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Consolidated Highlights

Five-Year Perfomance Review

Value Added Statement

The Company

�. Corporateinformation

2. Vision,valuesandambitions

3. Top�0shareholders

4. LafargeGroup

5. Boardpicturesandprofiles

6. Chairman’sLetter

7. Management’sdiscussionandanalysisof

financialconditionandresultsofoperations

8. CorporateGovernanceand

CorporateSocialResponsibility

9. NoticeofAnnualGeneralMeeting

Financial Statements

�0. ReportoftheDirectors

��. StatementofDirectorsResponsibilities

�2. IndependentAuditors’Report

�3. Consolidatedincomestatement

�4. Consolidatedbalancesheet

�5. Companybalancesheet

�6. Consolidatedstatementofchangesinequity

�7. Companystatementofchangesinequity

�8. Consolidatedcashflowstatement

�9. Accountingpolicies

20.Notestothefinancialstatements

Notes

Proxy form

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TEAMACHIEVEMENT:We believe that in business, as in sport, success depends on the performance of individuals and teams, and that the talent and contribution of each employee is magnified by effective teamwork. That is why we focus on attracting the best talent, developing potential and recognizing both individual excellence and team effort.

Game after game, we keep fighting for better results.

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2006 2005 ChangeShs’millions,exceptpershareamountsandemployees Turnover 16,723 14,534 15% Operatingprofit 3,987 3,334 20% Profitaftertax 2,799 2,155 30% Dividendpershare(KShs)-declared 5.5 5.3 4% Earningspershare(KShs)-basicanddiluted 7.2 5.5 30% Cashgeneratedfromoperations 4,927 3,592 37% Totalassets 18,513 15,332 21% ShareholdersFunds 13,017 10,679 22% Numberofemployees �,059 �,022 4%

TurnoverfortheGroupgrew15%asaresultofstrongmarketdemandacrossallmarketsinEastAfricaandbetterfocusonnewexportmarkets.

Wefacedanincreasinglychallengingcostenvironmentwithrapidincreaseinpowertariffs(especiallyinUganda),fuel,transportandrawmaterialprices.Notwithstandingthis,theGroupimprovedoperatingprofitsby20%throughoperationalperformanceimprovementsandbenefitsfromcostsavinginitiatives.Ourinitiativesfocusingonproductivityimprovementandalternativefuelusagearepayingoff.

Ourimprovedperformanceduringtheyearincreasedboththegroup’scashflowpositionaswellastotalshareholders’funds.

ConsolidatedHighlights ConsolidatedHighlights

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Five-YearPerformanceReview Five-YearPerformanceReview

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ValueAddedStatement

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Togetherweareawinningteam.

Financial Flows to our Stakeholders in 2006

a) ThedatausedinthisvalueaddedstatementcomesfromtheGroupconsolidatedfinancialstatements,withtheexceptionofthedatamarkedwitha*,whichhasbeenestimated.**thisamountincludedividendfromothercompanies(25M).

b) Taxescomprisedirectandindirecttaxes.

[ 9 ][ 8 ]

EXECUTIVEDIRECTORS

MPuchercos - GroupManaging

Director-French

DNjoroge - GeneralManager,

HimaCementLtd

ASigei - GroupFinanceDirector

NONEXECUTIVEDIRECTORS

RKemoli - Chairman

JCHillenmeyer - French

SWKaranja

AHadley - British

RLumbasyo

ELeo - SouthAfrican

CCKisire

SM’Mbijjewe

SECRETARY

MsMWNderitu

Kenya-ReTowers,UpperHill

P.O.Box10921-00100

Nairobi

REGISTEREDOFFICE

Kenya-ReTowers,UpperHill

P.O.Box10921-00100

Nairobi

REGISTRARS

ChungaAssociates

P.O.Box41963-00100

Nairobi

AUDITORS

Deloitte&Touche

CertifiedPublicAccountants(Kenya)

“Kirungii”,RingRoad

Westlands

P.O.Box40092-00100

Nairobi

PRINCIPALBANKERS

BarclaysBankofKenyaLimited

NkrumahRoadBranch

P.O.Box90182

Mombasa

CitibankNA

NyerereAvenue

P.O.Box83615

Mombasa

StandardCharteredBankUgandaLimited

SpekeRoadBranch,5SpekeRoad

P.O.Box7111

Kampala

TheCompanyCORPORATEINFORMATION

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TogetherEveryoneAchievesMore.Anonymous.

[ 8 ]

[ � 0 ] [ � � ]

OurVisionby20�0Tobe the leadingmarketandenduserorientedCementCompanyacrossEasternAfrica,withastrongandcleardedicationtoourcommunities.

OurAmbitions

Safety,HealthandEnvironmentWearededicatedtothehealthandsafetyofourpeople;throughtraining,ouremployees,contractorsand business partners will apply Best Practises. We care for our communities and preserve theenvironment.

InnovationWearecommittedtogrowingour turnover through introductionofnewand innovativeproducts,whilecementingacultureofinnovationwithintheorganisation.

SustainableMarketLeadershipWeareNo.1intheEasternAfricamarket,withstrongsalestotheinlandexportmarkets.

AprofitableenterpriseWehaveprotectedourprofitabilitybyenhancinginternalefficienciesandinnovationwhilefulfillingouraimtomakecementaffordable.

TeamAchievementWearefocusedonattractingthebesttalent,developingtheirpotentialandrewardingbothindividualexcellenceandteameffort.

OurValuesTheBamburibrandstandsforcommitmenttoexcellenceandthevaluesofthegroupareexpressedinthe‘LafargeWay’.

TheLafargeWayCourage,integrity,commitment,considerationforothersandanoverridingconcernforthegroup’sinterest are the foundations of our management philosophy. Every employee is expected todemonstratecommitmenttothesevalues.Wewillachievethemby:

Makingourpeoplesuccessful• Expectingpeopletogivetheirbest.• Leadingbyexample.• Achievinggreaterresultsthroughteamwork.Focusingonperformanceimprovement• Resultingfromactionsofall.• Makingperformanceadailycommitment.• Sharingsystemsandtools.withamulti-localorganisation• Buildingonourlocalandglobalstrengths.• MakingourBusinessUnitssuccessfulbyleveragingtheresourcesofa decentralisedorganisation.• Sharingclearprocessesandalimitednumberofrespectedandknownrules.

TheCompany

Numberofshares %ofsharesShareholder

1. FincemHoldingLimited 106,360,798 29.30

2. KencemHoldingLimited 106,360,797 29.30

3. BoardofTrusteesNSSF 60,529,522 16.68

4. BamcemHoldingLimited 50,000,000 13.78

5. BaloobhaiChhotabhaiPatel 3,820,105 1.05

6. Barclays(Kenya)NomineesLtd(A/c1256) 1,701,300 0.47

7. OldMutualLifeAssuranceCompanyLimited 1,322,740 0.36

8. KenyaReinsuranceCorporationLimited 1,071,543 0.30

9. KenyaCommercialBankNomineesLtd(A/c769G) 934,150 0.26

10. KenyaCommercialBankNomineesLtd(A/c744) 900,000 0.25

Totalof�0above 333,000,955 9�.75

2601othershareholders 29,958,320 8.25

Totalshareholding 362,959,275 �00

Top10Shareholders

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BamburiCementLimited isasubsidiaryof theLafargeGroup.Lafarge is theworld leader inbuildingmaterials,andholdstoprankingpositionsinallthreeofitsbusinesses:Cement,Aggregates&ConcreteandGypsum.

TheLafargeGroupispresentin70countrieswith71,000employees.Itssalesfor2006amountedto16.9BillionEuros(2005:14.5BillionEuros).TheCementdivisionhasoperationsin46countries,sellingalargerangeofcement,hydraulicbindersandlime.Lafargehasover166cementplantsthroughouttheworld.

KeyFiguresforLafargefor2006

ConsolidatedSales:16.9BillionEurosOperatingincome:2.8BillionEuros

CementDivisionSales2006:9.6billionEurosWorkforce2006:41,191peopleLafargeistheonlycompanyintheconstructionmaterialssectortobelistedinthe2007‘100GlobalMostSustainableCorporationsintheWorld’.Lafargeisdedicatedtoensuringthatitsgrowthcomeswithin a strategy of sustainable development: its expertise combines industrial efficiency, valuecreation,respectforindividualsandcultures,environmentalprotectionandtheconservationofnaturalresourcesandenergy.

Bamburi Cement Limited derives tremendous advantages from being part of the Lafarge group,includingaccesstocuttingedgetechnologiesforcementmanufacture,managementandtechnicalsupport.

LafargeGroup

[ �4 ]

SolomonW.Karanja

AntonyHadley

MichelPuchercos

DavidNjoroge

SheilaM’Mbijjewe

ElmoreLeo

AlbertSigei

Jean-ClaudeHillenmeyer

ChrisKisire

RachelLumbasyo

RichardKemoli

BoardofDirectors(Fromlefttoright)

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JEAN-CLAUDEHILLENMEYER(70)(AC)is a graduate engineer fromEcole Centrale des Arts etManufactures, Paris andholds an MBA from “Institutd’Administration des Enter-prises”.He is the acting Chairman ofthe Audit Committee. He hasheld several positions in the

Lafarge group both in France and internationally beforeretiring in August 1999 and is currently an independentconsultant.Hehas45yearsofexperienceinthecementindustrywhichhasbeenveryvaluabletoBamburiCementLimitedasitgoesthroughchange.

CHRISC.KISIRE(40)(AC)is a holder of Bachelor ofCommerce,AccountingMajorand a Masters of Business &Administration degrees bothfromtheUniversityofNairobi.HealsoholdsaCertifiedPublicAccountantofKenya,CPA(K)qualificationandamemberofthe InstituteofCertifiedPublicAccountantsofKenya(ICPAK).

MrKisirewasappointedtotheBoardon1October2004.He is currently the Group Finance Director of StandardGroupLimited.Hehasworkedformorethanfifteenyearsinfinanceandadministrationbothlocallyandinternationally(Zimbabwe,UgandaandUnitedKingdom).

SHEILAM’MBIJJEWE(49)(AC)is a Chartered AccountantICAEW, and a CPA Kenya.Sheila’sprevious jobshave in-cluded the Finance DirectorpositionatPricewaterhouseC-oopers, Stagecoach Interna-tional, and most recently withStandardCharteredBankKe-nya.Sheiscurrentlyamember

oftheBamburiAuditCommitteeandtheBoard.SheisalsoamemberoftheMonetaryPolicyAdvisoryCommitteeoftheCentralBankofKenya.

RACHELLUMBASYO(56)(AC)has a Bachelor of Commercedegree (Accounting option)from the University ofNairobi and has a CPA (III) Kqualification. Rachel worked invariousseniorauditpositionsintheOfficeoftheControllerandAuditor General Kenya, from1975 to 1989 when she left as

Assistant Director of Audit. She then joined the NationalSocial Security Fund in March 1989 as the Chief InternalAuditor. She has worked in the Fund as the Internal AuditManagerandDeputyManagingTrustee.InDecember2005she was appointed the Managing Trustee and a memberof the NSSF Board. Rachel is also a member of the VATTribunal.

MICHELPUCHERCOS(49)(ACED)is a graduate of the EcolePolytechnique (1976) and theEcoleNationaleduGénieRural,desEauxetdesForêts(1981).MichelstartedhiscareerintheFrench Ministry of Agriculturein 1982-1989. He has servedas Director of Strategy andSupplies in Orsan, a Lafarge

subsidiaryfrom1989-1992.Inaddition,hehasworkedinseniorexecutivepositionsinanumberofAgro-FoodandChemicalIndustriesinEuropeasfollows:from1992-1994inJungbunzlauerSAasExecutivePresident,from1994-1996asGeneralManagerof the Canagroupand from 1996-1998 Doux, as Executive Vice President of this leadingEuropeangroupspecializinginpoultry.MichelreturnedtoLafarge in1998whenhewasappoint-edasDirectorofStrategyandInformationSystemsoftheGypsumdivisionofLafarge.In2003,hemovedtotheCe-mentDivisionasDirectorofCementstrategy,untilhis re-assignment to Bamburi Cement as Managing Director inSeptember2005.

DAVIDNJOROGE(36)(ED)is a holder of a Bachelor ofCommercedegree,Account-ing major and is a CertifiedPublicAccountant.Hehasat-tended managerial, financialandleadershiprelatedcours-es’ both locally and interna-tionally including sessions inINSEAD.Hejoinedthecompanyin1999

asFinanceManagerapositionhehelduntil2002whenhewaspromotedtoGroupFinanceDirector.InApril2006,hewasassignedtoHimaCementLtdasGeneralManager.HeisalsoadirectorattheNairobiStockExchangewherehe chairs the finance committee. He has several yearsexperienceinfinanceandcontrol.

ALBERTSIGEI(34)(AC,ED)has a degree in MechanicalEngineering from the Univer-sity of Nairobi and is a Char-teredCertifiedAccountant.HealsoholdsaHigherDiplomaininformationsystemsmanage-mentandqualificationininfor-mationsystemsaudit.Hehasattendedvarioustrainingses-

sions,includinganInternationalLeadershipDevelopmentProgrammeat Insead,oneofEurope’s leadingbusinessschools.He joinedBamburigroup inMay2002asGroupController.Before joiningBamburiCement,Albertworkedwithin the riskmanagementandfinancialauditserviceofPriceWaterhouseCoopers (PwC) forfiveandahalfyears,bothinNairobiandLondon.

