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1Turning the fortune

“Turning the fortune”

Annual Report & Financial Statements 2008-2009

2 Turning the fortune

Company Information

PRINCIPAL PLACE OF BUSINESS Creamery House Dakar Road, off Enterprise Road Industrial Area P.O. Box 30131-00100, Nairobi

REGISTERED OFFICE. L.R. NO. 209/6849 Dakar Road, off Enterprise Road Industrial Area P.O. Box 30131-00100, Nairobi.

BANKERS Co-Operative Bank of Kenya Limited Co-Operative House Branch Haille Selassie Avenue P.O. Box67881- 00200, Nairobi

Kenya Commercial Bank Limited Industrial Area Branch P.O. Box 18031-00500, Nairobi

Standard Chartered Bank Limited Industrial Area Branch. P.O. Box18081-00500, Nairobi.

Stanbic Bank Limited Industrial Area Branch P.O. Box 30550-00100, Nairobi. Equity Bank Limited Kenpipe Branch P.O. Box 75104-00200, Nairobi

SOLICITORS Mereka & Co. Advocates Ukulima Co-Op House 7th Floor P.O. Box 41620-00100, Nairobi J. M. Njenga & Co. Advocates Teleposta Towers (Gpo) 5th Floor P.O. Box 1297-00100, Nairobi

SECRETARY Milcah G. Mugo Creamery House Dakar Road, Off Enterprise Road P.O. Box 30131-00100, Nairobi

AUDITORS Controller & Auditor General Kenya National Audit Office P.O. Box30084-00100, Nairobi

Milcah G. MugoCompany Secretary


Contents

Messages

Company Information 2

Board of Directors 4

Chairman’s Report 6

Managing Director’s Report 7

Senior Management 8

Corporate Governance 9

Director’s Report 10

Statement of Directors’ Responsibilities 13

Financial Statements

Balance Sheet 14

Income Statement 15

Statement of Changes in Equity 16

Cash Flow Statement 17

Notes to the Financial Statements 19


From right to left

1. Matu Wamae Chairman (Front)

2. C. Njeri Kamwithi

3. Lawrence Awori

4. Gabriel Chepkwony

5. Milcah Mugo

6. Abdullahi O. Esmail

Board of Directors

7. Tek Bore

8. David Mogere

9. Riziki Musa Spana

10. Edward M. Irungu

11. Peter Ombati

12. Beatrice Gathirwa


Core ValuesIntegrity

Exceeding customer / (stakeholder) expectations

Respect and diversity

Mission“We care for the

communities around us through provision of high

quality dairy and other processed products”

Vision“To be the Preferred Food and Beverage Company of International Standing”


Chairman’s ReportIn a move to address this obvious need, the company is in the process of installing two instant milk powder machines at our processing facilities in Kiganjo and Eldoret. We expect that with this addition, New KCC will not only adequately satisfy the local market, but also tap into export markets in the Great Lakes Region and Sudan, where demand is high.

MOVING FORWARDThe future for New KCC looks bright and in an effort to address capacity, accessibility and quality milk yields, the company successfully acquired and installed seven (7) satellite coolers in strategic milk producing areas around the country. In addition, the company has in place a successful farmers’ support program that has enabled dairy farmers access financial support and farm inputs.

We have trained farmers and they have responded very well. As we look ahead, our emphasis remains on professionalism and integrity in all aspects of running the business. This is especially important now that the company has been earmarked for privatisation, and we hope that as the original owners, the dairy farmers will get first preference in owning their business.

The ultimate aim of NKCC is to reduce poverty in the rural areas by offering farmers a source of livelihood through regular payments for their milk. With nearly one million farmers offering direct employment to over 500,000 individuals and indirectly to some 750,000 Kenyans, we have in dairy farming, an industry with great potential in contributing to the development of Kenya. To make this possible the country needs to have in place a well developed and competitive agro-industrial base capable of generating income and providing employment opportunities not only in farming, but related activities such as processing, packaging and marketing of products for domestic and export markets.

Finally, on behalf of the Board and management, I wish to thank our farmers, customers and all well wishers for their support. We would also like to thank and recognize the guidance and leadership we received from the government ministries, especially the Ministry of Co-operative Development & Marketing, without whom we would not have achieved so much.

EBS. MATU WAMAE

I am pleased to present the Annual Report and audited financial statements for the year ended 30th June 2009. New KCC operated in an economic environment characterized by rising costs of production, a volatile economic market, challenging weather conditions and a tougher competition regime. It therefore gives me pleasure to announce that against a background of increasing competition and rising costs, New KCC has yet again delivered another year of exceptional performance and increased shareholder value.

During the year ended 30 June 2009, New KCC embarked on a growth strategy that increased the producer and consumer base considerably and once again produced record levels of revenue and profit. This growth necessitated an increased capital expenditure and increased costs of acquiring these customers, but it has produced a solid base for the future.

The funds for these developments were internally generated and from bank borrowings. During the year, we managed through strict cost control, a robust market exposure management and more firm focus on our customers.

During the last quarter of the financial year, we experienced challenges and a slight decline in milk intake due to the prolonged drought spell.

In addition, due to reduction in milk procurements we were unable to service our export markets, but overall, the effect on the business was minimal, largely due to the dedication of our staff and committed producers who ensured we got optimal results. Key highlights of the twelve months ended 30 June 2009 Overall, New KCC outperformed against its financial and operating targets during the year.

