New Brit. Palm Regulatory News (NBPO)

28 February 2011

NEW BRITAIN PALM OIL LIMITED

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010 (UNAUDITED)

New Britain Palm Oil Limited (LSE: NBPO), one of the largest fully integrated industrial producers of sustainable palm oil, today announces its unaudited preliminary results for the year ended 31 December 2010.

Financial Highlights 

-     Revenue increased 45% to USD 470.5 million (2009: USD 323.8 million) due to higher prices for palm oil in 2010 particularly in the second half of the year, and the contribution from the acquisition of Kula Palm Oil Limited ("KPOL") completed at the end of April

-     Profit before tax increased 54% to USD 131.2 million* (2009: USD 85.3 million*) excluding the effect of revaluing biological assets under IAS 41

-     Earnings Per Share attributable to ordinary shareholders, excluding the impact of IAS 41, increased 44% to US 60.2* cents (2009: US 41.8* cents)

-     EBITDA, excluding the impact of IAS 41, increased 57% to USD 179.4 million (2009: USD 114.2 million)

-     Gross margin inclusive of net gains arising on agricultural products of 52% (2009: 50%) primarily reflecting higher CPO prices in 2010 compared to 2009

-     A record year for oil shipments up 26% to 455,122 tonnes (2009: 362,254 tonnes)

-     The Group has cash holdings at the end of 2010 of USD 10.2 million (and bank overdrafts of USD 7.5 million) with a further USD 62.2 million in trade oil debtors which has subsequently been received, while borrowings have increased to USD 281.7 million (2009: USD 56.8 million), primarily as a consequence of the twelve month USD 200 million facility to fund the acquisition of KPOL, and short term working capital of USD 25.1 million of which USD 11 million has subsequently been repaid

-     Refinancing terms for a USD 240 million five year facility have been mandated with a major Asia focused bank with expected drawdown in March 2011

-     Following the refinancing, the Board expects to resume the payment of dividends, with an interim dividend for 2011 to be payable in October, the details of which will be announced in our 2011 interim results

* Management believes that the inclusion of these adjusted measures are useful to investors because they provide 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 inclusion 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

Operational Highlights

-     A record 1.98 million tonnes of fruit processed, including 0.48 million tonnes from KPOL (2009: 1.47 million tonnes), and 479,000 tonnes (2009: 366,000 tonnes), in aggregate, of crude palm oil ("CPO") and palm kernel oil ("PKO") produced, including 107,000 tonnes from KPOL.  CPO production was 32.5% higher than the preceding year and palm product extraction rates reduced slightly to 27.5% from 27.8% in 2009

-     Average CPO selling price achieved by NBPOL during the year was USD 850/tonne (2009: USD 710/tonne). As at the year end, the Group had made "forward sales" of CPO of approximately 26% of its 2011 production, 146,000 tonnes at an average price of USD 919/tonne

-     As at 15 February 2011, the forward sales of the Group were approximately 178,000 tonnes at an average price of USD 1,063/tonne

-     CPO prices for 2010 traded in quite a broad range of between USD 760 to 1,225/tonne, and 2011 started at above USD 1,250/tonne

-     The acquisition at the end of April 2010 of Kula Palm Oil Limited (previously CTP (PNG) Limited) has added a further 26,000 hectares of oil palm estates as well as over 16,000 hectares of smallholders. These results reflect the benefits of eight months of ownership with a contribution of USD 29.8 million to profit before tax excluding the impact of IAS 41

-     The successful commissioning in May 2010 of our first vegetable oil refinery based in Liverpool has exceeded all of our expectations, delivering high grade sustainable and traceable oil in a segregated supply chain to a rapidly growing customer base in the United Kingdom and Continental Europe

-     Construction of the Group's newest oil mill in West New Britain is well advanced, and this facility, along with the dedicated fractionation plant for Ferrero Rocher and the two methane capture plants will be commissioned in 2011

Antonio Monteiro De Castro, Chairman of New Britain Palm Oil Limited, commented:

"In 2010, the Group has continued to expand rapidly and invest in the business's unique capacity to bring sustainable traceable palm oil to the European market. Not only did we complete a transformational acquisition of Kula Palm Oil adding a further 26,000 hectares of oil palm estates in Papua New Guinea but we also successfully commissioned our first European refinery based in Liverpool.