RICHARDKEMOLI(7�)(NE)holds a Bsc(Econ) from Mak-erereUniversity,KampalaandstudiedforaDiplomainMan-agement Studies at RegentStreet Polytechnic (now Uni-versity of Westminster, Lon-don).He is also a member oftheInstituteofDirectors,Lon-don.He is the Chairman of the

Bamburi Cement Limited Board of Directors. He has 33years experience with Commonwealth DevelopmentCorporations - East Africa Region and is a director inseveralcompanies.

ANTONYHADLEY(48)(NE)is the Regional PresidentLAFARGE Africa. He is aMechanical Engineer whograduated from London’sImperial College in 1980. For18years,Tonyworkedintheoilindustry for Schlumberger inmanyroles,livingandworkingin North and South America,EuropeandAfrica.

In 1999, he joined Blue Circle Industries in the U.K. withresponsibility forAfrica.Following theacquisitionofBlueCirclebyLafargein2001,TonywasappointedasRegionalPresident for Lafarge (Africa Operations). Lafarge hascement manufacturing operations in Nigeria, Benin,Cameroon,Kenya,Uganda,Tanzania,Zimbabwe,Zambia,MalawiandSouthAfrica.

ELMORLEO(63)(NE)holdsaBachelorofCommercedegree from theUniversityofPretoriaandaMastersofBusi-ness Administration degreefromthesameuniversity.He is the Managing Directorof Lafarge South East Africa.He has served in variouspositionswithintheGroupandhasexperiencespanningover

20yearsinthecementindustry.

SOLOMONW.KARANJA(70)(NE)isaBAgraduateofMakerereUniversity and holds an MAfrom University of London.Hehas worked as a Deputy tothe University of East Africa,Registrar, and was the firstKenyan University of Nairobi,Registrar. Subsequently heheldthepositionofExecutive

Chairman, East Africa Portland Cement Company fortwelve years after which he was appointed ExecutiveChairmanNationalBankofKenyain1987.HehasservedasChairmanKenyaGolfUnionandMuthaigaGolfClubaswellasaDirectorMuthaigaCountryClubandChairmanFidelityShieldInsuranceCompany.He has served on a number of Government appointedcommissions into the affairs of the university and iscurrentlyon theUniversity InspectionBoard recentlysetupbythePresidenttoreviewtheoperationsofthepublicandprivateuniversitiesinKenya.

MERCYNDERITU(4�)(CS)is anLLBdegreeholder fromthe University of Nairobi andhasanLLMfromtheWidenerUniversity School of Law inDelaware. She worked as aLegalAssistantinlawfirmsinNairobi for three years andsubsequently held variouspositions as an in houselawyer in Esso Kenya Limited

andMobilOilKenyaLimitedforacumulativeperiodof10years.ShejoinedBamburiCementLimitedin2005.MercyisanAdvocateoftheHighCourtofKenya(admittedtothebarin1991)andalsoaCertifiedPublicSecretary.

BoardofDirectorsProfiles

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KEY:NE=Non-Executive Director,AC=Audit Committee,ED=Executive Director, CS=Company Secretary

[ � 8 ]

Theyear2006presentedourbusinesswithseveralchallengesstartingwiththedroughtintheearlierpartoftheyearinvariouspartsofEastAfrica,risingfoodandfuelpriceswhichincreasedtheinflationarypressuresinKenya(14.5%)andUganda(11.3%).

As a result of low water levels, power generation in Uganda dropped drastically and thermal generators were installed to provide emergency relief, driving up the cost of power by 146% within the year. There was also insufficient improvement in long haul transport facilities.

MeetingourFinancialGoalsinaChallengingEnvironmentDespite these challenging constraints, we were able to deliver acceptable performance compared to last year. Some highlights by way of example are: • Increased cement production by 8% while our consolidated

sales grew by 10% to Kshs 16.7 billion,• Increased in profits before tax by 22% to Kshs 3.8 billion • Critical strategizing and mobilizing for growth to meet the

rising demand for cement in the region,• Enhanced the safety of our industrial operations as well as

improved safety on the road,• Demonstrated our commitment to the communities and to the

environment through various Corporate Social Responsibility projects undertaken in the year. In recognition of some of this work, Bamburi received a prestigious international Habitat conservation award in 2006 - the first on the African continent - for environmental stewardship and protection of native biodiversity.

To mitigate the increased pressure on operating costs, we launched a cost saving initiative called Excellence 2008, whose aim is to focus and accelerate actions with greatest potential for saving costs. Key areas of this initiative include productivity improvements, alternative fuels and optimization of material additives.

The strong focus on these initiatives produced good results in 2006 and demonstrates the great potential of our people and organization to deliver strong results even in a challenging economic environment.

Chairman’sLetter

MobilizingforexpansiontoservegrowingmarketOur markets in East Africa continue to show high growth, averaging 8-10% over the past 5 years. This is not surprising, as political stability returns to the region, economic activity is rejuvenated. The outlook remains good. Estimates for economic growth in Kenya and Uganda for 2006 are 6% and 4.5% respectively. Infrastructure projects will need to be accelerated if the targeted growth rates are to be achieved going forward. In Uganda, increasing power generation remains a top priority with 2 major hydro-electric dams due for construction commencing 2007. We are optimistic that our governments will accelerate efforts to improve the regional infrastructure for industry and commerce.

In 2006, we devoted our energies to finalize plans to increase production capacity in Uganda. We have obtained approval from the authorities and expect to break ground for our new plant soon. The group is well geared to meet expected growth in demand.

LeveraginggrowththroughinnovationWe are committed to offering more value to our customers through new solutions and new products developed from an intimate understanding of our customers needs. In Kenya, we successfully championed the use of concrete electricity poles, as durable and environmentally friendly alternative to tree posts. In Uganda we had great success demonstrating the suitability of cement for road stabilization. In addition, working through the East Africa Cement Producers Association (EACPA), we supported the construction of the first ever concrete road (Mbagathi Road) in Kenya to showcase the unique benefits of concrete roads.

Across the Eastern Africa region, we run a Mason’s Partnership program in which we organize regular seminars for one of our key consumer groups – the building masons. Through these seminars we listen, learn and gain valuable insights to leverage in new product development. In our subsidiary, Bamburi Special Products, we have an important vehicle for introducing new products to the market.

We continue to realize innovation in our industrial and internal operations, where the benefits are real improvement in the productivity and efficiency of our operations. Our pioneering work with the use of biomass as an alternative energy source is a sterling example. We believe that innovation will remain vital for us to sustain our competitive advantage within the region.

Commitmenttosafety,health,ourcommunitiesandenvironmentOur commitment to safe operations remains as strong as ever. We have launched a new Health and Safety Policy across the group to give new impetus to our safety ambitions. At the center of our efforts is the commitment of each individual employee and business partner. We require every one of our employees and contractors to commit to contribute to a safe environment at work through responsible behaviour and active engagement of other workers. The main initiative in the year was a road safety campaign that we launched in Kenya and Uganda to address the risks we face in transporting our products.

We take seriously our responsibilities as a member of the communities where we operate. We are major contributors in the areas of environmental protection, health and education. Our unique Green Schools projects in Kenya and Uganda promote tree planting. To date over 250,000 trees have been planted and 126 water tanks installed. In Uganda, we launched an Anti Retroviral Treatment (ART) program through which our employee community is able to access free HIV drugs. We continue to support young promising students in our communities with education bursaries. [ � 9 ]

[ 2 � ]

We are proud to initiate new economic opportunities spurred by innovation in our plants. The use of alternative fuel sources (biomass) resulted in new income sources and improved quality of life for coffee growers, local traders and transporters. In 2006, Lafarge Ecosystems pioneered a project (Biofuels) to develop tree plantations in proximity to our plant and we are optimistic that the project will provide more work and micro enterprise opportunities for our communities. Over 100 temporary employees from the neighboring communities have already been engaged through this initiative.

Buildingourlong-termcompetitiveadvantageIn 2007 we expect performance to benefit from the market growth outlook and further productivity improvements. We continue to explore new sources of energy in order to save costs and contribute to environment protection in the present and the future.

What we have achieved so far is the result of the dedicated efforts of all our people. In 2006 we made changes to our organization to improve the effectiveness of resource sharing in East Africa. We are now more integrated and work closely as one business across East Africa. We have great people across the region and are committed to developing everyone to their fullest potential. The performance of our people, both individually and working together as robust teams across East Africa and the Lafarge group, is what distinguishes our immense capabilities.

In conclusion, I want to commend all our staff in East Africa for their dedicated and unwavering work for the company. My vocabulary is insufficient to express the gratitude I feel to the Board of Directors for their steadfast support and positive contribution to company deliberations. I believe we are on the right path – building partnerships with our customers, creating innovative products, making our organization more effective, reducing costs, planning for expansion and developing the talents of our people. All these initiatives will solidify our competitive advantage resulting in better returns for our shareholders and stakeholders.

Sincerely,

RICHARD KEMOLICHAIRMAN

Alonewecandosolittle;togetherwecandosomuch.Helen Keller.

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Wehavearoadmapforsafety improvementand in2006our focuswasonroadsafety.Roadsafetyremains a major challenge for our operations. We launched a Road Safety campaign in both KenyaandUgandathroughwhichweplanto improvesafetyawareness,drivingbehaviourandreduceroadaccidents.Wearecommittedtodivertingourmaterialshipmentsfromroadtorailtominimiseexposureto accidents on the road. We have on-going discussions with the new Railways concessionaire (RiftValley Railways) to increase our traffic on rail, and we are optimistic that management of the railwaynetworkwillimprove.

SalesThe Group recorded an 11% increase in turnover compared to 2005 as our sales focus and uniquegeographical presence enabled us to take advantage of all opportunities in the market. Sales grewstronglyonthebackofoverallcementmarketexpansionintheregion.DomesticsalesinKenyaweresluggishinthefirsthalfoftheyear,partlyduetotheregionaldroughtandrelatedimpactsondisposableincomes.Butdemandpickedupinthesecondhalfoftheyear,torecordthegrowthnotedabove.

MarketgrowthinUgandawasalsostrongat9.5%.Byleveragingonouruniqueregionalpresence,wewereabletoservethegrowingdemandinUgandaandto increaseourexportstoother inlandAfricamarkets.Wereorganisedoursalesandmarketingteamstoconsolidateourstrongpositionandexploitnewmarketopportunities.Our focusedeffort resulted in improvedpenetration toTanzania,Rwanda,BurundiandSouthSudan,a30%increaseinexportsvolumes.

IndustrialPerformanceAtallourplants,weimprovedperformanceintermsofcementproductionandplantreliabilityin2006.Wemadesignificantimprovementsintheyearbyoptimizingourmaterialusageratiosandbyincreasingthealternativefuelusage.Thegainsinproductivitywerevitalinoffsettingadversecostpressuresparticularlyonfuelandpowerprices.

MombasaIn2006cementproduction improved9%asmillutilization increased toserve increasingdemand forcement. Kiln reliability improved, but we were behind last year on clinker production due to slightlyreducedkilnoutput.Aspartofourplanstoimprovekilnefficiency,wewillmakeasignificantsustaininginvestmentinthereplacementofkilncoolersystemin2007.

NairobiCement production at the Nairobi grinding plant increased 7% to meet the increased domestic andexportdemand.WemadesignificantimprovementstoproductivityintheyearbyoptimizingcementitiousadditionsandmigratingfromCEMIItoCEMIVcement.

KaseseCementproductionimproved7%despiteincreasedproblemswithpowerqualityandsupply.Toalleviatethepowersituation,wecommissionedaKShs110milliongeneratorinNovembertoprovidealternativesupplyduringpoweroutages.Wealsomadegainsintheuseofalternativefuels,whichpartiallyoffsettheincreaseinfuelandpowerprices.

Management’s Discussion and Analysis of Financial Condition and Results of Operations TheEconomyThe Kenyan economy remained buoyant in 2006, achieving 6.0% GDP growth (2005: 5.8%) despiteadverseimpactsofdrought/faminethatcharacterisedthefirsthalfoftheyear.Thegrowthwasdrivenby mainly the tourism, telecommunication, horticultural and manufacturing sectors. In addition, theGovernmentisimplementingvariousdevelopmentprogrammes,especiallyfreeprimaryeducationandroadsrehabilitation,whichremainkeyforcontinuedeconomicgrowth.Inflationintheyearroseto14.5%(2005:10.3%)mainlydrivenbyvolatilefuelandfoodprices.

UgandaGDPgrowthat4.5%wasbelowprioryear(5.3%).Thedeclineisattributedtotheacutepowershortages during the year brought about by a drop in water levels at the main hydro power dam.Emergency thermal generators were commissioned towards end of the year, but being more costlysourcesofpower,theyresultedinsharptariffincreases(114%byendoftheyear).Escalatingpowerandfuelpricescontributedtothehighinflationestimatedat11.3%(2005:3.5%).

Inthewiderregion,RwandaandBurundiwereadmittedintotheEastAfricanCommunity.Bothcountriesremainkeyexportmarkets,andweexpectthattheintegrationwillfurtherimprovetradeandbusinessopportunitiesforthegroup.

Theeconomicoutlookfortheregionremainspositive;politicalsettlement inSouthSudan;thesearchforpeaceinnorthernUganda;theprospectsforoilexplorationinwesternUganda;therobusttourismsectorinKenya–allprovidestronggroundsforoptimism.Developmentoftheinfrastructureintheregionremainsapriority inorder tosupporteconomicgrowth.Wearehopeful that theGovernments in theregionwillaccelerateimprovementstothetransportsector.InUgandaacceleratingtheconstructionofnewhydropowerdamsisvitaltoimprovethecountry’seconomiccompetitiveness.