The overall Milk intake rose to 108 million litres from 107 million litres–a 1% increase from the year end of June 2008 and despite growing competition, New KCC’s market share rose over the same period. Sales revenues for the period grew by 8 % to Ksh 6 billion from Ksh 5.5 billion. For the fourth year running, New KCC has continued to report reasonable profit before tax, registering a growth of 7% to Ksh 499 million pre tax profits compared to Ksh 465 million in the previous year.The total overall direct and indirect taxes paid to the Treasury for the period rose from Ksh 190 million to Ksh 210 million paid in the previous year. Over the previous year profit after tax grew to Ksh 389 million, an increase of 4%. The directors therefore recommended to the shareholders for approval of a dividend ofKsh 50 million payable to the Treasury as the sole shareholder.

MAJOR INITIATIVES DURING THE YEAR New KCC continues to introduce innovative products to meet its customer needs, with key initiatives targeted at sustaining its customer focus and to position it for future success. The highly successful and innovative Fat Free product, launched at the beginning of the financial year, was the first of its kind to achieve the lowest fat contents (0.25%) anywhere in the region. It has received wide acceptance from our customers .This product has given many of our health conscious consumers a preferred choice.

The business process automation (ERP) began through the implementation of SAP towards the end of the year and is expected to go live in the next financial year. The system is expected to enhance our efficiency in all our operations and business visibility.

In 2009, Kenya imported 2.2 million kilos of instant milk powder at an estimated cost of about $6 million or Ksh 480 million, most of which was used in the production of infant foods and other health related formulas.


Our key initiatives are targeted at sustaining customer focus and positioning ourselves for greater growth and success.

During the year, New KCC undertook an aggressive growth campaign both to increase its raw milk intake as well as its producer base by launching a series of promotional activities and investing heavily in milk intake initiatives.

This was intended to increase the core network capacity and coverage in rural areas. Following the various initiatives by the Government and the dairy processors, the Kenyan dairy industry is expected to continue its growth and produce milk consistently throughout the year.

In order to cope and to facilitate the corresponding growth in the industry, New KCC is implementing its strategies aimed at enhancing its various capacities in terms of storage, processing, packaging and marketing. With the foregoing in mind, and in order to achieve our vision and mission, we shall continue to introduce innovative products and services to exceed our customer expectations, desires and demand.

For instance, during the year under review, we launched the fat free long life milk product, re-branded our various brand packs and set up a reliable and constant milk supplier base through group formation initiative.

HUMAN RESOURCE - EMPLOYEESOur Human Resource is our most valuable resource and they are central to everything we do. Our unique blend of talent, culture and values is the foundation of our success.

At New KCC, we aim at attracting and retaining a diverse employee base with a wide variety of individual characteristics, perspectives and experiences.

Managing Director’s Report We believe that the success of New KCC depends on our ability to create an environment where all our employees feel included and able to perform at their best. We have achieved this through putting in place a coherent organizational structure where employees fully recognize their roles and contributions to the business.

Since New KCC has ambitious growth goals, we have high performance cultures that reinforce our people’s contribution to the success that the Company continues to enjoy.

FUTURE OUTLOOK The growth in milk production in our country coupled with stiff competition as well as changing weather patterns and regulatory landscape will bring new challenges to New KCC and the industry as a whole.

At the same time, New KCC’s capital expenditure is expected to be relatively high over the next few years, as we consistently execute our expansion and modernization strategy to expand the coverage footprint in both rural and urban areas where dairy farming has been accepted as a viable business venture.

We take this opportunity to thank all employees for their dedication and commitment during the year.

We in particular appreciate and recognize their tireless commitment during the year in review and over the past years.

Thank you New KCC family and Mr. Francis Mwangi, the then Managing Director in whose term these results were achieved.

Milcah G. Mugo Ag. Managing Director


Senior Management

Our unique blend of talent, culture and values is the foundation of our success.

Milcah Mugo Ag. Chief Executive Officer

Peter OmbatiAg. Company Secretary

Stacy TooAg. Corporate Affairs Manager

Patrick Mutisya Head of Finance

Mrs Olgha Adede Head of Sales and Marketing

Geoffrey Bartenge Head of Production

Wilson MuthauraHead of Human Resources

8. Peter Kiboi Head of Engineering

Obonyo WaringaHead of Internal Audit

Patrick MugambiHead of Quality Assurance

Samuel Onyango Head of ICT

Philip KagoProcurement Manager

Tom OngagaSecurity Manager


Introduction At New KCC, we are committed to the highest level of Good Corporate Governance and Practice, which we consider critical to our business integrity, and to maintaining our customers, farmers and other stakeholders’ confidence. We foster a culture that values and rewards the highest ethical standards and personal and corporate integrity. The Company expects all its Directors and Employees to act with honesty, integrity, transparency and fairness.

The Company strives to act in accordance with the laws of Kenya and observes and respects the diverse cultures of the Kenyan people.

The Company has implemented a Code of Conduct, which conforms to the highest standards of integrity, honesty and ethics in dealing with all its stakeholders, including the Government, Directors, Employees, Customers, Suppliers, Competitors, and the society at large.

Corporate Governance

The Code also stipulates policies and guidelines regarding the personal conduct of employees. All new employees receive a copy of the Code and a presentation on the Code as part of the induction process.

