Kakuzi : Annual Report and Financial Statements 2023

KAKUZI PLC

ANNUAL REPORT AND AUDITED CONSOLIDATED

AND SEPARATE FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2023

Kakuzi Plc

Annual Report and Consolidated and separate Financial Statements

For the year ended 31 December 2023

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Kakuzi Plc

Company Information

For the year ended 31 December 2023

COUNTRY OF INCORPORATION

The Company is incorporated in Kenya under the Kenyan Companies Act, 2015.

DIRECTORS

The Directors who held office during the year and at the date of this report were:-

ORDINARY SHARES

The Company's ordinary shares are listed on the Nairobi Securities Exchange and the London Stock Exchange.

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Kakuzi Plc

Notice of Annual General Meeting

NOTICE is hereby given that the Ninety Sixth Annual General Meeting of the Members of the Company will be held in the Ballroom at Nairobi Serena Hotel, Nairobi on Tuesday, 14th May 2024 at 12.00 Noon for the following purposes:-

1. To read the notice convening the meeting.
2. To table the proxies received and confirm the presence of a quorum.
3. To approve the minutes of the Ninety Fifth Annual General Meeting held on 16th May 2023.
4. To receive, consider and adopt the Audited Financial Statements for the year ended 31 December 2023 together with the reports of the Chairman, the Directors and the Independent Auditors thereon.
5. To declare a first and final dividend of Kshs 24.00 per ordinary share (2022: Kshs. 24.00) for the Financial Year ended 31 December 2023.
6. To approve the Directors' Remuneration Report as detailed in the Annual Report for the Financial Year ended 31 December 2023.
7. To re-elect Directors:-
8. 1. In accordance with Article 27 of the Company's Articles of Association and subject to approval by the shareholders pursuant to guideline 2.5 of the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015, Mr. Nicholas Ngang'a, a Director who is over seventy years old, retires by rotation and, being eligible in accordance with Article 28 of the Company's Articles of Association, offers himself for re-election.
   2. In accordance with Article 27 of the Company's Articles of Association and subject to approval by the shareholders pursuant to guideline 2.5 of the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015, Dr. John Kibunga Kimani, a Director who is over seventy years old, retires by rotation and, being eligible in accordance with Article 28 of the Company's Articles of Association, offers himself for re-election.
   3. Mr. Andrew Ndegwa Njoroge, a Director who retires by rotation in accordance with Article 27 of the Company's Articles of Association and, being eligible in accordance with Article 28 of the Company's Articles of Association, offers himself for re-election.
9. In accordance with provisions of Section 769 of the Kenyan Companies Act, 2015, the following Directors, being members of the Board Audit & Risk Committee be re-elected to continue to serve as members of the said Committee:-
10. 1. Mr. Daniel Mutisya Ndonye
    2. Mr. Stephen Njoroge Waruhiu
    3. Mr. Andrew Ndegwa Njoroge
11. To re-appoint Messrs Deloitte & Touche LLP as Auditors of the Company in accordance with the provisions of Section 721 (2) of the Kenyan Companies Act, 2015 and to authorise the Directors to fix the Auditors' remuneration for the ensuing Financial Year in accordance with the provisions of Section 724 (1) of the Kenyan Companies Act, 2015.
12. To transact any other business of an Annual General Meeting of which due notice has been received.

BY ORDER OF THE BOARD

J L G MAONGA

COMPANY SECRETARY 19 March 2024

Note: A member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and vote on his/her behalf and such proxy need not be a member of the Company.

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Kakuzi Plc

Chairman's Statement

For the year ended 31 December 2023

RESULTS

The Company closed the 2023 financial year on a stable footing despite a difficult market climate compounded by increased costs of production.

A lack of demand in the global macadamia markets heavily impacted pricing.

Consequently, your Company recorded a pre-tax profit of Ksh 664 Million (2022: Ksh 1,221.6 Million). The pre-tax profit drop is mainly attributed to a Ksh 354 Million pre-tax loss from our macadamia operations (2022: Ksh 635 Million Profit). However, the avocado operations performed well, recording a pre-tax profit of Ksh1.4 Billion (2022: Ksh 0.8 Billion).

