Weak prices leave Camellia lukewarm

Facing record global tea production last year, the ensuing oversupply resulted in downward pricing pressure across all the group’s operating regions in the first half of 2019 – average selling prices in Kenya declined by 17 per cent. It was noted at the time of the full-year results in April that average sale prices in Kenya had been below the cost of production since November 2018. Meanwhile, in India, the depressed prices combined with wage increases implemented last year mean margins in the first half of 2019 have also been squeezed.

On the back of the weak tea market, agricultural trading profit plunged by almost two-thirds to £2.4m. Even including the release of an £8m provision following wage settlements in India and Kenya, statutory pre-tax profit dropped by more than a third to £3.9m. House broker Panmure Gordon has trimmed its full-year adjusted pre-tax profit forecast by 10 per cent – it had already revised it downwards by over a third following full-year results in April.

Aside from agriculture, the track record of Camellia’s other ventures has been patchy, reflected in the divestment and closure of loss-making businesses. Struggling in a low interest rate environment, the group sold its private bank, Duncan Lawrie, in 2017. Serving the oil and gas and aerospace sectors, the engineering division is no stranger to the challenges of cyclical industries. Oil price weakness led to the closure of AKD Engineering in 2015 as orders for major capital equipment dried up. A subsequent industry recovery has boosted revenue from AJT Engineering by more than a fifth in the first half of 2019. But aerospace sales have fallen by 6 per cent amid Brexit stockpiling and market uncertainty, with a further adverse impact expected in the second half. The segment remains in an albeit narrowed trading loss of £0.3m.

Excluding £10.7m lease liabilities, Camellia is in an £81m net cash position, although this is down by almost a quarter since the end of 2018 as the group invests in expanding its agricultural capacity. Shareholders have been rewarded with 40 years of dividend growth, but lumpy free cash flow has made cover of the payout rather unpredictable.