corporate values - fep-group.com values ... schools is committed to ... kirinyaga county, on...

WHO WE ARE ��1

CORPORATE VALUES �� 2

NOTICE OF THE ANNUAL GENERAL MEETING �� 3

CORPORATE INFORMATION �� 4

BOARD OF DIRECTORS �� 5

ADVISORY COUNCIL MEMBERS �� 7

MANAGEMENT TEAM �� 9

DIVISIONAL TEAM �� 11

CORPORATE GOVERNANCE ��12

MESSAGE FROM THE CHAIRMAN ��15

REPORT FROM THE CHIEF EXECUTIVE OFFICER ��17

CORPORATE SOCIAL RESPONSIBILITY �� 19

REPORT OF THE DIRECTORS �� 22

STATEMENT OF DIRECTORS’ RESPONSIBILITIES �� 23

INDEPENDENT AUDITORS’ REPORT �� 24

CONSOLIDATED STATEMENT OF PROFIT OR LOSS �� 27

COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME �� 28

CONSOLIDATED STATEMENT OF FINANCIAL POSITION �� 29

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ��31

COMPANY STATEMENT OF CHANGES IN EQUITY �� 33

CONSOLIDATED STATEMENT OF CASH FLOWS ��34

COMPANY STATEMENT OF CASH FLOWS �� 35

NOTES TO THE FINANCIAL STATEMENTS �� 36

FORM OF PROXY �� 75

TABLE OF CONTENTS

Creating Value Connections1

WHO WE AREFEP Holdings Limited is an investment company that is committed to “transforming lives through wealth creation”. We pride ourselves in being innovative in value creation for our shareholders. We build synergies within our teams while delivering results in an effective and efficient manner. We are noble and above board in our dealings with our customers and business partners. Our current shareholding is 72,852.

Our four key pillars of business investment include;

ENERGY & TECHNOLOGY

· Fountain Technologies Ltd

Fountain Technologies focuses on providing telecom and energy infrastructure solutions for government and private sector clients.

FINANCIAL SERVICES & RETAIL

· Fountain Credit Services Ltd

· FEP Insurance Agency Ltd

· Just Homes Ltd trading as Suntec Supermarkets

· Mobikash Africa Ltd

Our financial services and retail sector focuses on providing affordable credit services, insurance and retail supermarkets. The objective is to uplift the living standards of those in the communityby enabling them to access quality services.

REAL ESTATE & SECURITY SERVICES

· Kisima Real Estate Ltd

· Citadelle Security Ltd

We offer investment projects such as housing development, real estate and security options that shall ultimately generate wealth for the shareholders. The two companies that operate under this sector are Kisima Real Estate and Citadelle Security.

HOSPITALITY & EDUCATION

· Fountain Group of Hotels

· Fountain Safaris Ltd

· Fountain Group of Schools Ltd - Tigoni & Mwea

We believe in providing world class hotels that will offer an outstanding hospitality experience to our customers. To empower our future generation requires investment in education and Fountain Group of Schools is committed to this objective.

Annual Report & Financial Statements 2016 2

Vision Individuals and communities in Kenya and beyond living holistic

dignified lives through the generations.

MissionTo transform communities and

livelihoods by empowering entrepreneurs and investors through pooling and investing resources in an

optimal, innovative and sustainable way.

Core Values InnovationTeamworkDisciplineIntegrity

StewardshipPurposeful

Good Governance

CORPORATE VALUES


NOTICE OF THE ANNUAL GENERAL MEETING TO THE MEMBERS OF FEP HOLDINGS LIMITED

Notice is hereby given that the 7th Annual General Meeting of the Company will be held at the Sagana Hotel, Sagana, Makuyu-Makutano Road, opposite Kengen-Sagana River, Kirinyaga County, on Wednesday, 28th June 2017 at 9.00 a.m. for the following purposes:

1� ORDINARY BUSINESS

(i) To receive and consider the Report of the Directors and the Statements of Comprehensive Income and Statement of Financial Position of the Company for the year ended 31 December 2016 with the Auditors’ report thereon.

(ii) To note that the directors do not recommend a dividend in respect of the year ended 31 December 2016.

(iii) To approve the remuneration of Directors.

(iv) Election of directors:

(a) FCPA Nguru Wachira retires and being eligible, offers himself for re-election in accordance with Article 122 of the Articles of Association.

(b) Dr. Margaret Chemengich retires and being eligible offers herself for re-election in accordance with Article122 of the Articles of Association

(v) To approve that Deloitte & Touche continue as auditors as per section 721 of the Companies Act, 2015 and to authorize the Directors to fix the auditors’ remuneration.

BY ORDER OF THE BOARD

By Order of the Board

Joseph Gaita

Company Secretary

Nairobi

Registered Office

L.R. No. 2/707 – Galana Plaza

P. O. Box 72367-00200 Nairobi

Email: [email protected]

[5th June 2017]

NOTE:A Member entitled to attend the meeting may appoint a proxy to attend on his behalf. A proxy need not be a member. The Proxy Form, to be valid, must be duly signed or executed by the Member in accordance with the Articles of Association and must reach the address set out below at least 48 hours before the time scheduled for the meeting. A Form of Proxy is attached.

Address for Proxy Forms: FEP Holdings Limited, Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek Road, Kilimani, and P.O. Box 72367- 00200 Nairobi.

In accordance with Article 161 of the Articles of Association of the Company, a copy of the entire Annual Report & Accounts may be viewed at the Company’s website at www. fep-group.com or a printed copy may be obtained from the registered office of the Company given above.


DIRECTORS

Eng. Erastus K. Mwongera - Chairman

FCPA Nguru Wachira - Vice Chairman

Dr. Margaret Chemengich

Dr. Sarah A.H. Olembo

Prof. Agnes W. Mwang’ombe

Bishop Dr. Mark Kariuki

Mr. David M. Tanki

Dr. John M. Kithaka

SECRETARY

Mr. Joseph W. Gaita

Certified Secretary (Kenya)

P.O. Box 44835 - 00100 GPO

Nairobi

REGISTERED OFFICE

Galana Plaza, 3rd Floor

Galana Road, Off Argwing Kodhek Road

P.O. Box 72367 - 0200

Nairobi

AUDITORS

Deloitte & Touche

Certified Public Accountants (Kenya)

Deloitte Place

Waiyaki Way, Muthangari

P.O. Box 40092 - 00100 GPO

Nairobi

PRINCIPAL BANKERS

Kenya Commercial Bank Limited

Moi Avenue Branch

P.O. Box 30081 - 00100

Nairobi

Co-operative Bank of Kenya Limited

Lavington Mall Branch

P.O. Box 3866-00100

Nairobi

Credit Bank Limited

Koinange Branch

P.O. Box 61064 - 00200

Nairobi

Chase Bank Kenya Limited

Riverside Mews

P.O. Box 66015 - 00800

Nairobi

PRINCIPAL LAWYERS

Mboya Wang’ong’u & Waiyaki Advocates

Lex Chambers

Maji Mazuri Road, Lavington

P.O. Box 74041 - 00200

Nairobi

CORPORATE INFORMATION


BOARD OF DIRECTORS PROFILES

Eng� Erastus K� Mwongera, FIEK, RCE, CBS - ChairmanEng. Erastus K. Mwongera, a Registered Consulting Engineer and a Fellow of the Institution of Engineers of Kenya, is a partner of EM Baseline Consultants. A long serving career administrator, Eng. Mwongera is a former Permanent Secretary and former Chairman of Kenya Airports Authority, Federation of Kenya Employers and Karen and Langata District Association. He is serving in the boards of Sameer Africa Ltd,Linksoft Services and Kenya National Highways Authority. Eng. Mwongera, a committed Christian, is a standing Elder of Nairobi Baptist Church where he has served as Chairman of Elders Court.

Dr� John Muchira Kithaka - FEP Group PresidentDr. Kithaka is the founder and vision bearer of Fountain Enterprises Program (FEP) and President of FEP Group. Dr. Kithaka holds a PhD in Christian Leadership, an MSc. in Entrepreneurship and a Bachelor of Architecture both from Jomo Kenyatta University of Agriculture and Technology (JKUAT). He is a registered Architect and a Corporate Member of the Architectural Association of Kenya (AAK) and a valuable Board Member in various national and international corporate and social institutions. In 2012 he earned the prestigious recognition as one of Kenya’s Top 40 under 40 men, and won the Utumishi Bora award for the Pioneering and Innovative category by the Kenya Christian Professionals Forum (KCPF) in 2015. Dr. Kithaka is a renowned author and transformational speaker in leadership and emerging socio-economic trends.

FCPA Nguru Wachira - Vice ChairmanMr. Wachira is the Chairman of Suntra Investments Ltd and the Centre for Corporate Governance. He is also the Chairman of the disciplinary committee of the Institute of Certified Investment and Financial Analysts (ICIFA) and Chief Executive Officer of WIA-EAST AFRICA CPAs. He is a past Chairman of ICPAK and ICIFA. He is a Chartered and Certified Accountant and Secretary as well as a qualified Stockbroker.

Bishop Dr� Mark KariukiBishop Dr. Kariuki is the Presiding Bishop and General Overseer of Deliverance Church International. He is also the Chairman of East Africa Centre for Law & Justice, Chairman of the Evangelical Alliance of Kenya (EAK) and Moderator of Inter Religious Council of Kenya (IRCK). He holds an Honorary Doctorate Degree from the Logos University and is a Founder of Ukombozi SACCO.


Dr� Margaret ChemengichDr. Chemengich is a former Permanent Secretary, an independent researcher consulting mainly on regional integration, development policy, and management. She is a board member of African Research and Resource Forum, Trustee at KCA University and Chairperson of the Board of Directors at Chemelil Sugar Company Limited. She has previously held senior positions both in government and private sector.

David M� TankiMr. Tanki is a founding Director of Lan-x Africa Limited and currently works as the Chief Executive of HoneyPlus Holdings Limited. He serves in the Boards of Regent Group (where he is the Chairman), Maximex Solutions Ltd and Kenyaweb.com Ltd. He is a holder of a B.Com degree (Accounts Option) and MBA in Finance with a Post Graduate in Management Information Systems from Mastricht School of Management, Netherlands.

Mr. Tanki is a Business Improvement and Strategy Consultant for a number of Eastern Africa’s blue-chip companies and has more than 15 years’ experience in consultancy and working in senior management position of various multinationals including NCR (K) Ltd and AT&T.

Prof� Agnes W� Mwang’ombe, EBSProf. A. W. Mwang’ombe, EBS, is a Professor of Plant Pathology in the Department of Plant Science and Crop Protection, University of Nairobi. She has served as Principal, College of Agriculture and Veterinary Sciences at the University of Nairobi, Chairperson, Kenya Institute of Public Policy, Research and Analysis (KIPPRA), Board Member of Vision 2030 Delivery Board, Board Member of KEFRI, Board Member of ATPS and Member of Consortium Board of CGIAR.

Dr� Sarah A� H� OlemboDr. Olembo holds a PhD degree in Agriculture (Plant & Seed Pathology). She has held various positions in the African Union Commission rising to the position of Technical Advisor in Sanitary and Phytosanitary issues that are crucial in Economic Partnership Agreements (EPAs) and the way they affect international safe trade in agricultural products. Prior to this, Dr. Olembo worked as a senior lecturer at Jomo Kenyatta University of Agriculture and Technology, Egerton University and the Federal University of Agriculture and Technology, Abeokuta, Nigeria. She started her career at the Ministry of Agriculture, KARI. on separation from the African Union Commission,Dr. Olembo remains a member of the continental AU led comittee that spearheads issues of ecological agricultural and environmental protection, which she helped develop. She doubles this as the chair of the East African Committee on the same issues while offering consultancy services locally and intenationally on global food safety issues and especially on how to deal with issues arising thereof. With the many years of service in her area of expertise, Dr. Olembo brings to this board her experience in negotiating with policy makers, risk analysis and resource mobilization.

Joseph Wambugu GaitaMr. Gaita is the Company Secretary of FEP Holdings Limited. He is an Advocate of the High Court of Kenya and a member of the Institute of Certified Public Secretaries of Kenya (ICPSK).


ADVISORY COUNCIL MEMBERS PROFILES

PC Joseph Kaguthi, EBS – Chairman of the Advisory CouncilMr. Kaguthi is an experienced public figure in Kenya. He has been a Provincial Commissioner, Nyanza and Nairobi Provinces, Permanent Secretary in the Directorate of Personnel Management, Office of the President. He has also been Chairman and Director of many public, private and voluntary organizations and institutions in Kenya. He is the Founder of the Kenya National Campaign against Drug Abuse (NACADA). He has served as the Chairman of the National Taskforce on Community Policing (Nyumba Kumi Initiative). Mr. Kaguthi is the current Chairman of the National Committee on the Implementation of Citizen Participation in Security in Kenya and the FEP Advisory Council, FEP Holdings Limited.

Eng� Erastus K� Mwongera, FIEK, RCE, CBS - Chairman of the FEP Holdings BoardEng. Erastus K. Mwongera, a Registered Consulting Engineer and a Fellow of the Institution of Engineers of Kenya, is a partner of EM Baseline Consultants. A long serving career administrator, Eng. Mwongera is a former Permanent Secretary and former Chairman of Kenya Airports Authority, Federation of Kenya Employers and Karen and Langata District Association. He is serving in the boards of Sameer Africa Ltd,Linksoft Services and Kenya National Highways Authority. Eng. Mwongera, a committed Christian, is a standing Elder of Nairobi Baptist Church where he has served as Chairman of Elders Court.

Prof� Francis J� Gichaga, EBS – Vice Chairman of the Advisory councilProf. Gichaga is currently the Chairman of the Governing Council of the Presbyterian University of East Africa. He is the former Chancellor of Jomo Kenyatta University of Agriculture and Technology (JKUAT) and a former Vice Chancellor of The University of Nairobi. Prof. Gichaga is a Fellow and Vice-Chairman of the Engineers Board of Kenya. He is also a Fellow of the Institution of Civil Engineers in the UK.

Prof� Rosalind W� MutuaProf. Mutua holds a Doctorate Degree in Planning and Administration. She was the first Vice-Chancellor of Kiriri Women’s University of Science and Technology (KWUST) and a former Deputy Vice-Chancellor Jomo Kenyatta University of Agriculture and Technology (JKUAT). Prof. Mutua has also served as the Chairman of the Council of Maseno University.

Dr� Joe KarogiDr Karogi is the Founder and the first President of Kenyan Christian Fellowship in America (KCFA); the largest Kenyan Organization in the USA with over 27 local chapters. He is also the Founder, President and CEO of Quest Group which provides training, empowerment seminars on leadership, mentorship, education and Diaspora integration. He holds several Masters Degrees and has a wealth of experience from Kenya and the USA. He is a trained professional dealing with mental illness and substance abuse.


Dr� James S� Mathenge, BA (Lond) Dr� Phil, MBSDr. J. S. Mathenge is a former long serving Permanent Secretary and career administrator. He has served as Chairman of Public Service Commission, Kirinyaga Technical Institute (now Kirinyaga University) and several Boards in the Anglican Church of Kenya and is also a trustee of the Staff Provident Fund . Dr. Mathenge has also served as Chairman, Kenya Freedom from Hunger Council & Board Member of several private and public companies.

Dr. Mathenge is the current Chairman of Fair Acres Ltd (real estate) and Fair Acres Hortec Ltd (agricultural).He is also a director of Credit Bank of Kenya Ltd.

Amb� Dennis AworiAmb. Awori is the former Kenyan Ambassador to Japan and South Korea. He has served as Managing Director of Lonrho Motors East Africa and is now the Executive Chairman of Toyota Tsusho East Africa and was recently appointed to the Boards of Toyota Tsusho Africa (in Johannesburg) and CFAO (in Paris. He is also currently serving as the non-executive Chairman of the Bank of Africa and is the immediate past Chairman of the Kenya Private Sector Alliance (KEPSA). He holds a Bsc. (Honors) Degree in Aeronautical Engineering and is an experienced corporate manager.

Bishop Dr� Lawi ImathiuBishop Dr. Imathiu is the retired Presiding Bishop of the Methodist Church of Kenya. He is the founder and vision bearer of the Kenya Methodist University (KEMU) and former President of the World Methodist Council.

Dr� Agnes AbuomDr. Agnes R. M. Abuom is the Moderator (President) of World Council of Churches (WCC), Central Committee.She represents the Anglican Church of Kenya on the WCC governing bodies and has been a member of the National Christian Council of Churches (NCCC) Executive Committee. She serves on the All Africa Conference of Churches (AACC) Advisory Committee on Peace, Healing and Reconciliation; Chairs the Board of KESWICK Books and Gifts as well as serving on the Board of Interpeace a Swiss NGO. Dr. Abuom has served as an Ecumenical Accompanier for AACC and WCC. She was a Co-President of Religions for peace and the National Council of Churches of Kenya. Dr. Abuom is the founder and Executive Director of TAABCO Research and Development Consultants and an FBO known as Building Eastern Africa Community Network (BEACON), Nairobi. She holds a PhD in Development Studies and BS in History from the University of Uppsala (Sweden).

PC Samuel K�K� Limo, EBS, OGWMr. Limo is a former Provincial Commissioner. He is an administrator by profession with a long and stellar career in the Civil Service. He has served in several Boards including the Kerio Valley Development Authority Board. He was also the Chairman of the Tender Board Committee. He holds a Bachelor of Theology (B.Th 2014).

