KENYA CLIMATE INNOVATION CENTER COMPANY REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 KENYA CLIMATE INNOVATION CENTER COMPANY (Kenya CIC) FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Table of contents Page No. Directors and statutory information 1 Report of the directors 2–4 Statement of directors’ responsibilities 5 Report of the independent auditors 6–8 Consolidated statement of income and expenditure 9 Company statement of income and expenditure 10 Consolidated statement of financial position 11 Company statement of financial position 12 Consolidated statement of changes in fund balance 13 Company statement of changes in fund balance 14 Consolidated statement of cash flows 15 Company statement of cash flows 16 Notes to the financial statements 17 – 39 KENYA CLIMATE INNOVATION CENTER DIRECTORS AND STATUTORY INFORMATION DIRECTORS Prof. Izael Pereira Da Silva Chairperson Arthur S. Onyuka Anne Nyaboke Angwenyi Job Kimani Kihumba Joe Okudo Susan Otieno Lydiah Kiburu Salim Mohamed Julie Waweru SECRETARY Azali CPS LLP -Appointed Adlife Plaza, 4th Floor Ring Road, Kilimani PO Box 6219-00200 Nairobi Kaplan & Stratton -Retired Williamson House, 4th Ngong Avenue PO Box 40111 - 00100 Nairobi, Kenya AUDITORS KPMG Kenya 8th Floor, ABC Towers Waiyaki Way PO Box 49162 00100 Nairobi GPO SUBSIDIARY Kenya Climate Ventures Limited REGISTERED OFFICE Kaplan & Stratton Williamson House, 4th Ngong Avenue PO Box 40111 – 00100 Nairobi PRINCIPAL PLACE OF BUSINESS Strathmore Business School Ole Sangale Road, Madaraka PO Box 59857 – 00200 Nairobi BANKERS NIC Bank Kenya ICEA Lion Centre-Riverside Park PO Box 44599 – 00100 Nairobi LAWYERS Kaplan & Stratton Williamson House, 4th Ngong Avenue PO Box 40111 – 00100 Nairobi Page 1 KENYA CLIMATE INNOVATION CENTER REPORT OF THE DIRECTORS FOR THE YEAR ENDED 30 JUNE 2018 The Directors submit their report together with the audited consolidated and separate financial statements for the year ended 30 June 2018. The report discloses the state of affairs of the Group and Company. 1. Principal activities The Group’s goal is to support the growth and development of innovative climate technology (clean tech) business models and technologies for commercial markets. The Group’s objective is to support green growth through strengthened domestic capacity and financing for the transfer, development and deployment of innovative climate solutions. 2. Results The results for the year are set out on page 9 and 10 for the Group and Company respectively. 3. Directors The Directors who served during the year and up to the date of this report are set out on page 1. 4. Business overview The KCIC provides incubation, acceleration and financing services to Kenyan entrepreneurs and new ventures that are developing innovative solutions in energy, water and agribusiness to address climate change challenges. Core Services include Advisory services, Access to finance, Enabling environment, Access to information and Access to facilities. A portfolio analysis also informed the decision to restructure KCIC programs into two components, that is, incubation and acceleration. In the twelve-month period ended 30 June 2018, the Company had a surplus of KShs 42 Million (2017 – KShs 11.8 million) indicating a much improved utilization of the donor funds received from DANIDA at 82% compared to 70% the previous year. Grant income reduced by about KShs10 million in 2018 compared to 2017 when it stood at KShs200 million. Consequently, operating expenses reduced to KShs190.6 million compared to the year ended 30 June 2017 (KShs 204 million) Principal Risk and uncertainties facing the Company KCIC is committed to managing both its strategic and operational risks across all areas of operations. We recognize that risk management is an integral part of the management process and therefore ensure this becomes part of the culture of the organization. Accordingly, KCIC has developed a Risk Management Policy that was approved by the board of directors on 1st December 2017. Full implementation is expected to take place immediately with reviews every six months. To realize this, KCIC will communicate to all staff their role in risk management and provide the means for employees to play that role. A risk register will be maintained by each department and a report shared with senior management on a quarterly basis. Page 2 KENYA CLIMATE INNOVATION CENTER (A company limited by guarantee) REPORT OF THE DIRECTORS FOR THE PERIOD YEAR ENDED 30 JUNE 2018(CONTINUED) KCIC senior management will work closely with its Board of Directors and specifically Audit and Risk Committee to ensure that collaborative risk management arrangements are in place. Risk Mitigation 1. Investment risk  KCIC has introduced Early Stage Financing Mechanism for its clients. Most of these businesses will be at growth stage. They may be considered risky but if they succeed, the benefit will outweigh the risks.  Proper due diligence will be conducted before investment. 2. Reputational risk  KCIC has developed trust with the stakeholders (clients, partners, former consortium partners among others)  Conduct due diligence before engaging in any partnership to ensure only reputable organisations partner with KCIC  Conduct periodic client satisfactory surveys to assess the organization performance, and collect information that will improve the operations Political climate in the  KCIC does not engage in political activities but works with established country leading to negative government institutions in lobbying for policy legislations relating to perceptions and which may climate change and taxation affecting the climate businesses that we impact on on-going projects support and potential funding  KCIC has built good working relationship with its donors; withdrawal.  KCIC is compliant with donors’ rules and regulations;  Risk of support withdrawal not foreseeable in the near future. Insufficient resources  Resources include both funding and people; availability  Management ensures that any potential risk is mitigated through:  Exploration of alternative channels of securing financial resources  Partnerships’ engagement  Improving team cohesion 5. Relevant audit information The Directors in office at the date of this report confirm, to the best of their knowledge, that: (i) There is no relevant audit information of which the Company’s auditor is unaware; and (ii) Each Director has taken all the steps that they ought to have taken as a director so as to be aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. 6. Auditors The Company’s auditors, KPMG Kenya, continue in office in accordance with Section 719 of the Kenyan Companies Act, 2015. 7. Employees The directors are pleased to record their appreciation for the untiring efforts of all employees of the Group and Company. Page 3 KENYA CLIMATE INNOVATION CENTER REPORT OF THE DIRECTORS FOR THE PERIOD YEAR ENDED 30 JUNE 2018 (CONTINUED) 8. Approval of the financial statements The financial statements were approved and authorised for issue at a meeting of the Directors held on 21 December 2018. BY ORDER OF THE BOARD Azali CPS LLP Certified Public Secretaries of Kenya Secretary Page 4 REPORT OF THE INDEPENDENT AUDITORS TO THE DIRECTORS OF KENYA CLIMATE INNOVATION CENTER COMPANY (A company limited by guarantee) Report on the audit of the consolidated and separate financial statements Opinion We have audited the consolidated and separate financial statements of Kenya Climate Innovation Center (the “Company”) and its subsidiary (together, the “Group”), as set out on pages 17 to 39 which comprise the consolidated and Company statement of financial position at 30 June 2018, the consolidated and Company statement of profit or loss and other comprehensive income, the consolidated and Company statement of changes in fund balance and the consolidated and Company statement of cash flows for the year then ended, and notes to the Consolidated and Company financial statements including a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of Kenya Climate Innovation Center at 30 June 2018, and of the consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act, 2015. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the ‘Auditors’ Responsibilities for the Audit of the Financial Statements’ section of our report. We are independent of the Group and Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter – KCV Ltd Restructuring We draw your attention to Note 23 which describes the going concern assessment of Kenya Climate Ventures Limited, a subsidiary of KCIC Company and planned restructuring. KCV Ltd management assessment is that the available funding from the World Bank can only sustain KCV Ltd operations up to November 2018. Following the restructuring plan and notification to World Bank to withhold the grant balance for the KCVF Project, the parent company, through a letter of support to KCV Ltd, has committed to support the operations and investments of KCV for the next two years to June 2020 mainly from resources provided by Danida under KCIC Development Engagement Document signed between KCIC and Danish Embassy in Nairobi. Our opinion on KCIC is not modified in respect of this emphasis of matter. Page 6 REPORT OF THE INDEPENDENT AUDITORS TO THE DIRECTORS OF KENYA CLIMATE INNOVATION CENTER COMPANY Report on the audit of the consolidated and separate financial statements (Continued) Other information The Directors are responsible for the other information. The other information comprises the information included in the ‘Report and Financial Statements’ but does not include the financial statements and our auditors’ report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Directors’ responsibilities for the financial statements The Directors are responsible for the preparation of the consolidated and separate financial statements that give a true and fair view in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015 and for such internal control as the Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatements, whether due to fraud or error. In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group and/or Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for overseeing the Group’s and Company’s reporting process. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ 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 consolidated and separate 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 consolidated and separate 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. Page 7 REPORT OF THE INDEPENDENT AUDITORS TO THE DIRECTORS OF KENYA CLIMATE INNOVATION CENTER COMPANY Report on the audit of the consolidated and separate financial statements (Continued) Auditors' responsibilities for the audit of the consolidated and separate financial statements (continued) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's 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 unce11ainty exists related to events or conditions that may cast significant doubt on the Group's and Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated and Company 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 auditors' report. However, future events or conditions may cause the Group and Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other legal and regulatory requirements As required by the Kenyan Companies Act, 2015, we rep011 to you, based on our audit, that: (a) In our opinion, the information given in the directors' repo11 for the year ended 30 June 2018 on pages 2 to 4 is consistent with the financial statements; and (b) Our report is unqualified. The Engagement Partner responsible for the audit resulting in this independent auditors' report is CPA John Ndunyu - P/2 I 00 L(f� � l)5J r Date: � I D ()_ CSL.-hd I Page 8 KENYA CLIMATE INNOVATION CENTER CONSOLIDATED STATEMENT OF INCOME AND EXPENDITURE FOR THE YEAR ENDED 30 JUNE 2018 Notes 2018 2017 KShs KShs INCOME Receipts from Royal Danish Embassy 6 190,222,078 200,614,081 Restricted income (KCVF project) 7 174,852,760 72,564,063 Other receipts Bank interest income 8,019,336 5,822,597 Other income 8 20,886,599 10,745,739 Total income 393,980,773 289,746,480 EXPENSES Business incubation & accelerator services 9 51,197,110 33,287,411 Client support services 116,691,629 132,053,094 Capital expenditure 373,122 7,530,858 Works (office) - 2,736,696 Access to finance services 21,948,170 24,541,676 3GF/DANIDA project expenses - 3,400,765 DFC training project expenses - 697 WIPO project expenses - 1,292,485 Bank charges 155,268 132,366 KCVF project expenses 10,556 42,177,566 Kenya Mini Wind Project expenses 794,339 - Other Project Funded expenses 14,853,354 - KCV Ltd expenses 55,682,009 - Forex gain KCIC funds ( 143,220) - Forex gain on KCVF project funds ( 1,503,238) 1,215,521 Total expenses 260,059,099 248,369,135 Surplus before Tax 133,921,674 41,377,345 Income tax expense ( 114,054) ( 331,282) Surplus for the year 133,807,620 41,046,063 Represented by: KCIC Company surplus 24 14,873,156 11,875,087 Restricted project surplus 176,345,442 29,170,976 KCV Ltd Surplus (loss) ( 57,410,978) - 133,807,620 41,046,063 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 9 KENYA CLIMATE INNOVATION CENTER COMPANY STATEMENT OF INCOME AND EXPENDITURE FOR THE YEAR ENDED 30 JUNE 2018 Notes 2018 2017 KShs KShs INCOME Receipts from Royal Danish Embassy 6 190,222,078 200,614,081 Restricted income (KCVF project) 7 174,852,760 72,564,063 Other receipts Bank interest income 7,639,555 5,822,597 Other income 8 22,881,295 10,745,739 Total income 395,595,688 289,746,480 EXPENSES Business incubation & accelerator services 9 51,197,110 33,287,411 Client support services 116,691,629 132,053,094 Capital expenditure 373,122 7,530,858 Works (office) - 2,736,696 Access to finance services 21,948,170 24,541,676 3GF/DANIDA project expenses - 3,400,765 DFC training project expenses - 697 WIPO project expenses - 1,292,485 Bank charges 155,268 132,366 KCVF project expenses 10,556 42,177,566 Other projects funded expenses 14,853,354 - Kenya Mini Wind Project expenses 794,339 - Forex gains on KCIC Funds ( 143,220) - Forex gain on KCVF project funds ( 1,503,238) 1,215,521 Total expenses 204,377,090 248,369,135 Surplus before Tax 191,218,598 41,377,345 Income tax expense - ( 331,282) Surplus for the year 191,218,598 41,046,063 Represented by: KCIC Company surplus 24 14,873,156 11,875,087 Restricted project surplus 176,345,442 29,170,976 191,218,598 41,046,063 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 10 KENYA CLIMATE INNOVATION CENTER (A company limited by guarantee) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2018 Notes 2018 2017 KShs KShs ASSETS Non-current Assets Property and equipment 10 15,462,470 9,436,111 Computer software 11 7,650,174 10,170,977 Loans 14 101,130,215 - 124,242,859 19,607,088 Current assets Cash and bank 15 296,650,848 256,971,094 Receivables and advances 16 23,810,815 12,110,823 320,461,663 269,081,917 Total Assets 444,704,522 288,689,005 LIABILITIES AND FUND BALANCES Current liabilities Accounts payable 17 98,135,933 61,514,491 Tax payable 18 106,412 214,497 Deferred income from DANIDA 19 68,418,515 100,301,027 Deferred Income from 3GF grant 19 12,077,100 - 178,737,960 162,030,015 Fund balances Capital and surplus Capital reserve account 20 19,123,805 19,607,088 Restricted project surplus 259,175,400 82,829,958 General fund ( 12,332,643) 24,221,944 265,966,562 126,658,990 Total liabilities and fund balances 444,704,522 288,689,005 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 11 KFJS\'.A CLIMATE lliNOVATION CENTER CQ)lPANY STATEMENT OF FINANCIAL POSITION AT 3(1 ,nJNF. 2018 Nolt.'i 2018 2017 KSlts tropcny :md equipment 10 11.473.632 9.436,111 Co1nputcr soJlware 11 7.650,174 10.170.977 Amounts due from KCV Ltd 12 167.497.783 Investment i1l K('V f.ld 13 100.000 Loans 14 10,000,000 ' 19(,,721,589 19.