The Board is pleased to note that the Group has also posted its highest ever profit on the back of record production and rising oil prices. Production of crude palm oil rose by 32.5% to a record 444,421 tonnes, with the new acquisition contributing some 104,959 tonnes of crude palm oil since the end of April. Overall, the Group processed 1.98 million tonnes of oil palm fruit in 2010, representing a 34.7% increment over 2009.

The Board is pleased with the continued expansion and strengthening of New Britain Palm Oil Limited's operations and NBPOL remains well positioned to deliver further profitable growth. The robust fundamentals of the industry, together with the increasing demand for the highest quality, traceable and certified sustainable palm oil rather than a certificate based trading system provide confidence in a strong future for the Group."

For further information contact:

Website: www.nbpol.com.pg

Notes to editors

NBPOL is a large scale integrated industrial producer of sustainable palm oil in Australasia and is headquartered in Papua New Guinea ('PNG'). It has over 75,000 hectares of planted palm oil plantations, over 8,000 hectares of sugar cane and a further 9,500 hectares of grazing pasture, (some of which will be converted to oil palm); eleven oil mills; two refineries, one in PNG, and one in Liverpool, UK; and a seed production and plant breeding facility.  The Company is quoted on both the Main Market of the London Stock Exchange and on the Port Moresby Stock Exchange in PNG.

NBPOL is fully vertically integrated, producing its own seed (which it also sells globally) and planting, cultivating and harvesting its own land and processing and refining palm oil. It also contracts directly with its end customers in the EU and arranges shipping of its products. 

NBPOL has high regard for the importance of its sustainability credentials and is active in proving its performance through its certification to ISO 14001 and its close involvement and support of the Roundtable on Sustainable Palm Oil ('RSPO'). In September 2008, NBPOL announced that its operations in Papua New Guinea were officially certified by the RSPO as conforming to RSPO Principles and Criteria on sustainability.

NEW BRITAIN PALM OIL LIMITED

Financial overview

The Group had a strong year with revenues of USD 470.5 million and our profit before tax, excluding the fair value movements arising from the revaluation of biological assets under IAS 41, was USD 131.2 million.  This result is due to higher prices for our oils in 2010, particularly in the second half of the year, together with higher volumes arising from the KPOL acquisition. Profit before tax including revaluation of biological assets was USD 376.6 million compared to USD 200.1 million in 2009. Net profit for the year after tax was USD 266.4 million including the revaluation of biological assets, up from USD 141.1 million the previous year.  Earnings per share increased from 41.8 cents in 2009 to US 60.2 cents excluding the effects of revaluation of biological assets.

These results reflect increased volumes, with total oils shipped up 25.6% (455,122 tonnes compared to 362,254 tonnes in 2009), and the movement in CPO prices from their lows at the start of the year below USD 800/tonne up to highs over USD 1,100/tonne during the second half of 2010, and the resultant increase in the fair value of the biological assets. Gross profit as a result increased by 46.7% from USD 159.1 million in 2009 to USD 233.5 million in 2010. Included in other income is the net gain arising on recognition of agricultural products as they are harvested from the oil palm and processed into oil stocks on hand at year end. Had this inventory been shipped prior to the end of December, the net gain would be reflected in revenues equating to a gross margin of 52% as compared to 50% in 2009.

Average CPO selling price achieved by NBPOL during the year was USD 850/tonne (2009: USD 710/tonne). As at the year end, the Group had made "forward sales" of CPO of approximately 26% of its 2011 production, (146,000 tonnes) at an average price of USD 919/tonne. As at 15 February, this figure is approximately 178,000 tonnes at an average price of USD 1,063/tonne.

During 2010 freight rates, driven largely by time chartering vessels with larger loading capacities as well as reduced fuel costs generally continued the downward trend that commenced in 2008. This has continued to reduce the Group's average freight cost per tonne shipped and we expect further reductions in 2011 as larger loading vessels will be utilised more often to cater for the increases in oil production following the acquisition of KPOL.  Fertiliser and fuel costs during 2010 have both remained steady and consistent with 2009 levels.

In 2010, the kina depreciated against the US dollar by just over 6 per cent in the first half. Subsequently in the second quarter it regained those losses and for the second half has steadily appreciated to around US 38 cents. The 2010 average rate was US 36.88 cents against 36.65 cents the previous year. These exchange rate movements were reflected in an increase in foreign exchange gains from USD 4.3 million in 2009 to USD 7.2 million.

