Camellia : Annual Report 2023

CAMELLIA PLC

Camellia Plc     Annual Report 2023

2023

136

CAMELLIA PLC

REPORT AND ACCOUNTS 2023

CONTENTS

page

Camellia at a glance	2
Directors and advisers	4
Chairman's Statement	5
Chief Executive's Statement	6
Operational Report	8
Environmental and Social Report	17
Strategic Report	29
Corporate governance	35
Report of the Directors	49
Remuneration Report	53
Statement of Directors' responsibilities	55
Consolidated income statement	56
Statement of comprehensive income	57
Consolidated balance sheet	58
Company balance sheet	59
Consolidated cash flow statement	60
Company cash flow statement	61
Statement of changes in equity	62
Accounting policies	63
Notes to the accounts	80
Appendices	136
Report of the independent auditors	140
Five year record	152

1

CAMELLIA PLC

CAMELLIA AT A GLANCE

We are an international Group of companies headquartered in the UK and focused on agriculture. As a Group we are committed to doing the right thing: ethically and commercially.

Good stewardship is a core ethos of the Group; holding sustainable businesses in trust for future generations. Group companies continuously seek to improve the long-term stability and wellbeing of their businesses and the communities and environments in which they operate. We promote the use of sustainable agricultural practices and encourage Group companies to protect and enhance their environment and communities.

Purpose and strategy

We aim through our Group companies to generate long-term value for shareholders and other stakeholders, which include employees, customers, suppliers and communities.

The Group's strategy is to focus on agriculture and the sustainable production of all its crops, whilst continuously assessing opportunities to diversify by both crop and origin. We aim to continually improve operational efficiency and sustainability which is not only a driving force for enhancing profitability but also a powerful tool to reduce environmental impact and benefit communities.

As previously communicated, execution of this strategy will involve divesting non-agriculture assets as appropriate opportunities arise.

Our business is made up as follows:

Agriculture

2023: Revenue - £255.6 million (2022: £283.0 million), trading loss £5.6 million

(2022: £15.5 million profit)

		Mature	Immature
		Area	Area
Tea	Locations	Ha	Ha
Production and manufacturing	India, Bangladesh, Kenya, Malawi	34,462	2,132
Instant tea, branded tea and
tea lounges	India, UK	-	-
Nuts and fruits
Macadamia	Kenya, Malawi, South Africa	3,336	574
Avocado	Kenya, Tanzania, South Africa	821	587
Other fruits	Kenya, South Africa	418	53
Other agriculture
Forestry	Kenya, Malawi, Brazil	2,602	2,984
Arable	Brazil	3,860	-
Rubber	Bangladesh	1,654	26
Livestock	Kenya	4,506 head	-

2

CAMELLIA PLC

CAMELLIA AT A GLANCE

Other investments

Engineering

2023: Revenue - £15.7 million (2022: £13.2 million), trading loss £0.3 million

(2022: £0.8 million loss)

	Location
AJT Engineering	UK

Investments

		Market value at
		31/12/2023
	Locations	£'m
Investment Portfolio	Global	38.1
Investment Property	UK, Malawi	23.3
Collections (stated at cost)	UK, India	7.5
Assets held for sale	UK, Bermuda	82.3*

* Includes investment property, items from the Collections and BF&M categorised as held for sale

Associates

2023: Share of results after taxation - £3.4 million profit* (2022: £3.7 million loss)

			Market value
			at 31/12/2023
	Locations	Holding %	£'m
United Finance (Banking)	Bangladesh	38.4	8.1
United Insurance (Non-life insurance)	Bangladesh	37.0	5.3

* Includes share of results of BF&M until it was reclassified as held for sale

3

CAMELLIA PLC

DIRECTORS AND ADVISERS

Directors	Simon Turner	Non-executive Chairman
	Byron Coombs	Chief Executive
	Graham Mclean	Director of Agriculture
	Susan Walker	Chief Financial Officer
	Stephen Buckland	Non-executive Director
	Rachel English	Independent non-executive Director
	Frédéric Vuilleumier	Independent non-executive Director
	Board committee membership is detailed on pages 35 to 38
Company Secretary	Anita Denise Bodri
Registered office	Wrotham Place
	Bull Lane
	Wrotham
	Near Sevenoaks
	Kent TN15 7AE
Registered Number	00029559
Nominated adviser and	Panmure Gordon (UK) Limited
broker	40 Gracechurch Street
	London
	EC3V 0BT
Registrars	Link Group
	10th Floor
	Central Square
	29 Wellington Street
	Leeds LS1 4DL
Independent auditors	Deloitte LLP
	Statutory Auditors
	1 New Street Square
	London EC4A 3HQ
PR	H Advisors Limited
	3 Pancras Square
	London N1C 4AG
Website	www.camellia.plc.uk

4

CAMELLIA PLC

CHAIRMAN'S STATEMENT

It is a great honour to take on the role of Chairman of Camellia Plc. The Board joins with the Camellia family in thanking Malcolm Perkins for over five decades of dedicated service to the Group and wishes him a long and happy retirement.