To mitigate some of the challenges arising from export macadamia sales, our domestic sales strategy is evolving to include the production of cold-pressed macadamia cooking oil and a range of value-added macadamia products.

Macadamia production was in the year was 737 tons with sales volumes increasing from 2022 levels to 563 tons at an average price of US$ 7.21. This was approximately half the previous year's value, where prices averaged US$ 15.33.

For avocados, as a result of increased field production, enhanced packhouse and related handling efficiencies, exports surpassed the three million carton mark for the first time. This equates to 562 containers which sold with an average price for Hass of Euro 7.65 per carton (2022: Euro 7.95).

Our forestry, livestock, arable and blueberry operations in aggregate continuing to show strong returns, registering a profit of Ksh 116 million. Tea operations also recorded a healthy profit of Ksh 64 million.

The international markets for our key export products remain dynamic, with challenges continuously emerging and compounded by forex exchange rate volatility. Within Europe, our main market, the cost- of-living crisis has impacted consumer habits. On the other hand in the key macadamia markets are showing some positive signs of recovery, albeit slower than we would hope for.

Our core credentials of being leaders in environmental sustainability and producing quality products with exemplary food standards, remain our points of difference which sets us apart from others.

After the 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, together with its new Nyama Choma restaurant is proving to be in demand. This will translate into increased sales for our value-added range of products.

The diversification of our products' markets remains a key focus for your Company. In time, new opportunities for avocado sales in India and Malaysia will provide alternative opportunities as export markets. Likewise, in macadamia, regional and non-traditional market opportunities are developing. However, the domestic market for many of our products is proving to be an exciting place as we explore new ways to bring quality food to this growing group of consumers.

Our work in the ESG field was once again summarised in our 2022 report, 'Growing Together for People with Purpose', which we have also digitised on our website. (https://www.kakuzi.co.ke/documents/normal/KAKUZI%20PLC%202022%20ESG%20REPORT.pdf)

We are better placed to be thought leaders in today's critical conversations by publishing what we do. We remain committed to lowering carbon emissions, water conservation, environmental stewardship, and producing quality food responsibly.

DIVIDEND

Your Board recommends a dividend per share of Shs 24.00 compared to Shs 24.00 per share in 2022.

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Kakuzi Plc

Chairman's Statement (continued)

For the year ended 31 December 2023

OVERVIEW

In 2023 the avocado markets in Europe remained reasonably firm. We continued to investigate opportunities in emerging export destinations such as China, India and Malaysia which, in time, will become complementary to our main customers. We expect more exports to these destinations to occur in 2024.

However, the main competition for Kakuzi's fruit remains Peru. The sheer scale of Peruvian production compared to Kenya, can destabilize market prices in the early part of our export season, as was the case from July to August. Prices for fruit arrivals after August generally tend to improve, which is what was experienced in 2023. Given the overall market conditions, a gross price for all our Hass exports of Euro

7.65 was a reasonable performance. Pinkerton, although a relatively small volume compared to Hass, sold at Euro 7.20 per carton.

The macadamia markets started to show signs of recovery in China and Europe but not the USA. However, the market was only active at much lower prices as producers cleared accumulated stock. The gross price of US$ 7.21 per kilo was less than half the price obtained from contracts sold in 2022. The dramatic fall in the market occurred in the fourth quarter of 2022, thus impacting all of 2023's sales. As we reached the end of 2023, a significant increase in demand was noted, but prices still lag behind recent historical levels. Importantly, Kakuzi has been able to contract most of its 2023 production and enters the 2024 market with a significantly improved inventory position.

Our commitment to responsibly grown products is well known by our key customers. Still, we continue to develop this differentiation further, especially in relation to water stewardship and carbon disclosures. We have maintained our lead position by offering our customers a consistent holistic value proposition. As legislation in our key markets changes, we will see a move from voluntary ESG disclosures to mandatory requirements, which we welcome.

Turning to the domestic markets, many of you witnessed the rebranding of Kakuzi at the last Annual General Meeting. This brand, 'Growing Together' has now been magnified through the range of value- added products available from our farm market and online sales platforms. Macadamia oil sales are particularly encouraging, having first entered the market in September 2023.

