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27 February 2009

NEW BRITAIN PALM OIL LIMITED

('NBPOL', the 'Group' or the 'Company')

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008.

Highlights  

• Revenues up approximately 56.6% to USD 352.2 million (2007: USD 225.0 million)

• Profit before tax of USD 126.3 million* (2007: USD 79.5 million*) excluding the effect of revaluing biological assets under IAS 41, excluding the effects of the acquisition of Ramu Agri-Industries Limited ('RAIL') and excluding net foreign exchange losses

• Profit before tax of USD 106.3 million* (2007: USD 81.9 million*) excluding the effect of revaluing biological assets under IAS 41

• Excluding IAS 41, earnings per share attributable to ordinary shareholders were 51.7* US cents (2007: US 40.6* cents)

• A record 1.27 million tonnes of fruit processed and 320,000 tonnes, in aggregate, of crude palm oil ('CPO') and palm kernel oil ('PKO') produced. Crude oil production was 7% higher than the preceding year and palm product extraction rates remained at approximately 28% 

• Average CPO selling price achieved by NBPOL during the year was USD 926/tonne (2007: USD 686/tonne)  

• As at the year end, the Group had made 'forward sales' of roughly one quarter of its 2009 production (82,000 tonnes of CPO) at an average price of USD 849/tonne. As at today's date, this figure is now approximately 156,000 tonnes of palm oil production at an average price of USD780/tonne

   

  
   

• Gross margin of 53% (2007: 58%) primarily reflects the increased cost of key inputs such as fuel and fertiliser throughout the year. 

• Dividends paid during the year totaling 41.8 US cents per share including an interim dividend for 2008 of 14 US cents per share. A final gross dividend of 14 US cents to be paid in May 2009

• Successful acquisition of RAIL adding a further 33,000 hectares to our land bank and extra oil palm production capacity

• Agreement signed for a 25 year lease in Liverpool for the construction of the UK refinery announced in August 2008 - planning permission was granted in February 2009 and completion remains on track for Spring 2010

Hj. Ahamad Mohamad, departing Chairman of New Britain Palm Oil Limited, commented:

'Looking forward we start 2009 in a strong position as our forward sales strategy has, to date, already secured approximately 156,000 tonnes of palm oil production at an average price of USD 780/tonne. At the time of writing we are continuing to make sales at good margins into 2009 and most recently into 2010. 

We are also excited by the progress of our UK refinery project, which with planning permission granted, continues on target. This marks a strategically important step for the Company with regard to the supply of sustainable palm oil to our EU customer base. In addition it is pleasing to see the easing of input costs, notably diesel, fertilisers and agrochemicals that should help restore our margins. The Board is confident of delivering further growth.'

For further information contact:

New Britain Palm Oil Limited Nick Thompson Alan Chaytor	Tel: +44 (0)20 7554 1400
Singer Capital Markets Limited Nicholas How Richard Savage	Tel: +44 (0) 20 3205 7500
Kreab Gavin Anderson (Financial PR Adviser) Ken Cronin Janine Brewis Anthony Hughes	Tel: +44 (0)20 7554 1400 Email: nbpol@kreabgavinanderson.co.uk

Website: www.nbpol.com.pg

* Management believes that the presentation of these adjusted measures is useful to investors because it provides a means of evaluating the Group's operating performance and results from period to period on a comparable basis not otherwise apparent when the impact of IAS41 is included. Management also believes that this presentation is useful in facilitating comparisons between the Group and other companies in the industry, some of whom are not required to comply with IAS41. Refer to notes 3 and 4 for a reconciliation of the adjusted measures to those including the impact of IAS41, RAIL acquisition, and net foreign exchange losses

Chairman's statement

Financial overview

The Group had a record year with revenue growing 56.6% in 2008 to USD 352.2 million and our profit before tax, excluding the effect of the RAIL acquisition and fair value movements arising from the revaluation of biological assets, rising to USD111.0 million or USD106.3 million inclusive of RAIL. This result is due to the high commodity prices particularly in the first half of the year. Profit before tax including revaluation of biological assets was USD 28.8 million. Net profit for the year after tax was USD 22.2 million including the revaluation of biological assets, down from USD 87.0 million the previous year.  Earnings per share increased from 40.6 cents in 2007 to 51.7 cents excluding the effects of revaluation of biological assets.