Dr� John Muchira Kithaka - FEP Group PresidentDr. Kithaka is the founder and vision bearer of Fountain Enterprises Programme (FEP) and President of FEP Group. Dr. Kithaka holds a PhD in Christian Leadership, a MSc. in Entrepreneurship and a Bachelor of Architecture both from Jomo Kenyatta University of Agriculture and Technology (JKUAT). He is a registered Architect and a Corporate Member of the Architectural Association of Kenya (AAK) and a valuable Board Member in various national and international corporate and social institutions. In 2012 he earned the prestigious recognition as one of Kenya’s Top 40 under 40 men, and won the Utumishi Bora award for the Pioneering and Innovative category by the Kenya Christian Professionals Forum (KCPF) in 2015. Dr. Kithaka is a renowned author and transformational speaker in leadership and emerging socio-economic trends.


MANAGEMENT TEAM

Maurice Korir - Chief Executive OfficerMr. Korir is a Certified Public Accountant with a Masters in Business Administration and a Bachelors of Commerce Degree in Finance from the University of Nairobi. He has over 18 years’ experience working for multinational/blue chip companies such as Mobil Oil, Airtel, marketing communications company Ogilvy and Uchumi Supermarkets. He has also worked as an organization design and operational excellence consultant, and served as a Board Member of various companies. He is a member of the Institute of Certified Public Accountant of Kenya.

Antony Ng’ang’a - Group Finance ManagerMr. Ng’ang’a is the Group Finance Manager. Antony has a Bachelor of Commerce degree from the University of Nairobi and a Masters in Business Administration from the same Institution. He is a member of the Institute of Certified Public Accountants of Kenya and has over 18 years’Experience in accounting and financial management. Antony has worked as Head of Finance at Kenchic, the leading producer of quality broilers layers and day-old-chicks for sale to farmers in the East & Central Africa. He was also the CFO at Next Gen Broadcasting Africa, a Swedish company that pioneered the Digital Terrestrial Television industry in emerging markets. The Group owned and operated ‘SMART TV’.

Dr� Richard Ronoh - Head of Division Members ServicesDr. Ronoh is Head of Division Members’ Services that oversee FEP Insurance, Fountain Credit Services, Fountain Safaris and Investor Relations Department. He has 17 years’ experience in management, administration and policy. He holds a PHD and Master’s degrees in Educational Administration Management and Policy from the Moi University as well as a Bachelor of Education (Science). Prior to Joining FHL, he worked as a Lecturer, Director and Chairman of university automation committee in Maasai Mara University. As a researcher, he has several referred publications on cross cutting issues and a member of AAPAM-African Association for Public Administration and Management and EMSK- Kenya. He is also Chairman of Advanced Research Consulting- Kenya.

Patricia A� Mwita - Group Marketing Manager Mrs. Mwita holds an MBA from the United States International University (USIU), a Bachelors in Business Administration from the same university and a Bachelors in Social Work from York University in Canada. She has over 20 years marketing experience in diverse sectors such as FMCGs, Agriculture and not for profit. Prior to joining FEP Holdings Ltd, she was marketing manager for Syngenta East Africa, Sameer Agricultural & Livestock Limited. She was also category brand manager at Unilever where she managed detergents, spreads and white fats sectors. She also worked at Population Services International (PSI) where she was responsible for the NGO’s Malaria campaign efforts as an Information, Education and Communication manager.

Susan Ngalawa - Group Investment & Projects ManagerSusan holds an MSc Business Analysis and Finance (with Distinction) from the University Of Leicester, United Kingdom and she is also an honors graduate from the United States International University (USIU) majoring in International Business Administration. Susan has a wealth of experience in finance and investments having worked at Panafrican Equipment Group, Amana Advisory Limited, Citibank and Standard Chartered Bank.

Morrison Muchiri - Divisional Head, Fountain Technologies LtdMorrison Muchiri has over 12 years hands on experience within the ICT and energy sector, 9 on technical role and 3 on senior management role. He holds a diploma in telecommunications engineering and He is currently pursuing a Bachelor’s Degree in Business Leadership at PAC University. He has previously served in various capacities as EMEA regional support expert on core networks, Safaricom core team leader and a transmission project manager for Celtel. Morrison is a Cisco Certified Network Associate (CCNA) and Red Hat Certified Technician (RHCT).


Shelmith Mugoh - Divisional Head – Real Estate, Security, Hospitality, Education and RetailMs. Mugoh holds an International Business Administration degree majoring in Finance from United States International University (USIU). She is currently pursuing a Master of Science degree in Organizational Development from the same University. She has over 20 years working experience, ten of which have been in leadership positions in manufacturing, automotive engineering, specialized engineering and not for profit organizations among others. She is a certified Public Accountant and a member of ICPAK. She is also an Associate member of the Association of Business Executives (ABE). She has participated in various leadership and governance training programs over the years. Prior to joining FEP Holdings, she worked in various senior management positions in Toyota Kenya where she was Administration Manager- Service, Christ is the Answer Ministries (CITAM) as Head of Finance and Finance and Administration Manager at Plenser Limited.

Arthur Ngugi Mbugua – Group Audit and Risk Manager Mr. Arthur Ngugi holds a Bachelor of Commerce Degree (Finance) from Catholic University of Eastern Africa and is currently pursuing MBA at the University of Nairobi. He is a member of Institute of Certified Public Accountants (ICPAK), Institute of Internal Auditors (IIA) and an Associate Member of Association of Certified Fraud Examiners (ACFE). He is a seasoned Auditor with over 10 years’ experience in Manufacturing and Banking Industry. Prior to this appointment he worked at Kenya Women Micro Finance Bank in the capacity of Zonal Auditor (Western Zone). Previously he worked for Brookside Dairy Limited as an Internal Auditor and New Kenya Co-operative Creameries as an Accountant.

Judy Kinyanjui - Group Human Resource andAdministration ManagerMs. Kinyanjui holds a Master of Science degree in Human Resource Management from Jomo Kenyatta University of Agriculture and Technology and a Bachelors of Commerce degree in the same field from the University of Nairobi. Before joining FEP Holdings, she worked as group HR manager for Apollo Group which comprised of APA Insurance, Apollo Life Company and Apollo Asset Management Company. She was also human resource manager at Nampak Kenya Limited.

Kenas Otieno – CEO, Mobikash Afrika LtdKenas Otieno holds a Bachelor of Commerce Degree specializing in Management Science and a Masters in Business Administration specializing in Strategic Management both from the University of Nairobi. He is currently pursuing a Masters in Science, Finance and Investments at the same institution and a Certification in Investment and Financial Analysis (CIFA). Kenas has over 15 years’ experience in Banking Operations and Risk Management. Prior to joining FEP, he worked as an Operational Risk Manager at Standard Chartered Bank and Kenya Commercial Bank and headed the Market Risk, Operational Risk and Compliance at I&M Bank.

Bernice Muya - Group Legal & Regulatory Affairs ManagerMrs. Muya is the Group Legal and Regulatory Affairs Manager at FEP Holdings Limited. Prior to joining FEP Holdings Limited, she worked with UAP Insurance Company Ltd as the Legal Manager & Company Secretary. Bernice worked at Madison Insurance Company Kenya Ltd as the Head of Legal Services and at Kenya Women Microfinance Bank (KWFT DTM) amongst other reputable institutions. She holds a Bachelor of Laws Degree from Moi University and a Post Graduate Diploma in Legal Practice from the Kenya School of Law. Mrs. Muya is also a Certified Public Secretary (CPS (K) and recently qualified as a Mediator with the Mediation Training Institute International (East Africa). She is a member of the East Africa Law Society (EALS), Law Society of Kenya (LSK), the Institute of Certified Public Secretaries of Kenya and the Chartered Institute of Mediators.

Joshua Waringo - Head of Procurement Mr. Waringo has over 16 years experience in operations and supply chain management. He holds a Bachelors Degree in Industrial Chemistry from the Kurukshetra University, India. He is currently pursuing his MBA in Strategic Management at the Jomo Kenyatta University of Agriculture and Technology. He holds an MCIPS from the Chartered Institute of Procurement and Supplies. He has previously worked as Procurement Manager for Diversey Eastern & Central Africa Ltd, and has held other positions at Haco Industries, Rift Valley Railways and Orbit Chemical Industries. He is a member of the Chartered Institute of Procurement and Supplies (CIPS) and the Kenya Institute of Supplies Management (KISM).


DIVISIONAL TEAM

ENERGY & TECHNOLOGY DIVISION

REAL ESTATE,SECURITY SERVICES,EDUCATION & HOSPITALITY

MEMBER SERVICES DIVISION

SUBSIDIARIES AND AFFILIATES

James Gunther Country Manger, Fountain Technologies Ltd. Ghana

Anthony Mwaathi Country Manager, Fountain Technologies Ltd.Uganda

Juma Abdallah Country Manager, Fountain Technologies Ltd. Tanzania

Shelmith Mugoh Divisional Head, Real Estate, Security, Hospitality & Education Division

Richard Tsalwa Team Leader, Fountain Safaris Ltd

Lucy Luchinga Commercial Manager, Fountain Credit Services Ltd

Dr� Richard Ronoh Divisional Head,Members Services

Kenas Otieno CEO, Mobikash Africa Ltd

Morrison Muchiri Divisional Head, Fountain, Technologies Ltd

Charles Magondu Commercial Manager, Citadelle Security Ltd

Annanciata Ndumi Commercial Manager, Kisima Real Estate Ltd

Lawrence Ngao Commercial Manager, Suntec Supermarkets

Joseph Gachomo Mbatia School Principal,Fountain School Mwea


CORPORATE GOVERNANCE

This is the process and structure used to direct and manage business affairs of the company towards enhancing prosperity and corporate accounting, with the ultimate objective of realizing shareholders’ long-term value, while taking into account the interests of other stakeholders.MISSION OF FEP HOLDINGS LTDTo transform communities and livelihoods by empowering entrepreneurs and investors through pooling and investing resources in optimal, innovative and sustainable ways.

ADVISORY COUNCIL This is the arm charged with advising the Company on its key decisions. The role of the Council is to: vet the moral standing of proposed officers of the Company, to provide guidance on the vision and direction of the Company and to recommend to the Board persons who may be suitable to serve the Company as Directors of the Board.

BOARD OF DIRECTORS FEP HOLDINGS LTD The Board is committed to the highest standards of financial reporting and corporate governance in order to increase the long term value for all shareholders. The Board comprises of eight (8) directors, who are all non-executive directors. Their brief biographies are on page 5 & 6. The Board defines the Corporation’s strategies, objectives, values and ensures that procedures and practices are set in place to ensure effective control over strategic, financial, operational and compliance issues. The directors bring a wealth of experience and knowledge to the Board’s deliberations. Non-executive directors are required to retire and seek re-election at least once every three years. The Board has delegated authority for the day to day operations of the company to the Group Chief Executive Officer. The principal responsibilities of the directors are to define the strategy of the company and to ensure that the company complies with statutory and regulatory requirements as well as its responsibilities to the shareholders. The Board meets at least four (4) times in a year for scheduled meetings and on other occasions as may be necessary.

FULL BOARD ATTENDANCE FOR THE YEAR 2016

MEMBER ROLE ATTENDANCEEng. Erastus K. Mwongera Chairman 10/10

FCPA Nguru Wachira Member 10/10Dr. Sarah Olembo Member 10/10Dr. Margaret Chemengich Member 9/10Mr. David M. Tanki Member 9/10Prof. Agnes W. Mwang’ombe Member 6/10

Bishop Dr. Mark Kariuki Member 3/10Mr. Chizah Wambugu Member 2/10 Resigned

w.e.f 31.03.16

Dr. John Kithaka Member 9/10Bernice Muya Secretary 10/10

COMMITTEES OF THE BOARD There are four standing Committees of the board, each with its own written terms of reference:

AUDIT RISK AND COMPLIANCE ATTENDANCE The Audit, Risk and Compliance Committee has four members namely: Dr. Margaret Chemengich who is the Chair, Mr. David M. Tanki, Dr. Sarah Olembo and Mr. Chizah Wambugu. Its principal responsibilities include reviewing measures put in place to mitigate risks, financial and other reports, defining the scope of the audit department, ensuring the independence of the auditors and reviewing their terms of engagement. The Audit Committee normally holds at least four (4) formal meetings in each year.

AUDIT RISK AND COMPLIANCE COMMITTEE ATTENDANCE FOR THE YEAR 2016

MEMBER ROLE ATTENDANCEDr. Margaret Chemengich Chairman 5/5Dr. Sarah Olembo Member 5/5Mr. David M. Tanki Member 3/5Mr. Chizah Wambugu Member 1/5- Resigned W.e.f

31.03.16 Bernice Muya Secretary 5/5

FINANCE AND INVESTMENT COMMITTEE ATTENDANCEThe Committee comprises of FCPA Nguru Wachira who is the Chairman, Mr. Chizah Wambugu, Mr. David M. Tanki, Dr. John Kithaka and Prof. Agnes W. Mwang’ombe. The Committee is tasked with the responsibility of reviewing investment opportunities and making recommendations to the board as to which ones are most viable. The Committee meets at least once every quarter and as may be necessary.

FINANCE AND INVESTMENT COMMITTEE ATTENDANCE 2016

MEMBER ROLE ATTENDANCEFCPA Nguru Wachira Chairman 7/7Mr. Chizah Wambugu Member 1/7- Resigned W.e.f

31.03.16

Mr. David M. Tanki Member 7/7Prof. Agnes W. Mwang’ombe Member 5/7Dr. John Kithaka Member 7/7

Bernice Muya Secretary 7/7


HUMAN RESOURCE AND LEADERSHIP COMMITTEEThe Committee comprises of Eng. Erastus K. Mwongera who is the Chairman, Prof. Agnes Mwang’ombe, Dr. John Kithaka, Dr. Sarah Olembo and Bishop Dr. Mark Kariuki. The Committee reviews strategies and policies in matters relating to recruitment, selection, training, motivation, development, reward and retention of staff. The Committee also makes recommendation to the Board relating to the appointment of directors and meets at least quarterly.

HUMAN RESOURCE AND LEADERSHIP COMMITTEE ATTENDANCE 2016

MEMBER ROLE ATTENDANCEEng. Erastus K.Mwongera Chairman 5/5Dr. Sarah Olembo Member 5/5Prof. Agnes W. Mwang’ombe Member 5/5

Bishop Dr. Mark Kariuki Member 1/5Dr. John Kithaka Member 5/5Bernice Muya Secretary 5/5

INVESTOR RELATIONS COMMITTEEThe committee comprises of Dr. Sarah Olembo who is the chairperson, Dr. Margaret Chemengich, Dr. John Kithaka, Bishop Mark Kariuki and FCPA Nguru Wachira. The committee is tasked with the responsibility of formulating investor relations policy and overseeing investor communication, investor marketing processes as well as ensuring investors’ interests and issues are taken care of and meets at least quarterly.

INVESTOR RELATIONS COMMITTEE ATTENDANCE FOR THE YEAR 2016

MEMBER ROLE ATTENDANCEDr. Sarah Olembo Chairlady 3/3Dr. Margaret Chemengich Member 3/3Dr. John Kithaka Member 2/3FCPA Nguru Wachira Member 3/3Bishop Dr. Mark Kariuki Member 2/3Bernice Muya Secretary 3/3

MWEZI IMECHAPA KONA MBAYA?

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MESSAGE FROM THE CHAIRMAN

On behalf of the Board of Directors, the Advisory Council, management and staff of FEP Holdings Ltd, it is my great pleasure to welcome you to this 7th Annual General Meeting. I further wish to present the Statement of Comprehensive Income and Statement of Financial Position of the company for the year ended 31st December 2016, together with the Auditor’s report thereon.

Economic Overview

The Kenyan economy grew by 5.9% in 2016 compared to 5.6% in the previous year. This growth was driven by agriculture and the services sector. The World Bank estimates that the country’s GDP will be 5.5% in 2017. However, the impact of interest rates control, the August 2017 General Elections and Trump’s protectionist policies pose the greatest risk to the economy. It is also expected that oil prices will increase and adverse weather conditions will raise inflation rates.

The impact of the interest rates capping and the consequent reduction in aggregate bank lending, has left many in the SMEs and retail customers segment constrained for capital. This will provide a wider market, for less regulated micro lenders such as FCSL as customers seek alternative modes of financing their needs.

The construction and real estate sectors have continued to grow but at a considerably slower rate than before. The sectors grew at 11.5% and 7.0% respectively in quarter four 2016 compared to 13.5% and 8.8% during a similar period the previous year. Now that phase one of the Standard Gauge Railway is complete, usage of construction materials will slow down. The contraction in the real estate sector is due to decreased credit availability for both developers and purchasers and the ‘wait and see’ attitude taken due to the forthcoming elections. Land prices in satellite towns continue their upward trend registering a growth of 21.8% with investors and speculators looking for affordable parcels; these are considered to be better priced than land in the urban areas. Investment in land, although slow, is set to continue given the low returns in the money market.

In retail, the sector has gone through evident turbulence; local retailers continue to struggle in the market with cash flow constraints. Although the Kenyan consumers continue to move to formal retail, the largest determining factor for them continues to be price. There is expected increase in inflation due to shortage of rainfall and increase in global oil prices which will reduce the spending power of consumers. This will create a very competitive environment for the sector. We therefore envision a constrained environment more so for local retailers. The emergence of technology as a growth driver and customers’ tendencies to bulk purchase will continue to define trends.

