to gauge the performance of management and the progress of the company. The board may delegate its authority and such delegation must be in writing and reviewed regularly.

Board Committees

Executive Non-Executive Director Director

Audit, Risk & Compliance

a) The Board assumes ultimate accountability, responsibility and effective control over the performance and affairs of the Company and in so doing effectively represents and promotes the legitimate interests of the Company and its shareholders.

Independent Director

James M. Maina Michael Bristow Rose Kimotho

Edwin H. Dande Elizabeth N. Nkukuu

Member

Chairman of Board

Chairman of Board Committee

Company Secretary

Board Resignations One of the Directors, Dr. Nancy A. Onyango who served as a Non-Executive Director from July 2017 resigned on the 3rd of January 2018, following her prestigious appointment to as the Director, Internal Audit and Inspection at the International Monetary Fund (IMF) in Washington DC.

Technology & Innovation

Board of Directors

As enumerated under the main Board Charter, the summary role of the Board is as follows:

Investments & Strategy

The Board of Directors of Cytonn Investments Management Plc have in place a Board Charter that defines their relationship with each other, with Management and with the Company and ensures conformity with corporate governance practices. Each Board committee is also governed by a separate Committee Charter that sets out the obligations of the committee members. The Board has further formulated a Code of Conduct as a guideline policy by which the Board members are expected to conduct themselves in the day to day decision-making process.

The Board currently comprises of ten Directors with an average age of 48years, three of whom are Executive Directors, Four Non-Executive Directors and Three Independent Non-Executive Directors including the Group Chairman.

HR, Governance & Compensation

The Board Charter


CORPORATE GOVERNANCE STATEMENT (cont’d) Board Appointments

Board Attendance Quarterly Board Meetings

1/1

4/4

N/A

4/4

4/4*

N/A

Madhav N. Bhalla

1/1

4/4

6/6

N/A

5/6

N/A

Antti-Jussi Ahveninen

1/1

4/4

N/A

3/4

5/6

N/A

Nasser J. Olwero

1/1

4/4

6/6

N/A

N/A

4/4

James M. Maina

1/1

4/4

N/A

N/A

6/6

4/4

Michael Bristow

0/1

3/4

N/A

3/4

3/4

3/4

Rose Kimotho

1/1

4/4

N/A

4/4

N/A

4/4

Madhav Bhandari

N/A

N/A

4/6**

N/A

N/A

N/A

Edwin H. Dande

1/1

4/4

N/A

4/4

5/6

N/A

Elizabeth N. Nkukuu

1/1

4/4

N/A

N/A

6/6

N/A

Patricia N. Wanjama

1/1

4/4

6/6

N/A

N/A

4/4

Technology & Innovation

Prof. Daniel Mugendi

Investments & Strategy

HR, Governance & Compensation

Board Committees

Audit, Risk & Compliance

2017 Company AGM

SPV Boards The Cytonn Group has two main lines of business; Investments (under which Structured Products and various private equity initiatives are conducted e.g Financial Services, Education, Hospitality, Technology), Real Estate (where various real estate projects are conducted). The initiatives under these lines of business are conducted under special purpose vehicles. The aforementioned special purpose vehicles are where possible, governed by an independent Board in order to ensure transparency, accountability, full disclosure and top notch governance of the Cytonn Groups business Investments. For the Structured (investments) products, the Board of Representatives has been appointed and elected by the (high net worth) investors. The board represents their interests with the Cytonn Group managing the Special Purpose Vehicle. As regards the real estate business, the Boards receive monthly reports from the Cytonn Real Estate Project Management Teams and have Board Charters that guide them on their mandate as well as providing an active role for the Boards.

The shareholders are ultimately responsible for appointments to the Board save for the Executive Directors above whose engagement with the company is governed by the respective employment contracts. According to corporate governance best practices, the shareholders’ rights to appoint the board members is vested in the general meetings held by the Company. As such the Governance, Human Resources and Compensation committee (acting as a nomination committee) on an annual basis reviews the required skills mix and expertise that the Executive Directors as well as Independent and Non-Executive Directors bring to the Board and recommends appointments to the Board based on the following process: a) The committee declares a vacancy and describes to the Board the caliber of persons to be recruited based on the skills gap identified b) The Board members propose names of individuals of the required caliber, credibility, integrity and who have the necessary skills and expertise to exercise independent judgement on issues that are necessary to promote the Company’s objectives, strategy and performance in its key areas of business. c) The HR, Governance and Compensation Committee reviews the candidates proposed and makes a recommendation to the Board for approval d) Following the Board approval, the candidate is proposed for ratification to the Shareholders at an Annual General Meeting e) In the event of new Board appointments, the Board Charter has provision for induction of the new members within a month of their appointment. In the event of new Board appointments, the Board policy has provision for induction of the new members within a month of their appointment. On 26th March 2018, Prof. Olive Mugenda was appointed to the Board to serve as a Non- Executive Director. She is the immediate former Vice-Chancellor of Kenyatta University and currently serves as a Director of Nation Media Group and UBA Kenya Bank Limited, among others. Her invaluable experience in managing education institutions will be very beneficial to the Board, especially with regard to Cytonn’s educations initiatives. Her appointment is pending ratification by the shareholders at the Annual General Meeting to be held on 18th May 2018. Continuous Skills Development Currently, the Board undergoes a review of the training and development needs of the members‘ according to the members requests, and in identification of skills gaps that would enhance a greater understanding of the Cytonn Group, and an annual training program is organized for the members in order to enhance governance practices within the Board itself and in the interest of the company. During the 2017 financial year, the Board underwent corporate governance training by Strathmore Business School from 11th May 2017 to 13th May 2017 (the annual Board retreat) whereby the Board covered, among other things, the following key areas:

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

40


CORPORATE GOVERNANCE STATEMENT (cont’d) a) Overview of Corporate Governance and the identification of an adequate institutional framework for good governance in line with emerging global best practice trends; b) Consistent shareholder and stakeholders’ value enhancement; c) Training on the statutory duties of directors including but not limited to oversight and the fiduciary duty of care, skill and diligence; d) Training on the board induction process for new members and Board evaluation processes; e) Overview of the current Corporate Governance structure in relation to the holding company and its relationship to the various entities, review the strategic plan and the progress of its implementation. Also in 2017, the Board members underwent a training to provide basic understanding of investment analysis and research and deal origination, to be able to provide proper guidance to management in their pursuit of various strategic initiatives and investments. It has been scheduled that in the 2018 annual Board retreat, the Board shall under guidance of a trainer review the effectiveness of the Cytonn Group organization structure and align it to the group strategy in order to ensure that the same row in the same direction. Status of application of the Capital Markets Authority Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015

Board Remuneration Policies and procedures The Company has in place a Board remuneration policy that defines the remuneration to be received by the Executive Directors and Non-Executive Directors of the Company. During the year ended 31 December, 2017, the Board of Directors consisted of: a) Three Executive Directors: Mr. Edwin Dande, Ms. Elizabeth Nkukuu and Ms. Patricia Wanjama b) Five Non-Executive Directors: Prof Daniel Mugendi, Mr. Antti-Jussi Ahveninen, Mr. James Maina, Mr. Nasser Olwero and Mr. Madhav Bhalla c) Two Independent Non-Executive Directors: Mr. Mike Bristow, Ms. Rose Kimotho and Dr Nancy Onyango- prior to her resignation on the 3rd of January 2018 Non-executive directors are paid a sitting allowance for every meeting attended as well a reimbursement of any travel and corporate expenses incurred in pursuance to attending to duties of the Company. The Executive Directors are however not paid any sitting allowance or any remuneration for their Board memberships. The remuneration for Executive Directors is as per the negotiated employment contracts. In addition and in aligning the Board members to the long term strategy of the Cytonn Group, the Non executive directors are entitled to a share grant plan in the same way that the Cytonn Group employees participate in the Employee Share Ownership Scheme.

The Company converted from a private company to a public company on 7th July 2017, pursuant to Section 70 of the Companies Act No. 17 of 2015, and consequently changed its name from Cytonn Investments Management Ltd to Cytonn Investments Management Plc. This was done pursuant to the Special Resolution of the Shareholders passed at the Company’s Annual General Meeting held on 3rd March 2017. As such, the company, being a public company wishes to comply with the highest standards of corporate governance.

Details of the fees for the non-executive directors and remuneration of the executive directors paid in the financial year under review are set out on the financial statements part of this Report.

The compliance objective is to not only to ensure that the Board exercises its duties and responsibilities with clarity, assurance and effectiveness, but also to maintain the investor confidence that has propelled the Company to where it is today. Requisite steps have been taken to ensure that the Board is composed of competent members who exercise independent judgment, and are focused on guiding the company’s strategic objectives without unduly inhibiting enterprise and innovation.

The shareholding of the Company is diverse and comprises of sophisticated institutional investors. Below is the directors’ beneficial shareholding as at 31st December 2017:

The Company has grown tremendously since its inception, however the key objective of delivering innovative and differentiated solutions that speak to our clients’ needs has not waivered. The same view has been adopted in terms of corporate governance with a view towards ensuring shareholder rights and investor protection. As such, the Company is currently implementing the provisions of the Code as a best practice initiative and the various strides have been enumerated under the various sections of this report. The Company will continue innovating various systems and processes of accountability, by designing stakeholder disclosures and actions that are consistent with the regulatory agenda.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017

The Company will not propose to make any changes in the remuneration level during the current financial year. Shareholding

Edwin H. Dande

45,541,333

Elizabeth N. Nkukuu

19,235,177

Patricia N. Wanjama

12,740,285

Prof. Daniel Mugendi

166,667

James M. Maina

66,667

Madhav N. Bhalla

66,667

Nasser J. Olwero

66,667

Michael Bristow

66,667

Rose Kimotho

25,000

Antti-Jussi Ahveninen

10,600,000


CORPORATE GOVERNANCE STATEMENT (cont’d) Board Performance and Evaluation In line with the provisions of the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015, the board has undertaken to commence an annual evaluation of its own performance, the performance of the Chairperson, that of its committees, individual members, the Chief Executive Officer and company secretary. This is aimed at enabling the Board to gauge their performance and identify areas of improvement. The company has prepared evaluation questionnaires that are designed to ensure the peak performance of both the Board and the individual Board Members. The evaluation criteria is based on the following areas: • The Board mandate • Strategic and performance review • Board composition and skills • Board meetings and preparation • Board Structure • Risk Management • Performance of governance functions • Performance of the Chairman, respective Committees and individual Directors Board Rotation

to ensure that our investors and shareholders have access to any relevant information that they might need that pertains to Cytonn Investments. ESG Policy The company has developed an Environmental, Social and Governance (ESG) Policy in order to ensure the consideration of environmental, social, and governance risks and value creation opportunities in the investments the Group makes and as well, in the execution of its corporate governance and administration practices. This policy, in line with international best practice, examines both the internal management of the company as well as the company’s relationships with stakeholders and suppliers to ensure transparency, sustainability and consideration of social good in the carrying out of the company’s business.

Currently there is no board rotation by retirement of directors. However, the Articles of Association are to be amended at the Annual General Meeting on 18th May 2018 to allow for board rotation as per the Nairobi Securities Exchange rules. The proposal to be tabled before the shareholders is to provide for board rotation at every subsequent annual general meeting, whereby one-third of the directors for the time being will be required to retire from office. The Executive Directors shall however not be taken into account in determining the rotation. Dividend Policy The Company has a policy to pay dividends when permitted by law and subject to the consideration of the results of its operations, financial position, investment and liquidity requirements, legal reserves and minimum capital requirements. The declaration, amount and payment of dividends is recommended, subject to the limitations set forth above, by the Board of Directors, and approved by majority vote of the Shareholders at an Annual General Meeting of the Group. The Company currently has a non-cash dividend policy,; with any profits retained to finance expansion plans over the period. The dividend policy will be reviewed at the end of this financial year and will be adjusted accordingly subject to the nature of the company and the opportunities at that time. Access to Information Good corporate disclosure is not about providing more information, rather it is about providing adequate information for investors to make informed investment decisions about a company. Cytonn Investments has maintained a culture of offering all the necessary information needed, even as a private company. Currently, the Company is finalizing on its website disclosure initiative which entails including all corporate documents i.e. the Board Charter, Code of Conduct, the Board Committees Charters, Memorandum and Articles of Association among other best practice documents on the Investor Relations page on the Website

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

42


Internal Audit & Risk Management


INTERNAL AUDIT & RISK MANAGEMENT Internal Audit function

Risk & Compliance

The Internal Audit department is an independent function reporting to the Board through the ARC committee. Its operations are guided by the Internal Audit Charter which defines the purpose, authority, responsibility and position of the function within the organization. The function provides an independent assurance that the organization’s risk management, governance and internal control processes are operating effectively.

The pervasiveness of risk in everyday business activities and the ensuing complexity of the business environment has seen organizations’ boards’ incorporating risk as an integral part of their strategy. The nature of business we are engaged in exposes us to an array of risks which have been excarberated by a fluid operating environment and exponential growth. This has made the Board and Management place more emphasis on Risk and Compliance.

The department has adopted a risk based approach in the development and implementation of its internal audit plan which guides its activities. The function reports to the Committee on a quarterly basis, but gives regular monthly updates

Cytonn Plc has a systematic process that aides in the identification of its key exposures and compliance issues with appropriate reporting and mitigation processes. We have defined the risk appetites and tolerance limits of the firm. The Company manages risks through:

Internal Audit Governance Structure Board of Directors

Audit Risk & Compliance Committee

CEO

Internal Audit

Internal Updates In 2017 it managed to execute the planned audits as set in the annual work plan. The reviews were independent, objective and designed to add value to the group’s operations and were done in line with the established IIA International Standards to ensure the effectiveness of risk management, controls, and governance processes. Additionally, the department engaged with the various auditees to ensure corrective action had been taken on agreed upon recommendations.

• Establishment of annual risk management plans; • Carrying continuous risk assessment in all its operational areas; • Ensuring regular reviews of the adequacy of the risk assessment processes; • Training on risk The Board sets the tone and influences the risk management culture within the Company. It ensures there is a balance between performance and compliance by ensuring that management’s actions are consistent with the corporate strategy, reflective of the culture of the business, and in line with the organization’s risk appetite and tolerance levels. The Board retains the duty to report on the operations and financial performance of Cytonn Plc and its key risks exposure to emanating from: • Exponential growth • Diversification into new business lines • An increased investor base • Changing business and operating environment The management is continuously involved in risk management by ensuring daily activities are executed in line with the set policies and procedures and compliance with external regulations. It also ensures: • Risks are properly identified and effective mitigating strategies are established • Existing internal processes and procedures are adequate and complied with • Strategies to manage risk exposures and monitor the satisfactory operation of the risk framework are in place; • There is communication of the company’s risk management policy and risk related information to all staff, and stakeholders.

In light, of Cytonn’s growth and diversification in 2017 the staff capacity significantly increased to ensure provision of continuous assurance. The department also carried out continuous training on internal controls across the group with the objective of creating awareness of the audit processes and the control environment. The department regularly presented its reports to the board through the Audit Risk and Governance Committee (ARC) in line with the annual work plan. The committee regularly appraised the implementation status of agreed upon action plans to ensure corrective action had been taken. Internal Audit Department will continue to execute its mandate as per its charter and the annual work plan for year 2018 to ensure that Cytonn’s set objectives are realized.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

44


RISK MANAGEMENT GOVERNANCE FRAMEWORK Risk and Compliance updates

departmental adherence to the business’ internal controls as outlined in its policies and procedures.

Over the year, the department extensively engaged with the business towards streamlining its Enterprise Risk Management framework and operational processes through consolidation and review of departmental risk registers and risk rating. The department also continued to monitor the company’s compliance with various policies, statutes and regulations that touch on its operations while at the same time, providing oversight to

In addition, the department carried out continuous training on various aspects in the risk management processes across the group with the objective of creating a shared understanding on management of risks and compliance across multiple functions of the company, this culminated in an organizational wide meeting held on the 09th December 2017 to review the risk environment.

RISK & COMPLIANCE GOVERNANCE STRUCTURE

Board of Directors

45

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Hold overall responsibility for Risk Management and the Internal Control Systems

Audit Risk & Compliance Committee (ARC) Reviews the Company’s risk exposures and management’s response initiatives including, mitigations and monitoring processes

Chief Executive Officer Offers strategic oversight on risk management & compliance processes

Risk & Compliance Working Committee Review risk reports, assess areas of business vulnerability and evaluate the adopted mitigation strategies as well as the company policies and procedures

Risk & Compliance Department Plan, execute and coordinate all risk management strategies, mitigation and monitoring activities


PRINCIPAL RISKS & MITIGATION MEASURES Risk Management is a critical component set to guarantee the safety of the Shareholders’ Investments. We have therefore instigated profound Risk Management Identification and Mitigation mechanisms that ensure the Company is insulated against any threats to shareholders’ funds.

Operational Risks

Mitigation

People Risk One of the main challenges has been gettiag the right people to fill the key positions in the real estate arm. The uniqueness of the Industry makes it difficult to get the right people, with the right work ethic as well as the expertise required to succeed in the industry.

We have expanded the scope of recruitment strategies to go beyond Kenya, and recruiting from Europe, India among other regions. This will enable the team to hire the most skilled and fit personnel who are match for the Company’s needs.

Construction Risk Our core business being Real Estate, we are exposed to the risks associated with the projects with regards to the delivery timelines, costs schedule/overrun & quality delivered.