Board Composition The Company is run through the direction of the Board of Directors, which is responsible for Corporate Governance. The Board of Directors consists of 11 directors, one of whom is the Managing Director/Chief Executive Officer. His Excellency the President of the Republic of Kenya appoints the chairman of the board, while the Parent Minister, the Hon. Minister for Co-operative Development and Marketing appoints the Directors.

Board Meetings Board Meetings are held quarterly with Special Board meetings held whenever circumstances demand so.

Board CommitteesTo assist the Board in carrying out its responsibilities, we have four active and one Ad-Hoc Board committees whose composition is made up of a few Board members and Heads of management functions.

These committees are:a) Human Resource Committeeb) Production & Marketing Committeec) Audit Committeed) Finance & General Purposes Committeee) Ad Hoc/ Non Core Assets

CORPORATE SOCIAL RESPONSIBILITYNKCC is socially responsible and is true to its mission of caring for the communities around us, through regular support of various initiatives including donations and sponsorship of worthy causes and athletics through sponsorship of major athletics events throughout the country.

New KCC has for the last three years sponsored track and field events known as KCC athletics tour, a successful investment, that has seen the company continue to enhance its image and favourable standing with all our publics as a staunch and reliable supporter of nurturing local athletic talent from the grassroots to international levels under the theme: ‘Nurturing Kenya’s Athletic Talent’.


John Musakali

Appointed 1st January 2005. Re-appointed 1st January 2008 Revoked on 17th July 2009

Tek Bore Appointed on 30th June 2008.

Gabriel Chepkwony Appointed on 30th June 2008.

C. Njeri Kamwithi Appointed on 30th June 2008.

By Order of the Board

MILCAH G. MUGOCOMPANY SECRETARY

Directors Report

The directors submit their report and the audited financial statements for the year ended 30 June 2009 which show the state of the company affairs

1. Principal ActivityThe company’s principal activity is to procure high quality raw milk from farmers, process and package and market the milk and milk products.

2. Operations and Incorporation On 24 June 2003, New Kenya Co-operative Creameries (NKCC) Limited was registered under the Co-operative Societies Act to facilitate the takeover of all assets, business, control and management of Kenya Co-operative Creameries (KCC) 2000 Limited.

On the 19 November 2004, NKCC Limited was incorporated under the Companies Act with100% Government of Kenya Shareholding to take over the business from NKCC the Co-operative Society.

3. ResultsThe results for the period are as set out from page 24-41

4. DividendsThe directors recommend the payment of dividend of Kshs 50 Million in respect of the year ended 30 June 2009.

5. DirectorsThe Directors who served during the period 1st July 2008 - 30th June 2009 and to the date of this report were:-

Matu Wamae - Chairman

Appointed as Director on 26thJune 2003 and appointed asChairman on1st January 2005,re-appointed 1st January 2008

Francis M. Mwangi

Managing Director – Appointedon 1st December 2006 to 30th November 2009

Joseph Kinyua

Appointed on 26th June 2003Reappointed on 1st January2005, and January 2008 Charles M. Onchoke

Alternate to Joseph Kinyua

Patrick Khaemba

Appointed 28th August 2005. Re-appointed 1st January 2008 Transferred from the Ministry of

Co-operative Development & Marketing to the Ministry of Livestock Development on 21st May 2008.

Kenneth Lusaka

Appointed on 21st May 2009

Julius Kiptarus (Alternate to Patrick

Khaemba and Kenneth Lusaka)

Seno Nyakenyanya

Appointed on 21st May 2008

E. M. Irungu

(Alternate to Patrick Khaemba and Seno Nyakenyanya)

David Mogere

Appointed on 26th June 2003, Reappointed on 1st January 2005. Re-appointed 1st January 2008

Riziki Musa Spana

Appointed 1st January 2005. Re-appointed 1st January 2008


I have audited the financial statements of New Kenya Co-operative Creameries Limited for the year ended 30 June 2009 set out at pages 5 to 15 which comprise the balance sheet as at 30 June 2009, the income statement, the statement of changes in equity and the cash flow statement for the year then ended together with a summary of significant accounting policies and other explanatory notes in accordance with the provisions of Section 14 of the Public Audit Act, 2003.

I have received all the information and explanation which, to the best of my knowledge and belief, were necessary for the purpose of the audit.

The directors are responsible for the preparation of the financial statements which give a true and fair view of the Company’s state of affairs and its operating results in accordance with the International Financial Reporting Standards.

This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

My responsibility is to express an independent opinion on the financial statements based on the audit.

The audit was conducted in accordance with the International Standards on Auditing, Those standards require compliance with ethical requirements and that the audit be planned and performed with a view to obtaining reasonable assurance that the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements 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 Company’s internal controls.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

I believe the audit provides a reasonable basis for my opinion.

1. Non Current Assets

(i) As previously reported, the Property, Plant and Equipment balance of Kshs.2,595,809,631 as at 30 June 2009 includes an amount of Kshs.740,555,666 representing the value of thirty four (34) parcels of land & buildings, whose title documents were not availed for audit verification.

Out of the thirty four (34) parcels of land & buildings, ownership of four (4) valued at Kshs.46,983,268 is under dispute.

(ii) The Property, Plant and Equipment figure of Kshs.2,595,809,631 excludes the value of twenty two (22) unvalued parcels of land & buildings, out of which nine (9) located in Nairobi, one (1) in Nakuru and another in Olkalau are similarly under dispute over ownership.

