New Britain Palm Oil: Agriculture

THE COMPANY: New Britain Palm Oil (NBO) is a large-scale integrated industrial producer of sustainable palm oil in the Australasian region, based in Papua New Guinea.

The company has palm oil and sugar plantations located in PNG, the Solomon Islands and Malaysia. It also operates an oil refinery in Liverpool, in the UK. NBO is dual listed on the Port Moresby Stock Exchange and the London Stock Exchange.

The company has made a number of acquisitions in PNG and the Solomon Islands since its inception in 1967. The group acquired Guadalcanal Plains Palm Oil in the Solomon Islands in 2006. Then, two years later, it took over Ramu Agri Industries (formerly Ramu Sugar), adding sugar and beef production to the group’s activities.

In 2010 NBO acquired 80% of Kula Palm Oil ( formerly CTP PNG) for $175m. It has since acquired the remaining 20% interest, and now controls 100% of the company.

Kula Palm Oil was the largest acquisition made by the group. The purchase added over 25,000 ha of established oil palm plantations and five established mills to the group’s assets, increasing NBO’s established plantations by almost 50%. The acquisition was fully funded through a debt arrangement with a consortium of Asian financiers.

NBO reported 2011 full-year net profit after tax, excluding the revaluation of biological assets of $217.6m, compared to $94.6m in 2010. This was partly the result of higher global palm oil prices and increased production. Total oil produced and shipped (excluding from the Liverpool refinery) was 592,050 tonnes, compared to 455,122 tonnes in 2010. This was, in part, due to significant contributions from Kula Palm Oil. Kula contributed 150,000 tonnes of palm oil to the group in 2011.

Production at Kula Palm Oil is still below the group’s target. The company’s crop yields were 23.9 tonnes per ha in 2011, lower than the group’s average yield rate of 25.5 tonnes per ha. NBO has been planting new palms to replace its ageing stock, and is currently upgrading production facilities to meet the group’s extraction rate target. It replanted a total of 1544 ha of palms in 2011.

NBO’s average yield for fresh fruit bunch per ha for oil palm under harvest was 25.5 tonnes per ha in 2011, compared to 23.7 tonnes per ha in 2010.

The oil extraction rate was 28.2% in 2011, compared to 24% in 2010, reflecting the favourable weather experienced in all of its operating centres.

DEVELOPMENT STRATEGY: The group continues to pursue its “30:30” initiative, with the aim of raising fruit yields to 30 tonnes per ha, and palm oil extraction rates to 30%. That would see NBO production reaching 1m tonnes per annum.

Plantations in West New Britain are near that target level. However, more work is required at Kula Palm Oil, Ramu Agri Industries and in the Solomon Islands to reach the target. The extraction rate is expected to reach 29% in 2012.

NBO aims to increase its processing capacity to 400 tonnes of fruit per hour. It currently has 12 mills processing 320 tonnes of fruit per hour. Work on the upgrading and refurbishing of mills of Ramu, Kula and in the Solomon Islands continues, and most were scheduled to be completed in the first half of 2012.

Global crude palm oil prices continue to stay above $1100 per tonne, as global demand exceeds supply.

Demand in India and China in particular is growing, and supply restrictions in Indonesia and Malaysia continue. NBO has forward sold most of its 2012 production at $1108 per tonne.

The 2011 financial results provide a platform for further profit growth, and the Kula Palm Oil integration will continue to yield higher returns.

Increased yields from Kula, Ramu and the Solomon Islands will see NBO produce around 1m tonnes of palm oil within the next two years. With that comes increased profits and share price appreciation.