In the energy sector , according to the Energy Regulatory Commission (ERC), the demand for electric power has consistently risen the last five years driven by a combination of normal growth, increased connections in urban and rural areas as well as the country’s planned transformation into a newly industrialized country as articulated in Vision 2030. Deloitte’s Kenya Economic Outlook 2016 reports that the Government planned to increase capacity to 5,000 MW by the end of the year, while increasing connectivity to the national grid from 28% (an 8% increase from last year) to 65% by 2022. The total transmission network (220kV and 132kV) stood at 4,054km as at June 2015. The entire distribution network in the country is under Kenya Power and Lighting Company (KPLC) and as at June 2015 stood at 78,907km. Kenya Electricity Transmission Co Ltd (KETRACO) is expected to construct over 4,000 km of high voltage transmission infrastructure comprising of lines, switch gears and sub-stations across the country over the next 3-4 years, at an estimated cost of US $ 1,300 Million. Research has shown that there are still close to 10,000 MW of potential geothermal energy in the Rift Valley. We see these factors as providing solid fundamentals for FEP’s interest in the energy sector.

The Board is cautiously optimistic about our continued growth in the prevailing economic environment.

Shareholder Issues

FEP Holdings has undoubtedly clocked significant milestones in 2016 in areas such as investor relations, operational restructuring, cost management, business reorganisation and investment policy change.

In regard to investor relations, we introduced a magazine FEP Business Quarterly which has helped keep our investors up to date on new developments at FEP Holdings such as; progress on key projects, revenue growth and divestiture from non-performing businesses. This has been done through enhanced communication in a transparent

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We have fast tracked our share register cleaning efforts and the initiative is now 95 % complete�


and informative manner.

We have fast tracked our share register cleaning efforts and the initiative is now 95 percent complete. FEP Holdings Ltd has by the end of 2016, 72,854 shareholders who have been drawn from the membership of FEP Society which now stands at 206,000 members. The issued share capital stands at Kshs 1,936,580,550 as at 31st December 2016.

FEP Holdings has the best governance and control structures to protect investors’ money. For those who had issues of missing certificates, these have been reconciled and the process of issuance is ongoing. As announced earlier, the Over the Counter (OTC) Trading began on 18th January 2016 and those shareholders who wish to buy or dispose their shares can transact on a willing - buyer willing - seller basis.

In the year, and in accordance with shareholder approvals granted at the SGM of 20th April 2016, we conducted a rights issue in the second half of the year. We realized Ksh120Mn in the offer against the target of Ksh2.6Bn. While this was not successful, we wish to thank the shareholders who participated in the exercise. The funds raised have been deployed to meet the working capital needs of the Group.

Further to our earlier communication in the last two AGMs that the Group lost about KSh67 million through fraud, am pleased to inform shareholders that we have already recovered Ksh20 million and instituted legal proceedings to recover the outstanding funds. The recovered amounts are included in other income in our financial accounts.

Leadership Change

We are in the process of implementing a framework strategy dubbed Explosion 2020, which aims at attaining year on year bottom line growth of 30% as a minimum and sustainable profit before tax of at least Ksh1 billion in 2020.

The strategic plan will see the Group focus on our flagship businesses that will contribute 60 to 70 percent of the company’s profits, mainly Real Estate, Hotel, Microfinance, Retail/Wholesale and Fountain Technologies.

The first phase of our transformation entailed operational restructuring and setting up of corporate governance structures, while the second phase of the Group’s transformation process will be the implementation of the five-year strategic plan that seeks to grow revenues, attain profitability as well as increase shareholder value.

In light of this, we instituted our top leadership change. Effective 1st October 2016 we appointed a new Chief Executive Officer, Mr Maurice Korir. Mr Korir previously served as the Groups’ Chief Operations Officer for two years and has led our transformation program which is beginning to yield evident financial results. He took over the reins of the company as part of a seamless succession plan that saw Dr. John Kithaka; the Founder and outgoing CEO, retained on the Board as a Director.

Dr. John Kithaka continues to contribute strategically as a director and founder president to ensure implementation of the vision and mission of the FEP Group, as well as that of the social investment affiliates of FEP, including FEP Foundation.

Operational and Business Performance

Am pleased, to inform you that we have posted significantly improved results for the financial year ended 31st December 2016. Our consolidated loss before tax reduced by 87 percent from Kshs.866.2Mn in 2015 to Kshs.108.8Mn in 2016. Due to a favourable tax position, we realized a profit after tax of Kshs.106.0Mn for 2016 compared to a loss after tax of Kshs. 905.7Mn in 2015. Our Comprehensive loss reduced from Kshs.662.9Mn in 2015 to Kshs.4.5Mn in 2016.

All our operating businesses individually improved significantly except Fountain Technologies whose projects worth over KSh1.5Bn, having commenced in 2017, will realise revenues over two years in 2017 and 2018. The financial results for Kisima Real Estate and Fountain Credit Services were particularly impressive.

The improved results were achieved through 16% reduction in operating expenses from Ksh728.5Mn in 2015 to Ksh618.9Mn in 2016 due to various cost cutting measures and improved valuation of investment properties following progress in infrastructure works at

Lukenya. We anticipate to further cut costs following implementation of our first ERP system in July 2016.

We however registered a drop of 24% in overall revenues mainly due to reduction of interest income on cash holdings and reductions in revenues for mobile money and security businesses. We have undertaken necessary measures to ensure we get back to revenue growth. The measures include new product launches and business partnerships, aggressively bidding for tenders, enhanced sales and marketing activities.

In new product launches, we have developed and activated a new product Instaloan from Fountain Credit Services. This is a digital loan product that is applied for through mobile phones and repaid through mobile money transfer. This has been very successful and will enable FCSL to evolve into a branchless financial service provider.

In the year, we partnered with UAP-Old Mutual Group through a strategic agreement that will see the insurance company and FEP Insurance Agency offer insurance products through the FEP network which cuts across 44 counties. Through the partnership deal, we seek to generate increased revenues from insurance.

In sales and marketing, we have carried out many client engagement events and communication for Kisima Real Estate. This has included site events and road shows to different counties.

In tenders, we have been actively bidding for opportunities in Energy and Telecom. Last year, our subsidiary; Fountain Technologies Ltd (FTL) secured a tender to implement multibillion energy infrastructure projects. In Kenya we won a tender of Ksh1Bn to extend the rural electricity grid in South Rift while in Ghana, FTL was awarded a contract worth Ksh500 million by the Public Utilities Regulatory Commission (PURC) which is a multi-sectoral regulator ran by the Government of Ghana. The project entails installation of solar solutions for the artisans within the outskirts of Accra.

Group Financing

As noted earlier, our rights issue was not successful. However, the Group continues to be in need of capital. Funding is required to finance working capital, for Instaloan lending, client projects, the Hotel and Lukenya Real Estate development projects. The Board is working with management to raise capital through various sources including bank borrowing, disposal of non-core assets and sourcing strategic investors for the holding company as well as our key business units, Fountain Credit Services, Fountain Technologies, Just Homes (Suntec Supermarkets) and Kisima Real Estate. In this regard, we have made progress in sourcing external investors for Fountain Technologies and are in the process of appointing an external advisor to assist the company raise external capital. Separate announcements will be made upon signing requisite agreements with the strategic investor(s) or capital raising advisor. As the need arises, the Board will approach shareholders for another round of capital raising.

Appreciation and conclusion

In light of the improved results, entire Board wishes to express its gratitude to God for His grace and ever increasing favour over the entire FEP fraternity. We also wish to thank investors in FEP Holdings for your continued trust, patience and for believing in the FEP vision.

Lastly, special thanks go to the Group CEO, Management and Staff who have made remarkable endeavours to bring the company closer to realizing the vision.

God bless you all.

Eng� Erastus K� Mwongera, FIEK, RCE, CBS Chairman, FEP Holdings Limited


REPORT FROM THE CHIEF EXECUTIVE OFFICER

Financial Overview

FEP Holdings has recorded improved business performance since we launched our transformation program at the end of 2014. This realignment has seen the company record year on year business improvement.

In 2016, we have improved from an after tax loss of Kshs.905 million to an after tax profit of Kshs.106 million. The loss before tax also reduced from Kshs. 866Mn to Kshs. 108Mn, an 87% improvement. In the year 2015, loss before tax dropped by 39% from Kshs. 1.437Bn in 2014 to Kshs. 866Mn.

This summary underlines the steady momentum we have maintained in streamlining our operations and other dimensions of the business such as finance and investment in order to achieve profitability.

Technology & Innovation

We continue to engineer FEP Holdings’ operations through technology and innovation in order to meet customer needs, improve performance and increase the Group’s competitiveness in a dynamic business ecosystem where disruptive technologies necessitate consistent and continued adaptation.

We successfully implemented the Sage Evolution Enterprise Resource Planning (ERP) system worth US$ 131,008 (Ksh13.5 million) meant to improve efficiency and enhance internal controls. The SAGE Evolution system has enhanced financial and procurement controls.

In the year, we also implemented a new core banking system for Fountain Credit Services Ltd. This system provides better loan information including management of nonperforming loans and avails capabilities for issuance and administration of mobile phone loans. This enabled us to pilot the Instaloan digital loan product. A further innovation of this loan is a proprietary loan guarantee process to protect against nonperforming loans. This process was copyrighted in 2017.

The company also commenced the development of a proprietary retail distribution system which is under development and testing in 2017 for commercial launch in 2018.

We believe in well thought out, inexpensive and practical technological solutions to address our business and client needs and deliver a Return on Investment.

Fountain Credit Services Ltd

Fountain Credit Services registered a Profit Before Tax of Kshs.47Mn mainly driven by increased recoveries of non-performing loans and improved MIS reporting following implementation of a core banking system. The loan book increased by 18.2% to Kshs. 217Mn from Kshs.184Mn at the end of 2015. The business took a strategic decision to only focus on issuing digital loans in 2017. The company also reduced its branches from thirteen to eight in the year. In 2017, the plan is to completely exit all upcountry branches due to the branch-less banking, which is the trend in financial services industry.

The Instaloan product is designed to increase both interest and non-funded income while reducing operating costs and the rate of non-performing loans.

Kisima Real Estate Ltd

The industry’s wide fortunes of housing and urban development are impacting positively on our Kisima Real Estate’s business. The FEP Holdings’ subsidiary has grown by over 400% percent recording Kshs. 106 million in sales in 2016 as compared to Kshs. 11.3 million in 2015. This has largely been through active sales and marketing engagements and improved customer relations through constant communications.

Kilimambogo View (Kamulu Housing) in Donyo Sabuk has moved from zero sales to 92 parcels of land sold, Lukenya Park from 1 plot to selling 93 parcels in the year. The progress in the development of Lukenya Park has been remarkable. Upon completion, the first phase of the Lukenya Park project will see an injection of Ksh272 million through the development of social amenities and infrastructure.

Just Homes Ltd Trading as Suntec Supermarkets

In January 2016, the Board took the decision to close the Narok Branch of Suntec Supermarkets. Despite having only two branches

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In 2016 we have improved from an after tax loss of Ksh 905 million to an after tax profit of Ksh106 million�

Fellow investors, Members of the Advisory Council, FEP Holdings Board, management and members of staff present, Ladies and Gentlemen. It is my great pleasure to welcome you to our 7th Annual General Meeting.


in Kitui and Kapenguria, the business grew marginally by 1.5% to Kshs. 201Mn in revenues. This growth is attributed to a pilot expansion into wholesale business. There was also significant growth in bakery sales in Kapenguria, with the area previously served by a bakery in Kitale.

FEP Insurance Agency Ltd

In the year, we rebranded Nobel Insurance Agency to FEP Insurance Agency and relaunched our partnership with UAP-Old Mutual. The revenues grew by 89% to Kshs.8.7Mn from Kshs. 4.6Mn. We are working towards increasing revenues through activating a wider sales channel amongst FEP Society members.

Fountain Technologies Ltd (FTL)

The company benefited from capitalising on the country’s heavy investment in infrastructure and telecommunication through its subsidiary; Fountain Technologies. In Kenya, FTL was among the five companies awarded contracts by Rural Electrification Authority (REA) to extend electricity supply to 591 public facilities and 35,460 households in 16 counties under the BADEA project.

The BADEA project is valued at Ksh6.3 billion and is financed; by Arab Bank for Economic Development in Africa (BADEA), Saudi Fund for Development, OPEC Fund for international Development (OFID) and the Government of Kenya. FTL was allocated Lot Three covering South Rift Region and parts of Nyandarua. By the end of the project, a stretch of over 430km will have been done by FTL; the total project value is Ksh 1.1 Billion. The company has also secured tower strengthening projects in Tanzania worth Ksh 70 Million and a Ksh92 Million project for the construction of a substation in Kakuma.

Despite tangible contracted pipeline, the company’s revenues reduced by 24.5% to Kshs. 173Mn in 2016 as most of the billable works for the projects were to be completed in 2017/2018.

Fountain Group of Schools Ltd

Fountain Schools have recorded a revenue growth of 27 percent following improved enrollment last year. Enrollment for the two schools based in Mwea and Tigoni went up by 20 percent from 394 students in 2015 to 467 students in 2016. This growth follows a Ksh10 million investment in developing the schools’ infrastructure and transportation. Continued investment is key to improving the learning environment for our learners. The funds went into completion of the facilities such as the dormitories, parking and infrastructural renovations. Besides brick and mortar improvements, the institution has made management changes to improve the operations of the schools and bolster educational excellence.

Citadelle Security Ltd

Citadelle, which recorded considerable growth in 2015, had declined revenues in 2016 following the end of a contract for various sections of the SGR project. We have since then secured contracts with a leading fast food chain and a major road project in Central Kenya. The business has experienced security professionals and has hired business development executives from experienced operators in an effort to grow revenues.

Credit Bank Ltd

In line with Central Bank of Kenya’s requirements for FEP Holdings to divest, we sold 65% of our holding in Credit Bank Ltd which reduced from Ksh107Mn to 38Mn. The residual has been substantially disposed off in 2017. All the disposals have been to members of FEP Society.

Mobikash Africa Ltd

Mobikash witnessed a major drop in revenues from Kshs. 96Mn to Kshs. 39Mn, a decline of 59% due to heightened competition in the mobile money industry. FEP holds a 60% share in the company which has been looking for a strategic investor to capitalise operations in order to challenge its bigger competitors. Our Board has taken the decision to dilute our investment in the company. We would like to focus on insurance and microfinance as our financial services offering.

Capital

A major challenge to our growth has been lack of adequate capital. We do not have sufficient capital to support our growing businesses or to complete projects .This continues to be the main constraint to revenue growth and efforts to scale up our operations faster; we are now actively looking for equity or business partners for some of our projects and business units. Some of our units have scaled up from seed/early stage to a growth phase and offer opportunities for private equity or other investors. This is being addressed by the management and the Board. We will seek an appropriate mix of debt and equity capital as well as business partnerships and strategic alliances.

Diversity

Our strength lies in our diversification of investments in different sectors which has allowed us to mitigate economic risks and business downturns while capitalising on opportunities in 2016.

While we are confident of the future, we recognize the urgent need to resolve our working capital and project finance needs.

The milestones that I have enumerated would not have been possible without the active support of the entire Board, management and staff and the buy-in from our investors. I am therefore unreservedly grateful for your support this far.

Mr� Maurice Korir

CEO, FEP Holdings Ltd


CORPORATE SOCIAL RESPONSIBILITY

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Despite studying with a biting headache and under heavy medication, she still emerged top of her class in her third term class seven exams�

Save Magdalene ChelimoYoung Magdalene chelimo,13, outran guns and an early marriage to secure an education. A brain tumor is now threatening to void the efforts and zeal she expended to outpace numerous challenges she faced in West Pokot, in her bid to be a surgeon

In West Pokot, death is always a heartbeat away, the lives of even women and children can be brutally snuffed out by the muzzle of a gun when cattle rustlers come calling. On this rugged terrain, even teenagers wield guns to survive the harsh realities of the ever imminent danger of falling prey to cattle rustling which is considered a cultural practice.

However, you would hope that when the guns have fallen silent and the bandits are done with their murderous rampage, a 10-year old child who has experienced the tragic carnage would enjoy a return blissful normalcy. This is not the case for Magdalene Morita Chelimo; after her father’s death in 2015, she and her brother, a TTC student in Kericho, were left under their mother’s care despite her not having any source of income.

After being rescued from an arranged early marriage and the menace of gun slinging bandits, life was relatively calm for Chelimo at Fountain School Mwea where she secured a scholarship through sponsorship from FEP Foundation.

Chelimo who is the last born of 16 children from a polygamous family excelled in her studies and was constantly at the top of her class. The Head Teacher, Lucy Kariuki says Chelimo has been an exceptional student despite scars that mark her past life. “I often don’t understand what drives her, there are instances where we have had to compel her to go to sleep as she can study long after other students have gone to sleep,” says the Head Teacher.

But for young Chelimo, troubles came in threes. Long after settling in after her admission at Fountain School, Mwea, she started complaining of a lingering headache. The constant visits to the doctors were unhelpful. “Despite studying with a biting headache and under heavy

medication, she still emerged top of her class in her third term class seven exams,” says Ms. Kariuki.

But as fate would have it, she was diagnosed with a brain tumor in December 2016 at a hospital in West Pokot, Uganda. The relatives opted to take her to Uganda for a checkup as the doctors were on strike in Kenya at the time.