<,07.088 Current asscu Cash and bank 1; 278.630.831 256.971.094 Receivables and advane� 16 16.070.,itS 12.110.823 294.701,099 269,(181,917 Tou11 Assets 491.�ll,6&& 1§8,689,00.S LIABILITLES AND FUND BALANCES CmTc.·nc liabilities Accounts payable 17 93,483.463 61,514.491 Tax payable 18 49_32; 214.497 - Deferred donot income 19 68.416.515 I (1(),301,027 Deferred income from 3GF g:rnnl 19 12,077,100 ) 74.•028.40J 162.030,015 J:'und balauC'es Capital and llUrplus C.ipital rest:rve aooount 20 19,123.805 19,607,088 Restricuxl projc."CI surpl\�s 259,175,280 S2.S29,9SS Geoera1 fond 39,09,.1()0 24,22),944 317,394,185 126,658,990 Total liabilitlt's 11nd Fuod balances A9i.;122,688 ���.689.005 111e linaocial statements set ou1 on pages l 7 to 39 were approved by 1hc Kcn)'D CIC Board on and were signed 21/12/2018 oo their behalf by: ' -----. Pase 12 KENYA CLIMATE INNOVATION CENTER CONSOLIDATED STATEMENT OF CHANGES IN FUND BALANCES FOR THE YEAR ENDED 30 JUNE 2018 Restricted General Capital Project fund fund reserve Total KShs KShs KShs KShs Balance as at 1 July 2017 82,829,958 24,221,924 19,607,088 126,658,970 Asset additions - - 9,448,877 9,448,877 Assets transfer to KCV Ltd (NBV) - - ( 1,886,505) ( 1,886,505) Depreciation - - ( 8,045,655) ( 8,045,655) Surplus for the year 176,345,442 (36,554,567) - 139,790,875 Balance as at 30 June 2018 259,175,400 (12,332,643) 19,123,805 265,966,562 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 13 KENYA CLIMATE INNOVATION CENTER COMPANY STATEMENT OF CHANGES IN FUND BALANCES FOR THE YEAR ENDED 30 JUNE 2018 Restricted General Capital Project fund fund reserve Total KShs KShs KShs KShs Balance as at 1 July 2017 82,829,958 24,221,924 19,607,088 126,658,970 Asset additions - - 9,448,877 9,448,877 Asset transferred to KCV Ltd - - ( 1,886,505) ( 1,886,505) Depreciation - - ( 8,045,655) ( 8,045,655) Surplus for the year 176,345,442 14,873,156 - 191,218,599 Balance as at 30 June 2018 259,175,400 39,095,080 19,123,805 317,394,285 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 14 KENYA CLIMATE INNOVATION CENTER CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 2018 2017 Notes KShs KShs Cash flows from operating activities Surplus before income tax 133,921,674 41,377,345 Adjustments for: Depreciation in Property and Equipment 1,994,419 - Convertible loans interest income ( 11,789,526) - Bank Interest income ( 4,922,489) - Cash flows from operating activities 119,204,078 41,377,345 Changes in working capital (Increase) in receivables and advances ( 11,732,161) ( 2,414,669) Increase in accounts payable &Liabilities 30,634,513 31,293,254 (Decrease)/increase in deferred donor income ( 13,894,422) ( 87,226,101) Cash from operating activities 124,212,008 ( 16,970,171) Income tax 18 ( 114,054) ( 825,115) Convertible loans interest income ( 11,789,526) - Bank Interest income ( 4,922,489) - Net cash flows from operating activities 140,809,969 ( 17,795,286) Net cash flows from Investing activities (101,130,215) - Net cash flow from financing activities - - Net increase/(decrease) in cash and cash equivalents 39,679,754 ( 17,795,286) Cash and cash equivalents at the beginning of year 256,971,094 274,766,380 Cash and cash equivalents at end of year 296,650,848 256,971,094 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 15 KENYA CLIMATE INNOVATION CENTER COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 2018 2017 Notes KShs KShs Cash flows from operating activities Surplus before income tax 191,218,598 41,377,345 191,218,598 41,377,345 Cash flows from operating activities Changes in working capital (Increase) in receivables and advances ( 3,959,445) ( 2,414,669) Increase in accounts payable 31,803,800 31,293,254 (Decrease)/increase in deferred income ( 19,805,433) ( 87,226,101) Cash from operating activities 199,257,520 ( 16,970,171) Income tax paid 18 - ( 825,115) Net cash flows from operating activities 199,257,520 ( 17,795,286) Net cash flows from investing activities (177,597,783) - Net cash flow from financing activities - - Net increase/(decrease) in cash and cash equivalents 21,659,737 ( 17,795,286) Cash and cash equivalents at the beginning of year 256,971,094 274,766,380 Cash and cash equivalents at end of year 278,630,831 256,971,094 The notes set out on pages 17 to 39 form an integral part of these financial statements. Page 16 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 1. REPORTING ENTITY Kenya Climate Innovation Center (KCIC) is incorporated as a company limited by guarantee under the Kenya Companies Act and is domiciled in Kenya. The address of its registered office and principal place of business is as shown on page 1. 2. BASIS OF PREPARATION (a) Statement of compliance The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) and in the manner required by the Kenyan Companies Act, 2015. For Kenyan Companies Act, 2015 reporting purposes in these financial statements, the balance sheet is represented by the statement of financial position and the profit and loss account is presented in the statement of income and expenditure. (b) Basis of measurement The financial statements have been prepared on the historical cost basis. (c) Functional and presentation currency The consolidated and separate financial statements are presented in Kenya Shillings (KShs) which is the Company’s functional currency. (d) Comparatives Where necessary comparative figures have been adjusted to conform to change in presentation in the current year. (e) Use of estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions are based on the Directors’ best knowledge of current events, actions, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods. Page 17 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 2. BASIS OF PREPARATION (Continued) (e) Use of estimates and judgements (continued) In particular information about significant areas of estimations and critical judgements in applying accounting policies that have the most significant effect on the amount s recognised in the financial statements are described in Note 4 – Critical accounting estimates and judgements. 3. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies set out below have been applied consistently in the period presented in these financial statements: (a) Consolidation of subsidiaries Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date the control ceases. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. (b) Revenue recognition Revenue represents the fair value of consideration received or receivable in the course of the company's activities. It is recognised when it is probable that future economic benefits will flow to the Group and the amount of revenue can be measured reliably. KCIC receives income from various donors. Income is recognised when expenditure is incurred. Interest income is recognised when it is received. (c) Expenditure Expenditure is recognised when incurred. (d) Property, plant and equipment Property and equipment are stated at cost less accumulated depreciation and impairment loss. Property and equipment financed by projects funds are written off to the income and expenditure statement in the year of acquisition. Thereafter, the value of the assets is recognized through the capital reserve. Depreciation is charged on a straight-line basis over the estimated useful life of the assets and debited to the capital reserve at the following rates:  Computers - 33.3% (3 years)  Office furniture and equipment -20% (5 years) Depreciation is apportioned in the year of acquisition. Page 18 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Intangible assets Software licence costs and computer software that is not an integral part of the related hardware are initially recognised at cost, and subsequently carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method to write down the cost of each licence or item of software to its residual value over its estimated useful life using an annual rate of 33.3%. (f) Translation of foreign currencies transactions Transactions in foreign currencies during the year are converted into Kenya Shillings at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the reporting date are translated into Kenya shilling at the exchange rate ruling at that date. Resulting foreign exchange differences are recognised in surplus or deficit for the year. (g) Cash and cash equivalent For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand and cash at bank. (h) Goodwill Goodwill arising on subsidiaries and associates is stated at cost less accumulated impairment losses. At the reporting date, the Group assesses the goodwill carried in the books for impairment. (i) Financial instruments Financial instruments include balances with banks, trade and other receivables, and other liabilities. (i) Recognition A financial instrument is a contract that gives rise to both a financial asset of one enterprise and a financial liability of another enterprise. The Group recognises loans and receivables on the date when they are originated. These assets are initially recognised at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. All other financial instruments are recognized on the trade date which is the date on which the Group becomes party to the contractual provisions of the instrument. (ii) Classification and measurement Management determines the appropriate classification of its financial instruments at the time of purchase and re-evaluates its portfolio on a regular basis to ensure that all financial assets are appropriately classified. Page 19 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) Financial instruments (continued) (ii) Classification and measurement - continued Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Company intends to sell in the short-term or that it has designated as at fair value through profit or loss or available for sale. Loans and receivables comprise trade and other receivables and cash and bank balances. These are measured at amortised cost using the effective interest method, less any impairment losses. Other financial liabilities Other financial liabilities are measured at amortised cost. These include other payables and accruals. (iii) De-recognition A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished, cancelled or expires. (iv) Offsetting of financial assets and liabilities Financial assets and liabilities are offset, and the net amount reported on the statement of financial position when there is a legally enforceable right to set-off the recognised amount and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. (v) Fair value of financial assets and liabilities Fair value of financial assets and financial liabilities is the price that would be received to sell an asset or paid to transfer a liability respectively in an orderly transaction between market participants at the measurement date. (j) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Page 20 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Impairment (continued) (i) Financial assets - continued All impairment losses are recognised in the Statement of Income and Expenditure. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost that are debt securities, the reversal is recognised in the Statement of Income and Expenditure. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. (k) Employee benefits obligation The Company operates a defined contribution retirement benefits scheme and a gratuity scheme for its permanent employees. (i) Defined contribution plan The Group contributes to a statutory defined contribution pension scheme, the National Social Security Fund (NSSF). Contributions are determined by local statute and are limited to KShs 200 per employee per month. The Group’s contributions to the above schemes are charged to surplus or deficit in the year to which they relate. (ii) Gratuity Employee entitlements to gratuity are assessed using the projected unit credit method. Under this method the cost of providing gratuity is charged to profit or loss so as to spread the regular cost over the service lives of employees in accordance with the advice of actuaries who carry out a full valuation of the plan every year. The gratuity obligation is measured as the present value of the estimated future cash outflows by applying the discount rate used to measure the obligation at the beginning of the annual period to the then-net liability, adjusted for any charges in the period. Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. Net interest expense and other expenses related to the gratuity arrangement are recognised in profit or loss. Page 21 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (k) Employment benefits obligation (continued) (iii) Other entitlements- short term employee benefits Short term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (iv) Leave pay accrual The monetary value of the unutilised leave by staff as at year end is recognised as an expense in the year and carried in the accruals as a payable. (v) Termination benefits Termination benefits are recognised as an expense at the earlier of the following dates:  When the Group can no longer withdraw the offer; and  When the Group recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. (l) Travel Advances to staff members Funds advanced to Group and Company staff as travel floats for official travel mission are recorded as advances until they are accounted for with certified expenditure reports and original supporting documents. (m) Share capital Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. (n) Related party transactions The Group discloses the nature, volume and amounts outstanding at the end of each financial year from transactions with related parties, which include transactions with the Directors, executive officers and related companies. The related party transactions are at arm’s length. (o) Operating leases Payments made under operating leases are recognised in the statement of income and expenditure on a straight-line basis over the term of the lease. (p) Income tax (i) Current income tax The tax expense for the period comprises current and deferred income tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity respectively. Page 22 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (p) Income tax (continued) (i) Current income tax - continued Current income tax is the amount of income tax payable on the profit for the year determined in accordance with the relevant tax legislation. The current income tax charge is calculated on the basis of the tax enacted or substantively enacted at the statement of financial position date. (ii) Deferred income tax Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the statement of financial position date and are expected to apply when the related deferred income tax liability is settled, or the related deferred income tax assets is realised. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. (q) New standards, amendment and interpretations A number of new standards, amendments to standards and interpretations are not yet effective for the period ended 30 June 2018 and have not been early adopted by the Group. The directors are in the process of assessing the impact of these standards on the Group and Company financial statements. New standard or amendments Effective for annual periods beginning on or after — IFRS 15 Revenue from contracts with customers 1 January 2018 — Amendments to IFRS 2 Classification and 1 January 2018 measurement of Share based Payment Transactions — IFRS 9 Financial Instruments (2014) 1 January 2018 — IFRS 16 Leases 1 January 2019 — Amendments to IFRS 4 1 January 2018 — Amendment to IFRS 1 1 January 2018 — Amendment to IAS 28 1 January 2018 — Amendments to IAS 40 1 January 2018 — IFRS 17 1 January 2021 — IFRIC 23 1 January 2019 — IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 All standards and interpretations will be adopted at their effective date (except for those standards and interpretations that are not applicable to the entity). Page 23 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (q) New standards, amendment and interpretations (continued)  IFRS 9: Financial Instruments (2014) On 24 July 2014 the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard introduces changes in the measurement bases of the financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model. The standard is effective for annual period beginning on or after 1 January 2018 with retrospective application, early adoption permitted. The Group is assessing the impact of adoption of these changes on the amounts and disclosures in the Group’s and Company’s financial statements.  IFRS 16: Leases On 13 January 2016 the IASB issued IFRS 16 Leases which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The standard defines a lease as a contract that conveys to the customer (‘lessee’) the right to use an asset for a period of time in exchange for consideration. A company assesses whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time. The standard eliminates the classification of leases as either operating leases or finance leases for a lessee and introduces a single lessee accounting model. All leases are treated in a similar way to finance leases. Applying that model significantly affects the accounting and presentation of leases and consequently, the lessee is required to recognise: (i) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A company recognises the present value of the unavoidable lease payments and shows them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognises a financial liability representing its obligation to make future lease payments; (ii) depreciation of lease assets and interest on lease liabilities in profit or loss over the lease term; and (iii) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (typically presented within either operating or financing activities) in the statement of cash flows. Page 24 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (q) New standards, amendment and interpretations (continued)  IFRS 16: Leases - continued IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. However, compared to IAS 17, IFRS 16 requires a lessor to disclose additional information about how it manages the risks related to its residual interest in assets subject to leases. The standard does not require a Company to recognise assets and liabilities for: (i) short-term leases (i.e. leases of 12 months or less), and; (ii) leases of low-value assets The new Standard is effective for annual periods beginning on or after 1 January 2019. Early application is permitted in so far as the recently issued revenue Standard, IFRS 15 Revenue from Contracts with Customers is also applied. The Company is assessing the potential impact resulting from the adoption of IFRS 16.  IFRS 15 Revenue from Contracts with Customers (issued in May 2014) The new standard, effective for annual periods beginning on or after 1 January 2018, replaces IAS 11, IAS 18 and their interpretations (SIC-31 and IFRIC 13, 15 and 18). It establishes a single and comprehensive framework for revenue recognition to apply consistently across transactions, industries and capital markets, with a core principle (based on a five-step model to be applied to all contracts with customers), enhanced disclosures, and new or improved guidance.  Amendments to IFRS 2 titled Classification and Measurement of Share-based Payment Transactions (issued in June 2016) The amendments, applicable to annual periods beginning on or after 1 January 2018, clarify the effects of vesting and non-vesting conditions on the measurement of cash- settled share-based payments (SBP), the accounting for SBP transactions with a net settlement feature for withholding tax obligations, and the effect of a modification to the terms and conditions of a SBP that changes the classification of the transaction from cash-settled to equity-settled. The amendments are not expected to have a material effect on the Group’s consolidated financial statements.  Amendments to IFRS 4 titled Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued in September 2016) The amendments, applicable to annual periods beginning on or after 1 January 2018, include a temporary exemption from IFRS 9 for insurers that meet specified criteria and an option for insurers to apply the overlay approach to designated financial assets.  Amendment to IFRS 1 (Annual Improvements to IFRSs 2014–2016 Cycle, issued in December 2016) The amendment, applicable to annual periods beginning on or after 1 January 2018, deletes certain short-term exemptions and removes certain reliefs for first-time adopters. Page 25 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) (q) New standards, amendment and interpretations (continued)  Amendment to IAS 28 (Annual Improvements to IFRSs 2014–2016 Cycle, issued in December 2016) The amendment, applicable to annual periods beginning on or after 1 January 2018, clarifies that exemption from applying the equity method is available separately for each associate or joint venture at initial recognition.  