Camellia Regulatory News (CAM)

CAMELLIA PLC

INTERIM RESULTS

Camellia Plc (AIM:CAM) announces its interim results for the six months ended 30 June 2021.

Malcolm Perkins, Chairman of Camellia, stated:

"As anticipated, the first half of 2021 has been exceptionally challenging operationally. Increased tea production and improved pricing in India and Bangladesh helped offset the impact of the oversupply of tea in Kenya and higher wages in Assam. The pandemic continues to have a direct impact on our engineering and food services businesses in the UK.

Notwithstanding these challenges, we have made good strategic progress, particularly with the acquisition of Bardsley England and the sale of our aerospace businesses.

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

Operational highlights

Strategic highlights

Financial highlights

* Underlying profit before tax is profit before tax from continuing operations excluding separately disclosed significant items (eg provision releases, impairments, costs relating to legal claims, profit on disposal of property)

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

The interim report will be available to download from the investor relations section of the Company's website www.camellia.plc.uk

Enquiries:

CHAIRMAN'S STATEMENT

Due to the normal seasonality in our business, we are reporting a first half loss before tax of £7.8 million (2020 H1: £12.9 million loss) which is significantly lower than that of the corresponding period of 2020 reflecting the high level of legal costs incurred and impairments in H1 2020. The underlying loss before tax for the first half was £7.3 million (2020 H1: £6.0 million loss). However H1 2020 also included an underlying profit before tax of £3.6 million from Horizon Farms and therefore, on a like for like basis, the underlying loss in H1 2021 was significantly smaller.

Our tea volumes in the period were 5% higher and we also saw significant improvements in our average selling prices in India and Bangladesh. However, the benefit of these was in large part offset by the significant increases in wages in Assam. Despite efforts being made by both the industry and governments around the world, the global tea market remains over-supplied and poorly priced and this can be seen most starkly in the prices achieved for our African teas. The reduced avocado crop and the extension of lockdown restrictions have also been unhelpful. Our associates, in particular BF&M, have made a substantial contribution to our performance in H1.

Strategy

As announced in the AGM statement in June, the Board of Camellia is undertaking a series of measures aimed at re-balancing the Group's portfolio of investments in order to take better advantage of its strengths, and thereby to improve profitability and share price performance. These measures include accelerating our agricultural diversification and divesting of certain assets which we consider to be non core.

In line with this and as announced in July, we have completed the acquisition of an 80% stake in Bardsley England, the UK's second largest apple grower, and disposed of our interests in the aerospace sector with the sales of Abbey Metal Finishing and Atfin.

Other strategic developments are included in the Operating review.

Outlook

Our full year outcome is expected to reflect lower underlying profit before tax from Agriculture (after adjusting for Horizon Farms £4.5 million full year underlying profit before tax in 2020) and from Engineering due in large part to a softening of activity in the oil and gas markets and the impact of Covid on the markets previously served by our aerospace business. This is expected to be offset in part by improved performance from Food Service and our associates. As always, our financial results remain largely dependent on Agriculture where the majority of harvesting and sales take place in the second half of the year. It is therefore too early to give a firm indication of the likely results for 2021.

Dividend

The Board is pleased to declare an interim dividend of 44p per share (2020 H1: nil) payable on 8 October 2021 to shareholders registered at the close of business on 10 September 2021 and will consider the overall dividend in respect of 2021 when the year is complete.

Board

It is with great sadness that we announced last month the death of our Deputy Chairman, Senior Independent Director and Chairman of the audit committee, Chris Relleen. Chris joined the Board in 2006 as a non-executive director, and we will remember Chris's contribution to the Board and miss his wise counsel, humility and humour.

The Board has today appointed William Gibson as Senior Independent Director and Gautam Dalal as Chairman of the audit committee. Simon Turner will join the nomination and remuneration committees.

People

Once again, I would like to thank all of our staff around the world for their continuing efforts in extremely difficult circumstances.

