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CHIEF EXECUTIVE’S REPORT

COVID-19 AND TRADING UPDATE

People 

First, I would like to reiterate our gratitude to all of our staff around the world for their continuing support both within the business but also within the communities in which they operate.

Trading

Agriculture

All our agricultural operations continue to work as close to normal as is possible with the exception of India. Following the shut down in India announced on 24 March there has been a gradual easing of restrictions and currently all tea estates are open but utilising only 25% of their workforce in West Bengal and 50% of the workforce in Assam in order to maintain social distancing. As a consequence, we expect to lose the majority of our lucrative first flush and, if the current restrictions continue, a significant proportion of our second flush crops in India.

Elsewhere the restrictions that we are seeing globally continue to increase with all our countries of operation experiencing some form of lock down. It remains unclear the extent of the impact these restrictions will have on our production levels, our distribution channels, demand for our produce and access to market for our perishable crops such as avocado and citrus. A number of tea auctions have been cancelled in recent weeks although some have since resumed or are scheduled to resume in May. Overall tea prices during the first quarter was exceptionally poor as a result of the very high production levels of 2019, but as a consequence of the current crisis we have seen some signs of increased demand and prices for our teas.

As a result of very dry hot weather in Malawi and South Africa during the fourth quarter of 2019 we are also anticipating a decline in our macadamia production for 2020 and reduced global demand is also likely to adversely impact prices.

Engineering

Our engineering businesses are operating at close to normal. Both AJT Engineering (due to its role in the energy sector) and Abbey Metal Finishing (due to its role for aerospace and military) are deemed to be essential businesses. We are concerned however that issues in the wider economy could mean that demand in the oil, energy and aerospace sectors will be very weak in the second half of the year.

Food Service

ACS&T continues to operate but the reduced demand for its transport services which we mentioned on 1 April, means that profitability in H1 2020 is expected to be significantly lower than that for the same period in 2019. Jing Tea continues to trade at a substantially reduced level. Both businesses’ trading results for the remainder of the year are dependent on the timing of any resumption of operations in the hospitality and food service sectors.

Financial Position

The Group has a strong balance sheet with substantial cash liquidity which amounted to £77.1 million in cash and cash equivalents net of borrowings as at 31 March 2020. In addition, our investment portfolio had a market value of £43.8 million at 31 March 2020. We continue to conserve cash wherever possible against a fast changing and unpredictable backdrop.

Community Action

As a Group we are uniquely placed to be able to assist in this crisis. We currently manage over 100 hospitals and clinics in some of the world’s poorest countries where there is little access to public healthcare. Wherever appropriate our operations are working with the local authorities to ensure that these facilities are used for the benefit of the whole community. In addition, we are taking a wide range of steps across different businesses to help wherever possible. These steps include work on face masks by our engineering businesses in the UK; bulk purchasing of food in Kenya to ensure that our staff and their families are not forced to pay extortionate prices; purchasing hospital supplies in Malawi; payment of wages and distribution of food to our staff in India, whether in lock down or working and the provision of hygiene and social distancing education.

OVERVIEW

After an exceptional 2018, 2019 was a more challenging year for the Group, if not perhaps as challenging as 2020 is turning out to be.

Our long-term strategy of diversifying our agricultural products continues to impact positively on our results and we have made good progress in furthering this strategy during the year. On the investment side:

  • In Tanzania we make slow but steady progress in completing the acquisition of our first farm. Whilst waiting for final government approval we have set up an avocado nursery so that there is no delay in planting out the trees once the land transfer is ultimately sanctioned.
  • In Kenya the blueberry trial continues, and we harvested our first small crop in September 2019 which was in line with volume expectations with the fruit showing excellent flavour and size. Our first major crop should be in the autumn of 2020 which will give us a better insight into the prospects for this operation and allow Kakuzi to make decisions as to the expansion of this trial into a commercial operation. Our trial of new avocado plantings at Kitale is now in its third year and we are beginning to get some results which will allow us to make a decision as to whether to turn this into a full commercial operation.
  • In South Africa, we completed the purchase of an additional 466Ha of land close to our existing macadamia operations in Levubu close to Mambedi estate. This will be developed into macadamia and avocado orchards.