The delivery to market of our cold-pressed macadamia oil products is already encouraging us to consider an expansion investment for our production plant. Our products' farm-to-plate, food safety credentials are recognized by discerning consumers both locally and overseas.

Consumers purchasing fresh meat from our butchery or sampling the restaurant are experiencing the quality Kakuzi stands for. Given current demand we may consider expanding this venture soon.

The demand for our wood products remains strong. Diversifying into value-added wood products has also highlighted some interesting consumer trends for other sustainable products, such as wooden paving slabs and kitchen chopping boards. Our forestry team continues to explore new product options for our discerning customers.

As mentioned, we are encouraged by the new varieties of blueberry, which have been established to replace the first cultivar propagated. Yield and quality targets have been met during the year, and we expect this volume to grow significantly in 2024. The Board is keeping this crop under close review to establish if it can be another worthy superfood for Kakuzi.

We have detailed and informative policies and reports about your Company, which are now available on our website, covering many different topics relating to our operations and our employees. We are also pleased to announce that your Company undertook its second Employee Satisfaction Survey this year with very encouraging results. This report is also available online, and I wish to highlight some key aspects.

Your Company now employs 76 managers and approximately 3,500 people. For managers, 96% are graduates, and 30% of our team are female. Most of the staff respondents affirmed that your Company's working culture and values make it an excellent workplace where they are treated fairly and respectfully

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Kakuzi Plc

Chairman's Statement (continued)

For the year ended 31 December 2023

CORPORATE SOCIAL INVESTMENT (CSI) AND SUSTAINABILITY

The Company's commitment to partnership with the community continued with some key milestones being achieved. The JIKO KISASA program has been widely appreciated and therefore is being expanded to more households. The Primary School support program is also being expanded in response to high demand.

The Company continued to build relationships with our key stakeholders including trade union officials, community representatives, community-based organizations, national and county government officials, regulatory authorities, and local and international non-governmental organizations. These critical relationships are bolstered with the workings of the Independent Human Rights Mechanism (SIKIKA 2) which further facilitates open channels of communication aimed at receiving timely feedback for appropriate action.

The Company's community partnership remains broadly guided by the UN Sustainable Development Goals (SDGs): Good health and Well-being(SDG 3); Quality Education (SDG 4); Gender Equality (SDG 5); Clean water and Sanitation (SDG 6); Decent Work and Economic growth (SDG 8); and Climate Action (SDG 13).

In line with our recognized role as part of the solution to health challenges in our community, we partnered with the ministry of Health to organize free medical camps for three different localities. This was an increase on the two per year that we have previously conducted. In addition, we donated hospital equipment to local health facilities and participated in awareness creation initiatives regarding various health conditions.

We continue to invest significant resources in education programs. During the year, we gave a major facelift to Kitito Primary School, donated classroom furniture (Desks, tables and Chairs) and computers to 24 schools, provided resources to boards of management of 3 schools to employ six teachers and provided full secondary school scholarships to 7 bright but needy students from the local community. Our efforts to improve access to clean water and sanitation saw us install rain water harvesting tanks of 20,000 litres capacity in 2 educational institutions and construct 8 sanitation facilities in schools and 2 community facilities. Our safety marshals program continued in the year with 30 female safety marshals being engaged to support and safely take school children from home to school and back.

While observing environmental sustainability in the conduct of our operations, we at the same time ensure we partner with the community in this effort. To this end we have so far fitted over 1,000 households with double energy saving cooking stoves (Jiko kisasa) The Company further donated 1,100 indigenous tree seedlings to learning institutions and community groups and facilitated how-to-plantsessions at neighboring villages. Our commitment to SDG 13 is further demonstrated by the consistent measuring of our carbon footprint through our operations with a view to reducing emissions. We have done this now for the fourth year running.

In line with Decent Work & Economic Growth (SDG 8), the Company organized financial literacy and entrepreneurship training for 5 Self Help Groups and held mentorship forums on company procurement process to advance opportunities for 17 local women in business through linkages and new partnerships. Most of these women have since been facilitated to be suppliers to Kakuzi. In total, the Company spent Kshs. 51 million in payments to local suppliers and contractors.