These particular plots are registered in the name of third parties.

(iii) Five (5) title deeds for property valued at Kshs.611 ,301 ,486 are charged in a commercial bank as collateral for an outstanding obligation and are therefore in the custody of the bank.

(iv) The Property, Plant and Equipment figure of Kshs.2,595,809,631 includes assorted assets with a value of Kshs.29,790,654 which, according to available information, are based on classification by location but are not however analyzed further to indicate their existence, nature or values.

Also included in the figure are forty one (41) motor vehicles valued at Kshs.45, 123,697 whose log books are held by a law firm as security over a dispute

on legal fees. In the circumstances, and in the absence of title deeds, log books and other related records, it has not been possible to ascertain ownership of the respective parcels of land, buildings and motor vehicles or to confirm the carrying values of the non-current assets as at 30 June 2009.

Report of The Controller and Auditor General on the Financial Statement of New Kenya Co-Opreative Creameries Limited for the year ended 30 June 2009

Republic of KenyaKenya National Audit office


2. Trade Receivables and Repayments

(i) As reported in the previous year and included in the Trade Receivables and Prepayments balance of Kshs.815,221 ,298 as at 30 June 2009 are export debts totalling Kshs.5,285,574, out of which an amount of Kshs.4,948,922 was owed by a firm, in respect of goods and services supplied by the Company as at 30 June 2009.

Although the firm was expected to provide the Company with a bank guarantee against goods supplied, no such guarantee was made available for audit verification.

Instead, the firm disputed the debt, whereupon the matter was referred to an arbitration process on 16 March 2007.

However, and as far as I have been able to establish, the outcome of the process is still unknown.

Although the management has indicated that investigations on the causes of the variances have been ongoing, the investigations are yet to be concluded, three years down the line, while such variances continue to accumulate.

In the circumstances, it has not been possible to confirm the accuracy of the inventories balance of Kshs.501,744,641 as at 30 June 2009.

Opinion Except for the reservations set out

to in the preceding paragraphs, proper books of account have been kept and the accompanying financial statements give a true and fair view of the state of financial affairs of the Company as at 30 June 2009 and its profit and cash flow for the year then ended in accordance with International Financial Reporting Standards and the Kenya Companies Act, Cap 486 of the Laws of Kenya.

A.S.M Gatumbu CONTROLLER AND AUDITOR GENERAL

NAIROBI

27 November 2009

(ii) Included in the Trade Receivables and Prepayments figure of Kshs.815,221,298 are staff debts amounting to Kshs.22,267,601, out of which Kshs.11,519,460 is owed by employees who have since left the Company Although a provision for bad and doubtful debts of 100% has been made in the financial statements, and measures taken for recovery of the debts, the outcome of a legal action instituted against the former staff is still unknown.

(iii) The Trade Receivables and Prepayments amount of Kshs.815, 221,298 includes an over-payment of Kshs.1, 226,033 erroneously paid to a Car hire firm over two years ago through a standing order transfer.

Although demand notes have been sent to the firm for a refund, the amount has not yet been recovered and no reason has been provided.

In the circumstances, it has not been possible to confirm the accuracy and recoverability of the Trade Receivables and Prepayments balance of Kshs.815,221,298 as at 30 June 2009.

3. Inventories

The inventories balance of Kshs.501,744,641 is net of Kshs.161,114,771 representing materials/stock variances, out of which an amount of Kshs.20,355,450 is made up of variances between inventories records and physical balances for three financial years.

Report of The Controller and Auditor General on the Financial Statement of New Kenya Co-Opreative Creameries Limited for the year ended 30 June 2009


Statement of Directors’ Responsibilities on the Financial Statements for the year ended 30th June 2009

The Companies Act Chapter 486 of the Laws of Kenya requires the Directors to prepare financial statements for each period, which give true and fair view of the state of affairs of the Company as at the end of the financial period and of its operating results for that period.

It also requires the Directors to ensure the Company keeps proper accounting records which disclose, with reasonable accuracy, the financial position of the Company.

They are also responsible for safeguarding the assets of the Company.

FRANCIS MWANGI

E. MATU WAMAE

The Directors accept responsibility of the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgment and estimates, in conformity with International Financial Reporting Standards and the requirements of the Companies Act.

The Directors are of the opinion that the financial statements give a true and fair state of the financial affairs of the Company and of its operating results.

The Directors further accepts responsibility for maintenance of accounting records which may be relied upon in the financial statements, as well as adequate systems of internal financial controls.

Nothing has come to the attention of the Directors to indicate that the Company will not remain a going concern for at least the next twelve months from the date of this statement.


