THE KENYA POWER & LIGHTING COMPANY LIMITED STAFF ...

THE KENYA POWER & LIGHTING COMPANY LIMITED STAFF RETIREMENT BENEFITS SCHEME

2013 ANNUAL REPORT

CONTENTS PAGETrustees and Professional Advisors 4

About the Fund 6

Fund Highlights 8

Five Year Summary 8

Chairman’s Report 11

Trust Secretary’s Report 17

Board of Trustees 25

Management 27

Corporate Governance Statement

Governance and Management 28

Risk Management 31

Corporate Social Responsibility (CSR) 32

Environment 34

Statutory Information

Report of the Board of Trustees 36

Statement of Trustees’ Responsibilities 36

Report of The Independent Auditors to the Members of the

Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme - Defined Benefit 38

Financial Statements

Statement of Changes in Net Assets Available for Benefits 39

Statement of Net Assets Available for Benefits 40

Statement of Changes in Members’ Funds 41

Statement of Cash Flows 42

Notes to the Financial Statements 43-83


2013 ANNUAL REPORT4

Trustees and Professional Advisors

TRUST SECRETARY

Henry Kyanda

REGISTERED OFFICE

Retirement Benefits Scheme TrusteesStima PlazaKolobot Road, ParklandsP. O. Box 1548 - 00600Nairobi

INVESTMENT MANAGERS

Co-op Trust Investment Services LimitedP O Box 48231 - 00100Nairobi

Stanlib Kenya LimitedP O Box 30550 - 00100Nairobi

CUSTODIANS

Standard Chartered Bank Kenya LimitedStandard Chartered Securities Services Kenya P. O. Box 40984 - 00100Nairobi

CFC Stanbic Bank LimitedP. O. Box 30550 - 00100Nairobi

BANKERS

Co-operative Bank of Kenya LimitedP. O. Box 48231-00100Nairobi PRINCIPAL LEGAL ADVISORS

Kaplan & Stratton AdvocatesP. O. Box 40111 - 00100Nairobi

AUDITORS

Ernst & YoungCertified Public AccountantsKenya Re Towers, UpperhillOff Ragati RoadP.O. Box 44286 - 00100Nairobi

ACTUARIES

Alexander Forbes Financial Services (E.A.) LimitedP. O. Box 52439 - 00100Nairobi

TRUSTEES

Sammy A. Oduori - Chairman Dr.Ben K. ChumoEng. Joseph NjorogeLawrence K.Yego Ernest N. NadomeKosgey C. KolilLaurencia K. Njagi-Resigned on 23rd September, 2013


2013 ANNUAL REPORT 5

ABOUT THE FUND


2013 ANNUAL REPORT6

The Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme (‘the Fund”) was established by a Trust Deed dated 1 January 1970. The Fund is a defined benefit occupational pension fund and was formed for the employees of The Kenya Power & Lighting Company Limited (‘the Sponsor’), then known as East Africa Power and Lighting Company Limited. The Fund is governed by a Trust Deed and Rules which have been approved by the Retirement Benefits Authority (RBA).

The main purpose of the Fund is the provision of cash benefits and pensions to the members upon attainment of the retirement age of sixty years, and where applicable,

benefits for dependents of deceased members.

The Fund is among the largest Pension Funds in Kenya and is mature. The number of active members above the age of 50 years, pensioners and deferred pensioners is much greater than the number of younger active members.

The Fund is approved by Kenya Revenue Authority as a retirement benefits scheme for the purposes of the Income Tax (Retirement Benefits) Rule No. 4 and is treated as an ‘exempt approved scheme’ for the purposes of that Act (1st Schedule 14).

Fund BenefitsThe Fund closed to new members and ceased receiving contributions from existing members with effect from 30th June 2006. The closed Fund continues being a defined benefit registered Scheme, whereby a member who retires on his normal retirement date receives a pension calculated as 1/400 of his final pensionable emoluments for each complete month of pensionable service to 31 December 1999 and 1/600 of final pensionable emoluments for each month of pensionable service from 1 January 2000 up to closing date. (A member who leaves before normal retirement date can elect to receive 50% of his accrued benefits or transfer the benefits to another pension Fund). Where a member dies, the eligible beneficiaries of the deceased member are entitled to a lump sum and monthly pension benefits.

MembersThe members of the Fund comprise of active in service employees who were employees of the Sponsor as at June 2006, deferred members of the Fund and retirees.

Fund Structure The Fund is managed by a Board of Trustees that is established under a Trust as required by the Retirement Benefits Act. The day to day running of the Fund is carried out by the Secretariat that supports the Board in meeting its objectives. The Secretariat headed by the Trust Secretary works in liaison with the Fund service providers that include fund managers custodians, actuaries, lawyers and auditors.

VISIONTo be among the leading Defined Benefits Pension Fund in the world

MISSIONTo provide decent pension benefits to members in retirement through prudent funds investment

CORE VALUES• Integrity• Accountability• Courtesy• Efficiency• Stewardship

About the Fund

The Fund Structure

Board of Trustees

Members(In service members, deferred members, retiree

pensioners, beneficiary pensioners)

Custodian Auditors

Fund Managers Actuary

Secretariat



FUND HIGHLIGHTS


2013 ANNUAL REPORT8

Fund Highlights

10.00%

23.00%

1.00%

27.93%

15.70%

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013

% R

etur

n

Year

Return on Investments

The Trustees have adopted an investment policy reflecting their views on the appropriate balance between maximizing the long-term return on investments and minimizing short-term volatility and anticipated liquidity needs while taking cognizance of the nature, size, type, and maturity profile of the Fund.

The return on investment for 2013 was 15.70%. (2012: 27.93%)

0 2 4 6 8

10 12 14 16 18

2009 2010 2011 2012 2013

Fund

Val

ue

(KSh

s. b

illio

n)

Year

9,092.55 11,324.39 11,593.42

14,231.23

15,954.57

Fund Growth

The net asset available for members continues to grow steadily over the years. As at the end of the financial year, the Net assets available for members stood at Kshs. 15.95 Billion (2012: 14.23 Billion).

2,231.84

269.04

2,637.81

1,723.34

0

500

1,000

1,500

2,000

2,500

3,000

926.03

2009 2010 2011 2012 2013

Ass

ets

Valu

e

(KSh

s. m

illio

n)

Year

Increase in Net Assets

The assets of the Fund grew by Ksh 1.72 billion during the year (2012: 2.64 billion).The decrease in growth as compared to the previous year was attributed to lower return on Invested assets and in particular government securities.

4,454 4,576 4,511

4,325 4,264

3,000 3,200 3,400 3,600 3,800 4,000 4,200 4,400 4,600 4,800 5,000

2009 2010 2011 2012 2013

Tota

l Num

ber

Year

Membership

The Fund membership dropped to 4,264 from 4,325 recorded in the previous year. The Fund was closed to new entrants from 30th June 2006 and hence a continued drop in membership is expected.



Fund Highlights (Continued)

19.25%

2.20%

18.17%

10.65% 10.13%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012 2013 Year

% R

etur

n

1.00% 1.00% 1.00% 1.00% 1.00%

0.50% 0.49%0.43%

0.56% 0.54%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

2009 2010 2011 2012 2013

Admin Expenses RBA Limit

49.20% 65.10% 77.00%

100.20% 119.90%

0%

20%

40%

60%

80%

100%

120%

140%

2004 2006 2008 2010 2013

Fund

ing

Leve

l

Return on Assets

RBA limit Vs Admin Expenses %

Actuarial Valuation Results

Return on Assets shows how efficient the assets of the Fund have been invested to generate returns. Though the Fund is not a profit making organization, the assets of the Fund have been well invested over the five year period to generate returns.

The Fund administrative expenses have been much lower than the Retirement Benefits Authority recommended limit of 1% of the fund value over the period.

The funding level disclosed by the actuarial valuation as at 31st December, 2013 was 119.9% (2010: 100.20%) which is higher than the minimum funding requirement of 100% prescribed in the Retirement Benefits Regulations as amended in 2009.


2013 ANNUAL REPORT10

Statement of changes in Net Assets available for Benefits

2009 2010 2011 2012 2013YEAR KShs ‘000’ KShs ‘000’ KShs ‘000’ KShs ‘000’ KShs ‘000’

Contributions received 607,200 607,200 607,200 - -Benefits paid (491,818) (450,415) (474,474) (527,059) (467,922)Net surplus from dealing with members 115,382 156,785 132,726 (527,059) (467,922)

Net returns on investments 846,467 2,113,118 176,699 3,244,697 2,263,605Other Income 9,457 16,905 9,759 75 14,247Administrative expenses (45,273) (54,966) (50,148) (79,908) (86,592)

Increase in net assets for the year 926,033 2,231,842 269,036 2,637,805 1,723,338

Statement of Net Assets available for Benefits

ASSETSFurniture, computers Equipment,& Intangible 2,671 4,874 8,177 26,362 17,594Investments Assets 9,084,345 11,533,455 12,176,470 13,466,465 15,827,662Other assets 58,133 56,886 64,247 1,021,430 342,765

Total assets 9,145,149 11,595,215 12,248,894 14,514,257 16,188,021

LiabilitiesBenefits payable 14,374 40,555 11,450 11,386 5,496Other Liabilities 38,229 230,273 644,022 271,643 227,960Total Liabilities 52,603 270,828 655,472 283,029 233,456

Trust fund 9,092,545 11,324,387 11,593,423 14,231,228 15,954,565

Five Year Summary



CHAIRMAN’S REPORT



CHAIRMAN’S REPORTOn behalf of the Board of Trustees, it is my pleasure to present to you the Fund’s financial performance for the year ended 31st December 2013.

ECONOMIC HIGHLIGHTS

Kenya’s economy faced various challenges in 2013 but remained extremely resilient hinged on successful monetary and fiscal policy. The Interest rates and the shilling were relatively stable and foreign direct investment remained strong. The economy is estimated to have grown by 4.7% based on Kenya National Bureau of Statistics report. This is in comparison to the 4.6% growth it recorded in 2012.

Inflation remained fairly low in 2013, averaging 5.7% as compared to 9.6% in 2012. This is despite a one-off VAT-induced rise in prices of several items that were previously tax-exempt.

In recognition of the significant growth in real estate sector of the economy and the need to provide a framework for

financing real estate investment projects the Government gazetted regulations for real estate investment trusts (REITS). REITs are meant to spur investments in the capital markets by enabling more people to own shares of properties easily by trading on the Nairobi Securities Exchange (NSE). The Hass Composite sales Index which is representative of all property for sale in Kenya Property shows a property prices rose by 0.3% rise in 2013. Short term hurdles to the growth of the sector are new and proposed charges such as; introduction of VAT on sale of commercial property, a Development levy, County Government fees on Land and Property transactions.

Equities ended 2013 on a high note. Market performance was to a large extent driven by the increased foreign investor activity and the stable macroeconomic environment which prevailed in most parts of the year. NSE 20 and NSE All Share Index (NASI) rose by 19% and 44% in the year respectively.

Treasury bill yields declined in the year. The annual average Treasury bill rates stood at 8.9% for 91-days



(12.8% in 2012), 9.3% for 182-days (13.6% in 2012) and 10.8% for 364-days (14.3% in 2012).

The Kenya shilling appreciated by 0.33% against the US Dollar (USD), 2.43% against the British Pound (GBP) and 4.99% against the Euro to close the year at 86.31 to the USD, 142.40 to the GBP and 119.22 to the Euro.

PENSION INDUSTRY AND REGULATORY ENVIRONMENT

The Pension industry assets have continued to increase significantly over the years. The industry has played a major role in boosting the financial and capital markets in the country through financing economic development and deepening of our capital market.

With assets exceeding Kshs 600billion, the industry has continued to support government infrastructure. The coverage by the existing Schemes has continued to extend to a greater population in the country backed by increased awareness of the importance of saving for retirement. The industry regulator, RBA (Retirement Benefits Authority) has played a major role in creating national awareness of the sector and emphasizing on protection of contributors through enactment of the Retirement Benefits Act and regulations. Through the regulator, various innovative products have been developed to date to help alleviate old age poverty including occupational, individual and umbrella Schemes.

With the shift of compliance to Risk Based Supervision of Schemes, the regulator has also played a major role in capacity building of Trustees by advocating that the Trustees appointed to the Scheme Boards have the required skills set to make sound decisions regarding the management of Schemes. Through the Trustee Development Program Kenya (TDPK), Trustees of all Pension Schemes will acquire knowledge on scheme fundamentals, governance, and administration among other skills. All Trustees are required to have undergone the training by the end of year 2014. Indeed this training has gone a long way in ensuring that there is prudent management of Funds and in so doing, safeguarding nationwide confidence in the management of the pension funds.

During the year 2013, a major development occurred in the National Social Security Fund (NSSF), with the establishment of the new National Social Security Fund Act, 2013 (NSSF Act). This new Act which was assented by the end of the year 2013 has stirred various debates from stakeholders in the market. The Act lays out a new structure of contributions of a minimum of 6% contributed by employee and employer respectively. However the Act does not affect the members of this Fund as it is a closed Fund.

FUNDS’S FINANCIAL PERFORMANCE

The Fund achieved an annual return of 15.7% for the year ended 2013 which reassures the members that the Fund remains financially sound to meet members promised benefits.

The total market value of the Fund’s assets as at the end of the year stood at KShs. 15.95 billion up from KShs. 14.23 billion the end of 2012.The Fund’s total increase in net assets for the year 2013 was KShs. 1.72 billion down from Kshs. 2.64 billion in 2012.

The Fund endeavors to preserve capital, work towards capital growth with the mitigation of excessive risk over the long term, attain the agreed investment performance deliverables against the accepted benchmarks over the investment period, maintain adequate level of liquidity to enable the Fund meet its obligations and diversify to minimize the associated risks across asset classes, sectors and stocks

Actuarial Valuation Result

The last actuarial valuation was carried out in 2013. The actuarial valuation has disclosed a past service actuarial surplus of KShs 2.6 billion as compared to Kshs 20 million in 2010. The level of funding (i.e. ratio of the value of assets to the past service liability) has increased to 119.9% as at 31st December 2013 (2010:100.2%) which has surpassed the minimum funding requirement of 100% prescribed in the Retirement Benefits Regulations as amended in 2009.

CORPORATE GOVERNANCE AND AWARD

Corporate governance is key in the management of the Fund. The Fund has laid out various policies and guidelines in the implementation of high levels of corporate governance and has trained all the Trustees and senior management team on governance practices.

The Fund achieved an annual return of 15.7% for the year ended 2013 which reassures the members that the Fund remains financially sound to meet members promised benefits.

15.7%

Chairman’s Report (Continued)



In a bid to gauge its level of corporate governance, the Fund participated for the second time in the Champion of Governance (COG) Awards in 2013 organized by ICPSK and emerged the best in the Retirement Benefits Category. The Chair of the Board Mr. Sammy Oduori was also awarded the best chairman in the same awards. The COG Awards aims at promoting good governance practices by organizations through the following, among others:

• Recognizing the practice of good governance in private and public sector entities

• Recognizing innovations in organizations that support good governance practices

• Encouraging private and public sector entities to focus on enhancement of good governance.

OUTLOOK

We are projecting that the positive performance of the Fund will continue in 2014. The positive performance will be supported by macroeconomic stability. During the year 2014, the Trustees intend to continue focusing on alternative investments and property developments in order to mitigate against the risks associated with market volatility.

We are confident we can continue to meet the expectations of our members as our strategies are clear and we have

been consistently effective in achieving desired goals and this success will continue through close monitoring.

APPRECIATION

I would like to thank my fellow Board members for their selfless contribution to the Fund over the past year and for supporting me as Chairman. The Trust Secretary and his team have also worked tirelessly to ensure prudent management of the day to day operations of the Fund.

I would not forget the Sponsor and the stakeholders of the Fund who have also played a significant role in the Fund’s great performance and most importantly you members for your continued support and feedback.

ChairmanSammy OduoriThe KPLC Staff Retirement Benefits Scheme

Chairman’s Report (Continued)



Ripoti ya Mwenye Kiti

Kwa niaba ya Bodi ya Wadhamini, ni furaha yangu kuwawasilishieni ripoti ya namna ya utendaji wa kifedha wa Hazina hii kwa mwaka uliomalizika Desemba 31, 2013.

VIDOKEZO KIUCHUMIUchumi wa Kenya ulikabiliwa na changamoto mbali mbali katika kipindi cha mwaka wa 2013 lakini ukasalia mhimilivu kwa msingi wa mafanikio na sera za kifedha. Viwango vya riba na shilingi vilikuwa dhabiti kwa kiasi nao uwekezaji wa kigeni wa moja kwa moja ukasalia imara. Uchumi unakadiriwa kukuwa kwa asilimia 4.7 (nne nukta saba) kwa mujibu wa report ya Shirika la Kitaifa la Takwimu(National Bureau of Statistics). Hii ni kwa kulinganisha na ukuaji kwa kiwango cha asilimia 4.6(nne nukta sita) katika mwaka wa 2012.

Mfumuko wa bei ulisalia kuwa wa kiwango cha chini kwa mwaka wa 2013,ukiwa wa takriban asilimia 5.7(tano nukta saba) ikilinganishwa na 9.6 mwaka wa 2012. Hii ni licha hali ya ghafla ya kuwekwa ushuru wa dhamana ya bidhaa(VAT)-ikiwa ni kupanda ghafla kwa bei ya bidhaa ambazo awali hazikutozwa ushuru.