Overall in 2019, our macadamia volumes continued to grow as the trees matured and prices held up well despite the increased volumes. Our investment in macadamia processing facilities has improved margins and widened our customer base and we are optimistic that whilst macadamia remains a relatively niche product amongst edible nuts, the market continues to grow.

Our avocado harvest was, as anticipated, significantly down after last year’s bumper crop but this was more than compensated for by the excellent prices received from the European market. We continue to examine ways to even out the natural tendency of the avocado tree to produce significantly larger crops in alternate years.

The results for our speciality crops were more mixed, edible nuts performed well but we were hit by a number of weather-related issues in our arable operations in Brazil.

However, whilst our diversification strategy has made good progress, we remain the world’s largest private grower of black tea which is therefore core to our performance. 2018 saw a record global production of tea at 5.9 million tonnes and we believe this was exceeded in 2019. This growth was driven partially by favorable weather conditions in Asia but more significantly by the relentless growth of the smallholder market. As a result, we witnessed record volumes of tea at the auctions, with consequent weaknesses in the market prices for black tea, from the start of 2019 and which continued throughout the year.

The drivers of this growth in production vary by geography, but good prices in former years, the ability of smallholders to produce tea with fewer of the social and certification costs, and a decrease in regulation have all played their part. There are a number of reasons why this situation will eventually reverse; global consumption will continue to increase, politicians are becoming increasingly concerned over the damage to the industry and to rural livelihoods, and producers themselves will abandon growing tea if there is no money to be made. However, such fundamental changes in the market will take time.

As a result of the above, 2019 turned out to be a difficult year for the Group’s tea operations. Whilst our own production volumes were excellent at 101.4mkg, reflecting our investment over the past few years, prices were poor. Although our Indian tea prices were relatively steady, others including Kenya (13% down), Bangladesh (25% down) and Malawi (14% down) suffered steep falls. The start of 2020 saw average prices continue to fall in all markets, although there are signs this is reversing on account of the current crisis. 

Despite steep increases in labour costs across all of our tea operations, the significant strides made to improve both efficiency and productivity through technology and structural reform, have enabled us to mitigate these increases to a significant extent.

Outside Agriculture, the performance was mixed. Our UK engineering and food service operations were all constrained by Brexit and other market related issues and our largest associate, BF&M, whilst having strong underlying growth was hit by two hurricanes in the year which held back profits.

Acquisitions and Investments

As reported in last year’s Annual Report, at the beginning of 2019 we completed the acquisition of two tea estates in Assam. As stated above we have also completed the purchase of an additional farm close to our estates in the Levubu district of South Africa which will, in due course, help to compensate for the loss of Wales estate, the lease for which expires in 2020.

Financial Performance

The underlying profit before tax from continuing operations (i.e. before taking account of the provision releases and one off items described below) amounts to £16.1 million, down 58% on the comparable result for 2018.

We also recorded the following significant items:

  • Gains arising from the release of provisions in Kenya and India amounting to £9.8 million
  • A £3.6 million charge in respect of Workers Profit Participation contributions for prior years in Bangladesh which has been recognised as a consequence of regulatory changes in 2019 (further details are included in the CFO’s report on page 20)

 

BUSINESS STRATEGY

The overall Group strategy, which is set out on page 21, remains unchanged with each division expected to perform against an agreed strategy with goals and targets for the short, medium and long-term. These are summarised below.

Agriculture

Core crops. To focus on our core crops of tea, macadamia and avocado where we have scale and geographic diversity. Where appropriate opportunities arise, to add to our production capability in these three crops, as well as to make aligned acquisitions and investments to enable us to capture more of the value chain. To investigate the possibility of a fourth core crop if suitable opportunities present themselves.