Financial Statements Balance Sheet as at 30th June 2009

Note 2009 Kshs 2008 Kshs

ASSETSNON CURRENTASSETSProperty, plant and equipment 2 2,595,809,631 2,625,467,221Prepaid Leases on land 3 309,194,796 316,946,530

2,905,004,427 2,942,413,752CURRENT ASSETSInventories 4 501,744,641 689,765,320Trade receivables and prepayments 5 & 6 815,221,298 626,939,746Cash and cash equivalents 7 587,395,455 587,613,754

1,904,361,394 1,904,318,821

TOTAL ASSETS 4,809,365,821 4,846,732,573

SHAREHOLDERS’ FUNDS AND LIABILITIES

CAPITAL AND RESERVESShare capital 8 547,028,870 547,028,870Revenue Reserves 9 (i) 1,144,827,811 840,937,568Revaluation Reserves 9 (ii) 1,381,600,198 1,504,741,161

3,073,456,879 2,892,707,600NON-CURRENT LIABILITIESTerm loan 10 321,324,544 517,286,433Deferred tax 11 514,825,158 571,795,915

836,149,702 1,089,082,348

CURRENT LIABILITIESCurrent portion of term loan 10 198,388,754 179,763,262Creditors and accruals 12 (i & ii) 595,384,798 580,528,004Related party balances 13 2,995,884 2,995,884Gratuity Senior Staff 14 19,669,912 15,141,750Tax payable 16 33,319,891 56,513,725Dividends 15 50,000,000 30,000,000

899,759,239 864,942,625TOTAL SHAREHOLDERS’FUNDS AND LIABILITIES 4,809,365,821 4,846,732,573

F.M .MWANGI MATU WAMAEManaging Director Chairman NEW KENYA CO-OPERATIVE CREAMERIES LTD NEW KENYA CO-OPERATIVE CREAMERIES LTD


Income Statement for the year ended 30th June 2009

Notes 2009 Kshs 2008 Kshs

Sales 17 6,030,117,860 5,565,974,910

Cost of sales 18 (4,453,051,688) (4,002,259,979)

Gross profit 1,577,066,172 1,563,714,931

Other income 19 25,904,878 19,466,822

Selling Expenses 20 546,297,274 507,970,877

Administrative Expenses 21 498,514,933 522,738,486

Profit from continuing operating activities 558,158,843 552,472,390

Financing costs 22 59,347,546 52,153,630

Profit/Loss before Taxation 498,811,297 500,318,759

Taxation 23 (109,716,546) (125,713,140

Profit/Loss for the period 389,094,751 374,605,619

Profit/Loss per share 7.11 37,460,562


Share capital Contributions pending allotment Revaluation reserve Revenue reserve Total

Ksh Ksh Ksh Ksh Ksh

Year ended 30th June 2008

At 1 January 2007 20 547,028,850 1,627,882,124 496,331,949 2,671,242,943

Allotment 547,028,850 (547,028,850) - -

Revaluation reserve - - (123,140,963) - (123,140,963)

Net surplus/ (deficit) for the year - - 374,605,619 374,605,619

Proposed dividend (30,000,000) (30,000,000)/

At 30th June 2008 547,028,870 0 1,504,741,161 840,937,568 2,892,707,599

Year ended 30th June 2009

At 1 July 2008 547,028,870 1,504,741,161 840,937,568 2,892,707,599

Prior year profit adjustment - - - (35,204,508) (35,204,508)

Revaluation reserve - - (123,140,963) - (123,140,963)

Net surplus/ (deficit) for the year - - - 389,094,751 389,094,751

Proposed Dividends - - - (50,000,000) (50,000,000)

At 30th June 2009 547,028,870 - 1,381,600,198 1,144,827,811 3,073,456,879

Statement of Changes in Equity for the year ended 30th June 2009



2009 Kshs 2008 Kshs

Note CASH FLOW FROM OPERATING ACTIVITIESProfit before taxation 498,811,298 500,318,759

Adjustments for:-Prior year adjustment-reserves (35,204,508) - Depreciation 169,266,673 131,775,530 Amortization of leasehold land 7,751,735 7,751,735

Operating profit before working capital changes 640,625,197 639,846,024Stocks 188,020,679 261,469,232Debtors and prepayments (123,303,466) (160,561,300)Creditors and accruals (45,593,130) (50,226,732) Related party balances - (5,584,464)

Cash generated from operations 659,749,281 684,942,759

Income taxes paid (189,881,137) (219,174,845)

CASH FLOWS TO/FROM INVESTING ACTIVITIESPurchases of property, plant and equipment (262,902,546) (172,744,720) Revaluation reserve amortisation (207) Property and equipment (Loss) 152,500 5,042,471 Proceeds from disposal of property and equipment -Net cash flows to investing activities (262,750,046) (167,702,456)

CASH FLOWS FROM FINANCING ACTIVITIESTerm loan (177,336,397) 206,255,144 Dividends paid (30,000,000)

Net cash flows from financing activities (207,336,397) 206,255,144

NET INCREASE IN CASH AND CASH EQUIVALENT (218,299) 504,320,601

CASH AND CASH EQUIVALENTS AT 30.06.2008 587,613,753 83,293,152

CASH AND CASH EQUIVALENTS 587,395,329 587,613,753AT END OF THE PERIOD

Cash Flow Statement for the year ended 30th June 2009



Life’s goodness everyday!


1. SIGNIFICANT ACCOUNTING POLICIES

a). Basis of AccountingThe financial statements of New Kenya Co-operative Creameries Limited have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprises standards and interpretations by IASB, and International Accounting Standards and Standing Interpretations Committee interpretations approved by IASC that remain in effect.

The financial statements are prepared on the historical cost basis of accounting.

b). Revenue RecognitionSales are recognized upon the delivery of the products and customer acceptance, net of value added taxes. Rent and other incomes are recognized on receipt basis.

c) . Property, Plant and Equipment and DepreciationProperty, plant and equipment are stated at revalued amounts. The revaluation was conducted by Tysons limited as at 30.06.06.