Kwa kutambua ukuaji wa haja katika sekta ya uwekezaji katika mali isiyohamishika(Real Estate Investment)katika uchumi na haja ya kutoa mfumo wa kufadhili uwekezaji wa mali isiyohamishika, Serikali ilichapisha kanuni za kufwatwa na amana za mali isiyohamishika(Real Estate Investment Trusts-REITS). REITS zimenuiwa kuchochea uwekezaji katika masoko ya mitaji kwa kuwawezesha watu kumiliki hisa za mali kwa urahisi na kuuza na kununua katika soko la hisa la Nairobi (NSE). Kiwango maalum cha mauzo cha Hass Composite ambacho huwakilisha mali yote ya kuuzwa kwenye Mali za Kenya(Kenya Property) inaonyesha kuwa bei ya mali ilipanda kwa asilimia sufuri nukta tatu (0.3) mwaka wa 2013. Vikwazo vya muda mfupi vilivyoikumba sekta hii ni vipya na ada zilizopendekezwa ambazo ni; Ushuru wa Dhamana ya Bidhaa(VAT) kwa mauzo ya mali ya kibiashara, ushuru wa miradi ya kimaendeleo, ada inayotozwa na serikali gatuzi( County governments) kwa mauzo ya ardhi na raslimali nyingine.

Matokeo ya uwekezaji kimitaji mwishoni mwa 2013 ulikuwa wa kiwango cha juu. Matokeo ya soko kwa kiwango kikubwa yalipata kukua kutokana na kuongezeka kwa uwekezaji wa kigeni na mazingira dhabiti ya uchumi-mkubwa ambayo yaliendelea katika vipindi vingi vya mwaka. Viwango maalum vya NSE 20 na vile vya NSE Hisa Zote(NSE ALL Share Index-NASI) vilipanda kwa asilimia 19 na 44 mtwalia katika mwaka huo.

Mazao ya muswada wa Hazina yalishuka kwenye mwaka huo. Wastani wa viwango vya Muswada wa Hazina vilisimamia asilimia nane nukta tisa(8.9) kwa siku tisini na moja( ikiwa ni ; asilimia kumi na mbili nukta nane mwaka 2012), asilimia tisa nukta tatu kwa siku mia moja themanini

na mbili (ikiwa ni asilimia kumi na tatu nukta sita mwaka wa 2012) na asilimia kumi nukta nane kwa siku mia tatu sitini na nne(ikiwa ni asilimia kumi na nne nukta tatu mwaka 2012).

Shilingi ya Kenya iliimarika kwa asilimia sufuri nukta tatu tatu (0.33%) ikilinganishwa na Dola ya Marekani, asilimia mbili nukta nne tatu(2.43%) ikilinganishwa na Pauni ya Uingereza na asilimia nne nukta tisa tisa(4.99%) ikilinganishwa na Yuro kufunga mwaka ikiwa ni shilingi themanini na sita na senti thelathini na moja(86.31) kwa Dola ya Marekani, shilingi mia moja arubaini na mbili na senti arubaini kwa Pauni ya Uingereza na shilingi mia moja kumi na tisa na senti ishirini na mbili kwa Yuro.

SEKTA YA MALIPO YA UZEENI NA MAZINGIRA YA UDHIBITIMali katika sekta ya malipo ya uzeeni imeendelea kuongezeka kwa viwango vya haja kwa miaka ya hivi karibuni. Sekta hiyo ilikuwa na nafasi kubwa kuimarisha uchumi na soko la mtaji nchini kupitia kufadhiliwa kwa miradi ya maendeleo ya uchumi na kupanua soko la mtaji.Kwa mali isiyopungua billion mia sita (600 billions), sekta hii imeendelea kusaidia kukuza miundo-msingi ya serikali. Mipango maalum iliyopo imeendelea kupanuka na kufikia watu wengi nchini ikisaidiwa na kuongezeka kwa watu kufahamu umuhimu wa kuweka akiba ya uzeeni. Wadhibiti sekta ya malipo ya uzeeni(Retirement Benefits Authority) wamekuwa na nafasi muhimu ya kuendeleza uhamasishaji wa kuwepo kwa sekta hiyo na kuhimiza kulindwa kwa waweka-akiba kupitia kwa kupitishwa na kuidhinishwa kwa Sheria na Kanuni za Malipo ya Uzeeni (Retirement Benefits Act and Regulations). Kupitia mdhibiti,bidhaa mbalimbali bunilizi zimetolewa kufikia sasa ili kusaidia kuepuka umaskini uzeeni ikiwemo ya kikazi, kibinafsi na miradi kimwavuli inayolinda wote kwa kujumlisha.

Kutokana na badiliko la kuafiki Hatari za Kiusimamizi za mipango yenyewe, mdhibiti amechukuwa nafasi kubwa katika kuwawezesha wadhamini kwa kusisitiza kwamba wadhamini wanaoteuliwa kwa Bodi za Mipango Maalum wawe na ujuzi wa kufanya maamuzi mwafaka kuhusiana na usimamizi wa Mipango Maalum. Kupitia kwa Mpango wa Kendeleza Udhamini Nchini Kenya (Trustee Development Program Kenya-TDPK), wadhamini wa mipango yote ya malipo ya uzeeni watapata ujuzi muhimu kuhusu Mipango Maalum, utawala na usimamizi miongoni mwa ujuzi mwingineo. Wadhamini wote wanahitajika kuwa wamepitia mafunzo kufikia mwisho wa mwaka wa 2014. Hakika, mafunzo haya yamehakikisha kuwa kuna usimamizi bora wa fedha na kwa kufanya hivyo, kulinda imani katika usimamizi wa malipo ya uzeeni kitaifa.

Katika mwaka wa 2013, hatua kubwa kimaendeleo ilipigwa katika Hazina ya Kitaifa ya Malipo ya Uzeeni (National Social Security Fund-NSSF), kukiwepo na kuanzishwa



kwa sheria mpya ya Hazina ya Kitaifa ya Malipo ya Uzeeni mwaka 2013 (NSSF Act 2013). Sheria hii mpya ilikuwa katika hatua ya mwisho ya kukubaliwa kufikia mwisho wa mwaka 2013 na imezua mijadala kadha kutoka kwa washika-dau katika soko husika. Sheria yenyewe inaweka mwongozo wa muundo kwa kimatoleo huku matoleo ya chini kabisa yakiwa ni asilimia sita(6%) kutoka kwa mwajiriwa na mwajiri mtwalia. Hata hivyo, sheria yenyewe haijaathiri wanachama wa hazina hii wa kimatoleo kwani ni hazina inaojitegemea kivyake, iliyobanwa na kutokuwa wazi kuingiliwa kutoka nje.

MATOKEO AU HALI YA KIFEDHA YA HAZINA HII

Hazina hii imefikia pato la mwaka la asilimia kumi na tano nukta saba(15.7%) kwa mwaka wa 2013 ambayo inawahakikishia wanachama kuwa hazina iko imara kifedha kuweza kutimiza ahadi zilizotolewa kunufaisha wanachama.

Kiwango jumla cha mali ya hazina katika soko kufikia mwisho wa mwaka kilikuwa ni shilingi bilioni kumi na tano nukta tisa tano (Kshs 15.95 Billions) kupanda kutoka shilingi bilioni 14.23 mwaka 2012. Kiwango jumla cha kuongezeka kwa mali yote kwa mwaka 2013 ilikuwa ni shilingi Bilioni 1.72 kushuka kutoka shilingi bilioni 2.64 mwaka 2012.

Hazina inapania kuhifadhi mtaji,kujibidiisha kukuza mtaji kwa kuziepuka hatari kwa kipindi kirefu, kupata matokeo ya kiuwekezaji kama ilivyokubaliwa kufikiwa sambamba na viwango vilivyokubaliwa kwa kipindi cha uwekezaji, kudumisha kiwango kizuri cha uwezekano wa kusarifika kwa mali ambayo ni hali ya kuweza kubadili kwa pesa taslimu,ili kuwezesha hazina kufikia matakwa yake na kupanuka kimkondo ili kupunguza hasara zinazohusiana na viwango vya mali, sekta na hisa.

MATOKEO YA UKADIRIAJI KITAKWIMU

Ukadiriaji Kitakwimu wa mwisho ulifanywa mwaka wa 2013, ukadiriaji kitakwimu huo ulionyesha kuongezeka huduma kitakwimu kwa shilimgi bilioni 2.6 ikilinganishwa na shilingi Milioni ishirini mwaka 2010. Kiwango cha kiudhamini (hiyo ni ulinganisho wa dhamana ya mali kwa huduma ya madeni kwa kipindi cha awali) kimeongezekana kufikia asilimia mia moja kumi na tisa nukta tisa(119.9%) kufikia tarehe 31/12/2013 ( 2010:100.2%) ambacho kimezidi kiwango cha chini zaidi cha kudhamini hitaji la asilimia mia moja kama ilivyoelezewa katika kanuni za malipo ya uzeeni kulingana na mabadiliko ya mwaka 2009.

UTAWALA WA KIUSHIRIKA NA TUZO

Utawala wa kiushirika ni muhimu sana katika usimamizi

wa hazina. Hazina imeweka sera na miongozo katika utekelezaji wa viwango vya juu vya utawala kiushirika na imewapa mafunzo wadhamini wote pamoja na usimamizi mkuu kuhusiana na utawala. Katika kujaribu kutathmini kiwango cha utawala kiushirika, hazina imeshiriki kwa mara ya pili kwenye tuzo za Champion of Governance mwaka 2013 iliyoandaliwa na ICPSK na ikaibuka bora katika kitengo cha malipo ya uzeeni. Mwenyekiti wa bodi, bwana Sammy Oduori alitunukiwa tuzo ya Mwenyekiti Bora. Tuzo za COG zinanuia kuendeleza utawala bora wa mashirika kupitia mambo haya miongoni mwa mengine; • kutambua utawala bora katika sekta za kibinafsi na zile

za Umma• kutambua ubunifu katika mashirika yanayoendeleza

uongozi bora• kuhimiza sekta za kibinafsi na zile za Umma kumakinikia

uendelezaji wa utawala bora

USAWIRIO

Tunabashiri kuwa matokea yakini ya Hazina yataendelea mwaka wa 2014. Matokeo yakini yataendelezwa na uchumi-mkubwa uliodhabiti. Kwa mwaka 2014, wadhamini wananuia kuendelea kumakinikia mbinu mbadala za kiuwekezaji na maendeleo ya mali ili kuzuia hasara zozote zinazohusiana na mabadiliko ghafla katika soko.

Tuna imani kuwa tutaendelea kutimiza matarajio ya wanachama wetu kama zilivyo wazi mbinu zetu na tumekuwa tukiendelea kutimiza shabaha zetu. Fanaka hizi zitaendelea kufikiwa kutukana na kufwatiliwa kwa karibu.

TANBIHI

Ningependa kuwashukuru wanachama wenzangu kwenye bodi kwa mchango wao mkubwa kwa hazina kwa mwaka uliopita kwa kuniunga mkono kama mwenyekiti wenyu, Kisha katibu wa Hazina na kikundi chake wamekuwa pia wakifanya kazi juu chini kuhakikisha usimamizi bora wa shughli za kila siku za Hazina. Sitasahau mfadhili na washika-dau wote wa Hazina ambao wamekuwa na nafasi muhimu kuhakikisha utenda-kazi bora wa Hazina, na muhimu zaidi nyinyi wanachama kwa msaada wenu na maoni yenyu.

MwenyekitiSammy OduoriHazina ya Malipo ya Uzeeni Kwa Wafanya-kazi wa KPLC

Ripoti ya Mwenye Kiti



TRUST SECRETARY’S REPORT



TRUST SECRETARY’S REPORTThe Fund has over its life cycle provided security to its members upon retirement. This has been backed by the vision of the Fund “To be among the leading defined benefits Scheme in the world”.

Through close monitoring of performance and investment strategies including keen focus on achieving long term investment objectives, the Trustees have continued to ensure the Fund’s performance remains at its optimal peak and continues to provide the best possible benefits to its members.

The Fund continued on its upward trend of growth in the year 2013 as we saw the economy register a marginally improved economic performance of 4.7% as compared to 4.6% in GDP in year 2012.

STRATEGY & PLANNING

The five-year Fund strategy (2011- 2015) was formulated to provide a periodic guiding plan towards attaining the Funds mission, vision and value statements. The strategy is centered on Fund Administration, investment risk and

returns, customer service, property development, cost management, corporate governance and regulatory compliance.

Each year, annual corporate objectives of the Fund are meticulously set and a system put in place to monitor the performance of these objectives closely to ensure their achievement. BENEFITS ADMINISTRATION

Benefits administration is one of the core businesses of the Fund. Key to this function is to ensure timely and accurate payment of the member benefits while ensuring customer expectations are met. This involves the processing of benefits in line with the requirements of Trust Deed & Rules.

CUSTOMER FOCUS

Customer satisfaction remained a key objective of the Fund, with increased channels being provided to the members to give feedback and complaints. Communication to



members, both active and inactive is also one of the main tasks of the Fund. The Fund continued to communicate to members through the biannual newsletter, Fund website and the Annual General Meeting (AGM). In pursuit of excellence in service delivery, the Fund continued to seek innovative ways to enhance communication to its members e.g. through SMS messaging service. During the 2013, the Fund undertook a member education programme reaching targeted in-service members and retirees of the Fund. This programme was successfully implemented and a post training evaluation analysis carried out.

PROPERTY MANAGEMENT & DEVELOPMENT

Property development remains a main investment diversification strategy for the Fund. In 2013 the Fund made major strides towards the construction of the Loresho Ridge Housing Development. The project which is expected to be completed in the fourth quarter of 2014 is expected to achieve an annualized return of 30%. The project boasts 11 blocks of apartments with 6 units each, 94 town houses (four different house types), a commercial facility, a kindergarten, and related facilities. The returns from this project will cushion the Fund from the volatile market associated with other investment asset classes.

FUND INVESTMENTS

The ultimate responsibility for the investment decisions rests with the Trustees. The Board has however delegated the implementation of the investment policies to the Fund’s Investments Managers. The Board has similarly delegated the implementation of its property investment policies to the Project Implementation Committee and the appointed Property Managers.

In doing so, the Board maintains a ‘top-down’ perspective. This means that the Board focuses on high level policy issues, including maintaining the proper fiduciary perspective and time horizon for analysis of the assets and prudently using its time by evaluating/considering material investment issues.

In year 2013, the Investment service providers remain unchanged. The current investment managers are Stanlib Kenya Ltd and Co-optrust Investment Services Ltd. Custodial Services are provided by Standard Chartered Bank of Kenya Limited and CFC Stanbic Bank Limited Kenya. The Secretariat on its part is responsible for close monitoring and reporting on implementation of the investment strategy. During the year 2013, investment managers activities were continuously analyzed and their performance measured against the agreed set targets. This continued analysis is to ensure that the Fund remains focused on the short term and long-term performance and sustainability.

The Board of Trustees has prepared and maintains a written Statement of Investment Principles (SIP) governing their decisions on investments as required by the Retirement Benefits Investment Guidelines 37. (1).

The Fund continues to diversify its investment into property and private equity investments. All investments are undertaken while ensuring compliance with the RBA regulations on investments and the Fund’s Investments Policy Statement.

INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)

ICT has been a source of innovation and transformation to the Fund. The Fund has strived to deliver business value by leveraging technology.

To increase efficiency of the secretariat functions, the Fund took great strides in the implementation of the newly acquired pension administration system which has

streamlined the members’ register, payroll processing, investments, property and accounting functions in the Fund. We have also improved on the information contained in our website www.kplcpensionfund.co.ke by integrating personalised self-service web portal which is undergoing testing and will be launch later 2014 to enable members to enjoy interactive web based services which include viewing their account balances and statements, projection of benefits. An interactive SMS service is in the pipeline and will be rolled out before end of 2014. We have also utilized social media to keep our members informed through Facebook and twitter accounts.

HUMAN RESOURCES AND ADMINISTRATION

One of the support functions of the Secretariat is the Human Resources and Administration function which ensures adequate and competent human capital is provided to the Secretariat and these are effectively managed.

Trust Secretary’s Report

Benefits administration is one of the core businesses of the Fund. Key to this function is to ensure timely and accurate payment of the member benefits while ensuring customer expectations are met.



During the year 2013, corporate and departmental performance targets were formulated and these were cascaded down to all staff. The performance review of these targets was carried out in the year 2013 on a quarterly basis; the ultimate aim being to align the Secretariat functions to the objectives of the Fund and monitor achievement of its overall strategy. At the end of performance appraisal exercise, the employees were rewarded for their performance during the year.

With regard to staff development, a training needs analysis for the secretariat staff was carried out and implemented in the course of the year, the employees were able to undertake. The staff also attended a professional team building session whose objective was to enhance the team’s effectiveness in the performance of its duties and responsibilities.

OUTLOOK

In 2014, we will focus on increasing the return on investments and service delivery to members. Both the Board of Trustees and the Secretariat are committed to these objectives to the extent that the two targets will be the key performance indicator upon which performance evaluation will be hinged on at the end of the year.

So as to achieve the return on investment objective, careful attention will be given to maintaining an optimized portfolio through enhanced diversification and continuous monitoring ensuring compliance with the Retirement Benefits Authority regulations on investments, the Fund’s investment policies as well as with all relevant legal requirements.

The Fund will carry out a member and employee satisfaction survey in year 2014 to ensure that the Fund continues to meet customer expectations.