The Group has cash holdings at the end of 2010 of USD 10.2 million (and bank overdrafts of USD 7.5 million) with a further USD 62.2 million in trade oil debtors which has subsequently been received, while borrowings have increased to USD 281.7 million (2009: USD 56.8 million), primarily as a consequence of the twelve month USD 200 million facility to fund the acquisition of KPOL, and short term working capital of USD 25.1 million of which USD 11 million has subsequently been repaid.

Net cash generated from operating activities has reduced from USD 87.7 million in 2009 to USD 75.3 million in 2010 reflecting the higher interest costs but also increased working capital requirements specifically at KPOL and New Britain Oils.

Net finance costs increased to USD 8.8 million in 2010 as compared to USD 1.5 million in 2009 reflecting interest costs on the 12 month bridge facility to fund the acquisition. Prior to year end, the Group awarded a mandate to a major Asia focus bank to finance a USD 240 million five year facility with expected drawdown in March 2011. Refinancing terms have subsequently been agreed under more favorable terms than the existing bridge facility and places the Group on a very solid financial foundation, with 50% of the facility amortising over the five year period. The additional USD 40 million being borrowed allows the Group to progress more quickly with expansion of its plantation development and processing facilities, particularly at KPOL.

In 2010, the Group sold 8.3 million seeds up from the 4.5 million sold in 2009.  This had a positive impact on profit for the year and we are seeing renewed interest from buyers returning to the market following the financial crisis in 2008. Stocks are sufficient to meet an increase in sales and our order book is returning to more normal levels.

Whilst no dividend is currently proposed, the Board expects to resume the payment of dividends with an interim dividend for 2011 payable in October, the details of which will be announced in our 2011 interim results.

Operational review

In 2010, Fresh Fruit Bunch (FFB) volumes rose dramatically to 1.98 million tonnes processed boosted from May by the inclusion of the newly acquired estates at Higaturu, Milne Bay and Poliamba. The proportion of smallholder crop to total crop fell to 27.7% compared to 29.3% the previous year, a result of the addition of the new estates. The Group average yield of FFB per hectare over the 69,139 hectares of oil palms under harvest was 23.6 tonnes per hectare (assuming annualised yield for Higaturu, Milne Bay and Poliamba). The yields in West New Britain were 26.1 tonnes per hectare, slightly down on 2009 levels whilst the yields for Higaturu, Milne Bay and Poliamba compared on a like for like basis were 22.7 tonnes per hectare. As stated at the time of the acquisition, the Group believes that fruit and oil yields can be improved at these sites and have already increased fertiliser inputs in order to maximise economic yields. In conjunction, improvements are being made in the efficiency and reliability of the oil mills so that the entire crop produced will be milled in a timely fashion with maximum oil extraction.

Crude palm oil and palm kernel extraction rates were seasonally affected by torrential rain in the first quarter of 2010, particularly in West New Britain where over 2,200 mm (87 inches) of rainfall was recorded between January and March. Encouragingly, the extraction rates rose to good levels at the end of the year and so far the rainfall in 2011 has been below normal monsoon levels. The extraction rates at the newly acquired estates showed a significant improvement in the last few months of 2010, having started considerably below the performance of the Group's other oil mills. The Group average extraction rate was 22.4%, a slight decrease in our crude palm oil extraction rate of 22.8% in 2009.

2010 was a record year for oil production with approximately 479,000 tonnes of crude oil (crude palm oil and palm kernel oil) produced from the Group's oil mills, representing a 30.9% increment over 2009. The Group now has 77,810 hectares planted with oil palm of which 69,139 hectares are under harvest with the balance being immature oil palms that have been planted over the past three years. In addition, the Group has 9,518 hectares of cattle grazing pastures and 8,231 hectares of sugar cane.

The Group has also continued to expand its area under oil palm, and in 2010, a further 3,086 hectares of new plantings were completed and 495 hectares of existing palms were replanted. With the acquisition of the former CTP estates, the average age profile of the Group's estates is altering as we have acquired a number of areas due for imminent replanting. The average age of the Group's combined estates is still only 11 years which, based on a 22 year lifecycle for the oil palm crop, is close to the optimum age.

