Camellia : Interim Report 2022

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

• Tea:

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higher average tea prices in India and Kenya, offset in part by lower tea production down 10%,

price pressure in Bangladesh and Malawi as well as margin impact from significant wage increases in India and Bangladesh

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Macadamia production volumes expected to be 20% up though average selling prices are lower

Avocado production expected to be significantly higher than last year. Prices have been volatile and are difficult to predict for the full year

Bardsley England is showing improved crop prospects and lower losses are expected than for the prior year

Arable crops generally enjoyed a strong first half due to continued firm pricing for soya and maize, whilst other speciality crop results have been mixed.

Mixed performance from other businesses with significantly lower results from Associates (BF&M) but improved trading in both Engineering and Food Service

Strategic highlights

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Continued focus on expansion of agricultural interests and reduction in non-agricultural activities

BF&M strategic options review has commenced with results awaited

Further progress made on geographic and crop diversification

• • In Tanzania, 96Ha of avocado planted in the first half of the year bringing the total to 152Ha, with a further 90Ha anticipated to be planted by the end of H2
  • In South Africa, 40Ha of avocado has been planted with a further 40Ha to be planted in the last quarter of the year
• Camellia remains financially strong with significant liquid resources

Financial highlights

	Six months	Six months	Year ended
	ended	ended	31 December
	30 June 2022	30 June 2021	2021
	£'m	£'m	£'m
Revenue - continuing operations	125.8	105.5	277.2
Adjusted (loss)/profit before tax*	(17.1)	(7.3)	8.8
Significant separately disclosed items and	1.5
provision releases		(0.5)	(1.7)
(Loss)/profit before tax for the period	(15.6)	(7.8)	7.1
(Loss)/profit after tax for the period	(19.1)	(6.1)	4.5
(Loss)/earnings per share	(724.1)p	(220.9)p	83.3p
Dividend per share for the period	44p	44p	146p
Net cash and cash equivalents net of	37.1	62.1	54.0
borrowings
Investment portfolio market value	35.5	51.3	40.2

• 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:

Camellia Plc	01622 746655
Malcolm Perkins, Chairman and Interim CEO
Susan Walker, CFO
Panmure Gordon	0207 886 2500
Nominated Advisor and Broker
Emma Earl
Erik Anderson
Maitland/AMO
PR
William Clutterbuck	07785 292617

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:

• In Tanzania, 96Ha of avocado were planted in the first half of the year bringing the total to 152Ha, with a further 90Ha anticipated to be planted at the end of the year
• In South Africa, 40Ha of avocado have been planted with a further 40Ha to be planted in the last quarter of the year

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

	H1 2022	H1 2021	Full year 2021
	£'m	£'m	£'m
Revenue
Tea	77.3		72.9		196.2
Nuts and fruits	17.7		5.6		31.2
Other agriculture	10.7		7.1		11.4
	105.7		85.6		238.8
Trading (loss)/profit
Tea	(12.8)	(7.9)	10.8
Nuts and fruits	1.3		0.3		(2.4)
Other agriculture	2.4		1.5		4.8
	(9.1)	(6.1)	13.2

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

Tea

	Tea estate production &	Instant tea, branded tea &
		manufacturing			tea rooms
	H1	H1	Full year	H1	H1	Full year
	2022	2021	2021	2022	2021	2021
	£'m	£'m	£'m	£'m	£'m	£'m
Revenue	61.5	58.3	161.5	15.8	14.6	34.7
Adjusted trading
(loss)/profit*	(12.6)	(7.0)	10.7	(0.2)	(0.9)	(0.5)
Trading (loss)/profit	(12.6)	(7.0)	11.3	(0.2)	(0.9)	(0.5)

• 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.

	H1 2022		H1 2021		Full year 2021
	Volume		Volume		Volume
	mkg		mkg		mkg
India	8.2	8.1	26.1
Bangladesh	3.1	3.5	14.4
Kenya	6.0	7.4	14.9
Malawi	12.5		13.2		20.0
Total own estates	29.8	32.2	75.4
Bought leaf production	7.9	9.6	19.2
Managed client production	1.9		2.3		4.5
Total made tea produced	39.6		44.1		99.1

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

	Macadamia			Avocado		Other fruits
	H1	H1	Full year	H1	H1	Full year	H1	H1	Full year
	2022	2021	2021	2022	2021	2021	2022	2021	2021
	£'m	£'m	£'m	£'m	£'m	£'m	£'m	£'m	£'m
Revenue	6.0	4.5	10.8	1.4	1.1	11.1	10.3	-	9.3
Adjusted trading
profit/(loss)*	2.5	(0.5)	2.7	0.8	1.0	(0.5)	(2.0)	(0.2)	(4.1)
Trading profit/(loss)	2.5	(0.5)	2.7	0.8	1.0	(0.5)	(2.0)	(0.2)	(4.6)

• 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