Camellia Plc (CAM) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Camellia Plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Byron Coombs, CEO. Good afternoon, sir.

Good afternoon, everybody, and welcome to the presentation. I'm Byron Coombs, CEO of Camellia, and I'm joined here today by Oliver Capon as Chief Financial Officer. We plan to follow the same format as we used back in May. So very shortly, we will play a presentation, which we prerecorded on Friday, and that presentation will go on for about 20 minutes. And at the end of the 20 minutes, we will come back to a live audience and deal with the Q&A. I think with that, perhaps we could roll the presentation. Thank you. Welcome, and thank you for joining us for Camellia's results for the 6 months ended 30th of June 2026. This is the usual disclaimer. Please note its contents. I'm Byron Coombs, Camellia's CEO; and with me is Oliver Capon, Camellia's Chief Financial Officer. Unfortunately, Graham McLean, our Director of Agriculture, can't be with us today. In this presentation, we will talk you through the first half 2026 financial results and outline the progress we have made against our value enhancement plan. I'll begin by providing a short description of Camellia and its business strategy. This is the fourth of these presentations, so I'll keep the background commentary relatively short. At the end of the presentation, we will answer any questions that you may have. Let me begin with a brief outline of our business and our strategy. Camellia is a long-established international business group with a portfolio of investments focused on primary agriculture. I'll say a bit more about our investments in my next slide. But in the meantime, 2 principles guide the management of Camellia. Firstly, the company was established with a strong social and environmental purpose. The company is committed to supporting our employees and the communities and natural environments around our farms. Our social and environmental commitment is not separate from the commercial case. It's an integral part of how we operate, and it supports our long-term success. Profit and purpose must work in harmony at Camellia. And secondly, we take a long-term approach to managing the business. This approach is in part a function of the industry we work in. For example, the trees and the bushes that we plant today will not reach maturity for between 5 and 10 years, depending upon the crop. In addition, our industry is subject to longer-term market supply cycles that affect market prices, both positively and negatively. And finally, we take a long-term view by investing in farm infrastructure, which reduces production volatility and ensures long-term sustainability of the land. Turning to the nature of our investments. This map illustrates the scale and geographic spread of the portfolio. Our businesses operate in 8 countries and produce a range of agricultural and non-agricultural products. Alongside tea, our biggest agricultural product, we produce avocados, macadamia nuts, arable crops, rubber and blueberries. We also have some exposure to commercial forestry and livestock. We have over 34,000 hectares of tea, 3,500 hectares of macadamia trees, 4,300 hectares of arable and currently just over 1,000 hectares of avocado orchards. In addition to our agricultural operations, we have an engineering business in Aberdeen and a retail tea business in London. Our portfolio benefits from diversity of production sites, crop, market and weather. This diversity helps address the natural volatility of the agricultural industry. Let me now turn to our business strategy. In May 2025, just over a year ago, we announced our medium-term Value Enhancement Plan aimed at achieving 3 outcomes: improved operating results, reduced portfolio risk and faster long-term growth. The principal actions that comprise the plan include disposing of unproductive nonoperating assets, disposing of noncore businesses and operations, improving operational efficiency and investing freed up capital for future growth. I'm pleased to report that good progress was made in the second half of 2025 and that we have made further headway in the first half of 2026. Let me now hand over to Oliver to take us through the first half's financial results.