Malcolm Perkins

Chairman

1 September 2021

OPERATING REVIEW

COVID-19 AND TRADING UPDATE

People

The first half has been very tough for all of our staff and their communities. The virulent re-emergence of the pandemic in India and Bangladesh combined with further lockdowns in most of our production centres and markets have created a demanding operating environment. Vaccine roll-outs across most of our operating countries have been slow and difficult, and it is against that background that I would once again like to thank all of our staff for their efforts.

Trading

Full details of the trading results for the first half are set out below but in summary all of our businesses are operational, albeit in modified ways to take account of social distancing.

The key features that have impacted the first half of this year relative to H1 2020 have been:

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

Acquisitions and Disposals

Following the end of the first half we completed three important strategic transactions. First, we acquired an 80% share in Bardsley England for £15.7 million and have also made a loan to Bardsley of £9.3 million. Bardsley is a major fruit farming business and the UK's second largest apple grower. The farming operation covers 850 hectares in Kent and grows apples, pears, cherries, plums and strawberries as well as having a large grading, packing and storage facility. Bardsley is an innovator in the use of agritech and regenerative agriculture. Customers include major supermarkets in the UK.

Bardsley's focus on perennial agriculture, its UK base, innovative thinking and prospects for immediate and exciting growth makes this a significant acquisition for the Group.

We also took the decision to dispose of our two interests in the aerospace sector which had been hit very hard by the downturn in air travel resulting from the pandemic. We believe that the capital required to maintain the operations in an uncertain environment could be better deployed in our core business.

Financial Position

The Group has a strong balance sheet with substantial liquidity which amounted to £62.1 million in cash and cash equivalents net of borrowings as at 30 June 2021. In order to part fund the Bardsley acquisition, disposals of easily liquidated assets were made from the investment portfolio amounting to £14.2 million. The Group may sell certain less liquid, non income generating assets in order to fund strategically important acquisitions.

FIRST HALF OPERATING RESULTS

Agriculture

The revenue and underlying trading (loss)/profit by crop during the period is set out below. The Appendix at the end of this interim report includes details of the revenues and underlying trading profits for the last 5 financial years.

Note: Please see note 5 for further segmental information and note 6 for details of the adjustments made to trading profit in arriving at underlying trading (loss)/profit for the Agriculture division.

Tea

Overall tea production in the first half was up 5% at 44.1mkg (H1 2020: 42.0mkg), though different regions experienced markedly different conditions. Pricing has been mixed with continued weakening of average prices in Africa but in India and Bangladesh CTC prices have firmed while Orthodox prices declined over the same period last year.

India: The Covid situation in India remains deeply concerning despite the extensive efforts made to keep all our staff safe, including restricting workforce deployment to 50% in West Bengal. Production in the first half of the year was 17% up on the same period last year largely due to less severe lockdowns in the current year offset in part by the impact of very dry weather early in the season.

Prices for CTC teas in both the Dooars and Assam have been higher than H1 2020. Pricing for Assam orthodox teas which constitute most of our production in that region, are significantly lower than in H1 2020. As previously announced, wages in Dooars increased 14.8% for 2021 and in Assam increased 22.75% effective from 23 February 2021 which will have a substantial impact on profitability of tea. It is still very early in the India tea sales cycle (around 70-75% of sales are made in the second half of the year) which makes predicting prices for the remainder of the year inherently uncertain even without the impact of Covid.

Bangladesh: Despite a dry hot start to the season, favourable weather thereafter led to a record June crop and production was up 25% on H1 2020. Average pricing has also been significantly better (up 63% in H1).

Kenya: In Kenya, benign weather continues to result in high volumes of tea production nationally, although below the record levels of last year. Our estate production for the first half was 11% below that of the same period of 2020 with average prices down approximately 2%. We continue to see a risk of further downward price pressure for the remainder of the year.

The low prices continue to have political repercussions and the implications of the new regulations for the tea sector, published by the Kenyan Government, remain uncertain. It is hoped the legislation will restrain production and improve prices.

