23rd Apr 2015 06:56
LONDON (Alliance News) - Camellia PLC Thursday said its pretax profit more than halved in 2014 due to very poor tea sales prices in Kenya, substantial losses associated with two onerous contracts at its AKD Engineering subsidiary, further increases to regulation and compliance costs at its Duncan Lawrie business, and as it booked a provision against an investment in Bermuda.
The agriculture and horticulture business, which also has owns the AKD Engineering business and private bank Duncan Lawrie, reported a pretax profit of GBP22.0 million for 2014, down from GBP59.6 million in 2013, as revenue declined to GBP238.9 million from GBP251.3 million, and it booked GBP3.4 million in impairments and provisions.
Camellia, which is a major tea producer, said it was hit by lower tea production in India, but mainly by lower tea prices in Bangladesh and particularly Kenya, where profitability was down 48% compared with 2013, as the market was oversupplied thanks to higher production.
"In my Chairman's Statement last year I warned of the potential impact of climatic conditions and the imbalance of supply and demand, particularly for tea, on our profitability. Such circumstances prevailed in 2014, leading to the profits of our agricultural operations being 35% below those of the previous year," Chairman Malcolm Perkins said.
On top of that, AKD Engineering had what the company described as "yet another disastrous year" mainly due to substantial losses on two large contracts that are now largely complete. The company said orders for the business, which is totally reliant on the North Sea oil and gas market, have completely dried up and so it took the decision to shut down the business.
"The likely losses that we would have experienced over the forthcoming months, or indeed years, were deemed to be unsustainable. We expect to incur further losses in 2015 as we target to complete an orderly closure of this business by the end of the first half of the year," it said.
Camellia also said it is reviewing its options regarding the development of Duncan Lawrie Private Bank, which had a difficult year coping with the twin challenges of very low interest rates and the conservative risk profile required by the group.
"This conservative approach to risk has long been a cornerstone of the group's policy at Duncan Lawrie, but with the low interest rate environment potentially extending into the medium term, the group is now reviewing its options with regard to the ongoing development of Duncan Lawrie," it said.
Camellia added that its listed investments generally performed well during 2014, with the exception of an investment in Bermuda. It said that investment has now fallen below its cost and therefore it has booked an impairment of GBP2.3 million in its profit and loss account.
Despite the sharp decline in profit, Camellia said it will pay a final dividend of 92 pence for 2014, bringing the total for the year to 126p, compared with 125p in 2013.
"2014 was a difficult year. However, the difficulties have not prevented us from continuing with the organic development of our operations and we must continue to invest in areas that will go towards mitigating the ever increasing costs of production, particularly in our tea gardens. This is an ongoing commitment and a substantial part of our profitability is reinvested in our operations in order to secure their long term future," the company said.
"We continue to examine possible acquisitions in the sectors in which we operate, but the influence on the market of venture capital funds who highly gear their investments and look for a short term exit make such acquisitions either too expensive or very difficult to locate. We will continue to invest in good freehold or long leasehold properties where circumstances are deemed appropriate," it added.
By Steve McGrath; [email protected]; @stevemcgrath1
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