Companies

Del Monte backs down in Sh109m Kakuzi land case

pineapple

Del Monte has withdrawn a Sh109 million charge on Kakuzi Limited and inked a new pineapple production contract to boost its juice plant and protect its marketshare from competitors. File

Del Monte has withdrawn a Sh109 million charge on Kakuzi Limited and inked a new pineapple production contract to boost its juice plant and protect its marketshare from competitors.

The Thika-based beverage giant based the claim on what it called errors in the calculation of its share of profits from a joint venture it has been operating with Kakuzi.

The firm is said to have made a U-turn on its demand because of its need for land near its Thika plant to boost its production. The move is in line with a Sh1.7 billion expansion plan aimed at protecting its turf from rivals such as Coca-Cola.

“Del Monte Kenya Limited claim for repayment of Sh109 million has been fully withdrawn by DMKL and a joint project agreement entered into with DKML,” said Kakuzi Limited in a statement to the Nairobi Securities Exchange (NSE) on Tuesday.

The company did not provide details, but sources privy to the deal say Kakuzi will provide land estimated at close to 1,000 hectares and its share of cash for pineapple production.

Del Monte, on the other hand, is expected to provide cash for the pineapple production, process the fruit and market the produce.

The new deal is a relief to shareholders of Kakuziwho had been warned that the claim would hurt dividends and its expansion plans.

The company has accumulated Sh525 million in cash by June 2011 and its net profit stood at Sh193 million in the six months to June compared to Sh194 million in the same period last year.

“Should the arbitration be ruled against us, there will be a very negative impact on cash flow which could affect the present development initiatives,” said Kakuzi in an August notice to shareholders on the impact of the Del Monte claim.

The withdrawal of the claim comes as Del Monte is scrambling to lease land to support its expansion. It plans to boost fruit plantation, production capacity and marketing in an effort to get a larger foothold of the regional market and ward off rivals.

Besides a 13,500-acre plantation in Thika, the firm recently signed an 18-year lease for 1,000 hectares in Matungulu District to grow pineapples.

Coca-Cola is employing the same model to attack the East Africa market by contracting farmers in the Rift Valley, eastern and central regions to supply its juice processing plant with mangoes and passion.

Coca-Cola,through its Beverage Services Kenya subsidiary hopes to capture the health-conscious juice consumers in East Africa, a market Del Monte has dominated for years. Market estimates puts Coca-Cola’s stake in Kenya’s juice market at about 11 per cent.

The increased activity in Kenya’s juice market would not only result in a vicious war at retail outlets of the ready-to-drink juice market segment but offer fruit farmers steady market for their produce.