These results reflect the fall in CPO prices during the second half of 2008 and resultant fall in the fair value of the biological assets. During the year the Group also incurred foreign exchange losses as a result of holding deposits in British pounds, essentially to cover the Liverpool refinery build costs, and due to the continued appreciation of the kina. These losses amounted to USD 15.3 million.  

In 2008, the kina continued its appreciation against the US dollar and this has again had a negative impact as our income statement is translated from kina to US dollars using the average rate. The 2008 average rate was 37.66 cents against 33.96 cents the previous year. However in the last two months of 2008 the kina started to decline against the US dollar and this has continued into 2009 as reduced inflows of commodity exports have reduced the flow of US dollars into the country.  

The Group is in a strong financial position with cash holdings at the end of 2008 of USD 64.6 million with a further USD 55.8 million in trade debtors most of which is for oil sales and has subsequently been received, while borrowings have increased from USD 19.7 million in 2007 to USD 58.4 million, primarily as a consequence of the acquisition of RAIL's debt.  We brought forward the interim 2008 dividend so that it falls in the year to which it relates. This has meant that in 2008 three dividends were paid, totalling 41.8 US cents the last of which, the interim dividend for 2008, of 14 US cents was paid in October. A final gross dividend for 2008 of 14 US cents per share will be paid in May 2009.

Late in 2008, freight rates which had been very high started to fall for the first time in recent years as fuel bunker surcharges fell with the dropping mineral oil price, this has continued into 2009. Similarly, fuel costs for the first three quarters of 2008 continued to have a negative impact on the cost of transportation and milling of fruit. High commodity prices during 2008 impacted on fertiliser costs for the year and this had an effect on our profit. The fertiliser was contracted at the start of the year, however the Chinese government imposed export taxes on several fertilisers that we had ordered and these costs were passed on to the consumer.

The Group's average selling price for 2008 for CPO was USD 926 per tonne, this is lower than the average CIF Rotterdam price for the year of USD 998, the difference reflecting forward sales made at lower prices. The average selling price achieved compares favourably to the average for the previous year of 698 US dollars. 

In 2008, the Group sold 15 million seeds up from 4 million in 2007, an excellent result although this would have been higher still if demand for seeds had not dropped. In particular, Indonesian demand fell away as the effects of the economic downturn impacted local planting programs there. The curtailed planting programs of these customers will reduce the availability of palm oil in years to come.

Operational review

In 2008 the Company continued to expand its palm oil production base with the addition of 7,228 hectares of oil palm, of which 1,895 hectares were new plantings and 5,333 hectares were existing plantings acquired through the acquisition of RAIL. Crop volumes continued to rise and 2008 was a record year for oil production with approximately 320,000 tonnes of crude oil (crude palm oil and palm kernel oil) produced from the Group's six oil mills. We have forecast oil production to rise in excess of 350,000 tonnes in 2009 assuming that there are no unforeseen circumstances.

Fruit production from the estates increased to approximately 875,000 tonnes with a further 393,000 tonnes purchased from smallholder growers. Overall estate yields per hectare were slightly disappointing in 2008 and were 6% below our budget in New Britain, 11% below budget in the Solomon Islands, whilst those at Ramu were 21% above expectation. On a per hectare basis our most productive estates continued to have yields that exceeded thirty tonnes of fruit bunches and overall our average estate yields in New Britain were 24.4 tonnes of fruit bunches per hectare compared to 20.1 in the Solomon Islands and 15 in Ramu. The yields at Ramu were affected by both incomplete harvesting during the year as the oil mill was only commissioned in April and the very young age profile of the estates.  

Weather conditions were generally good throughout 2008 with the exception of a remarkably wet start to the year in January with over one metre of rainfall in New Britain. This was followed by February and March that had only half their annual average rainfall. The year ended in New Britain with 3530mm of rainfall recorded at our research station, slightly below our annual average of 3734mm, with no soil moisture deficits recorded and higher than average sunshine hours. In the Solomon Islands harvesting was affected by prolonged rainfall at the start of the year. We undoubtedly lost some crop because of this as harvesting intervals became extended.