We have partnered with the best players in the Construction Industry, backed by proven track records minimizes exposure to such risks. We also have in place the Clerk of Works department as well as a Quality Control and Assurance function that reports to the board, permanently in all our Project Sites. In addition, all projects have functional and distinct Board of Directors who closely monitor the progress of the projects.

Internet and Cybercrime As a firm, we are committed to automating our operational processes and procedures to facilitate seamless, fast and dependable flow of tasks. This poses Cyber threats and Internet exposures to the firm from malicious internet users and web scammers.

We have established an Internet Security and Management team whose role is to flag out any Cyber risks the firm gets exposed to. We also have in place quarterly training programmes for all the staff to ensure everyone is well equipped to handle basic I.T risks. Information sent out to clients and 3rd parties is either encrypted or protected through various access security measures. All these have ensured that the risk exposures have been minimized.

Strategic Risks

Mitigation

Product Uptake Risk Real Estate being in demand in the market, competition is bound to exist from market players in the similar industry. As a company, we have strategically positioned and differentiated ourselves to emerge as the best Investment destination, not only in Kenya but worldwide.

We have penetrated more markets namely Mt Kenya region and plans are in place to Invest in Central Rift, Western and Coastal regions before the end of the year. In addition, we’re exploring expansion opportunities in the East African region. We have also diversified our product offering to cover the Middle Income and low-Income earners, through entry into Education-CES, Technology-Cytonn Technologies, Hospitality-Cytonn Hospitality among others.

Reputational Risk Being the best in the industry will always bring exposures regarding the brand the company holds in the market. We’ve been targeted before by carefully orchestrated and executed social media campaigns aimed at discrediting the firm.

Liquidity Risk

Being a transparent Company, we’ve imbedded “Open to Talk’’ section on our website where all inquiries and accusations directed to the company are responded to. We have also in place a Stakeholder Management department whose role is to smooth out any relations between Cytonn and other Stakeholders in the industry.

Mitigation

Liquidity Risk The risk that the organization, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they arise, or can secure such resources only at excessive cost.

There exists a solid funding structure that reduces the probability of liquidity exposure leading to an inability to meet funding obligations as they fall due. In addition, Cytonn solicits independent credit ratings. These ratings assess the creditworthiness of the company and are based on reviews of a broad range of business and financial attributes. From the GCR report. For the year 2017 Global Credit Rating agency (GCR) accorded Cytonn investment a maiden national scale issuer rating of BB(KE) and B(KE) in the long and short term respectively, with a stable outlook.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

46


2017 Audited Financial Statements 47


2017 AUDITED FINANCIAL STATEMENTS Index

The reports and statements set out below comprise the consolidated restated annual financial statements presented to the shareholders: Index Directors' Report

49 - 50

Statement of Directors' Responsibilities

51

Independent Auditor's Report

52 - 54

Consolidated Statement of Financial Position

55

Consolidated Statement of Profit or Loss and Other Comprehensive Income

56

Consolidated Statement of Changes in Equity

57 - 58

Consolidated Statement of Cash Flows

59

Group Statement of Accounting Policies

60 - 77

Notes to the Consolidated Restated Annual Financial Statements

78 - 100

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

48


DIRECTORS' REPORT

The directors have pleasure in submitting their report on the consolidated restated annual financial statements of the company (Cytonn Investments Management PLC) and the Group (Cytonn Investments Management PLC and Subsidiaries) for the year ended December 31, 2017. 1. Nature of business Cytonn Investments Management PLC & Subsidiaries is an investment entity incorporated in Kenya with interests in the real estate, private equity and technology industry. The Group is engaged in holding properties for capital appreciation, earning rental income, project management, developing software technologies, investment in marketable securities and development of properties for sale and operates principally in Kenya. There have been no material changes to the nature of the Group's business from the prior year. 2. Business review The consolidated restated annual financial statements have been prepared in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011. The accounting policies have been applied consistently compared to the prior year. The Group recorded a 49.4% increase in their Consolidated Statement of Financial Position, with total assets growing from Kshs 11,820,191,906 in 2016 to K Sh 17,655,919,194 in 2017. This was driven by an increase of 20.8% in investment property, from K Sh 8,911,009,530 in 2016 to K Sh 10,762,765,001 in 2017 and an increase of 244.6% in development properties from K Sh 1,450,384,101 in 2016 to K Sh 4,997,993,602 in 2017. Growth in the balance sheet, and primarily in Real estate assets, represents Cytonn's investment strategy in real estate, through strategic joint venture partnerships and acquisition of prime land for development.. The Group's strategy in 2017 was a commitment to growth across all four of the key pillars of the firm, which are People, Products, Processes and Distribution. The firm made heavy investments in growing, retaining and hiring the best talent, which resulted in staff numbers increasing over 2-times, as we look to serve our clients' best interest and provide the most attractive returns in the market to our investors. We invested heavily in our real estate development pipeline in a year when investment was subdued across the Kenyan economy due to prolonged electioneering; this investment being a representation of the long- term growth prospects of Kenya and East Africa, driven by sound macroeconomic fundamentals and positive demographics. Distribution was a key area of investment for the firm, as we look to expand across Kenya and the region. The above investments provide a platform for growth in the coming years, as we look to cement our position as the leading alternative investments firm in Kenya and the region. Important to note is that the firm incurred a one-off cost of Kshs 178,144,838 impairment loss from Imperial Bank Limited and Nakumatt Holdings Limited in order to exercise prudence towards investors funds and provide for any losses made. The investment in our strategic pillars resulted in staff and operating expenses increasing by 64.8% to K Sh 1,068,984,493 in 2017, from K Sh 648,511,680 in 2016. Revenue for the firm increased by 86.1% from K Sh 543,948,622 in 2016 to K Sh 1,012,109,806 in 2017. For our real estate investment property, we recognized gains of Kshs 920,392,913 in 2017, and combined with the strong revenue growth, it is a highlight of the attractive investment opportunity in real estate in Kenya and the region. Given overall investment in our strategic pillars to support our real estate business, we recorded Net Profit After Tax for the year ended December 31, 2017 of K Sh 398,004,511, an increase of 276.7% from K Sh 105,654,861 in 2016. 3. Share capital There have been no changes to the authorised or issued share capital during the year under review. 4. Dividends The directors do not recommend payment of a dividend for the year (2016: Nil). 5. Share incentive scheme The Group established an employees' share ownership scheme for the purposes of encouraging and facilitating the holding of shares in the Group by or for the benefit of eligible employees. Refer to note 15 of the consolidated restated annual financial statements for the unalloted share capital related to this scheme.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


DIRECTORS' REPORT

6. Financial statement restatement During the period under review, the management and the board highlighted the application of stricter criteria on classification of Real Estate assets. This was informed by the need to enhance disclosures and compliance with the relevant financial reporting standards. As a result, the financial statements have had to be restated and the changes are disclosed in Note 35. 7. Board of directors The directors who held office during the year and to the date of this report are as follows: Prof. Daniel N. Mugendi (Chairman) Antii-Jussi Ahveninen Madhav Bhalla James M. Maina Nasser Olwero Michael Owen Bristow Rose Kimotho Edwin H. Dande Elizabeth N. Nkukuu Patricia N. Wanjama Nancy Onyango (Resigned w.e.f. 03.01.2018) There have been no changes to the directors for the year under review. 8. Special resolutions No special resolutions, the nature of which might be significant to the shareholders in their appreciation of the state of affairs of the Group were made by the Group or any of its subsidiaries during the period covered by this report. 9. Events after the reporting period On March 22, 2018, the Capital Markets Authority granted a fund manager license to Cytonn Asset Managers Limited. Cytonn Investment Partners Five LLP (Riverrun Estates),a master planned development on a 100-acre parcel of land on the leafy Ruiru slopes, broke ground on April 23, 2018. 10. Going concern The directors believe that the Group has adequate financial resources to continue in operation for the foreseeable future and accordingly the consolidated restated annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the Group is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the Group. The directors are also not aware of any material non-compliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the Group. 11. Terms of appointment of the auditor Grant Thornton, the Group's auditors continue in office in accordance with the Kenyan Companies Act, 2015. Shareholders wishing to inspect a copy of the terms on which the Group's auditors is appointed and remunerated may do so by contacting the Company Secretary. 12. Relevant audit information The directors in office at the date of this report confirm that; a) There is no relevant audit information of which the group's auditor is unaware; and b) Each of the directors has taken all the steps that they ought to have taken as a director so as to be aware of any relevant information and to establish that the group's auditor is aware of that information. 13. Approval of financial statements The consolidated restated annual financial statements set out on pages 11 to 55 were approved at a meeting by the board on May 15, 2018, and were signed on its behalf by:

Edwin H. Dande Managing Partner & CEO

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

50


STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011 requires the directors to prepare consolidated restated annual financial statements for each financial year that give a true and fair view of the financial position of the Group as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the Group maintains proper accounting records that are sufficient to show and explain the transactions of the Group and disclose, with reasonable accuracy, the financial position of the Group. The directors are also responsible for safeguarding the assets of the Group, 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 consolidated restated annual financial statements in accordance with the International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011. They also accept responsibility for: designing, implementing and maintaining such internal controls as they determine necessary to enable the presentation of consolidated restated annual financial statements that are free of material misstatement, whether due to fraud or error; selecting suitable accounting policies and applying them consistently; and making accounting estimates and judgements that are reasonable in the circumstances. Having made an assessment of the Group's ability to continue as a going concern, the directors are not aware of any material uncertainties related to events or conditions that may cast doubt upon the Group's ability to continue as a going concern. The directors acknowledge that the independent audit of the consolidated restated annual financial statements does not relieve them of their responsibilities. Approved by the board on May 15, 2018 and signed on its behalf by:

Prof. Daniel Mugendi

Edwin H. Dande

Chairman, Board of Directors

Managing Partner & CEO

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


INDEPENDENT AUDITOR’S REPORT

To the shareholders of Cytonn Investments Management PLC & Subsidiaries Report on the Audit of the Consolidated Restated Annual Financial Statements Opinion We have audited the Consolidated Restated Annual Financial Statements of Cytonn Investments Management PLC & Subsidiaries set out on pages 10 to 55, which comprise the Consolidated Statement of Financial Position as at December 31, 2017, and the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the year then ended, and Notes to the Consolidated Restated Annual Financial Statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the Consolidated Restated Annual Financial Statements present fairly, in all material respects, the financial position of Cytonn Investments Management PLC & Subsidiaries as at December 31, 2017, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011. Basis for opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Restated Annual Financial Statements section of our report. We are independent of the group and company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) in Kenya. We believe that the audit evidence have obtained is sufficient and appropriate to provide a basis for the opinion and we have fulfilled our ethical responsibilities in accordance with the IESBA code. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Consolidated Restated Annual Financial Statements of the current period. These matters were addressed in the context of our audit of the Consolidated Restated Annual Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of investment properties Refer to note 4 of the consolidated restated financial statements. The Group's Investment Properties valued at K Sh 10,762,765,001 represent a significant portion of the assets as at December 31, 2017. The valuation of these assets involves estimation which is why we have given specific audit focus and attention to this area. How our audit addressed the key audit matter As we are not valuation experts ourselves we have requested the management to engage a qualified professional valuer to perform an independent valuation of the Group's properties. We have read and considered the valuation reports of the valuer. We confirmed that the valuation approach is suitable for use in determining the fair value of Investment Properties at December 31, 2017. We have assessed the valuers' qualifications, expertise and their objectivity and we found no evidence to suggest that the objectivity of the Valuer in their performance of the valuations was compromised. We have considered the adequacy of disclosures made in these consolidated restated financial statements. No issues were identified. Other information The directors are responsible for the other information. The other information comprises the Directors' Report as required by the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011 2015 which we obtained prior to the date of this report. Our opinion on the Consolidated Restated Annual Financial Statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the Consolidated Restated Annual Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Consolidated Restated Annual Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, 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.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

52


Responsibilities of the directors for the Consolidated Restated Annual Financial Statements The directors are responsible for the preparation and fair presentation of the Consolidated Restated Annual Financial Statements in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011, and for such internal control as the directors determine is necessary to enable the preparation of Consolidated Restated Annual Financial Statements that are free from material misstatement, whether due to fraud or error. In preparing the Consolidated Restated Annual 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 Consolidated Restated Annual Financial Statements Our objectives are to obtain reasonable assurance about whether the Consolidated Restated Annual 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 International Standards on Auditing 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 Consolidated Restated Annual Financial Statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the Consolidated Restated Annual 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 Consolidated Restated Annual 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. Evaluate the overall presentation, structure and content of the Consolidated Restated Annual Financial Statements, including the disclosures, and whether the Consolidated Restated Annual 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 Consolidated 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.

53

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


INDEPENDENT AUDITOR’S REPORT

Report on other legal and regulatory requirements As required by the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011, we report to you, based on our audit, that: a) 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. b) In our opinion proper books of accounts have been kept by the Group, so far as appears from our examination of those books; c) In our opinion, the financial information given in the director's report for the year ended December 31, 2017 is consistent with the group's annual financial statements; and d) The Group’s consolidated statement of financial position and consolidated statement of profit or loss and other comprehensive income are in agreement with the books of accounts. The engagement partner responsible for the audit resulting in this independent auditor's report is CPA D. V. Shah - P/No. 1729.

Grant Thornton Certified Public Accountants (Kenya) Nairobi

C/117/1216/033/0317/AUD

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

54


CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2017

Group

Note(s)

2017 K Sh

Restated 2016 K Sh

Company Restated 2015 K Sh

2017 K Sh

Restated 2016 K Sh

As sets Non-Current Assets Property, plant and equipment Investment property Intangible assets Investments in subsidiaries Investments in joint ventures and associates Other financial assets

Current Assets Development properties for sale Trade and other receivables Other financial assets Current tax receivable Cash and cash equivalents

3 4 5 6 7 8

73,884,048 10,762,765,001 20,841,393 355,331,420 255,230,137 11,468,051,999

47,339,702 23,659,703 8,911,009,530 5,438,556,700 968,670 145,331,420 145,871,600 9,104,649,322 5,608,088,003

59,610,524 17,119,122 200,000 20,196,420 97,126,066

39,315,034 968,670 200,000 10,196,420 50,680,124

9 10 8 29 11

4,997,993,602 394,448,619 691,791,572 18,133,855 85,499,547 6,187,867,195 17,655,919,194

1,450,384,101 221,521,489 979,801,382 63,835,612 2,715,542,584 11,820,191,906

348,701,497 91,177,644 614,864,889 20,685,156 1,075,429,186 6,683,517,189

144,827,219 13,281,072 8,588,257 166,696,548 263,822,614

113,475,699 338,662,326 18,684,338 470,822,363 521,502,487

12

116,435,504 555,232,034

116,430,987 243,444,898

24,378,847 453,939,933

115,918,537 (961,188,407)

115,918,537 (388,716,069)

671,667,538 359,875,885 4,867,523,524 4,971,185,114 5,539,191,062 5,331,060,999

478,318,780 3,229,808,278 3,708,127,058

(845,269,870) (845,269,870)

(272,797,532) (272,797,532)

13 14 17

175,000,000 175,000,000 1,872,177,972 2,137,421,849 1,011,818,818 50,445,076 3,058,996,790 2,362,866,925

175,000,000 1,492,132,565 431,307,502 2,098,440,067

526,950 526,950

2,035,935 2,035,935

18 14

3,373,200,677 610,714,982 527,941,380 333,655,911 24,783,830 5,448,972 53,201,054 12,444,889 41,166,620 5,078,604,401 3,122,832,608 9,057,731,342 4,126,263,982 12,116,728,132 6,489,130,907 17,655,919,194 11,820,191,906

186,950,350 445,938,749 53,792,361 15,106,229 88,207,500 86,954,875 876,950,064 2,975,390,131 6,683,517,189

740,188,367 1,411,736 24,783,830 53,201,054 288,980,547 1,108,565,534 1,109,092,484 263,822,614

200,133,003 1,228,297 5,448,972 12,444,889 573,008,923 792,264,084 794,300,019 521,502,487

Total Assets Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent Share capital Accumulated profit (loss) Non-controlling interest

Liabilities Non-Current Liabilities Land owner contribution Borrowings Other financial liabilities

Current Liabilities Trade and other payables Borrowings Operating lease liability Deferred income Current tax payable Other liabilities Other financial liabilities Total Liabilities Total Equity and Liabilities

19 29 16 17

The consolidated restated annual financial statements and the notes on pages 10 to 55, were approved by the board on the May 15, 2018 and were signed on its behalf by:

Prof. Daniel Mugendi

Edwin H. Dande

Chairman, Board of Directors

Managing Partner & CEO

The accounting policies on pages 15 to 27 and the notes on pages 28 to 55 form an integral part of the consolidated restated annual financial statements.

