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 |
India | 15,925 | 1,375 | 32.1 | 28.1 |
Bangladesh | 8,660 | 563 | 14.2 | 12.8 |
Kenya | 3,992 | 161 | 12.1 | 14.4 |
Malawi | 5,132 | 509 | 17.6 | 19.1 |
Total own estates | 33,709 | 2,608 | 76.0 | 74.4 |
Bought leaf production | | | 21.1 | 24.2 |
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 |
Malawi | 1,326 | 182 | 503 | 472 |
South Africa | 887 | 426 | 459 | 429 |
Kenya | 621 | 411 | 313 | 229 |
Total | 2,834 | 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 estates | 452 | 346 | 7.1 | 11.0 |
– smallholders and outgrowers |
|
| 1.1 | 5.0 |
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 | – | 27,829 | 31,445 |
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 | 4 | – |
|
|
| m3 | m3 |
Forestry (Kenya, Brazil, Malawi) | 2,176 | 3,637 | 86,710 ** | 47,767 ** |
|
| No of head | No of births | No 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.