APPRECIATION

I take this opportunity to thank the Board of Trustees for their continued support, the Secretariat team for their hard work in service delivery to our members and implementation of the Board strategy and the stakeholders for their support towards achievement of our mission.

Trust Secretary Henry KyandaThe KPLC Staff Retirement Benefits Scheme

Trust Secretary’s Report



Ripoti ya Katibu wa Hazina

Hazina, katika mfumo wake wa maisha daima imewalinda wanachama baada ya kustaafu kwao. Hii inaungwa mkono na ruwaza ya hazina ambayo ni kuwa miongoni mwa mipango ya hazina inayoongoza duniani.

Kupitia kutuatilia matokeo kwa karibu na mipango ya uwekezaji ikiwemo umakinifu zaidi kuhusu kufikia shabaha za uwekezaji kwa kipindi cha muda mrefu, wadhamini wameendelea kuhakikisha kwamba matokeo ya hazina yameendelea kuwa katika kiwango chake cha juu na yanaendelea kutoa faida bora zaidi iwezekenavyo kwa wanachama.

Hazina imeendelea na kukua kwa kiwango cha juu katika mwaka wa 2013 kwani tulishuhudia uchumi ukisajili kuimarika kwa kiasi cha haji cha matokeo ya kiuchumi ya asilimia nne nukta saba (4.7%) ikilinganishwa na asilimia nne nukta sita (4.6%) katika mapato ya ndani ya nchi (GDP) ya mwaka 2012 .

MBINU NA MIPANGO

Mpango wa fedha wa miaka mitano (2011 -2015) wa hazina, uliundwa ili kutoa mwelekeo wa kipindi maalum kuhakikisha kufikiwa kwa lengo kuu la hazina, ruwaza ya hazina na kauli ya kiutenda-kazi za hazina. Mpango huu umeijikwa kwa usimamizi wa hazina, hatari zilizoko kwenye uwezekaji na mapato, huduma kwa wateja, maendeleo ya kimali kudhibiti gharama ya usimamizi, utawala kiushirika na udhibiti wa uafikiaji kanuni.

Kila mwaka, shabaha za kiushirika za hazina huwekwa kwa umakinifu mkubwa na miundo inayowekwa kudhibiti utenda-kazi wa hizi shabaha kwa ukaribu ili kuhakikisha matokeo bora.

USIMAMIZI WA MAPATO

Usimamizi wa mapato ni mojawapo ya nguzo msingi za shughuli za hazina. Ya muhimu sana kwa jukumu hili ni kuhakikisha malipo sawia na ya uhakika yatolewayo kwa wakati kwa wanachama huku tukihakikisha matarajio ya wateja yamefikiwa. Hii inahusisha utaratibu wa kuchakata mapato ama faida kwa kuzingatia matakwa ya Sheria na Kanuni za Amana ( Trust Deed and Rules).

KUMAKINIKIA WATEJA

Kuridhishwa kwa wateja wa hazina inasalia kuwa shabaha muhimu ambayo iliongeza namna au njia za wanachama kutoa taarifa maoni na tetesi kuhusu huduma wanazopokea kutoka kwa hazina. Mawasiliano kwa wanachama wanaojihusisha moja kwa moja na wale wasioshirika kikamilifu pia ni miongoni mwa shughuli kuu za hazina. Hazina inaendelea kuwasiliana na wanachama kupitia vijarida vya kila nusu mwaka, wavuti wa hazina

na kupitia mikutano mikuu ya kila mwaka ya hazina. Kwa kutafuta ubora katika utoaji wa huduma, hazina imeendelea kuangazia mbinu bora zaidi za kuhakikisha mawasiliano kwa wanachama wake kama vile kupitia jumbe fupi za arafa, kwa mwaka 2013, hazina ilichukuwa mikakati ya kuwaelimisha wanachama ikiwafikia waliondani ya mazingira ya kazi na wale waliostaafu. Mpango huu ulifanikiwa na mafwatiulizi ya baada ya mafunzo yakaweza kufanywa.

USIMAMIZI MALI NA MAENDELEO

Maendeleo mali imesalia kuwa mbinu kuu ya upanuzi wa uwekezaji wa hazina. Kwa mwaka 2013, hazina ilipiga hatua kubwa ya kujenga vyumba vya Loresho Ridge (Loresho Ridge Housing Development). Mradi huu unatarajiwa kukamilika katika robo ya kwanza ya mwaka 2014 na unatarajiwa kuleta mapato ya asilimia thelathini (30%) kwa mwaka. Mradi huo unajivunia kuwa na vyumba kumi na vimoja ambavyo vina makazi sita kila mojawapo, vyumba tisini na nne vya kimjini (vyumba vine vya aina tofauti), jingo la kibiashara, shule ya chekechea na majengo mengine ya matumizi. Mapato kutokana na mradi huu yatalinda hazina kutokana na mabadiliko ghafula na mifumuko inayohusishwa na soko linalokua pamoja na uwekezaji mali katika ngazi nyinginezo.

UWEKEZAJI WA HAZINA

Jukumu la maamuzi ya uwekezaji lipo mikononi mwa Wadhamini. Hata hivyo, bodi imewapa wasimamizi wa uwekezaji mamlaka ya utekelezwaji wa sera za uwekezaji za hazina. Aidha, bodi vile vile imeipa Kamati ya Utekelezaji wa Miradi (Project Implementation Committee) na Wasimamizi Mali(property Managers) walioteuliwa jukumu la kutekeleza sera zake za uwekezaji mali.

Kwa kufanya hivyo, bodi huhakikisha inadumisha mfumo au mwelekeo wa “kutoka juu kwenda chini” (top down perspective). Hii ina maana kuwa bodi humakinika kuzingatia viwango vya juu zaidi vya maswala ya kisera, ikiwemo kudumisha mtazamo fidushiari (fiduciary perspective) na upeo wa kiwakati (time horizon) kwa uchanganuzi wa mali milki na kuweza kutumia muda uliopo kwa njia busara kutathmini au kuzingatia vitu vya maswala ya uwekezaji.

Katika mwaka wa 2013, watoaji huduma za uwekezaji walisalia kuwa wale wale. Wasimamizi wa sasa wa Uwekezaji ni Stanlib Kenya Ltd na Co-optrust Investment Services Ltd. Huduma za Utunzaji zinatolewa na Benki ya Standard Chartered Kenya na Benki ya CFC Stanbic Kenya. Kamati tekelezi kwa upande wake inawajibika kufuatilia kwa karibu na kuripoti kuhusu utekelezwaji wa mbinu za uwekezaji. Wakati wa Kipindi cha mwaka 2013, juhudi za wasimamizi wa uwekezaji zilichanganuliwa na



kutathminiwa bila kukoma na utendakazi wao kupimwa kwa kurejelea vigezo na malengo yaliyowekwa. Uchanganuzi huu usio-kikomo ulikusudia kuhakikisha kuwa Hazina imesalia ikimakinikia matokeo yake ya kipindi kifupi na pia yale ya kipindi kirefu na namna ya kuhifadhi matokeo hayo.Bodi ya Wadhamini imeandaa na hudumisha katika maandishi Maelezo ya Kanuni za Uwekezaji (Statement of Investment Principles-SIP) zinazotawala maamuzi yao katika uwekezaji kama inavyohitajika na Vielelezo vya Uwekezaji wa Mapato ya Uzeeni ( Retirement Benefits Investment Guidelines) 37.(1)

Hazina inaendelea kupanua uwekezaji wake katika mali na uwekezaji binafsi kimitaji. Maekezo yote hufanywa kwa kuhakikisha kuwa matakwa ya RBA kuhusu uwekezaji na maelezo ya sera za uwekezaji ya Hazina yanaafikiwa.

TEKNOLOJIA YA HABARI NA MAWASILIANO (TEKNOHAMA)

TEKNOHAMA imekuwa chanzo au usuli wa ubunifu na mabadiliko muhimu katika hazina. Hazina imejizatiti kuzalisha thamani ya kibiashara kwa kuhusisha uzingatiaji wa teknolojia.

Kwa kuongeza ubora na umaahiri wa shughuli za Kamati tekelezi,hazina ilichukuwa hatua kubwa katika utekelezaji wa mfumo mpya wa kiutawala wa malipo ya uzeeni ambao umelainisha sajili ya wanachama, uundaji wa orodha ya mishahara ,uwekezaji, mali na juhudi za uhasibu katika hazina. Tumeimarisha taarifa ipatikanayo kwenye wavuti wetu wenye anwani www.kplcpensionfund.co.ke kwa kuunganisha mkondo-binafsi wa mtandao (personalized self-service web) ambao unafanyiwa majaribio na utazinduliwa rasmi mwakani ili kuwezesha wanachama kufurahia wavuti na mtandao kimtagusano kwa misingi ya huduma zilizopo kama vile kutazama masalio kwenye akaunti zao na maelezo ya hali ya akaunti hizo, makadirio ya mapato. Aidha, huduma ya Arafa (SMS) ya kimtagusano iko mpangoni na itazinduliwa kabla ya mwisho wa mwaka 2014. Tumeweza pia kuhusisha mitandao ya kijamii ili kuwaweka wanachama wetu kwenye ufahamu wa mambo kwa mfano kwa kutumia Kitandazi (Facebook) na mtandao wa Twitter.

USIMAMIZI WA WAFANYI KAZI NA UTAWALA

Jukumu mojawapo la Kamati tekelezi ni usimamizi wa wafanyikazi na utawala, jukumu ambalo huhakikisha kuwa nguvu kazi toshelezi na mtaji wa kibinadamu wenye umilisi mkubwa umetolewa kwa kamati tekelezi na kusimamiwa kikamilifu.Kwa mwaka wa 2013, shabaha za kiushirika na kiidara za utendakazi zimewekwa na kuteremshwa kufikia wafanyikazi wote wa viwango vya

chini kutoka juu. Utathmini wa utendakazi wa shabaha hizi ulifanywa mwaka 2013 kwa viwango vya robo mwaka kusudi kuu likiwa kulainisha majukumu ya kamati tekelezi na malengo ya hazina na kufuatilia karibu kiutathmini mafanikio ya mbinu jumla za utendaji. Mwishoni mwa juhudi za utathmini kazi, wafanyikazi walitunukiwa kwa matokeo ya kazi yao ya mwaka.

Kwa mujibu wa kukuza wafanyikazi, uchanganuzi wa mahitaji ya kiujuzi ya wafanyikazi wa kamati tekelezi ulifanywa na kutekelezwa kwa kipindi cha mwaka unaorejelewa,waajiriwa waliweza kushiriki. Wafanyikazi pia walihudhuria kipindi cha kukuza umoja wa kitaalamu ambacho lengo lake lilikuwa kuimarisha uwezo wa kutendakazi vema na kutekeleza majukumu yao.

SAWIRIO

Mwaka 2014, tutamakinikia uongezaji wa mapato ya maekezo na utoaji huduma kwa wanachama. Bodi ya Wadhamini pamoja na Kamati tekelezi wamejitolea mhanga kwa haya malengo kwa kiwango kiasi kwamba malengo haya makuu mawili yatakuwa ishara kubwa ambayo kwayo ukadiriaji wa utendakazi utajikita mwishoni mwa mwaka.

Ili kuafikia mapato kutokana na lengo la uwekezaji, kudumisha viwango vya juu zaidi kupitia upanuzi zaidi na kufuatilia kwa karibu kusikokoma kwa utekelezaji wa malengo hayo utazingatiwa kwa njia makinifu kuhakikisha kanuni za Mamlaka ya Mapato ya Uzeeni hazijakiukwa katika uwekezaji, kuzingatia sera za hazina pamoja na mahitaji yote ya kisheria.

Hazina itafanya utafiti kutathmini viwango vya kuridhika kwa mwanachama na mfanyikazi wake kwa mwaka wa 2014 kuhakikisha kuwa hazina inaendelea kufikia matarajio ya wateja wake.

TANBIHI

Nachukuwa fursa hii kushukuru Bodi ya Wadhamini kwa kuendelea uungaji wao, Kamati tekelezi kwa bidiii yao katika utoaji huduma kwa wanachama na kutekeleza mipango ya Bodi na Washika-dau kwa uungaji wao mkono kwa kufikia malengo yetu.

Katibu wa HazinaHenry KyandaHazina ya Malipo ya Uzeeni ya Wafanyikazi wa KPLC

http://www.kplcpensionfund.co.ke



BOARD OF TRUSTEES &

MANAGEMENT

BOARD OF TRUSTEES

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1. Eng. Joseph K. Njoroge, MBA, B.Sc. (Eng.) R. Consulting Eng., Chartered Eng., MIET, FIEK

He was appointed to the Board on 16th December, 2009. Eng. Njoroge holds a Master of Business Administration (MBA) and a Bachelor of Science (BSc) degree in Electrical Engineering. He was the Chief Executive Officer and Managing Director of The Kenya Power and Lighting Company Ltd where he had worked for over 31 years. He is currently the Principal Secretary in the Ministry of Energy and Petroleum. He has a wide experience in engineering and management.

2. Dr. Ben Kipsang’ Chumo

He was appointed to the Board in 2006. He holds a PhD in Human Resources Management, a Master of Business Administration (MBA) and a Bachelors of Arts (B.A) degree. He is the Chief Executive Officer and Managing Director of The Kenya Power and Lighting Company Ltd. He has wide experience in HR and Management spanning over 27 years.

3. Kosgey Kolil

Mr Kolil was appointed to the Board on 30th September, 2008. He is a Certified Public Accountant of Kenya (CPA K) and is member of the Institute of Certified Public Accountants of Kenya ICPAK. He holds a Post Graduate Diploma in Labour Policy Studies. He is the Deputy General Secretary of the Kenya Electrical Trades & Allied Workers Union (KETAWU) where he has worked since 2008. Prior to joining KETAWU he worked with Kenya Power and Lighting Company Ltd for 16 years in Finance where he gained a wide experience in finance and accounting. He is a Certified Pension Fund Trustee.

4. Sammy Oduori - Chairman

He was appointed to the board on 28th February, 2003 and is the current Chairman of the Board. He is a qualified Accountant and worked with The Kenya Power and Lighting Company Ltd for 21 years where he held senior management positions prior to his retirement in the year 2000. He has vast experience in Finance, Customer Service and Marketing. He sits on the Board of Directors of Iberafrica (E.A.) Power Limited. He is also a Certified Pension Fund Trustee.

5. Henry Kyanda – Trust Secretary

He was appointed Trust Secretary and Secretary to the Board in 2006. He holds a Master of Business Administration (MBA) Degree in Strategic Management and Bachelor’s degree in International Business Administration (Finance). He has wide experience in the Pensions industry having previously worked as the Principal Pensions Officer at The Kenya Power and Lighting Company Ltd. Prior to joining Kenya Power and Lighting Company Ltd he worked in the investment management industry. He has a wide experience in pensions, banking and investments spanning over 14 years.

6. Lawrence Kipchumba Yego

He was appointed to the Board in 2006 and is the current Chairman of the Board. He is a Certified Public Accountant of Kenya (CPA K) and is a Member of the Institute of Certified Public Accountants of Kenya (ICPAK). He currently holds the position of Chief Manager, Finance at The Kenya Power and Lighting Company Ltd where he has worked for 26 years. He has wealth of experience in finance.

7. Ernest Nadome

He was appointed to the Board in September, 2003. He holds a Master of Arts (MA) in Labour Management Relations, Bachelor of Arts (B.A) Degree (Hons). He is the General Secretary of the Kenya Electrical Trades & Allied Workers Union (KETAWU) a position he has held for the past 11 years. He is well versed in energy, human resources and labour matters, having worked for The Kenya Power and Lighting Company Ltd and Kengen for 16 years. He is the Chairman of the Boards of Trustees for the Kengen Company Limited Staff Retirement Benefits Schemes (for both DB & DC Schemes), a member of the Central Organisation of Trade Union (COTU) board and is the Gazetted Vice Chairman of The National Industrial Training Authority (NITA). He is also the Chairman of The National Industrial Training Authority Retirement Pension Scheme. In addition he is a member of The Pre-Feasibility Study (PFS) Committee of the Kenya Nuclear Energy representing COTU (K) and is The Chairman of Tom Mboya Labour College based in Kisumu. He is a Certified Pension Fund Trustee.

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1. Henry Kyanda – Trust Secretary

He was appointed Trust Secretary and Secretary to the Board in 2006. He holds a Master of Business Administration (MBA) Degree in Strategic Management and Bachelor’s degree in International Business Administration (Finance). He has wide experience in the Pensions industry having previously worked as the Principal Pensions Officer at The Kenya Power and Lighting Company Ltd. Prior to joining Kenya Power he worked in the investment management industry. He has a wide experience in pensions, banking and investments spanning over 14 years.

2. Joseph Mitito – Senior Property Officer

He joined Kenya Power Pension Fund in March 2012. He has over 9 years’ experience in Property management, valuation and Project management. He holds a Bachelor of Arts

degree in Land Economics and a post graduate diploma from the Institution of Surveyors of Kenya. He is also member of Institution of Surveyors of Kenya (M.I.S.K), Registered and Practicing Valuer and Estate Agent (RV & REA). Prior to his appointment at Kenya Power Pension Fund he worked as an Associate Director at Njihia Muoka Rashid Co. Limited.

3. Nancy Muruthi – Senior Pensions Officer

She joined Kenya Power Pension Fund in March 2012. She has over 13 years’ experience in handling Group Life Assurances, Pension Administration and Compliance. She holds a Bachelor of Education (Arts) degree, Higher Diploma in Human Resources and a Diploma from the Chartered Insurance Institute (CII, London). Prior to her appointment at Kenya Power Pension Fund she worked as a Consultant at Alexander Forbes Financial Services.