Speciality crops. To maintain our portfolio of speciality crops in order to retain the diversity of location and crop which has historically proven so valuable in spreading the Group’s political and commodity price risk.

With all our agriculture operations we will have regard to the potential threats arising from politics and the impact of climate change, particularly in water stressed areas and will adapt our portfolio of operations accordingly.

Engineering

AJT Engineering. To maintain our presence in the oil services sector whilst diversifying into adjacent energy related sectors in order to create a sustainably profitable engineering business focused on the wider energy sector.

Abbey Metal Finishing and Atfin. To continue to grow both businesses as quality suppliers to the aerospace industry.

Food Service

ACS&T. To continue to operate as a niche high quality business in the storage and distribution of frozen foods, aiming to achieve critical mass by profitable growth and if appropriate, acquisition.

Jing Tea. To grow the existing respected small brand into a larger, more profitable distributor and retailer of speciality teas internationally.

Investments

Investment Portfolio. The Group has a portfolio, principally of listed investments, the strategy for which remains to invest in high quality companies where we believe that there is long-term value. This portfolio also enables us to balance our geographic risk exposure.

Investment Property. The strategy is to continue to invest in quality assets where an appropriate yield may be realised. The process of developing some of our existing properties to enhance yield will continue.

Collections. The Group has collections of art, philately and manuscripts which are regularly reviewed and are added to or sold as appropriate.

Associates

The Group has three associate companies in the financial services sector of which BF&M, the listed Bermudian insurance business is the most significant. With all our associates, we continually monitor our investment and may increase or decrease our holding in the future.

PERFORMANCE

Agriculture

In total, the Agriculture division made a segment trading profit of £25.2 million (2018: £51.0 million) on revenue of £238.7 million (2018: £245.3 million), as set out in note 1 to the Accounts.

Tea Production

 2019 saw the Group produce high volumes of tea through our own and managed factories just falling short of 2018’s record volumes. Total made tea produced was 101.4mkg (2018: 103.1mkg).


Mature area
Ha
Immature area
Ha

2019 Volume
mkg

2018 Volume
mkg
India15,925 1,375 32.1 28.1
Bangladesh8,660 563 14.2 12.8
Kenya3,992 161 12.1 14.4
Malawi5,132 509 17.6 19.1
Total own estates33,709 2,608 76.0 74.4
Bought leaf production  21.124.2
Managed client production   4.3 4.5
Total made tea produced   101.4 
103.1


Tea pricing and operations

India

Overall, India produced a record volume of tea in 2019 for the second consecutive year. This was principally as a result of improved volumes from our own estates, and the impact of the two estates that we bought in Assam at the start of the year. In total our own estate production was up 14% and bought leaf volumes were relatively stable at 8.2mkg.

Across all our Indian operations the average selling price for the year was 2% down on 2018 primarily due to a drop in the market value for ‘old season’ teas in the first quarter of 2019.

This and the very significant wage increases that took place during 2018 which totaled 33% in West Bengal and 22% in Assam has led to a significant pressure on margins which could only be partially mitigated by productivity and efficiency improvements.

Having recovered well in 2018 from the general strike in 2017, it is disappointing that for 2019 season teas prices in Darjeeling have slipped back significantly. Darjeeling produces very high quality teas but due to the altitude and topography, volumes are small and production costs are high. We continue to invest in marketing and tourism in the region for this unique product.

Packet tea sales volumes in India grew by 8.5% to 11.3 mkg in a highly competitive market due to continued marketing efforts.

We also opened three new tea lounges in Mumbai, Kolkata and at Mirik Lake in Darjeeling, taking the total to seven. These café/restaurants help to showcase our finest teas to a wider audience and promote tourism in Darjeeling.

The replanting programme continued with 239Ha completed and a further 205Ha uprooted for replanting at a later date.

Politically, the election saw the BJP gain significant ground in both Assam and West Bengal. The National Citizenship Register is causing tension in the border areas which has the potential to impact operations in both India and Bangladesh.

