Kenya SImae f InnovatonCentre SOm any LmieJINFODEV CITF GRANT TFO A0442

Special Purpose Financial Statements

KPMG Kenya

November 2017

This report contains 13 pages

@2017 KPMG Kenya, a registered partnership and a member firm of the KPMG network of independent firms affiliated with KPMG InternationalCooperative ("KPMG International") a Swiss entity, All rights reserved.

Document classification: KPMG Confidential

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Kenya Climate Innovation Centre Company LimitedKenya Climate Ventures Facility Project

KPMG KenyaNovember 2017

Contents

1 Background Information 21.1 Kenya Climate Innovation Center Company 21.2 Kenya Climate Ventures Project 21.2.1 Members of the Project Governance and Management Team 3

2 Scope of engagement 42.1 Summary of audit results 4

3 Statement of Kenya CIC Board of Directors responsibilities 5

4 Independent auditors' report 6

5 Special purpose financial statements 95.1 Income and expenditure statement 95.2 Statement of Financial Position as at 30 June 2017 105.3 Notes to the financial statements 115.3.1 Significant accounting policies 115.3.2 Receipts from World Bank 115.3.3 Other receipts 125.3.4 Exchange loss 125.3.5 Cash and bank 125.3.6 Receivables and advances 125.3.7 Accounts payable 125.3.8 Capital reserves 12

@ 2017 KPMG Kenya. All rights reserved.Document classification: KPMG Confidential

I Background Iformatlon1.1 Kenya Climate Innovation Center Company

Kenya Climate Innovation Centre (KCIC) is a company limited by guarantee incorporated on12 January 2015. KCIC's goal is to support the growth and development of innovative climatetechnology (clean tech) business models and technologies for commercial markets. KCIC'sobjective is to support green growth through strengthened domestic capacity and financing forthe transfer, development and deployment of innovative climate solutions.

1.2 Kenya Climate Ventures Project

The Kenya Climate Ventures (KCV) was established by the Kenya Climate Innovation CenterCompany with a grant of US$ 4.9 million provided by the World Bank. The grant was disbursedin early June 2015.

KCV will be a limited company and a wholly owned subsidiary by KCIC at the beginning butthis will change once new strategic partners invest in the company. KCIC will be providing'back office services' such as receiving the grant disbursements from World Bank on behalf ofKCV, financial accounting, procurement, and payroll services and human resourcesmanagement among other services.

As a separate legal entity, and in line with best practice, KCV will have the followinggovernance and management structures:-

- A board of directors (with majority membership being independent), to exercise oversightover compliance issues, and guide the strategic direction of KCV;

- An independent Investment Committee that will be charged with the authority over all theinvestment processes and decisions, and;

- A duly qualified and experienced management team, led by a Chief Investment Officer,responsible for both investments and operations.

KCV will provide capital ranging from US$ 100,000 to US$ 1 million to its investee companies,with the upper limit only becoming feasible after KCV has raised capital beyond the initial grantfrom infoDev.

As KCV develops its approach, demonstrates effective governance and management andachieves a level of success in its investment track record, it will require additional capital andfunds from other investors, foundations, and public/donor sources. Leveraging additionalcapital and funding will be an important factor to ensure sustainability, and deepen theprovision of tailored financing to early-stage clean-tech enterprises.

In summary, the objectives of KCV are as follows:-

- To pilot an innovative investment facility that addresses the financing gap for promisingstart-up and early-stage climate technology companies in Kenya;

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- To develop investible, sustainable and scalable enterprises that contribute to Kenya'sgrowing climate innovation and clean-tech sectors; and

- To pioneer a sustainable, profitable, investment model that can be replicated in Kenya andother developing countries.

1.2.1 Members of the Project Governance and Management Team

KCIC Board of Directors continues to provide stewardship of the KCVF project; guiding andmonitoring the business and affairs of the project including compliance with the KCIC'scorporate governance objectives.KCIC Company is headed by the Chief Executive Officer (CEO). During the year, a ChiefInvestment Officer was recruited to head operations of KCV Co.

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2 Soome of engageme1ntThis report covers the audit of the Kenya Climate Ventures Facility project implemented byKenya Climate Innovation Centre Company and funded by the World Bank for the year 1July 2016 to 30 June 2017.

Our audit was conducted in accordance with International Standards on Auditing.

The audit was conducted at KCIC offices in Nairobi, Kenya.

2.1 Summary of audit results

(a) Our opinion on the special purpose financial statements is set out on pages 6 to 8 of thisreport; and

(b) There were no internal control findings or compliance exceptions noted from our review.

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3 Statemeint of Kenya GIC BoVW of Drectors FOs oHSl tiesThe Kenya CIC Board of Directors are responsible for the preparation and presentation of thespecial purpose financial statements of the Kenya Climate Venture Facility Project (KCVF),"the project" comprising the statement financial position as at 30 June 2017, the statement ofincome and expenditure for the period ended 30 June 2017, and notes to the financialstatements, which include a summary of significant accounting policies and other explanatorynotes on the basis of accounting policies described in Note 5.3.1.