Malawi: Estate production was approximately 14% higher than the same period last year due to better growing conditions but sales have been delayed due to the uncertainty created by the Malawi Revenue Authority's investigation into the applicability of VAT to certain tea sales, as reported in our 2020 annual report. This is expected to be a timing issue as between H1 and H2 sales. Average tea prices were 2% higher than H1 2020 but due to oversupply in the Kenyan market, we expect lower prices in the second half.

Macadamia

We estimate that our combined macadamia harvest will be approximately 21% higher than that of 2020 at 1.3mkg despite the pest damage in Malawi that we previously reported. Higher volumes were achieved by all operations, particularly South Africa.

Although the kernel market is active with both demand and prices improving as the year continues, we expect our average prices to be 16% below those of last year due to the adverse grade mix and the low value stock lines carried forward from 2020.

Avocado

Production volumes of our estate Hass crop in H1 were down 18% against H1 2020. The season is well underway and thus far logistics have generally worked well despite the challenges presented by the pandemic. The avocado tree has a natural tendency towards alternate bearing, widely know as 'on' and 'off' years and 2021 is an 'off' year. We anticipate total production of estate Hass for the full year to be approximately 30% below 2020.

Pricing in H1 2021 has been marginally ahead of that of the same period in 2020. However, European markets are currently over supplied with avocados and it is too soon to predict prices with any certainty for the remainder of the year. It is however unlikely that prices will improve sufficiently to offset the lower yield.

Speciality Crops

Our speciality crops have generally had a good first half and the following is worth noting:

Strategic developments

The following strategic developments in the agriculture division should be noted:

Engineering

The oil and gas services market in Aberdeen has seen some softening of demand for AJT's Engineering division with a consequent reduction in margins, while the Site Services division, which is focused on the renewables sector, has seen a significant increase in activity over H1 2020.

As previously announced, the sales of Abbey Metal Finishing and its subsidiary Atfin were completed in the first week of August. Revenues from these businesses up to that date were disappointing at £1.7 million with losses before taxation at £0.8 million. A further impairment of £0.5 million has been recorded as a consequence of the continued deterioration of their trading conditions prior to disposal.

Food Service

After a difficult start to the year, ACS&T is showing signs of improvement as the lockdown is lifted.

Jing Tea has been largely closed throughout the lockdown, with only the on-line trading platform remaining busy. Recovery for Jing remains dependent on the recovery of the hotel, restaurant and tourism sectors.

Investments and Associates

Our investment portfolio, which consists principally of listed equities, at 30 June 2021 was valued at £51.3 million (31 December 2020: £50.6 million). Following the disposal programme during July, the value of the investment portfolio was £37.4 million at 31 July 2021.

Our share of profits from associates amounted to £3.8 million (H1 2020: £2.5 million) reflecting strong operating results from BF&M. BF&M recorded net income up 42% at $15.1 million (2020 H1: $10.6 million) due to a 15% uplift in gross premiums written in the period compared to H1 of the prior year. This was driven by increased property premiums in the Caribbean and from health & annuities premiums in Bermuda. Short term claims and adjustment expenses increased by 64% and life and health policy benefits decreased by 43% to $33.7 million.

Pensions

The UK defined benefit scheme is now in surplus by £6.6 million (31 December 2020: deficit £7.0 million) due to a combination of better asset returns than projected and higher discount rates. The deficit on the Group's defined benefit pension and post employment benefit schemes overall now amounts to £4.8 million at 30 June 2021 (31 December 2020: £16.6 million).

Safeguarding and Stewardship Committee

We are pleased to report good progress from the newly formed Safeguarding and Stewardship Committee formed following the human rights allegations last year and in particular the appointment of an additional external member, Vinita Singh Phougat. Vinita is based in India and has extensive experience in empowering individuals and workers within supply chains across a variety of sectors, and in helping businesses to understand how they can contribute to improving working conditions. In addition, Malcolm Perkins has also joined the committee.

Summary

2021 to date has been an important time for the Group especially in respect of progress with the implementation of our strategy. The on-going impact of the pandemic and the continuing weakness in the price of tea globally, has led the Board to accelerate its plans. 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 have taken significant steps in their implementation.