Our community roads program saw us construct and rehabilitate roads which we allow the community members to freely use and access. These are Kangangu road, Sunset to Munyu road, Sunset to Kakuzi Primary road and Sunset to Kinyangi road, among others.

STRATEGIC GOALS & DEVELOPMENTS

Our commitment to our strategic plan culminated in a comprehensive review in July 2023, where the Board examined the detailed plans for the Company, the 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.

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Kakuzi Plc

Chairman's Statement (continued)

For the year ended 31 December 2023

STRATEGIC GOALS & DEVELOPMENTS (continued)

Our objective remains to find a third key export crop and grow Brand Kakuzi in the domestic and international market. Kakuzi's products are being highly appreciated by our growing customer base, and we intend to add more variety to this range in due course.

We have also tasked management to establish a credible investment plan for renewable energies. At this stage, we are examining solar, wind and pyrolysis options, among other sustainable energy options.

As many of you may know, the macadamia shell is an excellent source of activated carbon, which can be used in our quest to become Carbon Neutral. The pyrolysis process can be used to convert 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 we produce annually into something of value.

The launch of our fourth ESG report, I believe, 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 forward the government's initiatives of increasing tree cover. The Nginye Valley reforestation project is an ambitious undertaking that will re-establish and enhance some of the indigenous forests in this important water catchment.

STAFF

Again, I would like to appreciate the dedication of our staff members and especially thank the Board of Directors for their stewardship of your 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.

LOOKING AHEAD

We look forward with the view that we must continue to make good decisions for the long term. Diversification of crops, markets and developing our value-add range, are key pillars to our future plans but, ensuring we do this in a manner that is responsible and responsive to the needs of climate action.

We remain committed to steering your Company to greater heights and ultimately securing its growth trajectory for sustained returns for your investment.

NICHOLAS NG'ANG'A

CHAIRMAN

19 March 2024

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Kakuzi Plc

Corporate Social Investment and Sustainability Report

For the year ended 31 December 2023

Kakuzi's commitment to good community and stakeholder relations continued to be demonstrated through meaningful relationship building and strong partnerships with our stakeholders. We believe that playing our rightful role within the community in which we operate is beneficial to both the Company and the Community. Collaboration with, among others, employees, trade union officials, community leaders, community liaison officers, farmers' organizations, National and County government officials as well as local and international civil society organizations has ensured mutually beneficial working relations and partnerships, all of which are critical to our mantra of Growing together. Not only do we grow crops, but we also grow people and grow communities.

The Company has progressively invested in initiatives guided by the UN Sustainable Development Goals (SDGs): Good health and Well-being (SDG 3); Quality Education (SDG 4); Gender Equality (SDG 5); Clean water and Sanitation (SDG 6); Decent Work and Economic growth (SDG 8); and Climate Action (SDG 13). These initiatives are geared towards developing skills and capabilities that promote the building of a sustainable society.

The Community Relations Manager and the Community Liaison Officers continue to be a crucial part of Company Community partnerships with the support of other relevant Company managers. In addition, the Independent Human Rights Mechanism (SIKIKA 2) facilitates open channels of communication to receive timely feedback for appropriate action.

In 2023, through needs assessment and requests extended to the Company, Kakuzi invested in the following initiatives:

Good health and Well-being (SDG 3)

In our commitment towards increasing access to treatment and care for communities neighboring the Company, Kakuzi in collaboration with the Ministry of Health organized free Medical camps in three locations; Gikono, Kinyangi and Makuyu areas to offer health education as well as preventive and curative services which included; cervical/prostate cancer screening, Covid-19 vaccination, HPV vaccination, nutrition assessment etc. for the local communities. 727 (238 Male and 489 Female) community members benefited from the different services offered during the outreach.

The Company continues to work closely with the local Government health facilities to improve service delivery to the community. The Company donated a 50-seater tent and 50 chairs to Community health volunteers in 7 community units (CUs) in Ithanga. This is expected to go a long way in supporting the implementation of other Government initiatives contributing to good health and well-being of the community.