The Kenya CIC Board's responsibility includes: determining that the basis of accountingdescribed in Note 5.3.1 is an acceptable basis for preparing and presenting the financialstatements in the circumstances, preparation and presentation of financial statements inaccordance with accounting policies of the Kenya CIC and for such internal control as Projectmanagement determines is necessary to enable the preparation of financial statements thatare free from material misstatements, whether due to fraud or error.

The Kenya CIC Board accepts responsibility for the financial statements, which have beenprepared using appropriate accounting policies supported by reasonable and prudentjudgments and estimates, in conformity with the accounting policies and requirements of theKenya CIC.

The Kenya CIC Board is of the opinion that the financial statements have been properlyprepared, in all material respects, in accordance with the basis of accounting described inNote 5.3.1. The Kenya CIC Board further accepts responsibility for the maintenance ofaccounting records, which may be relied upon in the preparation of financial statements, aswell as adequate systems of internal financial control.

In addition, the Kenya CIC Board is responsible for ensuring compliance with the terms of thegrant agreement between World Bank and Kenya CIC Company with respect to the use offunds provided under the grant.

Approval of the special purpose financial statements

The special purpose financial statements of the Kenya Climate Ventures Facility Project, asindicated above, were approved on \ OQCejjj01 d are signed on t f by:

Izael E MungaiC rman ard of Directors if Executive Officer

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KPMG Kenya Telephone +254 20 2806000Certified Public Accountants Email info@kpmg.co.ke8th Floor, ABC Towers Website www.kpmg.com/eastafricaWaiyaki WayPO Box 40612 00100 GPONairobi, Kenya

4 InBooenient audto[S' [mortREPORT OF THE INDEPENDENT AUDITORS TO THE KENYA CLIMATE INNOVATIONCENTRE COMPANY BOARD OF DIRECTORS ON THE KENYA CLIMATE VENTURESFACILITY PROJECTOpinion

We have audited the accompanying special purpose financial statements for the "KenyaClimate Ventures Facility (KCVF) Project" (the Project) funded by the World Bank set out onpages 9 to 12 which comprise the statement of financial position as at 30 June 2017, statementof income and expenditure and notes to the financial statements for the year ended 30 June2017, which include a summary of significant accounting policies and other explanatory notesand in conformity with the requirements of grant agreement.

In our opinion, the accompanying special purpose financial statements of the Kenya ClimateVentures Facility (KCVF) project for the year ended 30 June 2017 are prepared, in all materialrespects, in accordance with the basis of accounting set out in Note 5.3.1 and in conformitywith the requirements of grant agreement.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Ourresponsibilities under those standards are further in the Auditors' Responsibilities for the Auditof the Financial Statements Section of our report. We are independent of Kenya ClimateInnovation Centre (KCIC) in accordance with the International Ethics Standards Board forAccountants' Code of Ethics for Professional Accountants (IESBA Code) together with theethical requirements that are relevant to our audit of the financial statements in Kenya. Wehave fulfilled our ethical responsibilities in accordance with these requirements and the IESBACode. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.

Emphasis of matter - Basis of accounting and restriction on use and distribution

We draw attention to Note 5.3.1 to the special purpose financial statements which describesthe basis of accounting. The special purpose financial statements are prepared to assistKenya CIC Board of Directors comply with the financial reporting provisions of the Projectagreement with World Bank for the Kenya Climate Ventures Facility project for the year ended30 June 2017. As a result the special purpose financial statements may not be suitable foranother purpose.

Our report is intended solely for Kenya CIC Board and the World Bank and should not be usedby or distributed to parties other than KCIC or World Bank. Our opinion is not modified inrespect of this matter.

6KPMG Kenya is registered partnership and a member of the Partners EE Aholi AM MbaiKPMG network of independent member firms affiliated with (British*} BC D'Souza JL MwauraKPMG International Cooperative ("KPMG International"), a JM Gathecha JM NdunyuSwiss entity. JI Kariuki AW Pringle*

Pl Kinuthia

Other information

The Kenya CIC Board is responsible for the other information. The other informationcomprises the information in this report, but does not include the special purpose financialstatements and our Auditors' Report thereon.

Our opinion on the special purpose financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.

In connection with our audit of the special purpose financial statements, our responsibility isto read the other information and, in doing so, consider whether the other information ismaterially inconsistent with the special purpose financial statements or our knowledgeobtained 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 misstatementof this other information, we are required to report that fact. We have nothing to report in thisregard.

Kenya CIC Board's responsibility for the special purpose financial statements

The Kenya CIC Board is responsible for the preparation of the special purpose financialstatements in accordance with the basis of accounting described in Note 1 and in conformitywith the requirements of the grant agreement, and for such internal control as the Boarddetermines is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

Auditors' responsibilities for the audit of the special purpose financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements asa whole are free from material misstatement, whether due to fraud or error, and to issue anauditors' 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 amaterial misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or inthe aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these financial statements.