Despite her ailment, the ambitious student still went ahead to open school with the other students in January 2017. Her condition continued to deteriorate as the tumor was now exerting cranial pressure on the brain; with doctors at the Texas Cancer Center raising the alarm that this pressure would potentially render her immobile.

Though the FEP Foundation and other well-wishers including staff at FEP Holdings raised funds for her admission and surgery at the Coptic Hospital in Nairobi in February this year, she is still in need of chemotherapy and radio therapy sessions which she is unable to afford owing to financial constraints thus affecting her health.

Chelimo has continued to post exemplary performance despite her condition; holding top position across Fountain School, Tigoni and Fountain School, Mwea. “She maintained the same position in opener exams in January 2017, despite being in and out of hospital in December 2016,” said the Head Teacher.

Echoing the words of Lina Jebii Kilimo, the Chair of the Anti-FGM Board and Founder, Jebii Kilimo Foundation Chelimo says that girls should not be compared to how many cows they can fetch at marriage, revealing that she aspires to be a surgeon.

In her neck of the woods, FMG is “ justified” because of communal social consensus that stigmatizes and ridicules girls who have not undergone the cut, or the entire house. Though FGM poses perilous consequences such as death and life-long physical disability, girls who refuse to undergo the cut will not find a suitor for marriage.

Owing to the premium placed on livestock, which is the form of payment for dowries, the families in West Pokot are often willing to subject their teenage girls to FGM and early in their quest for dowry payment. Chelimo’s zeal in her pursuit for education is perhaps fired by her realization that life back home has little or no viable options for her.

For Chelimo to attain her academic and career goals, Chelimo and her family are thus appealing to well-wishers to donate any amount possible towards the radiotherapy, chemotherapy and other related healthcare costs via:

Account: Magdalene Chelimo Medical Fund

Bank: Equity Bank

Branch: Kilimani Branch

Account number: 1450172546605

MPESA Paybill Number: 247247

Account: 1450172546605


CORPORATE SOCIAL RESPONSIBILITY (Continued)

“Let’s be known by our neighbors”

We believe in stretching a helping hand to someone who is in need, making a difference to the society around us and standing out as a name to be associated with whenever a need arises. It’s on that ground that on 30th September 2016 The FEP Welfare Team in partnership with Just Homes suppliers made a courtesy call to our neighbors at the NATIONAL SPINAL INJURY HOSPITAL.

Spinal injury overviewInjury to the spinal cord causes permanent disability below the level of injury. One could suffer paraplegia – impairment in motor and sensory function of lower limbs or quadriplegia — impairment and loss in motor and sensory function of both upper and lower limbs.

The spinal injury hospital based in Kilimani has a 40-bed capacity and usually has about 200 patients on the waiting list. Most patients sustain spinal injuries from road accidents, fall from heights, gunshots and assaults.

The challengeScola –Nurse in charge points out that the hospital depends on the ministry and well-wishers, and most times lacks funds to resettle discharged patients and vehicles. She says the nurses train family members and neighbors on how to take care of paraplegics and the hospital provides a discharged patient with a wheelchair, special bed,

crutches and a catheter for urination. “Rehabilitation requires team work and a holistic approach and it is expensive. The nurse in charge says research by the Kenya Paraplegic Organization, reveals that 70 per cent of patients die within five years after they are discharged. “The common cause of death is wounds. It is very frustrating to take care of patients for more than a year only for them to die of basic things like bedsores.”

The EventAll the planning and execution of the exercise relied on the coming together of The FEP CSR team and a number of partners/sponsors.

Some of these partners/sponsors were;

1) Gestard Logistics Ltd- Nairobi : provided Zaneal sanitary pads, Zaneal baby diapers and Zaneal Compressed towels

2) Percent Fashions –Nakuru : provided face towels

3) Pwani Oils: Provided medicated bathing soaps.

Other items that had been requested by the nurses were Adult diapers, Dettol disinfectants, Medium size towels, Water bottles, Delmonte / pick n peel juice, Lucozade / Ribena and Fresh fruits, which The Welfare Team managed to purchase and give to the 20 patients in The National Spinal Injury Center.

TestimonialsHats off!

“The day was a success! And this was apparent from the glowing faces of both the patients and nurses that the donations were very much needed and appreciated. I applaud the staff for their generous contributions and their participation too. I would also like to pass a special thank you to Just Homes Limited for their kind support. The feeling of interacting with these self-motivated patients was one of a kind as we got to share together in stories, laughter and prayer.” Terry Gichuhi

Every day is a blessing, be grateful!

“It was an honor to reach out to our neighbors who feel most of the time abandoned. I can proudly concur that our objective was categorically met. I say this with reference to one particular gentleman who had been in the hospital for 1 year and had not received any visit from friends and family for the past 8 months plus. Upon receiving us and our basket full of hope, he sobbed. The attending nurse pointed out that she had never seen such emotions in the gentlemen and with that she passed on a blessing to us”. Florence Oloo

“We make a living by what we get but make a life by what we give – Winston Churchill”


REPORT OF THE DIRECTORSThe directors hereby submit their annual report together with the audited financial statements of FEP Holdings Limited (“the company”) and its subsidiaries (together “the Group”) for the year ended 31 December 2016 which disclose the state of the Group’s financial affairs. In accordance with Section 42 of the sixth schedule transitional and savings provisions of the Companies Act, 2015, this report has been prepared in accordance with section 157 of the repealed Companies Act, as if this repeal had not taken effect.

PRINCIPAL ACTIVITIESFEP Holdings Limited is an investment holding company. The principal activities of the Group include engagement in construction and maintenance of telecom and energy infrastructure, operation of retail supermarkets, provision of security services, provision of credit services, provision of education, travel agency services, mobile money transfer services and development of property for sale and rental purposes.

GROUP FINANCIAL RESULTS

2016 2015Sh Sh

Group loss before taxation (108,869,890) (866,268,049)Taxation credit/(charge) 214,889,114 (39,470,688)

Group profit/(loss) for the year transferred to reserves 106,019,224 (905,738,737)

DIVIDEND

The directors do not recommend the payment of a dividend in respect of the year (2015 – Nil).

DIRECTORS

The present board of directors is shown on page 5 & 6.

AUDITORS

Deloitte & Touche, having expressed their willingness, continue in office in accordance with the provisions of the Kenyan Companies Act.

BY ORDER OF THE BOARD

Secretary

Nairobi, Kenya

5th June 2017


STATEMENT OF DIRECTORS’ RESPONSIBILITIESThe Kenyan Companies Act, 2015 requires the directors to prepare financial statements for each financial year that give a true and fair view of the financial position of the company and its subsidiaries as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the company maintains proper accounting records that are sufficient to show and explain the transactions of the company and disclose, with reasonable accuracy, the financial position of the group. The directors are also responsible for safeguarding the assets of the company, and for taking reasonable steps for the prevention and detection of fraud and error.

The directors accept responsibility for the preparation and presentation of these financial statements in accordance with the International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015. They also accept responsibility for:

(i) designing, implementing and maintaining such internal control as they determine necessary to enable the presentation of financial statements that are free from material misstatement, whether due to fraud or error;

(ii) selecting suitable accounting policies and applying them consistently; and

(iii) making accounting estimates and judgements that are reasonable in the circumstances.

As disclosed in note 3 to the financial statements, the directors acknowledge that the continued existence of the group as a going concern depends on continued support from the shareholders and the measures that the directors are putting in place to realise profitability in the group’s operations. The directors are of the view that the group will remain a going concern for the foreseeable future.

Approved by the Board of Directors on 5th June 2017 and signed on its behalf by:

_______________________ _________________________Director Director


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF FEP HOLDINGS LTD

Report on the Financial StatementsWe have audited the accompanying consolidated financial statements of FEP Holdings Limited (“ the company”) and its subsidiaries (together “the group”), set out on pages 27 to 70, which comprise the consolidated and company statements of financial position as at 31 December 2016, and the consolidated and company statements of profit or loss and other comprehensive income, consolidated and company statements of changes in equity and consolidated and company statements of cash flows for the year then ended, and the notes to the financial statement, including a summary of significant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and company as at 31 December 2016 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the Kenyan Companies Act.

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), which is consistent with the ethical requirements that are relevant to our audit of the financial statements in Kenya. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern We draw attention to note 3 to the financial statements which indicates that the group had accumulated losses amounting to Sh 2,324,133,385 (2015 - Sh 2,452,580,649). As stated in note 3, these conditions along with other matters set forth in the note, indicate that a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern. The note explains the premises upon which the directors have prepared the financial statements on a going basis and our opinion is not qualified in respect of this matter.

Other InformationThe directors are responsible for the other information, which comprises the report of directors as required by the Kenyan Companies Act. The other information does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.


INDEPENDENT AUDITORS’ REPORT (Continued) TO THE MEMBERS OF FEP HOLDINGS LTD

Other Information (continued)If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors charged with governance of the financial statementsThe Directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Kenyan Companies Act, and for such internal controls as Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s and Company’s ability to continue as going concerns, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company and its subsidiaries or to cease operations, or have no realistic alternative but to do so. The Directors and those charged with governance are responsible for overseeing the Group’s and the Company’s financial reporting process.

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

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and Company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

· Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and Company’s ability to continue as going concerns. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Company to cease to continue as going concerns.

· Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.


INDEPENDENT AUDITORS’ REPORT (Continued) TO THE MEMBERS OF FEP HOLDINGS LTD

Auditor’s responsibilities for the audit of the financial statements (continued)We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Report on other legal and regulatory requirements

As required by the Kenyan Companies Act, we report to you, based on our audit, that:

(iv) 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;

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

(vi) the company’s statement of financial position (balance sheet) and statement of profit or loss and other comprehensive income (profit and loss account) are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditors’ report is CPA F Okwiri - P/No 1699.

Certified Public Accountants (Kenya)

Nairobi, Kenya

5th June 2017


CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015Note Sh Sh

REVENUE 4 709,008,434 938,767,257

DIRECT COSTS 5 (454,410,298) (606,950,058)GROSS PROFIT 254,598,136 331,817,199OTHER INCOME 204,798,827 42,042,398ADMINISTRATIVE EXPENSES 6 (618,908,125) (728,518,793)FINANCE COSTS 8 (17,037,294) (27,098,258)

NET GAIN ON DISPOSAL OF SUBSIDIARY 33 - 5,372,697SHARE OF LOSS OF ASSOCIATE 15 (4,119,034) (8,897,040)FAIR VALUE GAIN/ (LOSS ) ON INVESTMENT PROPERTIES 16 71,797,600 (469,986,252)IMPAIRMENT OF INVESTMENT PROPERTIES 16 - (11,000,000)LOSS BEFORE TAXATION 9 (108,869,890) (866,268,049)TAXATION CREDIT/ (CHARGE) 10(a) 214,889,114 (39,470,688)PROFIT/(LOSS) FOR THE YEAR 106,019,224 (905,738,737) OTHER COMPREHENSIVE INCOMEItems that may be reclassified subsequently to profit or loss:

(Loss)/gain on revaluation of land and buildings 11 (87,502,392) 239,898,733Deferred tax on revaluation surplus 28 (17,585,778) -Exchange difference on translation of foreign operations (5,469,694) 2,931,557

Other comprehensive (loss)/income for the year (110,557,864) 242,830,290 TOTAL COMPREHENSIVE LOSS FOR THE YEAR (4,538,640) (662,908,447) Profit /(Loss) for the year attributable to:

Equity holders of the parent 128,447,264 (876,567,527)Non-controlling interest 24 (22,428,040) (29,171,210)

_ _106,019,224 (905,738,737)

Total comprehensive loss attributable to:

Equity holders of the parent 17,889,400 (633,737,237)Non-controlling interest 24 (22,428,040) (29,171,210)

(4,538,640) (662,908,447)

CONSOLIDATED STATEMENT OF PROFIT OR LOSS


COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015Note Sh Sh

REVENUE 4 23,182,795 118,695,451

OTHER INCOME 40,677,413 19,047,810

OPERATING EXPENSES 6 (244,146,800) (274,066,834)

IMPAIRMENT OF INVESTMENT IN SUBSIDIARY - (29,250,000)

LOSS ON DISPOSAL OF SUBSIDIARY - (172,725,075)

FINANCE COSTS 8 - (8,497,322)

LOSS BEFORE TAXATION (180,286,592) (346,795,970)TAXATION CREDIT/(CHARGE) 10(a) 32,066,735 (35,608,635)LOSS FOR THE YEAR (148,219,857) (382,404,605)OTHER COMPREHENSIVE INCOMEItems that may be reclassified subsequently to profit or loss:

Surplus on revaluation of freehold land 11 17,677,050 14,467,700Deferred taxation on revaluation surplus 28 (883,851) -

Other comprehensive income for the year 16,793,199 14,467,700TOTAL COMPREHENSIVE LOSS FOR THE YEAR (131,426,658) (367,936,905)

COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

2016 2015Note Sh Sh

ASSETSNon-current assetsProperty and equipment 11 1,682,580,175 1,618,462,561Intangible assets 12 15,562,130 14,792,523Prepaid operating lease 13 276,667 316,667Unquoted investment 14 37,807,433 107,157,895Investment in associate 15 69,376,687 73,495,721Investment properties 16 1,308,998,785 1,207,065,636Corporate bonds 17 68,601,449 60,516,546Loans and advances 18 218,097,279 185,045,205

3,401,300,605 3,266,852,754Current assets Inventories 19 516,639,844 295,574,131Trade and other receivables 20 322,771,932 296,547,915Due from related companies 21(a) 106,575,261 109,493,522Corporate tax recoverable 10(c) 14,273,434 1,414,303Short term deposits 22 65,100,000 366,595,755Cash and bank balances 29(b) 81,467,538 106,514,150

1,106,828,009 1,176,139,776TOTAL ASSETS 4,508,128,614 4,442,992,530EQUITY, AND LIABILITIESCapital & ReservesShare capital 23 1,936,580,550 1,914,213,680Share premium 2,890,545,510 2,899,201,437Funds Awaiting allotment 120,555,515 -Revaluation surplus 366,741,018 471,829,188Translation reserve (854,039) 4,615,655Accumulated losses (2,324,133,385) (2,452,580,649)Equity attributable to owners of the company 2,989,435,169 2,837,279,311Non-controlling interest 24 231,963,887 254,391,927

3,221,399,056 3,091,671,238Non-current liabilitiesBorrowers deposit held 25 103,362,842 131,767,397Deferred tax liability 28 117,830,695 285,311,513

221,193,537 417,078,910Current liabilitiesDue to related companies 21(b) 203,020,682 217,416,059Trade and other payables 26 833,575,048 690,756,107Borrowings 27 14,000,000 183,819Corporate tax payable 10(c) 3,757,902 25,886,397Bank overdraft 29(b) 11,182,389 -

1,065,536,021 934,242,382TOTAL EQUITY AND LIABILITIES 4,508,128,614 4,442,992,530

The financial statements on pages 27 to 70 were approved by the Board of Directors and authorised for issue on 5th June 2017 and were signed on its behalf by:

----------------------------------------- --------------------------------Director Director

CONSOLIDATED STATEMENT OF FINANCIAL POSITION


COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

2016 2015Note Sh Sh

ASSETSNon current assetsProperty and equipment 11 153,733,685 143,087,977Intangible assets 12 11,567,564 160,621

Unquoted investment 14 37,807,433 107,157,895Investment in subsidiary companies 33 1,250,705,413 411,900Investment in associate 15 89,960,535 89,960,535Corporate bonds 17 68,601,449 60,516,546

1,612,376,079 401,295,474Current assets Trade and other receivables 20 14,417,821 30,130,444

Due from related companies 21(a) 2,369,349,160 3,374,946,274Taxation recoverable 10(c) 10,963,601 -Short term deposits 22 65,100,000 366,595,755

Cash and bank balances 36,085,469 31,432,7182,495,916,051 3,803,105,191

TOTAL ASSETS 4,108,292,130 4,204,400,665EQUITY AND LIABILITIESCapital and ReservesShare capital 23 1,936,580,550 1,914,213,680Share premium 2,890,545,510 2,899,201,437Revaluation surplus 43,949,399 27,156,200Funds awaiting allotment of shares 120,555,515 -Accumulated losses (1,564,042,514) (1,415,822,657)

Shareholders’ funds 3,427,588,460 3,424,748,660

Non-current liabilitiesDeferred tax liability 883,851 -Current liabilitiesDue to related companies 21(b) 397,243,971 408,223,026

Trade and other payables 26 282,575,848 347,443,502Corporate tax payable 10(c) - 23,985,477

679,819,819 779,652,005TOTAL EQUITY AND LIABILITIES 4,108,292,130 4,204,400,665

The financial statements on pages 27 to 70 were approved by the Board of Directors and authorised for issue on 5th June 2017 and were signed on its behalf by:

----------------------------------------- -----------------------------------------Director Director


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016

Shar

e

capi

tal

Sh

Shar

e

prem

ium Sh

Fund

s Aw

aitin

g

Allo

tmen

t

of s

hare

s sh

*Rev

alua

tion

surp

lus Sh

Tran

slat

ion

Rese

rve Sh

Acc

umul

ated

lose

s Sh

Attrib

utab

le

to o

wne

rs

Sh

Min

ority

inte

rest Sh

Tota

l

Sh

At 1

Janu

ary

2015

1,914

,213

,680

2,89

9,20

1,437

-23

1,930

,455

1,684

,098

(1,5

76,0

13,12

2)3,

471,0

16,5

4828

3,56

3,137

3,75

4,57

9,68

5

Tota

l com

preh

ensi

ve lo

ss

for

the

year

--

-23

9,89

8,733

2,93

1,557

(876

,567

,527

)(6

33,73

7,237

)(2

9,17

1,210

)(6

62,9

08,4

47)

At 3

1 Dec

embe

r 201

51,9

14,2

13,6

802,

899,

201,4

37-

471,8

29,18

84,

615,

655

(2,4

52,5

80,6

49)

2,83

7,279

,311

254,

391,9

273,

091,6

71,2

38

At 1

Janu

ary

2016

1,914

,213

,680

2,89

9,20

1,437

-47

1,829

,188

4,61

5,65

5(2

,452

,580

,649

)2,

837,2

79,3

1125

4,39

1,927

3,09

1,671

,238

Issu

e of

sha

res*

*2,

916,

525

10,79

4,41

8-

--

-13

,710,

943

-13

,710,

943

Tran

sfer

s***

19,4

50,3

45(1

9,45

0,34

5)-

--

--

-

Righ

ts is

sue

--

120,

555,

515

--

-12

0,55

5,51

5-

120,

555,

515

Tota

l com

preh

ensi

ve lo

ss

for

the

year

--

-(1

05,0

88,17

0)(5

,469

,694

)12

8,447

,264

17,8

89,4

00(2

2,428

,040

)(4

,538

,640

)

At 3

1 Dec

embe

r 201

61,9

36,5

80,5

502,

890,

545,

510

120,

555,

515

366,

741,0

18(8

54,0

39)

(2,3

24,13

3,38

5)2,

989,

435,1

6923

1,963

,887

3,22

1,399

,056

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


*Revaluation surplus relates to surplus arising from revaluation of freehold land and buildings.