55

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Group

Note(s)

2017 K Sh

Company

Restated 2016 K Sh

Restated 2015 K Sh

2017 K Sh

2016 K Sh

Revenue Cost of sales

20 21

1,012,109,806 (630,326,394)

543,948,622 (338,102,681)

198,260,074 (19,976,753)

193,403,762 -

119,855,220 -

Gross profit Other income Operating expenses Fair value gains/(losses) Impairment loss

22 23 26 23

381,783,412 362,402,075 (887,434,601) 886,082,849 (181,549,892)

205,845,941 46,391,656 (552,969,254) 551,652,910 (95,542,426)

178,283,321 59,064,923 (233,896,199) 686,934,264 -

193,403,762 79,048,719 (609,466,239) (178,540,896)

119,855,220 4,257,631 (277,252,842) (88,597,992) (95,542,426)

561,283,843

155,378,827

690,386,308

(515,554,654)

(337,280,409)

Investment revenue Finance costs

25 27

130,823,459 (285,554,304)

69,346,396 (98,195,971)

26,337,509 (7,290,928)

782,574 (39,406,822)

5,768,692 (63,172,528)

Profit / (loss) before taxation Income tax expense

28

406,552,998 (8,548,487)

126,529,252 (20,874,391)

709,432,889 (13,999,682)

(554,178,902) (8,548,487)

(394,684,245) (20,874,391)

398,004,511

105,654,861

695,433,208

(562,727,389)

(415,558,636)

-

-

-

-

398,004,511

105,654,861

695,433,208

(562,727,389)

(415,558,636)

311,787,136 86,217,375

(210,495,035) 316,149,896

453,939,930 241,493,278

(562,727,389) -

(415,558,636) -

398,004,511

105,654,861

695,433,208

(562,727,389)

(415,558,636)

311,787,136 86,217,375

(210,495,035) 316,149,896

453,939,930 241,493,278

(562,727,389) -

(415,558,636) -

398,004,511

105,654,861

695,433,208

(562,727,389)

(415,558,636)

Operating (loss) / profit

Profit / (loss) for the year Other comprehensive income Total comprehensive income / (loss) for the year Profit / (loss) attributable to: Owners of the parent Non-controlling interest

Total comprehensive income / (loss) attributable to: Owners of the parent Non-controlling interest

-

The accounting policies on pages 15 to 27 and the notes on pages 28 to 55 form an integral part of the consolidated restated annual financial statements.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

56


57

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

-

12

12

106,091,982

10,343,522

Note(s)

Balance at December 31, 2017

-

4,517

Total contributions by and distributions to owners of company recognised directly in equity

-

4,517 -

-

106,091,982 -

106,091,982

90,624,692

90,624,692 -

Issue of shares Land owner contribution

-

10,339,005 -

Balance at January 01, 2017 Profit for the year Other comprehensive income

Total comprehensive income for the year

10,339,005

1,427,448

Total contributions by and distributions to owners of company recognised directly in equity

Balance at December 31, 2016

1,427,448 -

Issue of shares Land owner contribution

-

8,911,557 -

Balance at January 01, 2016 Loss for the y ear Other comprehensive income

Total comprehensive Loss for the y ear

15,467,290

8,911,557

Balance at December 31, 2015 15,467,290 -

15,467,290 -

8,911,557 -

K Sh

Share premium

Group Balance at the begining of the period Total comprehensive income for the year Issue of shares Land owner contribution

K Sh

Share capital

478,318,780 478,318,780 (210,495,035) (210,495,035) 92,052,140 92,052,140 359,875,885 359,875,885 311,787,136 311,787,136 4,517 671,667,538

453,939,933 453,939,933 (210,495,035) (210,495,035) 243,444,898 243,444,898 311,787,136 311,787,136 555,232,034

24,378,847 24,378,847 92,052,140 92,052,140 116,430,987 116,430,987 4,517 4,517 116,435,504 12

453,939,933 24,378,847 -

K Sh

Total attributable to equity holders of the Group / Company

453,939,933 -

K Sh

Accumulated loss

24,378,847 -

K Sh

Total share capital

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

3,708,127,058 3,708,127,058 105,654,861 105,654,861 92,052,140 1,425,226,940 1,517,279,080 5,331,060,999 5,331,060,999 398,004,511 398,004,511 (189,878,965) (189,874,448) 5,539,191,062

3,229,808,278 316,149,896 316,149,896 1,425,226,940 1,425,226,940 4,971,185,114 4,971,185,114 86,217,375 86,217,375 (189,878,965) (189,878,965) 4,867,523,524

695,433,211 24,378,847 2,988,315,000

K Sh

Total equity

3,229,808,278

241,493,278 2,988,315,000

K Sh

Non-controlling interest


ANNUAL REPORT & FINANCIAL STATEMENTS 2017

58

(562,727,389) (961,188,407)

-

12

12

12

The accounting policies on pages 15 to 27 and the notes on pages 28 to 55 form an integral part of the consolidated restated annual financial statements. .

Note(s)

Balance at December 31, 2017

Total comprehensive Loss for the y ear 115,918,537

(398,461,018) (562,727,389) -

115,918,537 -

106,091,982 -

9,826,555 -

Balance at January 01, 2017 Loss for the y ear Other comprehensive income -

(388,716,069)

115,918,537

106,091,982

9,826,555

Balance at December 31, 2016

106,091,982

-

92,051,247

90,624,692

1,426,555

Total contributions by and distributions to owners of company recognised directly in equity

-

-

9,826,555

(415,558,636)

92,051,247

90,624,692

Total comprehensive Loss for the y ear

-

26,842,567 (415,558,636) -

23,867,290 -

K Sh

Accumulated loss

15,467,290 -

K Sh

Total share capital

1,426,555

8,400,000 -

K Sh

Share premium

Issue of shares

Company Balance at January 01, 2016 Loss for the y ear Other comprehensive income

K Sh

Share capital

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(845,269,870)

(562,727,389)

(282,542,481) (562,727,389) -

(272,797,532)

92,051,247

92,051,247

(415,558,636)

50,709,857 (415,558,636) -

Total attributable to equity holders of the Group / Company K Sh K Sh

-

-

-

-

-

-

Non-controlling interest

(845,269,870)

(562,727,389)

(282,542,481) (562,727,389) -

(272,797,532)

92,051,247

92,051,247

(415,558,636)

50,709,857 (415,558,636) -

K Sh

Total equity


CONSOLIDATED STATEMENT OF CASH FLOWS

Group

Note(s)

2017 K Sh

Restated 2016 K Sh

Company Restated 2015 K Sh

Restated 2017 K Sh

Restated 2016 K Sh

Cash flows from operating activities Cash (used in) generated from operations Interest income Finance costs Tax (paid) received

30 25 27 29

(1,196,813,475) 27,608,231 (285,554,304) (39,127,231)

(1,187,094,624) 65,345,957 (98,195,971) (23,535,731)

(242,245,921) 26,337,509 (7,290,928) 1,106,547

63,235,488 117,346 (39,406,822) (34,274,448)

(93,741,282) 1,768,253 (63,172,528) (23,535,731)

(222,092,793)

(10,328,436)

(178,681,288)

(53,895,846) (959,827,709) (25,131,503) 26,708,988 (210,000,000) 103,215,228

(38,393,521) (30,890,525) 58,803 (2,922,262,666) (4,751,622,436) (1,210,838) (366,018,140) (614,864,889) 540,180 (145,871,600) 4,000,439 -

(42,597,469) (20,478,666) (6,071,301) 344,733,627 (10,000,000) 665,228

(30,023,482) 58,803 (88,597,992) (1,210,838) (221,971,768) 540,180 4,000,439

(1,118,930,842)

(3,323,285,743) (5,543,249,450)

266,251,419

(337,204,658)

(1,493,886,779) (1,243,480,369)

Net cash (used in)/generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of investment property Purchase of intangible assets Purchase of financial assets Proceeds from sale of financial assets Investment in associate Dividends received

3 3 4 5 8 8 7 25

Net cash (used in) investing activities Cash flows from financing activities Proceeds on share issue (Repayments)/Proceeds in borrowings Proceeds/(Repayments) in unalloted share capital Proceeds/(Repayments) in other liabilities Proceeds/(Repayments) in other financial liabilities Repayment of shareholders loan Proceeds in land owners contribution

12 14 15 16 17

Net cash generated from/(used in) financing activities

4,517 (70,957,769) 19,334,858 428,111,008 2,447,867,907 (189,878,965)

92,052,140 533,006,446 (48,343,389) (47,040,880) 2,655,015,307 1,425,226,944

24,378,847 1,938,071,314 (1,325,546) 53,792,361 19,334,858 88,207,500 518,262,377 (284,028,376) 175,000,000 2,988,315,000 -

92,051,247 (1,078,203) (48,343,389) 486,054,048 -

2,634,481,556

4,609,916,568

5,786,027,399 (266,019,064)

528,683,703

Net cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year

11

21,663,935 63,835,612

43,150,456 20,685,156

20,685,156 -

(10,096,081) 18,684,338

12,797,757 5,886,581

Cash and cash equivalents at end of the year

11

85,499,547

63,835,612

20,685,156

8,588,257

18,684,338

The accounting policies on pages 15 to 27 and the notes on pages 28 to 55 form an integral part of the consolidated restated annual financial statements.

59

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

Corporate information Cytonn Investments Management PLC & Subsidiaries is a Public Limited Company incorporated and domiciled in Kenya. For Kenyan Companies Act, 2015 reporting purposes, the balance sheet is represented in these consolidated and separate annual financial statements by the Consolidated Statement of Financial Position and the profit and loss account by the Statement of Profit or Loss and Other Comprehensive Income. 1. Significant accounting policiest The principal accounting policies applied in the preparation of these consolidated and separate annual financial statements are set out below. 1.1 Basis of preparation The consolidated and separate annual financial statements have been prepared on the going concern basis in accordance with, and in compliance with, International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations issued and effective at the time of preparing these consolidated restated annual financial statements and the Kenyan Companies Act, 2015 and Limited Liability Partnership Act of 2011. The consolidated and separate annual financial statements have been prepared on the historic cost convention, unless otherwise stated in the accounting policies which follow and incorporate the principal accounting policies set out below. They are presented in Kenyan Shillings, which is the Group and Company's functional currency, and rounded off to the nearest Shilling. These accounting policies are consistent with the previous period. 1.2 Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating officer. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Operating committee that makes strategic decisions. The basis of segmental reporting has been set out in note 40 1.3 Consolidation Basis of consolidation The consolidated restated annual financial statements incorporate the consolidated restated annual financial statements of the company and all entities, including special purpose entities, which are controlled by the company. Control exists when the company has: a) Power over the investee b) Exposure or rights to variable returns from its involvement with the investee and c) The ability to use its power over the investee to affect the amount of the investor's returns. Power exists when the company has existing rights that give it the current ability to direct the relevant activities of the investee. This power comes from either voting rights granted by shareholding or can result from one or more contractual agreements. The company is exposed or has rights to variable returns from its involvement with the investee when the company's return from the involvement has the potential to vary as a result of the investee's performance. The results of subsidiaries are included in the consolidated restated annual financial statements from the effective date of acquisition to the effective date of disposal. Adjustments are made when necessary to the consolidated restated annual financial statements of subsidiaries to bring their accounting policies in line with those of the Group.All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Transactions which result in changes in ownership levels, where the Group has control of the subsidiary both before and after the transactions are regarded as equity transactions and are recognised directly in the statement of changes in equity. The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent. Where a subsidiary is disposed of and a non- controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

60


GROUP STATEMENT OF ACCOUNTING POLICIES

1.3 Consolidation (cont) Non-controlling interests Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the Group's interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest. The amount within non-controlling interest of K Sh 4,867,523,524 (2016: K Sh 4,971,185,114, 2015: 3,229,808,278) relates to the land owners contribution in Mystic Plains LLP, Cytonn Investment Partners Nine LLP (Westlands) and Cytonn Investment Partners Five LLP (Ruiru). The partners in Mystic Plains LLP consist of The Mutua Family, Cytonn Investments Management PLC., Cytonn Real Estate LLP (Referred to as Managing Partner) and Cytonn Investment Partners Four LLP as per the joint venture agreement dated 18th December, 2015. Majority of the control lies with Cytonn Investments Management PLC. where Cytonn Investments Management Plc can take decisions on behalf of Mystic Plains LLP as per the joint venture agreement. The partners in Cytonn Investment Partners Nine LLP (Westlands) consist of Madhav Bhalla, Azim Taibjee, Piyush Mehta, Nanda Family, Cytonn Investments Management PLC, Cytonn Real Estate LLP (Referred to as Managing Partner) as per the joint venture agreement dated 23rd November, 2016. Majority of the control lies with Cytonn Investments Management PLC where Cytonn Investments Management PLC can take decisions on behalf of Cytonn Investment Partners Nine LLP (Westlands) as per the joint venture agreement. The partners in Cytonn Investment Partners Five LLP (Riverrun) consist of Muiruri Laban Limited, Cytonn Investments Management PLC, Cytonn Real Estate LLP (Referred to as Managing Partner) as per the joint venture agreement dated 8th September, 2016. Majority of the control lies with Cytonn Investments Management PLC where Cytonn Investments Management PLC can take decisions on behalf of Cytonn Investment Partners Five LLP (Ruiru) as per the joint venture agreement. Investment in associates An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in associate is accounted for using the equity method, except when the investment is classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost adjusted for post acquisition changes in the Group's share of net assets of the associate, less any impairment losses. Losses in an associate in excess of the Group's interest in that associate are recognised only to the extent that the Group has incurred a legal or constructive obligation to make payments on behalf of the associate. Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a gain on acquisition is recognised immediately in profit or loss. Profits or losses on transactions between the Group and an associate are eliminated to the extent of the Group's interest therein. When the Group reduces its level of significant influence or loses significant influence, the Group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal. Joint arrangements A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. An interest in a joint venture is accounted for using the equity method, except when the investment is classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations. Under the equity method, interests' in joint ventures are carried in the consolidated statement of financial position at cost adjusted for post-acquisition changes in the company's share of net assets of the joint venture, less any impairment losses. Profits or losses on transactions between the company and a joint venture are eliminated to the extent of the company's interest therein. When the company loses joint control, the Group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal.

61

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

1.4 Investments in subsidiaries Investments in subsidiaries are carried at cost less any accumulated impairment losses. This excludes investments which are held for sale and are consequently accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. 1.5 Significant judgements and sources of estimation uncertainty The preparation of consolidated restated annual financial statements in conformity with IFRS requires management, from time to time, to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Critical judgements in applying accounting policies Management did not make critical judgements in the application of accounting policies, apart from those involving estimations, which would significantly affect the financial statements. Key sources of estimation uncertainty Trade receivables The Group assesses its trade receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from the financial asset. The impairment (or loss allowance) for trade receivables is calculated on a portfolio basis, except for individually significant trade receivables which are assessed separately. The impairment test on the portfolio is based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Fair value estimation Several assets and liabilities of the Group are either measured at fair value or disclosure is made of their fair values. Fair value is the price that would be received to sell an asset in an orderly transaction between market participant at the measurement date. The Group contracted an external, independent and professional qualified real estate projects valuers who hold recognized professional qualifications and have wide experience in similar real estate projects to assess and advise the fair value of the projects. In determining the fair market value of the projects, the valuer conducted a physical inspection of the property, asking prices for similar parcels of the land in the area, the proposed and approved project plans, current costs, presales as well as the economic conditions prevailing at the time. The Group then contracted an independent and qualified consultant to undertake a reasonableness test on the fair market values received. There were no signs of impairment. Significant valuation issues are reported to the Audit Risk & Compliance Committee. Observable market data is used as inputs to the extent that it is available. The current use of the investment properties equates to the highest and best use. 1.5 Significant judgements and sources of estimation uncertainty (continued) Impairment testing The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. When such indicators exist, management determine the recoverable amount by performing value in use and fair value calculations. These calculations require the use of estimates and assumptions. When it is not possible to determine the recoverable amount for an individual asset, management assesses the recoverable amount for the cash generating unit to which the asset belongs. Useful lives of property, plant and equipment Management assess the appropriateness of the useful lives of property, plant and equipment at the end of each reporting period. The useful lives of motor vehicles, furniture and computer equipment are determined based on Group replacement policies for the various assets. Individual assets within these classes, which have a significant carrying amount are assessed separately to consider whether replacement will be necessary outside of normal replacement parameters. The useful life of manufacturing equipment is assessed annually based on factors including wear and tear, technological obsolescence and usage requirements. When the estimated useful life of an asset differs from previous estimates, the change is applied prospectively in the determination of the depreciation charge.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

62


GROUP STATEMENT OF ACCOUNTING POLICIES

Investments in subsidiaries Subsidiaries are all entities (including special purpose 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 these 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. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Cytonn Investments Management PLC is a related party to all the companies stated in Note 31 by virtue of common control and directorship. 1.6 Property, plant and equipment Property, plant and equipment are tangible assets which the Group holds for its own use or for rental to others and which are expected to be used for more than one year. An item of property, plant and equipment is recognised as an asset 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. Property, plant and equipment is initially measured at cost. Cost includes all of the expenditure which is directly attributable to the acquisition or construction of the asset, including the capitalisation of borrowing costs on qualifying assets and adjustments in respect of hedge accounting, where appropriate. Expenditure incurred subsequently for major services, additions to or replacements of parts of property, plant and equipment are capitalised if it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. Day to day servicing costs are included in profit or loss in the year in which they are incurred. Subsequent to initial recognition, property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation of an asset commences when the asset is available for use as intended by management. Depreciation is charged to write off the asset's carrying amount over its estimated useful life to its estimated residual value, using a method that best reflects the pattern in which the asset's economic benefits are consumed by the Group. Leased assets are depreciated in a consistent manner over the shorter of their expected useful lives and the lease term. Depreciation is not charged to an asset if its estimated residual value exceeds or is equal to its carrying amount. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale or derecognised. The useful lives of items of property, plant and equipment have been assessed as follows:

63

Item

Depreciation method

Furniture and fixtures Motor vehicles IT equipment Computer software

Diminishing balance Diminishing balance Diminishing balance Diminishing balance

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Average useful life (%) 12.5 25 33.33 20