Thank you, Byron. I'll now talk through the financial performance for the first half of 2026. I will cover 4 things in this section. The headline financial summary for the 6 months to the 30th of June 2026, the balance sheet, cash and liquidity position, the trading performance business by business and the outlook considerations for the second half. Before I start, one framing point that is worth repeating every half year. Our results are highly seasonal. Costs fall relatively evenly across the 12 months, while a significant proportion of crop volume and hence revenue is weighted to the second half. A first half trading loss is therefore normal for this group and the more meaningful comparison is the movement against the equivalent period last year rather than the absolute number. Revenue from continuing operations was GBP 104.6 million compared with GBP 107.7 million last year. This reduction largely reflects the disposal of 3 loss-making Indian tea gardens. Seasonal trading loss improved significantly to GBP 5.0 million from GBP 9.6 million last year. This improvement was driven by cost discipline, efficiency measures and better yields and pricing, particularly across several tea businesses. This led to an adjusted loss before tax improvement to GBP 3.3 million from GBP 12.9 million last year. Net cash was GBP 51.6 million and total liquidity was GBP 133.2 million at 30th of June, increasing from GBP 101.7 million at the same time last year. Working down the table, there are a few lines worth pausing on. Profit on disposals was GBP 18.9 million, which I will discuss in detail later in the presentation. Other gains and losses swung from a GBP 4.1 million loss to a GBP 0.6 million gain, largely reflecting movements in foreign exchange. Taken together with the disposal profit, the operating result rose from GBP 11.2 million loss to a GBP 14.5 million profit and a profit before tax to GBP 15.6 million against a GBP 10.4 million loss last year. The adjusted measure is the one I would encourage you to focus on for underlying progress because it strips out disposal gains. On that basis, the loss narrowed from GBP 12.9 million to GBP 3.3 million, an improvement of GBP 9.6 million. EBITDA moved from a GBP 6.2 million loss to a GBP 19.3 million profit. The tax charge of GBP 3.3 million is higher than last year, and this largely relates to profits on disposals in the U.K. Profit attributable to shareholders was GBP 11.8 million against a loss of the same magnitude a year ago. After the period end, the final dividend of 260p per share resulted in a GBP 6.6 million cash outflow. Again, this is funded from reserves. This bridge shows the trading loss improved from GBP 9.6 million to GBP 5 million over the year. The strongest positive movements came from tea in India, Bangladesh and Eastern Produce Kenya. India benefited from higher production, better pricing and lower cost of production despite lower revenues from garden disposals. Bangladesh benefited from higher production, stronger pricing and lower cost of production. Eastern Produce Kenya moved from a loss to a profit as higher production and prices more than offset increased overheads. These gains were partly offset by weaker outcomes at Kakuzi and Malawi. Kakuzi was affected by lower avocado sales in the period, disrupted shipping routes and weaker macadamia pricing. Malawi's trading business grew, but agricultural performance was mixed and cost pressures remain significant. Brazil was broadly stable with higher soybeans and maize production. And the remaining businesses, there was lower activity and project timing, which affected AJT. Jing increased revenues and narrowed its loss despite the continuing impact of the depressed Middle East and cost pressure. Looking ahead, it is still too early to give firm predictions for the full year performance due to the seasonality of the business. There are a number of factors to consider. There are broad improvements in operations, and we are seeing the impact of cost improvement measures in many of our operating companies. Several of our markets are seeing market improvements in yield and price year-to-date. There were some offsets by others as witnessed by the Kakuzi results announced in August. We are feeling the impact of the Gulf crisis on fuel and fertilizer and also on logistics costs, and there have been above inflation wage rises in some parts of the business. The impact of El Niño over the latter part of the year of 2026 and into 2027 is not known and could have a material impact. There are positives, but there are real headwinds and they inform a cautious view for the full year. We will provide further updates to the market in late October when there will be more clarity on the full year results. I'll now hand back to Byron.

Thank you, Oliver. Having reviewed the financial results for the first half, let's turn our attention to the progress we're making with regard to our Value Enhancement Plan. We are now just over a year into the implementation of our medium-term VEP. We set 2 primary goals for the second half of 2025 and through 2026. Firstly, the dispose of our nonoperating assets; and secondly, to improve our operational efficiency. Oliver will take you through our progress disposing of nonoperating assets in a moment, but let me begin with an update on our goal of improving operational efficiency and the progress we are making on our growth projects and risk reduction. Operational efficiency improvement is the primary goal of our operating companies in 2026. Each business is exploring and implementing a range of initiatives to bear down on their cost of production. These initiatives include mechanization, drone technology, solar generation and more efficient fertilizer application. The drive for greater efficiency covers tea plucking and crop harvesting, energy and fuel use in factories, procurement and a tighter grip on central and regional overheads. These are unglamorous measures, but they compound and are beginning to -- and we are beginning to see some early results. We're also making progress on our goal to achieve faster growth. Our 4 announced projects are proceeding according to plan. These projects make use of existing land, infrastructure and management teams, which helps improve our return on assets while controlling execution risk. In October, we will begin planting the first 100 hectares of citrus at Maruque, our Brazilian farm. I was at the seedling nursery a couple of weeks ago and can confirm that the 70,000 plants we have purchased are in rude health. By the end of 2026, we will have completed the planting of a further 100 hectares of avocados. The construction of our avocado packing plant and the construction of a 1 million cubic meter reservoir at our Mgagao farm in Tanzania. We are progressing the build-out of our blueberry business in Kakuzi with much of the poly tunnels now in place. And we have completed the first phase of the conversion of 234 hectares of commercial forestry into faster cash-generating arable. The land has been cleared and is now undergoing soil improvement before arable production begins in 2027. Beyond these tangible decisions and actions, we are exploring other growth and risk reduction initiatives, both organic and through acquisition. We've identified a few growth opportunities of varying sizes, which we are carefully assessing. These opportunities are all at an early stage, and it is possible that none of them make it to completion. We will update investors on our progress at the appropriate time. With respect to reducing risk, we have already exited 3 loss-making Indian tea gardens, a Bangladesh finance company, a Bangladesh insurance company and a [ Bermudian ] insurance company. We continue to explore divestment opportunities where we feel we are not the best owner. Our actions so far have helped mitigate losses, released cash and freed up management time to focus on the businesses that can generate a sustainable return. With that, let me hand back to Oliver.