** Share capital relates to founder shares as per the memorandum of association where the founder is entitled to 3.75% of the shares on issue in the company. Share premium relates to amounts owed from FEP Sacco with regard to 2014 PPO shares allotted to Sacco members.

***Upon completion of the share register reconciliation exercise, deposits which had been received but unallotted were alloted as at year end. This allotment was made out of transfers made into share premium in the past.


COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016

Share

capital

Share

premium

Funds awaiting

allotment of shares

*Revaluation

surplus

Accumulated

loses

Total equity

and reservesSh Sh Sh Sh Sh Sh

At 1 January 2015 1,914,213,680 2,899,201,437 - 12,688,500 (1,033,418,052) 3,792,685,565Total comprehensive loss for the year - - - 14,467,700 (382,404,605) (367,936,905)

As at 31 December 2015 1,914,213,680 2,899,201,437 - 27,156,200 (1,415,822,657) 3,424,748,660

At 1 January 2016 1,914,213,680 2,899,201,437 - 27,156,200 (1,415,822,657) 3,424,748,660

Issue of shares** 2,916,525 10,794,418 - - - 13,710,943Transfers*** 19,450,345 (19,450,345) - - - -Rights issue - - 120,555,515 - - 120,555,515

Total comprehensive loss for the year - - - 16,793,199 (148,219,857) (131,426,658)

As at 31 December 2016 1,936,580,550 2,890,545,510 120,555,515 43,949,399 (1,564,042,514) 3,427,588,460

*Revaluation surplus relates to surplus arising from revaluation of freehold land and buildings.

** Share capital relates to founder shares as per the memorandum of association where the founder is entitled to 3.75% of the shares on issue in the company. Share premium relates to amounts owed from FEP Sacco with regard to 2014 PPO shares allotted to Sacco members.

***Upon completion of the share register reconciliation exercise, deposits which had been received but un allotted were alloted as at year end. This allotment was made out of transfers made into share premium in the past.

COMPANY STATEMENT OF CHANGES IN EQUITY


CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015Note Sh Sh

CASH FLOWS FROM OPERATING ACTIVITIES

Cash used in operations 29(a) (318,886,009) (478,015,244)Taxation paid 10(c) (5,165,108) (17,885,817)Interest paid (17,037,294) (27,098,258)Net cash used in operating activities (341,088,411) (522,999,319)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment 11 (194,083,286) (443,275,359)Proceeds from sale of property and equipment - 18,195,783

Purchase of intangible assets 12 (17,448,935) (200,776)Purchase of unquoted investment 14 69,350,462 -Sale of unquoted investment 14 - (107,157,895)Purchase of investment properties 16 (602,400) -Proceeds from disposal of investment property 16 15,000,000 -Purchase of corporate bonds 17 - (17,000,000)Interest received on corporate bonds 17 2,250,000 -Net cash used in investing activities (125,534,159) (549,438,247)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings received 27 14,000,000 -Borrowings repaid 27 (183,819) (194,393,918)Funds received on rights issue 120,555,515 -

Net cash generated from/(used in) financing activities 134,371,696 (194,393,918)

DECREASE IN CASH AND CASH EQUIVALENTS (332,250,874) (1,266,831,484)

CASH AND CASH EQUIVALENTS AT 1 JANUARY 473,109,905 1,736,335,059

Effect of translation difference on cash and

cash equivalents

(5,473,882) 3,606,330

Cash and cash equivalents at 31 December 29(b) 135,385,149 473,109,905

CONSOLIDATED STATEMENT OF CASH FLOWS


COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015Note Sh Sh

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before taxation (180,286,592) (346,795,970)

Adjustments for:

Impairment of investment in subsidiary - 29,250,000Depreciation charge for the year 11 10,354,711 15,763,058Amortisation of intangible assets 12 1,699,426 40,155

Transfers in (293,377) -Interest income on corporate bonds 17 (10,334,903) (10,516,546)(Gain) / loss on disposal (611,194) 21,303,268

Assets written off - 10,853377*Founder member shares 2,416,015 -Decrease in trade and other receivables 15,712,623 (24,869,019)Decrease in trade and other payables (64,867,246) (116,628,643)Movement in related party balances 21 (244,381,036) (414,519,081)Tax paid 10c (2,882,343) (16,471,514)

Net cash used in operating activities (473,473,916) (852,590,915)

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment 11 (4,421,196) (52,620,612)Purchase of intangible assets 12 (13,106,369) (200,776)Proceeds from disposal of property and equipment 2,002,500 17,322,738Purchase of unquoted investment 14 69,350,462 -

Sale of unquoted investment 14 (107,157,895)Purchase of corporate bonds 17 - (17,000,000)

Interest received on corporate bonds 17 2,250,000 -

Net cash generated from/(used in) investing activities 56,075,397 (159,656,545)

CASH FLOWS FROM FINANCING ACTIVITIESBorrowings repaid 27 - (194,393,918)

Rights issue funds 120,555,515 -Net cash generated from/(used in) financing activities 120,555,515 (194,393,918)

Decrease in cash and cash equivalents (296,843,004) (1,206,641,378)

Cash and cash equivalents at 1 January 398,028,473 1,604,669,851

Cash and cash equivalents at 31 December 101,185,469 398,028,473

*The founder member is entitled to 3.75% of the shares on issue the company and hence and expense.

COMPANY STATEMENT OF CASH FLOWS


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

1� ACCOUNTING POLICIES

Statement of compliance

The consolidated and company financial statements (financial statements) have been prepared in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act.

For the Kenyan Companies Act reporting purposes the balance sheet is represented by the statement of financial position and the profit and loss account is represented in the statement of profit or loss and other comprehensive income.

Application of new and revised International Financial Reporting Standards (IFRSs)

(i) Relevant new standards and amendments to published standards effective for the year ended 31 December 2016

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exemption

The amendments clarify that the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all its subsidiaries at fair value in accordance with IFRS 10. The amendments also clarify that the requirement for an investment entity to consolidate a subsidiary providing services related to the former’s investment activities applies only to subsidiaries that are not investment entities themselves.

The application of these amendments has had no impact on the consolidated financial statements as the Group is not an investment entity and does not have any holding company company, subsidiary, associate or joint venture that qualifies for designation as an investment entity.

Amendments to IFRS 11 Accounting for Acquisitions of interest in joint operations

The amendments provide guidance on how to account for the acquisition of a joint operation that constitute a business as defined in IFRS 3, Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation. A joint operator is required to disclose relevant information required by IFRS 3 and other standards for business combinations.

The amendment had no impact on the consolidated financial statements as the Group did not have any such transactions in the year.

IAS 1 Disclosure Initiative

The amendments clarify that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, and give guidance on the bases of aggregating and disaggregating information for disclosure purposes. However, the amendments reiterate that an entity should consider providing additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to understand the impact of particular transactions, events and conditions on the entity’s financial position and financial performance.

NOTES TO THE FINANCIAL STATEMENTS


NOTES TO THE FINANCIAL STATEMENTS (Continued)

1� ACCOUNTING POLICIES (Continued)

Adoption of new and revised International Financial Reporting Standards (IFRS) (Continued)

(i) Relevant new standards and amendments to published standards effective for the year ended 31 December 2016 (Continued)

IAS 1 Disclosure Initiative (Continued)

In addition, the amendments clarify that an entity’s share of the other comprehensive income of associates and joint ventures accounted for using the equity method should be presented separately from those arising from the Company, and should be separated into the share of items that, in accordance with other IFRSs:

(i) will not be reclassified subsequently to profit or loss; and

(ii) will be reclassified subsequently to profit or loss when specific conditions are met.

As regards the structure of the financial statements, the amendments provide examples of systematic ordering or grouping of the notes. The application of these amendments has not resulted in any impact on the financial performance or financial position of the Group and Company.

IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment.

The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:

(i) when the intangible asset is expressed as a measure of revenue; or

(ii) when it can be demonstrated that revenue and consumption of the economic benefits of the

intangible asset are highly correlated.

As the Group already uses the straight-line method for depreciation and amortisation of its property and equipment, and intangible assets respectively, the application of these amendments has had no impact on the consolidated and company financial statements.

Annual Improvements to IFRSs 2012-2014 Cycle

The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRSs, which are summarised below:

• IFRS 5 - The amendments introduce specific guidance in IFRS 5 for when an entity reclassifies an asset or disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments also clarifies the guidance for when held-for- distribution accounting is discontinued.

• IFRS 7 - The amendments provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.

• IAS 19 - The amendments clarify that the rate used to discount post-employment benefit obligations should be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the depth of a market for high quality corporate bonds should be at the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which there is no deep market in such high quality corporate bonds, the market yields at the end of the reporting period on government bonds denominated in that currency should be used instead.

The application of these amendments has had no effect on the Group’s consolidated financial statements.





(ii) Relevant and amended standards and interpretations in issue but not yet effective in the year ended 31 December 2016

The application of these new standards and amendments has had no effect on the Group’s financial statements.

New standards and amendments to standards Effective for annual periods beginning on or after

IFRS 9 Financial Instruments 1 January 2018IFRS 15 Revenue from contracts with customers 1 January 2018IFRS 16 Leases 1 January 2019Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017

Amendments to IAS 7 Disclosure Initiative 1 January 2017

(iii) Impact of new and amended standards and interpretations on the financial statements for the year ended 31 December 2016 and future annual periods

IFRS 9 Financial Instruments

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include:

a) impairment requirements for financial assets and

b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9:

• All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 applies) in other comprehensive income, with only dividend income generally recognised in profit or loss.





(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the year ended 31 December 2016 and future annual periods (Continued)

IFRS 9 Financial Instruments (Continued)

• With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of a financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

• In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.

• The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

Based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2016 on the basis of the facts and circumstances that exist at that date, the directors of the Company have performed a preliminary assessment of the impact of IFRS 9 to the Group’s consolidated financial statements as follows:

Classification and measurement

• Loans carried at amortised cost as disclosed in note 23: these are held within a business model whose objective is to collect the contractual cash flows that are solely payments of principal and interest on the principal outstanding. Accordingly, these financial assets will continue to be subsequently measured at amortised cost upon the application of IFRS 9;

• All other financial assets and financial liabilities will continue to be measured on the same bases as is currently adopted under IAS 39.

Impairment

Financial assets measured at amortised cost, listed redeemable notes that will be carried at FVTOCI under IFRS 9, finance lease receivables, amounts due from customer under construction contracts, and financial guarantee contracts will be subject to the impairment provisions of IFRS 9.

The Group expects to apply the simplified approach to recognise lifetime expected credit losses for its trade receivables, as required or permitted by IFRS 15. The Group does not hold any listed redeemable notes, finance lease receivables, amounts due from customer under construction contracts or financial guarantee contracts. In general, the directors anticipate that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses for the financial assets measured at amortised cost and are currently assessing the potential impact.



1� ACCOUNTING POLICIES (Continued)Adoption of new and revised International Financial Reporting Standards (IFRS) (Continued)

(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the year ended 31 December 2016 and future annual periods(Continued)

IFRS 9 Financial Instruments (Continued)

Hedge accounting

The new hedge accounting requirements will align more closely with the Group’s risk management policies, with generally more qualifying hedging instruments and hedged items. The Group does not hold any hedging relationships, and therefore the directors do not anticipate that the application of the IFRS 9 hedge accounting requirements will have an impact on the Group’s consolidated financial statements.

It should be noted that this assessment was made based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2016 on the basis of the facts and circumstances that existed at that date. As facts and circumstances may change during the period leading up to the initial date of application of IFRS 9, which is expected to be 1 January 2018 as the Group does not intend to early apply the standard, the assessment of the potential impact is subject to change.

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. Revenue recognition by the Group is not complex and does not substantially involve contracts with customers. It is therefore expected that the application of IFRS 15 will not have a material impact on the financial statements of the Group.

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

The Directors of the Group do not anticipate that the application of IFRS 16 in the future will have a significant impact on amounts reported in respect of the Group’s financial assets and financial liabilities. However, it is not practical to provide a reasonable estimate of the effect of IFRS 16 until a detailed review has been completed.





(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the year ended 31 December 2016 and future annual periods (Continued)

Amendments to IAS 7 Disclosure Initiative

The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities including both changes arising from cash flows and non-cash changes. The amendments do not prescribe a specific format to disclose financing activities. However, an entity may fulfil the disclosure objective by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.

The amendments apply prospectively for annual periods beginning on or after 1 January 2017 with early application permitted. The Directors of the Group do not anticipate that the application of these amendments will have a material impact on the consolidated financial statements.

(iv) Early adoption of standards

The Group did not early adopt any new or amended standards in 2016.

Basis of preparation

The financial statements have been prepared on the historical cost basis of accounting as modified to include the revaluation of certain properties that are measured at revalued amounts and financial instruments measured at fair value.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows:

Level 1: fair values are derived from quoted (unadjusted) prices in active markets for identical assets or liabilities that an entity can access at a measurement date

Level 2: fair values are derived using other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: fair values are derived using techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries.

Subsidiaries are those entities in which the Group has power to exercise control over their operations. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are included in the consolidated financial statements from the date the Group gains effective control. Entities controlled by the Group are consolidated until the date that control ceases.




Basis of consolidation (Continued)

The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.

Intra-group balances and any unrealised income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

The acquisition method of accounting is used when subsidiaries are acquired by the Group. The cost of an acquisition in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the consideration transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the acquired identifiable assets and the liabilities assumed are generally measured and recognized at their fair value.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the Group’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

In the event that the amounts of net assets acquired are in excess of the aggregate of the consideration transferred, the amount of non-controlling interest and the fair value of Group’s previously held equity interest, the difference is recognised immediately in the profit or loss as a bargain purchase.

In a business combination achieved in stages, the previously held equity interest is re-measured at the acquisition-date fair value with the resulting gain or loss recognised in the profit or loss. Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are treated as transactions between equity holders and are reported in equity.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.

Investment in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associate, less any impairment in the value of individual investments and at cost in the Company statement of financial position. Losses of an associate in excess of the Group’s interest in that associate are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.




Investment in subsidiaries

The investment in subsidiaries is stated in the Company’s statement of financial position at cost less any impairment losses.

Revenue recognition

Revenue represents the fair value of the consideration receivable for sales of goods and services and is stated net of Value-Added Tax (VAT), rebates and discounts.

Sales of goods and services are recognised in the period in which the Group delivers the product or performs the service to the customer, the customer has accepted the products or service and the collectability of the related receivable is reasonably assured.

Fees and commission income are recognised at the time of effecting the transactions

Interest income is recognised on a time proportion basis using the effective interest method.

Rental income from operating leases is recognised on the straight line basis over the term of the relevant lease.

Dividend income is recognised as income in the period in which the right to receive payment is established.

Tuition fees and related fee income are accounted for over the period to which they relate. Fees paid in advance are carried forward as liabilities.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

(i) Current taxation

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

(ii) Deferred taxation

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.




Taxation (Continued)

(ii) Deferred taxation (Continued)

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the deferred tax is also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for business combination.

Employees’ benefits

Retirement benefit plans

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

The Group’s contributions to the above scheme are charged to the profit or loss in the year to which they relate.

Employee entitlements

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

Inventories

Inventories are valued at the lower of cost or net realisable value. Cost is determined on a weighted average basis and comprises expenditure incurred in the normal course of business, including direct material costs. Net realisable value is the price at which the inventory can be realised in the normal course of business after allowing for the costs of realisation. Obsolete and defective inventories are fully written off.

Investment properties

Investment properties comprise land and buildings and parts of buildings held to earn rentals and/or for capital appreciation. The properties are carried at fair value, determined annually by external independent valuers. Fair value is based on active market prices as adjusted, if necessary, for any difference in the nature, condition or location of the specific asset.