We have also recently announced that Susan Walker, Chief Financial Officer, has chosen to pursue a portfolio career and will not stand for re-election as CFO and Director at the forthcoming AGM. I thank Susan for her significant contribution and dedication over the past nine years and wish her well for the future. Having undertaken an extensive search, we are pleased to announce the appointment of Oliver Capon as the new CFO, and to propose his election to the Board at the AGM. Oliver is an experienced and commercial CFO with thirty years of experience, initially at Arthur Andersen and subsequently at Shell Plc, and we believe he will bring valuable skills to the executive team. In addition, we have previously indicated that we would increase the number and breadth of expertise of the Board's independent non-executive Directors, and I can confirm that we are making good progress in this matter.

It seems appropriate, with so many global challenges impacting society, business and many of our Group's markets and communities, to pause and reflect on the past as well as looking towards the future. Our new Chief Executive, Byron Coombs, has been doing just that, formulating a future business strategy which engages the Camellia culture and values. We believe that in difficult market conditions our values become even more important in maintaining our Group companies' licence to operate in each of their communities. The foundations of the Camellia philosophy will therefore underpin all that we seek to achieve in the years ahead, as they did in the past.

At this time of transition, it is worth reiterating the essence of this approach. The Board considers that the operational and financial success of Camellia is of the utmost importance because it is fundamental to the fulfilment of the responsibility it feels both to shareholders as well as others closely related to the Company. This sense of responsibility requires us to run a sustainable business with a patient, long-term perspective, which aims to deliver an attractive return to shareholders, at the same time as providing meaningful employment and development opportunities to its staff in a positive working environment.

It demands that we exercise good stewardship as a stable and supportive shareholder to Group companies so that they can be run effectively and sustainably: providing goods and services of the highest quality to their customers, having a real concern for the welfare of their employees and communities and working in harmony with the natural environment. Moreover, it obliges us in all our activities to promote integrity, professionalism, fairness and humility - good 'corporate citizenship' - throughout the Group, for the benefit of society generally.

We will not always succeed, and we are aware that a combination of circumstances has given rise to what is, at present, an unsatisfactory financial performance. Our belief is that, through a renewed focus on Camellia's fundamental strengths, the Company will face its challenges more successfully and make better use of its core skills and capabilities. Camellia will therefore move into the future with a clarity of purpose matched by a clear commitment to its values and principles; this is a commitment instilled in me through over a decade of close connection with this unique company, whose former Chairman, Gordon Fox, the architect of the original structure of the Group, embedded in it the view that business could be run 'with a human face'.

We thank all our staff, and the boards and employees of the Group companies, for their hard work, dedication and goodwill, and hope that they feel appreciated for all that they have achieved.

Simon Turner

Chairman

28 April 2024

5

CAMELLIA PLC

CHIEF EXECUTIVE'S STATEMENT

It is a privilege to be appointed CEO of Camellia Plc, a company with a long history of investing in primary agriculture businesses alongside a range of other asset investments. I take on this role at a difficult time in our history but supported by a strong balance sheet and some excellent Group companies.

Since joining last September, I have been visiting our main Group companies and spending time with their management teams. More recently I have been working with the UK Board and executive team to assess the current business conditions and our longer-term opportunities.

The primary agricultural industry is always challenging, but the past two years have been particularly tough in our markets. The global supply of tea is running ahead of consumption, and more recently, the macadamia market suffered serious demand disruption because of COVID legacies. The weak market conditions in tea and macadamia, together with the well-publicised difficulties faced by Bardsley (and other similar UK fruit businesses) have resulted in poor operating results.

Group revenues in 2023 were £272.3 million and the trading loss was £15.6 million, both significantly below our expectations at the start of the year. The profit before tax was £3.8 million, benefitting from the recognition of the embedded value in our holding in BF&M which is being sold, improved results from associates and investments, and asset disposals. These 2023 results, and the results of recent years, are reflected in our share price which is understandably of concern to shareholders. I would like to reassure our investors that the Camellia Board acknowledges their disappointment and recognises that Camellia's financial performance must improve.

As a result of the poor operating performance in 2023 and the current operating outlook for 2024, the Directors will not be recommending payment of an annual dividend. The Board will consider a payment of an interim dividend for 2024 after reviewing the half year results and outlook for the remainder of the year. The Board acknowledges the declining share price and limited liquidity and restates its intention to consider a share buy-back, subject to the sale of BF&M completing, and the Group's balance sheet permitting.