I will now cover the U.K. noncore asset disposal program, what we have sold, what remains and how the proceeds support our strategy. The key message is the program will be substantially complete by the end of 2026. The largest transactions are complete, the remaining assets are modest, and the proceeds have strengthened our liquidity and our ability to invest. In the first half, the sale of the Linton Park estate, Indian art and manuscripts generated proceeds of GBP 29.2 million and a profit of GBP 18.4 million. Including the Chalouni Tea Estate in India, total group disposal proceeds were GBP 30.7 million and profit of GBP 18.9 million. These sales converted assets outside our core agricultural portfolio into cash. They also reduced the scale and management effort of the remaining program. There is no asset left of the size and significance of Linton Park. The disposals are part of the Value Enhancement Plan, which aims to improve operating results, reduce risk and support long-term growth. These proceeds give us greater flexibility, but investment discipline remains essential. Every use of capital will continue to be tested against clear return and risk criteria and strategic fit. Liquidity is particularly important in an agricultural group. Costs arrived throughout the year, as I explained earlier, while much of our revenue is earned in the second half. We also manage considerable weather, commodity price and input cost volatility. As mentioned earlier, at 30th of June, the total liquidity was GBP 133.2 million, including cash, money market holdings, gilts and treasury deposits. The -- these disposal proceeds were an important contributor to the stronger position. Turning to what remains, there are 2 categories. The first is around GBP 2 million of Heritage Assets, mainly stamps and further art. Art sales are expected in the second half of 2026 and should be less material than the sales already completed. Stamps sales are also underway and are expected to be completed by the end of 2027. This longer timetable reflects the specialist and relatively illiquid nature of the market. It does not change our intention to sell. It just allows us to execute in an orderly fashion. The second category is investment property, around GBP 1.2 million remains of this across 2 properties, one of which is being actively marketed. There are 3 points to take away. First, disposal gains are significant, but separate from underlying trading performance. Second, future gains should be smaller because the remaining assets are lower in value. Third, the main benefit is not simply more cash. It is a simpler asset base, a stronger balance sheet and greater capacity to fund operational improvements and disciplined growth. The next test is how effectively we allocate the capital released. Progress will be measured through better operating results, lower risk and sustainable long-term growth. With that, I'll hand back to Byron for concluding remarks.

Thank you, Oliver. Let me finish the presentation by outlining our priorities for the remainder of 2026 and the early part of 2027 and summarizing where we are in turning Camellia into a sustainably profitable business. The Value Enhancement Plan provides a clear strategic direction for the Camellia Group. We have made good progress through the first half of 2026 with improved trading performance, significant progress in the disposal of nonoperating assets and progress on all 4 of our growth projects. Operational efficiency will remain our primary task through the rest of 2026 and into 2027. While difficult to deliver for many of our businesses, it offers the fastest return on our efforts. We have launched 4 growth projects and are now carefully looking at both new organic investments and acquisition opportunities. Our challenge over the next couple of years will be to find investments which offer acceptable returns over a shorter time frame. The 4 investments already announced, while financially attractive, are clearly longer-term projects. We will need to identify other investments, which complement them with quicker returns to shareholders. Alongside our work on growth, we will continue to examine ways to reduce existing portfolio risk. We would highlight to shareholders that actions that structurally reduce portfolio risk take time to bring to a conclusion, especially in the current market environment. Despite a corporate tendency to caution, partly a cultural trait and partly an acknowledgment of the industry we work in, we are optimistic that the work we are doing will result in good outcomes for investors. Our work in 2025 and early 2026 to improve corporate governance and strengthen the skills and experience of the Board and executive team is now complete. The sale of nonoperating assets is now substantially complete, and we are improving operational efficiency, reducing portfolio risk and investing in future growth. There may be headwinds that reduce the impact of this progress in 2026, but we are confident that our plan will deliver the results that investors are looking for. Thank you for your time and attention today. Oliver and I will now be pleased to take your questions..