Investment properties are not subject to depreciation. Changes in their carrying amount between the reporting dates are recorded, net of deferred tax, through the profit or loss for the year.

On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to the profit or loss for the year.




Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group as a lessee. All other leases are classified as operating leases.

Assets held under finance leases are capitalised at their fair value on the inception of the lease and depreciated over their estimated useful lives. The finance charges are allocated over the period of the lease so as to achieve a constant rate of interest over the remaining balance of the liability.

Rental payments in respect of operating leases are charged to the statement of profit or loss in the year to which they relate.

Payments to acquire leasehold interests in land are treated as prepaid operating lease rentals and amortised over the period of the lease.

Property, plant and equipment

Property, plant and equipment are stated at cost or as professionally revalued less accumulated depreciation and accumulated impairment losses where applicable.

Any increase arising on the revaluation is recognised in other comprehensive income and accumulated in the revaluation surplus. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and charged against the revaluation surplus; all other decreases are charged to profit or loss.

Freehold land is not depreciated. Depreciation is provided on other property, plant and equipment to write-off their cost or valuation on a straight line basis over the estimated useful lives at the following annual rates:

Buildings 2%

Furniture fittings and equipment 12.5%

Motor vehicles 25%

Computers 30%

On disposal, the difference between depreciation based on the revalued carrying amount of an asset (the depreciation charged to profit or loss) and depreciation based on the asset’s original cost is transferred from the revaluation surplus to revenue reserves.

Intangible assets

Intangible assets represent computer software which is stated at cost less amortisation. Amortisation is calculated to write-off software on a reducing balance basis at 15% per annum.

Work in progress

Work in progress represents properties in the course of construction. It is carried at cost, less any recognised impairment cost. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Foreign currencies

Transactions in currencies other than the Kenya Shilling are translated at the rates of exchange prevailing on the dates of the transactions. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at the end of the reporting period. Gains and losses arising on translation are included in profit or loss for the period.




Foreign currencies (Continued)

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings.

Financial instruments

A financial asset or liability is recognised when the Group becomes party to the contractual provisions of the instrument.

Financial assets

Classification

The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity financial assets and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines

Financial assets at fair value through profit and loss

This category has two sub-categories: financial assets held for trading and those designated as fair value financial assets through profit or loss at inception. A financial asset is classified into this category at inception if acquired principally for the purpose of selling 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.

Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity.

Held to maturity financial assets are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate and recognised in the profit or loss.

Where a sale occurs other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and classified as available for sale. Furthermore, the Group would be prohibited from classifying any financial asset as held to maturity during the following two years.

Loans, advances and receivables

Loans, advances and a receivables include non–derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognised when cash is advanced to borrowers.

After initial recognition, loans, advances and receivables are subsequently measured at amortised cost using the effective interest rates, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortisation is included in ‘Interest and similar income’ in profit or loss. The losses arising from impairment are recognised in profit or loss.

Short - term deposits

Short term deposits, which are held to maturity, are stated at amortised cost.




Financial assets (Continued)

Classification (Continued)

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.

Purchases and sales of investments are recognised on trade date (the date on which the Group commits to purchase or sell the asset). Investments are initially recognised at fair value plus, in the case of all financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Investments are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Group has also transferred substantially all risks and rewards of ownership.

Borrowings

Borrowings are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method. Interest charged on the borrowings is capitalised to form part of the property cost.

Trade payables

Trade payables are carried at amortised cost which is measured at the fair or contracted value of the consideration to be paid in future in respect of goods and services supplied by the suppliers, whether billed or not, to the Group.

Recognition and derecognition of financial assets

Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Measurement of financial assets

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit or loss for the year. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in other comprehensive income and accumulated under a separate statement of changes in equity heading. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the profit or loss as net realised gains/losses on financial assets.

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

Unquoted investments are classified as available-for-sale investments. They are shown at fair value unless their value cannot be reliably measured in which case they are carried at cost less provision for impairment.




Financial assets (Continued)

Impairment of financial assets

The Group reviews regularly, on a case-by–case basis, whether any objective evidence exists of impairment, individually for financial assets that are significant and individually or collectively for financial assets that are not individually significant. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset and that the loss event has an impact on the future cash flows of the asset that can be estimated reliably.

In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in other comprehensive income – is removed from equity and recognised in the profit or loss. Impairment losses recognised in the profit or loss on equity instruments are not reversed through the profit or

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs

Other financial liabilities

Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest 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 (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Impairment

The carrying amounts of the Group’s assets are reviewed at each end of reporting period date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated and an impairment loss recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount.




Dividends on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from retained earnings when approved by the Group’s shareholders. Interim dividends are deducted from retained earnings when they are declared and no longer at the discretion of the Group.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to the cash generating units expected to benefit from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of the goodwill allocated to the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, bank balances, bank deposits and treasury bills with original maturity period of three months from the date of acquisition.

Comparatives

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

2� CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the entity’s accounting policies, management has made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below:

i) Critical judgements in applying the entity’s accounting policies

Deferred taxation on investment properties

For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment properties that are measured using the fair value model, the directors have reviewed the Group’s investment property portfolios and concluded that the Group’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale.

Therefore, in determining the Group’s deferred taxation on investment properties, the directors have determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered entirely through sale is rebutted. As a result, the Group has recognized deferred taxes on changes in fair value of investment properties.



2� CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)

i) Critical judgements in applying the entity’s accounting policies (Continued)

Determination of Control on entities invested in

The Group follows the guidance of IFRS 10, consolidated financial statements in determination of whether it has control over the companies it has invested in. Subsidiaries are those entities in which the group has power to exercise control over their operations. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are included in the consolidated financial statements from the date the Group gains effective control. The directors have determined that it has no control over East Africa Reinsurance Company Limited.

ii) Key sources of estimation uncertainty

Property, plant and equipment

Critical estimates are made by the directors in determining depreciation rates for property, plant and equipment.

Impairment losses

At each date of reporting, the Group 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. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

Fair value measurements and valuation process

Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. The directors determine the appropriate valuation techniques and inputs for fair value measurements.

In estimating the fair value of an asset or liability, the Group uses market-observable data to the extent it is available where level 1 inputs are not available, the Group engage third party qualified valuers to perform the valuations. Management works closely with the qualified external valuers to perform the valuation. These are then presented to the board of directors for approval.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities have been disclosed.



3� GOING CONCERNAs at 31 December 2016, the Group had accumulated losses of Sh 2,324,133,385 (2015 - Sh 2,452,580,649) these conditions may indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern. However, the directors are putting in place measures to improve the performance of the Group and to reduce reliance on financial support from the shareholders. The turnaround measures have helped realise the positive improvements below:

(a) Improvement in average Group gross margin from 35% in 2015 to 36% in 2016. This is expected to continue improving with better business efficiencies into 2017.

(b) Operating administrative costs have declined by 15% from Sh 728,518,793 in 2015 to Sh 618,908,125 in 2016 and are forecast to reduce by another 15% in 2017.

(c) Reduced the Group loss before taxation by 87% from Sh 866,268,049 in 2015 to Sh 108,869,890 in 2016.

(d) Reduction of total comprehensive loss from a loss of Sh 662,908,447 in 2015 to a loss of Sh 4,538,640 in 2016.

The Group is in the process of engaging a leading Advisory Firm to raise capital from private and institutional equity and debt investors. The results of this exercise are expected in about 6-9 months. This will improve the Group’s working capital position. A local bank has offered bank Credit facilities of Sh 350 million to Fountain Technologies Limited and a further Sh 102 million is in process for 4 other entities: Just Homes Limited, Kisima Real Estate Limited, Fountain Credit Services Limited and FEP Holdings Limited. To enhance liquidity, the Board has also authorized disposal of idle non-current assets-land to raise Sh165million. It is further anticipated Chase Bank (in receivership) will resume operations fully hence release the held funds. In the meantime, the shareholders have pledged continued financial support for the company.

The directors have therefore deemed it appropriate to prepare the financial statements on a going concern basis.

4� REVENUE

Group Company2016 2015 2016 2015

Sh Sh Sh ShMerchandise sales 201,482,060 198,035,851 - -Mobile money transfer services 39,566,476 96,994,339 - -Sale of plots 106,491,042 21,297,520 - -Security services 63,774,904 133,881,138 - -Interest on loans and advances 45,655,311 50,081,614 - -Interest on short term deposits 23,182,795 118,695,451 23,182,795 118,695,451Travel agency services 13,349,794 58,351,383 - -Telecom and energy services 173,859,441 230,542,445 - -School fees 30,347,279 23,917,207 - -Media sales - 741,613 - -Brokerage commission 8,707,989 4,638,158 - -Rental income 2,002,843 976,370 - -Others 588,500 614,168 - -

709,008,434 938,767,257 23,182,795 118,695,451

5� DIRECT COSTS

Merchandise 169,556,735 183,144,320 - -

Mobile money transfer direct costs 38,899,996 91,604,028 - -

Telecom and energy services 109,258,007 156,475,140 - -

Cost of plots sold 61,840,558 9,821,258 - -

Travel agency costs 12,174,733 58,137,352 - -

Guards salaries and wages 34,100,160 73,532,202 - -

Other direct costs 6,313,615 19,481,252 - -

Teachers’ salaries and wages 22,266,494 14,754,506 - - 454,410,298 606,950,058 - -



6� ADMINISTRATIVE EXPENSES

Group Company2016 2015 2016 2015

Sh Sh Sh ShStaff costs (note 7) 302,264,119 307,511,192 144,074,209 127,217,849Other expenses 61,958,116 82,296,392 11,514,162 24,654,903Professional fees 24,131,656 25,595,023 16,229,812 18,741,394Marketing and promotion 8,133,323 18,972,499 1,021,756 11,271,024

Unsupported balances written off - 10,206,337 - -

Loss on disposal of equipment 647,430 22,670,701 - 21,303,268

Rent and rates 46,548,290 49,677,949 19,939,891 21,096,554Repairs and maintenance 932,414 4,055,358 187,340 289,660Depreciation (note 11) 40,105,042 38,071,105 10,354,710 15,763,058

Impairment losses on loans and advances (note 18)

- 27,939,544 - -

Loss on disposal of software 11,276,228 - - -Impairment of related party balances - 8,897,950 - -Impairment of cash 2,450,000 - 2,450,000 -Impairment of deposits (note 22) 4,900,000 - 4,900,000 -Provision for bad and doubtful debts 6,270,238 10,289,271 - -Telephone, internet and postage 13,391,671 8,326,550 3,571,170 5,952,197Travelling and accommodation 13,747,558 12,284,558 - -Printing and stationery 6,043,471 2,987,518 4,348,053 1,177,361AGM expenses 5,984,000 9,310,000 5,974,000 9,310,000

Vehicle running costs 796,146 1,014,093 204,149 46,660Bank charges 4,454,861 2,521,854 1,149,946 735,692Audit fees 10,500,000 8,050,000 1,896,000 1,402,980Meals and entertainment 6,514,109 11,043,635 - -Insurance 2,617,576 7,223,676 621,427 1,969,412Board allowances 7,545,061 7,006,124 7,545,061 7,006,124Licenses, dues and subscriptions 6,942,295 5,336,582 3,057,277 4,158,691Water and electricity 2,366,033 2,749,641 992,395 1,929,852Amortisation of intangible assets (note 12) 5,403,100 4,273,071 1,699,426 40,155

Selling and distribution expenses 5,879,600 23,376,404 - -Gifts and donations - 215,000 - -Net foreign exchange losses - 1,372,195 - -

Miscellaneous expenses 14,689,773 15,244,571 - -Founder member shares 2,416,015 - 2,416,015 -

618,908,125 728,518,793 244,146,800 274,066,834

7� STAFF COSTS

Salaries and wages 271,283,693 285,040,310 130,846,532 115,379,371Other staff costs 30,980,426 22,470,882 13,227,677 11,838,478

302,264,119 307,511,192 144,074,209 127,217,849


8� FINANCE COSTS

Interest on borrowings 17,037,294 27,098,258 - 8,497,322

Group2016 2015

Sh Sh9� LOSS BEFORE TAXATION

The loss before taxation is stated after charging/ (crediting) the following:Auditors’ remuneration: 10,500,000 8,050,000Depreciation on property and equipment (note 11) 40,105,042 38,071,105 Amortisation of intangible assets (note 12) 5,403,100 4,273,071Fair value (gain)/loss on investment properties (note 16) (71,797,600) 469,986,252

Impairment of investment properties (note 16) - 11,000,000Write back of provision on investment properties (note 16) (44,533,149) -

Directors fees - -

Group Company2016 2015 2016 2015

Sh Sh Sh Sh10� TAXATION

(a) TAXATION (CREDIT)/CHARGECurrent tax 2,244,217 37,509,555 - 35,608,635Prior year (under)/over provision (32,066,735) 46,519 (32,066,735) -

- - - -

Total current tax (29,822,518) 37,556,074 (32,066,735) 35,608,635- - - -

Deferred tax credit (note 28) (400,666,741) (416,502,076) (179,782,865) (242,081,300)Deferred tax not recognised (note 28) 215,600,145 416,588,154 179,782,865 242,081,300

- - - -Total deferred taxation (185,066,596) 86,078 - -

- - - -Share of associate company’s taxation- Current taxation - - - -- Deferred taxation - 1,828,536 - -Taxation (credit)/charge (214,889,114) 39,470,688 (32,066,735) 35,608,635(b) RECONCILIATION OF EXPECTED TAX BASED ON ACCOUNTING LOSS TO TAX (CREDIT) / CHARGE

Accounting loss before taxation (108,869,890) (866,268,049) (180,286,592) (346,795,970)

Tax at the applicable rate of 30% (32,660,967) (259,880,415) (54,085,977) (104,038,791)Effect of tax losses b/f not recognised (365,761,557) (117,283,570) (125,696,888) (102,433,874)Prior year under provision (32,066,735) 46,519 (32,066,735) -Deferred tax not recognised 215,600,145 416,588,154 179,782,865 242,081,300

Taxation (credit)/charge (214,889,114) 39,470,688 (32,066,735) 35,608,635



(c) TAX PAYABLEAt beginning of the year 24,472,094 4,848,356 23,985,477 4,848,356

Taxation charge (note 10(a) 2,244,217 37,509,555 - 35,608,635Prior year under provision of tax (32,066,735) - (32,066,735) -Taxation paid (5,165,108) (17,885,817) (2,882,343) (16,471,514)At end of the year net tax payable (10,515,532) 24,472,094 (10,963,601) 23,985,477

Comprising;Corporate tax recoverable (14,273,434) (1,414,303) (10,963,601) -Corporate tax payable 3,757,902 25,886,397 - 23,985,477

At end of the year net tax payable (10,515,532) 24,472,094 (10,963,601) 23,985,477

11� PROPERTY, PLANT AND EQUIPMENT

Group

Land and buildings

Motor vehicles

Furniture and fittings

Office equipment

Computer equipment

Capital work in progress Total

Sh Sh Sh Sh Sh Sh ShCOST As at 1 January 2015 383,435,669 67,074,412 69,580,442 32,911,613 27,259,100 510,152,262 1,090,413,498Additions 1,870,667 13,875,818 41,847,698 12,321,889 3,529,532 369,829,755 443,275,359Revaluations 9,169,864 - - - - 218,203,444 227,373,308Disposals (1,820,350) (27,152,450) (27,345,646) (20,520,348) (4,209,827) - (81,048,620)Adjustments 18,680 - - - - - 18,680

As at 31 December 2015 392,674,530 53,797,780 84,082,494 24,713,154 26,578,805 1,098,185,461 1,680,032,224As at 1 January 2016 392,674,530 53,797,780 84,082,494 24,713,154 26,578,805 1,098,185,461 1,680,032,224Additions 9,249,342 1,507,100 2,490,133 2,428,707 5,034,667 173,373,337 194,083,286Revaluations 15,471,710 - - - - (109,426,735) (93,955,025)Disposals - (13,992,957) (1,014,971) - (237,895) - (15,245,823)Adjustments* (1,400,000) - (1,497,722) 35,234 485,737 - (2,376,751)

As at 31 December 2016 415,995,582 41,311,923 84,059,934 27,177,095 31,861,314 1,162,132,063 1,762,537,911ComprisingAt cost 405,018,876 41,311,923 84,059,934 27,177,095 31,861,314 796,213,124 1,385,642,266

At valuation 10,976,706 - - - - 365,918,939 376,895,645415,995,582 41,311,923 84,059,934 27,177,095 31,861,314 1,162,132,063 1,762,537,911

DEPRECIATIONAs at 1 January 2015 6,477,712 26,292,034 12,075,818 9,323,252 9,552,344 - 63,721,160Charge for the year 6,087,713 15,986,036 8,523,518 2,713,489 4,760,349 - 38,071,105

Revaluation (12,525,425) - - - - - (12,525,425)Disposals - (15,768,470) (4,910,243) (6,357,294) (1,617,321) - (28,653,328)

Translation differences (40,000) (2,418,953) (115,842) 3,068,043 462,904 - 956,152As at 31 December 2015 - 24,090,647 15,573,251 8,747,490 13,158,276 - 61,569,664As at 1 January 2016 - 24,090,647 15,573,251 8,747,490 13,158,276 - 61,569,664Charge for the year 8,530,005 13,606,506 9,526,301 3,288,861 5,153,369 - 40,105,042Revaluation (6,452,633) - - - - - (6,452,633)Disposals - (10,862,030) (896,016) (2,596,326) (244,021) - (14,598,393)Translation differences (455,000) (53,394) (142,146) 677,194 (31,353) - (4,699)Adjustments* - - (253,551) (407,694) - (661,245)As at 31 December 2016 1,622,372 26,781,729 23,807,839 9,709,525 18,036,271 - 79,957,736


Taxation (Continued)



11� PROPERTY, PLANT AND EQUIPMENT (Continued)

Group (Continued)

Land and

buildings

Motor

vehicles

Furniture

and fittingsOffice

equipmentComputer

equipment

Capital work

in progress TotalSh Sh Sh Sh Sh Sh Sh

NET BOOK VALUE(Valuation basis)At 31 December 2016 414,373,210 14,530,194 60,252,095 17,467,570 13,825,043 1,162,132,063 1,682,580,175At 31 December 2015 392,674,530 29,707,133 68,509,243 15,965,664 13,420,530 1,098,185,461 1,618,462,561NET BOOK VALUE(Cost basis)At 31 December 2016 403,396,504 14,530,194 60,252,095 17,467,570 13,825,043 796,213,124 1,305,684,530At 31 December 2015 381,697,824 29,707,133 68,509,243 15,965,664 13,420,530 732,266,522 1,241,566,916

The capital work in progress relates to the hotel being built in Sagana by Fountain Group of Hotels, a subsidiary of FEP Holdings Limited.

