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Camellia warns of dent from tea price downturn, assault claims

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Shares in Camellia returned to a three-year low after the avocados-to-engineering group warned profits would be “significantly below expectations”, hurt by low tea prices, Bangladesh labour charges and costs of investigating assault claims.

 

Camellia’s shares tumbled 5.1% to 8350p in morning deals in London, matching their lowest since late 2016.

 

The dip followed a forecast from the group that its revenues for last year would come in at about £294m, a drop from £309.8m for 2018, hurt by a continuation of weakness in tea prices placed under “severe pressure” by a supply glut.

 

A dip in prices stemming from global “overproduction” two years ago “did not improve as the year [2019] progressed and, across all our tea operations during the critical November and December trading period were also significantly lower than expected”, Camellia said.

 

Tea prices

While prices in Kenya have in fact staged some revival - to $2.30 per kilogramme as of early January, up from a late-July low of $1.96 per kilogramme – those in the Indian subcontinent have continued to struggle.

 

In the Chittagong market, prices last month fell as low as 167.19 Bangladeshi taka per kilogramme, the lowest since March 2017, while in North India’s CTC market they stood at a six-month low of 144.72 rupees per kilogramme as of November.

 

The 197.69 rupees per kilogramme that tea achieved in India’s orthodox market in November was the lowest in eight months, and down 25% from an April high.

 

‘Being urgently investigated’

Camellia also revealed that in Bangladesh, where it grows rubber as well as tea, it faced costs of laws forcing companies to contribute to workers profit participation funds

 

The group said that while the impact of the legislation was not clear, “we anticipate having to make a significant provision in our 2019 financial statements for historic liabilities”.

 

Furthermore, the group flagged legal costs, and the prospect of “further expenses”, stemming from claims of serious assault, harassment and sexual misconduct committed by “certain” employees.

 

While the allegations concern some African operations, the claims, which Camellia said “are being urgently investigated”, are to be lodged in the UK.

 

‘Significantly below expectations’

Camellia said that combination of these setbacks, “and particularly the impact of lower tea prices, means that profits for the group will be significantly below expectations” for 2019.

 

The group added that it “remains financially strong, with significant net cash resources.

 

“This and our long-term outlook allows us to trade through difficult periods in the tea cycle and continue to implement our development plans.”

 

According to Refinitiv data, investors have pencilled in pre-tax profits of £15.40m for Camellia for 2019, compared with £38.10m for 2018.

 

The group reported an underlying pre-tax loss of £4.1m for the January-to-June half, compared with a pre-tax profit of £6.1m a year before.

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