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4. Steve Mathuka- Head of Pensions Administration

He joined Kenya Power Pension Fund in 2006. He has over 19 years’ experience in human resource management and pensions administration. He holds a Master of Business Administration (Strategic Management), a Bachelor’s Degree in Psychology, a Higher Diploma in Human Resource Management and a Diploma in Mechanical Engineering. In addition he is a member of Institute of Human Resource Management (IHRM).

5. Amos Ndung’u- Senior Finance and Investments Officer

He joined Kenya Power Pension Fund in April 2012. He has over 7 years’ experience in treasury management. He has a Master of Business Administration (Finance) and a Bachelor of Science in Actuarial Sciences. He is also a Certified Public

Accountant of Kenya (CPA K). In addition he is also a member of Institute of Certified Public Accountants of Kenya (ICPAK). Prior to his appointment at Kenya Power Pension Fund, he worked as a Treasury Accountant at Kenya Airways.

6. Martha Simiyu – HR & Administration Officer

She joined Kenya Power Pension Fund in 2006. She has over 15 years’ experience in Pension Administration and Human Resources management. She holds a Bachelor’s degree in Business Administration (Management), Higher Diploma in Human Resource Management and a Diploma in Business Administration. She is a member of the Institute of Human Resources (IHRM).

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MANAGEMENT



GOVERNANCE AND MANAGEMENT

Introduction

The Board of Trustees is accountable at all times to the members for ensuring that the Fund complies with the law and the highest standards of corporate governance and business ethics. The Board believes in embracing corpo-rate governance through creation of the right corporate culture and values. The Board exercises the most reason-able care to ensure that the management of the Fund is carried out in the best interests of the members and the Sponsors of the Fund.

Board of Trustees

The Board of Trustees considers corporate governance as a key function in the management of the Fund and for its accountability to all members. It has inculcated a value system in the corporate culture, and use of established best practice guidelines to achieve highest standards of compliance with the law, while ensuring the Fund is man-aged in manner to satisfy the interests of members and Sponsors. One of our core principles, integrity, dictates the ethical code and decision making processes of the Trustees to provide effective leadership. Board members are appointed jointly by the Fund’s members and Sponsors on a representative basis, with the necessary capacity and development to drive performance of the Fund.

Board Responsibilities

Due care is the taken by the Trustees in managing affairs of the Fund. In recognition of their ultimate responsibility, our Trustees’ focal point to guide their decisions and ac-tions is based on a foundation of good governance, and on our core values which are integrity, accountability, cour-teous service, stewardship and efficiency.

The Board Manual sets out the Trustee’s roles and respon-sibilities which include but are not limited to the following:

• Formulation & approval of the Fund’s Vision, Mission and core values and formulation & approval of the Fund’s strategy, business plan and principles of invest-ments.

• Approval of annual budget and the final financial statements and interest on members’ balances.

• Approvals for AGM notices, venues, date and time. • Review and evaluation of Investment Managers Per-

formance and approval of risk management strategy. • Approval of major restructuring. • Settlement of major litigation/claims. • Appointment of all service providers • Approval of banking/authority levels, policies, proce-

dures and manuals

The Board further delegates selected responsibilities to the Fund Secretariat and appointed service providers.

Role of the Chairman

The Chairman of the Board is appointed by the Board of Trustees in accordance with provisions of the Fund’s Trust Deed and Rules. His roles and responsibilities are distinct and separate from those of the Trust Secretary.

The Chairman is responsible for the overall Board lead-ership and its effectiveness, and his decisions are bind-ing on the principles of collective responsibility for Board decisions. He sets the agenda for Board meetings and chairs all meetings and the Fund’s AGM. He also ensures adequate induction of new Trustees to orient them with Board’s role, key tasks, processes, policies, and aware-ness of conflict of interest, as well as trainings for all Trustees to keep them abreast with good corporate gov-ernance practices and developments in the industry. He ensures key tasks of the Board are properly understood, and maintains a separate independent working relation-ship with the Trust Secretary.

Role of the Trust Secretary

The Trust Secretary is the head of the Fund’s secretariat and is responsible for the overall leadership and day-to-day management of the Fund’s operations. He is answer-able to the Board and is tasked with the effective and efficient running of the secretariat, under the boards’ di-rection. He acts as the Secretary to the Board overseeing performance management and ensuring the Fund meets its performance targets, operational controls, ethical con-duct, good corporate governance practices and compli-ance with regulations. In consultation with the Board of Trustees and other stakeholders, he develops and imple-ments the strategic plan, as well as enhancing communi-cation between the Fund and stakeholders.

Board Structure and Composition

Functions of the Board are carried out under a defined structure made up of Committees that assist it in dis-charging its mandate. Committees assist the Board in its responsibilities and obligations which help to ensure there’s an independent oversight of internal controls and risk management.

The Board size and composition is guided by the Re-tirement Benefits (Occupational Retirement Benefits Schemes) Regulations, 2000 which states that a defined benefit scheme shall not have less than three and not more than nine trustees and the number of trustees nom-inated by members shall not be less than one third of the Board of trustees . In view of this requirement, and in ac-

Corporate Governance Statement



cordance with the Trust Deed and Rules, the Fund Board comprised of six (6) Trustees three (3) of whom are ap-pointed by the sponsor as here below:

Sammy Oduori (Chairman)Member elected – representing pensioners

Eng. Joseph Njoroge Sponsor appointed

Dr. Ben K Chumo Sponsor appointed

Lawrence K Yego Sponsor appointed

Ernest NadomeMember elected – representing Workers Union members

Koskey KolilMember elected – representing Workers Union members

The Board Chairman, a retiree of the Fund, is nominated to represent pensioners and their interests, whose liabilities constitute 31.36 % of Fund’s total liabilities. Trustees have a 3-year renewable term. Member elected Trustees are elected every three years while the sponsor appointed Trustees are reappointed or maybe removed at any time by the sponsor.

Board Remuneration

All Trustees are paid a sitting allowance for the meetings they attend as per the Trust deed and rules. The Chairman of the Board also receives monthly stipend. These are de-tailed in Note 12 of the Financial Report.

Board Meetings

The Board and its Committees meet regularly in accor-dance with an annual calendar, and at least once after each quarter elapses, in order to review matters of a previous quarter. It regularly reviews reports on progress against financial objectives and stakeholder relations.

In the endeavor to embrace innovative technology in streamlining and automating tasks, the Fund acquired eBoard which is one of the latest technology solutions in the market to assist in management of Board functions using ICT.

All Board and Committee meetings are now managed seamlessly via the eBoard system which has an interac-tive and easy to navigate interface, accessible via a web-page. Via this system, Trustees can access and preview necessary information on the items to be discussed pri-

or to any meeting of the Board. The system has features to upload agenda(s), board papers, previous meetings’ minutes, and any other documents relevant to a specific agenda and/or meeting. This has been beneficial in en-abling Trustees prepare adequately and hold meetings easily and efficiently, saving on time and eliminating the manual paper-based way of reviewing and approving documents.

Board Committees

The Board has a structured system of operation made up of committees established to assist it in discharging its re-sponsibilities and obligations. It delegates specific func-tions to selected Committees with defined formal terms of reference, without abdicating its ultimate responsibility. The terms of reference clearly identify matters reserved for the Board and Committees for decisions.

The membership and Chairmanship of these Committees is regularly reviewed by the Board who are responsible for filling any vacancies. The Board is cognizant that mem-bers collectively have sufficient qualifications and expe-rience to fulfill the duties of the respective Committees. The elected Chairman appraises the full Board of their activities on a quarterly basis through oral and/or written reports. The Chairman of the committees participates in setting and agreeing the agenda for meetings. During the year 2013, the Board had four (4) committees as follows:

Audit Committee

The Audit Committee is an independent committee and was chaired by Lawrence Yego during the year 2013. Oth-er members were Dr. Ben Chumo, Kosgey Kolil and Lau-rencia Njagi who resigned during the year. The committee met three (3) times in the year.

The mandate of this Committee includes but is not limited to: • Meeting with internal and external auditors on the

nature scope and priorities of audits and the major findings of audits

• Monitors and reviews the integrity of the Fund’s fi-nancial statements

• Make recommendations to the Board on business risks, internal controls and compliance.

• Reviewing the effectiveness and reliability of man-agement information systems, risk and internal controls systems and the efficiency and effective-ness of both external and internal audit

• Advise the Board on any issues pertaining to the appointment remuneration resignation and dis-missal of auditors

Corporate Governance Statement (Continued)



Investment & Custody Committee

The Investment & Custody Committee was chaired by Er-nest Nadome during the year 2013. Other members were Eng. Joseph Njoroge, Lawrence Yego and Laurencia Njagi who resigned during the year. The committee met four (4) times in the year.

The mandate of this Committee includes but is not limited to: • To meet with investment managers, custodians

and with the Administrator’s management. • To oversee the investment management function

of the Fund. • To monitor the implementation of the Fund’s invest-

ment strategies • To make recommendations to the Board on pro-

posed new investments, capital developments • Advise the Board on appointment of investment

managers, custodians and bankers to monitor and evaluate performance of these service providers

Governance, Staff and Administration Committee

The Governance, Staff and Administration Committee was chaired by Dr. Ben Chumo during the year 2013. Other members were Kosgey Kolil, Lawrence Yego and Ernest Nadome. The committee met six (6) times in the year.The mandate of this Committee includes but is not limited to: • Oversee the governance, compliance and commu-

nication function of the Fund. • Responsible for staff and operational policies in

order to align the Fund’s operations with best prac-tice

• Orientation and induction of new Trustees includ-ing training and development of Board of Trustees

Project Implementation Committee (PIC) – Loresho Hous-ing Project

The Project Implemention Committee for the Loresho project was chaired by Ernest Nadome during the year 2013. Other members in this committee are Dr. Ben Chu-mo, Lawrence Yego, and Kosgey Kolil. The committee is responsible for overseeing and directing the management and implementation of the Loresho housing project which is still in progress. The committee met eleven (11) times in the year.

The mandate of this committee includes but is not limited to:• To oversee the implementation of the Project in ac-

cordance with the directives and approvals from the Board.

• To monitor the progress of implementation for the project.

• To ensure that appropriate mechanisms are put in place to ensure close cooperation amongst the consultants involved in the implementation of the Project.

• To give necessary advice, guidance and support to the Project Manager and the other consultants on all project related matters to ensure that the pro-ject is well implemented.

• To report on monthly basis to the Board of Trustees on matters related to the implementation of the Project.

Meetings Attendance

The Board of Trustees meets regularly as per the Board calendar. Below is a summary of meeting attendance by Trustees for the year ended 31 December, 2013.

Trustee Name Full Board Meetings

Audit Committee

Investments & Custody Committee

Governance, Staff & Admin

CommitteePIC Loresho

Total Meetings 6 3 4 6 11Sammy Oduori 6/6 - - - -Eng. Joseph Njoroge 3/6 - 1/4 - -Lawrence Yego 6/6 3/3 1/4 5/6 10/11Dr. Ben Chumo 4/6 2/3 - 5/6 6/11*Laurencia Njagi 4/6 2/3 2/4 - -Ernest Nadome 4/6 - 4/4 2/6 10/11Kosgey Kolil 6/6 3/3 - 5/6 10/11


*Laurencia Njagi resigned from the Board on 25th September 2013.



Board Elections

The Retirement Benefits (Occupational Retirement Bene-fits Schemes) Regulations, 2000 requires that election of Trustees is conducted every three years. There was no election during the year since none of the Board members were eligible for retirement. Statement of Compliance and Conflict of Interest

Conscious of its responsibilities to members, service pro-viders, suppliers, creditors, employees and society, the Board of Trustees issued a statement at the end of the year confirming that they have complied with the law, conducted their affairs in accordance with the best prin-ciples and practices of corporate governance and that to the best of the knowledge of the Board and management, no person, employee or agent acting on behalf of the Fund with the knowledge or authority of the Board or manage-ment, committed any offence under the Prevention of Corruption Act or indulged in any unethical behavior in the conduct of the Fund’s business, or been involved in money laundering, or any practice or activity contrary to national laws or international conventions. The Trustees also submitted annual declaration of conflict of interest to the Chairman of the Board of Trustees. During the year the all the Trustees submitted the annual Conflict of interest declaration.

Code of conduct

Each Trustee derives his or her authority and position from a legitimate nomination procedure. However, on be-coming a Trustee, each Trustee becomes bound by the overriding fiduciary duty to act in good faith in the pursuit of the best interests of the Fund members as a whole. In the discharge of their duties, Trustees operate within the framework of a collective Board. In order to enable the Board to operate effectively and in the best interests of the Fund, all Trustees observe rules and regulations gov-erning the Conduct of Trustees as contained in the Board manual.

Board Induction programs & Training

Each Trustee on appointment is provided with sufficient information to enable him/her perform his/her roles. In-duction of newly-appointed Trustees is organized by the Secretary to the Board. The Board ensures that all Trustees keep abreast of both practical and theoretical developments, and that their expertise is constantly rel-evant. Trustee development comprises of induction and enhancement of skills as determined from regular eval-uations.

Every year the Secretary to the Board carries out a Trust-

ees training needs analysis and prepares a training calen-dar which is implemented during the year.

In addition, according to the Capacity Building of Trust-ees of Retirement Benefits Schemes Prudential Guideline Number RBA 001,2013 all Trustees of Retirement Benefits Schemes and Directors of Corporate Trustees of any re-tirement benefits scheme in Kenya are required to under-go training in order to be certified and approved by the Re-tirement Benefits Authority by the end of the year 2014. As at 31st December, 2013 three out of six Trustees had been trained. All the remaining trustees will have complied with this requirement by December, 2014.

Board Evaluation

The Board takes time off to evaluate its own performance regularly. The evaluation comprises a self-critique of the Board and its Committees as a collective agency and that of the Fund in general. The output from the evaluation forms the basis for identifying shortfalls in skills and com-petencies and subsequently short training courses are or-ganized for the Trustees to address such gaps. Every three years a review of Board performance is facilitated by an external service provider.

RISK MANAGEMENT

The Trustees are committed to a process of Enterprise Risk Management that will manage identified strategic and operational risks through a structured, systematic, proactive and integrated process. This is done through a risk management framework which enables manage-ment to focus in a comprehensive and holistic manner on all risks faced by the Fund. A risk management policy established by the Trustees is one of the important steps in ensuring that management identifies and manages all risks and the Trustees provide oversight as well as policy direction in managing risks.

Risk Management Structure and Roles

Risk management on an enterprise wide basis requires an integrated approach between the various risk-related specialists, department and staff. The risk management structure of the Fund is composed of the Board of Trus-tees, Audit committee, the management team and a risk committee at the Secretariat level composed of repre-sentatives from each department.

Role of the Board of Trustees

The overall function of risk oversight is the responsibility of the Trustees. The Board ensures that strategic risks are identified, assessed and managed. The board also incor-porates Risk management into decision making and helps




ensure that a systematic, documented assessment of the processes and outcomes surrounding key risk areas is undertaken regularly through regular reviews and assess-ments, that Audit committee together with the manage-ment have established appropriate systems to manage these risks and finally provides appropriate resources for risk management.

Role of Audit Committee

The Board of Trustees has established committees among them being the audit committee whose mandate is to implement and monitor implemented risk management framework established by the board. The Committee also ensures that risk management system implemented by management meets the requirements set out in the policy.

Role of Internal Auditors

In addition to the implementation of risk management framework, the Board has appointed independent internal auditors whose function is to provide independent assur-ance to the Trustees and management through general and specific audits, reviews, testing and other techniques, carrying out a risk based audit from time to time, report on effectiveness of and efficiency of risk management pro-cess as well as report on Fund’s compliance with the risk policy. A risk assurance audit was conducted during the year to review the risk status. A review of the strategic and operational risk registers was conducted.

Role of Management Team

The Management team’s role in risk management is that of implementing the risk framework established by the Board of Trustees. In addition the management receive and approve the quarterly reports on operational risk management Issues, report any strategic risks identified to the Audit Committee and the Board. The management team also approve risk mitigating actions to be taken by the Secretariat risk committee and contribute to the de-velopment of the Risk Management system and arranges internal audits on the risk management process at appro-priate intervals on behalf of the Board.

Risk Categories

The Fund has identified and categorised risks as follows:• Strategic risks : These risks arise out of the Funds Stra-

tegic plan• Investments Risks: Risk associated with investments of

the Fund• Financial Risk: Risks associated with financial aspect of

the Fund• Operational risk: This refers to all the risks associated

with the operations of the Fund

• Legal and regulatory risks: Legal risks can arise non-compliance with the legal and regulatory require-ments.

The Investment and financial risks have also been report-ed under our Note No3 as per IFRS 7 disclosure require-ments on nature and extent of risks arising from financial instruments both qualitative and quantitative.

Risk Assessment and Risk Register

Our risks are assessed both quantitatively and qualitative-ly and measured in terms of impact and likelihood. A risk register is maintained by the Fund and this is reviewed quarterly by the Board and Secretariat to monitor existing risks and well as update emerging risks.

Risk training and awareness

The Board’s commitment to risk management has also been evidenced by the awareness and training given to the Board of Trustees, management and the staff of the Fund.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Fund recognizes the importance of giving back to so-ciety and is committed to contributing to socio-econom-ic development while acting ethically and improving the quality of life for members of needy communities and the society at large. The cornerstone of our sustainability and commitment is through various engagements with stake-holders whether directly or indirectly and activities that are planned for each year. The Fund spent a total of Ksh. 420,000 which was within the allocated budget.

