Camellia Regulatory News (CAM)

CAMELLIA PLC

Interim results for the 6 months ended 30 June 2023

H1 2023 Highlights

Strategic developments

Malcolm Perkins, Chairman, stated:

"The first half has been a very challenging period. Generally higher rates of inflation (particularly in wages) and oversupplied commodity markets in tea, macadamia and arable crops are contributing to a difficult operating environment.

Revenues from continuing operations decreased 2% in the period in large part to the impact of currency movements on the revenues recorded for our agriculture businesses and due to lower macadamia prices. Due to the nature of our cropping patterns and sales, we booked an adjusted loss before tax for the period. The H1 profit before tax at £4.9 million is substantially better than prior year (2022 H1: Loss £16.1 million) in large part due to improved results from BF&M and £18m of impairments written back on our holding in BF&M which when combined more than offset the wider losses in our agriculture operations.

Our financial results for the full year remain largely dependent on Agriculture where the majority of harvesting, and sales, takes place in the second half of the year. However, taking account of current trends, revenue is expected to be broadly in line with that of last year and the group is expected to record a single digit adjusted loss for the year.

Once again I should like to thank all our staff across the group for their continuing contributions both to the business and their local communities in extremely difficult circumstances."

Financial highlights

* Profit/(loss) before tax excluding separately disclosed significant items, details of which can be found in note 6 to the Accounts later in this announcement

This announcement contains inside information for the purpose of Article 7 of the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

ENQUIRIES

CHAIRMAN'S STATEMENT AND OPERATING REVIEW

TRADING UPDATE

The first half has been a very challenging period for all of our sta and our communities. Generally higher rates of inflation and oversupplied commodities markets in tea, macadamia and arable crops are contributing to a dicult operating environment. It is against this background that we would once again like to thank all of our sta for their eorts.

Revenue from continuing operations fell 2% to £110.5 million (2022 H1: £112.8 million) primarily due to the impact of currency movements on revenues in Agriculture and from lower macadamia pricing. Had we translated our revenue using the same average rates as H1 2022, our revenue for H1 2023 would have been higher at £114.3 million.

We are reporting a first half profit before tax of £4.9 million (2022 H1: loss £16.1 million) which is a significant improvement on that of the corresponding period of 2022 for the reasons set out below:

The H1 trading loss in Agriculture after provisions for restructuring costs of £0.7 million was 51% higher than that of H1 of the prior year at a loss of £13.7 million (2022 H1: loss £9.1 million). Our tea volumes in the period were 4% higher and we also saw significant improvements to our average selling prices in Bangladesh. However, these were not sucient to oset the impact of wage inflation across all operations, lower average selling prices across India and Kenya and a significant reduction in macadamia kernel prices because of high global inventories and reduced demand. H1 2023 also includes a higher loss for Bardsley England, reflecting the impact of inflation and the continued servicing of a loss-making contract which ended in August, as well as the expected costs of the restructuring of that business. The arable operations in Brazil produced slightly lower volumes of soya and prices in H1 were down on those of H1 last year. The expectation of lower prices for the balance of the soya crop as well as the winter crops, currently planted, has led to a lower result for the operation.

Additional detail on the first half results is set out below.

Strategy

The Board of Camellia continues to be focussed on implementing its strategy to invest in the expansion of the Group's agricultural interests. This is to diversify both the location of its interests and the crops which it produces - to assist in mitigating against the impact of adverse weather patterns, political instability, and commodity price movements. We seek to leverage our core competencies of developing and managing large scale bearer plant estates.

The further actions taken over recent months to reduce the scale of our non-agriculture activities and assets and reduce our exposure to loss making operations is expected to continue. As previously stated, the Group may sell certain less liquid, non-income generating or under-performing assets in order to fund strategically important acquisitions and investments.

Progress on refocussing investments

BF&M

On 6 June 2023, we agreed the sale of our 37% holding in BF&M to Bermuda Life Insurance Company Limited, a subsidiary of Argus Group Holdings Limited for a cash consideration of $100m, conditional on receipt of a number of regulatory and tax approvals.