Amendments to IAS 40 titled Transfers of Investment Property (issued in December 2016) The amendments, applicable to annual periods beginning on or after 1 January 2018, clarify that transfers to or from investment property should be made when, and only when, there is evidence that a change in use of property has occurred.  IFRIC 22 titled Foreign Currency Transactions and Advance Consideration (issued in December 2016) The Interpretation, applicable to annual periods beginning on or after 1 January 2018, clarifies that the exchange rate to use in transactions that involve advance consideration paid or received in foreign currency is the one at the date of initial recognition of the non-monetary asset or liability.  IFRS 17 Insurance Contracts (issued in May 2017) The new standard, effective for annual periods beginning on or after 1 January 2021, establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts.  IFRIC 23 Uncertainty over Income Tax Treatments (issued in June 2017) The Interpretation, applicable to annual periods beginning on or after 1 January 2019, clarifies how to apply the recognition and measurement requirements of IAS 12 when there is uncertainty over income tax treatments. (r) The following new and revised standards have become effective for the first time in the financial year beginning 1st July 2017:  Amendments to IAS 12 titled Recognition of Deferred Tax Assets (issued in January 2016) – The amendments, applicable to annual periods beginning on or after 1 January 2017, provide additional guidance on the estimation of future taxable profits when considering the recoverability of deferred tax assets.  Amendments to IAS 7 titled Disclosure Initiative (issued in January 2016) – The amendments, applicable to annual periods beginning on or after 1 January 2017, require enhanced disclosure concerning changes in liabilities arising from financing activities.  Amendment to IFRS 12 (Annual Improvements to IFRSs 2014–2016 Cycle, issued in December 2016) - The amendment, applicable to annual periods beginning on or after 1 January 2017, clarifies the scope of the standard. Page 26 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below: (a) Other receivables and prepayments Critical estimates are made by management in determining the recoverable amount of impaired receivables. (b) Useful lives of equipment The Group’s management determines the estimated useful lives and related depreciation charges for its property and equipment. This estimate is based on projected property lifecycles. It could change significantly as a result of technical innovations. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non- strategic assets that have been abandoned or sold. 5. FINANCIAL RISK MANAGEMENT OBJECTIVES The Group's activities expose it to a variety of financial risks including credit, liquidity and market risks. The Group's overall risk management policies are set out by the Board of Directors and implemented by management. Risk management policies focus on the unpredictability of changes in the operating environment and seek to minimise the potential adverse effects of such risks on the Group's performance by setting acceptable levels of risk. The Group does not hedge against any risks. (a) Credit risk This risk is managed in the following four ways:  Avoiding contract with donors on a reimbursable basis;  Minimizing advances to suppliers;  Strict management of employee advances; and  Stringent due diligence processes for bank selection and regular tenders for local banks and other suppliers. The largest concentration of credit risk exposure within the Group relates to cash and cash equivalents held with the bank. The Group places significant amount of funds with recognized financial institutions with strong credit ratings and does not consider the credit risk exposure to be significant. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. The amount that best represents the Company’s maximum exposure to credit risk as at 30 June 2018 is made up as follows: Page 27 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 5. FINANCIAL RISK MANAGEMENT OBJECTIVES (Continued) (a) Credit risk (continued) Non- Fully Past credit Total performing due Impaired risk amount At 30 June 2018 KShs KShs KShs KShs Loans and advances to customers 101,130,215 - - - 101,130,215 Provision for impairment - - - - 101,130,215 - - - 101,130,215 Bank and cash balances 296,650,848 - - - 296,650,848 Receivables and advances 23,810,815 - - 23,810,815 Total 421,591,878 - - - 421,591,878 (b) Interest rate risk The Group is not exposed to interest rate risk since there were no borrowings at year end. (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due; i.e. that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The board has developed a risk management framework for the management of the Group's short, medium and long-term liquidity requirements thereby ensuring that all financial liabilities are settled as they fall due. The Group manages liquidity risk by continuously reviewing forecasts and actual cash flows and maintaining banking facilities to cover any shortfalls. The table below analyses the Company’s financial liabilities that will be settled on a net basis into relevant maturity Groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table below are the contractual discounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant: Up to 1 1–3 4-12 At 30 June 2018 month months months 1-5 Years Total KShs KShs KShs KShs KShs Financial assets Bank and cash balances 296,650,848 - - 296,650,848 Receivables and Advances 20,960,587 - 2,850,228 - 23,810,815 Total financial Assets 317,611,435 - 2,850,228 - 320,461,663 Page 28 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 5. FINANCIAL RISK MANAGEMENT OBJECTIVES (Continued) (c) Liquidity risk (continued) At 30 June 2018 Up to 1 1–3 4-12 month months months 1-5 Years Total KShs KShs KShs KShs KShs Financial liabilities Accrued expenses 25,661,669 32,169 25,693,838 Accrued Income Tax Payable 57,087 - 57,087 Accrued gratuity 67,821,794 - 2,464,888 70,286,682 Accrued Leave 2,187,581 - 2,187,581 Total financial liabilities 93,483,463 - 2,276,837 2,464,888 98,225,188 Interest sensitivity Gap 224,127,972 - 573,391 (2,464,888) 222,236,475 (d) Market risk Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market related factors. Market risk includes interest rate risk, currency risk, and other price risks. (i) Price risk Price risk is the risk that the company will be adversely affected by changes in prices, such as in equity. The Company does not hold any financial instruments that are subject to price risk. (ii) Interest risk Interest risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk normally arises on interest-bearing financial instruments recognised in the statement of financial position. The company did not hold any financial instruments that are subject to interest rate risk during the period under review. (iii) Foreign currency risk The Company is exposed to foreign exchange risk arising primarily due to the loan advances. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities. To manage the foreign exchange risk, management monitors the market exchange rates and carries out foreign exchange transactions when the rate is reasonable. The following rates were applied for the year: 2018: Average rates Closing rates US Dollar 103.02 100.85 Page 29 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 5. FINANCIAL RISK MANAGEMENT OBJECTIVES (Continued) (d) Market risk (continued) (iii) Foreign currency risk Sensitivity analysis on foreign currency A 5 percent weakening of the Kenya shilling against the following currencies as at the financial reporting date would have increased/(decreased) loan advances by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remains constant. A 5 percent strengthening of the Kenya shilling against the above currencies as at the financial reporting date would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Loan advance KShs’000 At 31 March 2018: USD 4,538 (e) Fair value The fair values of financial assets and financial liabilities approximates to the carrying amounts as shown in the statement of financial position. 6. RECEIPTS FROM DANIDA During the period under review a total of KShs 173,270,000 was received from Royal Danish Embassy for the new Green Growth and Employment Programme (GGEP); KShs 85,370,593 was balance of unspent funds from previous financial year for the extension of BSPS II programme. However, KShs 184,311,067 was spent during the year with unspent balance of KShs 74,329,526 deferred to the next financial year for expenditure in subsequent financial period as per the 5 years grant agreement with the Embassy of Denmark: Total amount received from DANIDA KShs. GGEP Programme 173,270,000 BSPS II balance b/f 85,370,593 Total receipts from DANIDA 258,640,593 Balance of unspent funds (to be spent in subsequent financial period) ( 68,418,515) Amount recognized as income for the year 190,222,078 Page 30 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 7. RESTRICTED INCOME (KCVF PROJECT) During the period, KCIC received disbursement of grant amounting to US dollars 1,718,523 equivalent to KShs 174,362,780 from the International Bank for Reconstruction and Development (World Bank) relating to the implementation of Kenya Climate Ventures Facility. US$ KShs Receipts from World Bank (FY2017-18) 1,718,523 174,362,780 Bank interest income (FY2017-18) 5,235 489,980 Total restricted income 1,723,758 174,852,760 8. OTHER INCOME Source Details Group Company 2018 2018 2017 KShs KShs KShs Fees for organizing CLP Climate launch pad event 1,214,551 1,214,551 - Fees for provision of KCV Ltd back office services 7,421,185 - World Intellectual Property Organisation (WIPO) Consultancy fees 519,039 519,039 3,903,115 Funding for early stage Auto Desk Foundation financing 7,992,800 7,992,800 - Sustainability event KCB Bank Ltd sponsorship 1,000,000 1,000,000 - Kenya Mini wind Sustainable Energy Project 1,771,073 1,771,073 - Sale of old furniture, old Miscellaneous sources newspapers 14,848 14,848 3,441,859 Transfer of funds from 3GF to KCIC upon 3GF project approval by DANIDA 14,930,434 14,930,434 18,331,199 Less: deferred Amount not spent from income 3GF grant (12,077,100) (12,077,100) (14,930,434) 3GF grant income 2,853,354 2,853,354 3,400,765 Accrued loan interest on Exotic EPZ Ltd ESFM Loan 94,444 94,444 - Kilifi Moringa Company Loan processing fees 504,000 - - Convertible loan interest income 4,922,490 - - Total amount 20,886,599 22,881,295 10,745,739 Page 31 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 9. BUSINESS INCUBATION AND ACCELERATOR EXPENSES Details KShs Business and technical trainings 617,840 Travel, events and exhibitions 5,718,781 Mentorship 17,327,690 Client branding materials, publications and media 223,914 Service provision and KCIC internal support 25,831,132 Project Staff Costs & Benefits (Incubation) 1,477,753 Total expenses 51,197,110 Page 32 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 10. PROPERTY AND EQUIPMENT (a) Group Computers(M Office acBook Micro Office Equipment laptops) server MIS server Furniture Partitions Total KShs KShs KShs KShs KShs KShs KShs Cost As at 1 July 2017 4,426,974 135,720 631,701 2,899,572 - 1,350,063 9,444,030 Additions 934,785 - - 1,153,030 12,761,729 328,571 15,178,115 Disposals - - - - - - - As at 30 June 2018 5,361,759 135,720 631,701 4,052,602 12,761,729 1,678,634 24,622,146 Depreciation As at 1 July 2017 (1,207,325) ( 52,727) ( 35,029) ( 427,250) ( 882,174) ( 172,062) ( 2,776,567) Charge for the year (1,705,800) ( 45,240) (210,567) ( 964,258) ( 3,077,678) ( 379,537) ( 6,383,080) As at 30 June 2018 (2,913,125) ( 97,967) (245,596) (1,391,508) ( 3,959,852) ( 551,599) ( 9,159,647) Net book value as at 30 June 2018 2,448,634 37,753 386,105 2,661,094 8,801,877 1,127,035 15,462,499 Page 33 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 10. PROPERTY AND EQUIPMENT (Continued) (b) Company Computers(M acBook Micro Office Office laptops) server MIS server Furniture partitions equipment Total KShs KShs KShs KShs KShs KShs KShs Cost As at 1 July 2017 4,426,974 135,720 631,701 2,899,572 - 1,350,063 9,444,030 Additions 373,122 - - - 8,821,737 - 9,194,859 Disposals - - - - - - - As at 30 June 2018 4,800,096 135,720 631,701 2,899,572 8,821,737 1,350,063 18,638,889 Depreciation As at 1 July 2017 (1,207,325) ( 52,727) ( 35,029) ( 427,250) ( 882,174) ( 172,062) ( 2,776,567) Charge for the year (1,518,579) ( 45,240) (210,567) ( 579,914) (1,764,347) ( 270,013) ( 4,388,660) As at 30 June 2018 (2,725,904) ( 97,967) (245,596) (1,007,164) (2,646,521) ( 442,075) ( 7,165,227) Net book value as at 30 June 2018 2,074,192 37,753 386,105 1,892,408 6,175,216 907,988 11,473,632 Page 34 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 11. COMPUTER SOFTWARE KShs Cost As at 1 July 2017 10,309,204 Additions 1,136,193 Disposals - As at 30 June 2017 11,445,397 Depreciation As at 1 July 2017 ( 138,227) Charge for the year ( 3,656,996) Depreciation on disposals - As at 30 June 2018 ( 3,795,223) Net Book Value as at 30 June 2018 7,650,174 Net Book Value as at 30 June 2017 10,170,977 12. AMOUNTS DUE TO KCIC LTD This amount represents funds received from the World Bank for KCVF project and invested in KCV Ltd by KCIC Company for investment in investee companies and for operations. The amount recognized by KCIC as due from KCV Ltd consist of funds transferred to KCV Ltd bank account and amount paid by KCIC on behalf of KCV Ltd for the period July 2017 to June 2018. The amount is expected to be recouped for a period extending beyond one year and more so from year five. The investment is in form of equity which will be in form of shares issued at a premium. The expenses incurred on behalf of KCVF before commencement of operation of KCV Ltd will be written-off as Build-Out expenses. This amount was incurred in the last two financial years and accounted in project special purpose financial statements. The investment in KCV Ltd amounting to KShs 167,497,783 consist of: Funds transfer from KCIC Company to KCV Ltd bank account 160,574,500 KCV Ltd expenses paid by KCIC 5,999,173 Office Rent 994,110 Petty cash float transfer to KCV Ltd books 30,000 Total 167,497,783 13. INVESTMENT IN KCV LTD Share Capital 100,000 Page 35 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 14. LOANS AND ADVANCES Group Company KShs Kshs Kilifi Moringa Ltd 40,729,720 - Good Farmland Mgt. (K) Ltd 34,912,500 - Hydroponics Ltd 15,487,995 - Other loans 10,000,000 10,000,000 Total 101,130,215 10,000,000 15. CASH AND BANK Group Company 2018 2018 2017 KShs KShs KShs KCIC Main Account (USD) 2,030,033 2,030,033 4,307,465 KCIC Operational Account (KShs) 75,241,910 75,241,910 118,182,310 DANIDA GGEP project account (KShs) 48,780,233 48,780,233 51,256,515 KCIC Sustainability project account (KShs) 1,001,258 1,001,258 - KCIC Fixed Deposit account (KShs) 60,000,000 60,000,000 - KCVF