Bangladesh

Our Bangladesh tea crop was up on 2018 by 11% at 14.2mkg, as a result of good weather and the significant progress that we have made on replanting and infilling.

Unfortunately, the increased production resulting from the good weather, together with teas being available from India caused our average prices to drop.

The replanting and extension programme continued with 161Ha of new tea being established in the year and an additional three million bushes planted to infill existing fields.

Kenya

Tea production (including smallholders and managed clients) was down on 2018 by 15% and was our lowest production year since 2012. This was as result of a very dry start to the year from which volumes never recovered. However, frustratingly, these countrywide lower volumes failed to result in the expected increase in prices due to the large carry forward stocks of 2018 teas sent to the auction. As a result, average auction prices fell by 13% during the year.

The collective bargaining agreements covering the period 2014-2019 have now been agreed which has allowed us to make all outstanding payments to our employees and to release certain provisions which we were carrying. These agreements not only set pay levels but also productivity which will enable us to improve efficiency in the future.

The over-production in Kenya is having a severe effect on the livelihood’s of smallholder farmers. This has resulted in the Kenyan government announcing a range of proposed measures to regulate and control the tea market. These measures which are currently out for consultation include the banning of private sales of tea, regulating agency agreements, provisions for the payment of smallholder farmers and ensuring that more value-added activities take place within Kenya. The final form of these proposals and when they might be enacted remains unclear.

We replanted a total of 51Ha in 2019 (2018: 41Ha) and uprooted a further 49Ha for replanting in 2020.

Malawi

Although not at 2018 record levels, Eastern Produce Malawi produced its second highest crop (including smallholders) in the year of 20mkg, down 10% on 2018. However, the Malawi market is linked to the Mombasa teaauction and the weakness there left our average price for the year down 14%.

Eastern Produce Malawi continues to produce a little over 40% of Malawi’s total tea and is therefore a key stakeholder in the MOU 2020 process (a coalition of producers, buyers and NGOs seeking to revitalise the industry and working towards a sustainable wage rate for employees). As I stated last year, the wage negotiations and a collective bargaining agreement were successfully concluded during 2018, awarding 22% wage increases but that such increases were only sustainable with the support of international buyers. The combination of increased costs and reduced prices has resulted in a tea sector in Malawi which is in danger of becoming unsustainable.

Developments included replanting a total of 77Ha in 2019 (2018: 106Ha) and installing additional irrigation at Ruo estate.

Macadamia Production

 In line with the overall plan to increase our macadamia production, volumes produced in 2019 increased to 1.3mkg (2018: 1.1mkg).


Mature area
Ha
Immature area
Ha

Volume 2019
Tonnes

Volume 2018
Tonnes

Malawi1,326 182 503 472
South Africa887 426 459 429
Kenya621  411313 229
Total2,834 1,019 1,275 1,130


Macadamia Pricing

Macadamia prices remained firm during the year and averaged 4% ahead of 2018 which was encouraging given the increase in global supply.

Macadamia Operations

Malawi

Volumes were 6% up on 2018 as a result of benign weather.

South Africa

Volumes were 7% up on 2018 despite the Wales estate being hit by a major hailstorm during flowering which impacted the nut set and reduced volumes by 50% from that estate. Developments included:

  • Completion of the Mambedi dam.
  • Purchase of an additional 466Ha farm at Beja, close to Mambedi for planting macadamia and avocado.
  • Planting of an additional 61Ha at Mambedi.
  • The incorporation of additional colour sorting capability at the Zetmac processing facility to increase throughput and efficiencies.

As regards the Wales estate, which amounts to 191Ha of mature macadamia, we have made no significant progress towards renewing the lease for the property, although we will now be able to harvest the 2020 crop before vacating the estate.

Kenya

Production volumes were 36% up on 2018 as the orchards continue to mature. Developments included the installation of optical sorting technology at the processing plant.