To enhance access to care and treatment for the local communities the Company donated hospital equipment and office furniture to support service delivery in Gikono dispensary and Maragua subcounty hospital.

The Company also contributed to World mental Health day program by providing branded T-shirts in support of the celebrations commemorated at the County level on 10th of October themed ''Mental health is a universal right'' as part of our commitment towards promoting the well-being of the local communities.

Through our Tabasamu menstrual hygiene program, sensitization forums on menstrual health and hygiene were done in 7 learning institutions, over 2,700 menstrual absorbents were donated to 1,500 school going girls and 1,081 pieces of bar soaps were issued to over 500 boys in these institutions.

Quality Education (SDG 4)

Promoting quality education is an important goal that has the potential to transform the lives of individuals and communities. Kakuzi continues to make significant contributions towards bettering access to quality education and retention by investing in School infrastructure and learning processes of the learners. To this end, Kakuzi renovated Kitito Primary school, a public school within the farm to foster a good learning environment for over 300 learners in junior secondary and Primary sections of the school.

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Kakuzi Plc

Corporate Social Investment and Sustainability Report (continued)

For the year ended 31 December 2023

Quality Education (SDG 4) (continued)

The number of students being fully sponsored by Kakuzi to undertake their Secondary education has now risen to 7 and will continue to increase in the coming years. The Company has further initiated a mentorship program to support these learners as well as those attending the 3 public Primary schools in the farm to realize their full potential.

During the year, the Company donated 395 classroom furniture (desks, tables and seats) to 18 learning institutions within Murang'a County, directly supporting educational process to run effectively and create a good learning environment that promotes the realization of education goals.

In an effort to reduce pupil teacher ratio and enhance the learning experience for pupils in our local schools, the Company financed the boards of management of Kitito, Kinyangi and Kakuzi Primary Schools to employ a total of 6 additional teachers.

We donated 12 computers to 6 learning institutions to support computer literacy education and to computerize office operations in these institutions.

Our Safety Marshals' program continued with the 30 female Safety Marshals helping school-going children to safely get to school from home and get back home safely from school. The schools and parents are appreciative of this program.

Clean Water and Sanitation (SDG 6)

Access to clean water and sanitation reduces health risks and supports education and other productive activities that are important towards creation of a sustainable society.

Kakuzi has continued to invest in construction of rain water harvesting systems and sanitation facilities in institutions to provide basic hygiene, support menstrual health and adequate sanitation for learners. We installed 2 rain harvesting facilities with a capacity of 10,000L each in 2 educational institutions and constructed 8 sanitation facilities in 2 community facilities.

Decent Work and Economic Growth (SDG 8)

Economic empowerment sets a direct path towards poverty reduction and economic growth by providing communities with education, training and the skills they need to initiate sources of livelihood and reduce dependency.

In three phases, Kakuzi facilitated skills transfer to 101 (65 Male and 36 Female) youths from the local community and fitted over 1,000 households with double energy saving cooking stoves (Jiko kisasa), with economic, environmental and health benefits for beneficiary households.

The Company in partnership with Youth Empowerment for rural development (YARD) organized financial literacy and entrepreneurship training for 5 Self Help Groups, all of which the Company has supported with beekeeping projects and one group of Masons trained on construction and maintenance of energy saving jikos (jiko kisasa). The aim was to equip members of these groups with basic knowledge and skills on developing an entrepreneurial culture and setting effective financial management goals. The trainings were conducted in their different localities and reached a total of 95 individuals.

We had a mentorship forum on the Company's procurement process to advance opportunities to 17 local women in business through linkages and new partnerships, in order to support gender equality among suppliers and achieve economic independence for the locals. Most of these women have since been facilitated to be suppliers to Kakuzi. In total, the Company spent Kshs. 51 million in payments to local suppliers and contractors.

Kakuzi supported 4 learning institutions; Thangira, Kihara bahati, Kimotho Primary and Ndula Secondary Schools to initiate functional School avocado projects to generate additional resources to finance other School projects, ease burden on parents and to inculcate an agribusiness mindset on the learners.

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