In line with the Fund’s CSR policy, the Fund was involved in three corporate social activities

Education

The Fund identified Kikuiyan primary school, a needy school located in the remote part of Narok County as needy candidates which deserved assistance. The sec-retariat visited the school and donated classroom desks for pupils, stationery including textbooks, and writing ma-terials for pupils, sanitary towels for teenage girl pupils, a water tank and a cheque worth Ksh. 97,250 as a grant.

The Fund continuously looks for similar avenues to iden-tify needy establishments that have a big impact to the general society in the locality of the project, as this forms a bigger part of our CSR initiative.




Secretariat donate stationery, desks and cash during a CSR visit to Kikuyian

Primary school in Narok County

Health

In the year 2013 the Fund participated in the annual Ma-ter Heart Run event usually organized by Mater Hospital, which took place in May 2013 at Nyayo Stadium. Funds collected in this event go towards the support of needy patients suffering from heart-related diseases to get nec-essary heart surgeries. The Fund is proud to have been represented by the staff members who participated in the event, and looks forward to committing its support and at-tend future events.

Secretariat donate sanitary towels to girls at Kikuyian Primary school in Narok

County

Health support through participating in Mater Heart Run

Community

The Fund also supported Kenya Power and Lighting Com-pany Ltd Christian Union Fellowship with cash and food-stuff donations during a visit to Msamaria Mwema Chil-dren’s home in Lower Kabete, Nairobi in October 2013.

They embarked on this noble engagement, in support of the children home’s mission to provide a home for or-phaned children with love and caring for their needs, as well as giving them Christian values, education and train-ing skills for their development. The children are affect-ed by the HIV/AIDS pandemic directly and indirectly. The Fund is also proud to have been represented by the staff members of Kenya Power who participated in the event, and looks forward to providing more support.

Kenya Power Pension Fun and Kenya Power Christian Union donate foodstuff

during a visit to Msamaria Mwema children’s Home in Kiambu County

Staff

The Fund secretariat comprises of fifteen (15) staff, six (6) of whom are female employees and nine (9) are male em-ployees. This meets the 30% affirmative action on gender




equality. The team has a diverse skills set of competence, experience and knowledge in the required fields such as pension administration, finance & investments, property management, customer service, human resources & ad-ministration and information technology.

The Fund endeavors to improve employee’s performance through performance based rewarding, training, team building and a good working environment.

Secretariat staff at the team building session

Members

The board has recognised that besides offering the stan-dard service to members, provision of member training on various aspects of their life such as financial manage-ment, nutritional and health are paramount to creating the all-round member. Through the annual member education program, members have received these trainings and have provided positive feedback on the impact on their personal lives.

In addition, the Trustees established an Orphan Trustee Program which assists many beneficiaries of deceased in service members. This Fund provides a channel through which the beneficiaries can utilize these benefits for child education.

ENVIRONMENT

Environment is a current hot topic and one that is likely to grow in importance in light of increasing global tem-peratures, decreasing natural resources and increasing energy costs. The Fund takes cognizance of this fact and is ever aware of its role in ensuring that its business op-erations do not in any way negatively impact on the envi-ronment.

The Fund’s commitment to best practices in promoting the environment is best demonstrated by its continued under-taking of Environmental Impact Assessment (EIA) for all the proposed development to assist in the understanding

of the potential environmental impacts and proper mea-sures to mitigate the impacts. These impacts are moni-tored to avert environmental degradation. The Fund has also adopted the use of solar panels in all the developed houses to promote use of green energy as well as save on energy. From the design to installations and usage, environmentally friendly and innovative meth-ods have been incorporated so as to promote sustainable use of natural resources and blend with the obtaining ecosystem. In the Loresho project, the Fund has ensured that there is enhanced use of rainwater, natural light and push sensitive water taps.

The adoption of modern waste management technology in the Fund’s projects ensures that there is better disposal of hazardous waste and recycling of what is environmentally and aesthetically fit for re-use.

The Fund’s effort in improving the environment is an-chored on the understanding that the environment pro-vides the resources that organizations require to do their business. This premise notwithstanding, it is our view that environmental improvement ought to be taken seriously ir-respective of legal, regulatory or business gains that may arise from such actions.

Loresho Ridge project (under construction above) showing use of solar panels and waste water treatment plant in Loresho Ridge project




STATUTORY INFORMATION



Background

The Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme Trustees are pleased to submit their annual report together with the audited financial statement for the year ended 31st December, 2013 in accordance with section 34 of the Retirement Benefits Act.

Principal Activities

The principal activities of the Fund are provision of cash benefits and pensions to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for dependents’ of deceased members. This is achieved through prudent funds investment.

Results of the yearThe increase in Net Assets for the year is Ksh 1,723,333,047 (2012: 2,637,805,717) and has been added to Members funds. Members funds stood at Ksh 15,954,561,000 (2012: 14,231,228,365). The funding level was 119.90% (2010:100.20%)

InterestThe Board has declared an interest of 10% to be credited into members account for the year ended 31st December, 2013

Board of Trustees

The Trustees of the Fund who held the office during the year are listed on page 4. During the year, one resigned from office.

Auditors

The Scheme’s auditors Ernst and Young having expressed their willingness will continue to be in office in accordance with Section 34(3) of the Retirements Benefits Act and subject to Rule No. 19 (a) (iv) of the Scheme’s Trust Deed and Rules.

Financial Statements

The Audited financial statements were approved and authorized by the Board of Trustees on 17th April 2014.

Report of the Board of Trustees



The Kenyan Retirement Benefits Act requires the Trustees to prepare financial statements for each financial year which show a true and fair view of the financial transactions of the Fund for the year and of disposition at year end of its assets and liabilities. It also requires the Trustees to ensure that the Fund keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund. They are also responsible for safeguarding the assets of the Fund.

The Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Retirement Benefits Act, and for such internal control as Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. They are also obligated to send to the members a summary of its audited financial accounts together with the members’ benefit statements.

The Trustees accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and the Fund’s rules. The Trustees are of the opinion that the financial statements give a true and fair view of the financial affairs of the Fund and of its operating results. The Trustees further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

The Trustees certify that, to their best knowledge and belief, the information furnished to the auditors for the purpose of the audit was correct and complete in every respect.

Nothing has come to the attention of the Trustees to indicate that the Fund will not be able to meet its obligations for at least the next twelve months from the date of this statement and the requirements of Kenyan Retirement Benefits Act.

Trustee Trustee Trust Secretary

17th April 2014

Statement of Trustees’ Responsibilities

Report on the Financial Statements

We have audited the accompanying financial statements of the Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme - Defined Benefit, which comprise the statement of net assets available for benefits as at 31 December 2013, the statement of changes in net assets available for benefits, statement of changes in members’ funds and statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information, as set out on pages 5 to 47.

Trustees’ Responsibility for the Financial Statements

The Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Kenyan Retirement Benefits Act and for such internal controls as Trustees determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of 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 judgment, 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 control relevant to the fund’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 fund’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the trustees, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the state of financial affairs of the fund as at 31 December 2013 and of its increase in funding and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of Kenyan Retirement Benefits Act.

REPORT ON OTHER LEGAL MATTERS

We also report to you, based on our audit, that:

i) 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;

ii) in our opinion, proper books of account have been kept by the Fund so far as appears from our examination of those books; and,

iii) The Statement of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditors report is CPA Joseph K Cheboror-Practicing Certificate No. 1145

Certified Public Accountants (Kenya)Nairobi

23rd June 2014

REPORT OF THE INDEPENDENT AUDITORSTO THE MEMBERS OF THE KENYA POWER & LIGHTING COMPANY LIMITED STAFF RETIREMENT BENEFITS SCHEME - DEFINED BENEFIT



Note 2013 2012CONTRIBUTIONS AND BENEFITS KShs ‘000 KShs ‘000

Contributions receivable from sponsor 5 - - Benefits payable 6 (467,922) (527,059)

Net deficit from dealing with members (467,922) (527,059) RETURNS ON INVESTMENTS

Investment properties 7 707,554 1,155,423Government securities 7 444,319 826,925Short term deposits 7 139,494 116,035Quoted equities investments 7 923,203 1,091,620Corporate bonds and commercial papers 7 79,236 93,481Offshore investments 7 203 (1,521)

Investment income 2,294,009 3,281,963

Investment management expenses 8 (30,404) (37,266) Net returns on investments 2,263,605 3,244,697

OTHER INCOME 9 14,247 75

OPERATIONAL EXPENSES 10 (86,597) (79,908)

INCREASE IN NET ASSETS FOR THE YEAR 1,723,333 2,637,805

Statement of Changes in Net Assets Available for BenefitsFOR THE YEAR ENDED 31 DECEMBER 2013



2013 2012ASSETS Note KShs ‘000 KShs ‘000Non – current assetsProperty and equipment 14 667 8,712Intangible assets 15 16,927 17,650

17,594 26,362InvestmentsInvestment properties 16 4,847,028 4,220,000Investment properties - work in progress 16 1,497,825 472,266Government securities 16 4,694,816 3,946,530Unquoted equity investments 16 197,620 237,825Quoted equity investments 16 3,074,934 2,453,465Corporate bonds 16 839,216 646,880Offshore investments 16 1,061 2,197Commercial paper 16 - 24,577Short term deposits 16 675,162 1,462,725

15,827,662 13,466,465Other assetsReceivables 26 330,674 1,012,970Cash and Bank balances 27 7,517 6,269Amount due from related parties 28 4,569 2,191

342,760 1,021,430

TOTAL ASSETS 16,188,016 14,514,257

LIABILITIESDue from to related parties 28 8,997 18,502Benefits payable 29 5,496 11,386Clients deposits 30 110,631 -Other payables and accruals 31 108,332 253,141

TOTAL LIABILITIES 233,456 283,029

NET ASSETS AVAILABLE FOR BENEFITS 15,954,560 14,231,228

REPRESENTED BY MEMBERS’ FUNDS:FUND BALANCE 15,954,560 14,231,228

The financial statements were approved for issue by the Board of Trustees on 17th April 2014 and signed on its behalf by: -

TRUSTEE TRUSTEE TRUST SECRETARY

Statement of Net Assets Available for BenefitsAS AT 31 DECEMBER 2013



Members’ fundKShs ‘000

At 1 January 2013 14,231,227

Increase in net assets for the year 1,723,333

At 31 December 2013 15,954,560

At 1 January 2012 11,593,421

Increase in net assets for the year 2,637,806

At 31 December 2012 14,231,227

Statement of Changes in Members’ FundsFOR THE YEAR ENDED 31 DECEMBER 2013



CASH FLOWS FROM OPERATING ACTIVITIES Note 2013 2012KShs ‘000 KShs ‘000

Contributions receivable - -Benefits payable 6 (467,922) (527,059)Interest income 9 651 76 Write back of provisions 9 13,595 -Other administrative expenses 10 (86,597) (89,188)Depreciation of property and equipment 14 2,840 1,641 Amortization of intangible assets 15 723 723 Reimbursement of expenses paid on behalf of DC 28 18,639 9,280

Operating (loss)/gain before working capital changes (518,071) (604,527)

(Increase)/Decrease in receivables 682,296 (1,011,265)Amounts due to/from related parties (11,883) 62,167 Benefits payable (5,890) (64)Client deposits 30 110,632 (606,026)Other payables and accruals (144,810) 223,852

Net cash inflows from operating activities 112,274 (1,935,863)

CASH FLOWS FROM INVESTING ACTIVITIESInvestment income received 952,769 1,200,712 Investment management expenses 8 (30,404) (37,266)Investment properties (26,325) 506,095 Purchase of property and equipment 14 (2,583) (2,249)Purchase of intangible assets 15 - (18,300)Investment properties - work in progress 16 (1,025,558) 625,107 Government securities (308,638) (21,590)Quoted equity investments 178,495 636,407 Corporate bonds (192,336) (83,577)Offshore investments 1,136 1,366 Commercial paper - -

Net cash used in investing activities (453,444) 2,806,705

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (341,170) 870,842

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR

271,581,305 710,463

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 27 1,240,135 1,581,305

Statement of Cash FlowsFOR THE YEAR ENDED 31 DECEMBER 2013



REPORTING ENTITY

The Kenya Power and Lighting Company Limited Staff Retirement Benefits Scheme was established by the Kenya Power and Lighting Company ( the sponsor) under irrevocable trust as a scheme for the purpose of providing pension and other benefits to the members upon attainment of the retirement age of sixty years, and where applicable, benefits for the dependants of deceased members. The Fund is registered by the Retirement Benefits Authority, and is domiciled in Kenya. The address of its registered office is as follows:

Retirement Benefits Scheme TrusteesStima Plaza, Kolobot Road, ParklandsP O Box 1548 – 00600, Nairobi

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied over the periods presented unless otherwise stated:

a) Basis of preparation of financial statements

(i) Basis of preparation

The financial statements are presented in Kenya Shillings, and are prepared under the historical cost basis except for certain investments that have been measured at fair value.

(ii) Statement of compliance

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).

The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been applied consistently unless otherwise stated.

b) New accounting standards, amendments and interpretations The accounting policies adopted are consistent with those of the previous financial year, except for the

following new and amended IFRS interpretations effective as of 1 January 2013.

• IFRS 7 Financial Instrument Disclosures (revised)• IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements• IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures• IFRS 12 Disclosure of Interests in Other Entities• IFRS 13 Fair Value Measurement• IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1• IAS 19 Employee Benefits (Revised 2011)• IAS 16 Property, Plant and Equipment — Classification of servicing equipment• IAS 32 Financial Instruments: Presentation — Tax effects of distributions to holders of equity

instruments• IAS 34 Interim Financial Reporting — Interim financial reporting and segment information for total

assets and liabilities

These revised standards and interpretations did not have any material effect on the financial performance or position of the Fund. They did, however, give rise to additional disclosures in some occasions.

IFRS 7 Financial Instrument Disclosures (revised)The amendments require disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position.

Notes to the Financial StatementsFOR THE YEAR ENDED 31 DECEMBER 2013



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

b) New accounting standards, amendments and interpretations (continued)IFRS 7 Financial Instrument Disclosures (revised) (continued)

Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when and only when, the entity: (a) has a legally enforceable right to set off the recognised amounts; and(b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

These amendments are applied retrospectively, in accordance with the requirements of IAS 8 for changes in accounting policy. If an entity chooses to early adopt IAS 32 Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32, it must make the disclosure required by IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7

IFRS 7 did not have an impact on the financial performance or the financial position of the Fund as the Fund does not have such arrangements.

IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial StatementsIFRS 10 replaces the portion of IAS 27 that addresses the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 Consolidation — Special Purpose Entities, which resulted in SIC-12 being withdrawn. IAS 27, as revised, is limited to the accounting for investments in subsidiaries, joint ventures, and associates in separate financial statements. IFRS 10 does not change consolidation procedures (i.e., how to consolidate an entity). Rather, IFRS 10 changes whether an entity is consolidated by revising the definition of control. Control exists when an investor has:-• Power over the investee (defined in IFRS 10 as when the investor has existing rights that give it the

current ability to direct the relevant activities)• Exposure, or rights, to variable returns from its involvement with the investee, and• The ability to use its power over the investee to affect the amount of the investor’s returns

IFRS 10 also provides a number of clarifications on applying this new definition of control. IFRS 10 did not have an impact on the financial performance or the financial position of the Fund as the Fund does not have such arrangements.

IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint VenturesIFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. Joint control under IFRS 11 is defined as the contractually agreed sharing of control of an arrangement, which exists only when the decisions about the relevant activities require the unanimous consent of the parties sharing control. ‘Control’ in ‘joint control’ refers to the definition of ‘control’ in IFRS 10.

IFRS 11 also changes the accounting for joint arrangements by moving from three categories under IAS 31 to the following two categories:

Joint operation — An arrangement in which the parties with joint control have rights to the assets and obligations for the liabilities relating to that arrangement. In respect of its interest in a joint operation, a joint operator must recognise all of its assets, liabilities, revenues and expenses, including its relative share of jointly controlled assets, liabilities, revenue and expenses.

Joint venture — An arrangement in which the parties with joint control have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity method.

Notes to the Financial Statements (Continued)FOR THE YEAR ENDED 31 DECEMBER 2013



1. SIGNIFICANT ACCOUNTING POLICIES (continued)

b) New accounting standards, amendments and interpretations (continued)

IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures (continued)

The option in IAS 31 to account for joint ventures as defined in IFRS 11 using proportionate consolidation has been removed.

Under these new categories, the legal form of the joint arrangement is not the only factor considered when classifying the joint arrangement as either a joint operation or a joint venture, which is a change from IAS 31. Under IFRS 11, parties are required to consider whether a separate vehicle exists and, if so, the legal form of the separate vehicle, the contractual terms and conditions, and other facts and circumstances.

IAS 28 has been amended to include the application of the equity method to investments in joint ventures.

IFRS 11 did not have an impact on the financial performance or the financial position of the Fund as the Fund does not have such arrangements.

