KENOL FULL YEAR FINANCIAL RESULTS UNIMPRESSIVE:
Kenya Oil Company (Kenol) announced its financial results for the year ended September 30, 2007. Sales for the financial year were KES51.6 billion, compared to KES46.4 billion for the same period in 2006.

INCOME STATEMENT ANALYSIS:
Kenya Oil Company Limited reported a 29 per cent drop in profit after tax for the twelve-month period ended September 30 2007. Sales were KES51 billion, up 11.30 per cent from KES 46.3 billion in the same period in 2006. Profit before tax for the twelve-month period was KES876 million, compared to profit before tax of KES1.2 billion for the same period last year. Included in the net profit for the period are the impacts of finance costs.BALANCE SHEET ANALYSIS:

Total assets were KES 13.2 billion, a 0.61 per cent decrease from the same period a year-ago. Total liabilities decreased by 4.5 percent. Total non-current liabilities were up 46.23% compared to the same period in 2006.
Kenol reported a KES782 million in cash flows from its operating activities, compared to KES23 million cash generated from its operating activities for the same period in 2006. In the same period Kenol had a net cash investment of KES781 million in their business, a 13.72 percent increase compared to investing activities in the same period a year-ago. The company generated positive cash flows from their financing activities, reporting a surplus of KES439 million. In the same period the company reported free cash flows of KES173 million compared to KES31 reported a year-ago.

MANAGEMENT’S COMMENTS ON GROUP RESULTS

The Oil Industry continued to experience volatile and new high records of oil price and Sea Freight during the year. Sales value has increased by 11.3% mainly as a result of increased sales volumes over 2006 while Gross Profit margins increased by only 8.28%. Margins were under pressure due to inability to timely pass increases of oil costs to consumers. Stiff competition in Kenya as well as in some Subsidiaries effected severely the 1^st and 2^nd Quarter, of the company financial year.During the year under review margins were adversely affected by continuing operational constraints due to the Kenyan Pipeline and Storage system inability to cope with Demand. In addition, disruptions and low quality  products at the Kenyan Refinery affected product supply locally as well as to Subsidiaries, especially to Uganda & Rwanda, forcing them to procure products at higher prices locally and from Independent importers, thus affecting margins. Uganda, particularly suffered severe lack of products availability, aggressive competition and weakening of the Ugandan Shilling.

During the year under review the company has suffered an increase of over 47% in Distribution cost, most of which due to above mentioned constraints. The Group has had to put in place alternative Distribution system, forcing Oil Marketers utilization of Road Transport all the way from Mombasa Terminals for both Exports and Local Use, which has resulted in much higher Distribution costs and Transit losses. Indirect Tax increases and up-front payment system, introduced by KRA and Tanzania Revenue  Authority as well as specially high non-recoverable VAT in Tanzania, effected margins and financing costs. For the year under review the Group has seen its Financing costs going up by over 136%.

Financing costs increased due to delayed repayments on Tax refunds and Tax claims in Kenya and in Subsidiaries. High oil costs affecting working capital and financing costs was much above the benefits coming from the strengthening of the Kenyan Shilling. Much of the Kenya Shilling strength over the year under review has been offset by interest costs to increased interest rates and higher level of borrowings. The Retail, consumers, Non Fuel and LPG sectors performed well, whilst Aviation and Export margins were under pressure during the better part of the year, though performed better than the year before. Administrative expenses were well controlled with increases in line with growth in the Regional Network and promotion activities. In addition, the Group experienced higher negative impact on margins coming from non-recoverable VAT, being part of Administration cost.

The Group’s Net Profit after Tax, excluding the 2006 goodwill credit for the Rwanda acquisition of Ksh 192.6 million, is 8.7% below that of 2006. Given the start up cost of our new operation in Ethiopia coupled with its low margin region, difficult operating environment, new Tax collection rules in East Africa, Record high oil prices and competitive environment, this profit level is within satisfactory achievement.

ACQUISITION OF KOBIL PETROLEUM LIMITED
The Company achieved an important milestone with the acquisition of 100% of Kobil Petroleum Limited shares. With Kobil as a full Subsidiary, the company will have a stronger Balance Sheet, better negotiating and borrowing power, while synergies expected to deliver operational and cost benefits.

PROSPECTS

Constraints in Ullage in Pipeline and Storage system in Kenya and Subsidiaries, difficult Tax regimes, shall continue to pressure operations in Kenya, and shall continue to effect negatively supplies to neighboring countries. Competition in the whole East African Region among the Major Players is expected to stabilize and from Independent sector is expected to subside. Already indication from 2^nd half of 2007 are that Independent sector’s negative effect experienced since late 1990s is coming down especially in the Retail sector in Kenya but is still expected to be sizeable in Uganda and Tanzania, at least in the next 2-3 years. In Rwanda & Zambia, Management expects margins environment to continue being favorable to the Group, while in Ethiopia price regulation with low margins, will continue well into 2008.High level and maybe new records of oil prices is expected to continue to prevail and shall be part of our oil Industry environment. For Downstream player as Kenol Group, that would mean high financing cost but at the same time, it is expected to continue pressurizing players as Independent sector and other small scale Importers.

The Group will continue to focus on expansion and growth opportunities, while setting new targets in the area of cost saving, among them is to substantially reduce Financing and other Over-Head costs. Reduction of financial cost will be a challenge as Management needs to balance our between the financing cost and Stock Holding’s benefit. The aim is to reduce it by improving on Tax Refund collection and financing Fees and Rates. Other strategies to support increase and higher growth in Shareholders value, are to focus on Retail, Non Fuel Business development, Asset Rationalization, L.P.G & Bitumen products, among others.DIVIDEND

The Directors do not recommend the payment of any dividends for the year. This is in line with the structuring of the acquisition of Kobil Petroleum Limited whereby interim dividends amounting to Ksh 1.80 per share have already been declared for the year ended 2008.ANNUAL GENERAL MEETING

The forthcoming Annual General Meeting is to be held on 07 March 2008.

By Order of the Board

Jacob I Segman

Acting Chairman & Group Managing Director

24^th December 2007