ConstructionSectorCementdemandintheregioncontinuedtobestrong,spurredbythestrongeconomicgrowthnotedearlier.Acrosstheregion, investment isgrowing inhousingandrehabilitationorexpansionofexistingpublicinfrastructure.InKenya,wehaveaconduciveclimatefortheindividualhomebuilderandprivatedeveloperparticularlyinformofrelativelylowinterestratesandavailabilityofmortgageproducts.

TheprivatehomebuilderisalsoakeycementmarketsegmentinUganda.Therehasbeenasustainedinvestment in new commercial building and hotels, and an increase in public construction projectsincluding rehabilitation of road and airport facilities, in preparation for the Commonwealth Heads ofGovernmentsummitscheduledforOctober2007.

Publicprojectswillalsocontributetothehighcementmarketgrowthratesin2007.Thedevelopmentofroadinfrastructureintheregionisapriorityforregionaldevelopment.InconjunctionwiththeEastAfricanCementProducersAssociation(EACPA),wesupportedtheconstructionofthefirsteverconcreteroad(MbagathiRoad)inKenyatodemonstratetheirsuitabilityfortheregion.Wearecommittedtorealisingnewusesforourcementandcementrelatedproductsthroughinnovation.

HealthandSafetyItisourcommitmenttobeamongthebestorganizationsinternationallyinsafetyperformance.Werecentlyrenewedoursafetypolicies,placingthecommitmentandcontributionofeachindividualemployeeandourcontractorpartnersatthecentreofalleffortsandprovidingclearerrulesforsafetybehaviour.Eachemployeeandcontractorsigneduptothenewpolicy,committingtocontributetoasafeenvironmentthroughresponsiblebehaviourandactiveengagementofoneanother.

[ 2 4 ]

Ajobworthdoingisworthdoingtogether.Anonymous.

InvestmentsThegrouprecognizesthecontributionofstructuralimprovementtoprofitabilityandcontinuestomakeinvestmentstoimproveefficiency.OverKShs750millionwasspentin2006ondifferentsustainingandimprovementinvestmentprojects.

TheGrouphasalsocommittedtoinvestoverKShs6billiontodoublecapacityinUgandaoverthenext2years.InbothKenyaandUganda,wecontinuetoworkcloselywithotherstakeholderstomitigateimpactofpowersupplyissues.

HumanResourcesandOrganizationDuringtheyearweoptimisedourOrganisationstructuresinEastAfricainlinewithourambitiontooperateasoneeffectiveBusinessUnit,operatingseamlesslyacrosstheregion.

WealsoreorganizedourSalesandmarketingteamstoconsolidateandpositionourselvesforfurthergrowth.Ourpeopleareenergizedaroundourvision,“…tobetheleadingmarketandend-userorientedCementCompanyacrossEasternAfrica,withastrongandcleardedicationtoourcommunities…”

Wehavecontinuedto invest inourpeople,withtrainingfocusedontechnicalandmanagementskillsdevelopment.Inthisendeavor,wetapintothehugepotentialandexperiencesintheLafargegroup.

BamburiSpecialProductsBamburi Special Products (BSP) Ltd is a subsidiary of Bamburi Cement Ltd manufacturing concretepavingblocksandothercementproducts.Thecompanyproducespavingblocksunderthebrandname“Bamburiblox.”Itcontinuestobeacrucialsupportforourproductdevelopmentandmarketingactivities.

LafargeEcoSytemsLafarge Eco Systems manages the Group’s various land properties (including limestone reserves)securing them for the future.Thecompany is responsible for rehabilitatingexhaustedquarries.Landreserves and rehabilitated quarries around our plants are of vital strategic significance to the group.The land ismaintained inactiveuseaseco-tourism/educationalattractions,showcasingnotonly thecompany’s commitment towards sustainable development and respect for the environment, butprovidingalsosocialamenitiesforourcommunities.TheworkdonebyLafargeEcosystemshasbeenrecognized innumerous internationalawards including, in2006- theprestigious internationalHabitatconservationawardforenvironmentalstewardshipandprotectionofnativebiodiversity.

OutlookTheGroup looksaheadtoarobustyearwithconstructionactivitiesexpectedtoremainfavourable inall our markets. We anticipate all Group companies to report sound growth on the back of a vibrantmarket.

We hope that urgent steps will be taken by governments in the region to improve the operatingenvironment,especiallythepowersituationinUgandaandtransportinfrastructureinbothcountries.TheCompanywillcontinuepursuinginnovativestepstoservethediversifiedneedsofourcustomersandtostrengthenitsleadershipposition.

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NominationandRemunerationCommitteeThis committee comprises of three members of the board and is responsible for appraising theperformanceofseniormanagementstaff, including theChiefExecutive. It reviewshuman resourcespolicies,andadvisestheBoardonmattersrelatingtoremunerationforseniormanagementandboardmembers. It is also responsible for the scrutiny and recommendation of potential candidates for theappointmenttotheboard.Ithasonescheduledmeetinginayear,butalsoconveneswhenthereisneedtofillanycasualvacancyarisingintheboard.

AssetDisposalsCommitteeThecommittee isresponsibleforthedisposaloftheGroup’snon-operatingassets. It ischargedwithensuringthattheprocessofdisposal isfair,professionalandefficientas instructedbytheboard.Thiscommitteehas2membersanditschairisamemberoftheAuditCommittee.

ExecutiveCommitteeTheManagingDirectorchairsanEastAfricanExecutivemanagementcommittee,whichcomprisestheexecutivedirectors.Thecommitteemeetsatleastonceamonthanditsmandateistodealwithpolicy,operational issues,andto improvecommunicationandco-ordination throughthevariouscompaniesin the group. In order to ensure that full attention is given to all business segments and location theexecutivecommitteeholdsitsmeetingsonarotationalbasisatallthecompany’sbusinesslocationsinEastAfrica.

PlanningandControlThereisacomprehensivemanagementcyclesystemthatincludesthelong-termstrategicplan,mediumtermperformanceimprovementplan,organisationandhumanresourcereviewandthebudgets.Thestrategicplangives thegroup long-termdirectionwhile theperformanceplanenablesmanagementtofocusonkeyactionstoachieveourstrategy.ThebudgetorannualbusinessplanisapprovedbytheBoard in December each year and must be consistent with the strategic and performance plan. Atevery board meeting, management accounts containing actual versus budgeted results and revisedforecastsfortheyeararereviewedbytheBoard.Thesemonthlymanagementaccountsanalyseandexplainvariancesagainstplanandreportonkeyindicators.

There isacleardefinedorganisationalstructurewithinwhich individualresponsibilitiesare identified inrelationtointernalcontrols.Thestructureiscomplementedbypolicies,andmanagementoperatesthebusinessincompliancewiththesepolicies.Thepoliciesincludeguidelinesforauthorisationandapprovalofrevenueandcapitalexpenditure.

The group has defined procedures and controls to ensure the reporting of complete and accurateaccounting information. These cover systems for obtaining authority for major transactions and forensuringcompliancewith lawsandregulationsthathavesignificantfinancial implications.Proceduresarealso inplace toensure thatassetsaresubject toproperphysicalcontrolsand that thebusinessremainsappropriatelystructuredtoensureadequatesegregationofduties.

WehavealsofullyadoptedInternationalFinancialReportingStandards(IFRS)inlinewiththerequirementsof the Institute of Certified Public Accountants of Kenya. This should enhance the readership andunderstandingofpublishedaccountsforshareholdersandotherusers.

SharemovementOvertheyear6,099,142sharesweresoldinthestockmarketoutofatotalof362,959,275shares.

IntroductionOur Board and Executive committee are committed to managing business at the highest standardsof corporate governance. The role of the Board is to: assist in determining the Group direction andstrategy;monitortheachievementofbusinessobjectives;ensuretheGroupmeetsitsresponsibilitiestoitsshareholdersandthatthecontrolenvironmentadequatelyprotectstheGroup’sassetsagainstmajorrisksitfaces.

ThedirectorsareresponsibleformaintainingtheGroup’ssystemsofinternalcontrol.ThesecontrolsaredesignedbothtosafeguardtheGroup’sassetsandensurethereliabilityoffinancial informationusedwithin the business and for publication. The controls are designed to provide reasonable assuranceagainstmaterialmisstatementorloss.Thekeyfeaturesofthegovernancestructureandprocessesandtheinternalfinancialcontrolsystems,whichoperatedsatisfactorilythroughouttheperiodcoveredbythefinancialstatements,aredescribedbelow.

CorporateGovernanceBoardofDirectorsThe Board comprises eleven directors, three of whom are executive directors while eight are non-executive.Theboardischairedbyanindependentandnon-executivedirectorAmongthenon-executivedirectors,fourareindependentdirectors.Inadditiontoseekingafairbalancebetweenexecutiveandnon-executivedirectors,theappointmentofboardmembersalsotakescognisanceoftheneedforagoodmixofskills,experienceandcompetenciesrequiredinthevariousfieldsofexpertise,foreffectivemanagementofthegroup’sbusiness.IntheBamburiBoardfivedirectorshavefinancialskillswhilstfivehavegainedexperienceandskillfromworkinthecementindustry.

Theboardmeetsatleastonceeveryquarter.Thisprogramnotwithstanding,wheneverthereisneedtotransacturgentbusiness,ameetingisconvened.Toensurethatallmattersrequiringtheattentionoftheboardaregivenfullandunfetteredattention,theboardhasfourstandingcommittees.

AuditCommitteeTheauditcommitteeplaysthekeyroleofreinforcingbestpracticeincorporategovernanceparticularlyin the areas of internal controls and risk management. It does this by regularly reviewing relevantcompanyinformationtogainassurancethatproperinformationandcontrolsystemsareinplace;andthat the company’s business and that of its subsidiaries is conducted in an economically sound andethicalmanner.TheAuditCommitteewillactinanadvisorycapacitytotheBoardinsuchamannerastoincreaseconfidenceintheinternalcontrolenvironment.Itsmaindutiesare:

1. toensurethatthesystemsofinternalcontrolaresoundlyconceivedandeffectivelyadministeredandseekassurancethatcontrolsystemsareregularlymonitored;

2. todefineresponsibilitiesoftheinternalcontrolfunction;3. toreviewtheextentofcomplianceagainstpolicies,proceduresandlaws4. toreviewfinancialstatementsandinterimresultsandannualplanbudgetandschedulesforthe

comingyear5. Discussingthemandateandreviewingthefindingsofinternalandexternalauditors.

CorporateGovernanceandSocialResponsibility

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HealthInMarch200616 femalespousesofouremployees inMombasawere trainedaspeereducators inHIV/AIDSissues.Undertheleadershipoftheseniorclinicalofficerinthecommunity,peereducatorsheldmonthlymeetingstodiscussHIV issueswithfellowfemalespousesfromApril toOctober intheyear.ThesemeetingshaveledtoincreasedemployeespousevisitsattheVCTcentreattheMombasaplantclinic.

AntiretroviraldrugscontinuetobesuppliedtotheeligibleHIVpositiveemployeesandtheirdependants.Inaddition,counsellingisprovidedforpeoplewhoaretestedirrespectiveofoutcomeattheClinicandVCTcentre.

The company embarked on a programme to enable employees obtain treated mosquito bed nets.Duringtheyear232netsweresoldtoemployeesunderthisscheme.Inlinewithpreventivemeasureswith regard tomalaria, 140companystaffhouses inMombasaweresprayedwith residualmosquitorepellents.

Inordertoenhancesafetyandhealthpracticesasawayof life,aKnowledge,Attitude,PracticesandBehaviour (KAPB) survey for HIV/AIDS and malaria was launched and carried out in Bamburi and itssubsidiariesinNovember2006withacommendable80%participationrate.

RehabilitationDuring2006wecarriedoutsuccessfulrestorationofnearlytwentyhectaresofquarrylandinadditiontothemanagementtheexistingparks-HallerParkandForestTrails.Withover400speciesofindigenoustrees the parks contribute significantly to the protection of Kenya’s unique coastal flora. The diverseecosystemsthathavebeencreatedareanimportantshowcaseofourenvironmentalresponsibility.June3rd,2006wasusedtomarktheWorldEnvironmentDay.WeorganisedtreeplantingactivitiesattheSouthandNorthquarriesinMombasa.Atotalof2,300Casuarinaseedlingswereplantedinbothquarriesbyschoolchildrenandinvitedguestsand3,000seedlingsgivenawaytothepublictoplantathome.

Anewprojectthataimsatproducingfuelwoodasanalternativeenergysourcewasstartedduringtheyear.TheprimaryobjectivesofthisprojectaretoestablishfuelwoodplantationsonBamburi’sminingreserve land and in disused quarries not set aside for biodiversity conservation, in order to producefuelwoodforburning inthecementplant. Thefuelwood isacarbon-neutral fuel,andwillcontributesignificantlytotheGroup’sfossilfuelsubstitutionprogramme.

The project will also enhance stakeholder relations through the involvement of local communities.CommunitiesandotherexternallandownerswillbeencouragedtoplanttreesforlatersaletoBamburiaswoodfuel.Attheendofthe2006,overhalfamillionseedlingshadbeenproducedinreadinessforplantingin2007.

In November 2006 Bamburi received international certification for habitat creation at the MombasaQuarriesthroughtheWildlifeHabitatCouncil.Thiscertificationisfortwoyears,andwasmadeafterasitevisitbyauditorsandasubmittedapplication.InadditionthePresidentsAward“Inhonourofoutstandingcommitmenttocommunityservice,conservationeducationandenvironmentalstewardship”wasalsogivenon thesamedayby theCouncil.ThisawardmakesBamburi’squarries thefirstWildlifeHabitatCouncilcertifiedprogramontheAfricancontinent.