The revaluation reserve is being amortised annually at a rate of Kshs.123, 140,963 until the earlier of exhausting the amount of the revaluation reserve or another revaluation of assets is undertaken.

Depreciation is calculated on the straight line basis, at annual rates Estimated to write off the carrying values of the assets over their expected useful lives.

The rates have been applied to values before revaluation.

The annual depreciation rates in use are:-Buildings - 5%Motor Vehicles - 25%Industrial plant and machinery -12.5%Office equipment -12.5%Office Furniture & fittings - 12.5%Computers and accessories - 33.3%Loose tools -12.5%Cans & crates - 33.3%Freehold land is not depreciated.

Notes to the Financial Statements for the year ended 30th June 2009

d). Leases of LandLease of land are classified as operating leases. The costs incurred to acquire the land is included in the financial statements as long term prepayments, which is amortized in the profit and loss account on straight line basis over the lease period.

e). StocksStocks are valued at the lower of cost and net realizable value. Cost comprises expenditure incurred in the normal cause of business, including direct material costs, labor and production overheads whenever appropriate on a weighted average basis.

Net realizable value is the price at which the stock can be realized in the normal course of business after allowing for the cost of realization and, where appropriate, the cost of conversion from its existing state to a realizable condition. Provision is made for obsolete, slow moving and defective stocks.

f). Foreign CurrencyTransactions during the period are converted into Kenya shillings at rates ruling at the transaction dates.

Assets and liabilities at the balance sheet date which are expressed in foreign currency are translated into Kenya shilling at the rate ruling at the date. The resulting differences from conversions and translations are recognized as foreign exchange gains/losses in the profit and loss account.

g). Retirement Benefit CostsThe company operates a provident scheme for its employees. The assets of the scheme are held in a separate trustee administered fund.

The company also contributes to a statutory defined contribution pension scheme, The National Social Security Fund (NSSF).

Contributions are determined by local statute and are currently limited to Kshs 200 per employee per month. The company’s contributions to the above schemes are charged to a profit and loss account in the period to which they relate.

h). Employee EntitlementEmployee entitlement to gratuity and long service awards are recognized when they accrue to employees.

A provision is made for the liability for such entitlements as a result of services rendered by employees up to the balance sheet date.

The monetary liability for employees’ accrued annual leave entitlements at the balance sheet date is recognized as an expense accrual.

i). Bad and Doubtful DebtsSpecific provision is made for all known doubtful debts. Bad debts are written off when all reasonable steps to recover them have been taken without success.

j). TaxationCurrent taxation is provided for on the basis of the results for the period as shown in the financial statements, adjusted in accordance with the tax legislation.

Deferred taxation is provided using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and the unused tax credits can be used

k). Cash and Cash EquivalentsCash and Cash equivalents include cash in hand, Cash at bank and deposits held at call with bank with original maturity of three months or less.


Notes to the Financial Statements for the year ended 30th June 2009 cont.

Buildings Machinery& plant

Equip-ment

Loosetools

Furniture&fittings

Cans&crates

Autos&trucks

Computer & Access ories

FreeHoldland

Capitalw.i.p Total

Ksh Ksh Ksh Ksh Ksh Ksh Ksh Ksh Ksh Ksh Ksh

Cost1st July2008 1,939,500,815 778,325,284 7,449,605 348,085 9,358,658 46,903,859 263,514,944 11,036,497 44,300,000 36,318,920 3,137056,667

Additions 1.421,187 68,603,652 3,327,745 - 1,091,896 27,535,825 47,676,871 47,304,620 - 65,940,749 262,902,546

Disposals - (160,000) - - (20,000) - (2,925,616) - - - (3,105,616)

30thJune 2009 1,940,922,002 846,768,937 10,777,350 348,085 10,430,554 74,439,684 308,266,199 58,341,117 44,300,000 102,259,669 3,396,853,597

Depreciation1st July2008 200,021,210 156,548,805 3,508,038 195,325 2,350,524 30,918,663 114,164,956 3,881,925 -

- 511,589,446

Charge 97,027,083 103,675,530 1,158,898 43,510 1,251,114 12,452,418 64,508,732 12,290,350 - - 292,407,636

Disposals - (20,000) - - (7,500)

- (2,925,616) - -

- (2,953,116)

30thJune 2009 297,048,293 260,204,335 4,666,936 238,835 3,594,139 43,371,081 175,748,071 16,172,275 801,043,965

NBV30thJune 2008

30th june 2009

1,739,479,605

1,643,873,709

621,776,480

586,564,602

3,941,567

6,110,414

152,760

109,250

7,008,133

6,836,415

15,985,196

31,068,603

149,349,988

132,518,128

7,154,571

42,168,842

44,300,000

44,300,000

36,318,920

102,259,669

2,625,467,221

2,595,809,631

2. PLANT, PROPERTY & EQUIPMENT


2009 2008 Ksh Ksh

3. Prepaid Leases on Land

Cost 1st July 2007 332,450,000 332,450,000 Additions - - Disposals 30th June 2009 332,450,000 332,450,000 Depreciation 1st July 2008 15,503,470 7,751,735 Charge 7,751,735 7,751,735 Disposals - - 30th June 2009 23,255,204 15,503,470 Net book values/Revaluation 30th June 2009 309,194,796 316,946,530 1st July 2008 316,946,530 324,698,265