GROUP STATEMENT OF ACCOUNTING POLICIES

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. If the expectations differ from previous estimates, the change is accounted for prospectively as a change in accounting estimate. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying amount of another asset. Impairment tests are performed on property, plant and equipment when there is an indicator that they may be impaired. When the carrying amount of an item of property, plant and equipment is assessed to be higher than the estimated recoverable amount, an impairment loss is recognised immediately in profit or loss to bring the carrying amount in line with the recoverable amount. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its continued use or disposal. Any gain or loss arising from the derecognition of an item of property, plant and equipment, determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, is included in profit or loss when the item is derecognised. 1.7 Investment property Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. Properties under construction and development sites with projected use as investment properties shall also be classified as investment properties. The Group shall also classify land/buildings or both currently held for undetermined future use as Investment property. Properties under construction and development sites with projected use as investment properties shall also be classified as investment properties. Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the enterprise, and the cost of the investment property can be measured reliably. Investment property is initially recognised at cost. Transaction costs are included in the initial measurement. Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised. Subsequent measurement Subsequent to initial measurement investment property is measured at fair value representing open market value determined annually by independent external valuers. A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises. Transfers to or from investment property shall only be made when there is a change in use evidenced by one or more of the following: a) Commencement of owner occupation. b) Commencement of development with a view to sell. c) End of owner occupation. It is the Group’s policy that the ground breaking date shall be deemed to be the commencement of development. Any change in use shall be accounted for in the period in which it falls with sufficient disclosures made to explain the nature of the change and the impact on the financial statements: For a transfer from Investment Property carried at fair value to owner occupied property or inventory, the fair value at the change of use is the “cost� of the property under its new classification. For a transfer from owner-occupied property to investment property carried at fair value, IAS 16 shall be applied up to the date of reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the Fair Value is dealt with as revaluation. For a transfer from inventories to investment property at fair value, any difference between the fair value at the date of transfer and its previous carrying amount should be recognized in profit or loss. 1.8 Financial instruments Classification The Group classifies financial assets and financial liabilities into the following categories: Financial assets at fair value through profit or loss - held for trading Financial assets at fair value through profit or loss - designated

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

64


GROUP STATEMENT OF ACCOUNTING POLICIES

Held-to-maturity investment Loans and receivables Available-for-sale financial assets Financial liabilities measured at amortised cost Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category. Initial recognition and measurement Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments. The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Transaction costs on financial instruments at fair value through profit or loss are recognised in profit or loss. Regular way purchases of financial assets are accounted for at trade date. Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period. Net gains or losses on the financial instruments at fair value through profit or loss exclude dividends and interest. Dividend income is recognised in profit or loss as part of other income when the Group's right to receive payment is established. Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Available-for-sale financial assets are subsequently measured at fair value with gains and losses being included in other comprehensive income. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in equity until the asset is disposed of or determined to be impaired. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available-for-sale equity instruments are recognised in profit or loss as part of other income when the Group's right to receive payment is established. Changes in fair value of available-for-sale financial assets denominated in a foreign currency are analysed between translation differences resulting from changes in amortised cost and other changes in the carrying amount. Translation differences on monetary items are recognised in profit or loss, while translation differences on non-monetary items are recognised in other comprehensive income and accumulated in equity. Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method. Derecognition Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Fair value determination 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 making maximum use of market inputs and relying as little as possible on entity-specific inputs. Impairment of financial assets At each reporting date the Group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired.

65

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

For amounts due to the Group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator of impairment. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity as a reclassification adjustment to other comprehensive income and recognised in profit or loss. Impairment losses are recognised in profit or loss. Impairment losses are reversed when an increase in the financial asset's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available-for-sale. Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable. Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in profit or loss within operating expenses. When such assets are written off, the write off is made against the relevant allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses. Loans to shareholders and directors These financial assets are classified as loans and receivables. Trade and other receivables Trade and other receivables are classified as loans and receivables. Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Bank overdraft and borrowings Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs. Held to maturity These financial assets are initially measured at fair value plus direct transaction costs. At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Financial assets that the Group has the positive intention and ability to hold to maturity are classified as held to maturity. 1.9 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceed the amount due for those periods, the excess is recognised as an asset.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

66


GROUP STATEMENT OF ACCOUNTING POLICIES

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or a business combination. Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income. Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity. 1.10 Impairment of assets The Group assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, the Group also: tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period. tests goodwill acquired in a business combination for impairment annually. If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognized immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase. 1.11 Development properties for sale Properties under construction and development sites with determined use as for sale shall be classified as "development Properties". Development properties for sale are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of development properties for sale comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the development properties for sale to their present location and condition. The cost of development properties for sale of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs.

67

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

When development properties for sale are sold, the carrying amount of those development properties for sale are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. 1.12 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 1.13 Share based payments Goods or services received or acquired in a share-based payment transaction are recognised when the goods or as the services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled sharebased payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transaction. When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses. For equity-settled share-based payment transactions the goods or services received and the corresponding increase in equity are measured, directly, at the fair value of the goods or services received provided that the fair value can be estimated reliably. If the fair value of the goods or services received cannot be estimated reliably, or if the services received are employee services, their value and the corresponding increase in equity, are measured, indirectly, by reference to the fair value of the equity instruments granted. Vesting conditions which are not market related (i.e. service conditions and non-market related performance conditions) are not taken into consideration when determining the fair value of the equity instruments granted. Instead, vesting conditions which are not market related shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Market conditions, such as a target share price, are taken into account when estimating the fair value of the equity instruments granted. The number of equity instruments are not adjusted to reflect equity instruments which are not expected to vest or do not vest because the market condition is not achieved. If the share based payments granted do not vest until the counterparty completes a specified period of service, Group accounts for those services as they are rendered by the counterparty during the vesting period, (or on a straight line basis over the vesting period). If the share based payments vest immediately the services received are recognised in full. 1.14 Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted. The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs. The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Defined contribution plans Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the Group’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

68


GROUP STATEMENT OF ACCOUNTING POLICIES

1.15 Revenue The group recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The group recognises revenue in accordance with this core principal by applying the following steps: 1. Identifying the contract with the customer - A contract is an agreement between the company and other

parties that creates impossible rights and obligations. 2. Identifying the performance obligations in the contracts - Contracts should include promises to transfer

goods or services to a customer. 3. Determining the transaction price - The transaction price is the amount of consideration in the contract to

which the company expects to be entitled in exchange for transferring promised goods or services to a customer. 4. Allocating the traction price to the performance obligations in the contracts - The company typically

allocates the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract. 5. Recognising revenue when (or as) the company satisfies a performance obligation - The company

recognised revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognised is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time or over time. For performance obligations satisfied over time, the company recognises revenue over time by selecting an appropriate method for measuring the company's progress towards complete satisfaction of that performance obligation. Sale of development properties: The Group recognises revenue over time on the basis that the group's performance does not create an asset with an alternative use to the group and the group has an enforceable right to payment for performance completed to date. Interest income: Interest is recognised, over time, using the effective interest rate method. Dividend income: Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established. Rental income: Rental income is recognised over the period of the lease. Project management fees: Project management fees are recognised over the duration of the project. Structuring fees: Structuring fees are recognised over the duration of the project. 1.16 Cost of sales When development properties for sale are sold, the carrying amount of those development properties for sale is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of development properties for sale to net realisable value and all losses of development properties for sale are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of development properties for sale, arising from an increase in net realisable value, is recognised as a reduction in the amount of development properties for sale recognised as an expense in the period in which the reversal occurs. The related cost of providing services recognised as revenue in the current period is included in cost of sales. 1.17 Translation of foreign currencies Functional and presentation currency Items included in the consolidated restated annual financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated restated annual financial statements are presented in Kenyan Shilling which is the Group functional and presentation currency.

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ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in Kenyan Shillings, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of the reporting period: foreign currency monetary items are translated using the closing rate; non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous consolidated restated annual financial statements are recognised in profit or loss in the period in which they arise. Cash flows arising from transactions in a foreign currency are recorded in Kenyan Shillings by applying to the foreign currency amount the exchange rate between the Kenyan Shilling and the foreign currency at the date of the cash flow. 1.18 Intangible assets An intangible asset is recognised when: it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. Intangible assets are initially recognised at cost. Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when: it is technically feasible to complete the asset so that it will be available for use or sale. there is an intention to complete and use or sell it. there is an ability to use or sell it. it will generate probable future economic benefits. there are available technical, financial and other resources to complete the development and to use or sell the asset. the expenditure attributable to the asset during its development can be measured reliably. Intangible assets are subsequently carried at cost less any accumulated amortisation and any impairment losses. An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight line basis over their useful life. The amortisation period and the amortisation method for intangible assets are reviewed every period-end. Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets. Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows:

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

70


GROUP STATEMENT OF ACCOUNTING POLICIES

Item

Rate

Computer software

33.33

1.19 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: expenditures for the asset have occurred; borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred. 1.20 Provisions and contingencies Provisions are recognised when: the group has a present obligation as a result of a past event it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. 2. New Standards and Interpretations 2.1 Standards and interpretations effective and adopted in the current year In the current year, the Group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: Amendments to IFRS 12: Annual Improvements to IFRS 2014 - 2016 cycle The amendment to IFRS 12 Disclosures of Interests in Other Entities now provides that if an investment in a subsidiary, associate or joint venture is part of a disposal group that is held for sale, then the disclosure of summary information as per paragraph B10 B16 of IFRS 12 is not required. IFRS 12 previously only made the exemption for circumstances where the investment itself was classified as held for sale. The effective date of the amendment is for years beginning on or after January 01, 2017. The Group has adopted the amendment for the first time in the 2017 consolidated restated annual financial statements. The impact of the amendment is not material. Amendments to IAS 7: Disclosure initiative The amendment requires entities to provide additional disclosures for changes in liabilities arising from financing activities. Specifically, entities are now required to provide disclosure of the following changes in liabilities arising from financing activities: changes from financing cash flows;

71

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchanges; changes in fair values; and other changes. The effective date of the amendment is for years beginning on or after January 01, 2017. The Group has adopted the amendment for the first time in the 2017 consolidated restated annual financial statements. The impact of the amendment is not material. Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses In terms of IAS 12 Income Taxes, deferred tax assets are recognised only when it is probable that taxable profits will be available against which the deductible temporary differences can be utilised. The following amendments have been made, which may have an impact on the Group: If tax law restricts the utilisation of losses to deductions against income of a specific type, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. Additional guidelines were prescribed for evaluating whether the Group will have sufficient taxable profit in future periods. The Group is required to compare the deductible temporary differences with future taxable profit that excludes tax deductions resulting from the reversal of those deductible temporary differences. This comparison shows the extent to which the future taxable profit is sufficient for the entity to deduct the amounts resulting from the reversal of those deductible temporary differences. The amendment also provides that the estimate of probable future taxable profit may include the recovery of some of an entity’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this. The effective date of the amendment is for years beginning on or after January 01, 2017. The Group has adopted the amendment for the first time in the 2017 consolidated restated annual financial statements. The impact of the amendment is not material. 2.2 Standards and Interpretations early adopted The Group has chosen to early adopt the following standards and interpretations: Amendments to IFRS 15: Clarifications to IFRS 15 Revenue from Contracts with Customers The amendment provides clarification and further guidance regarding certain issues in IFRS 15. These items include guidance in assessing whether promises to transfer goods or services are separately identifiable; guidance regarding agent versus principal considerations; and guidance regarding licenses and royalties. The effective date of the amendment is for years beginning on or after January 01, 2018. The Group has early adopted the amendment for the first time in the 2015 consolidated restated annual financial statements. The adoption of this amendment has not had a material impact on the results of the Group, but has resulted in more disclosure than would have previously been provided in the consolidated restated annual financial statements. IFRS 15 Revenue from Contracts with Customers IFRS 15 supersedes IAS 11 Construction contracts; IAS 18 Revenue; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the construction of Real Estate; IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue - Barter Transactions Involving Advertising Services. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Identify the contract(s) with a customer Identify the performance obligations in the contract

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

72


GROUP STATEMENT OF ACCOUNTING POLICIES

Determine the transaction price Allocate the transaction price to the performance obligations in the contract Recognise revenue when (or as) the entity satisfies a performance obligation. IFRS 15 also includes extensive new disclosure requirements. The effective date of the standard is for years beginning on or after January 01, 2018. The Group has early adopted the standard for the first time in the 2015 consolidated restated annual financial statements. The adoption of this standard has not had a material impact on the results of the Group, but has resulted in more disclosure than would have previously been provided in the consolidated restated annual financial statements. 2.3 Standards and interpretations not yet effective The Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the Group’s accounting periods beginning on or after January 01, 2018 or later periods: IFRS 16 Leases IFRS 16 Leases is a new standard which replaces IAS 17 Leases, and introduces a single lessee accounting model. The main changes arising from the issue of IFRS 16 which are likely to impact the Group are as follows: Group as lessee: Lessees are required to recognise a right-of-use asset and a lease liability for all leases, except short term leases or leases where the underlying asset has a low value, which are expensed on a straight line or other systematic basis. The cost of the right-of-use asset includes, where appropriate, the initial amount of the lease liability; lease payments made prior to commencement of the lease less incentives received; initial direct costs of the lessee; and an estimate for any provision for dismantling, restoration and removal related to the underlying asset. The lease liability takes into consideration, where appropriate, fixed and variable lease payments; residual value guarantees to be made by the lessee; exercise price of purchase options; and payments of penalties for terminating the lease. The right-of-use asset is subsequently measured on the cost model at cost less accumulated depreciation and impairment and adjusted for any re- measurement of the lease liability. However, right-of-use assets are measured at fair value when they meet the definition of investment property and all other investment property is accounted for on the fair value model. If a right-of-use asset relates to a class of property, plant and equipment which is measured on the revaluation model, then that right-of-use asset may be measured on the revaluation model. The lease liability is subsequently increased by interest, reduced by lease payments and re-measured for reassessments or modifications. Re-measurements of lease liabilities are affected against right-of-use assets, unless the assets have been reduced to nil, in which case further adjustments are recognised in profit or loss. The lease liability is re-measured by discounting revised payments at a revised rate when there is a change in the lease term or a change in the assessment of an option to purchase the underlying asset. The lease liability is re-measured by discounting revised lease payments at the original discount rate when there is a change in the amounts expected to be paid in a residual value guarantee or when there is a change in future payments because of a change in index or rate used to determine those payments. Certain lease modifications are accounted for as separate leases. When lease modifications which decrease the scope of the lease are not required to be accounted for as separate leases, then the lessee re-measures the lease liability by decreasing the carrying amount of the right of lease asset to reflect the full or partial termination of the lease. Any gain or loss relating to the full or partial termination of the lease is recognised in profit or loss. For all other lease modifications which are not required to be accounted for as separate

73

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

leases, the lessee re-measures the lease liability by making a corresponding adjustment to the right-of-use asset. Right-of-use assets and lease liabilities should be presented separately from other assets and liabilities. If not, then the line item in which they are included must be disclosed. This does not apply to right-of-use assets meeting the definition of investment property which must be presented within investment property. IFRS 16 contains different disclosure requirements compared to IAS 17 leases. Group as lessor: Accounting for leases by lessors remains similar to the provisions of IAS 17 in that leases are classified as either finance leases or operating leases. Lease classification is reassessed only if there has been a modification. A modification is required to be accounted for as a separate lease if it both increases the scope of the lease by adding the right to use one or more underlying assets; and the increase in consideration is commensurate to the stand alone price of the increase in scope. If a finance lease is modified, and the modification would not qualify as a separate lease, but the lease would have been an operating lease if the modification was in effect from inception, then the modification is accounted for as a separate lease. In addition, the carrying amount of the underlying asset shall be measured as the net investment in the lease immediately before the effective date of the modification. IFRS 9 is applied to all other modifications not required to be treated as a separate lease. Modifications to operating leases are required to be accounted for as new leases from the effective date of the modification. Changes have also been made to the disclosure requirements of leases in the lessor's financial statements. Sale and leaseback transactions: In the event of a sale and leaseback transaction, the requirements of IFRS 15 are applied to consider whether a performance obligation is satisfied to determine whether the transfer of the asset is accounted for as the sale of an asset. If the transfer meets the requirements to be recognised as a sale, the seller-lessee must measure the new right-of-use asset at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained. The buyer-lessor accounts for the purchase by applying applicable standards and for the lease by applying IFRS 16 If the fair value of consideration for the sale is not equal to the fair value of the asset, then IFRS 16 requires adjustments to be made to the sale proceeds. When the transfer of the asset is not a sale, then the seller-lessee continues to recognise the transferred asset and recognises a financial liability equal to the transfer proceeds. The buyer-lessor recognises a financial asset equal to the transfer proceeds. The effective date of the standard is for years beginning on or after January 01, 2019. The Group expects to adopt the standard for the first time in the 2019 consolidated annual financial statements. It is unlikely that the standard will have a material impact on the Group's consolidated restated annual financial statements. Amendments to IFRS 1: Annual Improvements to IFRS 2014 - 2016 cycle The amendment to IFRS 1 First Time Adoption of International Financial Reporting Standards deleted certain short term exemptions concerning disclosures of financial assets, employee benefits and investment entities from IFRS 1. The effective date of the amendment is for years beginning on or after January 01, 2018. The Group ADOPTED the amendment for the first time in the 2017 consolidated annual financial statements. It is unlikely that the amendment will have a material impact on the Group's consolidated restated annual financial statements. 2.4 Standards and interpretations not yet effective or relevant The following standards and interpretations have been published and are mandatory for the Group’s accounting periods beginning on or after January 01, 2018 or later periods but are not relevant to its operations:

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

74


GROUP STATEMENT OF ACCOUNTING POLICIES

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture If a parent loses control of a subsidiary which does not contain a business, as a result of a transaction with an associate or joint venture, then the gain or loss on the loss of control is recognised in the parents' profit or loss only to the extent of the unrelated investors' interest in the associate or joint venture. The remaining gain or loss is eliminated against the carrying amount of the investment in the associate or joint venture. The same treatment is followed for the measurement to fair value of any remaining investment which is itself an associate or joint venture. If the remaining investment is accounted for in terms of IFRS 9, then the measurement to fair value of that interest is recognised in full in the parents' profit or loss. The effective date of the amendment is to be determined by the IASB. The Group does not envisage the adoption of the amendment until such time as it becomes applicable to the Group's operations. It is unlikely that the amendment will have a material impact on the Group's consolidated restated annual financial statements. Amendments to IAS 28: Annual Improvements to IFRS 2014 - 2016 cycle An entity such as a venture capital organisation, mutual fund or similar institution may elect to measure investments in associates or joint ventures at fair value through profit or loss in accordance with IFRS 9 rather than by applying the equity method. The amendment to IAS 28 Investments in Associates and Joint Ventures now specifies that the election must be made separately per associate or joint venture and at the time of initial recognition of such investment. Further, if an entity is not an investment entity, but has interests in an associate or joint venture which is an investment entity, then the entity may retain the fair value measurement of the associate or joint venture. The amendment now provides that such election must be made separately for each investment entity associate or joint venture. The effective date of the amendment is for years beginning on or after January 01, 2018. The group does not envisage the adoption of the amendment until such time as it becomes applicable to the group's operations. It is unlikely that the amendment will have a material impact on the group's consolidated restated annual financial statements. Transfers of Investment Property: Amendments to IAS 40 The amendment deals specifically with circumstances under which property must be transferred to or from investment property. The amendment now requires that a change in use of property only occurs when the property first meets, or ceases to meet, the definition of investment property and that there is evidence of a change in use. The amendment specifies that a change in management's intentions for use of the property, do not, in isolation, provide evidence of a change in use. The effective date of the amendment is for years beginning on or after January 01, 2018. The Group does not envisage the adoption of the amendment until such time as it becomes applicable to the Group's operations. It is unlikely that the amendment will have a material impact on the Group's consolidated restated annual financial statements. Foreign Currency Transactions and Advance Consideration The interpretation applies to circumstances when an entity has either paid or received an amount of consideration in advance and in a foreign currency, resulting in a non-monetary asset or liability being recognised. The specific issue addressed by the interpretation is how to determine the date of the transaction for the purposes of determining the exchange rate to use on the initial recognition of the related asset, expense or income when the non-monetary asset or liability is derecognised. The interpretation specifies that the date of the transaction, for purposes of determining the exchange rate to apply, is the date on which the entity initially recognises the non-monetary asset or liability. The effective date of the interpretation is for years beginning on or after January 01, 2018. The Group does not envisage the adoption of the interpretation until such time as it becomes applicable to the Group's operations. It is unlikely that the interpretation will have a material impact on the Group's consolidated restated annual financial statements. Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions The amendment now specifies the treatment of vesting and non-vesting conditions with regards to cash-settled share-based payment transactions. The treatment is essentially similar to the treatment of such conditions for equity-settled share-based payment transactions. That is, non-market vesting conditions are taken into consideration when estimating the number of awards which are expected to vest (and which ultimately vest), while market conditions and other non-vesting conditions are taken into consideration when determining the fair value of the share based payment liability, both initially and subsequently.

75

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


GROUP STATEMENT OF ACCOUNTING POLICIES

The amendment also provides for share-based payment transactions with a net settlement feature for withholding tax obligations. Essentially, where the entity is required to withhold part of the equity instruments equal to the tax obligation, the entity is required to account for the payment to tax authorities as a reduction in equity, except to the extent that the payment exceeds the fair value of the equity instruments withheld at net settlement date. The entity should also disclose the amount that it expects to transfer to tax authorities in terms of such transactions. The amendment further provides guidance in terms of modifications which convert cash-settled share-based payment transactions to equity -settled share-based payment transactions. For such modifications, the equity-settled share based payment transaction is measured by reference to the fair value of the equity instruments granted at modification date, to the extent to which goods or services have been received. The liability for cash-settled share based payment transactions is derecognised on the modification date. Any difference between the two is recognised immediately in profit or loss. The effective date of the amendment is for years beginning on or after January 01, 2018. The Group expects to adopt the amendment for the first time in the 2017 consolidated restated annual financial statements. It is unlikely that the amendment will have a material impact on the Group's consolidated restated annual financial statements. IFRS 9 Financial Instruments IFRS 9 issued in November 2009 introduced new requirements for the classification and measurements of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a "fair value through other comprehensive income" (FVTOCI) measurement category for certain simple debt instruments. Key requirements of IFRS 9: All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the outstanding principal are generally measured at amortised cost at the end of subsequent reporting periods. Debt instruments that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on outstanding principal, are measured at FVTOCI. All other debt and equity investments are measured at fair value at the end of subsequent reporting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income with only dividend income generally recognised in profit or loss. With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability is presented in other comprehensive income, unless the recognition of the effect of the changes of the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Under IAS 39, the entire amount of the change in fair value of a financial liability designated as at fair value through profit or loss is presented in profit or loss. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. It is therefore no longer necessary for a credit event to have occurred before credit losses are recognised. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principal of an "economic relationship". Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk management activities have also been introduced.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

76


GROUP STATEMENT OF ACCOUNTING POLICIES

The effective date of the standard is for years beginning on or after January 01, 2018. The Group does not envisage the adoption of the standard until such time as it becomes applicable to the Group's operations. It is unlikely that the standard will have a material impact on the Group's consolidated restated annual financial statements.

77

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


ANNUAL REPORT & FINANCIAL STATEMENTS 2017

78

Furniture and fixtures Motor vehicles IT equipment

Reconciliation of property, plant and equipment Group - 2016

Furniture and fixtures Motor vehicles Office equipment IT equipment

Reconciliation of property, plant and equipment Group - 2017

Total

Furniture and fixtures Motor vehicles IT equipment

Company

Total

Furniture and fixtures Motor vehicles Office equipment IT equipment

Group

3. Property, plant and equipment

Figures in Kenya Shilling

2017

(13,138,988) (4,830,387) (281,492) (24,860,023) (43,110,890)

116,994,938

Accumulated depreciation

51,134,274 8,621,265 1,287,560 55,951,839

Cost or valuation

73,884,048

37,995,286 3,790,878 1,006,068 31,091,816

Carrying value

94,489,408

43,116,182 8,621,265 42,751,961

2016

(34,878,884)

(11,680,296) (4,830,387) (18,368,201)

Accumulated depreciation

2017

(21,861,845)

(5,133,953) (3,843,452) (12,884,440)

Accumulated depreciation

15,537,134 1,993,234 20,863,153 38,393,521

23,659,703

(64,225)

(64,225)

Disposals

53,895,846

47,339,702

Additions

20,693,161 1,287,560 31,915,125

Additions

57,755,588

24,973,199 8,621,265 24,161,124

Cost or valuation

30,890,525

13,608,200 6,628,031 10,654,294

Cost or valuation

24,011,381 4,777,813 18,550,508

Opening balance

59,610,524

31,435,886 3,790,878 24,383,760

Carrying value

47,339,702

24,011,381 4,777,813 18,550,508

Carrying value

11,904,489 4,746,105 7,009,109

Opening balance

Cost or valuation

69,201,547

29,145,334 8,621,265 31,434,948

Cost or valuation

NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

2015

(14,649,297)

(3,430,242) (1,961,526) (9,257,529)

Depreciation

(27,351,500)

(6,709,256) (986,935) (281,492) (19,373,817)

Depreciation

(18,440,554)

(4,597,850) (3,843,452) (9,999,252)

Accumulated depreciation

2016

(7,230,822)

(1,703,711) (1,881,926) (3,645,185)

Accumulated depreciation

47,339,702

24,011,381 4,777,813 18,550,508

Total

73,884,048

37,995,286 3,790,878 1,006,068 31,091,816

Total

39,315,034

20,375,349 4,777,813 14,161,872

Carrying value

23,659,703

11,904,489 4,746,105 7,009,109

Carrying value


79

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Furniture and fixtures Motor vehicles IT equipment

Reconciliation of property, plant and equipment - Company - 2015

Furniture and fixtures Motor vehicles IT equipment

Reconciliation of property, plant and equipment - Company - 2016

Furniture and fixtures Motor vehicles IT equipment

Reconciliation of property, plant and equipment - Company - 2017

Reconciliation of property, plant and equipment - Group - 2015 Furniture and fixtures Motor vehicles IT equipment

3. Property, plant and equipment

Figures in Kenya Shilling

(1,687,086) (1,881,926) (2,953,608) (6,522,620)

Additions

27,814,606

Depreciation

(11,936,209)

12,607,914 6,628,031 8,578,661

(64,225)

(2,910,764) (1,961,526) (7,063,919)

Depreciation

-

30,023,482

21,291,986

(64,225)

Disposals

(22,301,979)

(5,547,861) (986,935) (15,767,183)

Depreciation

(7,230,822)

(1,703,711) (1,881,926) (3,645,185)

Depreciation

Opening balance

12,365,285 1,993,234 15,664,963

Additions

42,597,469

39,315,034

10,920,828 4,746,105 5,625,053

Opening balance

Additions 16,608,398 25,989,071

-

20,375,349 4,777,813 14,161,872

30,890,525

-

Opening balance

Additions 13,608,200 6,628,031 10,654,294

Opening balance

NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

Total

21,291,986

10,920,828 4,746,105 5,625,053

Total

39,315,034

20,375,349 4,777,813 14,161,872

Total

59,610,524

31,435,886 3,790,878 24,383,760

Total

23,659,703

11,904,489 4,746,105 7,009,109


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

4. Investment property Group 2017 K Sh Group

2015 K Sh

2017 K Sh

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

-

10,762,765,001

8,911,009,530

-

8,911,009,530

2017 Cost / Valuation

Investment property

Company

2016 K Sh

10,762,765,001

2016 K Sh

2016

Group

2015 Cost / Valuation

Investment property

5,438,556,700

Accumulated depreciation -

Carrying value 5,438,556,700

Reconciliation of investment property - Group - 2017

Investment property

Opening balance

Additions

Transfers

Fair value adjustments

8,911,009,530

2,564,054,132

(1,632,625,074)

920,326,413

Opening balance

Additions

Transfers

Fair value adjustments

5,438,556,700

3,436,538,938

(602,874,264)

638,788,156

Opening balance

Additions

Transfers

Fair value adjustments

4,984,437,525

(230,479,452)

684,598,627

5,438,556,700

437,183,218

134,121,242

-

-

Total 10,762,765,001

Reconciliation of investment property - Group - 2016

Investment property

Total 8,911,009,530

Reconciliation of investment property - Group - 2015

Investment property

-

Total

Borrowing costs capitalised Borrowing costs capitalised to qualifying assets

939,042,927

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

80


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

4. Investment property Details of property Group 2017 K Sh

2016 K Sh

Company 2015 K Sh

2017 K Sh

2016 K Sh

L.R. No. 10051 I.R. No. 16453/4 - Amara Ridge - Purchase price - Fair value gain - Transfer to development properties for sale

-

-

175,000,000 55,479,452 (230,479,452)

-

-

-

-

-

-

-

-

325,405,425 57,804,175 219,664,664 (602,874,264)

325,405,425 57,804,175 219,664,664 -

-

-

-

-

602,874,264

-

-

987,400,000 78,632,877 265,247,912 (1,331,280,789)

915,750,000 71,650,000 265,247,912 -

-

-

-

-

1,252,647,912

-

-

-

3,764,115,000 34,359,683 45,525,317 (135,135,000)

3,480,765,000 283,350,000 29,800,267 (135,135,000)

3,123,450,000 357,315,000 (135,135,000)

-

-

3,708,865,000

3,658,780,267

3,345,630,000

-

-

1,323,000,000 231,818,380 945,181,620

1,264,000,000 59,000,000 634,714,244

1,050,000,000 214,000,000 226,052,436

-

-

2,500,000,000

1,957,714,244

1,490,052,436

-

-

215,280,000 17,640,329 67,701,865 (300,622,194)

190,400,000 24,880,000 67,701,865 -

-

-

-

-

282,981,865

-

-

-

L.R. No. 965, 3972, 3973, 5188, 5202, 5203, 5907, 5908, 5917, 6016, 3357, 5230 - Alma - Purchase price - Fair value gain - Capitalised expenditure - Transfer to development properties for sale

L.R. No. 28223/3 - The Ridge - Purchase price - Fair value gain - Capitalised expenditure - Transfer to development properties for sale

L.R. No’s 13208/2, 28055, 28056 - Athi River (Mystic) - Purchase price / Valuation - Fair value gain - Capitalised expenditure - Elimination on consolidation

L.R. No. 5830/7 & 5954/2 - Situ - Purchase price / Valuation - Fair value gain - Capitalised expenditure

L.R. No. Kiambaa/Ruaka/520 - Taraji Heights - Purchase price / Valuation - Fair value gain - Capitalised expenditure - Transfer to inventories

81

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

4. Investment property Group 2016 K Sh

185,377,309 15,329,728 64,292,963

143,000,000 42,377,309 29,027,164

-

-

-

265,000,000

214,404,473

-

-

-

1,500,000,000 109,556,531 268,443,469 (200,000,000)

1,350,000,000 150,000,000 43,758,677 -

-

-

-

1,678,000,000

1,543,758,677

-

-

-

722,092 (722,092)

722,092 -

-

-

-

-

722,092

-

-

-

613,826,080 80,073,920

-

-

-

-

693,900,000

-

-

-

-

1,308,610,800 352,914,965 255,474,235

-

-

-

-

1,917,000,000

-

-

-

-

L.R. No. 209/75/4/3 - Westlands - Purchase price / Valuation - Fair value gain - Capitalised expenditure

L.R. No. 5910 - Riverrun - Purchase price / Valuation - Fair value gain - Capitalised expenditure - Elimination on consolidation

Kajiado/Olooloitikoshi/1992 - Rongai - Capitalised expenditure - Write offs

L.R. No. 1055/29 Applewood - Purchase price / Valuation - Fair value gain

L.R. No. 2/85, 2/86 and 2/87 - Cytonn Towers - Purchase price / Valuation - Fair value gain - Capitalised expenditure

Company

2017 K Sh

2015 K Sh

2017 K Sh

2016 K Sh

Details of valuation The effective date of the revaluations was Friday, January 05, 2018. Revaluations were performed by an independent valuer, Regent Property Valuers . Regent Property Valuers are not connected to the group and have recent experience in the location and category of the investment property being valued. The valuation was based on open market value for existing use. The valuer adopted the following approaches/methods to arrive at the opinion of the market values: a) A sales comparison or market approach for the valuation which provides an indication of value by comparing the properties with identical properties for which price information is available. An analysis of comparable valuations within the same neighbourhood was also performed. b) Contractors method/cost approach which provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or construction. c) Residual method which is expressed in the form of a simple equation where the value of a property is the residual (a sum left over) after deducting the cost of development from the value of development. 5. Intangible assets Group

2017 Cost / Valuation

Computer software

26,293,908

2016

Accumulated amortisation

Carrying value

Cost / Valuation

(5,452,515)

20,841,393

1,210,838

Group

Computer software

Accumulated amortisation (242,168)

Carrying value 968,670

2015 Cost / Valuation

Accumulated amortisation

Carrying value

-

-

-

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

82


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

5. Intangible assets (cont) Group

Company

2017 K Sh 2017

2016 K Sh

2015 K Sh

2017 K Sh 2016

2016 K Sh

Cost / Valuation

Accumulated amortisation

Carrying value

Cost / Valuation

Accumulated amortisation

Carrying value

21,641,071

(4,521,949)

17,119,122

1,210,838

(242,168)

968,670

Opening balance

Additions

Amortisation

Total

968,670

25,131,503

(5,258,780)

20,841,393

Opening balance

Additions

Amortisation

Total

-

1,210,838

(242,168)

968,670

Opening balance

Additions

Amortisation

Total

968,670

20,478,666

(4,328,214)

17,119,122

Opening balance

Additions

Amortisation

Total

-

1,210,838

(242,168)

968,670

Company

Computer software

Reconciliation of intangible assets - Group - 2017 Computer software Reconciliation of intangible assets - Group - 2016 Computer software Reconciliation of intangible assets - Company - 2017 Computer software Reconciliation of intangible assets - Company - 2016

Computer software

6. Investments in subsidiaries The following table lists the entities which are controlled by the group, either directly or indirectly through subsidiaries. Name of company

% holding 2017

% holding 2016

Cytonn Investment Partners Two LLP Cytonn Investment Partners Technologies LLP

100.00% 100.00%

100.00% 100.00%

Carrying amount 2017

Carrying amount 2016

100,000 100,000

100,000 100,000

200,000

200,000

7. Investments in join t ventures and associates The following table lists all of the associates in the group: Group Name of company Elective Africa Limited Mystic Plains LLP Cytonn Investment Partners Twelve LLP Cytonn Asset Managers Limited