HealthandSafetyWearecommittedtoprovidingahealthyandsafeworkenvironmentforallouremployeesandbusinesspartners, and in turn expect all our employees to contribute to creating this environment throughresponsiblebehaviour.Everyoneisalsoexpectedtodemonstratethathealthandsafetyarecorevaluesinallaspectsofourbusinessthroughactionandfeltleadership.

Werecentlyre-launchedourgrouphealthandsafetypolicytoprovidefreshimpetustoourefforts.Thenewpolicyexplicitly includeselevenhealthandsafetypolicyrules.Allemployeesandcontractorsarecommitted toactivelyengageeachother towardsachievingourambitionofbeingamongthesafestorganizations in the world. Line management is responsible for health and safety implementation,communicationandcompliance.

WelaunchedaRoadSafetycampaignin2006toenhanceasafedrivingcultureandtogaintransporters’commitmenttoroadsafety.ThecampaignwaslaunchedatalloursitesinKenyaandUganda,andtheprimarytargetaredrivers,transportersandemployees.Defensivedrivingtrainingandcertificationhasbecomeaminimumcriterionforallcontracteddrivers.Whilewehaveseenimproveddrivingbehaviorand reduction in the fatalities on the road in 2006, we are committed to minimizing the risks and toattainingnilroadfatalities.

CommunityProgrammesEducationOneofour initiatives in theeducationsector fallsunderourBursarySchemesetup in 1998 toassistundergraduatestudents inourNationalUniversities.Thebursarysupportsstudentsfromtheareas inwhichweoperatewhohavebeenofferedplaces inourNationalUniversities.Thisprogrammehas10studentbeneficiarieswhoarestudyinginthepublicuniversities.OurfocusoneducationsawuscontinuetosupportanumberofstudentsinvariousschoolsinKenyabypayingtheirschoolfees.

Inaddition,wehavean internshipprogram, inwhichweprovidefieldattachmentopportunitieswithinourorganisationtobetterpreparethestudentsfortheworkenvironment.IntandemwiththiswehaverecentlylaunchedanapprenticeshiptrainingschemeinwhichwewillsponsortechnicalapprenticestotheNationalPolytechnicstoenablethemenhancetheirknowledgeandskillsrelevanttothecurrentandfutureneedsofourplantoperationsandthecountry.Weexpectthatwithinthenextfouryears,wewillhavesupportedtwentystudentsthroughthisprogramme.

In200650studentsfromvariousEastAfricanuniversitiesjoinedoursubsidiaryLafargeEcoSystemsonattachmenttraininginecology,wildlife,fisheries,forestry,tourismandmanagement.WealsoheldourfirstundergraduatefieldcourseinRestorationEcologyinHallerParkasamoduleinPrincetonUniversity’ssemester abroad programme in the Ecology and Evolutionary Biology Programme. Eight Americanstudentsandtwoofourstaffparticipated inthe3weekfieldcoursethatexaminedtheeffectivenessofrestorationpracticesatLafargeEcoSystems.FourMastersDegreeswerealsoearnedthroughfieldprojectsatLafargeEcoSystemsbystudentsatCranfieldUniversity’sCenterforecologicalrestorationintheUK.ThesestudentsconductedresearchexaminingtheimpactofBamburi’sGreenSchoolsProjecton sanitation, fuel wood production, education and water efficiency in the Kwale District. The GreenSchoolsProjectisdiscussedfurtherbelow.

CorporateSocialResponsibility

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EmployeesofBamburiinthelastquarterof2006madecashdonationsamountingtoKshs2,063,413tothreecharitableinstitutionsinthecountry:theSOSChildrenVillageinBuruburuNairobireceivedKshs1,102,141,theWemaCentreinMombasawastherecipientofKshs805,331andtheTomMboyaCerebralPalsyUnitalsoofMombasa,receivedKshs155,940.

SomeothernotabledonationsmadeweretotheMwembeTanganyikastreetpavingprojectinMombasa,theGreenBeltMovement,totheAllianceFrancaiseNairobiandtotheKenyaRedCrossNationalFamineReliefFund. In the latter instancefivemillionshillingswasdonated towardsshortand long termreliefinitiativesunderthemanagementoftheRedCross.

HimaCementHealthandSanitationAfocusareainUgandahasbeentheprovisionoftoiletfacilitiesinvariouspartsofthecountrytoimprovesanitation.Duringtheyearthecompanydonatedandcommissionedtoiletfacilitiesatvariouscommunityinstitutions.

On2ndAugust2006HimaCementLtdlaunchedanAntiRetroviralTherapy(ART)programmeinHima,inpartnershipwiththeGovernmentofUganda,theInternationalMedicalGroup(IMG)andUSAID.Thisprogrammeinvolvescounselingandtestingofemployees,dependantsandcommunitymembersandwheredeemedclinicallybeneficial,theprovisionoffreedrugs.APost-TestClubfacilitatedbyourstaffmembersgivessupporttothoseinthecommunitywhohavebeentestedforHIV.

HimaCementLtdreceivedanawardinrecognitionofbestpracticeinCorporateSocialResponsibilityfor2006fromtheUgandaManufacturersAssociation.

CommunitymobilizationThesocioeconomicsetupattheKasese,WestUganda-whereourHimaplantislocated-hasprovideduniqueopportunitiestointeractwiththewidercommunity.ThecompanyhasmarkedsomedaysintheyearasCommunitydays,duringwhichcommunitymembersaremobilizedtoparticipateinavarietyofactivitiesthattouchonaspectrumofhealthandsanitationissues.Thethemesforthecommunitydaysin2006havebeenHIVprevention,drugabuse,safewaterandsanitation.

EnvironmentIn theareaofenvironmentandsanitation, thecompanystartedtheGreenSchoolsProject inKasesearea.TheobjectivesaresimilartothoseatBamburiCementLtd.ThepilotschemecoverssevenschoolsidentifiedinKaseseandKampaladistricts.Participatingschoolswillbenefitfrompitlatrines,desksandwatertanks.

OthercommunityinitiativesThecompanydonatedseedlingstoschoolsinKasesedistrictandtotheWorldWildlifeFederation(WWF)forplantingindesignatedareasaroundKasesedistrict.Thecompanyalsodonatedcementtovariousinstitutionsfordevelopmentofclassroomblocksandplacesofworship.

HallerParkJune2nd,2006wasamemorabledaythatsawthe launchingof the“Owen&Mzee”book,abestsellingchildren’sbookthatisprimarilyattributabletothesustainabledevelopmenteffortsofBamburiinMombasa.

TheextraordinaryduoofOwenandMzee(HippoandTortoise)hasbecomeamajorattractionattheHallerParkgettingbothnationalandinternationalattention.Asouvenir25shillingpostagestampwiththeduowaslaunchedintheyear.TheOwen&MzeeBookhaswonseveralaccolades,thelatestonebeingthe2007“NotableBookAward”fromtheAmericanLibraryAssociation.

TheGreenSchoolsProjectTheGreenSchoolsprojectfocusesonprovidingcleanwaterandtreeseedlingsforplantingtoschoolsinaridandsemi-aridareaswiththeaimofeventuallycreatingasustainablesourceofdrinkingwaterandfirewood.Itwasstartedin2003andhascontinuedtomakegoodprogress.Bamburiprovidesawatertankdesignconceptanduptofivethousandtreeseedlingstoeachschoolforphasedplanting.

Thegoalistoensurethateach“GreenSchool”pupilwillplanttreesthatwillfostergrowthofforestsandsustenanceoffirewoodforcooking.Thetankswhichcollectrainwaterprovideaccesstosafewaterfordrinkingandpreparationofmealsinschools.Theprojecthasatotalof96schoolsparticipatinginfourprovincesinKenya:Coast,Eastern,RiftValleyandWestern.Todateatotalof252,523treeshavebeenplanted.

BaobabTrustBamburi is one of the donors of the Baobab Trust, an organization that is involved in sustainabledevelopmentwork.

TheTrustdemonstratessustainablefarmingtechniquesandothercommunityinitiativesinpartnershipwithdonorssuchastheUNDPandtheHallerFoundation.SomenotableeventsinitscalendarweretheopeningofacommunitylibraryattheNguuniWildlifeSanctuaryinOctoberandhostingaFarmersOpenDay at its Mtopanga farm in conjunction with the Ministry of Agriculture In November. In SeptemberBamburi, together with the Baobab Trust and various hotels, the community, schools and other keystakeholders,participatedintheAnnualInternationalCoastCleanupduringwhichseveralkilometresofbeachfrontwerecleaned.

BaobabTrusthasalsobeenpivotalinmarinelifeconservationparticularlywithregardtotheturtle.TheTrustassists inprotecting turtlenests,andmaintains itsownhatcherywhere the turtleeggscanbeincubatedafterbeingremovedfromunsafenestsites.TheTrustalsoworkswithlocalfishingcommunitiestocreateawarenessoftheconservationprogramme.

OtherCommunityInitiatives

Overtheyearthecompanyinteractedandgavefinancialsupporttovariousworthycauses.InthespiritofcaringforourcommunitiesBamburistaffmembersfromtheNairobiGrindingPlantdonatedachequeofKshs101,000and40deskstoMlolongoPrimarySchoolAthiRiverinJune.Thisisaschoolwherematerialsupportandcashdonationsby theNairobiGrindingPlanthavebeencomplementedbyotherKenyaAssociationofManufacturers(KAM)membersAthiRiverchapter.

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NoticeOfAnnualGeneralMeeting

NOTICE IS HEREBY GIVEN that the 56th AnnualGeneralMeetingoftheShareholdersofBamburiCement Limited will be held in Mombasa at theNyaliBeachHotel,onWednesday30thMay2007at3.00pm.forthefollowingpurposes:

1. Totabletheproxiesandtonotethepresenceofaquorum.

2. Toreadthenoticeconveningthemeeting.

3. To receive the Chairman’s statement, theReport of the Directors, and the AuditedAccounts for the year ended 31 December2006.

4. Todeclaredividends:a) Toratifythepaymentofthefirstandsecond

interim dividends of 40% each per ordinarysharepaidinAprilandSeptember2006.

b)Todeclareafinaldividendpaymentof30%perordinarysharefortheyearended31December2006.

5. To approve Directors’ fees for 2006 andincreaseDirectorsfeesin2007.

6. Tore-electdirectors: InaccordancewiththeCompany’sArticlesof

AssociationRKemoli,THadley,CKisireandSM’Mbijjeweretirebyrotationandbeingeligible,offerthemselvesforre-election.

7. To note that Deloitte and Touche continue inofficeasAuditors inaccordancewithSection159(2)oftheCompaniesActandtoauthorizetheDirectorstofixtheirremunerationfor2007.

SpecialBusiness8. ToelectDirectors: Specialnoticehavingbeengivenpursuant to

Sections142and186(5)oftheCompaniesAct(Cap486),toproposethefollowingresolutionasanOrdinaryResolution:

“ThatMr SolomonKaranja,whoattainedtheageof70yearson16September2006andMrJean-ClaudeHillenmeyerwhoattainedtheageof70yearson4February2007,bere-electedasdirectorsoftheCompany.”

9. TotransactanyotherbusinessoftheCompanyofwhichduenoticehasbeenreceived.

ByorderoftheBoard

Ms.MercyWNderituSecretary14March2007

Amemberentitledtoattendandvoteattheabovemeeting is entitled to appoint a proxy, who neednotbeamemberoftheCompany,toattendandvote inhisstead.Proxy formsmustbe lodgedattheregisteredofficeoftheCompany,notlessthan48hoursbeforethetimeofthemeeting.Aproxyformisprovidedwiththisreport.

TheSecretary,BamburiCementLtd.CorporateOffices6thfloor,Kenya-ReTowers,UpperHill,offRagatiRoadPOBox10921,00100NAIROBI,KENYA.

Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.Vince Lombardi.

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Reportofthedirectors 36

Statementofdirectors’responsibilities 37

Independentauditors’report 38

Consolidatedincomestatement 39

Consolidatedbalancesheet 40

Companybalancesheet 4�

Consolidatedstatementofchangesinequity 42

Companystatementofchangesinequity 43

Consolidatedcashflowstatement 44

Accountingpolicies 45

Notestothefinancialstatements 49

[ 3 5 ][ 3 4 ]

FinancialStatementsFORTHEYEARENDED3�DECEMBER2006

[ 3 6 ] [ 3 7 ]

StatementofDirectors’Responsibilities

TheCompaniesActrequiresthedirectorstopreparefinancialstatementsforeachfinancialyearwhichgiveatrueandfairviewofthestateofaffairsofthegroupandofthecompanyasattheendofthefinancialyearandoftheoperatingresultsofthegroupforthatyear.Italsorequiresthedirectorstoensurethatthegroupandthecompanykeepproperaccountingrecords,whichdisclosewithreasonableaccuracyatanytimethefinancialpositionofthegroupandthecompany.Theyarealsoresponsibleforsafeguardingtheassetsofthegroup.

Thedirectorsareresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordance with International Financial Reporting Standards. This responsibility includes: designing,implementing and maintaining internal controls relevant to the preparation and fair presentation offinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror,selectingandapplyingappropriateaccountingpolicies,andmakingaccountingestimatesthatarereasonableinthecircumstances.

Thedirectorsacceptresponsibilityfortheannualfinancialstatements,whichhavebeenpreparedusingappropriateaccountingpoliciessupportedby reasonableandprudent judgementsandestimates, inconformitywithInternationalFinancialReportingStandardsandinthemannerrequiredbytheCompaniesAct.Thedirectorsareoftheopinionthatthefinancialstatementsgiveatrueandfairviewofthestateofthefinancialaffairsofthegroupandofthecompanyandofthegroup’soperatingresults.Thedirectorsfurtheracceptresponsibilityforthemaintenanceofaccountingrecordswhichmayberelieduponinthepreparationoffinancialstatements,aswellasadequatesystemsofinternalfinancialcontrol.

