Camellia Regulatory News (CAM)

CAMELLIA PLC

INTERIM RESULTS

Camellia Plc (AIM:CAM) announces its interim results for the six months ended 30 June 2022.

Malcolm Perkins, Chairman and Interim CEO of Camellia, stated:

"The combination of extreme weather conditions, continuing disruption on account of the pandemic, war in Ukraine, inflation, supply chain delays and industrial unrest have all conspired to make this year one of the most difficult we have encountered. We are pleased to report that the majority of our operations are weathering this unprecedented storm well, Camellia remains financially strong and that we are continuing our strategy of diversifying our agricultural production by both crop and origin.

Revenues increased 19% in the period from improvements in all divisions and reflecting the acquisition of Bardsley England. Due to the nature of our cropping patterns and sales, we booked a loss for the period. The H1 loss before tax is higher at £15.6 million (2021 H1: £7.8 million loss) in large part due to the impact of stock market volatility on BF&M's investment valuations and due to significant wage increases in India and Bangladesh. 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. This year, BF&M, where stock market performance and the prevalence of hurricanes in the second half of the year are critical, will also be a significant factor in our results, as will the ongoing wage negotiations in Bangladesh. 

In light of further wage negotiations in the past few days between the Bangladesh government and tea workers, the recently announced 20.8% increase in Bangladesh wages has been amended to a 41.7% increase. Whilst negotiations have not yet concluded, assuming the proposed increase takes effect, we now expect adjusted profit before tax for the full year to be below that of last year.

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

* Adjusted (loss)/profit before tax is (loss)/profit before tax from continuing operations excluding separately disclosed significant items (eg impairments, restructuring costs, costs of acquisitions, profit/(loss) on disposal of property or other assets)

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:

Notes

* Adjusted (loss)/profit before tax is profit before tax, impairments, profit on disposals of financial and other assets and before exceptional items or items considered non-operational in nature. The following items are examples of items considered exceptional or non-operational which would be excluded in arriving at adjusted trading profit:

- Profits on disposal of assets classified as held for sale

- Restructuring costs

- Costs of acquisition

- Loss on disposal of subsidiaries

- Impairments of intangible assets and property, plant and equipment

CHAIRMAN'S STATEMENT AND OPERATING REVIEW

TRADING UPDATE

The first half has been very challenging for all of our staff and their communities. The ongoing effects of the pandemic combined with the impact of the Ukraine conflict on world markets and generally higher rates of inflation, continue to result in a demanding operating environment. It is against this background that I would once again like to thank all of our staff for their efforts.

Revenue increased 19% to £125.8 million (2021 H1: £105.5 million) reflecting higher revenues in all divisions and the effect of the acquisition of Bardsley England. 

As is customary at this time of the year, due to the nature of our cropping patterns and sales we are reporting a first half loss before tax of £15.6 million (2021 H1: £7.8 million loss) which is higher than that of the corresponding period of 2021 for the reasons set out below.

The H1 trading loss in Agriculture was 49% higher than that of H1 of the prior year at a loss of £9.1 million. Our tea volumes in the period were 10% lower though we saw significant improvements in our average selling prices in India and Kenya, offset in part by lower prices in Bangladesh and Malawi. However, the benefit of the price increase in India was insufficient to offset the impact of lower production coupled with a significant increase in wages in the West Bengal region effective from the start of the year. Bangladesh is also experiencing significantly higher wage inflation back dated to the start of 2021 from ongoing negotiations. H1 2022 includes a loss for Bardsley England, which was acquired at the end of July 2021. The arable operations in Brazil produced slightly lower volumes of soya but prices have been better than last year.

There were improvements in the results from Engineering and Food Service as markets reopened. The disposal of the loss making aerospace businesses, Abbey Metal Finishing and Atfin, (which contributed £0.8 million of losses for the Engineering division in H1 2021) also made a positive impact on profits for the period.

Unfortunately the results of BF&M swung from a profit in H1 2021 to a very substantial loss in H1 2022 adversely impacting our results. BF&M made a significant loss in the period due in large part to the impact on its income statement of marking its investment portfolio to market valuation following the significant volatility in equity and bond markets.

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

Strategy

As announced in the AGM statement in June, the Board of Camellia is focussing on implementing its strategy to invest in the expansion of the Group's agricultural interests. This is specifically, to diversify both the location of its interests and the crops which it produces - this assists to mitigate against the impact of adverse weather patterns, political instability, and commodity price movements in particular. Our core competencies are in managing and developing large-scale bearer plant estates and our strategy seeks to leverage these competencies.

The actions taken over recent years to reduce the scale of our non-agriculture activities and assets and reduce our exposure to loss making operations is expected to continue.