Company Name of company Elective Africa Limited Cytonn Asset Managers Limited

83

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

% ownership interest 2017

% ownership interest 2016

Carrying amount 2017

25.00 % 7.00 % 50.00% 25.00 %

25.00 % 7.00 % -% -%

10,196,420 135,135,000 200,000,000 10,000,000

10,196,420 135,135,000 -

10,736,600 135,135,000 -

355,331,420

145,331,420

145,871,600

% ownership Carrying amount interest 2016 2017

Carrying amount 2016

% ownership interest 2017 25.00 % 25.00 %

25.00 % -%

Carrying amount Carrying amount 2016 2015

10,196,420 10,000,000

10,196,420 -

20,196,420

10,196,420


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

7. Investments in joint ventures and associates (cont) Summarised financial information of material associates Group 2017 K Sh

2016 K Sh

Company 2015 K Sh

2017 K Sh

2016 K Sh

2017 Summarised statement of profit or loss and other comprehensive income

Revenue

Elective Africa Limited Mystic Plains LLP Cytonn Investment Partners Twelve LLP Cytonn Asset Managers Limited

Summarised consolidated statement of financial position Elective Africa Limited Mystic Plains LLP Cytonn Investment Partners Twelve LLP Cytonn Asset Managers Limited

Other income and expenses

Tax expense

Total comprehensive (loss) / income

399,123 -

(716,025) (5,458,524) (45,132,392) 267,329

77,071 (80,199)

(239,831) (5,458,524) (45,132,392) 187,130

399,123

(51,039,612)

(3,128)

(50,643,617)

Non-current assets

Current assets

Non-current liabilities

Current liabilities

Total net assets

8,593,362 3,843,925,767 200,000,000

7,171,413 1,955,754 3,004

34,476,505 232,203,356

3,095,589 119,482,955 6,014,745

12,669,186 3,691,922,061 (38,215,097)

-

10,855,929

-

668,799

4,052,519,129

19,986,100

266,679,861

129,262,088

Reconciliation of net assets to equity accounted investments in associates Elective Africa Limited Mystic Plains LLP Cytonn Investment Partners Twelve LLP Cytonn Asset Managers Limited

10,187,130 3,676,563,280 Total net assets 12,669,186 3,691,922,061 (38,215,097) 10,187,130 3,676,563,280

2016 Summarised statement of profit or loss and other comprehensive income

Revenue

Other income and expenses

Tax expense

857,123 -

(1,836,843) (45,132,392)

293,916 -

Total comprehensive income (685,804) (45,132,392)

857,123

(46,969,235)

293,916

(45,818,196)

Non-current assets

Current assets

Non-current liabilities

Current liabilities

Total net assets

8,864,704 3,793,915,267

5,355,819 1,323,241

34,626,696

929,053 99,116,227

13,291,470 3,661,495,585

3,802,779,971

6,679,060

34,626,696

100,045,280

3,674,787,055

Elective Africa Limited Mystic Plains LLP

Summarised consolidated statement of financial position Elective Africa Limited Mystic Plains LLP

Reconciliation of net assets to equity accounted investments in associates Elective Africa Limited Mystic Plains LLP

Total net assets 13,291,470 3,661,495,585 3,674,787,055

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

84


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

7. Investments in joint ventures and associates (cont) Group 2017 K Sh

Company

2016 K Sh

2015 K Sh

2017 K Sh

2016 K Sh

2015 Revenue

Other income and expenses

Tax expense

Total comprehensive income

737,399 -

(2,378,743) 299,827,977

488,803 -

(1,152,541) 299,827,977

737,399

297,449,234

488,803

298,675,436

Non-current assets

Current assets

Current liabilities

Total net assets

9,572,068 3,480,765,000

6,029,752 1,323,241

1,627,533 -

13,974,287 3,482,088,241

3,490,337,068

7,352,993

1,627,533

3,496,062,528

Summarised statement of profit or loss and other comprehensive income Elective Africa Limited Mystic Plains LLP

Summarised consolidated statement of financial position Elective Africa Limited Mystic Plains LLP

Reconciliation of net assets to equity accounted investments in associates Elective Africa Limited Mystic Plains LLP

Total net assets 13,974,287 3,482,088,241 3,496,062,528

8. Other financial assets At fair value through profit or loss - held for trading Listed shares Active Strategy

Available-for-sale Superior Homes (Kenya) Limited

85

237,597,705 -

338,662,326

86,560,000

-

338,662,326

237,597,705

338,662,326

86,560,000

-

338,662,326

255,230,137

-

-

-

-

Held to maturity Cytonn Cash Management Solutions LLP (Note 31)

454,193,867

641,139,056

528,304,889

-

-

Total other financial assets

947,021,709

979,801,382

614,864,889

-

338,662,326

Non-current assets Available-for-sale

255,230,137

-

-

-

-

Current assets At fair value through profit or loss - held for trading Held to maturity

237,597,705 454,193,867

338,662,326 641,139,056

86,560,000 528,304,889

-

338,662,326 -

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

691,791,572

979,801,382

614,864,889

-

338,662,326

947,021,709

979,801,382

614,864,889

-

338,662,326


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

8. Other financial assets (cont) Reconciliation of other financial assets Reconciliation of other financial assets - Group - 2017 Group 2017 K Sh

Company

2016 K Sh

2015 K Sh Disposals

Interest

Total

338,662,326 641,139,056 -

Additional purchases 255,230,137 257,613,428 237,597,705

(338,662,326) (457,922,284) -

13,363,667 -

255,230,137 454,193,867 237,597,705

979,801,382

750,441,270

(796,584,610)

13,363,667

947,021,709

Opening balance 86,560,000 528,304,889

Additional purchases 350,687,400 440,042,958

Disposals

Interest

Total

(52,114,200) (333,891,186)

6,682,395

Fair value adjustment (46,470,874) -

338,662,326 641,139,056

614,864,889

790,730,358

(386,005,386)

6,682,395

(46,470,874)

979,801,382

Opening balance

Fair value adjustment 1,360,000 30,236,572

Total

-

Additional purchases 85,200,000 498,068,317

86,560,000 528,304,889

-

583,268,317

31,596,572

614,864,889

Opening balance Active Strategy Superior Homes (Kenya) Limited Cytonn Cash Management Solutions LLP Listed shares

2017 K Sh

2016 K Sh

Reconciliation of other financial assets - Group - 2016

Active Strategy Cytonn Cash Management Solutions LLP

Reconciliation of other financial assets - Group - 2015

Active Strategy Cytonn Cash Management Solutions LLP

Reconciliation of other financial assets - Company - 2016

Active Strategy

Opening balance

Additional purchases

Disposals

Fair value adjustment

Total

86,560,000

350,687,400

(52,114,200)

(46,470,874)

338,662,326

Active Strategy - Equity investment fund set up to take advantage of the investment opportunities in Kenya's listed market space, based on the Equities recommendations.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

86


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

9. Development properties for sale Group

Work in progress Completed units

Company

2017 K Sh

2016 K Sh

2015 K Sh

2017 K Sh

2016 K Sh

3,413,392,017 1,584,601,585

1,450,384,101 -

348,701,497 -

-

-

4,997,993,602

1,450,384,101

348,701,497

-

-

The above work in progress consists of properties held for sale in the ordinary course of business. 2,447,616,370 3,180,703,626 (630,326,394)

833,353,716 841,148,983 (224,118,598)

230,479,452 138,198,798 (19,976,753)

-

-

4,997,993,602

1,450,384,101

348,701,497

-

-

Transfer from investment property

2,447,616,370

833,353,716

230,479,452

-

-

Transfer to cost of sales

(630,326,394)

(224,118,598)

(19,976,753)

-

-

117,299,073 75,883,725 852,930 20,622,627 48,277,056 131,513,208 -

49,769,792 59,371,303 10,000 9,744,948 93,167,629 9,457,817

11,248,657 3,312,051 10,949,683 61,719,423 3,947,830

3,821,565 842,930 20,622,627 19,232,250 100,307,847

10,000 9,744,948 24,662,671 79,058,080

394,448,619

221,521,489

91,177,644

144,827,219

113,475,699

Land cost/Transfer from investment property Capitalised expenditure Transfer to cost of sales

10. Trade and other receivables Trade receivables Prepayments Deposits VAT Directors current account Other receivables Related party receivables (Note 31)

In the opinion of the directors, the carrying amount of trade and other receivables approximate their fair value. The carrying amounts of trade and other receivables are denominated in Kenya Shillings. 11. Cash and cash equivalents Cash and cash equivalents consist of: Cash on hand Bank balances Short-term deposits

333,858 80,548,250 4,617,439

146,135 63,662,858 26,619

2,939 20,673,781 8,436

43,213 3,927,605 4,617,439

18,881 18,638,838 26,619

85,499,547

63,835,612

20,685,156

8,588,257

18,684,338

15,000,000

15,000,000

15,000,000

15,000,000

15,000,000

10,343,522

10,339,005

8,911,557

9,826,555

9,826,555

106,091,982

106,091,982

15,467,290

106,091,982

106,091,982

116,435,504

116,430,987

24,378,847

115,918,537

115,918,537

175,000,000

175,000,000

175,000,000

-

-

The carrying amounts of cash and cash equivalents are denominated in Kenya Shillings. 12. Share capital Authorised 150,000,000 Ordinary shares of 0.10/= each Issued 98,265,550 Ordinary shares of K Sh 0.1/= each (2016: 84,000,000 Ordinary shares of K Sh 0.1/= each) Share premium

13. Land owner contribution Land owners contribution - Amara

In the opinion of the directors, the carrying amounts due to land owners approximate their fair value. The carrying amounts of due to land owners are denominated in Kenya Shillings.

87

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

14. Borrowings Group Held at amortised cost

TT Africa - Loan (Amara) Development Bank Limited - Loan TT Africa - Loan (Situ)

2017 K Sh

2016 K Sh

1,938,686 2,398,180,666

332,427,614 3,264,232 2,135,385,914

2,400,119,352

2,471,077,760

Company 2015 K Sh 444,909,589 4,342,435 1,488,819,290 1,938,071,314

2017 K Sh

2016 K Sh

1,938,686 -

3,264,232 -

1,938,686

3,264,232

TT Africa - Loan (Amara): The loan from TT Africa has interest which shall be payable on any outstanding Notes at a fixed rate of 18% per annum (Interest Rate) and be payable at the same time as the principle amount of the applicable Notes are repaid and/or converted. Interest shall accrue daily at the Interest Rate and shall be calculated on the basis of a 365-day year and the actual number of days elapsed from the date of issue of the Notes to the date of actual payment. The loan was fully repaid during the year. Development Bank Limited - Loan: A Chattel's mortgage in favour of Development Bank of Kenya Limited over the vehicle to be held over the duration of the credit facility. TT Africa - Loan (Situ): Interest shall be payable on any outstanding Notes at a rate of 21% per annum for the first six months and 14% per annum if expressly extended by the Noteholder for a further 15 months and shall be payable at the same time as the principal amount of the applicable. Interest shall accrue daily at the interest rate and shall be calculated on the basis of a 365-day year and the actual number of days elapsed from the date of issue of the Notes to the date of actual payment. The loan was secured by a floating charge over all monies now or at any time hereafter standing to the credit of the Escrow Accounts and the entitlements to interest and all other rights and benefits accruing to or arising in connection with such monies, for the payment to the Noteholders and the discharge of all monies due to the Noteholders (including for the avoidance of doubt, the Noteholder Profit Share), pursuant to the Partnership Interest and Account Charge; and a charge over the Partners' interests in the Issuer, pursuant to the Partnership and Account Charge.

Non-current liabilities At amortised cost

1,872,177,972

2,137,421,849

1,492,132,565

526,950

2,035,935

Current liabilities At amortised cost

527,941,380

333,655,911

2,400,119,352

2,471,077,760

445,938,749

1,411,736

1,228,297

1,938,071,314

1,938,686

3,264,232

Reconciliation of borrowings Reconciliation of borrowings - Group - 2017

TT Africa - Loan (Amara) Development Bank Limited TT Africa - Loan (Situ)

Opening balance 332,427,614 3,264,232 2,135,385,914

Interest 374,073 541,787,794

Repayments (332,427,614) (1,699,619) (278,993,042)

Total 1,938,686 2,398,180,666

2,471,077,760

542,161,867

(613,120,275)

2,400,119,352

Proceeds 71,719,888 399,997,974

Interest 246,568,650

Repayments (184,201,863) (1,078,203) -

Total 332,427,614 3,264,232 2,135,385,914

471,717,862

246,568,650

(185,280,066)

2,471,077,760

Interest 553,727 128,036,030

Repayments (1,211,292) -

Total 444,909,589 4,342,435 1,488,819,290

128,589,757

(1,211,292)

Interest 374,073

Repayments (1,699,619)

Reconciliation of borrowings - Group - 2016

TT Africa - Loan (Amara) Development Bank Limited TT Africa - Loan (Situ)

Opening balance 444,909,589 4,342,435 1,488,819,290 1,938,071,314

Reconciliation of borrowings - Group - 2015

TT Africa - Loan (Amara) Development Bank Limited TT Africa - Loan (Situ)

Opening balance -

Proceeds 444,909,589 5,000,000 1,360,783,260 1,810,692,849

1,938,071,314

Reconciliation of borrowings - Company - 2017 Development Bank Limited

Opening balance 3,264,232

Total 1,938,686

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

88


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

14. Borrowings (cont) Reconciliation of borrowings - Company - 2016 Opening balance

Repayments

Total

4,342,436

(1,078,204)

3,264,232

Development Bank Limited 15. Unalloted share capital Unalloted share capital

24,783,830

5,448,972

53,792,361

24,783,830

5,448,972

-

41,166,620

88,207,500

-

-

This relates to shares under the share option scheme that will vest after three years.

16. Other liabilities Balance payable on land purchase The above liability is to be repaid on request. In the opinion of the directors, the carrying amounts of other liabilities approximate their fair value. The carrying amounts of other liabilities are denominated in Kenya Shillings. 17. Other financial liabilities

Cytonn Cash Management Solutions LLP - Loan (Note 31) Cytonn Project Notes LLP (Note 31)

5,621,145,591 469,277,628

3,173,277,684 41,166,620

518,262,377 88,207,500

288,980,547 -

573,008,923 -

6,090,423,219

3,214,444,304

606,469,877

288,980,547

573,008,923

In the opinion of the directors, the carrying amount of other financial liabilities approximate their fair value. The carrying amounts of other financial liabiliti es are denominated in Kenya Shillings. Other finanicial liabilities - Non-current portion Other finanicial liabilities - Current portion

Reconciliation of other financial liabilities - Group - 2017 Cytonn Cash Management Solutions LLP - Loan Cytonn Project Notes LLP

89

1,011,818,818 5,078,604,401

50,445,076 3,163,999,228

431,307,502 175,162,375

288,980,547

573,008,923

6,090,423,219

3,214,444,304

606,469,877

288,980,547

573,008,923

Opening balance

Proceeds

Interest

Repayments

Total

3,173,277,684

2,691,283,284

668,656,888

(910,930,607)

5,622,287,249

-

458,953,070

12,146,539

(1,821,981)

469,277,628

3,173,277,684

3,150,236,354

680,803,427

(912,752,588)

6,091,564,877

Reconciliation of other financial liabilities - Group - 2016 Cytonn Cash Management Solutions LLP - Loan

Opening balance

Proceeds

Interest

Repayments

Total

518,262,377

2,531,631,751

208,792,505

(85,408,949)

3,173,277,684

Reconciliation of other financial liabilities - Group - 2015 Cytonn Cash Management Solutions LLP - Loan

Opening balance

Proceeds

Interest

Repayments

Total

42,067,613

467,678,633

8,516,131

-

518,262,377

Reconciliation of other financial liabilities - Company - 2017 Cytonn Cash Management Solutions LLP - Loan

Opening balance

Proceeds

Interest

Repayments

Total

573,008,923

180,009,246

39,376,858

(503,414,480)

288,980,547

Reconciliation of other financial liabilities - Company - 2016 Cytonn Cash Management Solutions LLP - Loan

Opening balance

Proceeds

Interest

Repayments

Total

466,334,950

100,000,000

6,673,973

-

573,008,923

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

18. Trade and other payables Group

Trade payables Related party payables: Others (Note 31) Amounts receipts: Residual equity VAT Due to Elective Africa Other payables Cytonn Cash Management Solutions LLP (Note 31) Advance receipts

Company

2017 K Sh

2016 K Sh

2015 K Sh

2017 K Sh

2016 K Sh

2,158,338,754 37,645,130 12,700,000 3,819,686 516,200 559,204,671 369,006,840 231,969,396

50,167,141 (3,655,863) 168,855,097 92,284,673 303,063,934

117,263,796 5,736,600 33,530,485 (1,152,960) 31,572,429

28,493,314 38,994,828 61,500,000 92,499,893 518,700,332 -

12,607,733 (2,889,656) 50,000,000 44,031,671 94,004,633 2,378,622

3,373,200,677

610,714,982

186,950,350

740,188,367

200,133,003

In the opinion of the directors, the carrying amount of trade and other payables approximate their fair value. The carrying amounts of trade and other payables are denominated in Kenya Shillings. Included in trade payables are properties for Kilimani and Applewood worth K Sh 1.075 billion which have been paid in the subsequent period. 19. Deferred income Deferred income