Nothinghascometotheattentionofthedirectorstoindicatethatthecompanyanditssubsidiarieswillnotremaingoingconcernsforatleastthenexttwelvemonthsfromthedateofthisstatement.

M.Puchercos A.SigeiDirector Director

13February2007 13February2007

ReportoftheDirectors

Thedirectorspresenttheirreporttogetherwiththeauditedfinancialstatementsfortheyearended31December2006.

PRINCIPALACTIVITIESTheGroupisprimarilyengagedinthemanufactureandsaleofcementandcementrelatedproducts.The Group also owns and manages a world class nature and environmental park developed fromrehabilitatedquarries. Shs’millionRESULTSGroupprofitbeforetax 3,838Tax (1,039)

Groupprofitaftertax 2,799

Attributableto:EquityholdersofBamburiCementLimited 2,614Minorityinterest 185

2,799

DIVIDENDSDuringtheyeartwointerimdividendsamountingtoShs1,452million(2005:Shs1,923million)werepaid.ThedirectorsrecommendthatafinaldividendofShs1.50persharebepaidtoshareholders.ThisdividendissubjecttoapprovalbyshareholdersattheAnnualGeneralMeetingtobeheldon30May2007.

FINANCIALRISKMANAGEMENTOBJECTIVESANDPOLICIESTheGroup’sactivitiesexposeittoavarietyoffinancialrisks,includingcreditriskandtheeffectsofchangesindebtandequitymarketprices,foreigncurrencyexchangeratesandinterestrates.TheGroup’soverallriskmanagementprogrammefocusesontheunpredictabilityoffinancialmarketsandseekstominimisepotentialadverseeffectsonitsfinancialperformancewithintheoptionsavailableinKenyaandUgandatohedgeagainstsuchrisks.

TheGrouphaseffectivepolicies inplace toensure thatcredit salesaremade tocustomerswithanappropriatecredithistory.

DIRECTORSThepresentboardofdirectorsisshownonpage2.Thefollowingchangestookplaceduringtheyear:MrMbuviNgunzeresignedon1March2006,whileMrAlbertSigeiwasappointedtheGroupfinancedirectoronthesamedate.

AUDITORSDeloitte&Touche,havingexpressedtheirwillingness,willcontinueinofficeinaccordancewithSection159(2)oftheCompaniesAct.

ByOrderoftheBoardSecretaryNairobi13February2007

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ConsolidatedIncomeStatementFORTHEYEARENDED31DECEMBER2006

2006 2005 Notes Shs’million Shs’million

Sales 1(c) 16,488 14,393Otheroperatingincome 4 173 97Investmentrevenue 5 62 44

16,723 14,534

Changeininventoryoffinishedgoods (165) 374Costofrawmaterialsandconsumables 6 (8,264) (7,632)Staffcosts 7 (1,581) (1,448)Depreciation 14 (646) (668)Amortisation 16 (27) (29)Otheroperatingcosts 8 (2,053) (1,797)

Operatingprofit 9 3,987 3,334

Financecosts 10 (149) (187)

Profitbeforetax 3,838 3,147Tax 11 (1,039) (992)

Profitfortheyear 2,799 2,�55

Attributableto:

EquityholdersofBamburiCementLimited 2,614 2,004Minorityinterest 185 151

2,799 2,�55

Earningspershare–basicanddiluted 12 Shs7.20 Shs5.52

Dividends:Firstinterimdividendpaidintheyear 13 726 653Secondinterimdividendpaidintheyear 13 726 1,270Finaldividendproposed 13 545 -

�,997 �,923

IndependentAuditors’ReporttotheMembersofBamburiCementLimitedWehaveaudited thefinancial statementsofBamburiCementLimitedand itssubsidiariessetoutonpages39to69whichcomprisetheconsolidatedandcompanybalancesheetsasat31December2006,andtheconsolidatedincomestatement,consolidatedandcompanystatementsofchangesinequityandconsolidatedcashflowstatementfortheyearthenended,togetherwiththesummaryofsignificantaccountingpoliciesandotherexplanatorynotes.Wehaveobtainedalltheinformationandexplanationswhich,tothebestofourknowledgeandbelief,werenecessaryforthepurposesofouraudit.

RespectiveresponsibilitiesofdirectorsandauditorsAsindicatedonpage37,thecompany’sdirectorsareresponsibleforthepreparationandfairpresentationof these financial statements in accordance with International Financial Reporting Standards and theprovisions of the Kenyan Companies Act. This responsibility includes: designing, implementing andmaintaininginternalcontrolsrelevanttothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror,selectingandapplyingappropriateaccountingpolicies,andmakingaccountingestimatesthatarereasonable in thecircumstances.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.

BasisofopinionWe conducted our audit in accordance with International Standards on Auditing. Those standardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceastowhetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependonourjudgmentandincludeanassessmentoftheriskofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthose risk assessments, we considered internal controls relevant to the group’s preparation and fairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnot for thepurposeofexpressinganopinionon theeffectivenessof thegroup’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebydirectors,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethatourauditprovidesareasonablebasisforouropinion.

OpinionInouropinion:

(a) properbooksofaccounthavebeenkeptbythecompanyandthecompany’sbalancesheet is inagreementtherewith;

(b) thefinancialstatementsgiveatrueandfairviewofthestateofaffairsofthecompanyandofthegroupat31December2006andoftheprofitandcashflowsofthegroupfortheyearthenendedin accordance with International Financial Reporting Standards and comply with the KenyanCompaniesAct

Deloitte&Touche

CertifiedPublicAccountants(Kenya)

“Kirungii”,RingRoad,Westlands

P.O.Box40092-00100,Nairobi

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CompanyBalanceSheetFORTHEYEARENDED31DECEMBER2006

2006 2005 Notes Shs’million Shs’millionASSETSNoncurrentassetsProperty,plantandequipment 14 7,114 6,721Operatingleaserentals 15 1 1Intangibleassets 16 54 63Capitalworkinprogress 17 438 182Investmentsinsubsidiaries 18 968 968Otherequityinvestments 19 2,610 1,803 11,185 9,738CurrentassetsInventories 21 1,795 1,403Tradeandotherreceivables 22 1,382 1,037Cashandcashequivalents 23 1,463 680 4,640 3,120TotalAssets �5,825 �2,858

EQUITYANDLIABILITIESCapitalandreservesSharecapital 24 1,815 1,815Capitalredemptionreserve 25 2 2Revaluationsurplus 25 2,743 2,417Fairvaluesurplus 25 2,264 1,457Retainedearnings 5,216 4,307 12,040 9,998

Non-currentliabilitiesDeferredtax 26 1,542 1,402Provisionforliabilitiesandcharges 27 332 296 1,874 1,698CurrentliabilitiesTradeandotherpayables 28 1,669 987Taxpayable 153 94Provisionforliabilitiesandcharges 27 69 61Unclaimeddividends 30 20 20 1,911 1,162Totalequityandliabilities �5,825 �2,858

Thefinancialstatementsonpages39to69wereapprovedbytheboardofdirectorson13February2007andweresignedonitsbehalfby:

M.Puchercos A.SigeiDirector Director

ConsolidatedBalanceSheetFORTHEYEARENDED31DECEMBER2006

2006 2005 Notes Shs’million Shs’millionASSETSNoncurrentassetsProperty,plantandequipment 14 9,395 9,080Operatingleaserentals 15 9 9Intangibleassets 16 56 72Capitalworkinprogress 17 643 350Investmentsinsubsidiaries 18 1 1Otherequityinvestments 19 2,610 1,803Goodwill 20 217 217 12,931 11,532CurrentassetsInventories 21 2,385 2,027Tradeandotherreceivables 22 1,137 853Taxrecoverable 11(c) 3 -Cashandcashequivalents 23 2,057 920 5,582 3,800TotalAssets �8,5�3 �5,332

EQUITYANDLIABILITIESCapitalandreservesSharecapital 24 1,815 1,815Capitalredemptionreserve 25 2 2Revaluationsurplus 25 2,965 2,821Fairvaluereserve 25 2,264 1,457Translationreserve 25 (70) (338)Retainedearnings 13 6,041 4,922Shareholders’funds 13,017 10,679Minorityinterest 719 602 13,736 11,281

Non-currentliabilitiesDeferredtax 26 1,951 1,932Provisionforliabilitiesandcharges 27 368 342 2,319 2,274CurrentliabilitiesTradeandotherpayables 28 2,187 1,168Taxpayable 11(c) 167 108Borrowings 29 - 417Provisionforliabilitiesandcharges 27 84 64Unclaimeddividends 30 20 20 2,458 1,777Totalequityandliabilities �8,5�3 �5,332

Thefinancialstatementsonpages39to69wereapprovedbytheboardofdirectorson14February2007andweresignedonitsbehalfby:M.Puchercos A.SigeiDirector Director

[ 4 2 ] [ 4 3 ]

Capital Fair Share redemption Revaluation value Retained capital reserve reserve reserve earnings Total Shs’million Shs’million Shs’million Shs’million Shs’million Shs’million

At�January2005 1,815 2 2,685 388 4,176 9,066Transferofexcessdepreciation - - (226) - 226 -Deferredtaxonexcessdepreciation - - 37 - (37)Revaluationsurplusrealisedondisposalofproperty - - (120) - - (120)Deferredtaxonrevaluation - - 35 - - 35Deferredtaxonrevaluationsurplusrealisedondisposalofproperty - - 6 - (6) -Fairvaluegainonequityinvestments - - - 1,069 1,069Profitfortheyear - - - - 1,871 1,871Dividends: -interim,for2005declaredandpaid - - - - (1,923) (1,923)

At3�December2005 1,815 2 2,417 1,457 4,307 9,998

At1January2006 1,815 2 2,417 1,457 4,307 9,998Transferofexcessdepreciation - - (223) - 223 -Deferredtaxonexcessdepreciation - - 67 - (67) -Revaluationsurplus - - 724 - - 724Deferredtaxonrevaluationsurplus - - (242) - - (242)Fairvaluegainsonequityinvestments - - - 807 - 807Profitfortheyear - - - - 2,205 2,205Dividends: -interim,for2006declaredandpaid - - - - (1,452) (1,452)

At3�December2006 �,8�5 2 2,743 2,264 5,2�6 �2,040

CompanyStatementofChangesinEquityFORTHEYEARENDED31DECEMBER2006

Thereserveaccountsincludedinthestatementofchangesinequityareexplainedbelow:

• Thecapitalredemptionreserverepresentsfundssetasideforredemptionofpreferenceshares.• Therevaluationreserverepresentsthenetcumulativesurplusesarisingfromrevaluationsofproperty,

plantandequipment.Therevaluationreserveisnon-distributable.• The fairvaluereserverepresents thecumulativesurplusesordeficitsarising fromrestatementof

investmentsinequitysharesfromcosttofairvaluebasedonthemarketvaluesoftheequitiesatthebalancesheetdate.

• The retained earnings represent accumulated profits retained by the company after payment ofdividendstotheshareholders.

ConsolidatedStatementOfChangesInEquityFORTHEYEARENDED31DECEMBER2006

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[ 4 4 ] [ 4 5 ]

NotestotheFinancialStatementsFORTHEYEARENDED31DECEMBER2006

� ACCOUNTINGPOLICIES The financial statements are prepared in accordance with International Financial Reporting

Standards.

Theaccountingpoliciesadoptedinthepreparationofthesefinancialstatementsremainunchangedfromthepreviousyears.Thegroup’sprincipalaccountingpoliciesaresetoutbelow:

Adoptionofnewandrevisedinternationalfinancialreportingstandards Atthedateofauthorisationofthesefinancialstatements,thefollowingStandardsandInterpretations

wereinissuebutnotyeteffective:

IFRS7onFinancialInstrumentsDisclosures IFRS8onOperatingSegments IFRIC8-ScopeofIFRS2 IFRIC9ReassessmentofEmbeddedDerivatives IFRIC10InterimFinancialReportingandImpairment

Theadoptionofthesestandardsandinterpretations,wheneffective,willhavenomaterialimpactonthefinancialstatementsofthegroup.

(a)Basisofpreparation The financial statements are prepared under the historical cost convention as modified by the

revaluationofcertainproperty,plantandequipment,andthecarryingofavailable-for-saleinvestmentsatfairvalue.

(b)Consolidation Subsidiary undertakings, which are those companies in which the parent company, directly or

indirectly,hasaninterestofmorethanonehalfofthevotingrightsorotherwisehaspowertoexercisecontrolovertheoperations,areconsolidated.Subsidiariesareconsolidatedfromthedateonwhicheffective control is transferred to the Group and consolidation ceases from the date of disposal.All inter-company transactions, balances and unrealised gains on transactions between groupcompanies are eliminated; losses are also eliminated unless cost cannot be recovered. Wherenecessary,accountingpoliciesforsubsidiarieshavebeenchangedtoachieveconsistencywiththepoliciesadoptedbytheparentcompany.

Theincomestatementoftheforeignsubsidiaryistranslatedataverageexchangeratefortheyearandthebalancesheetattheyearendrate.Theresultingdifferencesarisingfromtranslationaredealtwithinthetranslationreserve.

AlistingofthesubsidiariesinthegroupisprovidedinNote18.

(c)Revenuerecognition Salesarerecognisedupondispatchforselfcollectionorelseondeliveryofproductstocustomers

orperformanceofservice.ThesalesarestatednetofVATanddiscounts,andaftereliminatingsaleswithintheGroup.