Oil extraction rates at our mills showed some improvement in 2008 as we made significant progress in New Britain to improve the ripeness standards of our fruit and tighten process controls. The end result was an increase in our crude palm oil extraction rate from 22.59% in 2007 to 23.19% in 2008. This may not seem like a huge increase in efficiency but the net effect over the 1,267,274 tonnes of fruit processed in the year amounts to an extra 7,600 tonnes of oil produced and an associated revenue of USD7.0 million.

The Group now has 47,163 hectares planted with oil palm of which 38,117 hectares are under harvest with the balance being immature oil palms that have been planted over the past 3 years. In addition, the Group now has 11,400 hectares of cattle grazing pastures and 8,193 hectares of sugar cane as a result of the RAIL acquisition. The Group has a current land area 86,753 hectares of which 70,393 is under cultivation. 

The Group has a very young age profile with a weighted average palm age of 8.7 years that has been further enhanced by the acquisition of RAIL where the oldest commercial palms were planted in 2004. Commercial plantings within the Group are usually retained for a period of 20-22 years. We currently have a small area in the Solomon Islands which is older than our normal age limit, however these areas continue to yield well and will be replanted over the next 2-3 years as our younger areas come into harvest. 

The Company continues to pursue its two pronged strategy of organic growth and on raising oil yields through our '30:30' initiative. The '30:30' initiative has the objective of raising fruit yields to 30 tonnes per hectare and palm product extraction rates to 30%. Whilst fruit yields in 2008 could not be described as stellar, it is the Directors opinion that overall this is due to the long-term yield cycle of oil palm and that the prospects for increasing yields are most achievable in the short term from the very young age profile of the Group and in the longer term from the production of higher yielding varieties from our plant breeding program. It is pleasing to report that the Company did make progress by raising oil yields in 2008 through achieving better extraction rates and further efforts in this field are being pursued.

Acquisition of Ramu Agri-Industries Limited

The acquisition of RAIL was more protracted than we envisaged but the finalisation of the deal in September was an important strategic step for the Group. RAIL has huge potential and with the management expertise that the Group possesses we are confident that over the next few years RAIL will become a substantial production base for the Group. Importantly it also gives the Group a base from which to explore further opportunities in the Ramu and Markham valleys as well as providing an additional land bank that is not likely to raise any significant issues from high conservation value forest assessments. The main constraint to palm oil yields at Ramu will undoubtedly be linked to seasonal water stress and management have already instigated work to assess irrigation technologies. We will review the future of the sugar enterprise at Ramu on its own merits and equally we will focus on intensifying the beef cattle operation at Ramu and hopefully transfer technology from our existing oil and beef intercropping experience in New Britain.

Sustainability

The Group has continued to be a leading light amongst the palm oil producers in its drive towards sustainable production practices. We have been heavily involved in the Roundtable on Sustainable Palm Oil. As we stand this is the only body that has a standard for certifying sustainable palm oil and whilst there are many detractors of this organisation and understandable frustration at the slow pace of change it is at the moment the only group to have made any significant progress towards improving production practices.  The Board and management are committed to the roll out of RSPO and ISO 14001 certification to all of our production sites. 

Current trading and outlook

Looking forward we start 2009 in a strong position as our forward sales strategy has, to date, already secured approximately 156,000 tonnes of palm oil production at an average price of USD 780/tonne. At the time of writing we are continuing to make sales at good margins into 2009 and most recently into 2010.

We are also excited by the progress of our UK refinery project, which with planning permission granted, continues on target. This marks a strategically important step for the Company with regard to the supply of sustainable palm oil to our EU customer base. In addition it is pleasing to see the easing of input costs, notably diesel, fertilisers and agrochemicals that should help restore our margins. The Board is confident of delivering further growth.