IFRS 12 Disclosure of Interests in Other EntitiesIFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries for example, where a subsidiary is controlled with less than a majority of voting rights. Some of the more extensive qualitative and quantitative disclosures of IFRS 12 include:• Summarised financial information for each subsidiary that has non-controlling interests that are

material to the reporting entity• Significant judgments used by management in determining control, joint control and significant

influence, and the type of joint arrangement (i.e., joint operation or joint venture), if applicable• Summarised financial information for each individually material joint venture and associate • Nature of the risks associated with an entity’s interests in unconsolidated structured entities, and

changes to those risks

The Fund has no subsidiaries; IFRS 12 is thus not applicable to the Fund.

IFRS 13 Fair Value MeasurementIFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Fund re-assessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. IFRS 13 also requires additional disclosures. Application of IFRS 13 has not materially impacted the fair value measurements of the Fund.

IFRS 13 requires an entity to disclose additional information that helps users of its financial statements assess both of the following: • for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the

statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements

• for fair value measurements using significant unobservable inputs, the effect of the measurements on profit or loss or other comprehensive income for the period.

Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined.






IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1This became effective from 1 July 2012. The amendments to IAS 1 require an allocation of items presented in OCI. Items that will be reclassified (‘recycled’) to profit or loss at a future point in time (e.g., net loss or gain on AFS financial assets) have to be presented separately from items that will not be reclassified (e.g., revaluation of land and buildings). The amendments affect presentation only and have no impact on the Fund’s financial position or performance.

IAS 1 Clarification of the requirement for comparative information (Amendment)These amendments clarify the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative periodThe amendments clarify that the opening statement of financial position presented as a result of retrospective restatement or reclassification of items in financial statements does not have to be accompanied by comparative information in the related notes. The amendment did not have impact on the Fund’s financial statements as the Fund did not have any retrospective restatement or reclassification in its financial statements.

IAS 19 Employee Benefits (Revised 2011)IAS 19R includes a number of amendments to the accounting for defined benefit plans, including actuarial gains and losses that are now recognised in other comprehensive income (OCI) and permanently excluded from profit and loss; expected returns on plan assets that are no longer recognised in profit or loss, instead, there is a requirement to recognise interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation, and; unvested past service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognised. Other amendments include new disclosures, such as, quantitative sensitivity disclosures and in determining the discount rate used in accounting for employee benefit plans, an entity would include high quality corporate bonds issued by entities operating in other countries, provided that those bonds are issued in the currency in which the benefits are to be paid. Consequently, the depth of the market for high quality corporate bonds would be assessed at the currency level and not at the country level.

IAS 16 Property Plant and Equipment (amendment) Classification of servicing equipmentThis amendment clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. The improvement had no impact on the Fund’s financial statements.

IAS 32 Financial Instruments: Presentation (amendment t)-Tax effects of distributions to holders of equity instrumentsThis amendment clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. The improvement had no impact on the Fund’s financial statements.

IAS 34 Interim Financial Reporting (amendment)- Interim financial reporting and segment information for total assets and liabilities This improvement clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments. Total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change in the total amount disclosed in the entity’s previous annual financial statements for that reportable segment. The improvement had no impact on the Fund’s financial statements.




1. SIGNIFICANT ACCOUNTING POLICIES (continued)


Standards issued but not effective

IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014. The Fund does not expect this amendment to have material financial impact in future financial statements.The following standards have been issued or revised and will become effective for the December 2014 year end.

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)These amendments are effective for annual periods beginning on or after 1 January 2014 provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Fund, since none of the entities in the Fund would qualify to be an investment entity under IFRS 10.

IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1 January 2014. The Fund has not novated its derivatives during the current period. However, these amendments would be considered for future novations.

IFRS 9 Financial InstrumentsIFRS 9, as issued in November 2009 and October 2010, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 and Transitional Disclosures, issued in December 2011, moved the mandatory date to 1 January 2015. On 19 November 2013, the IASB issued a new version of IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (IFRS 9 (2013)), which includes the new hedge accounting requirements and some related amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures. The standard does not have a mandatory effective date, but it is available for immediate application. A new mandatory effective date will be set when the IASB completes the impairment phase of its project on the accounting for financial instruments.

IFRIC Interpretation 21 Levies (IFRIC 21)IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.

IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. The Fund does not expect that IFRIC 21 will have material financial impact in future financial statements.






Standards issued but not effective (continued)

IAS 36 Recoverable Amount Disclosures for Non- Financial Assets — Amendments to IAS 36The amendments clarify the disclosure requirements in respect of fair value less costs of disposal. In addition, additional disclosure requirements have been added as follows:(a) Additional information about the fair value measurement of impaired assets when the recoverable

amount is based on fair value less costs of disposal.(b) Information about the discount rates that have been used when the recoverable amount is based

on fair value less costs of disposal using a present value technique. The amendment harmonises disclosure requirements between value in use and fair value less costs of disposal.

The Fund does not expect that the amendment to any have material financial impact in future financial statements.

Annual Improvements December 2013

These improvements will not have an impact on the Fund, but include:

• IFRS 2 Share-based Payment - Definition of vesting condition • IFRS 3 Business Combinations-Accounting for contingent consideration in a business combination• IFRS 8 Operating Segments-Aggregation of operating segments and Reconciliation of the total of the

reportable segments’ assets to the entity’s assets• IFRS 13 Fair Value Measurement-Short-term receivables and payables• IAS 16 Property, Plant and Equipment-Revaluation method—proportionate restatement of

accumulated depreciation• IAS 24 Related Party Disclosures-Key management personnel• IAS 38 Intangible Assets-Revaluation method—proportionate restatement of accumulated

amortisation

These improvements are effective for annual periods beginning effective on or after 1 July 2014

c) Revenue recognition

The Fund’s revenue is generated from monthly contributions from members, rental income from investment properties, interest income from government securities and dividends from quoted and unquoted equities.

Revenue represents the fair value of consideration received or receivable in the course of the Fund’s activities. It is recognised when it is probable that future economic benefits will flow to the Fund and the amount of revenue can be measured reliably. It is stated net of value added tax, rebates and trade discounts.

Investment income

Interest income is recognised in the changes in net assets available for benefit as it accrues and is calculated by using the effective interest rate method. Investment income also includes dividend income which is recognised when the right to receive the payment is established.

Rental income is on a straight-line basis over the lease term. The excess of rental income on a straight-line over cash received is recognised as an operating lease liability/asset.

Dividends are recognised when the Fund’s right to receive the payment is established.





c) Revenue recognition (continued)

Realised / unrealised gains and losses

Realised / unrealised gains and losses recorded in the changes in net assets available for benefits on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised cost and are recorded on occurrence of the sale transaction.

Contributions are accounted for in the period in which they fall due.

d) Benefits payable

Benefits payable are accounted for in the period in which they fall due.

e) Property and equipment

Property and equipment is stated at cost or revaluation less accumulated depreciation and accumulated impairment losses.

Property and equipment are reviewed for impairment whenever there are any indications of impairment identified.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. The impairment loss is recognised changes in net assets available for benefit for the year.

An item of property and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Gains and losses on derecognition of property and equipment are determined by reference to their carrying amountsThe residual value, useful lives and methods of depreciation of property and equipment are reviewed at each financial year end are adjusted prospectively, if appropriate.

f) Accounting for leasesDetermination

The determination of whether an arrangement is, (or contains), a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.





f) Accounting for leases (continued)

Fund as a lessee

Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Fund, are capitalised at the commencement of the lease at the fair value of the constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the changes in net assets available for benefit. The Fund currently does not have any finance lease. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Fund will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Payments to acquire leasehold interests in land are treated as prepaid operating lease rentals and amortised over the period of the lease. The amortisation is recognised as an operating expense in changes in net assets available for benefit.

Fund as a lessor

Leases in which the Fund does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

When an operating lease is terminated, any payment required by the lessor by way of penalty is recognised as an expense in the period in which termination took place.

g) Intangible assets

Intangible assets represent website which is stated at cost less accumulated amortization. Amortization is calculated to write off the cost over two years in equal installments in line with the requirements of the Retirement Benefits Authority Act Occupational –Regulations 34C.

Software licence costs and computer software that is not an integral part of the related hardware are initially recognised at cost, and subsequently carried at cost less accumulated amortisation and accumulated impairment losses. Costs that are directly attributable to the production of identifiable computer software products controlled by the company are recognised as intangible assets. Amortisation is calculated using the straight line method to write down the cost of each licence or item of software over its estimated useful life (three years).

Amortisation begins when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management, even when idle. Amortisation ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

Softwares under implementation are recognised as work in progress at historical costs less any accumulated impairment loss. The cost of such softwares includes professional fees and costs directly attributable to the software. The softwares are not amortised until they are ready for the intended use.

Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.





g) Intangible assets (continued)

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised.

The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of net assets when the asset is derecognised

h) Investment properties

Investment property is property held to earn rentals or for capital appreciation or both. Investment property, including interest in leasehold land, is initially recognised at cost including the transaction costs. Subsequently, investment property is carried at fair value representing the open market value at the reporting date determined by annual valuations carried out by external registered valuers/ directors. Gains or losses arising from changes in the fair value are included in determining the increase in net assets for the year to which they relate.

The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property.

Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. The Investment properties are stated at fair value, which has been determined based on valuations performed by Trans Country Valuers Limited as at 31 December 2013.

When the Fund can reliably determine the fair value of a self constructed investment property under construction or development, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the increase in net assets.

The difference between the carrying value and the fair value of the properties at the date of reclassification to investment properties is recognised in the increase in net assets.

Investment properties are derecognised when either they have been disposed off or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is charged or credited to the changes in net assets available for benefit.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Fund’s accounts for such property in accordance with the policy stated under property and equipment up to the date of the change in use.





i) Financial instruments

Financial assets

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Purchases and sales of financial instruments are recognised on trade date – the date on which the Fund commits to purchase or sell the asset.

The Fund classifies its financial assets into the following IAS 39 categories: Financial assets at fair value through profit or loss; loans and receivables; held to maturity financial assets; and available for sale financial assets. Management determines the appropriate classification of its financial instruments at initial recognition.

Financial assets are initially recognised at fair value plus, in the case of all financial assets or financial liabilities not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Fund has also transferred substantially all risks and rewards of ownership.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Fund establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions and reference to other instruments that are substantially the same.

Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified into this category at inception if acquired principally for the purpose of selling it in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short term profit-taking, or if so designated by management. Subsequent to initial recognition, these investments are re-measured at fair value. Fair value adjustments are recognised in the statement of net assets in the period that they arise.

Financial assets at fair value changes in net assets comprise quoted shares, commercial paper and corporate bonds.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They include receivables arising from transactions with third partiesAfter initial measurement, loans and receivables are measured at amortised cost, using the effective interest rate method (EIR) less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

The EIR amortisation is included in changes in net assets available for benefit. Gains and losses are recognised in the changes in net assets available for benefit when the investments are derecognised or impaired, as well as through the amortisation process.

Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables that the Fund’s management has the positive intention and ability to hold to maturity.





i) Financial instruments (continued)

After initial measurement, held-to-maturity financial assets are measured at amortised cost, using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR gains and losses are recognised in changes in net assets available for benefit when the investments are derecognised or impaired, as well as through the amortisation process.

The scheme has fixed deposits that are held to maturity.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Subsequent to initial recognition, these investments are re-measured at fair value unless their value cannot be reliably measured in which case they are carried at cost less provision for impairment.

Unrealised gains and losses arising from changes in the fair value of available-for-sale are recognised in other comprehensive income and accumulated under the heading of fair value reserve in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in changes in changes in net assets available for benefit for the year as net realised gains/losses on financial assets.

Unquoted investments are classified as available-for-sale investments.

Impairment of financial assets

The Fund assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost- loans and receivables

For financial assets carried at amortized cost, the Fund first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Fund determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The impairment assessment is performed at each reporting date.






If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. If a loan has variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in changes in net assets available for benefit.

If, in a subsequent period, the amount of the impairment loss decreases and that decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in changes in net assets, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Available-for-sale financial investments

For available-for-sale financial investments, the Fund assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a ‘significant or prolonged’ decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in changes in net assets available for benefit is removed from other comprehensive income and recognised in changes in net assets available for benefit. Impairment losses on equity investments are not reversed through changes in net assets available for benefit ; increases in their fair value after impairment are recognised directly in other comprehensive income.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, payables and financial guarantee contracts, net of directly attributable transaction costs. The Fund’s financial liabilities include other payables and due to related parties.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.






This category also includes derivative financial instruments entered into by the Fund that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of changes in net assets. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IAS 39 are satisfied. The Fund has not designated any financial liability as at fair value through profit or loss.

Loans and borrowings and payables

This is the category most relevant to the Fund. After initial recognition, interest-bearing loans and borrowings and payable are subsequently measured at amortised cost using the EIR method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the carrying amount on initial recognition.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

Gains and losses are recognised in changes in net assets available for benefit when the liabilities are derecognised as well as through the EIR amortisation process.

This category generally applies to interest-bearing loans and borrowings and payables. The Fund had client deposits and other payables classified as loans and borrowings.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of changes in net assets available for benefit.

Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount reported in the statement of net assets only when there is a current and legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses will not be offset in the changes in net assets available for benefit unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Fund.

j) Foreign currencies translation

Assets and liabilities expressed in foreign currencies are translated to Kenya shillings at the rates of exchange ruling at the end of each reporting period while transactions during the year in foreign currencies are converted at the rates of exchange ruling on the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are dealt with in the statement of changes in net assets available for benefit.





k) Capital Management

The primary objectives of the Fund’s capital management are to ensure that the Fund complies with capital requirements to maximize member’s Fund value.

The Fund maintains an actively managed fund to cover benefits obligation. The adequacy of the Fund’s capital is monitored by the Trustees as set out in the investment policy statement.

l) The Fund’s funding policy and objectives

When deciding on an appropriate investment strategy and risk profile for the investment of the Fund assets, the objectives of the Fund, and the membership profile, by both term and nature are analyzed

Primary Objective of the Fund is to provide lump sum and pension benefits on a defined contribution benefits basis for members on their retirement or invalidity as well as benefits to members’ dependents on members’ death before retirement. Analysis of Liabilities

The age liability profile of the members and the ability to pay benefits and expenses out of monthly contributions and investment income are particularly important in determining the liquidity constraints of the Fund. The age liability profile of the members has an important influence on the risk tolerance that the Fund can assume in meeting its long-term performance objectives (e.g. the younger the age profile of the Fund, the greater the level of ‘aggression’ the Fund can tolerate. The more members close to retirement, or to receiving benefits, the more conservative the risk profile, particularly if the ‘older’ members’ assets represent a significant proportion of the Fund).

The primary investment objectives of the Fund are as follows:

A medium to long term view towards the investment of the Fund assets has been adopted, the minimum period being no less than three (3) years with the following primary investment objectives of the Fund:

(i) To maximize the long term “real” return on the Fund assets. To do this in a way that minimizes, to the extent practical, the possibility the Fund assets (at their realizable value), at any one time, would fail to cover 100% of the total accrued liabilities;

(ii) Subject to i) above, to ensure an optimum level of return within specified risk parameters and to do so effectively, prudently and in a cost efficient manner, in full compliance with applicable laws and regulations

The Trustees have a statutory and fiduciary duty and responsibility to invest the Fund’s assets in a responsible and prudent manner.

For the purposes of achieving the funding objectives, the funding position shall be reviewed annually.





m) Taxation

Current Income tax

Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Kenyan Income Tax Act. Income tax expense is the aggregate amount charged/ (credited) in respect of current tax and deferred tax in determining the profit or loss for the year. Current income tax assets or liabilities are based on the amount of tax expected to be paid or recovered in respect of the taxation authorities in the future. Tax is recognised in the statement of changes in net assets available for benefit except when it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income, or to items recognised directly in equity, in which case it is also recognised directly in equity.

Current income tax is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at the reporting date.

The prevailing tax rate and the amount expected to be paid are highlighted in note 13 of these financial statements.

The net amount of current income tax recoverable from, or payable to, the taxation authority is included on a separate line in the statement of net assets available for benefit of these financial statements.

n) Employee entitlements

The estimated monetary liability for employees’ accrued annual leave entitlement at the end of the reporting period is recognised as an expense accrual.

Retirement benefit obligations

The Fund operates a defined contribution scheme for its employees. The assets of the scheme are held in separate trustee administered funds, which are funded from contributions from both the Scheme and employees.

The Fund also contributes to a statutory defined contribution pension scheme, the National Social Security Fund (NSSF). Contributions to this scheme are determined by local statute and are currently at KShs 200 per employee per month.

The Fund’s contributions to the defined contribution scheme and NSSF are charged to changes in net assets available for benefits as they fall due.

o) Impairment of non-financial assets

The Fund assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Fund estimates the asset’s recoverable amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.





o) Impairment of non-financial assets (continued)

Impairment losses of continuing operations are recognised in the changes in net assets available for benefits in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Fund makes an estimate of recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.

Such reversal is recognised in changes in net assets available for benefit to the amount of an impairment already taken to profit or loss while the remainder will be a revaluation amount through other comprehensive income.

p) Fair value measurement

The Fund measures financial instruments such as quoted equity investments at fair value at each reporting date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:• In the principal market for the asset or liability, or• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Fund.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities• Level 2-Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observable• Level 3-Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable





p) Fair value measurement (Continued)

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Fund determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

External valuers are involved for valuation of significant assets, such as property and investment properties. Involvement of external valuers is decided upon annually by the finance and investment manager after discussion with and approval by the Fund’s trustee committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.

For the purpose of fair value disclosures, the Fund has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

q) Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

r) Expenses

Expenses are recognised in the statement of changes in net assets available for benefits when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably and is independent from transactions with equity participants.

