Kakuzi : Interim Financial Statement June 2023

KAKUZI PLC

INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD OF SIX MONTHS TO 30 JUNE 2023 (UNAUDITED)

TABLE OF CONTENTS	PAGE
Chairman's statement	2 - 6
Consolidated and separate statement of profit or loss and other comprehensive income	7
Consolidated statement of financial position	8
Separate statement of financial position	9
Consolidated statement of changes in equity	10
Separate statement of changes in equity	11
Consolidated and separate statement of cash flows	12
Notes to the consolidated and separate interim financial statements	13 - 20

Directors:		Registrars:
Mr. N Ng'ang'a	Chairman	Custody & Registrars Services Limited
Mr. C J Flowers*	Managing Director	IKM Place
Mr. G H Mclean*		Tower B, 1st Floor
Mr. K R Shah		5th Ngong Avenue
Mr. D M Ndonye		P. O. Box 8484, Nairobi 00100
Mr. S N Waruhiu		Telephone: [phone]
Mr. A N Njoroge		Email: [e-mail]
Dr. J K Kimani
Ms P Ager
* British

Secretary:	Registered Office:
John L G Maonga	Main Office
Maonga Ndonye Associates	Punda Milia Road, Makuyu
P. O. Box 73248	P. O. Box 24, Thika 01000
00200 NAIROBI	Telephone: [phone]
Telephone [phone]	E-mail: [e-mail]

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Kakuzi Plc

Chairman's Statement

For the period of six months to 30 June 2023

KEY HIGHLIGHTS

• Avocado profits have more than doubled in 2023 to Ksh 654.8 million, up from Ksh 288.6 million in 2022
• Global macadamia glut persists leading to a Ksh 329 million sectoral loss for the macadamia business
• Recovery expected as Kakuzi macadamia domestic market retail sales efforts doubled up to mitigate international market risks
• Pretax profit down by 65% to Ksh 171.1 million from Ksh 494.7 million
• Avocado exports to China up on last year.

TRADING PERFORMANCE

The half-year trading for the financial year 2023 is in line with our expectations given the challenging macadamia markets. As highlighted at the Annual General Meeting, we expect the global macadamia glut situation to persist throughout the balance of 2023 financial year and may be into 2024.

In 2022 the half year profits for the macadamia business were Ksh 339 million. This year the situation has reversed to a loss of Ksh (329) million. The disappointment is that in our biggest markets of China, Japan and the USA, the same quality macadamia nut kernels are now selling for less than half the price recorded during the same period last year even as production volumes from all source markets continue to grow.

On the positive side the contribution from our avocado business is double that of last year, Ksh 654.8 million against Ksh 288.6 million for the same period in 2022. This represents a 126.9% growth attributed to diversified market sales (China and European) and increased production due to favourable weather conditions and recovery from the off-production season.

Our focus on quality, traceability and sustainability is holding us in good position in all our markets especially as we continue to solidify our market and brand positioning as a preferred superfoods grower and exporter to the Far East and European markets.

Our harvest season for Hass avocados opened in June based on technical maturity tests and the harvest is progressing well. We anticipate that production targets will be met this harvest season.

The macadamia harvests are also well underway with the volumes and quality remaining consistent with the pre-harvest forecast.

Although our blueberry volumes are still significantly low vis-a-vis the avocado and macadamia outputs, the revenue stream remains firmly within the business plans and continues to inspire further investments. The performance of the tea, forestry, livestock, and arable land operations continue to play their important role in our crop portfolio.

At Kakuzi, we remain committed to a shared prosperity business model that prioritizes all our stakeholder needs. Growing our business in a sustainable manner, actively implementing our Kakuzi, Community Partnerships, answering the call for climate action and using best practices in all we do to promote our values remains our focus.

DIVIDEND

The Directors do not recommend the payment of an Interim Dividend.

OVERVIEW & OPERATIONS

Field and market diversification operations in the first half of the year remained focused on the harvesting and export of the Pinkerton avocado crop, the establishment of new blueberry varieties, the development and launch of the new Kakuzi brand consumer packs, including the commissioning of a new macadamia oil processing facility taking centre stage. Our cold pressed macadamia oil products will provide consumers with a quality and healthy alternative to imported vegetable oils with the added assurance that the product has been produced from our own orchards to the highest food safety standards. The commissioning of the macadamia oil processing facility is part of our Company's efforts to step up the availability of value-added macadamia products as we strive to mitigate the global market glut through increased local consumption.