53,201,054

-

-

53,201,054

-

The above income refers to residual income from Cytonn Integrated Project LLP (The Alma) and asset management fees from Taaleritehdas Private Equity Funds Limited 20. Revenue Sale of development property Rendering of services Rental income

612,589,279 399,520,527 -

317,853,118 225,695,504 400,000

16,530,000 181,730,074 -

193,403,762 -

119,855,220 -

1,012,109,806

543,948,622

198,260,074

193,403,762

119,855,220

630,326,394

338,102,681

19,976,753

-

-

238,932,558 83,005,627 24,893,937 7,798,947 4,304,523 2,337,757 1,035,720 68,551 24,455

722,018 575,000 40,899,424 514,561 72,466 3,608,187

500,000 56,626,230 1,938,693 -

(30,999,983) 83,005,627 24,893,937 2,124,683 24,455

95,280 514,561 39,603 3,608,187

362,402,075

46,391,656

59,064,923

79,048,719

4,257,631

21. Cost of sales Development costs 22. Other income Realized gains/(losses) on quoted investments Residual income Commission income Miscellaneous income Forfeiture income Other income Interest income: Staff loans Gain on exchange differences Bad debts recovered

Other income represents the managing partners hurdle income.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

90


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

23. Operating expense

The following items are included within operating expenses: Group 2017 K Sh

Advertising and marketing Electricity and water Auditors remuneration Bank charges Legal and professional fees Office expenses Impairment loss Site cleaning expenses Commission paid Client entertainment Depreciation Discount allowed Corporate social responsibility and donations Employee costs(Note: 24) Licences Board and AGM expenses Parking expenses Search fees Realised loss on dissolved LLPs Research expenses Residual expenses IFA commissions Managing partners hurdle expense Fines and penalties IT expenses Insurance Lease rentals on operating lease Licences and permits Motor vehicle expenses Postage and subscriptions Printing and stationery Loss on exchange differences Loss on disposal of assets Repairs and maintenance Secretarial fees Security Team building expenses Telephone and internet Travelling and accommodation

2016 K Sh

Company 2015 K Sh

2017 K Sh

2016 K Sh

74,422,302 2,545,726 7,571,200 1,662,857 38,345,720 7,189,165 181,549,892 3,862,586 32,321,731 (470) 5,628,041 480,210,511 6,116,064 19,189,615 1,905,041 678,725 2,159,255 87,083,352 2,337,757 40,286 1,018,534 2,253,767 25,690,292 1,642,670 3,324,857 2,083,431 9,559,750 366,098 3,032,912 100,120 3,257,816 11,934,429 22,036,280 27,864,181

88,150,607 1,300,267 6,076,351 959,723 29,255,443 5,236,620 95,542,426 113,772 4,757,847 3,003,382 14,891,465 556,899 240,367,273 29,934 8,897,697 10,680 1,269,348 1,361,034 12,409,710 40,899,424 11,452,234 479,569 2,352,792 16,077,883 1,170,950 2,715,722 2,446,811 8,367,269 8,868 1,087,069 4,320,863 2,908,787 191,129 3,546,277 12,188,077 23,107,478

22,900,000 24,688,217 559,271 1,312,912 3,944,804 2,378,000 684,184 947,782 23,762,047 30,046,247 1,850,273 3,780,507 - 178,540,896 965,565 1,443,813 3,862,586 7,230,822 26,581,760 (470) 902,203 1,585,910 61,811,083 331,967,863 6,111,626 853,025 15,884,482 225,151 1,866,153 4,000 343,232 514,438 155,475 172,171 16,856,437 80,000 86,800,290 56,626,230 3,041,246 1,590 911,587 4,113,434 1,613,679 5,860,713 14,177,486 190,600 1,439,670 826,076 2,288,796 1,948,467 1,919,452 3,167,849 7,503,476 7,350 57,599 513,403 2,831,648 1,512,045 100,120 197,500 11,934,429 3,632,544 10,787,688 7,685,767 15,400,135

21,262,492 331,065 2,250,000 465,541 14,686,225 2,558,476 95,542,426 2,857,847 3,003,382 12,178,377 160,025,481 6,824,484 7,680 11,322,234 479,569 1,736,601 5,030,465 170,450 1,754,014 1,497,481 5,395,820 1,087,069 939,966 1,348,260 3,546,277 7,789,364 8,704,222

1,068,984,493

648,511,680

233,896,199 788,007,135

372,795,268

Included in impairement loss above is impairment from Chase Bank Limited of K Sh 3,395,055, Imperial Bank Limited of KSh 95,542,426 and KSh 82,612,411 from Nakumatt Holdings Limited. 24. Employee costs The following items are included within employee benefits expense: Employee costs Salaries and wages Staff meals and uniforms Staff recruitment expenses Staff training Work permit fees Medical expenses Pension expense Staff welfare and team building expenses Leave pay provision charge Staff gym expenses Staff club subscriptions Staff ESOP expenses Staff bonuses

91

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

275,155,370 22,632,645 1,015,950 14,241,884 400,050 13,732,639 12,567,869 230,230 1,167,968 378,649 428,806 19,334,859 118,923,592

200,041,703 19,898,592 1,275,509 3,435,515

480,210,511

240,367,273

5,483,833 2,381,940 2,176,863 5,663,318 -

48,619,354 5,660,081 860,949 2,293,210 3,860,000 -

185,006,010 130,022,949 16,892,020 12,453,020 198,450 11,600,952 2,558,905 400,050 8,064,881 4,023,631 7,285,016 2,106,240 1,167,968 278,399 428,806 19,334,859 5,663,318 81,310,452 -

61,811,083

331,967,863 160,025,481


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

25. Investment revenue Group 2017 K Sh Dividend revenue Dividend received

2016 K Sh

Company 2015 K Sh

2017 K Sh

2016 K Sh

665,228

4,000,439

4,000,439

-

27,608,231

65,345,957

26,337,509

117,346

1,768,253

130,823,459

69,346,396

26,337,509

782,574

5,768,692

920,392,913 (34,310,064)

640,250,902 (88,597,992)

684,598,627 2,335,637

-

(88,597,992)

886,082,849

551,652,910

686,934,264

-

(88,597,992)

34,359,683 231,818,380 109,556,531 17,640,329 78,632,877 15,329,728 352,914,965 80,073,920

8,993,593 283,350,000 59,000,000 150,000,000 24,880,000 71,650,000 42,377,309 -

57,804,175 55,479,452 357,315,000 214,000,000 -

-

-

920,326,413

640,250,902

684,598,627

-

-

39,405,432 21,581,216 224,567,656

56,828,471 35,734,624 5,632,876

2,064,559 2,275,063 2,951,306

39,405,432 1,390 -

56,828,471 711,181 5,632,876

285,554,304

98,195,971

7,290,928

39,406,822

63,172,528

8,548,487

20,874,391

13,999,682

8,548,487

20,874,391

406,552,998

126,529,252

709,432,889

(554,178,902)

(394,684,245)

Tax at the applicable tax rate of 30% (2016: 30%)

121,965,899

37,958,776

212,829,867

(166,253,671)

(118,405,274)

Tax effect of adjustments on taxable income Expenses not deductible for tax purposes Income not subject to tax

(113,417,412)

(17,084,385)

(198,830,185)

174,802,158 -

139,279,665 -

8,548,487

20,874,391

13,999,682

8,548,487

20,874,391

Interest revenue Interest income

103,215,228

Dividend income is earned from investments held by Cytonn Active Strategies LLP 26. Fair value gains/(losses) Investment property Investments

The above fair value gains/(losses) in investments were from Cytonn Active Strategies LLP. The above fair value for investment property is broken down as follows: Cytonn Integrated Project LLP - Alma Cytonn Investment Partners Three LLP - Amara Mystic Plains LLP Cytonn Investment Partners One LLP - Situ Cytonn Investment Partners Five LLP - Ruiru Cytonn Investment Partners Ten LLP - Taraji Cytonn Investment Partners Eleven LLP - Ridge Cytonn Investment Partners Nine LLP - Westlands Cytonn Investment Partners Sixteen LLP - Cytonn Towers Cytonn Investment Partners Eighteen LLP

27. Finance costs Bank Interest on related party loan Interest on loan Interest expense

28. Income tax expense Major components of the tax expense Current Taxation Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting profit (loss)

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

92


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

29. Tax (paid) refunded Balance at beginning of the year Current tax for the year recognised in profit or loss Balance at end of the year

(12,444,889) (8,548,487) (18,133,855)

(15,106,229) (20,874,391) 12,444,889

(39,127,231)

(23,535,731)

406,552,998

126,529,252

32,321,731 (3,895) (103,215,228) (27,608,231) 285,554,304 (886,082,849)

1,087,069 (4,000,439) (65,345,957)

- (12,444,889) (13,999,682) (8,548,487) 15,106,229 (13,281,072) 1,106,547

(15,106,229) (20,874,391) 12,444,889

(34,274,448)

(23,535,731)

709,432,890 (554,178,902)

(394,684,245)

30. . Cash (used in)/generated from operations Profit (loss) before taxation Adjustments for: Depreciation Loss on sale of assets Profit on foreign exchange Dividends received Interest received Finance costs Fair value gains/(losses) Changes in working capital: Development properties for sale Trade and other receivables Trade and other payables Deferred income

(3,547,609,501) (172,927,130) 2,763,003,272 53,201,054

(551,652,910)

7,230,822

(26,337,509) 7,290,928

26,581,760 (665,228) 39,406,822 -

1,087,069 (4,000,439) (1,768,253) 88,597,992

(1,100,219,858) (348,701,497) (130,343,845) (91,177,644) 423,764,628 186,950,353 -

(40,120,833)

24,541,846

53,201,054

-

(1,196,813,475) (1,187,094,624) (242,245,921)

63,235,488

(93,741,282)

5,621,145,591 469,277,628 6,090,423,219

288,980,547 288,980,547

573,008,923 573,008,923

31. Related parties Related party balances Other financial liabilities - Owing to related parties Cytonn Cash Management Solutions LLP Cytonn Project Notes

3,173,277,684 518,262,377 41,166,620 88,207,500 3,214,444,304 606,469,877

Amounts included in Trade receivable regarding related parties Cytonn Investment Partners Two LLP Cytonn Investments Management PLC Cytonn Investment Partners Four LLP Cytonn Investment Partners Three LLP Cytonn Integrated Project LLP Cytonn Diaspora Limited LLC Cytonn Investment Partners Sixteen LLP Cytonn Investment Partners Eight LLP Cytonn Investment Partners Eleven LLP Cytonn Investment Partners One LLP Cytonn Investment Partners Five LLP Cytonn Investment Partners Seven LLP Cytonn Investment Partners Ten LLP Cytonn Investment Partners Eighteen LLP Cytonn Investment Partners Nine LLP Cytonn Investment Partners Fifteen LLP Mystic Plains LLP Cytonn Investment Partners Five LLP Cytonn Investment Partners Technologies LLP Cytonn Cash Management Solutions LLP

(161,697,169) (83,926,299) (387,537) 4,963,878 17,606,623 15,268,075 1,644,200 (7,724) 10,159,613 10,346,439 836,235 402,844 7,807,588 100,600 174,130 369,400 103,670,905 5,102,733 65,329,845 2,235,621

(84,148,647) (71,085,643) (387,537) 2,211,317 12,014,675 20,883,415 1,659,100 (1,067,172) 7,147,063 541,880 107,677 2,118,258 1,449,356 98,240,576 19,773,499 -

(5,136,140) (147,720,839) 60,200 2,379,145 59,152,029 12,448,459 76,300 (81,242) 21,901,516 57,206,229 3,662,173 -

(42,327,412) 13,238 303,573 12,568,689 17,742,820 (1,548,582) 20,334,696 11,247,906 10,000 27,644 7,616,564 66,500 138,130 369,400 3,663,124 5,102,733 64,978,824 -

17,316,102 13,238 66,636 8,312,802 20,815,308 384,100 2,334,566 8,220,230 5,000 12,644 1,930,074 55,000 102,702 19,489,678 -

-

9,457,817

3,947,830

100,307,847

79,058,080

(975,954) (3,373,583) 5,127,454 (37,030) 581,164 48,000 29,100 34,100

20,000 (35,000) 571,163 45,000 -

403,696 (35,000) 184,957 3,000 -

20,000 (35,000) 184,956 -

Amounts included in other payable regarding related parties - Others Cytonn Investment Cooperative Cytonn OTC Cytonn Investments Management LLC Cytonn Foundation Cytonn Investment Partners Six LLP Cytonn Investment Partners Thirteen LLP Cytonn Investment Partners Seventeen LLP Cytonn Investment Partners Nineteen LLP

93 ANNUAL REPORT & FINANCIAL STATEMENTS 2017

-


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

31. Related parties (Cont) Cytonn Investment Partners Twenty LLP Cytonn Investment Partners Twenty One LLP Cytonn Investment Partners Twenty Two LLP Cytonn Investment Partners Twenty Three LLP Cytonn Investment Partners Twenty Four LLP Cytonn Properties LLP Hurlinghum Cytonn Employees Real Estate Fund Cytonn Project Notes Cytonn Properties LLP Cytonn Assets Managers Limited Elective Africa Limited Cytonn Active Strategy LLP

Investments in related parties Cytonn Cash Management Solutions LLP Amounts included in other payable regarding Cytonn Cash Management Solutions LLP Cytonn Cash Management Solutions LLP Compensation to directors and other key management Short-term employee benefits Post-employment benefits - Pension - Defined contribution plan Long-term benefits - incentive scheme Share-based payment

34,100 25,000 25,000 25,000 25,000 45,000 290,000 4,000 (28,501,283) 50,000 171,000 2,978,803 (14,250,000)

45,000 290,000 2,498,700 50,000 171,000 -

-

(28,501,283) 50,000 171,000 2,978,803 (14,250,000)

2,498,700 50,000 171,000 -

(37,645,129)

3,655,863

-

(38,994,827)

2,889,656

454,193,867

(369,006,841)

641,139,056

(92,284,673)

528,304,889

1,152,960

-

-

(518,700,332)

(94,004,633)

52,956,186 2,214,000 -

48,197,174 1,080,000 -

-

52,956,186 2,214,000 -

48,197,174 1,080,000 -

55,170,186

49,277,174

-

55,170,186

49,277,174

The ownership structure of companies within the Group are as shown below: Name of Entity (LLC/LLP) CI Partners One LLP CI Partners Two LLP CI Partners Three LLP CI Partners Four LLP CI Partners Five LLP CI Partners Six LLP CI Partners Seven LLP CI Partners Eight LLP Cytonn Access Way LLP Cytonn Advisory LLP Cytonn Cash Management Solutions LLP Cytonn Ruaka Properties LLP Cytonn Integrated Projects LLP Mystic Plains LLP Cytonn Real Estate Equity Solutions LLP Dazzle Media, LLP Cytonn Technologies LLP Cytonn Active Strategies LLP CI Partners Nine LLP CI Partners Ten LLP CI Partners Eleven LLP CI Partners Twelve LLP CI Partners Thirteen LLP CI Partners Fourteen LLP CI Partners Fifteen LLP CI Partners Sixteen LLP Cytonn Project Notes LLP Cytonn Properties LLP Cytonn Investment Cooperative Cytonn Asset Managers Limited Seriton Company Limited Cytonn Employees Real Estate Fund LLP CI Partners Seventeen LLP

Ownership Structure CIM 99% and Edwin Dande 1% CIM 98% and Edwin Dande 1% Elizabeth Nkukuu 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% Cytonn Integrated Partners LLP 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% and investment partners CIM 1% and CRE 99% CIM 50% and CRE 50% CIM 50%, CIP 4 LLP 8% and Mutua's family 42% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and Edwin Dande 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 1% and CRE 99% As per member's register DMN, MB, JM, MB, MO CIM 50% CRE 50% CIM 99% and CRE 1% CIM 99% and CRE 1%

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

94


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

31. Related parties (Cont) CI Partners Eighteen LLP CI Partners Nineteen LLP CI Partners Twenty LLP CI Partners Twenty One LLP CI Partners Twenty Two LLP CI Partners Twenty Three LLP CI Partners Twenty Four LLP Amara Ridge Management Company Seriton Suites LLP Cytonn Investments Management Uganda Limited Cytonn Technical College LLP Zurit LLP East African Forum For Structured Products LLP Cytonn Investments Distribution LLP Cytonn Investment Partners Cytonn Diaspora

CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CRE 50% and CIP 3 LLP 50% CIM 99% and CRE 1% CIM 99% and Edwin Dande holding in trust 1% CIM 99% and CRE 1% CIM 99% and CRE 1% CIM 99% and George Ngingo 1% CIM 99% and Mex Osoro 1% CIM 99% and Edwin Dande holding in trust 1%

CIM represents for Cytonn Investments Management PLC while CRE represents Cytonn Investment Partners Two LLP (Cytonn Real Estate). Included in these consolidated restated annual financial statements are financial statements for Cytonn Investment Partners Cytonn Diaspora which are unaudited. 32. Risk management Capital risk management The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the Group consists cash and cash equivalents disclosed in note 11, and equity as disclosed in the consolidated statement of financial position. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. There are no externally imposed capital requirements Financial risk management The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. Liquidity risk We draw attention to the fact that as at December 31, 2017, the Group had an excess of current liabilities over current assets of K Sh 2,869,864,147 (2016: K Sh 1,461,166,474). The Group's is an investment management firm dominant in the real estate industry. The group's liquidity risk is largely driven by the long term nature of its dominant asset class (Real Estate). The group manages liquidity risk through effective Project management that ensures timely delivery of assets and a superior distribution system that ensures liquidity through sales is generated. The Group maintains sufficient funds in cash and cash equivalents to meet expected near term operational requirements. The total cash held as at the year-end K Sh 85,499,547(2016: K Sh 63,835,612) with other short term investments totaling to K Sh 691,791,572 (2016: K Sh 979,801,382). Asset funding is stable and consistent and as result of these measures the Group's liquidity ratios are within the industry average. The Group has in place prudent liquidity management strategies to meet any financial obligations as they may arise. The Group has enhanced its distribution structure which has seen a satisfactory and consistent increase in the real estate pipeline sales. Important to note is that the investment products uptake has increased over time with a record net production of Kshs. 1.6 billion in the first quarter of 2018. The Group has also enhanced sales collection from real estate sales through establishment of a real estate sales administration function that is held responsible for collecting real estate receivables which in turn will enable the projects meet all the financial obligations when they fall due. This department has improved the real estate collections by over Kshs. 300 million in the first quarter of 2018. Further to this, Riverrun estate, a master planned development on a 100-acre parcel of land located in the leafy Ruiru Slopes broke ground on April 23, 2018 and this will boost the Real Estate Sales as the development progresses. The Group is currently diversifying into hospitality and education sectors as well as expanding its foot print into the West African and East African markets. This diversification will serve to further stabilize cash flows from sales and funding. In addition, the business model has been validated by independent credit ratings from Global Credit Rating(GCR) in 2017 which accorded the Group a national scale issuer rating of BB(KE) and B(KE) in the long and short term respectively indicating a stable credit outlook. More recently, Cytonn Asset Managers has been licensed by Capital Markets Authority to operate as a fund manager, a move which will increase the market outreach and further enhance our liquidity through additional product sales.