Acquisitions and Disposals

As indicated in our last full year results announcement, a number of properties and items of art and manuscripts were held for sale. A gain of £1.5 million is reflected in the Income Statement following the sale of assets with a net book value of £2.1 million in H1 2022. A number of items remain to be sold in the coming months.

Strategic investments

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

COVID and Ukraine

As most of the world starts to return to normal after Covid there has been an increased demand for goods and this, coupled with the conflict in Ukraine, has led to higher rates of global inflation and an increased strain on global logistics channels. Key components for our engineering business are being delayed and deliveries to some customers are also subject to delay. Inflationary increases are being experienced in shipping and logistics costs, in the cost of fuel, electricity, fertilisers and chemicals, across all operations.

Financial Position

The Group has a strong balance sheet with substantial liquidity which amounted to £37.1 million in cash and cash equivalents net of borrowings as at 30 June 2022.

As previously stated, the Group may sell certain less liquid, non income generating assets in order to fund strategically important acquisitions and investments.

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 down 10% at 39.6mkg (H1 2021: 44.1mkg), with the various regions experiencing markedly different conditions. Pricing has been mixed with weaker average prices in Malawi and Bangladesh but in India and Kenya, CTC prices have firmed, whilst Orthodox prices have increased substantially over the same period last year.

India: Despite a more normal deployment of staff following the relaxation of Covid restrictions, production in the first half of the year was broadly in line with that of H1 2021 due to challenging weather conditions which resulted in yields below historic norms.

Prices for CTC teas in both the Dooars and Assam have been higher than in H1 2021. Pricing for Assam orthodox teas, which constitute most of our production in that region, are also significantly higher than in H1 2021 partially as a result of disruption in Sri Lanka. As previously announced, wages in West Bengal increased 15% for 2022. Assam wages have also now been agreed with an increase of 13% effective from the beginning of August which will impact profitability in the second half of the year. 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 difficult.

Bangladesh: Due to a very dry start to the season, then very wet weather and flooding, production is down 11% on H1 2021. Average pricing was also 11% lower than last year. In recent weeks strike action by tea industry workers over wages has further impacted production. As we announced last week, a wage increase of 20.8% (effective 1 January 2021) had been mandated by the government and agreed by the unions. However, this was subsequently rejected by tea workers. Further negotiations have taken place between the parties resulting in a government mandated increase of 41.7% (effective 1 January 2021). The final agreement has yet to be concluded and negotiations are continuing. In the meantime the estates are slowly returning to work. The most recent auction sales prices are above those of last year but our average price overall remains below that of last year.

Kenya: In Kenya a dry first quarter resulted in lower volumes of tea production nationally than last year. Our estate production for the first half was 19% below that of the same period of 2021 with average prices up approximately 27%. We see some risk of downward price pressure for the remainder of the year due to high stocks of unsold teas in the market and lower prices in the last couple of auctions support that concern.

It is pleasing to note that the elections held on 9 August 2022 have been conducted in a peaceful atmosphere. The results are being contested and the situation remains peaceful nationally.

Malawi: Estate production was down 5% over the same period last year due to a late arrival of the rains. Prices have remained under pressure at levels 5% lower than last year on average. Sales have been delayed due to the logistics challenges arising from a scarcity of containers and flooding disruption at Durban in South Africa earlier in the year. Wage increases effective from 1 August 2022 have been finalised at 13%.

Instant tea, branded tea and tea rooms

India: Branded tea sales volumes are broadly in line with those of last year however, due to the sales mix, average prices are lower and margins improved.

UK: Revenue at Jing Tea in H1 2022 is up 45% on prior year reflecting the reopening of many hotels and restaurants and the return of customers following the lifting of Covid restrictions. Although margins have been adversely affected by inflation, particularly on packaging and logistics costs, overall losses are lower than those experienced in H1 2021. The disruption in Sri Lanka is also having a negative impact on Jing Tea's supply chain.

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 20% higher than that of 2021 at 1.6mkg. Higher volumes are being achieved by all operations, particularly Malawi.

Although the kernel market is reasonably active there remains a large inventory of smaller style product carried over from last year which is impacting average prices. With China still enforcing lockdowns, the level of demand has not yet recovered in that market and demand in the USA and Japan, although improving, is still subdued. Pricing, particularly for commercial grades, continues to be under pressure 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 2021. The season, which has been slightly delayed, is now well underway and thus far logistics have generally worked well despite the challenges presented post pandemic. The avocado tree has a natural tendency towards alternate or bi-annual bearing, widely known as 'on' and 'off' years and 2022 is an 'on' year. We anticipate total production of estate Hass for the full year to be approximately 50% above that of 2021.

Pricing in H1 2022 for the limited sales of estate Hass made in the period has been below that of the same period in 2021. European markets have improved somewhat in the last few weeks following a reduction in volumes arriving from Peru. Given the early stage of the season, it is too soon to predict prices with any certainty for the remainder of the year.