4. Inventories

Gen.Engineering Stores Stock 267,505,618 259,221,396 Tetra pak engineering stores 47,585,774 48,413,784 Raw Chilled Milk (Bulk) 24,611,380 17,740,676 Processed&Packed Liquid Milk 113,141,346 136,383,626 Processed&Packed Dairy Products 118,944,494 272,033,869 Packaging Materials 89,698,813 130,101,431 Furnace oil 15,085,334 18,806,736 Detergents and other Materials 9,251,690 7,707,152 Provision for Bad/Damaged Stock (19,947,256) (4,755,010) Materials price/Stock valuation variance (161,114,771) (135,952,883) Price Var-Eng & Tetra pak stores spares 90,060,199 30,835,345 Provision for obsolete packaging materials (11,386,674) 0 Provision for obsolete Eng stores spares (81,691,307) (90,770,801) 501,744,641 689,765,320 5. Trade Receivables

Trade 329,140,418 243,702,780 Cash sale control 32,667,024 76,104,547 Staff 22,267,601 13,166,460 Agents/salesmen 128,379,503 72,064,686 Bounced cheques 11,297,797 7,547,224 Export 5,285,574 6,871,106 Less :provision Bad Debts (148,895,080) (143,920,428) Less:Unallocated payments received (62,210,731) (64,978,086) 317,932,105 210,558,288

New kenya Co-operative Creameries Limited notes to the Financial Statements for the year ended 30th June 2009 cont.

Included in property ,plant and equipment are 15(fifteen) properties that were acquired from Kenya Co-operative Creameries(2000)Limited whose ownership is in dispute and are in possession of third parties.The company has initiated legal process on the disputed properties.

The directors are of the opinion that the company holds good title to the assets and therefor,no provision has been made in the financial statements to cater for any loss that might arise.

In addition,the title documents on some properties are not in the name of the company.The directors are of the opinion that the tranfer of these properties to the company will be finalized soon and no loss is expected to arise.


2009 2008 Ksh Ksh

6. Prepayments

Staff medical scheme - 3,531,490 Insurance Claim 8,869,088 12,187,066 Deposits paid 11,000,562 11,260,562 Deposit paid control 52,300 52,300 VAT Withholding Certificate 35,686,569 35,044,040 Vat / Tax Control Account 377,623,828 324,177,075 Prepaid creditors 64,056,845 30,128,926 497,289,193 416,381,458 5&6) Trade Receivables and Prepayments 815,221,298 626,939,746

(See also note 12(i) & (ii) below) 7. Cash and Cash Equivalent Co-operative Bank Ltd 524,539,882 524,742,641 Equity Bank Ltd 3,547,745 1,063,586 Kenya Commercial Bank Ltd 2,176,295 6,647,562 Standard Chartered Bank(K) Ltd 13,906,716 7,699,253 Standard Chartered Bank(K) Ltd –Dollar Account 468,923 12,514,253 CfcStanbic Bank Ltd 24,745,778 18,681,883 Petty cash control – service 219,622 12,745 Fixed deposits 16,965,977 15,660,755 Petty cash control - production 875,366 321,746 Petty cash control depots (50,849) 269,303 587,395,455 587,613,7548. Share Capital 54,702,887 Shares of Kshs. 10 each 547,028,870 547,028,870 547,028,870 547,028,870

This is the amount paid by the government to Ms KCC 2000 Ltd, now allotted for 10 shares of Ksh. 54,702,887 each

9.(i) Revenue Reserves

Balance as at 1.7.08 840,937,568 496,331,949 Prior year adjustment at close of current yr (35,204,508) - Current years profit/ (loss) 389,094,750 374,605,619 Less:Dividends payable (50,000,000) (30,000,000) 1,144,827,811 840,937,568

Prior year adjustment relates to revaluation of opening stocks (finished products), an adjustment for overstatement in prior year(2007/08) sales and adjustment to provision for obsolete spare parts stocks,in the current year. 9.(ii) Revaluation Reserves Balance as at 1.7.2008 1,504,741,161 1,627,882,124 Revaluation amortisation during the year-Refer note 1c (123,140,963) (123,140,963) 1,381,600,198 1,504,741,161



2009 2008 Ksh Ksh


10. Term Loan

Tetra pak loans 6,796,405 13,999,742 Co-op bank loan 4,166,666 29,166,666 Loan- Co-op Loan 3- 0168305790803 56,333,322 82,333,326 Long term Loan – co-op Bank 207,583,333 260,583,333 Loan - Stanbic Asset finance facility 178,833,573 211,966,628 Loan - GOK (Eldoret & Sosiani Rehab) 66,000,000 99,000,000 519,713,298 697,049,695 Less: Current Portion (198,388,754) (179,763,262) Long Term Portion 321,324,544 517,286,433 11. Deferred Tax

Balance as at 1.7.08 571,795,915 607,110.463 Deferred tax movement current year (53,591,016) (35,314,548) Prior yr adjustment at close of current year (3,379,741) - 514,825,158 571,795,915 12.(i) Creditors

Trade creditors 248,719,817 270,292,958 Milk creditors 207,638,615 174,748,574 456,358,432 445,041,531 12.(ii).Accruals

Payroll Control A/C 1,331,219 1,096,432 Withholding Vat Account 51,702,590 44,702,318 Statutory and Payroll Deductions 926,432 7,561,593 Accruals expenses 24,729,185 24,411,098 Deposits received 28,173,872 24,183,274 Deposits for Empty Milk Crates 179,000 154,000 Provision for Future Expenses 31,741,205 33,377,758 Withholding Tax 242,863 - 139,026,367 135,486,473

Creditors & Accruals 595,384,799 580,528,004

Unallocated payments received from debtors previously (prior year) classified as debtors owed (Kshs 64,978,086). Now reported as unallocated payments received and adjusted against debtors balances.