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Kakuzi Plc

Chairman's Statement (continued)

For the period of six months to 30 June 2023

OVERVIEW & OPERATIONS (continued)

Our livestock operations are steadily recovering from the recent drought in the first few months of the year with sales beginning to pick on the back of growing demand for Kakuzi beef cuts in the retail and Hotel/Restaurant/Catering (HoReCa) market. The goat meat venture has now been trademarked as KABUZI with initial sales due to commence in the second half of the year.

Arable land operations Rhodes grass production for quality hay, have been expanded with plans for further developments to meet the ever-increasing demand from Murang'a, Kiambu, Nyeri, Meru and Laikipia livestock farmers. The price pledge that we do not hike animal feed prices in the dry season is at the core of our commitment to our customer base.

The demand for quality, sustainable forestry products continues to increase. Demand for treated fencing posts is rising as we see more and more farmers invest in good agricultural practices requiring proper paddocking. Although timber sales have slowed marginally, there is an increasing market segment where sustainability credentials are crucial.

We intend to increase our irrigation water resources further this year to help mitigate against the negative impacts of climate change.

Avocado and macadamia orchards expansion plans remain on course, as we believe both of these crops have good future potential despite the headwinds the worldwide macadamia industry is currently facing.

Value Addition and Diversification

Our Kakuzi private label consumer packs range now covers various macadamia products from the traditional nuts to cereal mixes, honey coated nuts, cold pressed premium cooking oils and gluten free macadamia home baking flour. The range is complimented by our grass-fed meat products, including biltong and soon, goat meat.

Conscious of the food basket inflation prevalent in the market, our macadamia cooking oil is priced competitively to provide consumers a healthy alternative to imported vegetable oils.

All Kakuzi value added consumer products are manufactured from quality raw materials sourced from our own orchards with true 'Farm to Fork' credentials, reassuring our customers that these foods have been produced responsibly to the highest food safety and quality standards.

As earlier announced the development of the first Kakuzi Farmers Market near our head office along the dual carriageway between Kenol and Sagana is now in high gear. The Kakuzi Farmers Market retail centre will provide further opportunities to market our value-added consumer products while providing other farmers with a convenient market place to sell their local produce.

Avocado

The international Hass markets faced their traditional headwinds in June as Peru entered both the China and Europe markets with considerable volumes of fruit. Volumes and prices have now stabilized and we anticipate the balance of the year to be well supplied. However, given the very hot and dry conditions in North Africa and Southern Europe there may be an impact on production volumes coming out of Morocco, Portugal, Israel and Spain. These origins do not necessarily supply fruit during the same period as Kenya but it does illustrate that climate change is occasioning an impact on the avocado industry. The availability of secure and sustainable water resources, we believe, will become a key issue for the avocado industry in the near future.

The early season Pinkerton crop performed reasonably well and we still believe that despite competition from South Africa, this variety continues to demonstrate its usefulness to the Kakuzi product portfolio.

Notably, exports to China hit record levels this season, which in turn caused a slump in the market prices. The Chinese market is developing at a reasonable pace but for Kenyan produce to truly become dominant it is imperative that only quality fruit which will ripen correctly is exported to the market.

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Kakuzi Plc

Chairman's Statement (continued)

For the period of six months to 30 June 2023

Macadamia

The key macadamia markets are showing some sign of recovery but a glut due to the worldwide carry forward kernel stock from 2022 continues to depress prices. Macadamia nuts are a luxury product in key USA and European markets and given the cost-of-living concerns, there may be a reduction in demand. However, lower prices also tend to stimulate innovation where macadamia become more commonly used in the catering ingredients sector. Ultimately increasing the use of macadamias must be good for the industry but to do this in the long term will require producers to recognize that pricing has to reflect that of other nuts.

The Chinese market is also showing signs of recovery especially for Nut in Shell sales. Kenyan producers are unable to participate in this market as nut in shell exports remain banned. Nut in shell prices currently exceed that of processed kernel. However, as the surplus kernel stocks are consumed, we do expect this differential to narrow down.

Blueberry

The new varieties are performing well and out-yielding the previous variety. We are in the process of evaluating the full financial feasibility model for this crop to assist the Board asses future expansion opportunities.

Our current sales have outstripped production especially in the domestic market where consumers are seeing both the taste and health benefits of this superfood. We hope that over the next 12 months our supply volumes will increase to match this demand as well as supplying more to regional and international markets.

Other Crops

Demand for quality, sustainable grown forestry products is increasing, especially for fencing material and in some market segments, timber. We continue to evaluate the possibilities of greater value addition for our timber products.