* An asset verification exercise was carried out by Proland Valuers in 2016. These adjustments arose from differences noted between the assets recorded in the books and the physical assets on the ground.

The freehold land and buildings was revalued on 31 December 2016 by Ark Valuers Limited, registered and practicing property valuers who are independent of FEP Holdings and its related entities. They have appropriate qualifications and recent experience in the fair value measurement of properties in the relevant locations.

11� PROPERTY, PLANT AND EQUIPMENT (Continued)

Company

Land and buildings

Motor vehicles

Furniture & fittings

Office equipment

Computer equipment Total

Sh Sh Sh Sh Sh ShCostAs at 1 January 2015 77,423,670 39,606,500 25,767,818 9,474,850 4,018,316 156,291,154Additions 60,000 3,470,000 35,023,513 10,592,641 3,474,458 52,620,612Revaluation 14,467,700 - - - - 14,467,700Disposals (1,820,350) (25,040,002) (25,368,347) (9,474,850) (1,861,398) (63,564,947)

Adjustment 18,680 - - - - 18,680As at 31 December 2015 90,149,700 18,036,498 35,422,984 10,592,641 5,631,376 159,833,199As at 1 January 2016 90,149,700 18,036,498 35,422,984 10,592,641 5,631,376 159,833,199Additions 673,250 500,000 56,160 115,260 3,076,526 4,421,196Revaluation 17,677,050 - - - - 17,677,050Disposals - (4,600,000) - - - (4,600,000)Transfers - 4 1,447,940 (746,127) (58,001) 643,816As at 31 December 2016 108,500,000 13,936,502 36,927,084 9,961,774 8,649,901 177,975,261Comprising At Cost 76,355,250 13,936,502 36,927,084 9,961,774 8,649,901 145,830,511At valuation 32,144,750 - - - - 32,144,750

108,500,000 13,936,502 36,927,084 9,961,774 8,649,901 177,975,261DepreciationAs at 1 January 2015 - 15,474,797 4,263,087 3,447,018 2,736,204 25,921,106Charge for the year - 9,837,458 3,528,441 1,151,842 1,245,317 15,763,058Eliminated on disposal - (14,948,108) (4,612,544) (3,760,967) (1,617,322) (24,938,941)As at 31 December 2015 - 10,364,147 3,178,984 837,893 2,364,199 16,745,223As at 1 January 2016 - 10,364,148 3,178,983 837,892 2,364,200 16,745,223


Charge for the year - 3,901,937 3,957,182 1,151,878 1,343,713 10,354,710Transfers - - 445,163 (71,034) (23,738) 350,392Eliminated on disposal - (3,208,750) - - - (3,208,750)As at 31 December 2016 - 11,057,335 7,581,328 1,918,736 3,684,176 24,241,575

NET BOOK VALUE

(Valuation basis)At 31 December 2016 108,500,000 2,879,167 29,345,756 8,043,038 4,965,724 153,733,685At 31 December 2015 90,149,700 7,672,352 32,244,000 9,754,748 3,267,177 143,087,977

(Cost basis)

At 31 December 2016 76,355,250 2,879,167 29,345,756 8,043,038 4,965,724 121,588,935At 31 December 2015 75,663,320 7,672,351 32,244,000 9,754,748 3,267,177 128,601,596

2016 2015Sh Sh

12� INTANGIBLE ASSETS-COMPUTER SOFTWARE

GROUP

Cost1 January 59,617,416 59,416,640Additions 17,448,935 200,776Disposal (11,945,229) -31 December 65,121,122 59,617,416 Amortisation 1 January 44,824,893 40,551,822Charge for the year 5,403,100 4,273,071Disposal (669,001) -31 December 49,558,992 44,824,893

Net book value 31 December 15,562,130 14,792,523

COMPANY

Cost1 January 200,776 -

Additions 13,106,369 200,77631 December 13,307,145 200,776Amortisation

1 January 40,155 -Charge for the year 1,699,426 40,15531 December 1,739,581 40,155Net book value 31 December 11,567,564 160,621

2016 2015Sh Sh



13� PREPAID OPERATING LEASE - GROUP

COST1 January - -

Transfer from property 400,000 400,000

31 December 400,000 400,000

AMORTISATION1 January 83,333 -

Charge for the year 40,000 83,333

31 December 123,333 83,333

NET BOOK VALUE 276,667 316,667

14� UNQUOTED INVESTMENTS - GROUP AND COMPANYThe unquoted investments relate to investment in Credit Bank Limited as at 31 December 2016 at a cost of Sh 37,807,433 (2015 – Sh 107,157,895). The acquisition was part of the Group’s plan to acquire 25% shareholding in the bank by 31 December 2016. Part of the investment was disposed of in 2016.

2016 2015Sh Sh

Credit Bank Limited – Available for sale

1 January 107,157,895 -Purchases - 107,157,895Proceeds on disposal (69,350,462) - 31 December 37,807,433 107,157,895 Percentage of shareholding 1.2% 5%

S TO THE FINANCIAL STATEMENTS (Continued)15� INVESTMENT IN ASSOCIATE

Fountain Global Investors Plc

The investment in associate relates to a 25% shareholding in Fountain Global Investors Plc (formerly Fountain Microfinance Bank Limited). The associate was not yet operational as at 31 December 2015 pending issuance of a license by the Central Bank of Kenya and fulfilment of other regulatory requirements. In 2016, the Company changed its principal activities to those of an investing Company after a ratification by the shareholders at an Annual general meeting held in June 2016.

2016 2015Sh Sh

Company-costFountain Global Investors Plc 89,960,535 89,960,535

GroupShare of net assets at 1 January 73,495,721 84,221,297

Share of loss before taxation (4,119,034) (8,897,040)Share of tax charge of associate company (note 10(a)) - (1,828,536)Share of net assets at 31 December 69,376,687 73,495,721



16� INVESTMENT PROPERTIES

Group Company2016 2015 2016 2015

Sh Sh Sh ShAt 1 January 1,316,456,636 1,794,501,290 - 7,500,000Additions 602,400 - - -Transfers - (7,500,000) - (7,500,000)

Cost adjustments - (549,402) - -Disposals (15,000,000) - - -Fair value gain/(loss)** 71,797,600 (469,986,252) - -At 31 December 1,373,865,636 1,316,465,636 - -Impairment provision* (64,866,851) (109,400,000) - -At 31 December 1,308,998,785 1,207,065,636 - -Movement in provision for impairment:At 1 January 109,400,000 98,400,000 - -Write back of provision (44,533,149) - - -Additional provision - 11,000,000 - -At 31 December 64,866,851 109,400,000 - -

Investment properties relate to the development of Kisima Park Lukenya.

*Impairment provision includes an amount of Sh. 53,866,851 (2015 – Sh 98,400,000) relating to provision of land dispute in Kiwengu and Shs11 million(2015-Shs.11 Million) for land dispute in Isiolo. During the year, the Group after legal consultation, reversed an amount of Sh 44,533,149 relating to part of the land in Kiwengu.

**Fair value gain/(loss) relates to a valuation carried out by Ark Consultants Limited on a market value basis that reflects recent transaction prices for similar properties.

17� CORPORATE BONDS

Group Company2016 2015 2016 2015

Sh Sh Sh ShPrincipal 50,000,000 50,000,000 50,000,000 50,000,000Interest accrued 18,601,449 10,516,546 18,601,449 10,516,546

68,601,449 60,516,546 68,601,449 60,516,546Held to maturity-maturing within one year at amortised cost At 1 January 60,516,546 33,000,000 60,516,546 33,000,000Additions-Meridian Medical Centre - 17,000,000 - 17,000,000Interest accrued 8,084,903 10,516,546 8,084,903 10,516,546At 31 December 68,601,449 60,516,546 68,601,449 60,516,546Held to maturity -maturing within one year At amortised costAt 1 January 50,000,000 33,000,000 50,000,000 33,000,000Additions-Meridian Medical Centre - 17,000,000 - 17,000,000At 31 December 50,000,000 50,000,000 50,000,000 50,000,000Movement in interest accruedAt 1 January 10,516,546 - 10,516,546 -Interest income 10,334,903 10,516,546 10,334,903 10,516,546Interest received (2,250,000) - (2,250,000) -At 31 December 18,601,449 10,516,546 18,601,449 10,516,546

The weighted average interest rate on the corporate bonds as at 31 December 2016 was 17% (2015 - 17%).



2016 2015Sh Sh

18� LOANS AND ADVANCES - GROUP

Loans and advances 592,344,632 594,455,770Less provision for impairment (374,247,353) (409,410,565) Net loans and advances 218,097,279 185,045,205 Movement in provision for impairment:At January 409,410,565 381,471,021Write back:

Additional provision for the year (note 6) - 27,939,544 Write back of excess provision* (35,163,212) -

At 31 December 374,247,353 409,410,565

The loans and advances are all repayable over a maximum period of five years. The weighted average effective interest rate on advances to customers at year end was 14.5% (2015 - 17.5%) per annum.

*The write back of excess provision has been recognised in other income.

19� INVENTORIES - GROUP

2016 2015Sh Sh

Supermarket merchandise 41,460,033 48,234,665

Computer hardware 1,559,824 1,144,072

Property for sale 473,619,987 246,195,394

516,639,844 295,574,131

20� TRADE AND OTHER RECEIVABLES

Group Company2016 2015 2016 2015

Sh Sh Sh ShTrade receivables 261,987,279 251,337,053 - -Provision for bad debts (28,741,146) (22,470,908) - -

233,246,133 228,866,145 - -Prepayments and deposits 26,187,505 26,179,556 5,920,288 13,801,144

VAT recoverable 285,361 4,128,454 - -Other receivables 63,052,933 37,373,760 8,497,533 16,329,300

322,771,932 296,547,915 14,417,821 30,130,444

21� RELATED PARTY BALANCES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. The companies in the Group transact business with parties that are related by virtue of common directorship and/or ownership

The following balances arose from transactions that occurred during the year. The transactions were at arm’s length and in the normal course of business.

Group Company2016 2015 2016 2015

Sh Sh Sh Sh

(a) DUE FROM RELATED COMPANIES



Kisima Real Estate Limited - 966,070,425 1,376,208,585FEP Sacco Society Limited 18,363,881 11,839,877 18,351,881 11,762,509Fountain Group of Hotels - - 325,957,874 695,631,050

Fountain School Tigoni - - 187,043,203 180,413,632Fountain Credit Services Limited - - 227,862,924 344,001,059Fountain Technologies Limited Kenya - - - 202,544,021Fountain Media Limited - - 12,143 -Suntec Supermarket Limited - - 177,942,061 171,479,931Fountain School Mwea Limited - - 69,364,364 63,646,654Mobikash Africa Limited - - 167,059,144 121,696,200

Fountain Global Investors Plc 51,811,760 65,285,599 49,230,633 49,194,354Citadelle Security Limited - - 42,118,973 46,592,520Fountain Safaris Limited - - 17,068,581 16,282,961

Fountain Technologies Limited Tanzania - - 29,810,877 21,042,542Eagles Club International 7,520,297 7,409,571 7,409,511 7,409,511

Fountain Health 6,071,389 6,071,389 6,071,389 6,071,389Levitical Investment Limited 5,964,606 5,996,227 5,924,267 5,924,267

FEP Insurance Agency Limited - - 11,918,283 11,304,840Fountain Technologies Limited Uganda - - 21,373,389 9,097,665FEP Foundation Limited 1,577,311 1,645,311 1,565,311 1,565,311FEP Society Limited 548,660 548,600 - 548,660Mobikash Trust Limited 159,750 124,950 548,660 -Fountain Technologies Ghana - - 25,001,734 21,956,614Tai Eagles Group Limited 6,498,712 2,573,103 3,417,088 2,573,103Tai Medical Centre 7,998,895 7,998,895 7,998,895 7,998,895Fountain Group of Schools - - 227,550 -Fountain Enterprises Programme 60,000 - - -

106,575,261 109,493,522 2,369,349,160 3,374,946,274

THE FINANCIAL STATEMENTS (Continued)21� RELATED PARTY BALANCES (Continued)

Group Company2016 2015 2016 2015

Sh Sh Sh Sh

(b) DUE TO RELATED COMPANIES

Fountain Global Investors Plc 88,091,969 100,364,389 88,091,969 100,364,389 Fountain Group of Hotels - - 221,196,083 221,196,083 Fountain Group of Schools - - 40,848,340 40,848,340

Impex Traders Limited - - 30,509,971 30,737,521 Fep Foundation - 21,400 - - Eagles Club International 7,875,170 7,875,170 7,875,170 7,875,170 FEP Insurance Agency Limited - - 265,901 - Fountain Safaris Limited - - 44,476 158,880 Fountain Technologies Limited Kenya - - 3,984,418 -

Levitical Investment Limited 2,988,960 2,988,960 2,988,960 2,988,960 Citadelle Security Limited - - 150,000 -



FEP Sacco Society Limited - 4,800 - - FEP Society Limited 1,053,683 1,053,683 1,053,683 1,053,683 Just Homes Limited - - 3,000,000 Mobicom Africa 103,010,900 105,107,658 - - Fountain School Tigoni - - 235,000 -

203,020,682 217,416,059 397,243,971 408,223,026 Movement in related party balances;

Due fromAt 1 January 109,493,522 519,340,003 3,374,946,274 3,367,494,775

Capitalised (note 33) - - (1,250,293,513) -Movement in the year (2,918,261) (409,846,481) 244,696,399 7,451,499

At 31 december 106,575,261 109,493,522 2,369,349,160 3,374,946,274Due toAt 1 January 217,416,059 485,542,004 408,223,026 815,290,608Movement in the year (14,395,377) (268,125,945) (10,979,055) (407,067,582)

At 31 december 203,020,682 217,416,059 397,243,971 408,223,026

Net movement in related parties;Movement in due from related parties (2,918,261) (409,846,481) 244,696,399 7,451,499Movement in due to related parties 14,395,377 268,125,945 10,979,055 407,067,582Due from FEP SACCO capitalised (11,294,418) - (11,294,418) -Net movement in related parties 182,698 (141,720,536) 244,381,036 414,519,081

22� SHORT TERM DEPOSITS - At amortised cost

Chase Bank Kenya Limited 70,000,000 223,709,573 70,000,000 223,709,573KCB Bank Kenya Limited - 142,886,182 - 142,886,182Impairment (4,900,000) - (4,900,000) -

65,100,000 366,595,755 65,100,000 366,595,755

These deposits mature within 90 days.

23� SHARE CAPITAL

2016 2015Sh Sh

Authorised680 million (2015:680 million) ordinary shares of Shs 5 each 3,400,000,000 3,400,000,000Issued and fully paid 387,316,110 (2015: 382,842,736) ordinary shares of Shs 5 each 1,936,580,550 1,914,213,680

24� NON CONTROLLING INTERESTS – GROUP

Funds awaiting allotment at Fountain Group of Schools, Fountain Group of Hotel and Impex Traders Limited 369,895,507 369,895,507

Non - controlling interests at MobiKash Africa LimitedAt 1 January (115,503,580) (86,332,370)Share of loss in the year (22,428,040) (29,171,210)As at 31 December (137,931,620) (115,503,580) Total non-controlling interests 231,963,887 254,391,927

The non-controlling interest represent 40% equity interest held in MobiKash Africa Limited by a third party, Mobicom Kenya Limited and unallocated funds received from shareholders for direct investment in specific subsidiaries.



25� BORROWERS DEPOSIT HELD – GROUP

2016 2015Sh Sh

Cash collateral held by Fountain Credit Services Limited 103,362,842 131,767,397

Fountain Credit Services Limited, a subsidiary of the Group, holds collateral against loans and advances to customers in the form of guarantees on savings deposits. The cash collateral held did not earn any interest.