Avocado Production


Mature area
Ha
Immature area
Ha
2019 Volume
mkg
2018 Volume
mkg
Kenya – own estates452 346 7.1 11.0
– smallholders and outgrowers

1.15.0


Avocado Pricing and Operations

Following the bumper crops in 2018, production of Hass from our own orchards was down 35% in 2019 due to the trees going in to an “off” year. This “off” year cycle was experienced in many other producing countries such as Peru, South Africa and Chile. As a result, global supply volumes were down whilst demand continued to increase leading to an undersupplied market and very firm pricing with our estate Hass average prices 152% higher than in 2018.

Smallholder Hass volumes in 2019 were down by 86%, but our outgrowers up by 2%. This was partially due to generally lower production volumes but also due to smallholders supplying other exporters.

A total of 79Ha of new Hass orchards were planted during the year including 9Ha of the Carmen variety of Hass.

Pinkerton volumes were up on the previous year by 77% and prices rose by 24%.

We continue to monitor the 23Ha trial of avocados near Kitale in Kenya which we initiated in 2017.

Speciality Crops Production


Mature area
Ha
Immature area
Ha
2019 Volume
Tonnes
2018 Volume
Tonnes
Arable (Brazil)3,580 –  27,82931,445
Rubber (Bangladesh)1,744 231 650 649
Citrus (USA)177 – 6,665 3,773
Pistachio (USA)131 10*712

Wine grapes
(South Africa)

60 24 394 317
Almonds (USA)56 – 131 111
Blueberries (Kenya) – 10 



m3m3
Forestry (Kenya, Brazil, Malawi)2,176 3,637 86,710 ** 47,767 **
 
No of headNo of birthsNo of births
Livestock
4,396 827 948


* 2019 was an ‘off’ year for Pistachios
** Volumes quoted are for conversion to value addition products rather than fuel wood for our own use

Speciality Crops, Pricing and Operations

Arable

Our arable operation in Brazil had a difficult year due to a combination of weather and pest and disease related issues. Soya harvest volumes were slightly down (1%) on last year, however prices were up 8%. Both the maize and oat crops suffered from pest and disease attacks and the wheat from unexpected frosts in July. Despite these adversities, the farm continues to generate good profits.

Rubber

Rubber is grown on areas of the Bangladesh tea estates unsuited for growing tea. Volumes produced in 2019 were in line with 2018 and although average prices increased by 4% they remain below cost.

Citrus

Citrus volumes were 77% up on last year but prices were 40% lower due to market over supply.

Pistachios

2019 was an off year for our pistachios so a very small volume was produced.

Wine

The harvest this year was much improved on 2018’s drought affected crop with volumes up 24% but sales continue to disappoint. During the year 11Ha of vines were replanted bringing the total planted area to 84Ha.

Almonds

Almond volumes were 18% ahead of 2018 as the orchards continue to mature; prices remained firm in line with previous years.

Forestry

Production of Eucalyptus in Brazil doubled in the year due to increased demand from the paper industry. Kakuzi also saw a 30% increase in production of forestry products for the market in Kenya.

Livestock

Births were down this year due to the drought conditions experienced during the first quarter of the year which affected the availability and quality of grazing.

Blueberries

As previously reported, a 10Ha trial of blueberries was established at Kakuzi early in 2019. The first crop was harvested in September 2019 totalling 4 tonnes most of which was sold in the local market. The fruit showed excellent flavour and sizing which is most encouraging at this point. The first main crop is expected in the autumn of 2020. If successful, there are substantial additional areas of Kakuzi which could be developed.

Engineering

In total, the Engineering division reached break even (2018: trading loss £0.6 million) on revenue of £22.1 million (2018: £22.2 million), as set out in note 1 to the Accounts. The division continued to be cash generative.

AJT Engineering had a much better year with sales rising by 15% to £16.0 million as the strategy to increase utilisation and diversify into other parts of the energy sector continue to pay off. However increased overheads meant that the business made a small operating loss in the year.

Abbey Metal Finishing and its subsidiary Atfin both had a difficult year as issues in the aerospace supply chain and concerns from European customers over Brexit-impacted sales volumes. Combined revenues were down 9% with a consequent impact on profitability.