This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment).

i) When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined expenses are recognised in the statement of changes in net assets available for benefit on the basis of systematic and rational allocation procedures. This is often necessary in recognising the equipment associated with the using up of assets such as property and equipment in such cases the expense is referred to as a depreciation or amortisation. These allocation procedures are intended to recognise expenses in the accounting periods in which the economic benefits associated with these items are consumed or expire.

ii) An expense is recognised immediately in the statement of changes in net assets available for benefit when expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the statement of net assets available for benefit as an asset.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In the process of applying the accounting policies adopted by the Fund, the Trustees make certain judgements and estimates that may affect the carrying values of assets and liabilities in the next financial period. Such judgements and estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The Trustees evaluate these at each financial reporting date to ensure that they are still reasonable under the prevailing circumstances based on the information available.




2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

The preparation of the Fund’s financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Key sources of estimation uncertainty

Operating lease commitments – Fund as lessor

The Fund has entered into commercial property leases on its investment property portfolio. The Fund has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

Impairment losses

At each reporting date, the Fund reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Impairment exists when the carrying amount of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for coming years and do not include restructuring activities that the Fund is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested.

In assessing whether there is any indication that the tangible and intangible assets may be impaired, the Fund considers the following indications:a) there are observable indications that the asset’s value has declined during the period significantly more

than would be expected as a result of the passage of time or normal use.b) significant changes with an adverse effect on the entity have taken place during the period, or will take

place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated.

c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially.

d) the carrying amount of the net assets of the entity is more than its market capitalisation.e) evidence is available of obsolescence or physical damage of an asset.f) significant changes with an adverse effect on the entity have taken place during the period, or are expected

to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.

Property and equipment

Critical estimates are made by the Fund’s management, in determining depreciation rates for property and equipment.




2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

Receivables

Critical estimates are made by the trustees in determining the recoverable amount of receivables.

Income taxes

The Fund is subject to income taxes in various jurisdictions. Significant judgement is required in determining the Fund’s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Fund recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility.

Revaluation of investment properties

The Fund carries investment properties at fair value, with changes in fair value with changes being recognised in the changes in net assets available for benefit.

3 FINANCIAL RISK MANAGEMENT

The Fund generates revenues for the members by investing in various income generating activities which involve trading in the stock securities, trading in government and other securities and offshore investments.

These activities expose the Fund to a variety of financial risks, including credit risk and the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Fund’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance.

Risk management is carried out by the Trustees together with the investment managers under policies approved by the Trustees. The investment managers review the market trends and information available to evaluate the potential exposures. They then arrive at strategies to mitigate against market risks. The Trustees provide guidelines for overall risk management, as well as policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investing excess liquidity. The Fund also follows guidelines issued by the Retirements Benefits authority in respect of maximum investment in different types of investments.

a) Market risk

(i) Foreign exchange risk

The Fund is exposed to the risk that the fair value or the future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The Fund invests internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Uganda shilling. Foreign exchange risk arises from investment in offshore investments and quoted shares on the Uganda Stock Exchange (USE).




3 FINANCIAL RISK MANAGEMENT (continued)

a) Market risk (Continued)

(i) Foreign exchange risk (Continued)

The Fund currency risk is evaluated as low because the foreign investments are long-term and any currency losses are expected to be recouped through interest income earned and which comprises the value of the Fund. The Fund manages foreign exchange risk by limiting offshore investments to strategic range of 5% of total portfolio as required by the RBA regulations. The quoted investments in the USE are low risk and form an insignificant part of the total portfolio.

At 31 December 2012, if the Shilling had weakened/strengthened by 5% against the US dollar with all other variables held constant, the increase or decrease respectively in net returns on offshore investments would have the following effect (approximately):

Market risk 2013 2012Foreign exchange

risk KShs ‘000 KShs ‘000

Effect on returns from Investment 5% Appreciation (53) (158)5% Depreciation 53 158

Effect on Fund balance 5% Appreciation (53) (158)5% Depreciation 53 158

(ii) Price risk

The Fund is exposed to equity securities price risk because of investments in quoted shares classified at fair value through profit or loss. The Fund is also exposed to the risk that the value of debt securities will fluctuate due to changes in market value. To manage its price risk arising from investments in equity and debt securities, the Fund diversifies its portfolio invested in bonds of varying maturities. Diversification of the portfolio is done in accordance with trust deed.

For equities, the Fund has invested in companies in different sectors of the economy, while for debt securities; the Fund has policy which is reviewed after every three years. All quoted shares held by the Fund are traded on the Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE).

If the price of securities were to appreciate/depreciate by 5% it would have the following effect (approximately):

2013 2012KShs ‘000 KShs ‘000

Effect on returns from Investment 5% Appreciation 430,598 122,6925% Depreciation (430,598) (122,692)

Effect on Fund balance 5% Appreciation 430,598 122,6925% Depreciation (430,598) (122,692)





a) Market risk

iii) Interest rate risk

The Fund’s interest bearing assets are investments in treasury bonds, corporate bonds, treasury bills, commercial paper and fixed deposits. All of these instruments are at fixed interest rates.

The nature of financial instruments held, that is, fixed interest instruments mitigates risk exposure of the Fund. Fluctuations in interest rates will not have a significant effect on the Fund.

b) Credit risk

Credit risk arises from receivables, fixed deposits, interest bearing investments, deposits with banks, and cash and cash equivalents. As part of the credit risk management system, the Investment Manager and the Trustees monitor and review information on significant investment. The Trustees have approved a larger portfolio investment with the Government of Kenya debt securities which have a low credit risk and no default record.

The amount that best represents the Fund’s maximum exposure to credit risk as at reporting period is made up as follows:

2013 2012KShs ‘000 KShs ‘000

Short term deposits 675,162 1,462,725Corporate bonds 839,216 646,880Commercial paper - 24,577Offshore investment 1,061 2,197Rent & house sales receivable 330,674 1,012,970Bank and cash balances 7,517 6,269Amount due from KPLC staff retirement benefit scheme 2006 4,569 2,191

1,858,199 3,157,809

None of the above financial assets are past due or impaired. The fund has diversified its investments hence is not exposed to concentration risk.





c) Fair Value

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, Fund in levels 1 to 3 based on the degree to which the fair value is observable.• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets.• Level 2 fair value measurements are those derived from inputs other than quoted prices included

within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (as derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the assets or liability that are not based on observable market data.

Level 1 Level 2 Level 3 TotalKShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

31-Dec-13Investment in quoted shares-at fair value 3,074,934 - - 3,074,934Offshore investments-at fair value 1,061 - - 1,061Treasury bonds -available for sale 4,694,816 - - 4,694,816

7,770,811 - - 7,770,811

31-Dec-12Investment in quoted shares-at fair value 2,453,465 2,453,465Offshore investments-at fair value 2,197 - - 2,197Treasury bonds -available for sale 3,946,530 - - 3,946,530

6,402,192 - - 6,402,192

d) Liquidity risk

The Fund is required to make periodic payment in respect of pension payments when members retire from the Fund, and is therefore exposed to the risk of difficulty in raising funds to make such payments. It therefore invests a portion of its assets in investments that are readily convertible to cash. The investment managers monitor the Fund’s liquidity on a regular basis and the Trustees review it on a quarterly basis.

The Fund’s primary long – term risk is that it’s financial assets will fall short of its financial liabilities (promised benefit payable to members). Therefore, the aim of investments risk management is to minimize the risk of overall reduction in the value of the fund and to maximize the opportunity for gains across the whole fund portfolio. The Fund achieves this through asset diversification to reduce exposure to market risk (price risk, currency risk and interest risk) and credit risk to an acceptable level. In addition, the Fund manages liquidity risk to ensure there is sufficient liquidity to meet its forecast cash flows. The Fund manages this investment risk as per part of its overall pension fund risk management program.

The table below analyses the Fund’s financial assets and financial liabilities as at the end of the reporting period that will be settled on a net basis. The amounts disclosed in the table below are the undiscounted cash flows. Balances due equal their carrying balances, as the impact of discounting is not significant.

The Fund’s liabilities are all payable within a year.




3. FINANCIAL RISK MANAGEMENT (continued)

d) Liquidity risk (continued)

The table below summarizes the maturity profile of the fund’s financial assets and liabilities as at 31 December 2013.

Less Than 3

months3 to12

months 1 to 5 years More than 5 Years Total

Financial assets KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000Investments - - - -Government securities 195,384 554,066 1,707,409 2,237,957 4,694,816Short term deposits 675,162 - - 675,162Quoted equity investments - - - 3,074,934 3,074,934Offshore investments - 1,061 - - 1,061Corporate bonds - - 839,216 - 839,216Commercial paper - - - - -Receivables 330,674 - - 330,674Bank and cash balances 7,517 - - - 7,517Due from related parties 4,569 - - - 4,569

Total 207,470 1,560,963 2,546,625 5,312,891 9,627,949

Financial liabilitiesDue to related parties 8,997 - - - 8,997Benefits payable 5,496 - - - 5,496Other payables, and accruals 38,930 61,008 8,393 - 108,331

TOTAL 53,423 61,008 8,393 - 122,824

Liquidity surplus as at 31 December 2013 154,047 1,499,955 2,538,232 5,312,891 9,505,125




3. FINANCIAL RISK MANAGEMENT (continued)

d) Liquidity risk (continued)

The table below summarizes the maturity profile of the fund’s financial assets and liabilities as at 31 December 2012.

Less Than 3 months

3 to12 months 1 to 5 years

More than 5 Years Total

Financial assets KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000Investments - - - -Government securities - 87,735 - 3,858,795 3,946,530Short term deposits 858,501 604,224 - - 1,462,725Quoted equity investments - - - 2,453,465 2,453,465Offshore investments - 2,197 - - 2,197Corporate bonds - - 646,880 - 646,880Commercial paper - 24,577 - - 24,577Receivables 1,012,448 522 - - 1,012,970Bank and cash balances 6,269 - - - 6,269Due from related parties 2,191 - - - 2,191

Total 1,879,409 719,255 646,880 6,312,260 9,557,804

Financial liabilitiesDue to related parties 18,502 - - - 18,502Benefits payable 11,386 - - - 11,386Other payables, and accruals 253,141 - - - 253,141

TOTAL 283,029 - - - 283,029

Liquidity surplus as at 31 December 2012 1,596,380 719,255 646,880 6,312,260 9,274,775




4. ACTUARIAL VALUATION METHOD AND ASSUMPTIONS

The Pension Fund liability is calculated every three years by the appointed actuary, with annual updates in the intervening years. The methodology used is in line with accepted guidelines and in accordance with IAS 26. Assumptions underpinning the valuations are agreed with the actuary and are summarised in the Actuarial position. This estimate is subject to significant variances based on changes to the underlying assumptions.

The accrued (past service) liability in respect of each in-service Fund member is taken as the present value of all benefits accrued to the Fund’s date of closure with allowance for revaluation of the accrued benefits to date of retirement or earlier exit. Each member’s accrued liability is subject to a minimum of the member’s own accumulated contributions and the Employer’s accumulated contributions “on the member’s behalf”. The accrued liability in respect of pensioners is taken as the present value of the expected future pension payments.

The principal features of the actuarial basis can be summarised as follows:

Rate of interest 10% per annumRate of revaluation of deferred benefits 5% p.a. from 30/6/2006 Rate of pension increases 0% p.a for post 31/12/1999 service 3% p.a for pre 1/1/2000

serviceMortality - Pre-retirement - Post-retirement

A1949/52 Ultimatea (55) Males/Females Ultimate

Retirements 50% assumed to retire at age 55 and the balance at age 60 Withdrawals : In accordance with the average experience of other similar schemes.

Ill-health early retirement In accordance with the average experience of other similar schemes.

Assets Assets taken into account at amounts shown in the audited accounts as at 31 December 2013.

The actuarial basis adopted for this valuation is identical to that used for the last actuarial valuation of the Fund as at 31 December 2010.

The actuarial basis adopted is, in the opinion of the Actuary, wholly consistent with the bases used for the actuarial valuations of other similar closed schemes in Kenya at the present time. It is important to appreciate that whilst individual elements of an actuarial basis may be subject to differences of opinion, it is the basis as a whole that is relevant rather than its individual constituent parts.

Sensitivity of Actuarial Valuation Results of FundIt is important to appreciate that the results of the actuarial valuation of the Fund are sensitive to the actuarial assumptions made. The actuarial assumptions reflect one view of likely future events and there is therefore uncertainty as to how the financial position of the Fund will develop in future. There is no guarantee that the assumptions made will be borne out in practice and the expectation is that the Fund’s actual experience will from time to time be better or worse than that assumed.

2013 2010KShs ‘000 KShs ‘000

Fund surplus 2,648,600 20,000

Funding level 119.9% 100.2%

The level of funding (the ratio of the Fund assets to accrued liabilities) is 119.9%. The level of funding is slightly above the statutory minimum funding requirement of 100% prescribed in the Retirement Benefits Regulations as amended in 2009.




5. CONTRIBUTIONS RECEIVABLE FROM SPONSOR

The Fund is closed and fully funded and hence no contributions were received.

6 BENEFITS PAYABLE 2013 2012KShs ‘000 KShs ‘000

Withdrawals 41,991 53,127Pensions 425,931 473,932

467,922 527,059

7. RETURNS ON INVESTMENT

Investment properties:Gain on fair value of investment property (note 16) 601,020 1,019,750Profit from sale of Runda houses (note 16) - 34,218Rental income 106,534 101,455

707,554 1,155,423

Government securities:Interest on treasury bonds 486,658 441,384(Loss)/gain in market value of treasury bonds (19,540) 362,050Rebate on bonds 469 172Commissions on government securities - 1,736(Loss) /gain on disposal of treasury bonds and treasury bills (23,268) 21,583

444,319 826,925Short term deposits:Interest on deposits 139,494 116,035

Quoted investments:Dividends receivable 96,025 159,600Change in market value (note16) 759,760 698,328Gain on sale of investments (note 16) 67,418 233,692

923,203 1,091,620Corporate bonds and commercial papers:Interest on corporate bonds 79,047 91,421Gain on valuation of corporate bonds(note 16) - 2,644Gain/(loss) on disposal of corporate bonds(note 16) 189 (584)

79,236 93,481Offshore investmentsNet gain on offshore assets 203 (1,521)

2,294,009 3,281,963




8 INVESTMENT MANAGEMENT EXPENSES 2013 2012KShs ‘000 KShs ‘000

Investment management fee 19,707 27,004Custodial fee 10,448 9,708Offshore investment expenses - 439Brokerage fees 249 115

30,404 37,266

Investment management expenses include investment manager’s fees, custodial fees and brokerage fees paid by the Fund. Investment managers are paid a fee of 0.125% of the net asset value held by the investment managers and a performance fee of 1% of returns higher than the performance hurdle rate of average 91-day treasury bill rate plus 4% charged once at the end of the year. Custodian on the other hand are paid a maximum fee of 0.10% of the net asset value. Applicable transaction costs and bank charges are also payable to the custodian. Brokerage fees are part of the cost of purchase and sale of investments at the Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE).

9 OTHER INCOME 2013 2012KShs ‘000 KShs ‘000

Bank Interest 651 76Write back provisions 13,596 -

14,247 76




10 OPERATIONAL EXPENSES 2013 2012Administrative expenses: KShs ‘000 KShs ‘000Office expenses 2,094 1,270External audit fees 1,600 1,403Legal and professional fees 3,847 1,763Actuarial fees 2,500 -Levies and taxes 5,000 5,044Bank charges 171 118Depreciation of plant and equipment 2,840 1,641Amortization of intangible assets 723 723Repairs and maintenance 3,678 5,524Insurance expenses 3,090 2,799Land rates 637 3,771ICT expenses 1,503 1,391Secretariat expenses (note 11) 50,978 39,877Trustees’ fees and expenses (note 12) 8,841 5,523Members’ expenses (note 13) 5,919 5,392Provision for doubtful deposit (note 25) - 6,900

93,421 83,139Reimbursement of administrative expenses paid by KPLC Staff Retirement Benefit Scheme 2006 (Defined Contribution) (18,638) (9,280)

Net administrative expenses* 74,783 73,859Other administrative expenses:Consultancy 4,262 3,681Printing and stationery 3,254 2,096Subscription 82 13Branding expense 3,792 -Corporate social responsibility 425 260

11,814 6,050

Total operational expenses 86,597 79,909

*The net administrative expense to the total fund value is 0.47% which falls within the 1% that is recommended by the Kenyan Retirement Benefits Authority.




11 SECRETARIAT EXPENSES 2013 2012KShs ‘000 KShs ‘000

Salaries, wages and bonuses 40,936 32,038NSSF 36 34Pension cost-Defined Contribution 2,093 1,329Staff training 6,775 4,898Leave pay provision 1,138 1,578

50,978 39,877

These are expenses relating to the staff in the Fund secretariat. The Secretariat oversees all activities performed by the Fund’s service providers that include investment manager, custodian, property manager, actuary and legal advisors. The secretariat is responsible for communication with members and other stakeholders as well as ensuring the Fund’s compliance with all applicable statutory requirements.

2013 201212 TRUSTEES’ FEES AND EXPENSES KShs ‘000 KShs ‘000

Trustees’ remuneration 3,363 2,727Internal audit fee 1,502 2,469Trustees’ training 3,976 327

8,841 5,523

Governance expenses are incurred by the Trustees in fulfilling their mandate as is required of them by the Trust Deed & Rules and by the Retirement Benefits Act. Trustees’ remuneration relates to their sitting allowances for the meetings attended and the chairman’s honoraria.