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

- Identify and assess the risks of material misstatement of the financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, andobtain 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 forone 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 project audit in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the organization's internal control; and

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Auditors' responsibilities for the audit of the special purpose financial statements(continued)

- Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

We communicate with the Kenya CIC Board regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significantdeficiencies in internal control that we identify during our audit.

The Engagement Partner responsible for the audit resulting in this independent auditors' reportis CPA John Ndunyu - P12100.

Date: 15 0eAMER Qol?

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5 SUia urlose financial statementsThe special purpose financial statements of the World Bank funding to Kenya ClimateInnovation Centre Company in relation to the Kenya Climate Ventures Facility project, for theyear ended 30 June 2017 are presented below:

5.1 Income and expenditure statement

- -- -- -- - - _20171 2016Notes I US$ IUS$I

INCOME

Receipts from World Bank -5.3.2 698,470 I712,848Other ReceiptsjBank Interest income - I5.3 3. 489 1Total income 703.349 71 159..

EXPENDITURE'Category 1 II -

Goods and Works 48,079 46,764Non Consulting Services j 252,524 t - 7,258Consultants Services -111,145 L131,057Operating costs-Bank charges 3 698,334 1 128

....... .. ........................... . .. ... . - - ----....... . I

category2--Other costsipExchangeloss ~5.3 441,9 1

Ttlexpenditure 414.49.16 41

Surplus --- I 289 30 530 740~

The notes in Section 5.3 form an integral part of these financial statements.

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5.2 Statement of Financial Position as at 30 June 2017

Notes 16-- ------------ --- - .....-........-..... .-~ --* - ......................................

Non-current assets

Compu!rs and Ofie gqupment -- 1- 118___Furniture and Fiti 1111

dittirigs 18 -

Current asse8tsCash and bank balances 5.3.5 1 823 3 530,740

Total assets 85277553074_

Accounts ayables 5 --

FUND BALANCESurplus frorn previous period -- 5307401

Surplus for the year -289,300 I 530,740Capital Reseres s Account 5.3.8 18190

Dihefinncia o tmn tseto.o ages 9 to 12 wer proved by the Ke a CIC Board ofDirectors.o. ..... a. .were signe e r behalf .

'IALITE N vUN EdArAunga

Ch nB rd of Directors Chi xecutive Officer

The notes in Section 5.3 form an integral part of these financial staternents.

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5.3 Notes to the financial statements

5.3.1 Significant accounting policies

The main accounting policies relevant to the preparation of the financial statements are asfollows:

(a) Basis of Preparation

The Financial statements are prepared under the modified cash basis of accounting.Under modified cash basis of accounting, income is recognized when received andexpenditures are recognized when incurred.

(b) Income and Expenditure recognition

IncomeIncome is recognized when the funds are received from the donor.

ExpenditureExpenditure is recognized on accrual basis.

(c) Foreign currency transactions

Foreign currency expenses are recorded at the market rate prevailing at the date of thetransaction.

(d) Consistency

Consistent accounting policies were applied in the preparation of these financialstatements.

(e) Fixed assets

Fixed assets with a minimum value of US$ 400 ('the capitalization threshold') individuallyor collectively at the time of acquisition (inclusive of any irrecoverable VAT) and a life ofone year or more will be capitalized and depreciated over the useful life of the asset.Depreciation is calculated on the straight-line basis at annual rates estimated to write offthe cost of each item of property and equipment over the estimated term of its useful life.

5.3.2 Receipts from World Bank

As at 30 June 2017, a total of US$ 1,411,318 had been received from the International Bankfor Reconstruction and Development as shown below;

Period (FY) Income received

(US$)

2015/2016 712,848

2016/2017 698,470

Total 1,411,318

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5.3.3 Other receipts

During the year KCIC received additional US$ 4,879 as interest income from KCV interestearning current accounts at NIC Bank.

5.3.4 Exchange loss

During the period under review, the KCV project incurred an exchange loss equivalent to US$1,967 on translations of Kenya Shilling denominated balances to US dollar.

5.3.5 Cash and bankUS$

Cash in Special Account (US$) 803,389Petty cash float (Kshs) 289Cash in Operational Account (KShs) 19,687

823,365

5.3.6 Receivables and advances

The receivables and advances balances consist of:

US$

Prepaid Office rent 9,585Telephone deposit 482Travel advance

5.3.7 Accounts payable

Accounts payable represent provision for accrued staff leave at the end of the year amountingto US$14,545.

5.3.8 Capital reserves

Capital reserves represent depreciated value of fixed assets. The reserves emanate from theaccounting treatment of assets purchased with donor funds. The assets are initially expensedthen capitalized as fixed asset hence creating a capital reserve account. At the end of the yearthe assets are depreciated reducing the net book value of the assets and also the capitalreserves.

Capital reserves balances as at 30 June 2017 was KShs 18,190.

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