We currently have three strands to our strategy: selling non-core assets, supporting our existing Group companies whose activities are in primary food production and processing, and continuing our investment in non-tea crops.

Several of the Group's investment properties, including the Linton Park estate, have been placed on the market. One investment property in Brazil was sold in 2023, and two UK commercial properties were sold in Q1 2024. Parts of the Group's Collections were sold in 2023, with further items planned for auction in 2024.

We announced in June 2023 a contract to sell our 37% holding in BF&M for US$100m to Argus Group Holdings. The purchase of an investment in Argus by BF&M in late 2023 introduced a complicating factor which has slowed regulatory approvals. We expect these approvals to be obtained in Q2 2024.

In recent years Camellia has been transitioning its business to focus on those Group companies whose activities are in primary food production and processing. The Group's most significant interest remains the production and processing of tea, but progress has been made towards our goal of diversifying into other crops - principally avocados and macadamias.

In line with this, in 2023 our Group companies continued their investment in new avocado and macadamia plantations, using the experience of the Kenyan business and employing the Group's market knowledge and scale. The continued developments in Tanzania and South Africa also help diversify production sites - taking advantage of the climate and water benefits these locations offer. These investments will extend the market window for the Group's fruit deliveries to the main markets that it supplies.

The Kenyan business continues to explore blueberries as a future significant crop for the Group. The experience being gained from the current commercial blueberry trial is crucial to the decision to expand beyond the trial stage.

6

CAMELLIA PLC

CHIEF EXECUTIVE'S STATEMENT

While we have worked to diversify the Group's crop production, not all our efforts have paid off; the investment in Bardsley has not been successful. We have recognised this and acted accordingly.

Camellia assesses its core operations and other investments to evaluate their strategic fit, contribution to mitigating the Group's risk profile, and their profit potential. The goal is to ensure that we build Camellia around the Group's established skills, experience, and market position, and thereby improve profitability and financial performance.

Alongside our priority of generating better returns for our shareholders we will continue to respect the interests of our employees, support the development of communities and economies, and help sustain the environment in which Group companies operate. These commitments are at the heart of our values and are crucial to being a trusted partner to our stakeholders. They underpin our ability to generate long term value for our shareholders.

Looking to 2024: tea markets remain very tough, there are some signs that demand and prices for macadamia are slowly recovering, but volumes in aggregate will be lower than in 2023. The market for avocados is currently in line with that of last year. The soya harvest in Brazil is complete but volumes have been significantly impacted by drought and pests whilst prices remain disappointing. 2024 will represent the final year in which Bardsley will have a significant negative impact. Currency markets are volatile and in 2024 to date the strengthening of the Kenya Shilling has had a substantial adverse impact on profits.

Whilst our shareholders will appreciate it is still too early in the season to make firm predictions, we currently expect revenues for 2024 to be marginally above that of 2023 but the adjusted loss before tax for 2024 to be significantly higher than that of last year. With our substantial cash resources, our investment portfolio and limited gearing, we continue to be well placed to withstand the current challenging market conditions.

Beyond 2024: ongoing investment in developing crops, rising volumes from increasingly mature plantings, and the Group companies' efforts to improve operational efficiency, form the basis for better financial performance in the years ahead. In addition to improvements in operational performance the Board will continue to examine more strategic opportunities to enhance shareholder value.

Byron Coombs

Chief Executive

28 April 2024

7

CAMELLIA PLC

OPERATIONAL REPORT

Overview

Revenue from continuing operations for the Group decreased 8% to £272.3 million from £297.2 million in 2022. This reflects a decrease in revenue in Agriculture to £255.6 million (2022: £283.0 million) where the benefit of higher tea and avocado crops and higher avocado selling prices were insufficient to offset the impact of lower tea, macadamia, soya and apple average prices in all jurisdictions.

The results for 2023 show a profit before tax for continuing operations of £3.8 million (2022: £4.3 million loss) reflecting significantly higher contribution from BF&M but a loss from Agriculture. It also reflects a number of separately disclosed items, predominantly gains on disposal of assets, changes to impairment provisions and restructuring costs which are discussed in more detail later in this Operational Report and in note 4 to the Accounts. Excluding these separately disclosed items, the adjusted loss before tax for continuing operations for the year was £9.3 million (2022: £4.0 million profit).

The Agriculture division incurred a trading loss of £5.6 million in 2023 despite the continued strong focus on consistent quality to maximise prices, cost control and efficiency initiatives and despite volume growth in tea and avocado. The reduced profitability for the division arose from lower average pricing for tea, macadamia, apples and arable crops combined with significant levels of wage cost inflation across all businesses.