95

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

32. Risk management (continued)

Company

Group At December 31, 2017 Borrowings Other financial liabilities Trade and other payables At December 31, 2016 Borrowings Other financial liabilities Other liabilities Trade and other payables At Thursday, December 31, 2015 Borrowings Other financial liabilities Trade and other payables Other liabilities

Less than 1 year 527,941,380 5,078,604,401 3,373,200,677 Less than 1 year 333,655,911 3,173,277,684 41,166,620 610,714,982 Less than 1 year 445,938,749 518,262,377 186,950,350 88,207,500

Between 1 and 2 years 1,872,177,972 1,011,818,818 -

At December 31, 2017

Between 1 and 2 years 2,137,421,849 50,445,076 -

At December 31, 2016 Borrowings Other financial liabilities Trade and other payables

Borrowings Other financial liabilities Trade and other payables

Less than 1 year 1,411,736 288,980,547 740,188,367

Between 1 and 2 years 526,950 Less than 1 year 1,228,297 573,008,923 200,133,003

Between 1 and 2 years 1,492,132,565 -

Interest rate risk As the group has no significant interest-bearing assets, the group’s income and operating cash flows are substantially independent of changes in market interest rates. The group’s interest rate risk arises from long-term borrowings. Credit risk Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The company only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Financial assets exposed to credit risk at year end were as follows:

Financial instrument

Group - 2017

Group - 2016

Group - 2015

Company - 2017

Company - 2016

394,448,619 691,791,572 85,499,547

221,521,489 979,801,382 63,835,612

91,177,644 614,864,889 20,685,156

144,827,219 8,588,257

113,475,699 338,662,326 18,684,338

`

Trade and other receivables Other financial assets Cash and cash equivalents 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 the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group reviews its foreign currency exposure, including commitments on an ongoing basis. The group expects its foreign exchange contracts to hedge foreign exchange exposure.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

96


97

ANNUAL REPORT & FINANCIAL STATEMENTS 2017

Prof. Daniel N. Mugendi (Chairman) Antii-Jussi Ahveninen Madhav Bhalla James M. Maina Nasser Olwero Michael Owen Bristow Patricia N. Wanjama Kenneth Ndura

2016

Prof. Daniel N. Mugendi (Chairman) Antii-Jussi Ahveninen Madhav Bhalla James M. Maina Nasser Olwero Michael Owen Bristow Patricia N. Wanjama Nancy Onyango (Resigned w.e.f. 03.01.2018) Mr. Madhav Bhandari

2017

Executive

57,143 285,714 171,429 57,143 571,429

371,429 542,857 457,143 428,571 485,714 200,000 485,714 2,971,428

200,000

142,857 57,143 -

Technology & Innovation Committee

457,143

200,000 57,143 200,000 -

Investments & Strategy Committee

1,600,001

685,714

800,000

2,485,714

Audit, Risk & Compliance Committee

171,429 428,571 428,572 342,857 114,286 114,286

228,572 171,428 228,571 57,143 -

342,857 285,714 57,143 114,286

342,857 342,857 342,857 342,857 342,857 257,143 342,857 171,429 -

Board Meetings

Investments & Strategy Committee

Technology & Innovation Committee

Audit, Risk & Compliance Committee

Board meetings

The directors remuneration for the year ended December 31, 2017 is as follows:.

33. Directors' emoluments

342,857

142,857 57,143 142,857 -

4,542,857

514,286 857,143 800,000 628,571 800,000 200,000 200,000 542,857

Total

1,457,143

514,284

800,001

HR Committee

342,857 257,143 257,143 257,143 257,143 85,714 -

Corporate Governance Training

85,714 85,714 85,714 85,714 85,714 85,714 -

CIM AGM

228,571 171,429 171,429 228,572 -

HR Committee

NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

1,257,142 1,028,571 1,542,857 1,114,285 1,200,000 600,000 1,228,571 571,429 314,286 8,857,141 514,284

Total 85,714 85,714 85,714 85,714 85,714 85,714

Board Induction Training


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

34. Fair value information Fair value hierarchy The table below analyses assets and liabilities carried at fair value. The different levels are defined as follows: Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the group can access at measurement date. Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. Levels of fair value measurements Group

Note(s)

2017 K Sh

Company

2016 K Sh

2015 K Sh

2017 K Sh

2016 K Sh

Level 1 Recurring fair value measurements Assets 8 Financial assets designated at fair value through profit or loss Active strategy

237,597,705

338,662,326

86,560,000

-

338,662,326

Total

237,597,705

338,662,326

86,560,000

-

338,662,326

Level 2 Recurring fair value measurements Assets 4 Investment property Investment properties

10,962,698,501

Total

10,962,698,501

8,911,009,530 -

5,438,556,700

-

-

-

-

-

A portion of investment property was transferred to development properties for sale upon commencement of construction with a view to sell. Level 3

8

Available for sale financial assets Unlisted shares

255,230,137

-

-

-

-

Total

255,230,137

-

-

-

-

35. Financial statement restatement During the period under review, the management and the board highlighted the application of stricter criteria on classification of Real Estate assets. This was informed by the need to enhance disclosures and compliance with the relevant financial reporting standards. As a result, the financial statements have had to be restated and the changes are disclosed below: Consolidated Statement of Financial Position Net decrease in Investment property Net increase in Development properties for sale Net increase in opening retained earnings

Profit or Loss Net increase in Cost of sales Net increase in Fair value gains/(losses)

22,933,138

(1,141,255,581) 1,162,769,758 12,008,433

(141,670,713) 163,513,665 -

-

-

22,933,138

33,522,610

21,842,952

-

-

-

13,865,329 (15,000,000)

(1,054,109) 22,896,362

-

-

-

(1,134,671)

21,842,253

-

-

36. Events after the reporting period On March 22, 2018, the Capital Markets Authority granted a fund manager license to Cytonn Asset Managers Limited. Cytonn Investment Partners Five LLP (Riverrun Estates),a master planned development on a 100-acre parcel of land on the leafy Ruiru slopes, broke ground on April 23, 2018. ANNUAL REPORT & FINANCIAL STATEMENTS 2017

98


NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS

37. Commitments There were no commitments during the year. 38. Contingencies Various legal claims were brought for and against the Group during the year. Any liability as a result of these will only be confirmed by the decisions made at the courts and tribunal not wholly within the control of the Group. Further information on these contingencies is omitted so as not to seriously prejudice the Group's position in the related disputes. 39. Comparative figures Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

99

ANNUAL REPORT & FINANCIAL STATEMENTS 2017


ANNUAL REPORT & FINANCIAL STATEMENTS 2017 100

Business segment information

Net assets

Total assets Total equity Non-current liabilities Current liabilities -

16,135,511,611 (6,209,411,361) (1,911,649,413) (8,014,450,837)

-

990,203,120 (77,461,686) (857,839,880) (54,901,554)

590,365,137 399,837,983

Investments

Real Estate

Figures in Kenyan Shilling 10,767,804,158 5,367,707,453

188,437,242

816,111,872

(Loss)/Profit for the year

Non-current assets Current assets

322,314,119 49,952,619 (34,310,064) (149,519,432) -

-

Investments

(17,737,115) 13,930,791 (69,433,857) 28,425,269 920,392,913 (59,466,129) -

612,589,279 (630,326,394)

Real Estate

Segmental revenues Other income Operating expenses Investment revenue Fair value gains/(losses) Finance costs Impairment loss Income tax expense

Revenue Cost of sales

Figures in Kenyan Shilling

2017

For management purposes, the Group uses the same measurement policies as those used in its financial statements.

Corporate

-

530,204,463 747,681,985 (289,507,497) (988,378,951)

109,882,704 420,321,759

2017

(606,544,603)

399,520,527 26,157,165 (821,395,798) 52,445,571 (76,568,743) (178,154,838) (8,548,487)

399,520,527 -

Corporate

-

17,655,919,194 (5,539,191,062) (3,058,996,790) (9,057,731,342)

11,468,051,999 6,187,867,195

Total

398,004,511

381,783,412 362,402,075 (890,829,655) 130,823,459 886,082,849 (285,554,304) (178,154,838) (8,548,487)

1,012,109,806 (630,326,394)

Total

-

11,030,605,950 (5,541,875,841) (1,683,810,382) (3,804,919,727)

8,911,649,902 2,118,956,048

Real Estate

516,157,189

(19,879,497) 1,045,404 (144,561,280) 62,587,073 640,250,902 (23,285,413) -

318,253,118 (338,132,615)

Real Estate

-

135,686,122 22,136,238 (104,011,685) (53,810,675)

135,135,000 551,122

Investments

2016

(108,578,301)

(8,242,898) 619 (88,597,992) (11,738,030) -

-

Investments

2016

-

11,820,191,906 (5,331,060,999) (2,362,866,925) (4,126,263,982)

9,104,649,322 2,715,542,584

Total

105,654,861

205,816,007 46,391,656 (552,939,320) 69,346,396 551,652,910 (98,195,971) (95,542,426) (20,874,391)

543,948,622 (338,132,615)

Total

Figures in Kenyan Shilling

-

653,899,834 188,678,604 (575,044,858) (267,533,580)

57,864,420 596,035,414

Corporate

(301,924,027)

225,695,504 45,346,252 (400,135,142) 6,758,704 (63,172,528) (95,542,426) (20,874,391)

225,695,504 -

Corporate

Each of these operating segments is managed separately as each requires different technologies, marketing approaches and other resources. All inter-segment transfers are carried out at arm’s length basis.

The Group has three operating segments: Real Estate, Investments and Corporate. In identifying these operating segments, management generally follows the Group’s service lines representing its main products and services.

40.

NOTES TO THE CONSOLIDATED RESTATED ANNUAL FINANCIAL STATEMENTS


CORPORATE INFORMATION Kenya

Board of Directors

Prof. Daniel N. Mugendi (Chairman) Antii-Jussi Ahveninen Madhav Bhalla James M. Maina Nasser Olwero Michael Owen Bristow Rose Kimotho Edwin H. Dande Elizabeth N. Nkukuu Patricia N. Wanjama Nancy Onyango (Resigned w.e.f. 03.01.2018)

Registered Office

3rd Floor, Liaison House State House Avenue P.O. Box 20695-00200 Nairobi

Principal Bankers

Diamond Trust Bank Kenya Limited Lavington Curve Branch P.O. Box 61711-00200 Nairobi Standard Chartered Bank Limited Chiromo Branch P.O. Box 30003-00100 Nairobi I&M Bank P.O. Box 30238 – 00100 Nairobi GPO, Kenya

Independent Auditor

Grant Thornton Certified Public Accountants (Kenya) 5th Floor, Avocado Towers Muthithi Road, Westlands P.O. Box 46986-00100 Nairobi

Company Secretary

Patricia N. Wanjama Certified Public Secretary (K) P.O. Box 20695-00200 Nairobi, Kenya

Company Registration Number

CPR/2014/160492

Tax Reference Number

P 051506458Z

Attorneys

Oraro & Company Ltd ACK Garden Annex, 6th floor, 1st Ngong Avenue P.O Box 51236-00200 Nairobi, Kenya KN Law LLP The Pavilion, 5th Floor Westlands, Lower Kabete Road P.O Box 27547 -00100 Nairobi, Kenya Know Advocates LLP The Stables, 2nd Floor, Suites 42 & 49, Karen Road , Karen Nairobi, Kenya Taibjee & Bhalla Advocates Hevea Court, 15 Eldama Ravine Rd Off Peponi Road, Westlands P.O. Box 10161-00100 Nairobi, Kenya

101 ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTICE OF THE ANNUAL GENERAL MEETING CYTONN INVESTMENTS MANAGEMENT PLC (Incorporated in Kenya under the Companies Act, No. 17 of 2015, Laws of Kenya) (Registration Number CPU/2017/220478)

To the Shareholders of Cytonn Investments Management Plc: NOTICE is hereby given that the Annual General Meeting of Cytonn Investments Management Plc, hereinafter ‘the Company’, shall be held on Friday 18th May 2018 at 7.30 A.M. at Radisson Blu Hotel- Upperhill, Nairobi, to conduct the following Business: AGENDA 1. Constitution of the Meeting: To read the Notice convening the Meeting, table the proxies and record the presence of a quorum. ORDINARY BUSINESS 2. To ratify the appointment of Prof. Olive Mugenda to the Board of Directors of Cytonn Investments Management Plc. 3. To ratify the remuneration of the Directors for the year ended 31st December 2017. 4. To receive, consider and if approved, adopt the audited financial statements for the year ended 31st December 2017, together with the Chairman’s, Directors’ and Auditors’ reports thereon. 5. To note that the Auditors, Grant Thornton Kenya, being eligible and having expressed their willingness, will continue in office and to authorize the Directors to fix their remuneration. SPECIAL RESOLUTIONS 6. To consider, and if thought fit, to pass the following resolutions as Special Resolutions: i. THAT the proposed listing by introduction of the Company’s shares on the Growth Enterprise Market Segment of the Nairobi Securities Exchange (hereinafter “the Listing”) subject to all regulatory approvals, including approval from the Nairobi Securities Exchange, be and is hereby approved; ii. THAT the Board of Directors and all officers of the Company be and are hereby authorized to take, or cause to be taken all actions necessary or advisable to effect the Listing; including the preparation, execution and filing of all necessary applications, documents, forms and agreements with the Nairobi Securities Exchange, seeking any and all regulatory approvals and the payment of filing, listing or application fees; 7. THAT conditional to receipt of all regulatory approvals from the Nairobi Security Exchange, the Memorandum and Articles are proposed to be amended, and new Articles as shared on www.cytonn.com/investor-relations/shareholders-updates shall be adopted post Listing. To consider any other business for which due notice has been given: • Presentation to Shareholders

By Order of the Board Patricia Njeri Wanjama Company Secretary P.O. Box 20695 – 00200 NAIROBI Friday, 27th April 2018 NOTE: 1. A member entitled to attend and vote at the meeting and who is unable to attend is entitled to appoint a proxy to attend and vote on his or her behalf. A proxy need not be a member of the Company. A Proxy Form may be obtained from the Company Secretary and by writing an email to legal@cytonn.com or by visiting the registered office of the Company, 3rd Floor Liaison House, State House Avenue, P.O. Box 20695–00200, Nairobi. To be valid, a form of Proxy must be duly completed by the member and lodged with the Company Secretary at the registered office of the Company, 3rd Floor Liaison House, State House Avenue, P.O. Box 20695–00200, Nairobi but not later than Wednesday 16th May 2018 at 5.00 P.M, failing which it be invalid. Alternatively, duly signed proxies can be scanned and emailed to legal@cytonn.com. In the case of a corporate body, the proxy must be under its common seal.

ANNUAL REPORT & FINANCIAL STATEMENTS 2017 102


PROXY FORM TO:

The Company Secretary, Cytonn Investments Management PLC 3rd Floor Liaison House State House Avenue P.O. BOX 20695 – 00200 NAIROBI, KENYA

PROXY FORM I/We, ______________________________________________________ of (address) ________________________________________________ Being a Shareholder of Cytonn Investments Management PLC Hereby appoint

___________________________________________

of P.O. Box _________________________________________________ or failing him/her, place the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of Cytonn Investments Management PLC to be held on 18th May 2018 and at any adjournment thereof.

Signed/Sealed this __________day of_______________________ 2018 ___________________________________________________________ ___________________________________________________________

NOTE: 1. In case of a corporation, the proxy must be signed under its common seal witnessed by two Directors or Director and Secretary. 2. The proxy form should be completed and returned not later than 24 hours before the meeting or any adjournment thereof.

103 ANNUAL REPORT & FINANCIAL STATEMENTS 2017


NOTES


NOTES


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Cytonn Annual Report 2017  

Cytonn Annual Report

Cytonn Annual Report 2017  

Cytonn Annual Report