13 MEMBERS’ EXPENSES 2013 2012 KShs ‘000 KShs ‘000

Annual general meeting 1,576 887Members’ education 4,343 4,505

5,919 5,392

Members expense comprise of Annual general meeting expenses and cost of sensitizing and educating members about the Fund and their benefits.




14 PROPERTY AND EQUIPMENT

2013 Computer Furniture hardware Equipment & fittings Generator TotalCOST Kshs Kshs KShs ‘000 KShs ‘000 KShs ‘000

As at 1 January 2013 2,804 3,693 1,075 7,588 15,160Additions 702 1,166 514 201 2,583Reclassification - - - (7,789) (7,789)

As at 31 December 2013 3,506 4,859 1,589 - 9,955

ACCUMULATED DEPRECIATION As at 1 January 2013 2,055 3,405 988 - 6,448Charge for the year 1,186 1,190 464 - 2,840

As at 31 December 2013 3,241 4,595 1,452 - 9,288

CARRYING AMOUNT As at 31 December 2013 266 264 137 - 667

2012 Computer Furniture Hardware Equipment & fittings Generator TotalCOST Kshs Kshs KShs ‘000 KShs ‘000 KShs ‘000

As at 1 January 2012 1,307 3,117 900 7,588 12,911Additions 1,497 576 175 - 2,249

As at 31 December 2012 2,804 3,693 1,075 7,588 15,160

ACCUMULATED DEPRECIATION As at 1 January 2012 1,221 2,805 780 - 4,807Charge for the year 834 600 207 - 1,641

As at 31 December 2012 2,055 3,405 987 - 6,448

CARRYING AMOUNT As at 31 December 2012 749 288 87 7,588 8,712




15 INTANGIBLE ASSETS

2013 2012COST KShs ‘000 KShs ‘000

At 1 January 37,178 18,878Additions - 18,300

At 31 December 37,178 37,178

AMORTISATION

At 1 January 19,528 18,805Charge for the year 723 723

At 31 December 20,251 19,528

CARRYING AMOUNT 16,927 17,650

Intangible assets relate to administration software system Fundmaster acquired by the Fund for use in its operations.




16

INVE

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17 INVESTMENT PROPERTIES

Stima Plaza Karen Runda Loresho Dagoretti TotalKShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

2013At 1 January 2013 1,300,000 1,900,000 - 370,000 650,000 4,220,000Transfer from work in progress - - - - - -

Disposal - - - - - -Change in fair value 157,495 412,800 - - 56,733 627,028

31December 2013 1,457,495 2,312,800 - 370,000 706,733 4,847,028

Stima Plaza Karen Runda Loresho Dagoretti TotalKShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

2012At 1 January 2012 1,054,000 1,446,250 506,095 250,000 450,000 3,706,345Transfer from work in progress - - 1,069,409 - - 1,069,409

Disposal - - (1,575,504) - - (1,575,504)Change in fair value 246,000 453,750 - 120,000 200,000 1,019,750

31December 2012 1,300,000 1,900,000 - 370,000 650,000 4,220,000

Valuation of investment properties was conducted by an independent and registered valuer, Transcountry Valuers Limited and was based on the fair value applicable as at 31 December 2013. The independent valuer made the following assumption when carrying out the valuation;

(i) The fair value is at arm’s length where the buyers and the sellers are operating with full knowledge of the market and that none of them is forced to sell or buy.

(ii) That the economic situation will remain favorable for a period of time.(iii) That the property is free from any encumbrances/charges.(iv) The ownership of the property is not contested.

Rental income earned from the investment property during the year amounted to KShs 106,534,265 2012- KShs 101,455,098(Note 7).

Direct operating expense arising from investment property that generated rental income during the year amounted to Kshs 3,678,289, 2012 Kshs 5,523,626(note 10).

There were no direct operating expenses arising from investment property that did not generate rental income.

There was no acquisition or sale of property during the year




18 INVESTMENT PROPERTIES – WORK IN PROGRESS

Stima Plaza Loresho TotalKShs ‘000 KShs ‘000 KShs ‘000

At 1 January 2013 26,652 445,614 472,266Additions - 1,025,559 1,025,559

At 31 December 2013 26,652 1,471,173 1,497,825

At 1 January 2012 187 27,777 27,964Additions 26,465 417,837 444,302

At 31 December 2012 26,652 445,614 472,266

These are costs that have been incurred on development of housing units for sale on the Loresho property and costs relating to the proposed development of an office block at Stima Plaza in Parklands, Nairobi.

19 GOVERNMENT SECURITIES 2013 2012KShs ‘000 KShs ‘000

Treasury bonds - available for sale 4,147,894 3,858,795Treasury bills – held to maturity 546,922 87,735

4,694,816 3,946,530

20. UNQUOTED EQUITY INVESTMENTS

At cost1st January 237,825 237,825Reclassification* (40,205) -

31st December** 197,620 237,825

*Relates to 43,000 shares of I& M Bank Limited bought in 2010 at a price of KShs 935. The shares were reclassified to quoted investment as a result of listing at the Nairobi Securities Exchange through a reverse listing in 2013.

**The Fund holds a 20% interest in the equity shares of Iberafrica Power (EA) Ltd, an independent power producer who supplies power to the Fund’s sponsor, The Kenya Power & Lighting Company Limited. The unquoted investments in Iberafrica were quoted at cost.

The unquoted equity shares are carried at cost as there are no readily available prices in the market.




21. QUOTED EQUITY INVESTMENTS

2013 2012Security Units Value Units Value

KShs ‘000 KShs ‘000Access Kenya Ltd - - 701,200 3,085Athi River Mining Ltd 1,422,000 127,980 400,400 89,089Bamburi Cement Ltd 1,039,200 218,232 1,054,200 195,027Barclays Bank of Kenya Ltd 9,167,650 161,351 10,167,658 160,141BOC Gases Kenya Ltd 68,402 8,550 68,402 6,806British American Tobacco Ltd 241,900 145,140 299,900 147,851Bank of Kigali Ltd 500,000 15,481 500,000 8,979CFC Bank Ltd - - 415,833 2,786Co-operative Bank of Kenya Ltd 15,000,080 266,251 15,227,760 191,870DFCU Ltd 300,000 12,238 300,000 9,598Diamond Trust Bank Ltd 752,766 144,531 852,766 98,068East African Breweries Ltd 937,276 271,810 1,042,101 276,157East African Cables Ltd 525,000 8,794 525,001 6,143Equity Bank of Kenya 2,020,000 62,115 1,270,000 30,162East African Portland Cement Co Ltd - - 4 1George Williamson Ltd - - 32 6Centum Investment Ltd 754,325 24,893 754,325 9,316Kakuzi Ltd 70,155 6,665 70,155 5,051Kengen LTD 5,950,963 80,636 5,950,963 52,368Kenya Airways Ltd 66 1 66 1Kenya Commercial Bank Ltd 8,309,778 392,637 9,309,778 276,964Kenya Oil Company Ltd - - 1,809,820 24,523Kenya Power & Lighting Company 15,293,116 216,398 17,793,116 304,262Kenya Re-insurance Limited 350,402 5,431 350,402 3,749Mumias Sugar Company Limited 6,819,407 22,163 6,819,407 33,074Nation Media Group 598,341 187,879 639,707 142,015NIC Bank Limited 979,855 58,791 756,555 28,938Pan African Insurance Co. Ltd 106 10 106 4Safaricom Limited 28,744,100 311,873 34,070,600 172,057Scangroup Limited 52,200 2,519 20,790 3,576Stanbic Uganda Ltd 32,095,000 33,006 209,500 1,341Standard Chartered Bank Kenya Ltd 592,803 180,212 642,816 151,062Uganda Clay Limited 246,712,999 20,781 20,207,200 19,395I&M Holdings Limited 585,660 70,279 - -Kenolkobil Limited 1,809,820 18,279 - -Williamson Tea Kenya Limited 32 8 - -

381,693,402 3,074,934 132,230,563 2,453,465




22. CORPORATE BONDS

2013 2012SECURITY KShs ‘000 KShs ‘000

ARMFXD1/2010/5 @ 12% 65,536 65,582BBKFXR1 11.50%140715 24,177 24,170BBKMTN FR @ TB+0.6% 10,104 10,047BBKMTN FXD @ 11.5% 16,043 16,055CENTUM BOND 51,794 51,881CFC CSB FRN 070716 12,595 11,874CFC Stanbic FXD @ 7.25% 87,139 87,139CSB FXD 12.5% 070716 29,441 27,705HOUSFIN 8.5% 021017 20,383 20,397I&M FRN1 18062015 30,582 30,008KENGEN INFRA 311019 82,889 84,618MRM FXD 8YR BOND 3,409 4,547MRMMTN FR @ TB+1.75% 3,405 4,487MRN FRN210.19%271016 13,611 18,155PTA BANK MTN DUE2014 1,426 2,883SAFARICO 7.75 141215 48,664 48,644SCOM FXD12.25%031114 67,285 67,259SCOM-FXD01/09/05 60,705 61,265TPS 5YR FRN 10,046 10,164I AND M BANK 7YRFXD-08.03.19@ 12.8% 70,439 -KENGEN INFRABOND 2019 129,543 -

839,216 646,880

The weighted average interest rate realized on the corporate bonds during the year was 11.37% (2012 11.15%). These are classified as available for sale since several were sold in the year.

23. OFFSHORE INVESTMENTS

Assets Cash account Receivable Total Kshs Kshs KShs ‘000 Kshs

1-Jan-13 390 1,285 522 2,197Additional investment -Sales (390) 390 -Transfer of cash balances - (1,339) (1,339)Sales receivable - 522 (522) -Gain/(Loss) on sale of investment 214 - 214Exchange loss on sale of investment - (10) - (11)

31-Dec-13 - 672 390 1,061

The Fund used the following mean foreign exchange rates as at 31st December 2013: GBP 142.94 and USD 86.41




24. COMMERCIAL PAPER

Held to maturity: maturing within 90 days

2013 2012KShs ‘000 KShs ‘000

Kenya Oil Company Limited CP (Interest-16.25%) - 24,577

25. SHORT TERM DEPOSITS

2013 2012Interest Rate KShs ‘000 KShs ‘000

Diamond Trust Bank 10.75% 201,000Diamond Trust Bank 10.75% 5,000,NIC 8.75% 30,000Diamond Trust Bank 10.75% 23,000

Kenya Commercial Bank 10.00% 4,000Equity Bank 10.50% 13,000Equity Bank 10.75% 9,500Kenya Commercial Bank 11.00% 40,000HFCK 11.25% 24,000Family Bank 11.00% 20,000NIC 11.00% 45,000Bank of Africa 12.50% 31,000ABC Bank 12.25% 20,000Bank of Africa 12.25% 50,000Imperial Bank 13.25% 60,000Kenya Commercial Bank 12.00% 30,000Diamond Trust Bank 13.25% 4,000Trust Bank Ltd* Nil 6,900Bank of Africa 15% 50,000Commercial Bank of Africa 11% 6,000Family Bank 13% 27,000I & M Bank 10% 44,000Imperial Bank 9% 9,000Imperial Bank 11% 123,000Kenya Commercial Bank 8% 46,000Kenya Commercial Bank 9% 101,000Kenya Commercial Bank 10% 68,000Kenya Commercial Bank 11% 20,000Kenya Post Office 15% 92,246Bank of Africa 10% 67,000Bank of Africa 17.50% 1,000Bank of Africa 18% 500Bank of Africa 22% 16,500CFC Stanbic Bank 9% 4,000CFC Stanbic Bank 10% 9,300Co-operative Bank 9.50% 10,000




Diamond Trust Bank 7% 3,800Diamond Trust Bank 8.50% 12,000Diamond Trust Bank 10% 6,500Equity Bank 7.50% 36,000Equity Bank 8.50% 16,000Equity Bank 10% 42,000Family Bank 22% 1,500Housing Finance 21% 10,000Kenya Commercial Bank 8% 22,000Kenya Commercial Bank 9% 5,000Kenya Commercial Bank 10% 37,000Kenya Commercial Bank 13% 26,000National Industrial Credit Bank 8% 262,000Standard Chartered Bank 6% 2,000Standard Chartered Bank 6.50% 30,000Standard Chartered Bank 8.00% 50,000Standard Chartered Bank 8.50% 8,000Stima Sacco Society Limited 14.54% 57,248Co-operative bank 0.50% 60,149 109,670Total deposits 669,649 1,438,165Add: Accrued interest 5,513 31,460Less: Provision for irrecoverable deposits* - (6,900)

675,162 1,462,725

*The provision for irrecoverable deposits is in respect of a fixed deposit with Trust Bank Limited which is in liquidation.

26 RECEIVABLES 2013 2012KShs ‘000 KShs ‘000

Rent due from Gimco 904 1,329Other receivable - 522Runda house sales 329,770 1,011,119

330,674 1,012,970

Rent due from Gimco Limited (property manager) relates to rent that was outstanding from property manager by the end of the reporting period.




27. CASH AND CASH EQUIVALENTS

2013 2012Face value Market Value Face value Market Value

KShs ‘000 KShs ‘000 KShs ‘000 KShs ‘000

Bank balances 7,517 7,517 6,269 6,269Short term deposits 669,649 675,162 1,438,166 1,462,724Treasury bills 580,000 557,456 90,000 87,735Commercial paper - - 25,000 24,577

1,257,166 1,240,135 1,559,435 1,581,305

For the purpose of the statement of cash flows, cash equivalents include short term liquid investments which are readily convertible to known amounts of cash and which were within three months to maturity when acquired. Short term deposits held are available for use.

28. RELATED PARTIES

The Fund transacts with its sponsor, the Kenya Power & Lighting Company Limited (the sponsor) and the Kenya Power & Lighting Company Limited Staff Retirement Benefits Scheme 2006 (defined contribution).

Amounts due from Kenya Power & Lighting Company Staff Retirement Benefits Scheme 2006 (defined contribution) represent recoverable secretariat costs not received by the end of the reporting period.

Amounts due to the Sponsor represent pensions and salaries paid on behalf of the Fund by the sponsor and are recoverable from the Fund.

Amounts due from related parties are current and considered to be fully recoverable and thus no provisions for impairment losses have been made in the books of account. There are no trade off agreements between the related parties for amounts outstanding at the end of the period.

Key management includes the Board of Trustees who are entitled to a sitting allowance and management of the Secretariat who are paid a salary.

2013 2012Related parties transactions: KShs ‘000 KShs ‘000

Due from KPLC Staff Retirement Benefits Scheme 2006 4,569 2,191

Reimbursement of administrative expenses from KPLC Staff Retirement Benefits Scheme 2006 18,639 9,280

Due to Kenya Power & Lighting Company Limited 8,997 18,502

Rental income earned from the Kenya Power & Lighting Limited106,534 73,200

Key management compensationManagement salaries 28,779 21,535

Trustees’ remuneration 3,363 2,727




The increase was due to annual administration fee which was increased following an allocation by the benefit fund of the fair share of expenses attributable to running the defined contribution Fund.

The fund does not have a share based payment for key management personnel. Termination benefits include: pension contributions plus accrued interest.

There were no provisions for bad and doubtful debts in relation to related party balances.

29. BENEFITS PAYABLE 2013 2012KShs ‘000 KShs ‘000

Withdrawals payable 195 3,459Death claims payable 5,301 7,927

5,496 11,386

30. CLIENT DEPOSITS

Loresho ridge sales deposits 110,631 -

31. OTHER PAYABLES AND ACCRUALS

Rent deposits 8,393 8,393Other accruals 28,923 130,979Provisions 71,016 113,769

108,332 253,141

32. CAPITAL COMMITMENTS As at the end of the reporting period the Fund had committed the following funds to the development of investment property in Runda, Loresho and Stima Plaza properties

2013 2012 KShs ‘000 KShs ‘000

Authorized and contracted for Runda property - 258,921Loresho property 1,025,559 419,200Stima Plaza property - 26,465

1,025,559 704,586




33 INCOME AND EXPENDITURE ACCOUNT

2013 2012 KShs ‘000 KShs ‘000

INCOME :-Investment income 952,769 1,200,712

EXPENDITURE :-Investment management fee (note 8) (30,404) (37,266)Net administrative expenses (note 10) (74,783) (73,859)Other administrative expenses (note 10) (11,814) (6,050)

Total expenditure (117,001) (117,175)

Net income for the year 835,768 1,083,537

34 OPERATING LEASES

Operating lease rentals are receivable as follows:

2013 2012KSh’000 KShs’000

Less than one year 7,662 -Between one and five years 385,207 419,711

392,869 419,711

35. TAX STATUS

The Scheme is a registered pension fund under the Kenya Income Tax Act and is therefore tax exempt.

36. EVENTS AFTER THE REPORTING DATE

The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves. There are no material events or circumstances that have risen between the accounting date and the date of this report that would require adjustment to, or disclosure, in these financial statements.

36. CONTINGENT LIABILITY

There were no contingent liabilities as at the end of the reporting period.

37. REGISTRATION

The Fund is registered in Kenya under the Retirement Benefits Act.

38. CURRENCY

The financial statements are presented in Kenya Shillings (KShs ‘000).




Notes



Stima Plaza • Kolobot Road • ParklandsP.O. Box 1548 - 00600 Nairobi, Kenya.Tel: +254 20 320 1020, Fax: +254 20 320 1028Email: [email protected]: www.kplcpensionfund.co.ke

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