Food Service

In total the Food Service division made a segment trading profit of £0.8 million (2018: £1.6 million) on revenue of £29.8 million (2018: £41.5 million), as set out in note 1 to the Accounts.

ACS&T saw reduced profitability from lower revenue as production issues at its major customer saw storage volumes fall significantly over the summer.

Jing Tea saw revenues rise by 27%. Shortly before the year end Jing opened its first retail store in St Christopher’s Place, London which began trading well but is currently closed.

Investments

Investment Portfolio. The gains on sale for the year were £1.1 million (2018: £0.4 million). Of this gain £0.2 million was reflected in the Income Statement and £0.9 million in the Statement of Comprehensive Income. The total value of the portfolio at 31 December 2019 was £47.0 million (2018: £39.6 million). The increase reflects the strength of global equity markets, particularly in the second half of 2019, in part offset by a number of disposals during the year.

Clearly the market value of the portfolio has fallen significantly in the last few weeks though not as severely as global markets due to the strength of the yen and we estimate the value at 31 March 2020 to be £43.8 million.

Investment Property. Work continues on the development of the Linton Park Estate with an additional two

properties expected to be completed and available for rental in 2020. In addition, a property in central London was refurbished and has now been let.

Collections. The collections are held at cost. A number of minor additions and disposals were made during the year.

Associates

In total, our share of the results of associates amounted to £4.6 million (2018: £7.6 million).

Although BF&M was adversely impacted by two major hurricanes in 2019, Dorian which hit the Bahamas and Humberto which hit Bermuda, gross premiums written increased by 12% driven by growth in property premiums in the Caribbean and higher annuity premiums. BF&M’s profit for the year was Bermudian Dollar 13.1 million (2018: Bermudian Dollar 18.5 million).

Our two associate companies in Bangladesh, United Insurance and United Finance, produced satisfactory results broadly in line with expectations.

POLITICAL, LEGISLATIVE AND LEGAL ISSUES

The Group is present in many jurisdictions and is subject to local legislation. We previously disclosed that in 2018, the Kenyan National Land Commission was asked by a small number of claimant groups to investigate historical land injustice claims concerning lands registered in the name of Kakuzi and Eastern Produce Kenya. The land claims have been refuted through the Kenyan legal system. A constitutional petition has been filed and also a request to stay the proceedings of the National Land Commission until the legal position has been determined. This matter is on-going and we continue to keep the situation under review.

Group claims against African operations

As we stated in our trading update of January 2020, Camellia and a number of its subsidiary companies have received notification of claims to be made in the UK relating to allegations made by multiple individuals concerning two of those companies’ African operations. The allegations are of serious assault, harassment and sexual misconduct allegedly committed by certain individuals employed by those two foreign operating companies. The Company and its wider group takes any complaint of criminality, misconduct, illegality, or unethical behaviour extremely seriously. At this stage the financial impact of these claims is impossible to quantify, but the related legal and other costs will be significant. Costs incurred since notification of these claims in 2019 to the end of March 2020 amount to £3.5 million.

Brexit

Brexit and the potential impact across the Group is something for which we have been preparing over the last three years. Whilst there is now clarity as to the dates, the significant uncertainty as to the precise structure of any post-Brexit trading arrangements continues to pose challenges for these preparations.

As we have said previously, whilst we expect there to be some impact on our UK operations, we are confident that the majority of our operations will be largely unaffected.

The direct impact of a no-deal Brexit on our Group primarily arises from potential import and export tariffs, changes to the way trade flows between the UK and rest of the world and, from a financial perspective, the volatility of exchange rates and the potential risk we could incur additional tax costs.

CAPITAL INVESTMENT AND DEVELOPMENT

We continued to invest in our assets during the year and £14.5 million was spent on property, plant, equipment and investment property (2018: £17.4 million). Key projects are referred to in the operational reports above. A further £4.6 million (2018: £4.3 million) was invested in bearer crop and forestry plantings.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Sustainability, whether it is environmental or social is fundamental to the ethos of Camellia. Many of our operations have histories going back over 100 years and we continue to invest in them for the long-term. Ensuring, therefore, that the environments and communities on which we depend are maintained and enhanced is key to our future.