The Group continues to pursue its "30:30" initiative with the objective of raising fruit yields to 30 tonnes per hectare and palm product extraction rates to 30%. Results this year have been mixed, especially with the acquisitions making year on year comparisons difficult. However, it is evident that cropping potential in most of the Group's estates can reach 30 tonnes of fruit per hectare, as this has already been achieved in some estates. Equally, the Group has shown that palm product extraction rates with good crop quality management coupled with good engineering and process controls can yield over 30% palm products from a tonne of fruit. Indeed, recently some mills have been achieving over 31%. The key to achieving the target is consistency, and that is the focus in terms of raising overall average performance to the next level.

Construction of the Company's next oil mill (the twelfth in the Group) has started but has unfortunately been delayed by the inability of the Malaysian contractors to obtain work permits for their staff. This will put pressure on existing mills in West New Britain to cope with the 2011 peak crop. However, with extended working hours and some favourable weather, the estates should be able to cope.  When constructed, the new mill will have a capacity of 60 tonnes of fruit per hour. Commissioning is now expected in the second half of 2011. Civil works are mostly complete and all machinery is on site awaiting assembly.

Our refinery in the United Kingdom was commissioned on time and if not for the severe winter weather in January and February, it would have been ahead of schedule. The plant has undergone and passed audits from the British Retail Consortium and numerous independent assessments from major palm oil buyers. During the first six months of operations, the Liverpool based refinery have witnessed strong month on month increases in capacity utilisation at budgeted margin levels. Sales of sustainable oils are growing both in the food and personal care markets. Sustainability and "responsible sourcing" at competitive prices is becoming a core theme for European markets and is increasingly being reflected in the policies of major retailers and brand manufacturers. The UK refinery puts us in a strong position from which to meet those needs.

Work continues to strengthen the environmental, social and governance elements of our approach to sustainability across the entire Group as we strive to embed these aspects into the fabric of all operations. We view sustainability as something which needs to be "built in" rather than "bolted on" and the challenge is to ensure that this is on-going. This is particularly true of our new acquisitions, but we are firm in our commitment to have all units and supply chains certified as fully sustainable and traceable by the end of 2012. This will of course include all of our associated smallholders. In relation to the Group's certification programme, I am pleased to report that our oil palm operations at Ramu are now fully Roundtable on Sustainable Palm Oil ("RSPO") certified and that Guadalcanal Plains Palm Oil Limited ("GPPOL") has been audited and now await formal RSPO certification. We are therefore on track to achieve our target. Certification allows us to export oil from these additional locations under the same assurance umbrella as that from our operations in West New Britain, delivering the highest quality sustainable and traceable palm oil to customers who value such supply sources.

Current trading and outlook

New Britain Palm Oil Limited starts 2011 in a strong position as our forward sales strategy has, to date, already secured approximately 178,000 tonnes of crude palm oil at an average price of USD 1,063/tonne. We have also sold 22,500 tonnes of crude palm oil into 2012 at USD 933/tonne.

The Board is pleased with the continued expansion and strengthening of New Britain Palm Oil Limited's operations and NBPOL remains well positioned to deliver further profitable growth. The robust fundamentals of the industry, together with the growing demand for the highest quality, traceable and certified sustainable palm oil rather than a certificate based trading system provide confidence in a strong future for the Group. 

Antonio Monteiro De Castro

28 February 2011

NEW BRITAIN PALM OIL LIMITED

Financial Statements

Consolidated Income Statement (Unaudited)

For the year ended 31 December

NEW BRITAIN PALM OIL LIMITED

Consolidated Balance Sheet (Unaudited)

At 31 December

NEW BRITAIN PALM OIL LIMITED

Consolidated Statement of Changes in Equity (Unaudited)

NEW BRITAIN PALM OIL LIMITED

Consolidated Statement of Cash Flows (Unaudited)

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

NEW BRITAIN PALM OIL LIMITED

Notes to the financial statements

1.      Basis of financial statements 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 2009 Annual Report 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 2010.  This report is based on the accounts which are in the process of being prepared and audited and which will be approved by the Board and reported on by the auditors on 28 March 2011 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 2009 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 2009 was unqualified.

3.   Reconciliation of reported Profit before tax

4.   Earnings per share

5.   Income tax

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 2010 is PGK1.00 = USD 0.3820 (31 December 2009: PGK 1.00 = USD 0.3715).

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 2010 is PGK1.00 = USD 0.3688 (31 December 2009: PGK 1.00 = USD 0.3665).

7.   Business Combinations

On 30 April 2010, the group acquired 80% of the share capital of CTP (PNG) Limited.