Interestincomeisrecognisedasitaccrues,unlessitscollectabilityisindoubt.Dividendsreceivablearerecognisedasincomeintheperiodinwhichtheyaredeclaredbyinvesteecompanies.

ConsolidatedCashFlowStatementFORTHEYEARENDED31DECEMBER2006

2006 2005 Notes Shs’million Shs’millionOPERATINGACTIVITIESCashgeneratedfromoperations 33 4,927 3,592Interestreceived 5 37 16Interestpaid 10 (47) (35)Taxationpaid 11(c) (1,213) (1,116)

Netcashgeneratedfromoperatingactivities 3,704 2,457

INVESTINGACTIVITIESPurchaseofproperty,plantandequipment,intangibleassetsandexpenditureoncapitalworkinprogress 17 (766) (512)Proceedsfromdisposalsofproperty,plantandequipment 2 86Dividendsreceived 5 25 -

Netcashusedininvestingactivities (739) (426)

FINANCINGACTIVITIESDividendspaidtogroupshareholders 13 (1,452) (2,055)Dividendspaidtominorityinterest - (83)

Netcashusedinfinancingactivities (1,452) (2,138)

INCREASE/(DECREASE)INCASHANDCASHEQUIVALENTS 1,513 (107)

MOVEMENTINCASHANDCASHEQUIVALENTSBalanceatstartofyear 503 632Increase/(decrease)fortheyear 1,513 (107)Exchangeadjustment 41 (22)

Balanceatendofyear 23 2,057 503

[ 4 6 ] [ 47 ]

1 ACCOUNTINGPOLICIES(Continued) Depreciation is calculated on the straight line basis to write down the cost of each item of

propertyplantandequipment,ortherevaluedamount,toitsresidualvalueoveritsexpectedusefullifeasfollows:

Buildings,plantandmachinery 14-22years Equipmentandmobileplant 3-10years Residentialbuildings 40years

Freeholdlandisnotdepreciatedasitisdeemedtohaveaninfinitelife.

Wherethecarryingamountofanassetisgreaterthanitsestimatedrecoverableamount,itiswrittendownimmediatelytoitsrecoverableamount.

(g)Leases Leasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyallrisks

andrewardsofownershiptotheGrouporthecompanyasthelessee.Allotherleasesareclassifiedasoperatingleases.

Rentalspayableunderoperatingleasesareamortisedonthestraightlinebasisoverthetermoftherelevantlease.

(h)Goodwill Goodwillarisingonconsolidationrepresentstheexcessofthecostofacquisitionoverthefairvalueof

thegroup’sshareofthenetassetsoftheacquiredsubsidiaryasatthedateofacquisition.Goodwillisinitiallyrecognisedasanassetatcostandissubsequentlymeasuredatcostlessanyaccumulatedimpairmentlosses.

Forthepurposeofimpairmenttesting,goodwillisallocatedtothecashgeneratingunitsexpectedtobenefitfromthesynergiesofthecombination.Cashgeneratingunitstowhichgoodwillhasbeenallocatedaretestedforimpairmentannually.Iftherecoverableamountofthecashgeneratingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedtoreducethecarryingamount of the goodwill allocated to the unit. An impairment loss recognised for goodwill is notreversedinasubsequentperiod.

(i) Inventories Inventoriesofconsumablesandsparepartsarestatedatweightedaveragecostlessprovisionfor

obsoleteandslowmovingitems.Allotherinventoriesarestatedatthelowerofcostandnetrealisablevalue.Costincludesdirectcostandappropriateoverheadsandisdeterminedonthefirst-infirst-outmethod.

(j) Tradereceivables Trade receivables are carried at amortised invoice amounts less an estimate made for doubtful

receivablesbasedonareviewofalloutstandingamountsattheyearend.Baddebtsarewrittenoffintheyearinwhichtheyareidentifiedasirrecoverable.

(k) Employeeentitlements Employeeentitlementstolongserviceawardsarerecognisedwhentheyaccruetoemployees.A

provisionismadefortheestimatedliabilityforlong-serviceawardsasaresultofservicesrenderedbyemployeesuptothebalancesheetdate.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

1 ACCOUNTINGPOLICIES(Continued)(d)Translationofforeigncurrencies TransactionsinforeigncurrenciesduringtheyearareconvertedintoKenyaShillingsatratesrulingat

thetransactiondates.AssetsandliabilitiesatthebalancesheetdatewhichareexpressedinforeigncurrenciesaretranslatedintoKenyaShillingsatratesrulingatthebalancesheetdate.Theresultingdifferences fromconversionand translationaredealtwith in the incomestatement in theyear inwhichtheyarise.

(e)Investments Thecompanyhasclassifieditsinvestmentsintoavailable-for-saleinvestmentsandoriginatedloans.

Managementdeterminestheappropriateclassificationof its investmentsat thetimeofpurchaseandre-evaluatessuchdesignationsonaregularbasisasfollows:

(i) Investmentsintendedtobeheldforanindefiniteperiodoftime,butwhichmaybesoldinresponseto needs for liquidity or changes in interest rates, are classified as available-for-sale. Theseinvestmentsareincludedinnon-currentassetsunlessmanagementhastheexpressintentionofholdingtheinvestmentforlessthan12monthsfromthebalancesheetdateorunlesstheywillneedtobesoldtoraiseoperatingcapital.

(ii) Non-equity investments purchased in the primary market (i.e. directly from the issuers) areclassifiedasoriginatedloans.

Allpurchasesandsalesofinvestmentsareinitiallyrecognisedatcostonthetradedate,whichisthedateacompanywithinthegroupcommitstopurchaseorselltheasset.Costofpurchaseincludestransactioncosts.

Available-for-saleinvestmentsaresubsequentlycarriedatfairvalue,whilstoriginatedloansarecarriedatamortisedcostusingtheeffectiveyieldmethod.

Unrealisedgainsandlossesarisingfromchangesinthefairvalueofavailable-for-saleinvestmentsaredealtwithinaseparatereserveinthestatementofchangesinequity.Ondisposal,theentirerealisedgainorlossisrecognisedintheincomestatement.

(f) Property,plantandequipment All property, plant and equipment are initially recorded at cost. Freehold land and buildings are

subsequentlyrestatedtorevaluedamounts,basedonvaluationsbyindependentexternalvaluers,lesssubsequentdepreciation.Plantandmachineryisrevaluedinternallyonthebasisofavaluationmodelprescribedbyengineersandconsultantsatthetechnicalcentreoftheultimateshareholder.Thevaluationsarecarriedoutapproximatelyonceeveryfiveyears. Allotherproperty,plantandequipmentarestatedathistoricalcostlessdepreciation.

Increasesinthecarryingamountarisingonrevaluationarecreditedtoarevaluationreserve.Decreasesthatoffsetpreviousincreasesofthesameassetarechargedagainsttherelatedrevaluationreserve;all other decreases are charged to the income statement. Each year the difference betweendepreciation based on the revalued carrying amount of an asset (the depreciation charged totheincomestatement)anddepreciationbasedontheasset’soriginalcostistransferredfromtherevaluationreservetoretainedearnings.

[ 4 8 ] [ 4 9 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

1 ACCOUNTINGPOLICIES(Continued) Any impairment losses are recognised as an expense immediately. Where an impairment loss

subsequentlyreverses,thecarryingamountoftheassetisincreasedtotherevisedestimateofitsrecoverableamount.Areversalofanimpairmentlossisrecognisedasincomeimmediately.

(q)Comparatives Wherenecessary,comparativefigureshavebeenadjustedtoconformwithchangesinpresentation

inthecurrentyear.

2 Criticaljudgementsinapplyingtheentity’saccountingpolicies In the process of applying the groups accounting policies, management has made estimates and

assumptionsthataffect thereportedamountsofassetsand liabilitieswithinthenextfinancialyear.Estimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircum-stances.Thekeyareasofjudgementinapplyingthegroup’saccountingpolicyaredealtwithbelow:

Inventoriesprovision Managementmakesprovisionsforsparesthatexceedthesetmaximumlevelbasedontheusageof

theinventorybycomparingitemsinstockwiththerecentpastconsumption.Themaximumlevelisdeterminedbytakingintoconsiderationtheleadtime,thespecifiedorderquantity,thesourceofthesparesandusagerate.

Impairmentlosses Ateachbalancesheetdate,thegroupreviewsthecarryingamountsof itstangibleandintangible

assetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss. If any such indication exists, the recoverable amount of the asset is estimated in order todeterminetheextentoftheimpairmentloss.Whereit isnotpossibletoestimatetherecoverableamountofanindividualasset,thegroupestimatestherecoverableamountofthecashgeneratingunittowhichtheassetbelongs.

Any impairment losses are recognised as an expense immediately. Where an impairment losssubsequently reverses, the carrying amount of the asset is increased to the revised estimate ofitsrecoverableamount. Areversalofan impairment loss,otherthanthatarisingfromgoodwill, isrecognisedasincomeimmediately.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

1 ACCOUNTINGPOLICIES(Continued) The estimated monetary liability for employees’ accrued leave entitlements at the balance sheet

dateisrecognisedasanexpenseaccrual.

(l) Taxation Currenttaxationisprovidedonthebasisoftheresultsfortheyear,asshowninthefinancialstatements,

adjustedinaccordancewithtaxlegislation.

Deferredtaxisprovided,usingtheliabilitymethod,foralltemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingvaluesforfinancialreportingpurposes.

Deferredtaxassetsareonlyrecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

(m)Retirementbenefitsobligations Thegroupoperatesadefinedcontributionpensionschemeforeligiblenon-unionisableemployees.

Theschemeisadministeredbyanindependentinvestmentmanagementcompanyandisfundedbycontributionsfromthegroupcompaniesandemployees.TheGroupalsomakescontributionstothestatutorydefinedcontributionschemesinthetwocountrieswhereoperationsarebased.

Unionisablestaffwhoretireonattainingtheageof55yearsoraredeclaredredundantareeligibleforaservicegratuitybasedoneachemployee’slengthofservicewiththegroup,asprovidedforinthetradeunionagreement.

Thegroup’sobligationstothestaffretirementbenefitsplansarechargedtotheincomestatementastheyfalldueorinthecaseofservicegratuityastheyaccruetoeachemployee.

(n)Restructuringprovisions Restructuringprovisionsmainlycompriseemployeeterminationpaymentsandarerecognisedinthe

periodinwhichthecompanybecomeslegallyorconstructivelycommittedtopayment.Employeeterminationbenefitsarerecognisedonlyaftereitheranagreementisinplacewiththeappropriateemployeerepresentativesspecifyingthetermsofredundancyandnumbersofemployeesaffected,orafterindividualemployeeshavebeenadvisedofthespecificterms.Costsrelatedtotheongoingactivitiesofthecompanyarenotprovidedforinadvance.

(o)Dividendspayable Dividendspayableonordinarysharesarechargedtoretainedearningsintheperiodinwhichthey

aredeclared.Proposeddividendsarenotaccruedforuntilratifiedinanannualgeneralmeeting.

(p)Impairment Ateachbalancesheetdate,thegroupreviewsthecarryingamountsof itstangibleandintangible

assetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss. If any such indication exists, the recoverable amount of the asset is estimated in order todeterminetheextentoftheimpairmentloss.Whereit isnotpossibletoestimatetherecoverableamountofanindividualasset,thegroupestimatestherecoverableamountofthecashgeneratingunittowhichtheassetbelongs.

[ 5 0 ] [ 5 � ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

Group Group 2006 2005 Shs’million Shs’million

4 OtherOperatingIncome Profitondisposalofproperty,plantandequipment 2 27 Miscellaneousincome 171 70 �73 97

5 InvestmentRevenue Interestincome 37 16 Dividendsincome 25 28

62 44

6 CostOfRawMaterialsAndConsumables Rawmaterialsandpackaging 4,647 4,456 Fuelcosts 1,548 1,431 Repairsandmaintenance 858 816 Electricity 1,211 929 8,264 7,6327 StaffCosts Thefollowingitemsareincludedwithinstaffcosts: Salariesandwages 1,148 1,046 Staffwelfarecosts 286 263 Retirementbenefitscosts 147 139

�,58� �,448 Thenumberofpersonsemployedbythegroup attheyearendwas: Numbers Numbers Fulltime 848 838 Casualsandcontractors 211 184 �,059 �,022

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

3 SegmentInformation Thegroupisorganisedonaregionalbasisintotwomaingeographicalsegments: • Kenya • Uganda

Bothgeographicalsegmentsaremainlyinvolvedinthemanufactureandsaleofcement.Hencetheprimaryreportingformatbelowistheonlyonepresented.

Kenya Uganda Group Yearended3�December2006 Shs’million Shs’million Shs’million Revenues 10,847 5,641 16,488 Operatingprofit 3,269 7�8 3,987

Segmentassets 14,579 3,717 18,296 Non-segmentassets 217

Totalassets �8,5�3

Segmentliabilities 3,797 960 4,757 Non-segmentliabilities 20

Totalliabilities 4,777

Kenya Uganda Group Shs’million Shs’million Shs’million Yearended3�December2005 Revenues 8,784 5,609 14,393 Operatingprofit 2,554 780 3,334

Segmentassets 11,700 3,415 15,115 Non-segmentassets 217

Totalassets �5,332

Segmentliabilities 2,864 1,167 4,031 Non-segmentliabilities 20

Totalliabilities 4,05�

Segmentassetsconsistprimarilyofproperty,plantandequipment, intangibleassets, inventories,receivables and operating cash, and mainly exclude investments. Segment liabilities compriseoperatingliabilitiesandexcludeitemssuchasdividendspayableandcertaincorporateborrowings.

