6 JAN 2022

Kakuzi Issues A Profit Warning On The Back Of Lower Avocado Production Last Year

Kakuzi Plc has issued a procedural profit warning notice with anticipated lower full-year earnings due to lower production and export of avocado fruits.

The notice, which has been issued as per the Capital Markets regulatory requirements, confirms that the firm's earnings will be at least 25% lower than that reported for the year ended 31st December 2020.

According to Kakuzi Plc Chairman Mr Nicholas Ng'ang'a, the firm's earnings have been affected by lower yields as the productive avocado orchards had entered their bi-annual production cycle resulting in lower volumes than in 2020.

Kakuzi’s order book from the international markets, he disclosed was far in excess of the farm yield volumes.

The firm's Board, he said, had tasked the management team to accelerate the execution of a product and markets diversification strategy, including enhanced domestic sales. The strategy aims to mitigate the global market volatility and overreliance on the flagship export product.

Avocado Bi-annual production cycle

Alternate (biennial) and irregular bearing are encoded in the avocado genome. The growth and fruiting habit of the avocado tree invariably leads to the setting of an unusually heavy crop in one particular year, followed by a poor crop. Alternate bearing is more prevalent in mature trees. 

Management techniques can be employed to reduce this tendency which range from fertility management to pruning regimes, however this is a much researched topic across the world with no one single solution ever being developed.

He added that the lower avocado yields had also suffered from lower market prices in the European key markets due to a significantly higher supply of fruit from Peru and Columbia amidst low consumption trends due to the Covid pandemic.

Kakuzi's other crops and revenue streams he added had performed as expected with an increasingly strong performance from the Macadamia business, which validates the investments made into diversification over the years.

"As a responsible listed entity, we are taking this early opportunity to issue the profit warning notice, which is also consistent with the half-year earnings statement and commentary issued in August last year," Ng'ang'a said.

He added that "even as we expect recovery, the Board is stepping up the execution efforts on our product diversification strategy, which is of critical importance. This strategy aims to mitigate the global market volatility and overreliance on any one product."

The Bi-annual bearing in avocado production is expected, with an 'on' year yield higher than an 'off-year yield. After the 2020 bumper harvest, last year's production was in an 'off-cycle. From a field operations perspective, the ON and OFF year challenges at Kakuzi are under active management through effective canopy management strategies on the mature avocado crop. Such canopy management strategies help mitigate this Bi-annual bearing natural phenomenon as much as possible.

Kakuzi has a thriving new immature avocado development area (about 373 hectares), with production expected in the coming seasons to further mitigate the yield risks. Land preparation for a new Avocado crop is also underway in a crop area previously under pineapple production.

As part of the diversification strategy, Kakuzi has enhanced its Forestry, Blueberry and Livestock production. The firm has also ramped up its legacy crops production with its Avocado and Macadamia production capacity with several recent investments valued at more than KShs 100million.

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