Following the announcement of the proposed disposal, BF&M's board implemented a shareholder rights agreement, the objective of which was to act as a 'poison pill' in the event of any new shareholder seeking to register a more than 15% shareholding without BF&M's consent. The implications of the shareholder rights agreement are the subject of detailed investigation by Camellia. Discussions are taking place in an attempt to understand the concerns of BF&M with respect of the sale of our shares to Argus.

Properties

Linton Park and a number of other properties in London and Bristol are being marketed for sale. The current property market is generally sluggish.

Collections

A number of items from the manuscript collection are expected to be sold in the coming months, predominantly at auction.

Strategic investments

The following ongoing investments in the Agriculture division should be noted:

FIRST HALF OPERATING RESULTS

Agriculture

Note: Please see note 5 of the Accounts for further segmental information

Tea

* See note 6 of the Accounts for details of the adjustments made to trading profit in arriving at adjusted trading (loss)/profit

Tea estate production & manufacturing

Overall tea production in the first half was up 5% at 41.4mkg (H1 2022: 39.6kg). Pricing has been mixed with weaker average prices in India, particularly for Orthodox teas. Kenyan prices have also been lower than last year, but in Bangladesh prices firmed, relative to last year.

India: Despite severe hail in a number of gardens in the Dooars, production in the first half of the year was ahead of H1 2022 due to generally improved growing conditions. Sales volumes in H1 2023 are also up.

Prices for CTC teas in both the Dooars and Assam have been lower than in H1 2022. Prices for Assam orthodox teas, which constitute most of our production in Assam, are also significantly lower than in H1 2022 as a result of reduced demand from Iran and an oversupplied domestic market. As previously announced, wages in West Bengal increased 7.7% for 2023 further impacting results. It is still very early in the India tea sales cycle (with 70-75% of sales typically concluded in the second half of the year) which makes predicting prices for the remainder of the year dicult.

Bangladesh: Production was up 10% on H1 2022 despite a dry start to the season. Our average pricing was 25% higher than last year. As previously announced, the 2023 results are being adversely impacted by the 41.7% wage increase which was eective from August 2022. In addition, significant cost inflation of fuel, electricity and gas is being experienced in Bangladesh this year.

In August 2023 the government established a Wages Board for the tea industry and announced that the next wage increases would be 5% eective from each of August 2024 and August 2025, bringing much needed stability to the cost base for the future.

Kenya: Despite a dry start, tea production nationally was 1% higher in the first half than in H1 2022. Our estate production for the first half was 8% above that of the same period of 2022 with average prices down approximately 9%. We see a continued risk of downward price pressure for the remainder of the year due to high stocks of unsold teas in the market and foreign exchange shortages aecting key markets.

Malawi: Estate production was 2% below that of the same period last year due to the impact of cyclone Freddy in March and the very dry conditions that followed. Average prices are broadly in line with last year. Looking forward to the remainder of the year we see some risk that prices are impacted by the oversupplied market situation in East Africa. Sales have been delayed due to foreign currency shortages in certain markets and some logistics challenges as a legacy of the cyclone. Margins reflect the impact of wage increases of 13% eective from 1 August 2022 and a further 5% increase eective from January 2023.

Instant tea, branded tea and tea rooms

India: Branded tea sales volumes are lower than those of last year and, due to the sales mix, average prices are also down with a corresponding adverse impact on profitability.

UK: Revenue at Jing Tea in H1 2023 is up 22% on the prior year reflecting new wins and increased orders from existing customers as the hotels and leisure markets edge closer to pre-pandemic activity levels. Although margins have been adversely aected by inflation, particularly on packaging and logistics costs, overall losses are lower than those experienced in H1 2022.

Nuts and fruits

* See note 6 of the Accounts for details of the adjustments made to trading profit in arriving at adjusted trading profit/(loss)

Macadamia

We estimate that our combined macadamia harvest will be approximately 17% higher than that of 2022 at c1.9mkg. Higher production volumes are being achieved by all operations.