[Operator Instructions] And [ Harriet ], if I may just hand over to you just to run through the Q&A with the team, and I'll pick up from you at the end.

Okay. Great. So our first question is, how will El Niño affect the company?

Good morning again, everybody. El Niño, I think it's -- first of all, it's worth recognizing that this is a pretty strong phenomenon that seems to be building in the world at the moment. When you look back at some of the past episodes, the correlation between the El Niño itself and the impact on our individual farms is not perfectly correlated. I think our sense of it is at the moment that the farms that probably are most exposed to an El Niño effect would be our South African farm and our Malawian farm. These may be affected by extra heat and drought in the coming months. Beyond those 2, we don't expect very much more of an effect around the world. That's as best we can tell at the moment, given what we know from history.

I think on the other side, we don't know how El Niño will affect our competitors. So particularly with macadamias, we think El Niño will have a significant impact in Australia. So you may get some upward movement on price, but some downward movement on yield. But it's very early days at the moment.

Our next question is, you have a large amount of cash, what are you planning to do with it?

So obviously, they made the tender offer last year, which I think was very successful. And we've put in place a dividend that's still currently funded out of reserves. But the main thing on the cash is to invest it. As we made very clear in the VEP, we need to invest for growth. We need to invest carefully, but we need to get to a position where our core underlying businesses deliver the dividend that we need to go and pay the market. So we're looking for good opportunities to invest, and that's what we'll be doing with the money over the coming period.

Our next question is what other investments do you have lined up for the year ahead?

I think it's important to understand that we are actively exploring investments. We've made 4 that we've announced. We have a few more internally that we are looking at, at the moment, and we continue to explore externally as well. I think at this point, there's not much more we can say. We are working hard on these matters. And at the right point, we'll make sure that we come back to investors and let them know where we are.

So our next question is, why haven't you yet given a forecast for the year?

As we explained in the RNS that was released last week, our results are highly seasonal. So we always make a loss in the first half, and we aim to recoup that in the second half. But it is very variable. So we still don't know what yields will be and what prices will be for the latter half of the year. And a large chunk of our revenues are back-end weighted. So our costs are pretty flat over the year with a large amount of costs back-end weighted. And we're not going to give a forecast until we've got better -- far better clarity of what's happening. So we have our normal uncertainties with the back-end weighting of the revenues, coupled with that with El Niño and the impacts of the Gulf, that adds even more uncertainty this year. So -- but by the end of October, we should have a better idea in terms of full year numbers, and we'll give some updates then.

Our next question is, given the very significant H1 improvement in India, how should investors think about the normal H1, H2 profit phasing of Goodricke, particularly given the timing of crop production, auction sales and wage costs?

So Goodricke had a very good first half of the year, as you'll have seen, but we still have a significant back-end weighting. If you look at the revenue numbers, so average annual revenue for Goodricke is about GBP 100 million, of which GBP 30 million is in the first half of the year. So it's still 70% back-end weighted. So we have a very large back-end weighting and a large amount of uncertainty on pricing, particularly over the back end of the year.

Our next question is, could you help us understand the sensitivity of Goodricke profitability to realized tea prices and production volumes? For example, broadly, what a 5% change in either would mean for annual operating profit?

Okay. So roughly -- so as I said, 70% of our income is back-end weighted. So that's about GBP 70 million we expect in the second half of the year. Our costs are pretty static. There's a marginal increase and decrease in costs based on yield, but not very much. So an increase of price is basically GBP 3.5 million bottom line impact for the second half of the year. A 5% increase in yield will be slightly less than that, but -- sorry, slightly more than that, but not to the same extent. So it will be roughly GBP 3.5 million for a 5% change in yield or price.

With Bangladesh realized prices materially higher following the industry pricing measures, what level of tea pricing would you regard as necessary for Duncan Brothers to earn an acceptable return after allowing for current labor and input costs?

So pricing has come up very nicely over the last 18 months or so and certainly through the summer weeks has held very, very firmly. So we're pleased about that. I think that the current level of pricing is about what we can reasonably expect. And I think that this should give us the sort of a starting point for profitability, which we've been lacking for a number of years. The big challenge now is really the yield side of it. There was some yield weakness in the summer months, not material. And if the yield holds up, I think we should be quite happy with this level of pricing. The final part, of course, of all of this really is in the sense the cost of production. And the team out there are working quite hard to keep the cost of production rises under control. They have obviously been affected by the cost of fuel and fertilizer and various other factors going up this year. So with pricing, I think we're in pretty good shape at the moment. We just now need to see if the weather will treat us well in the second half and bring in the yield that we're hoping for.