World bank Project-Designated Account (USD) 88,661,038 88,661,038 81,103,063 KCVF World Bank Project account (KShs) 2,866,359 2,866,359 2,041,741 Petty cash-Kenya CIC 50,000 50,000 50,000 Petty cash-KCVF 30,000 - 30,000 KCV ltd -Investment Account (KShs) 8,624,491 - - KCV Ltd-Operations Account (KShs) 9,365,526 - - Total cash and bank 296,650,848 278,630,831 256,971,094 16. RECEIVABLES AND ADVANCES Details Group Company 2018 2018 2017 KShs KShs KShs Office rent deposit 5,492,689 5,492,689 4,092,364 Staff medical insurance-KCIC 5,691,284 5,691,284 4,748,965 Staff medical insurance-KCV Ltd 1,585,155 - - KCV Ltd Prepayments-rent 1,260,072 - - KCV Loan interest receivable 4,922,489 - - KCIC Loan and Fixed deposit interest receivable 1,633,075 1,633,075 - Other deposits 1,161,111 1,161,111 3,129,115 Intercompany balance - 32,169 - KCIC software license 1,949,767 1,949,767 - Staff travel advances-KCIC 110,173 110,173 140,379 Staff travel advances-KCV Ltd 5,000 - - Total 23,810,815 16,070,268 12,110,823 Page 36 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 17. ACCOUNTS PAYABLE Group Company 2018 2018 2017 KShs KShs KShs Accrued expenses-KCIC 25,661,669 25,661,669 22,552,793 Staff costs-KCIC 67,821,794 67,821,794 38,961,698 Staff costs-KCV Ltd 4,652,470 - - Total 98,135,933 93,483,463 61,514,491 18. TAXATION Kenya CIC is now exempted from paying income taxes by Kenya Revenue Authority. The exemption commenced from 2 September 2016. Description KShs KCIC tax payable brought forward before exemption 49,325 For KCV Ltd, the tax payable is computed as: Bank interest income –withholding tax liable as per KRA withholding tax certificates 114,054 Amount of Withholding tax deducted at Source by NIC Bank and remitted to KRA ( 56,967) Final tax due to KRA on bank interest income 57,087 Tax payable 106,412 19. DEFERRED INCOME AND AMOUNT DUE TO DONORS (a) The deferred income balances represent unspent grants from DANIDA to be used beyond the reporting financial period ending 30 June 2018. Amount due to donors represent grant balances that are expected to be returned to the donor upon completion of the respective projects funded by the grant. Source Details KShs Balance B/F from FY2016-17 of Grant for “Costed Extension “of BSPS II programme & Current five years GGEP programme. Funds Royal Danish Embassy to be used in the subsequent financial period 85,370,593 Funds balances from grant agreement signed GGEP receipt for the current Financial Year 173,270,000 Total Receipt from DANIDA 258,640,593 Spent during the year (190,222,078) Deferred DANIDA income 68,418,515 Page 37 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 19. DEFERRED INCOME AND AMOUNT DUE TO DONORS (Continued) (b) Deferred Income from grant extended to KCIC by DANIDA 3GF project balance Details KShs Amount of grant transferred to KCIC from 3GF project for Sustainability Initiative activities 14,930,454 Amount spent in May and June 2018 on Sustainability activities ( 2,853,354) Balance of unspent funds as at 30 June 2018 12,077,100 The deferred income balances represent unspent grants from respective sources to be used beyond the reporting financial period ending 30 June 2018. 20. CAPITAL RESERVES Capital reserves represent depreciated value of fixed and intangible assets as per the asset schedule on Note 10 and 11 to the financial statements. The reserves emanate from the accounting treatment of assets using purchased with donor funds which are funds. The assets are initially expensed then capitalized as fixed asset hence creating a capital reserve account. At the end of the year the assets are depreciated reducing the net book value of the assets and also the capital reserves. 21. RELATED PARTY TRANSACTIONS AND BALANCES (a) During the year, KCIC Company registered a legal entity, Kenya Climate Ventures Company, on 14 July 2016. This was done in compliance with the provisions in the grant agreement with World Bank under the KCVF Project. KCV Company is fully owned by KCIC Company. (b) During the period, the Company had the following transactions and balances with related parties:  Kenya Climate Ventures Ltd has a lease agreement with Biz One Limited where one of the KCIC directors is a director.  KCIC Company received KShs 7,421,185 as income for providing back office support services to KCV Ltd.  KCIC paid expenses on behalf of KCV Ltd to be reimbursed amounting to KShs 32,169. 22. OPERATING LEASE KCIC entered into a lease agreement for the office premises for 6 years commencing 1 November 2017. The old lease expired in October 2017. KShs Current year rent amount 6, 121,056 Year 2 through year 5 rent 32, 361,792 Year 6 9, 304,020 KCV Ltd has leased premises for their office under operating leases in Jadala Place in Nairobi. Lease payments cover principal rentals for the use of the premises. All leases expire within the next five years. Future minimum lease payments under these operating leases are as follows: Page 38 KENYA CLIMATE INNOVATION CENTER NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2018 (CONTINUED) 22. OPERATING LEASE (Continued) KShs Not later than one year 4,388,342 More than one year and not later than five years 21,941,711 26,330,053 During the year ended 30 June 2018 the amount of KShs 4,513,844 was paid as lease charges. 23. KCV LTD RESTRUCTURING KCIC Company received a grant of US$ 4.9M from the World Bank in early June 2015 for the Kenya Climate Ventures Facility project (KCVF Project). The grant was split into two categories: US$1.7M for Goods, works, consulting services and other operational costs and US$3.2M for sub-financing beneficiary enterprises of the project (investments). One of the objectives of the project was to establish KCVF as a legal entity, KCV Ltd. Of the US$ 4.9M, US$3.13M has been received so far from the World Bank, and US$1.77M is yet to be disbursed by the World Bank. Of the US$3.13M disbursed, US$0.6M was spent as administrative cost under the KCVF project, and US$1.6M transferred to KCV Ltd in the year under review. KCV Ltd has signed agreements worth US$ 1.2M and to date has transferred US$ 0.9M to beneficiary enterprises and US$ 0.3M is committed for transfer. As at 30 June 2018, KCIC Company was holding US$0.93M in the bank account for KCV Ltd. Of US$ 1.7M that was ear marked to fund set up and operational costs of KCV Ltd, only US$ 0.37M (KShs 37,277,500 at a rate of 100.75) is available for use as at 30 June 2018; whilst US$2.3M, earmarked for investments in beneficiary enterprises is available. The Company incurred a net loss of KShs. (51,313,667) during the year ended 30 June 2018. KCV Ltd management assessment was that the funding of US$0.37M from the World Bank can only sustain KCV Ltd operations up to November 2018. However, KCIC Board has committed to support the operations of KCV Ltd. for the next 2 years to June 2020 mainly from the resources provided by DANIDA under the KCIC Development Engagement Document signed between KCIC and the Danish Embassy in Nairobi. 24. KCIC COMPANY SURPLUS Details KShs Other incomes-As per income and expenditure statements (refer note no.8) 22,881,295 Bank interest income 7,639,555 Total income 30,520,850 Less: Kenya Mini Wind Project expenses ( 794,339) Expenses funded from 3GF grant ( 2,853,355) Expenses funded from KCIC internally generated income-Staff annual performance bonus (12,000,000) Surplus as per Income and expenditure statement 14,873,156 Page 39