However, as previously announced, the kernel market is very subdued and there remains a large inventory of product carried over from last year which is impacting average prices and profitability of this crop. With China only recently opened post lockdowns, the level of demand for kernel has not yet recovered in that market although demand for Nut in Shell (which we do not produce) has experienced an early revival. Demand for kernel in the USA and Japan, although improving, is still down on pre-Covid levels. Pricing, particularly for smaller and commercial grades, continues to be c45% below that of last year with no sign of recovery for the current season.

Avocado

Production of our estate Hass crop in H1 was lower than that experienced in H1 2022 due to a later start on the back of later maturing fruit. The season is now reaching its peak and thus far logistics have generally worked well. The avocado tree has a natural tendency towards alternate or bi-annual bearing, widely known as 'on' and 'o' years and 2023 is an 'o' year. However we anticipate, due to improved yields from the increasing maturity of our planted areas, total production of estate Hass for the full year should be broadly in line with that of 2022.

Pricing in H1 2023 for the limited sales of estate Hass made in the period has been above that of the same period in 2022. European markets have been volatile at time depending on the volumes arriving from Peru. Given the early stage of the season and the small volumes sold to date, it is too soon to predict prices with any certainty for the remainder of the year.

The Pinkerton crop production in H1 was well ahead of last year with prices for fruit sold very much in line with prior year.

Other fruits

Bardsley England

Sales volumes in H1 2023 were 56% higher than in the corresponding period of 2022, however selling prices did not increase in any meaningful way, due to Bardsley England's contractual commitments. Despite the improved volumes, the impact of high levels of cost inflation during 2022 and further inflation in H1 2023 have resulted in a higher loss from this operation in the period. As previously announced, a restructuring of the business commenced in January 2023 with the closure of farming operations in West Kent and the closure of the River Farm packhouse which is expected to complete by the end of September 2023. Accordingly, the H1 results include £0.7 million for the costs of this restructuring. The refurbished packhouse in East Kent will commence operations in September in time for the new season.

The 2023 crops of cherries and plums are reasonable and prices have been significantly higher than those of last year.

The 2023 apple and pear crops are expected to be significantly lower in comparison to last year following the closure of farming operations in West Kent. In addition, Bardsley England does not expect to purchase any significant volumes of partner grower fruit from the 2023 harvest. Despite these two factors we expect a similar sales volume overall for the 2023 full year for Bardsley due to carried over stock from 2022. It is too soon in the season to determine how the quality of the 2023 harvest will compare to that of last year. Negotiations continue on pricing with potential customers in preparation for the approaching season. Encouraging levels of enquiries for service provision work are also being received. There remain a number of areas of ineciency in the business where we see opportunities to materially improve performance. As previously indicated, significant additional capital will be required to develop the field and packing operations, and it will take longer than anticipated to achieve the levels of profitability we would expect from this operation.

Other

The grape production season in the Cape ended with another record harvest 37% up on last year. All the grapes have been sold in a private sale arrangement to third-party wineries at similar prices to last year.

The Blueberry operation in Kenya is testing a number of new varieties, all of which are owned and supplied by Driscoll's, and have thus far shown encouraging yield results. The volume of production this year is anticipated to be relatively small due to the age profile of these new varieties and will be sold in the local market.

Other agriculture

The other agricultural crops have had a mixed first half with the following worth noting:

Sustainability

Ahead of the 2023 annual report, good progress is being made across the Group in preparation for the implementation of the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). As part of this eort, the Group has embarked on measuring its Scope 3 emissions. In conjunction with the Scope 1 and 2 emission data which we have been monitoring for some time, this will put us in a position to consider Science Based Targets for emission reduction. A water foot-printing exercise is also underway.

Investments

Engineering

The oil and gas services market in Aberdeen has seen some improvement with a corresponding increase in the demand for AJT's Engineering division's services. Revenue in the Site Services division, which is focused on the renewables sector, was in line with that of H1 2022 despite a key energy generation customer postponing maintenance projects in light of the energy crisis. Overall, losses at AJT Engineering declined in H1 2023 as a result of the increased activity, improved pricing and tight cost control.

