Chairman’s Statement

All our business dealings are conducted honestly, fairly and with integrity so that we continue to be trusted partners to all our stakeholders.

Image

96th Annual General Meeting

Thank you, Kakuzi PLC shareholders, for joining us for your company’s 96th Annual General Meeting.

This afternoon, we are also coming together to celebrate several milestones, including business growth achieved in the past financial year.

As we make this review, we also thank God for the recent good rains, which we believe will positively impact our superfood-growing efforts. Our dams are now full, and the orchards are sufficiently rain-fed.

I also want to thank our esteemed shareholders for investing in one of the most sustainable businesses in Kenya. We appreciate your confidence and support.

As we review our past year’s performance, I am encouraged that despite the challenges faced by many agricultural organisations, both locally and abroad, Kakuzi continues to enjoy steady growth in its operations and expansion of its production capacity.

In the past financial year, your company recorded a pre-tax profit of Ksh 664 million, which was impacted by a Ksh 354 million pre-tax loss from our macadamia operations. As you know, the global macadamia market has been underperforming due to oversupply issues.

This oversupply led to a severe market glut that started at the height of the COVID-19 pandemic in 2022 and has persisted for the past two years. While many markets shut down due to COVID restrictions, Kakuzi macadamia orchards, among others globally, continued to register bumper harvests even as market consumption slowed. The macadamia market heavily relies on the Hotel, Restaurant, and Café/Catering (HoReCa) market and COVID shutdowns negatively impacted their operations. We are, however, encouraged as we have begun to note a steady rise in the demand for quality nuts in the past few months, and prices are also starting to stabilise.

On to good news, our avocado operations performed very well, recording a pre-tax profit of Ksh 1.4 billion, up from Ksh 0.8 billion posted the previous year. The avocado growth can be attributed to increased field production, enhanced packhouse, and related handling efficiencies. Thanks to these factors, our avocado exports surpassed the three million carton mark for the first time. This translates to 562 containers sold at an average price of Euro 7.65 per carton for Hass, despite market prices falling from the previous high of Euro 7.95.

Crop Diversification

Arising from the mixed fortunes and lessons learnt from the macadamia glut, we are racing ahead with our crop diversification strategy. This strategy will see us commence the full-scale planting of our first commercial blueberry orchards, most likely in 2025. Our MD, Mr Chris Flowers, will provide further details on this shortly in his presentation, but the Board is pleased to announce that the Blueberry trial phase met its yield target for 2023, and we have set ambitious targets for 2024. This will then inform us whether we can proceed to the commercial phase in 2025.

Still, within the diversification strategy, the Board is happy to report that our aggregate forestry, livestock, arable and blueberry operations continued to show strong returns, registering a profit of Ksh 116 million. Tea operations also recorded a healthy profit of Ksh 64 million. The domestic market for many of our products is proving exciting as we explore new ways to bring quality food to this growing group of consumers.

After the highly successful launch of the new Kakuzi brand (Growing Together) and the value-added products range, I am pleased to announce that the Kakuzi Farm Market and its new Boran Barn Nyama Choma restaurant are proving to be a real crowd-puller. We hope this will translate into increased sales for our value-added products.

Your company remains focused on expanding its product markets by exploring new opportunities to sell avocados in India and Malaysia. Likewise, regional and non-traditional market opportunities are developing in macadamia.

Corporate Governance

As mentioned earlier, your Board continues to work with reputable professional organisations to guide our oversight role. In the past financial year, as has become our custom, we successfully undertook a Board Evaluation exercise. This was undertaken by an independent consultant to establish the operating health of your Board. I am pleased and humbled to confirm that the Board performed exceptionally well, scoring an average of 90% in various parameters.

This evaluation process has also allowed us to prioritise oversight and identify improvement areas. All these efforts will be undertaken in a collaborative framework between the Board, Management, Staff, and other operating partners to ensure that your company maintains world-class corporate governance systems.

Sustainability

As a critical player in the agricultural sector, your company will continue to pay attention to its sustainability endeavours. We are committed to ensuring that our operations today maintain the ability of future generations to meet their own needs.

This commitment has seen your company consistently track and measure its Environmental, Social and Governance (ESG) impacts in the last four years. As part of ESG standards, we have also implemented measures to prevent human rights abuses. Where abuses occur, we address them by holding those who commit the abuses accountable. On this score, we uphold the United Nations Guiding Principles on Business and Human Rights (UNGPs) global standards for preventing and addressing human rights abuses by businesses and companies.

Through our sustainability commitments, we have taken deliberate action to ensure that all our agricultural production is sustainably done. This involves deliberate protection and conservation of sensitive ecosystems that allow us to produce quality Kakuzi products. For example, to fill the dams that help meet our crop and animal watering needs throughout the year, we must conserve water catchment areas inside the Kakuzi farmlands. To many, these water catchment areas appear like idle land, but they are not.

They are valuable water catchment areas that fuel our agricultural production engine, and we cannot afford to compromise this natural ecosystem. Where water catchment areas have been compromised across this country and beyond, the outcomes have become very grim and contributed to climate change challenges.

Strategic Goals & Developments

The Board’s commitment to our strategic plan culminated in a comprehensive review in July 2023, examining the company’s detailed plans, cash flows, and expected shareholder returns. What is evident is that all agricultural developments of this scale take time to establish. Given Kakuzi’s track record of steady growth, we are confident that the correct building blocks are in place to satisfy shareholders’ needs. We aim to find a third key export crop and grow Kakuzi’s brand domestically and internationally. Our growing customer base highly appreciates Kakuzi’s products, and we intend to add more variety to this range in due course. We have also tasked management with establishing a credible investment plan for renewable energies. At this stage, we are examining solar, wind and pyrolysis options, among other sustainable energy options.

As some of you may know, the macadamia shell has the potential to be an excellent source of activated carbon, which can be used in our quest to become Carbon Neutral. The pyrolysis process converts the shell to activated carbon, and by doing this, we can also create an energy source to provide green electricity. In effect, we are turning a waste product into something valuable.  The recent launch of our fourth ESG report demonstrates our commitment to this essential and ever-increasing work stream. Carbon reporting will become mandatory in time. I am happy to announce that your company is the first agricultural business in Kenya to report its carbon emissions for Scopes 1 and 2 publicly. Scope 3 emissions are being calculated for 2023 and will feature in our next ESG report. The Board has tasked management to drive the government’s initiatives to increase tree cover forward. The Nginye Valley reforestation project is an ambitious undertaking that will re-establish and enhance some of the indigenous forests in this vital water catchment.

Staff

Once again, I would like to express my gratitude to our staff members for their hard work and dedication. I would also like to thank the Board of Directors for their stewardship of the company. We also appreciate our social partners, the Kenya Plantation and Agricultural Workers Union (KPAWU), with whom we recently signed an updated Collective Bargaining Agreement (CBA). This will give employees a 16% wage award over the next two years.

I also want to thank the management and staff teams for their dedication to duty and diligence in driving this company forward. At the Board level, we continue to provide the necessary corporate governance oversight backed by reputable professional management firms.

Looking Ahead

We look forward to the view that we must continue to make good decisions for the long term. Diversification of crops, developing our markets, and our value-added range are vital pillars of our plans, but we must ensure we do this responsibly and responsively to climate action needs. We remain committed to steering your company to greater heights and ultimately securing its growth trajectory for sustained returns to your investment and increased benefits to all our stakeholders.

Nicholas Ng'ang'a, Board Chairman, Kakuzi Plc
14th May 2024