Sales revenue reporting is based on the country in which the production facility is located. Totalassetsareshownbythegeographicalareainwhichtheassetsarelocated.

[ 5 2 ] [ 5 3 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

Group Group 2006 200511 Tax(Continued) Shs’million Shs’million(b)ReconciliationofExpectedTaxBased onAccountingProfittoTaxCharge Profitbeforetax 3,838 3,147

Taxcalculatedatthedomesticratesapplicableof30% 1,152 944 Taxeffectof: Incomenotsubjecttotax (8) (15) Expensesnotdeductiblefortaxpurposes 30 32 Underprovisionofcurrenttaxinprioryears 7 - Underprovisionofdeferredtaxinprioryears (142) 2 Overseastaxchargedondividends - 29

Actualtaxcharge �,039 992

(c)TaxMovement Atbeginningoftheyear: Payable 108 161 Taxationcharge 1,269 1,063 Taxationpaid (1,213) (1,116) Atendoftheyear Nettaxpayable �64 �08

Comprising: Payable 167 108 Recoverable (3) -

�64 �08

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

Group Group 2006 2005 Shs’million Shs’million8 OtherOperatingCosts Distributioncosts 653 612 Professionalfees 368 327 Telecommunicationcosts 164 121 Transportandtravellingcosts 176 149 Promotion,marketinganddonationcosts 152 144 Rentals,securityandbusinesslicences 215 202 Otherofficecosts 231 221 Othercosts 94 21 2,053 �,797

9 OperatingProfit Theoperatingprofitisarrivedataftercharging: Staffcosts(note7) 1,581 1,470 Depreciation(note14) 646 668 Amortisationofintangibleassets(note16) 27 29 Directors’emoluments: -Fees 6 6 -Otheremoluments 86 88 Auditors’remuneration 7 8

�0 NetFinanceCosts Netforeignexchangelosses (102) (152) Interestexpense (47) (35)

(�49) (�87)

�� Tax(a)TaxCharge Currenttaxationbasedontheadjustedprofitat30% 1,262 1,034 Underprovisionofcurrenttaxinprioryears 7 - Overseastaxchargedondividendsreceivable - 29

Totalcurrenttaxcharge 1,269 1,063

Deferredtaxcredit(note26) (372) (73) Underprovisionofdeferredtaxinprioryears(note26) 142 2

Netdeferredtaxcredit (230) (71) Totaltaxcharge �,039 992

[ 5 4 ] [ 5 5 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

�4 Property,PlantandEquipment(a)Group Landand Office

residential Plantand equipment Mobile

buildings machinery andtools plant Total

Shs’million Shs’million Shs’million Shs’million Shs’million

Costorvaluation At1January2005 1,345 10,525 562 938 13,370

Exchangeadjustment* (76) (395) (24) (25) (520) Additions - 364 68 10 442 Disposals (48) (12) (224) (268) (552) Impairment - (187) - - (187)

At31December2005 1,221 10,295 382 655 12,553

At1January2006 1,221 10,295 382 655 12,553 Exchangeadjustment* 7 41 2 6 56 Additions - 347 60 64 471 Disposals - (6) - (17) (23) Revaluation (91) 9,214 - - 9,123

At31December2006 1,137 19,891 444 708 22,180 Depreciation 1January2005 176 2,074 430 814 3,494 Exchangeadjustment* (22) (71) (16) (20) (129) Chargefortheyear 31 541 50 46 668 Ondisposals (11) (4) (214) (264) (493) Impairment - (67) - - (67) At31December2005 174 2,473 250 576 3,473

1January2006 174 2,473 250 576 3,473 Exchangeadjustment* 3 7 2 2 14 Chargefortheyear 26 531 53 36 646 Ondisposals - (5) - (17) (22) Revaluation (13) 8,687 - - 8,674

At31December2006 190 11,693 305 597 12,785

Netbookvalue At3�December2006 947 8,�98 �39 ��� 9,395

At3�December2005 �,047 7,822 �32 79 9,080

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

�2 EarningsPerShare Basicanddilutedearningspershareiscalculatedbydividingthenetprofitattributabletosharehold-

ersbytheweightedaveragenumberofordinarysharesinissueduringtheyear,asshownbelow: 2006 2005 Netprofitattributabletoshareholders(Shsmillion) 2,614 2,004 Weightedaveragenumberofordinaryshares(million) 363 363 Basicanddilutedearningspershare(Shs) 7.20 5.52

Therewerenopotentiallydilutivesharesoutstandingat31December2006and31December2005.Therewerenodiscontinuedoperations.

Group Group 2006 2005�3 RetainedEarningsandDividends Shs’million Shs’million Balanceatbeginningofyear 4,922 4,368 Netprofitattributabletomembersoftheparententity 2,614 2,004 Paymentofdividends (1,452) (1,923) Transferfrompropertiesrevaluationreserve 171 201 Translation(loss)/gain (214) 272

6,04� 4,922

On13April2006,afirstinterimdividendofShs2persharerepresentinganamountofShs726millon(2005:Shs653million)waspaid.ThesecondinterimdividendofShs2persharetotallingtoShs726million(2005–1,270million)waspaidon20September2006.

In respectof thecurrentyear, thedirectorspropose thata finaldividendofShs 1.50pershare,representing a total sum of Shs 545 million, be paid. This dividend is subject to approval byshareholdersattheAnnualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.

Paymentofdividendsissubjecttowithholdingtaxatarateof10%fornon-residentshareholdersand5%forresidentshareholders.

[ 5 6 ] [ 5 7 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

14 Property,PlantandEquipment(Continued) The Group’s land, buildings, plant, and machinery were revalued on 1 January 2006. Land and

buildingswerevaluedby independentvaluers. Thevaluationofplantandmachinerywascarriedoutinternallybasedonavaluationmodelprescribedbyengineersandconsultantsatthetechnicalcentreoftheultimateshareholder.

Landandbuildingswererevaluedonthebasisofopenmarketvalue. Plantandmachinerywererevaluedonadepreciatedreplacementcostbasis.

Plantandmachinery,officeequipmentandmobileplantwithacostofShs700million(2005:Shs578million)werefullydepreciatedasat31December2006.ThenormalannualdepreciationchargeontheseassetswouldhavebeenShs146million(2005:Shs123million).

Iftheproperty,plantandequipmentwerestatedonthehistoricalcostbasis,theamountswouldbeasfollows:

Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Cost 9,140 8,194 5,970 5,850 Accumulateddepreciation (3,674) (3,170) (2,757) (2,528)

Netbookvalue 5,466 5,024 3,2�3 3,322

�5 OperatingLeaseRentals

Netcarryingamountat1January 9 11 1 1 Exchangeadjustment - (2) - - Balanceasat3�December 9 9 � �

Theoperatingleaserentalsrelatetoleaseholdland,mainlyrawmaterialsquarrieslocatedinMombasaandNairobiinKenyaandKaseseinUganda.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

14 Property,PlantandEquipment(Continued) *The exchange adjustment arises from the translation of the values relating to assets held by a

subsidiary,HimcemHoldingsLimited. Plantandmachinery,officeequipmentandmobileplantwithacostofShs935million(2005:Shs662

million)werefullydepreciatedasat31December2006.ThenormalannualdepreciationchargeontheseassetswouldhavebeenShs192million(2005:Shs148million).

Landandresidentialbuildings includefreehold landworthShs443million(2005:Shs527million)locatedinMombasaandlimestonedepositsworthShs115million(2005:Shs121million)inKasese,Uganda.

b) Company Landand Office

residential Plantand equipment Mobile

buildings machinery andtools plant Total

Shs’million Shs’million Shs’million Shs’million Shs’million

Costorvaluation At1January2005 807 7,937 404 757 9,905 Additions - 125 42 - 167 Disposals (32) (4) (209) (255) (500) Revaluation - (187) - - (187)

At31December2005 775 7,871 237 502 9,385

At1January2006 775 7,871 237 502 9,385 Additions - 130 17 - 147 Disposals - - - (17) (17) Revaluation (60) 9,458 - - 9,398

At31December2006 715 17,459 254 485 18,913

Depreciation At1January2005 30 1,651 336 693 2,710

Chargefortheyear 8 422 26 28 484 Ondisposals (3) (1) (208) (251) (463) Revaluation - (67) - - (67)

At31December2005 35 2,005 154 470 2,664

At1January2006 35 2005 154 470 2,664 Chargefortheyear 8 422 30 18 478 Ondisposals - - - (17) (17) Revaluation (13) 8,687 - - 8,674

At31December2006 30 11,114 184 471 11,799 Netbookvalue

At3�December2006 685 6,345 70 �4 7,��4

At3�December2005 740 5,866 83 32 6,72�

[ 5 8 ] [ 5 9 ]

�6 IntangibleAssets–ComputerSoftware Group Company Shs’million Shs’million Cost At1January2005 319 235 Additions 53 52 Disposal (3) (2) Exchangeadjustment (13) -

At31December2005 356 285

At1January2006 356 285 Additions 12 11 Exchangeadjustment 3 -

At31December2006 371 296

Amortisation At1January2005 270 206 Chargefortheyear 29 19 Disposal (2) (3) ExchangeAdjustment (13) -

At31December2005 284 222

At1January2006 284 222 Chargefortheyear 27 20 ExchangeAdjustment 4 -

At31December2006 315 242

NETBOOKVALUE At3�December2006 56 54

At3�December2005 72 63

�7 CapitalWorkinProgress Capitalworkinprogressrelatesprimarilytoplantmodificationsinprogressatyearend.Nodepreciation

hasbeenchargedonthisexpenditure. Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

At1January 350 347 182 254 Additions 766 512 414 148 Transferstopropertyplantandequipment (471) (442) (147) (167) Transferstointangibleassets (12) (53) (11) (53) ExchangeAdjustment 10 (14) - -

At3�December 643 350 438 �82

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

�8 InvestmentsinSubsidiaries Detailsofthesubsidiariesinthegroupareprovidedbelow:

Group Group Company Company

Holding 2006 2005 2006 2005

% Shs’million Shs’million Shs’million Shs’million

SimbariteLimited 100 - - 53 53 Less:impairmentprovision - - (22) (22)

- 31 31

BamburiSpecialProductsLtd 100 - - 20 20 BamburiCementLtd,Uganda 100 - - - HimcemHoldingsLtd, ChannelIslands 100 - - 911 911 LafargeEcosystemLtd 100 - - 5 5 DianiEstateLtd 100 1 1 1 1 WhistlingPinesLtd 100 - - - - KenyaCementMarketingLtd 50 - - - - PortlandMinesLtd 50 - - - - SerujiManagementLtd, ChannelIslands 100 - - - -

� � 968 968

Exceptwhereindicatedabove,thesubsidiariesareincorporatedinKenya.

Himcem Holdings Limited has a 70% holding in its subsidiary, Hima Cement Limited, a companyincorporatedinUganda.

�9 OtherEquityInvestments TheserepresentAvailable-For-Saleinvestments,whicharerestatedtofairvalueannuallyattheclose

ofbusinesson31December.Forinvestmentstradedinactivemarkets,fairvalueisdeterminedbyreferencetoStockExchangequotedbidprices.Forotherinvestments,fairvalueisdeterminedbyreferencetothecurrentmarketforsimilarinstrumentsorbyreferencetothediscountedcashflowsoftheunderlyingnetassets.

Themarketvalueofthequotedequitysharesat31December2006wasShs2,610million (2005:Shs1,803million).

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

[ 6 0 ] [ 6 � ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

22 TradeAndOtherReceivables Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Tradereceivables 499 542 244 316 Prepaymentsanddeposits 97 42 76 24 Otherreceivables 219 153 189 104 Receivablesfromrelatedcompanies(Note34) 322 116 873 593

�,�37 853 �,382 �,037

23 CashandCashEquivalents Cashatbankandonhand 937 556 658 316 Shorttermbankdeposits 1,120 364 805 364

2,057 920 �,463 680

Theweightedaverageeffectiveinterestrateearnedonshort-termbankandrelatedpartydepositsduringtheyearwas3.5%(2005-2.5%).Theshort-termdepositsmaturewithinthreemonths.

For thepurposesof thecashflowstatement,cashandcashequivalentscomprisecash inhand,depositsheldatcallwithbanksandinvestmentsinmoneymarketinstruments,netofbankoverdrafts.Inthebalancesheet,bankoverdraftsareincludedinborrowings,undercurrentliabilities.Theyearendcashandcashequivalentscomprisethefollowing:

Company Company

2006 2005

Shs’million Shs’million

Deposits,bankbalancesandcash(asabove) 2,057 920 Bankoverdrafts(note29) - (417)

2,057 503

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

19 OtherEquityInvestments(Continued) Themovementinavailable-for-saleinvestmentsisasfollows:

GroupandCompany 2006 2005

Shs’million Shs’million

At1January 1,803 734 Fairvaluegain 807 1,069

At3�December 2,6�0 �,803

ThefairvaluegainsandlossesonAvailable-For-Saleinvestmentsare dealtwithinaseparatereserveinthestatementofchangesinequity.

20 Goodwill Cost Atbeginningoftheyear 217 503 Eliminationofaccumulatedamortisation - (286)

217 217

Amortisation At1January - 286 Eliminationofaccumulatedamortisation - (286)

At31December - -

Netcarryingvalue 2�7 2�7

Thegoodwillarosefromtheacquisitionofasubsidiary,HimaCementLimited, in1999.Duringthecurrentfinancialyear,theGroupassessedtherecoverableamountofgoodwillanddeterminedthatthegoodwillwasnotimpaired.