Associates

Our share of the results from associates amounted to a profit of £3.2 million (H1 2022: loss of £4.5 million). This reflects significantly improved operating results from BF&M which returned to profitability in Q1 2023 as financial markets stabilised, having shown a very substantial loss in H1 2022. Following the agreement for the sale of our holding in BF&M, conditional on tax and regulatory approvals, it has been re-categorised to 'assets held for sale' resulting in a release of a previous impairment of £18.0 million. Going forward it will no longer be equity accounted and any dividends received in H2 prior to completion of the sale will be recorded as investment income in Camellia's 2023 full year results.

Investment portfolio

Our investment portfolio, which consists principally of listed equities, at 30 June 2023 was valued at £37.7 million (31 December 2022: £35.6 million).

Financial Position

The Group continues to have a strong balance sheet with substantial liquidity which amounted to £26.8 million in cash and cash equivalents net of borrowings as at 30 June 2023.

Pensions

The UK defined benefit scheme, on an IAS19 basis, has a deficit of £2.1 million (31 December 2022: deficit £1.1 million). The increase in the deficit since year end is due mainly to lower than projected asset returns. The deficit on the Group's defined benefit pension and post-employment benefit schemes overall now amounts to £9.4 million at 30 June 2023 (31 December 2022: deficit £8.4 million).

DIVIDEND

The Board is pleased to declare an interim dividend of 44p per share (2022 H1: 44p) payable on 13 October 2023 to shareholders registered at the close of business on 15 September 2023.

BOARD CHANGES

We were pleased, following a full search process, to confirm the appointment of Byron Coombs as Chief Executive Ocer with eect from 25 September 2023. Camellia's Chairman, Malcolm Perkins, who has also acted as Interim Chief Executive Ocer since 1 July 2022, will continue as Interim Chief Executive until then.

Malcolm Perkins will retire on 30 November 2023 after 51 years' service and will be succeeded from 1 December 2023 by Simon Turner, currently a Non-executive Director of the Company and a nominee of The Camellia Foundation on the Board.

In due course the Board intends to appoint an additional independent Non-executive Director to increase the number to three, one of whom will be appointed as Senior Independent Director.

OUTLOOK

As always, our financial results remain largely dependent on Agriculture where the largest portion of the production and sales take place in the second half of the year. It is therefore premature to provide any firm indication of the likely results for 2023.

However, taking account of current trends, revenue is expected to be broadly in line with that of last year and the Group is likely to record a singlegit adjusted loss before tax for the full year.

SUMMARY

Diversifying our interests in agriculture where we have scale and expertise and disinvesting those businesses where we have fewer long-term strategic advantages are key priorities and we continue to take significant steps to accelerate our programme.

The Board continues to believe that the actions that we are taking now will enhance the long-term value of the Group and provide additional opportunities for its success.

INTERIM MANAGEMENT REPORT

The Chairman's Statement and Operating Review form part of this report and it includes information about important events that have occurred during the six months ended 30 June 2023 and their impact on the financial statements set out herein.

Principal risks and uncertainties

The Report of the Directors in the statutory financial statements for the year ended 31 December 2022 (available on the Company's website: www.camellia.plc.uk) highlighted risks and uncertainties that could have an impact on the Group's businesses. As these businesses are widely spread both in terms of activity and location, it is unlikely that any one single factor could have a material impact on the Group's performance. These risks and uncertainties continue to be relevant for the remainder of the year. In addition, the Chairman's Statement and Operating Review included in this report refers to certain specific risks and uncertainties that the Group is presently facing.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that these condensed financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', and that the interim management report herein includes a fair review of the information required by sections 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

The Directors of Camellia Plc are listed in the Camellia Plc statutory financial statements for the year ended 31 December 2022. There have been no subsequent changes of Directors and a list of current Directors is maintained on the Group's website at www.camellia.plc.uk.

By order of the Board

Malcolm Perkins

Chairman

31 August 2023

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2023

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2023

CONDENSED CONSOLIDATED BALANCE SHEET

at 30 June 2023

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2023