13. Related Party (Govt of Kenya) 2,995,884 2,995,884

14. Gratuity for Senior Management Staff 19,669,912 15,141,750

15. Dividends Payable 50,000,000 30,000,000


16. Tax Payable

Tax payable as at 1-7-2008 56,513,725 114,660,882 Current Tax 166,687,303 161,027,688 Deffered Tax - - Under/ (over)provision of deferred tax prior year - Total Tax 223,201,028 275,688,570 Less prior year tax& current year installments paid (189,881,137) (219,174,845) Tax payable 33,319,891 56,513,725

Taxes paid during the year. Final tax 2007/2008 12,867,358 71,014,515 1st instalment of 2008/2009 corp tax 44,282,614 36,998,832 2nd instalment of 2008/2009 corp tax 44,224,274 37,040,082 3rd instalment 44,253,446 37,081,333 4th instalment 44,253,445 37,040,083 Total 189,881,137 219,174,845

17. Sales Fresh milk/TCA/TFA 4,185,401,022 3,520,626,658 Ultra Heat Treated (UHT) milk 712,089,353 805,044,788 Powder milk 484,347,464 701,745,360 Mala milk 258,396,066 187,243,315 Other dairy products 416,250,779 365,576,559 Less Transport rebates/discount allowed for cash (26,366,825) (14,261,770) 6,030,117,860 5,565,974,910 18. Cost of Sales Opening stocks 532,761,074 796,561,339 Purchases 3,460,953,061 3,157,188,084 Production overheads 796,009,113 605,824,031 Prov.products write offs (phy inv 34,059,555 25,460,014 Closing stock (370,732,115) (582,773,490) 4,453,051,688 4,002,259,979 Prior year closing stocks was overstated by Ksh 50,012,415.00 now adjusted to reflect the correct valuation of stocks.

19. Other Income Rent 11,152,246 10,923,106 Insurance compensation - - Sale of Assets 3,011,501 - Sale of tender documents 6,033,604 4,881,638 Interest received 229,796 130,639

Other miscellaneous income 5,477,732 3,558,439 25,904,878 19,466,82220. Selling Expenses Advertising and Promotion 116,881,216 53,314,517 Distribution and Transport 280,618,174 272,677,098 Provision for Bad Debts 4,974,652 14,300,688 Travelling 27,840,851 29,780,749

2009 2008 Ksh Ksh



Motor Vehicle Running 81,922,826 70,980,603 Bad /damaged/wastages w/offs 34,059,555 49,734,762 Provision Depot write offs(phy in` - 17,182,460 546,297,274 507,970,877

21. Administrative Expenses STAFF COSTS Salaries 226,253,169 224,910,626 Medical 21,841,771 20,554,365 Gratuity 14,613,058 9,945,248 Leave pay 2,178,989 11,793,881 Staff training 9,131,585 4,850,732 Other staff costs 11,628,229 11,717,185 285,646,802 283,772,037

DIRECTORS EXPENSES Sitting Allowances 6,020,001 6,820,000 Mileage 1,440,569 674,800 Accommodation 2,011,000 1,327,000 Air Tickets 718,958 613,694 Taxi 132,900 136,630 Honorarium 960,000 960,000 Telephone 84,000 84,000 Lunch 14000 6000 Overseas Allowances 62,242 - Other costs - 2,434,670 11,443,669 13,056,794 ADMINISTRATIVE COSTS Auditor’s Remuneration 1,200,000 900,000 Legal and Professional Fees 9,035,419 21,397,057 Repairs and Maintenance 2,720,878 1,178,699 Insurance 26,237,644 15,689,164 Stationery and Printing 14,013,934 11,562,519 Laboratory Chemicals 1,170,347 434,252 Communication 14,992,653 12,197,072 Security 18,230,320 12,094,016 Electricity 2,894,929 2,311,788 Water and Sewerage 710,994 654,198 Depreciation and Leasehold amortization 91,482,094 76,449,787 Other Office Expenses 18,735,251 71,041,104 201,424,462 225,909,655 . TOTAL 498,514,933 522,738,486 22. Finance Costs Bank Charges and Commission 19,987,748 16,614,573 Exchange gain/loss (3,005,253) 2,857,093 Interest on Overdraft - 2,158,827 Interest on Loan 42,365,051 30,523,138 59,347,546 52,153,630

2009 2008 Ksh Ksh



23. Tax Expenses Current tax 166,687,303 161,027,688 Deferred Tax (53,591,016) (35,314,548) Under/ (over)provision of deferred tax prior years (3,379,741) 1,653,531 Tax on business income 109,716,546 125,713,140 Tax on rent income - - Total tax expense 109,716,546 125,713,140

2009 2008 Ksh Ksh



New Kenya Co-operative Creameries ltd.

P.O. Box 30131-00100, Nairobi, Kenya

Tel: 398000

Cell: 072203668, 0736203668

Email: [email protected]

Website: www.newkcc.co.ke

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