Other fruits

Bardsley England's crops of cherries, plums and apricots are reasonable. The apple and pear crops have been subjected to unprecedented levels of heat and drought conditions in the UK over the last month which could impact on fruit sizing and volumes. Bardsley England has experienced significant levels of wage inflation in conjunction with rises in energy, fertiliser and transport costs, of which only a part have been absorbed in pricing adjustments to date. Negotiations continue on pricing with major customers in preparation for the approaching season. There remain a number of areas of operational inefficiency in the business where we see opportunities to materially improve performance. 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.

The grape production season in the Cape ended with a record harvest 17% up on last year. All the grapes have been sold in a private sale arrangement to a third-party winery at similar prices to last year.

The Blueberry operation is in the process of implementing a change of variety so the volume of production this year is anticipated to be minimal. Most product will be sold in the local market. The new varieties being tested, all of which are owned and supplied by Driscoll's, have thus far shown encouraging yield results.

Other agriculture

The other agricultural crops have generally had a good first half and the following is worth noting:

Investments

Engineering

The oil and gas services market in Aberdeen has improved with a corresponding increase in the demand for AJT's Engineering division's services, however supply chain issues are continuing to result in lower revenues and a lower contribution from this operation. Activity in the Site Services division, which is focused on the renewables sector, has increased over that of H1 2021 with a resultant improvement in profitability. Overall losses at AJT Engineering reduced by 25% assisted by tight cost control.

The Engineering division's results for H1 2021 include losses from Abbey Metal Finishing and its subsidiary Atfin which were both sold in August 2021. Revenues from these businesses up to the date of disposal were £1.7 million with losses before taxation at £0.8 million.

Food Service

After a difficult start to the year, ACS&T is showing improved trading as food service businesses in general have opened up. As previously announced, from the start of the fourth quarter of the year revenue and profits will be impacted by the loss of a major transport customer, offset in part by a number of new customers in its warehousing business.

Investments

Our investment portfolio, which consists principally of listed equities, at 30 June 2022 was valued at £35.5 million (31 December 2021: £40.2 million).

Associates

Our share of the results from associates amounted to a loss of £4.6 million (H1 2021: profit of £3.8 million). Thus reflects significantly reduced operating results from BF&M with H1 2022 results negatively impacted by the requirement to mark investments to market value with movements being taken through the income statement. Net income from operations after excluding the negative fair value movements in investments was Bermudian dollar 4.3 million versus Bermudian dollar 13.3 million in the first six months of 2021. Losses in Q2 have continued to be driven by factors previously announced on 30 June 2022 including rising interest rates and stock market volatility. Gross premiums written for H1 2022 increased by 6% from the prior year driven by increased property premiums and new business. The Life, Health and Pensions-related businesses experienced higher than anticipated claims costs and lower underwriting results. Higher reinsurance costs and a slightly increased incidence of property losses also impacted BF&M's P&C business in the first half of the year.

We eagerly await the result of BF&M's strategic options review.

Property

Further development of redundant agricultural barns on the Linton Park estate is ongoing.

Pensions

The UK defined benefit scheme is now in a surplus of £9.4 million (31 December 2021: surplus £14.7 million). The reduction in the surplus is due mainly to lower asset returns than projected offset in part by the impact of higher discount rates. The surplus on the Group's defined benefit pension and post-employment benefit schemes overall now amounts to £2.0 million at 30 June 2022 (31 December 2021: surplus £5.1 million).

Dividend

The Board is pleased to declare an interim dividend of 44p per share (2021 H1: 44p) payable on 7 October 2022 to shareholders registered at the close of business on 9 September 2022.

Outlook

As always, our financial results remain largely dependent on Agriculture where most of the production and sales take place in the second half of the year. This year the results of BF&M, where stock market performance and the prevalence of hurricanes in the second half of the year are critical, will also be a significant factor in our results. It is therefore premature to provide any firm indication of the likely results for 2022.

However, taking account of the latest position on the Bangladesh wage negotiations, if current trends continue and assuming a normal H2 for BF&M, although revenue is expected to be slightly above market expectations, the adjusted profit before tax for the Group for the year will now be below market expectations and below that of last 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 are taking significant steps to accelerate its implementation.

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 includes important events that have occurred during the six months ended 30 June 2022 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 2021 (the accounts are 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 2021. As previously reported, chief executive, Tom Franks and non-executive Directors, Gautam Dalal and William Gibson ceased to be Directors on 30 June 2022. Rachel English was appointed as an independent non-executive Director on 8 June 2022. 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 and Interim CEO

31 August 2022

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2022

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2022

CONDENSED CONSOLIDATED BALANCE SHEET

at 30 June 2022

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2022