2� Inventories Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Rawmaterials 410 198 326 186 Consumablesandspareparts 1,015 1,107 720 815 Finishedgoods 652 487 515 257 Fuelandpackaging 307 233 234 144 Other 1 2 - 1

2,385 2,027 �,795 �,403

[ 6 2 ] [ 6 3 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

25 Reserves(Continued) Group Group

2006 2005

Shs’million Shs’million

Translationreserve Balanceatbeginningofyear (338) 183 Translationofforeignoperations 268 (521)

Balanceatendofyear (70) (338)

ExchangedifferencesrelatingtothetranslationfromthefunctionalcurrenciesoftheGroup’sforeignsubsidiaryintotheKenyaShilling,whichisthefunctionalcurrencyofthegrouparebroughttoaccountbyentriesmadedirectlytotheforeigncurrencytranslationreserve.

Capitalredemptionreserve Thecapitalredemptionreserverepresentsfundssetasideforredemptionofpreferenceshares.

26 DeferredTax Deferredtaxesarecalculated,infull,onalltemporarydifferencesundertheliabilitymethodusinga

principaltaxrateof30%(2005:30%).Themakeupofthedeferredtaxliabilitiesattheyearendandthemovementonthedeferredtaxaccountduringtheyeararepresentedbelow:

Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Acceleratedcapitalallowanceson property,plantandequipment 939 940 545 556 Exchangedifferences (33) (13) (23) (12) Provisions (189) (176) (127) (114) Revaluationsurpluses 1,259 1,269 1,147 972 Othertemporarydifferences (25) (88) - -

�,95� �,932 �,542 �,402

Themovementonthedeferredtaxaccount duringtheyearisasfollows:

At1January 1,932 2,134 1,402 1,545 Incomestatementcredit fortheyear(note11) (372) (71) (102) (143) PriorYearsunderprovision(Note11) 142 - - - Revaluation/impairmentofassets 242 (35) 242 - Exchangedifferences 7 (96) - -

At3�December �,95� �,932 �,542 �,402

Inaddition,deferredtaxamountingtoShs73millioninrespectofthegroup(2005:Shs60million)andShs 67million inrespectof thecompany (2005:Shs37million)hasbeentransferredwithinshareholders’equityfromretainedearningstorevaluationreserves.Thisrepresentsdeferredtaxonthedifferencebetweentheactualdepreciationchargeontheproperty,plantandequipmentandtheequivalentdepreciationchargebasedonthehistoricalcostoftheproperty,plantandequipment.

24 ShareCapital GroupandCompany 2006 2005

Shs’million Shs’million

Authorised 366,600,000ordinarysharesofSh5each 1,833 1,833 100,0007%cumulativeredeemablepreference sharesofSh20each 2 2

1,835 1,835

Issuedandfullypaid 362,959,275ordinarysharesofSh5each 1,815 1,815

25 Reserves Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Revaluationreserve Balanceatbeginningofyear 2,821 3,107 2,417 2,685 Increasearisingonrevaluation ofproperties 538 - 724 - Deferredtaxliabilityon revaluationsurplus (187) - (242) - Revaluationsurplusrealisedon disposalofproperty - (85) - (85) Exchangeloss (36) - - - Transferredtoretainedearnings (171) (201) (156) (183)

Balanceatendofyear 2,965 2,82� 2,743 2,4�7

The revaluation reserve arises on the revaluation of land and buildings. Where revalued land orbuildingsaresold, theportionof thepropertiesrevaluationreservethat relatesto thatasset,andiseffectivelyrealised, is transferreddirectly toretainedprofits.Therevaluationsurplusesarenon-distributable.

GroupandCompany 2006 2005

Shs’million Shs’million

Fairvaluesurplus Balanceatbeginningofyear 1,457 388 Increasearisingonrevaluationoffinancialassets 807 1,069

Balanceatendofyear 2,264 �,457

Thefairvaluesurplusarisesontherevaluationofavailable-for-salefinancialassets.Wherearevaluedfinancialassetissold,theportionofthereservethatrelatestothatfinancialasset,andiseffectivelyrealised,isrecognisedinprofitorloss.Wherearevaluedfinancialassetisimpaired,theportionofthereservethatrelatestothatfinancialassetisrecognisedinprofitorlossduringtheyear.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

[ 6 4 ] [ 6 5 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

29 Borrowings(Continued) Theweightedaverageinterestratesincurredonborrowingfacilitiesduringtheyearwere:

Group Group Company Company

2006 2005 2006 2005

-bankoverdrafts–localcurrencies 7.9% 16% - 12.75% -bankloans–localcurrencies 7.8% 8.5% - 8.5%

Borrowingfacilities Thegrouphasthefollowingundrawnborrowingfacilitieswithit’sbankers:

Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Floatingrate -expiringwithinoneyear 937 746 292 617

Theborrowingfacilitiesareannualfacilitiesthatweresubjecttoreviewatvariousdatesduringtheyear2006.Theyconsistofoverdrafts,lettersofcreditandguarantees.

30UnclaimedDividends GroupandCompany 2006 2005

Shs’million Shs’million

Atstartofyear 20 152 Declaredandpaidintheyear 1,452 1,923 Dividendsclaimed (1,452) (2,055)

Atendofyear 20 20

3� ContingentLiabilities Guaranteestothegroup’sbankersinfavourofstaff 78 89 Bondsissuedbythegroup’sbankersinfavour ofKenyaRevenueAuthority 954 482 TaxdemandbyUgandaRevenueAuthority - 106 Bondsissuedbythegroup’sbankersinfavourofsuppliers 138 91 InsurancebondissuedtoUgandaRevenueAuthority 100 100

�,270 868

Theguaranteesissuedbythegroup’sbankersinfavouroftheKenyaRevenueAuthorityarepartofthebankfacilitiesdisclosedinnote29aboveandareissuedinthenormalcourseofbusiness.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

27 ProvisionsforLiabilitiesandCharges Group

Restructuring, Long

siterestoration Service service 2006 2005

&litigation gratuity awards Total Total

Shs’million Shs’million Shs’million Shs’million Shs’million

Atstartofyear 43 317 46 406 306 Additionalprovisions 7 58 8 73 126 Utilisedduringtheyear - (22) (5) (27) (26)

Atendofyear 50 353 49 452 406 Less:currentportion (50) (34) - (84) (64) Noncurrentportion - 3�9 49 368 342

Company

Atstartofyear 42 269 46 357 259 Additionalprovisions 6 43 9 58 124 Utilisedduringtheyear - (8) (6) (14) (26)

Atendofyear 48 304 49 401 357 Less:Currentportion (48) (21) - (69) (61)

Non-currentportion - 283 49 332 296

28 TradeandOtherPayables Group Group Company Company

2006 2005 2006 2005

Shs’million Shs’million Shs’million Shs’million

Tradepayables 1,415 473 1,209 435 Accruedexpenses 453 557 389 451 Otherpayables 114 138 41 65 Amountsduetorelatedcompanies(Note34) 205 - 30 36

2,187 1,168 1,669 987

29 Borrowings Theborrowingsaremadeupasfollows:

Bankoverdraft - 4�7 - -

[ 6 6 ] [ 6 7 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

34RelatedParties TheultimateparentofthegroupisLafargeSA,incorporatedinFrance.Thereareothercompanieswhich

arerelatedtoBamburiCementLimitedthroughcommonshareholdingsorcommondirectorships.

In thenormalcourseofbusinessthegroupsellscementtoanassociateof itsultimateshare-holder.Thesesalesrepresentedapproximately13%ofthegroup’ssalesvolumeduringtheyear(2005:12%).

Thecompanyreceivestechnicalassistancefromthemajorityshareholder,whichispaidforunderafiveyearagreement.

Thefollowingtransactionswerecarriedoutwithrelatedpartiesduringtheyear.

Group 2006 2005

Shs’million Shs’million

Salesofgoodsandservices 1,206 417 Purchasesofgoodsandservices 292 153

Salesandpurchasesto/fromrelatedpartiesweremadeontermsandconditionssimilartothoseofferedtomajorcustomersoravailablefrommajorsuppliers.

Outstanding balances arising from sale and purchase of goods and services to/from relatedcompaniesattheyearend.

Group Group Company Company

2006 2005 2006 2005

Receivablesfromrelatedparties 322 116 319 114 Receivablesfromsubsidiaries - - 554 479

322 ��6 873 593

Payablestorelatedparties 205 - 30 36

Shorttermcashdeposits 897 289 582 289

The short term deposits are held with the principal shareholder’s central treasury department attermssimilartothoseofferedbyotherfinancialinstitutions.

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

32 CapitalCommitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial

statementsisasfollows:

Group 2006 2005

Shs’million Shs’million

Commitmentsfortheacquisitionofproperty,plantandequipment 72 35

Capitalexpenditureauthorisedbutnotcontractedforatthebalance sheetdate:

Commitmentsfortheacquisitionofproperty,plantandequipment 8,973 5,288

33CashGeneratedfromOperations Reconciliationofprofitbeforetaxtocashgeneratedfromoperations:

Profitbeforetax 3,838 3,147

Adjustmentsfor: Depreciation(note14) 646 668 Amortisationofintangibleassets(note16) 27 29 Profitondisposalofproperty,plantandequipment (1) (27) Profitondisposalofintangibleassets - (1) Interestincome(note5) (37) (16) Dividendincome(note5) (25) (28) Interestexpense(note10) 47 35

4,495 3,807 Changesinworkingcapitalbalances Increaseininventories (348) (131) (Increase)/decreaseintradeandotherreceivables (280) 8 Increaseinprovisionsforliabilitiesandcharges 45 97 Increase/(decrease)tradeandotherpayables 1,015 (189)

Cashgeneratedfromoperations 4,927 3,592

Theexchangemovementsattributabletomovementofworking capitalareasfollows:

Inventories 10 (17) Tradeandotherreceivables 4 (5) Tradeandotherpayables 4 (7) Provisionsforliabilitiesandcharges (1) 3

�7 (26)

[ 6 8 ] [ 6 9 ]

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

NotestotheFinancialStatements(Continued)FORTHEYEARENDED31DECEMBER2006

34 RelatedParties(Continued)

Keymanagementcompensation Theremunerationofdirectorsandothermembersofkeymanagementduringtheyearwere

asfollows:

Group 2006 2005

Shs’million Shs’million

Salariesandothershort-termemploymentbenefits 86 84 Post-employmentbenefits 6 4

92 88

Directors’remuneration Feesforservicesasadirector 6 6 Otheremoluments 92 88

98 94

35OperatingLeaseCommitments Leasepaymentscommittedunderoperatingleases:

Notlaterthan1year 55 55 Laterthan1yearbutnotlaterthan5years 63 35

118 90

36FinancialInstruments Attheyearendthegrouphadanumberofoffbalancesheetfinancialinstruments.Theseare:

• ForwardcontractsenteredintowithfinancialinstitutionstopurchaseUnitedStatesdollarsforwardagainsttheUgandashillings.At31December2006,thecompanyhadfour forwardcontractstotalingUS$4.6m (UnitedStatesdollars fourmillionandsixhundred thousand)ofmaturitiesrangingbetween74daysand163daysandat ratesUGX/US$ (UgandaShilling to theUnitedStates dollar) of between UGX1818/1 US$ to 1837/1US$. The forward contracts were enteredintoashedgesagainstHimaCementLimited’sfuturepaymentsdenominatedinUnitedStatesDollarsfromMarch2007toJune2007.

• ThegrouphadenteredintoafuelSWAPcontractwithfinancialinstitutions,throughthetreasurydepartmentof itsultimateshareholder, tofix the fuelPlattpriceatUS$331.5perMT, for935MTpermonthfromJanuary2007toDecember2007.ThefuelSWAPcontractwasenteredintoasahedgeagainstadversefuelpricesforthecompanyfueloilpurchasesusedinthecementmanufactureprocess inallplants i.e.Hima,NairobiandMombasaplants.Thehedgecovered60%ofestimatedpurchasesoffueloilin2007.

37 CountryofIncorporation ThecompanyisincorporatedanddomiciledinKenyaundertheCompaniesAct.

38Currency Theindividualfinancialstatementsofeachgroupentityarepresentedinthecurrencyoftheprimary

economicenvironmentinwhichtheentityoperates(itsfunctionalcurrency).Forthepurposeoftheconsolidatedfinancialstatements,theresultsandfinancialpositionofeachentityarepresentedinKenyaShillingsmillion(Shs’million),whichisthefunctionalcurrencyofthegroup,andthepresentationcurrencyfortheconsolidatedfinancialstatements.

[ 7 0 ] [ 7 � ]

ProxyForm

TheSecretary,BamburiCementLtd.CorporateOffices6thfloor,Kenya-ReTowers,UpperHill,offRagatiRoadPOBox10921,00100NAIROBI,KENYA.

I/We

Of

amemberofBamburiCementLimitedherebyappoint

of

orinhis/herplaceTHECHAIRMANOFTHEMEETINGasmy/ourproxyand/orrepresentative,tovoteathis/herdiscretionforme/usandonmy/ourbehalfattheAnnualGeneralmeeting,tobeheldonWednesday30thMay2007andateveryadjournmentthereof.

ASWITNESSmy/ourhand(s)this dayof 2007.

(Usualsignature)Proxyformsmustreachtheregisteredofficeofthecompanyby5.00pmMonday28thMay,2007.

Notes

Staplehere Staplehere

ProxyFormFORTHEYEARENDED31DECEMBER2006

2Foldhere

2Foldhere

Affixstamp

TheSecretary, BamburiCementLtd. CorporateOffices 6thfloor,Kenya-ReTowers, UpperHill,offRagatiRoad POBox10921,00100 NAIROBI,KENYA.