As previously announced, due to the very high input cost inflation experienced in the UK fruit sector, coupled with severe customer price sensitivity, a decision was taken in January 2024 to close Bardsley. The 2023 results reflect Bardsley's restructuring in early 2023, dilapidation costs and impairment charges arising from the subsequent closure decision in January 2024 totaling £8.9 million (see pages 85 and 86). Further closure related costs will be incurred and reflected in the 2024 results as will the results of the eventual asset sales. Further details of activity in 2024 so far is set out on page 13.

The Engineering division's revenue and profitability improved in 2023 as a result of higher levels of activity and through a strong focus on cost control and efficiency initiatives.

Our results also benefited from a significant improvement in the performance of our associate, BF&M in the first quarter of 2023 (i.e. prior to it being recategorised as held for sale), with our share of BF&M's results for that period being £3.1 million. In addition, BF&M contributed £2.3 million as investment income in 2023; a total of £5.4 million contribution to operating profit in 2023. In contrast, in 2022 BF&M contributed a loss of £4.3 million.

Performance

Agriculture

In total, Agriculture made a trading loss of £5.6 million (2022: £15.5 million profit) on revenue of

£255.6 million (2022: £283.0 million), as set out in note 1 to the Accounts.

Tea

	Tea estate production	Instant tea, branded
	and manufacturing	tea and tea lounges
	2023	2022	2023	2022
	£'m	£'m	£'m	£'m
Revenue	154.9	177.6	31.4	32.5
Adjusted trading (loss)/profit*	(3.2)	9.1	(1.7)	0.2
Trading (loss)/profit	(0.7)	9.1	(1.7)	0.2

* See note 1 to the Accounts

8

CAMELLIA PLC

OPERATIONAL REPORT

Estate production and manufacturing

Group tea production in 2023 was 98.6mkg, up 6% on 2022 levels (2022: 92.9mkg) due to good growing conditions in nearly all countries of operations.

			2023	2022
	Mature	Immature	Production	Production
	area	area	Volume	Volume
	Ha	Ha	mkg	mkg
India	16,496	956	28.3	26.8
Bangladesh	8,729	645	15.2	11.4
Kenya	3,813	345	15.1	13.3
Malawi	5,424	186	17.5	19.0
	--------	--------	--------	--------
Total own estates	34,462	2,132	76.1	70.5
Bought leaf production	--------	--------	17.6	17.8
Managed client production			4.9	4.6
			--------	--------
Total made tea production			98.6	92.9
			--------	--------

Pricing and operations

Tea pricing for all regions decreased significantly through the year. This was on the back of ever rising global supply which is increasingly further ahead of demand in major consumer countries. The lack of foreign exchange, sanctions and conflict in a number of these regions further hampered levels of demand. The cost of living crisis is affecting consumption in many regions and tea is becoming priced as a luxury in Egypt and Pakistan due to the impact of weakening exchange rates.

Logistics improved through the year and rates returned to pre-COVID levels. This was until the latest crisis in the Red Sea which has serious implications for supply chain timelines and is leading to increased shipping times and costs. To date, this has not impacted our revenues.

India

Our estate crop in 2023 was up 6% on last year with improved growing conditions in all four regions. However, Assam and Dooars continue to be impacted by climate change with increased temperatures and volatile weather impacting rainfall, which led to increased instances of pest and disease on the crop. In addition, the Dooars suffered from severe hail in the early part of the season.

Although this year has seen increased production, the impact of reduced prices and increased costs due to wage increases in both West Bengal and Assam of 7.7%, has continued to put pressure on the business.

There has been increased national production with North India registering its second highest crop. Prices were impacted by this increased production with Assam region average pricing down 8% and Dooars region average pricing down 17% on prior year. Demand for orthodox tea, which constitutes a significant proportion of our production in Assam, was severely affected by market conditions, in particular, the return of Sri Lanka production to the market and the impact of sanctions and foreign exchange shortages on key buyers' ability to transact.

Darjeeling pricing remained under pressure, down 6% on previous year, reflecting the impact of reduced demand and price competition from Nepal. However, our average prices, due to higher quality, remain above the market average but despite that, given cost increases and lower demand for the product, returns remain elusive.

North Indian market pricing was down 7% on the back of increased production. Export volumes were down 7% on last year due to competition from Sri Lanka for Orthodox and the availability of cheaper African teas. North India export prices have also been impacted and were down 5% on 2022.

Investment in replanting continues with 135Ha replanted in 2023 (2022:122Ha) and a further 71ha uprooted in preparation for future planting.

9