Ahamad Mohamad

26 February 2009

  

Financial Statements

Consolidated Income Statement (Unaudited)

For the year ended 31 December 2008

		Consolidated
		2008		2007
		USD'000		USD'000
Revenue		352,219		224,954
Cost of sales		(165,817)		(95,323)
Gross profit		186,402		129,631
Net (loss) gain arising from changes in fair value of biological assets		(77,476)		39,702
Other income		1,399		2,406
Distribution costs		(42,118)		(35,000)
Administrative expenses		(45,161)		(17,194)
Operating profit		23,046		119,545
Interest income		3,860		62
Finance costs		(1,606)		(1,214)
Net finance income (costs)		2,254		(1,152)
Share of profit from joint venture		3,505		3,191
PROFIT BEFORE INCOME TAX		28,805		121,584
Income tax expense		(6,605)		(34,611)
PROFIT FOR THE YEAR		22,200		86,973
Attributable to:
Equity holders of the Company		21,245		86,940
Minority interest		955		33
		22,200		86,973
Earnings per share		$		$
- Basic		0.147		0.600
- Diluted		0.147		0.600

Consolidated Balance Sheet (Unaudited)

At 31 December

		Consolidated
		2008		2007
		USD'000		USD'000
NON CURRENT ASSETS
Property, plant and equipment		326,817		182,177
Biological assets		67,732		134,143
Investments		4,779		3,515
		399,328		319,835
CURRENT ASSETS
Cash and cash equivalents		64,582		135,600
Trade and other receivables		62,512		55,309
Derivative financial instruments		15,906		-
Biological assets		10,306		138
Inventories		46,974		18,176
		200,280		209,223
TOTAL ASSETS		599,609		529,058
NON CURRENT LIABILITIES
Borrowings		45,322		14,363
Derivative financial instruments		-		2,220
Deferred income tax liabilities		86,084		67,398
		131,406		83,981
CURRENT LIABILITIES
Borrowings		13,105		5,326
Trade and other payables		25,243		11,273
Derivative financial instruments		-		24,786
Current income tax liabilities		34,492		11,739
Dividends payable		-		21,479
		72,840		74,603
TOTAL LIABILITIES		204,245		158,584
NET ASSETS		395,363		370,474
SHAREHOLDERS' EQUITY
Issued capital		124,879		124,879
Other reserves		53,261		10,579
Retained earnings		213,053		231,801
		391,193		367,259
Minority interest in equity		4,170		3,215
TOTAL EQUITY		395,363		370,474

  

Consolidated Statement of Changes in Equity (Unaudited)

		Attributable to equity holders of the Company
		Issued		Other		Retained				Minority		Total
		Capital		Reserves		Earnings		Total		Interest		Equity
Consolidated		USD'000		USD'000		USD'000		USD'000		USD'000		USD'000
Balance at 1 January 2007		9,440		7,127		174,368		190,935		3,182		194,117
Cashflow hedges net of tax		-		(15,184)		-		(15,184)		-		(15,184)
Currency translation differences		-		18,636		-		18,636		-		18,636
Net income recognised directly in equity		-		3,452		-		3,452		-		3,452
Net profit for the year		-		-		86,940		86,940		33		86,973
Total recognised income and expense for 2007		-		3,452		86,940		90,392		33		90,425
Net proceeds from issuance of ordinary shares		115,397		-		-		115,397		-		115,397
Shares issued for land rights		42		-		-		42		-		42
Dividends declared		-		-		(29,507)		(29,507)		-		(29,507)
Balance at 31 December 2007		124,879		10,579		231,801		367,259		3,215		370,474
Cashflow hedges net of tax		-		29,579		-		29,579		-		29,579
Currency translation differences		-		13,103		-		13,103		-		13,103
Net income recognised directly in equity		-		42,682		-		42,682		-		42,682
Net profit for the year		-		-		21,245		21,245		955		22,200
Total recognised income and expense for 2008		-		42,682		21,245		63,927		955		64,882
Dividends declared		-		-		(39,993)		(39,993)		-		(39,993)
Balance at 31 December 2008		124,879		53,261		213,053		391,193		4,170		395,363

  

Consolidated Statement of Cash Flows (Unaudited)