26� TRADE AND OTHER PAYABLES

Group Company2016 2015 2016 2015

Sh Sh Sh ShTrade payables 89,048,077 556,950,968 - -Accruals 730,632,323 115,921,897 282,575,848 347,443,502Vat payable 13,894,648 13,428,940 - -

Sundry payables - 4,454,302 - -833,575,048 690,756,107 282,575,848 347,443,502

2016 2015Sh Sh

27� BORROWINGS

GROUPCredit Bank Limited 14,000,000 183,819 Movement in Bank loan:At 1 January 183,813 -Additions 14,000,000 183,819Repayments (183,813) -At 31 December 14,000,000 183,813COMPANYChase Bank Kenya Limited - -Movement in Bank loan:At 1 January - 194,393,918Repayments - (194,393,918)At 31 December - -

The loan from Credit Bank Limited which is denominated in Kenya shillings is secured, together with other facilities held with Credit Bank Limited, by joint and several guarantee and indemnity of the directors of Fountain Technologies Limited for Shs 341,086,087.

The borrowing attracts interest at a rate of 14% p.a.S TO THE FINANCIAL STATEMENTS (Conti



28� DEFERRED TAXATION

GROUPDeferred taxes are calculated on all temporary differences under the liability method using the currently enacted tax rate of 30%.

The net deferred tax liability is attributable to the following items:

Group Company2016 2015 2016 2015

Sh Sh Sh ShLiabilitiesFair value gain on investment property 100,244,917 285,311,513 - -

Revaluation surplus 17,585,778 - 883,851 -Deferred tax assets:Capital allowances 12,305,700 11,854,521 3,307,232 4,333,256

Provisions (4,066,987) (75,259,055) (406,835) (53,613,148)Tax losses (514,375,000) (353,183,620) (424,764,562) (192,801,408)Deferred tax not recognised 506,136,287 416,588,154 421,864,165 242,081,300

Net deferred tax liability 117,830,695 285,311,513 883,851 -Movement in Deferred tax (asset) /LiabilityAt 1 January 285,311,513 285,225,435 - -Credit to profit or loss (note 10) (400,666,741) (416,502,076) (179,782,865) (242,081,300)

Charge to other comprehensive income 17,585,778 - 883,851 -

Deferred tax not recognised 215,600,145 416,588,154 179,782,865 242,081,300At 31 December 117,830,695 285,311,513 883,851 -

2016 2015Sh Sh

29� NOTES TO THE STATEMENT OF CASH FLOWS(a) Reconciliation of loss before taxation to cash used in operations from operations

Loss before taxation (108,869,890) (866,268,049)Adjustments for:Depreciation (note 11) 40,105,042 38,071,105Amortisation of intangible assets (note 12) 5,403,100 4,273,071Amortisation of operating lease rentals 40,000 83,333Loss on disposal of property and equipment 647,430 22,670,700Adjustment to property and equipment 1,715,506 -Loss on disposal of software 11,276,228 -Issue of founder shares 2,416,015 -Interest expense (note 8) 17,037,294 27,098,258Interest income on corporate bond (10,334,903) (10,516,546)Assets written off - 11,528,808

Adjustments to costs of investment properties

(note 16) - 549,402Fair value (gain)/loss on investment properties (note 16) (71,797,600) 469,986,252Impairment of investment properties (note 16) - 11,000,000Share of loss of associate (note 15) 4,119,034 8,897,040



write back of impairement of investment property (44,533,149) -Operating loss before working capital changes (152,775,893) (282,626,626) Changes in working capital: Increase in inventories (221,065,713) (5,341,670)

Increase in trade and other receivables (26,224,017) (75,424,031)Increase in loans and advances to customers (33,052,074) (79,967,042)Net movement in related parties (note 21) (182,698) 141,720,536

Increase/( decrease) in trade and other payables 142,818,941 (173,309,481)Decrease in borrowers deposits held (28,404,555) (3,066,930)Cash used in operations (318,886,009) (478,015,244)

(b) Reconciliation of cash and cash equivalents to deposits, bank balances and cash

Cash and bank balances 81,467,538 106,514,150Deposits maturing within 90 days (Note 22) 65,100,000 366,595,755Bank overdraft (11,182,389) -Deposits, bank balances and cash 135,385,149 473,109,905

The overdraft facility from Credit Bank Limited is secured together with other facilities held with Credit Bank Limited, by joint and

several guarantee and indemnity of the directors of Fountain Technologies Limited for Shs. 341,086,087.ntinued)30� WEIGHTED AVERAGE EFFECTIVE INTEREST RATES

The following table summarises the weighted average effective interest rates realised during the year on interest-bearing investments:

2016 2015% %

Corporate bonds 17 12 Deposits with financial institutions 15 14

31� RELATED PARTIES TRANSACTIONSThe group transacts business with other related parties by virtue of common shareholding. These transactions are in the normal course of business.

Key management compensation

2016 2015Sh Sh

Salaries and other employment benefits 71,751,024 74,019,156



32� FINANCIAL RISK MANAGEMENT The group’s activities expose it to a variety of financial risks, including credit risk, liquidity risk and market risks. The group’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 management of the individual companies in the group under policies approved by the various boards of directors. Each management team identifies, evaluates and hedges financial risks. The boards of directors provide written principles for overall risk management, as well as written 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.

Market risk(i) Currency risk

Foreign currency exchange risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. Most of the companies primarily transact in Kenya shilling and their assets and liabilities are denominated in the same currency. The exposure to currency risk is therefore minimal.

(ii) Interest rate risk

The group companies are exposed to interest rate risk primarily from investments in variable interest securities as well as bank borrowings. The individual Group companies monitor the sensitivity of reported interest rate movements on a monthly basis by assessing the expected changes in the different portfolios.

Loans advanced to or received from related parties are at fixed interest rates. The company is therefore not affected by fluctuation in interest rates.

At 31 December 2016, Group companies had outstanding borrowings (including loans, overdrafts and finance lease obligations) subject to variable interest rate. Had the interest increased/decreased by 10% with all other variables held constant, the impact on profit or loss would be Sh 1,840,884 (2015: Sh 3,817,657).

32� FINANCIAL RISK MANAGEMENT (Continued)

Credit riskCredit risk is managed by each Group company as directed by its board of directors. Credit risk arises from cash and cash equivalents, deposits with banks, as well as loans, advances and other receivables. Credit risk management is guided by the policies and limits as set by boards of individual companies.

The table below indicates the carrying amounts of assets bearing credit risk:

Total

amount Fully performing Past due Impaired31 December 2016 Sh� Sh� Sh� Sh�

Trade receivables 261,987,279 233,246,133 28,741,146 (28,741,146)Due from related companies 106,575,261 106,575,261 - -Short term deposits – held to maturity 70,000,000 65,100,000 4,900,000 (4,900,000)

Bank balances 83,917,538 81,467,538 2,450,000 (2,450,000)Loans to customers 592,344,632 218,097,279 374,247,353 (374,247,353)

Corporate bonds 68,601,449 68,601,449 - -1,183,426,159 773,087,660 410,338,499 (410,338,499)

31 December 2015 Trade receivables 251,337,053 228,866,145 22,470,908 (22,470,908)Due from related companies 109,493,522 109,493,522 - -

Short term deposits – held to maturity 366,595,755 366,595,755 - -Bank balances 106,514,150 106,514,150 - -Loans to customers 594,455,770 185,045,205 409,410,565 (409,410,565)Corporate bonds 60,516,546 60,516,546 - -

1,488,912,796 1,057,031,323 431,881,473 (431,881,473)



The balances under the fully performing category are recovered on schedule.

The balances that are past due relate to overdue. These balances are not impaired and fully provided for and the amount of loss incurred dealt with in profit or loss in the year of impairment.

Collateral

The Group companies assess and if necessary retain collateral for amounts advanced to counterparties. The Group retains title to properties purchased by borrowers of mortgage loan for use as collateral against default.

Concentration risk

The Group operations are widely diversified, both operationally and geographically; this minimizes the group’s exposure to concentration risk against.

Liquidity riskUltimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the group’s short and medium-term funding and liquidity management requirements. The group manages liquidity risk by maintaining banking facilities through continuous monitoring of forecast and

actual cash flows. ed)32� FINANCIAL RISK MANAGEMENT (Continued)

Liquidity risk (Continued)The table below analyses the Group’s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows of financial liabilities and includes both interest and principal cash flows balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

Between 3 months 1 - 50-3 months to 1 year Years Total

Sh� Sh� Sh� Sh�2016Bank overdraft 11,182,389 - - 11,182,389Trade payables 89,048,077 - - 89,048,077Borrowings 14,000,000 - - 14,000,000Due to related parties - 203,020,682 - 203,020,682Borrowers deposit held - - 103,362,842 103,362,842

114,230,466 203,020,682 103,362,842 420,613,9902015 Trade payables 556,950,968 - - 556,950,968Borrowings 183,819 - - 183,819Due to related parties - 217,416,059 - 217,416,059

Borrowers deposit held - - 131,767,397 131,767,397557,134,787 217,416,059 131,767,397 906,318,243

Fair value hierarchyThe Group specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy:

· Level 1 – Quoted prices in active markets for identical assets or liabilities. This level includes equity securities and debt instruments listed on the Nairobi Securities Exchange.

· Level 2 – 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.

· Level 3 – Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible. The following table shows an analysis of financial assets recorded at fair value by level of the fair value hierarchy.



32� FINANCIAL RISK MANAGEMENT (Continued)

Fair value of the company’s financial assets and liabilities that are measured at fair value on a recurrent basisSome of the company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

Financial assets/liabilitiesFair value as at

Fair value hierarchy

Valuation technique (s)

and key inputs

Significant unobservable

inputs

Relationship of

unobservable inputs to fair

value2016

Sh

2015

Sh

Investment properties 1,308,998,785 1,207,065,636 Level 2

Open market value basis- Highest and best use model N/A N/A

Land and buildings 414,373,210 392,674,530 Level 2

Open market value basis- Highest and best use model N/A N/A

There were no transfers between levels 1, 2 and 3 in the period (2015: none).

Reconciliation of level 3 fair value measurementsThere were no financial assets or financial liabilities measured at fair value on level 3 fair value measurements (2015: none).

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

The constitution of capital managed by the Group is as shown below:

2016 2015Sh Sh

Share capital 1,936,580,550 1,914,213,680Share premium 2,890,545,510 2,899,201,437Funds awaiting allotment 120,555,515 -Revaluation surplus 384,326,796 471,829,188

Foreign translation reserve (854,039) 4,615,655Accumulated losses (2,324,133,385) (2,568,084,229)Total equity 3,007,020,947 2,721,775,731 Borrowings 14,000,000 -Less: cash and cash equivalents (135,385,149) (473,109,905)Net debt (121,385,149) (473,109,905) Gearing Nil Nil




33� GROUP COMPANIES - Significant subsidiaries

Company %age Ownership 2016 2015Sh Sh

Owned by FEP Holdings Just Homes Limited 100% 100,000 100,000Citadelle Security Limited 100% 2,500 2,500Fountain Technologies Limited 100% 201,820,952 700Fountain Credit Services Limited 100% 120,000,800 800

Kisima Real Estate Limited 100% 400,002,400 2,400Fountain Safaris Limited 100% 2,000 2,000FEP Insurance Agency Limited 100% 100,000 100,000

Fountain Media Limited 100% 300 300Fountain School Mwea Limited 100% 100,000 100,000Fountain School Tigoni Limited 100% 800 800

Mobikash Afrika Limited 60% 29,250,000 29,250,000Fountain Group of schools 100% 528,573,261 100,000Fountain Group of Hotels 100% 2,400 2,400Impairment provisions (29,250,000) (29,250,000)

1,250,705,413 411,900

Subsidiary Country of Incorporation

Principal Activity

Just Homes Limited Kenya The principal activity of the company is engagement in trading activities.

Citadelle Security Limited Kenya The principal activity of the company is providing security services.Fountain Technologies Limited Kenya The principal activity of the company is telecom and energy infrastructure

support services.Fountain Credit Services Limited Kenya The principal activity of the company is providing credit services.Kisima Real Estate Limited Kenya The principal activity of the company is sale of plots and development of

property for sale and rental purposes.Fountain Safaris Limited Kenya The principal activity of the company is provision of travel agency services.

Nobel Insurance Agency Limited Kenya The principal activity of the company is insurance brokerage services.

Fountain School Mwea Limited Kenya The principal activity of the company is provision of education.

Fountain School Tigoni Limited Kenya The principal activity of the company is provision of education.

Mobikash Afrika Limited Kenya The principal activity of the company is engagement in the mobile money transfer services.

Owned by Fountain Technologies Limited:

Subsidiary Country of Incorporation2016 2015Sh Sh

Fountain Technologies Uganda Limited 100% Uganda 32,712 32,712Fountain Technologies (T) Limited 100% Tanzania 5,882,294 5,882,294Fountain Technologies Ghana Limited 100% Ghana 12,760,000 12,760,000

The investments in subsidiaries are carried at cost in the company’s financial statements and their results consolidated in these Group financial statements. These investments were assessed for impairment indicators and the directors concluded that they are not impaired.



33� GROUP COMPANIES (Continued)

2016 2015Sh Sh

DISPOSAL OF SUBSIDIARY COMPANY

Investment in subsidiary

At costInvestment in subsidiary - 300Due from related company - 172,724,775

Net investment - 172,725,075Consideration received - -Loss on disposal - 172,725,075

GROUPEffective 30 April 2015, the company entered into a sale agreement to dispose of 100% of its interest in the investment in a subsidiary, which was in the business of media production and passed control to the acquirer. Details of the assets disposed of, and the calculation of the profit or loss on disposal, are disclosed below.

Analysis of assets and liabilities over which control was lost at the Group level:

2016 2015Sh Sh

Current assetsCash and cash equivalents - 1,180,607Trade and other receivables - 195,554Non-current assetsMotor vehicles - 9,870,451Current liabilitiesDue to related parties - (187,475,023)Bank overdraft - (1,849,641)

Taxation payable - (19,720)Net liability disposed of - (178,097,772)

Gain on disposal of a subsidiary at the Group

Consideration received - (178,097,772)Net liability disposed of at Group level - 172,725,075

Loss on disposal at company level - -Gain on disposal on consolidation - (5,372,697)




2016 2015Sh Sh

34� CONTINGENT LIABILITIES

Guarantees *295,254,984 93,065,600

Litigation 5,157,000 3,878,000

*Included in the current year guarantees is a amount of Sh 291 million to Rural Electrification authority (REA) for contractual performance of government funded jobs.

The Group also had a few pending court and legal cases at the end of the year. The outcome of these cases could not be determined by the date of approval of the financial statements. However, the directors are of the opinion that no material liability will crystallise from these cases.

2016 2015Sh Sh

35� CAPITAL COMMITMENTS

Authorised but not contracted for 1,552,451,404 1,400,000,000 Authorised and contracted for 1,131,946,187 704,000,000

36� INCORPORATION

The company is incorporated in Kenya under the Companies Act.

37� CURRENCYThe individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are presented in Kenya Shillings, which is the functional currency of the parent and the presentation currency for the consolidated financial statements.


FORM OF PROXY

I/We_________________________________, of P. O. Box__________________, being a Member/Members of the above-named Company, hereby appoint_________________________________________ , of_____________________, or failing him________________________, of_________________, as my/our proxy to vote for me/us on my/our behalf at the Extraordinary General Meeting of the Company to be held on the 28th day of June, 2017, and at any adjournment thereof.

This Form is to be used *in favour of/against the resolution. Unless otherwise instructed, the proxy will vote as he thinks fit.

*Strike out whichever is not desired.

As witness my/our hand/s this _____________________day of ____________________2017

Signed: ______________________________________

If member is a company:

Sealed with the common seal of the Company )this _________ day of _____________ 2017 )in the presence of: )

)))

Director: ))

Director/Secretary )

Proxy Forms to reach the address set out in the notice not later than 9am on 26th June 2017.


NOTES

CONTACT DETAILS

Fep Holdings Ltd - Head Office

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel:0730 601 100/0730601000Email: [email protected]

Fountain School Ltd- Mwea

P.O BOX 400 Wanguru,MweaTel: 0730601701Email: [email protected] www.fountainschools.ac.ke

Fountain School Ltd-Tigoni

P.O BOX 1018 LimuruTel: 0730601701Email: [email protected] www.fountainschools.ac.ke

Fountain Safaris Ltd

Galana Plaza, 3rd Floor,Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel: 0730601702/0730601703Email: [email protected]

Citadelle Security Ltd

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel: 0730601201/0730601209Email: [email protected]

Kisima Real Estate Ltd

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200Nairobi, KenyaTel: 0730601501/0730601503Email: [email protected]

Fountain Technologies Ltd

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel: 0730601421/0730601406

FEP Insurance Agency Ltd

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel:0730601601/0730601604Email: [email protected]

Fountain Credit Services Ltd

Galana Plaza, 3rd Floor, Galana Road, Off Argwings Kodhek RoadP.O BOX 72367-00200 Nairobi, KenyaTel:0730601100/0730601310Email: [email protected]

Just Homes Ltd

Galana Plaza, 3rd Floor,Galana Road, Off Argwings Kodhek Road P.O Box 72367-00200 Nairobi,kenyaTel: 0730601100/0730601000Email: [email protected]

Fep Sacco Society Ltd

Cardinal Otunga Plaza 6th floor, Left WingP.O BOX 72367-00200 Nairobi,KenyaTel: 0727585682/0202523440Email: [email protected]

Mobikash Africa Ltd

Geomaps Centre- 2nd floor, Upper Hill,P.O BOX 101123-00101,NairobiTel: 0730601175Email: [email protected]

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