Our Tea plantations remain on a steady trajectory although the tea industry continues to face challenges caused by a combination of Forex shortages in key markets, declining demand in some markets and an abundance of choice for buyers seeking quality teas.

As always, forecasting how worldwide production levels, demand and prices will perform going forward is an inaccurate science. However, given the impacts of climate change in some key producing countries this may create further market disruptions. By Kakuzi focusing on climate change mitigation through its water stewardship, composting and integrated pest management programs we believe these climate action interventions will help us navigate through these uncertain times.

KAKUZI, COMMUNITY PARTNERSHIPS

Our commitment to community relations continued through consultations, collaborations, and partnerships with various stakeholders and we appreciate the support of all of these in our various endeavors.

In the first half of the year we successfully completed our annual third-partysocio-environmental certification including GlobalGAP, Rainforest Alliance, FSSC 22000, SMETA, GRASP and Spring among others. These important international certifications systems demonstrate our commitments to environmental and social standards.

The launch of our new website has also allowed us to showcase our Kakuzi, Community Partnership programs in line with the United Nations Sustainable Development Goals (SDGs), in particular SDG3-Good Health and Well-being,SDG4-Quality Education, SDG5-Gender Equality, SDG6-Clean Water and Sanitation, SDG8-Decent Work and Economic Growth, SDG-Climate Action.

Our Operational Level Grievance Mechanism (OGM), Sikika, which translates to "Be heard", continues to provide multiple avenues for our employees and the community to raise any grievances and issues they would like the Company to address. Independent reports on the work of SIKIKA also feature on our web- site.

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Kakuzi Plc

Chairman's Statement (continued)

For the period of six months to 30 June 2023

KAKUZI, COMMUNITY PARTNERSHIPS (continued)

Some of the significant Kakuzi, Community Partnership initiatives carried out within the first half of the year are as follows:

Good health and Well-being (SDG3)

The Company donated medical equipment comprising a delivery couch, autoclave machine, digital baby weighing scale and suction machine to the Gikono Dispensary maternity wing.

Our menstrual health programme held several activities during World Menstrual Hygiene Month in May. The month was marked with training in several schools where 1,732 sanitary towels and 1,081 pieces of soap were distributed to 2,095 learners.

Quality Education (SDG4)

Kakuzi has constantly invested in education to ensure that children in our community get quality education. We continue to support the employment of six Board of Management (BOM) teachers in the three schools within our operations. Moreover, the Company organised a leadership and management mentorship forum for head teachers and BOM members for the three primary schools; Kakuzi, Kinyangi and Kitito, to develop a school improvement plan that captures the curriculum and co-curriculum activities.

This year, the Company started a scholarship programme for top pupils in the three schools to fully fund their secondary school education. Further, the Company has placed students on a mentorship programme to evaluate their academic progress, offer life skills and support their general development.

Our investment in school infrastructure provides pupils with a conducive learning environment that promotes the realization of educational goals. We continue to donated equipment to many schools in and around our Makuyu operations.

The Kinyangi Primary School was also rehabilitating to provide a good learning environment for over 240 learners in the primary and junior secondary sections.

Clean water and Sanitation (SDG 6)

Kakuzi invests in SDG6 as a way of striving towards greater availability of clean water and sanitation in our community. The Company donated water harvesting systems and tanks to Karung'angi, Kaharo Girls, Matunda Secondary and Punda Milia Primary School. The Company constructed 24 sanitation blocks for over 900 learners in six schools: Kinoo, Kinyangi, Marema, Mianyani primary, Thangira Umoja and Maragua Ridge Secondary.

Decent Work and Economic Growth (SDG 8)

We completed a three-phase skill transfer programme involving equipping 100 local youth with knowledge to make energy-saving stoves. The trained youth were engaged by the Company to construct 360 energy- saving stoves for local households. Cumulatively 1,000 households received double energy-saving stoves. With the skills acquired, the youth now have marketable skills which are useful to them going forward. Further, the Company donated 15 beehives to two community groups and 150 Macadamia and 50 Avocado tree seedlings to farmers in Kigumo during a youth career day forum organized by Murang'a Governor, Irungu Kang'ata.

STRATEGIC GOALS & DEVELOPMENTS

The Board recently completed the evaluation of a comprehensive 10-year development plan and I am happy to report that as well as our continued crop expansion and large-scale blueberry production, we are also evaluating the financial viability of various renewable energy technologies, carbon neutral technologies and retail center investment ventures.

We believe that the potential addition of these ventures will enhance shareholder value significantly.

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