		Consolidated
		2008		2007
		USD'000		USD'000
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts from customers		351,180		204,138
Cash payments to suppliers and employees		(222,113)		(136,787)
		129,067		67,351
Income tax paid		(4,688)		(2,820)
Interest paid		(1,606)		(1,214)
Interest received		3,860		62
Net cash generated from operating activities		126,633		63,379
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of subsidiary, net of cash acquired		(63,391)		-
Purchase of property, plant and equipment		(52,169)		(24,750)
Expenditure on plantation development		(13,456)		(9,375)
Expenditure on biological assets		(697)		(1,010)
Net cash used in investing activities		(129,713)		(35,135)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from borrowings		1,318		3,973
Repayment of borrowings		(3,892)		(993)
Net proceeds from share issue		-		116,094
Dividends paid to company shareholders		(61,472)		(10,524)
Net cash generated from financing activities		(64,046)		108,550
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS AND BANK OVERDRAFTS		(67,126)		136,794
Effects of exchange rate changes on cash and cash equivalents and bank overdrafts		(9,292)		749
Add : Cash and cash equivalents and bank overdrafts at the beginning of the year		131,281		(6,262)
CASH AND CASH EQUIVALENTS AND BANK OVERDRAFTS AT THE END OF THE YEAR		54,863		131,281

Reconciliation of Profit After Income Tax To Net Cash Generated From Operating Activities (Unaudited)

	Consolidated
	2008		2007
	USD'000		USD'000
Profit after income tax	22,200		86,973
Add/(less) non-cash items:
Depreciation and amortisation	20,143		14,650
Biological (gain)/loss	77,476		(39,702)
Net exchange differences	9,292		(749)
Exchange differences on translation of financial statements	1,354		3,809
Share of profit from joint venture	(3,505)		(3,191)
Deferred income tax	(22,485)		13,474
Gain on disposal of non current assets	-		(171)
Add/(less) movements in working capital items (excluding effects of acquisition)
(Increase)/decrease in trade and other receivables	43		(27,373)
Increase in current income tax liabilities	22,753		14,435
Increase/(decrease) in trade and other payables	(2,987)		2,663
(Increase)/decrease in inventories	2,349		(1,439)
Net cash generated from operating activities	126,633		63,379

   Notes to the financial statements

 

1.  Basis of accounts preparation

The financial information in this statement is prepared in accordance with International Financial Reporting Standards ('IFRS') (and International Financial Reporting Interpretations Committee ('IFRIC') interpretations). 

They have been prepared on the basis of the accounting policies set out in the Group's 2007 Annual Report and Accounts and have been consistently applied throughout the year.

 

2.  Status of financial information

This preliminary announcement does not constitute the Group's consolidated statutory financial statements for the year ended 31 December 2008. This report is based on the accounts which are in the process of being audited and which will be approved by the Board and reported on by the auditors on 20 March 2009 and subsequently sent to shareholders and filed with the PNG Registrar of Companies. Accordingly, the financial information contained in this announcement is unaudited and does not have the status of statutory accounts.  

Financial information for the year ended 31 December 2007 has been extracted from the audited financial statements as filed with the PNG Registrar of Companies. The Auditors' report on the full financial statements for the year ended 31 December 2007 was unqualified.

 

3.  Reconciliation of reported Profit before tax

		Consolidated
		2008		2007
		USD'000		USD'000
Profit before tax		28,805		121,584
Net (gain)/loss arising from changes in fair value of biological assets		77,476		(39,702)
Profit before tax excluding the effects of revaluing biological assets under IAS 41		106,281		81,882
Effect of acquisition of Ramu Agri-Industries Limited  ('RAIL')		4,689		-
Net foreign exchange losses/(gains)		15,289		(2,355)
Profit before tax excluding the effects of revaluing biological assets under IAS 41, excluding the effects of the acquisition of Ramu Agri-Industries Limited ('RAIL') and excluding net foreign exchange losses		126,259		79,527

 

4.  Earnings per share

		Consolidated
		2008		2007
		USD'000		USD'000
Net profit attributable to ordinary shareholders used in basic and diluted EPS		21,245		86,940
Net (gain)/loss arising from changes in fair value of biological assets attributable to ordinary shareholders, net of tax (*)		53,590		(28,173)
Net profit attributable to ordinary shareholders before changes in fair value of biological asset		74,835		58,767
Weighted average number of ordinary shares ('000) used in basic and diluted EPS		144,799		144,799
Basic EPS (USD/share)		0.147		0.600
Basic EPS before changes in fair value of biological assets (USD/share)		0.517		0.406