In 2019, for the first time we also published a separate Environmental, Social and Governance report. This ESG report allowed us to add more detail as to the breadth and scale of activities that we undertake in this area and highlight our commitment to it. We intend to publish an updated version during the course of 2020. Further guidance on our approach to Governance, Sustainability and CSR is also set out in the Strategic Report on pages 21 to 27 of this document.

As part of our long-term commitment to the environment we are running a large number of programmes across our operations to mitigate our environmental impact and to reduce our carbon footprint. Clearly the ability of our operations to continue to invest in these initiatives depends on their results which can lead to a stop/start approach to this investment. Furthermore, a number of the potential solutions are untested in the country or on the crop concerned. We have therefore introduced a Chairman’s Fund, the aim of which is to utilise some of our centrally held resources to maintain these critical initiatives and to make a step change in the speed and effectiveness of the programmes. More detail will be available in our 2020 ESG report to be published later this year.

Performance

As part of our environmental impact assessment we measure total energy consumption, carbon emissions, and water usage as set out below.

  2019 2018 2017
Energy and Carbon      
Total Energy consumed (TWh)* 0.76   0.79 0.79
Total Carbon emissions (tonnes CO2e) 229,703   217,320 222,775
Water      
Total water withdrawal (million m3) 42.7  40.7  40.9

 

* Historical data has been adjusted to reflect more accurate conversion factors published each year by the UK Department for Business, Energy & Industrial Strategy (BEIS). 

These numbers set out actual usage, prior years have not been adjusted to reflect acquisitions, disposals nor other corporate activity.


Overall our energy usage dropped during the year but our total carbon emissions were up by 5.6%. This largely reflects the acquisitions of tea estates in India in 2019 which rely on coal as a fuel source. One of the largest uses of energy in the Group is the requirement to process and dry our tea crop and I am pleased to report that the continuing investment we have been making to increase energy efficiency in our tea factories has resulted in a drop in our carbon emissions from 1.48kg to 1.39kg of CO2 per kg of made tea, a reduction of 6%.

SUMMARY

Although 2019 was a less good year financially for the Group compared with the exceptional results in 2018, we continued to make good progress with our core strategy. Our tea operations continued to produce excellent volumes and quality of tea and we made significant improvements in efficiency and productivity. Our two other core crops, macadamia and avocado, once again demonstrated the importance of this diversification, and whilst not yet large enough, are already showing their ability to mitigate the cyclicality of the tea market. The investments that we are making in these areas will improve this situation in the future.

Like all commodities, tea has cycles; cycles which can be long or short depending on a range of factors. However, tea remains the world’s most widely consumed drink after water, global consumption continues to increase and inevitably prices will improve albeit it remains unclear as to when.

We continue to invest in sustainability; our first ESG report in 2019 showed off some of the strength and depth of our commitment in this area and was very positively received by our many stakeholders. Our new Chairman’s Fund will ensure that we maintain our impetus in this area.

We are fortunate that our balance sheet remains strong with £89.4 million of net cash in the Group and money market deposits amounting to £6.2 million. However some of this cash is committed for long-term projects and much of it overseas. At this stage there are a number of short-term calls on this cash and therefore until we get some certainty as to the future, we believe that it is prudent to conserve cash wherever we can. We have already put a number of capital projects on hold and have decided not to pay a final dividend for 2019. If circumstances justify, we will declare a special dividend alongside the interim dividend.

2020 is likely to be one of the most challenging years that the Group has yet faced and is already testing our operations across the world. I am delighted by the response of our staff and proud of the efforts that they have made not just in their own business, but in the wider communities where they operate. This has been particularly true in the agricultural operations where the Group’s hospitals have been made available to assist local services.

Tom Franks
Chief Executive

7 May 2020

2020 ESG Report