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

Tom Franks

Chief Executive

1 September 2021

INTERIM MANAGEMENT REPORT

The Chairman's statement and Operating review form part of this report and include important events that have occurred during the six months ended 30 June 2021 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 2020 (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 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 consolidated 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 2020. As reported on 6 August 2021, Senior Independent non-executive Director Chris Relleen, sadly passed away. There have been no other 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

1 September 2021

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2021

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2021

CONDENSED CONSOLIDATED BALANCE SHEET

at 30 June 2021

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2021

For the purposes of the cash flow statement, cash and cash equivalents are included net of overdrafts repayable on demand.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2021

NOTES TO THE ACCOUNTS

1 Basis of preparation

These financial statements are the interim condensed consolidated financial statements of Camellia Plc, a company registered in England, and its subsidiaries (the "Group") for the six month period ended 30 June 2021 (the "Interim Report"). The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the Report and Accounts (the "Annual Report") for the year ended 31 December 2020.

The financial information contained in this interim report has not been audited and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2020 has been delivered to the Registrar of Companies. The auditors' opinion on these accounts was unqualified and does not contain an emphasis of matter paragraph or a statement made under Section 498(2) and Section 498(3) of the Companies Act 2006.

The interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including IAS 34 "Interim Financial Reporting". For these purposes, IFRS comprise the Standards issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Standards Interpretations Committee ("IFRS IC").

These interim condensed consolidated financial statements were approved by the Board of Directors on 1 September 2021. At the time of approving these financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue to operate for the foreseeable future. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements.

2 Changes to accounting policies

These interim condensed financial statements have been prepared on the basis of accounting policies consistent with those applied in the financial statements for the year ended 31 December 2020. Amendments to IFRSs effective for the financial year ending 31 December 2021 are not expected to have a material impact on the Group.

3 Going concern

As set out in the Operating review, our businesses are currently operating broadly as normal. Our experience over the last year has given us valuable insight into how the pandemic impacts our markets and businesses. Despite this, it remains difficult to predict with any certainty the impact of COVID on the Group during the remainder of this year. Accordingly, we continue to take actions to conserve cash by focusing on efficiencies, minimising our operating costs and focusing capital expenditure across the Group.

The Directors considered the impact of the current COVID environment on the business for the next 15 months. We have considered several variables which may impact on revenue, profits and cash flows. In light of the nature of our business and our experience of trading through the pandemic so far, we expect our agriculture businesses will continue to operate broadly as currently. In the UK we have assumed that the food service market begins to recover gradually over the course of the next two years.

At 30 June 2021, the Group had cash and cash equivalents of £66.1 million with loans outstanding of £4.2 million. In addition, the Group had undrawn short-term loan and overdraft facilities of £17.9 million and a portfolio of liquid investments with a fair market value of £51.3 million.

We have modelled various severe but plausible scenarios using assumptions including the combined effect of reduced tea prices, reduced avocado pricing and reduced sales volumes for macadamia. The revenue and operational impact of such reductions across our operations would have a substantially negative impact on Group profitability. We have also considered the risk of volume reductions for our tea, macadamia and avocado crops.

The Directors believe that the Company and the Group are well placed to manage their financing and other business risks satisfactorily and have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. The Directors therefore continue to adopt the going concern basis in preparing the financial statements.

4 Cyclical and seasonal factors

Due to climatic conditions the Group's tea operations in India and Bangladesh produce most of their crop during the second half of the year. Tea production in Kenya remains at consistent levels throughout the year but in Malawi the majority of tea is produced in the first six months.

Soya in Brazil is generally harvested in the first half of the year. The majority of the macadamia crop in Malawi and South Africa is harvested in the second half of the year but in Kenya the majority of macadamia is harvested in the first half. Avocados in Kenya are mostly harvested in the second half of the year.

There are no other cyclical or seasonal factors which have a material impact on the trading results.

5 Segment reporting