* The net (gain)/loss arising from changes in fair value of biological assets attributable to ordinary
shareholders, net of tax is reconciled to the income statement as follows:

Net (gain)/loss arising from changes in fair value of biological assets		77,476		(39,702)
Income tax expense/(credit)		(23,243)		11,911
		54,233		(27,791)
Attributable to:
Ordinary shareholders		53,590		(28,173)
Minority interest		643		382
		54,233		(27,791)

 

 

5.  Tax Note

	Consolidated
	2008		2007
	USD'000		USD'000
Income Tax Expense
Current tax	29,328		21,256
Deferred tax (credit)/charge	(22,485)		13,474
Over provision in prior years	(238)		(119)
	6,605		34,611
The income tax expense has been calculated as follows:
Profit for the year	28,805		121,584
Income tax at 30%	8,642		36,475
Tax effect of permanent differences:
Non-deductible/(assessable) items	(1,799)		(1,746)
Over provision in prior years	(238)		(119)
Income tax expense	6,605		34,611

 

 

6.  Exchange rates

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates. The consolidated financial information is presented in US Dollars, which is New Britain Palm Oil Limited's presentation currency and differs from its functional currency, the Papua New Guinea Kina ('PNG Kina').

The balance sheets and statements of changes in equity are translated from PNG Kina to US Dollars at the closing rate existing at the date of the balance sheet, which at 31 December 2008 is PGK1.00 = USD 0.3760 (31 December 2007: PGK 1.00 = USD 0.3580).

The income statements and statements of cash flows are translated from PNG Kina to US Dollars at the average exchange rates prevailing during the period, which are considered to approximate the actual exchange rate at the date of each transaction. The average exchange rate at 31 December 2008 is PGK1.00 = USD 0.3766 (31 December 2007: PGK 1.00 = USD 0.3396).

 

7.  Dividends

In January 2008, an interim dividend for 2007 was paid of 13.8 cents (41.7 toea) per share, which was equivalent to a total amount of USD 21.5m. In July 2008, a final dividend for 2007 was paid of 14 cents (37.83 toea) per share, which was equivalent to a total amount of USD 20.9m.

In October 2008, an interim dividend for 2008 was paid of 14 cents (35.8 toea) per share, which was equivalent to a total amount of USD 20.3m

It should be noted that exchange rate movements in the Kina/USD exchange rate between the date of declaration and payment date give rise to exchange differences.  

A final dividend of 14 cents will be paid in May 2009.

 

8.  Business Combinations

In September 2008, the Group acquired 100% of the share capital of Ramu Agri-Industries. The acquired business contributed revenues of USD 19.7m and net loss of USD 2.4m from 1 October 2008 to 31 December 2008.

Details of the provisional fair value of the assets and liabilities acquired are as follows:

				USD'000
Purchase consideration
- Cash paid				61,629
- Direct costs relating to the acquisition				1,769
Total purchase consideration				63,398
				USD'000
				Fair value	Carrying amt
Cash and cash equivalents				7	7
Trade and other receivables				7,246	9,699
Inventories				27,227	21,700
Biological assets				14,756	13,130
Property, plant & equipment				93,809	71,801
Investments				0	475
Borrowings				(38,548)	(38,545)
Trade and other payables				(16,957)	(16,817)
Deferred tax liabilities				(24,142)	(16,756)
				63,398	44,695
Total purchase consideration				63,398
Purchase consideration settled in cash				63,398
Cash and cash equivalents in subsidiary				(7)
Cash outflow on acquisition				63,391

The fair values are provisional as the acquisition was completed with effect from 29 September 2008. Provisional fair values may be used for a period of 12 months from acquisition.

During the 12 month period from acquisition date an independent valuer will complete a detailed valuation of the land acquired to determine the final fair value of these assets.  Utilising the independent valuers report the company will determine the final allocation of the excess across property, plant and equipment, intangible assets, deferred tax assets and liabilities, the outcome of which could materially change the provisional fair values identified above.

ENDFR SEASWWSUSESE