Agro-industry

The Company

New Britain Palm Oil (NBO) is a largescale integrated industrial producer of sustainable palm oil based in Papua New Guinea. It has palm oil and sugar plantations in PNG, the Solomon Islands and Malaysia and an oil refinery in Liverpool, England. NBO is dual listed on the Port Moresby and London exchanges.

NBO has made several 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. It took over Ramu Agri-Industries ( formerly Ramu Sugar) in 2008, adding sugar and beef production to the group. In 2010 it acquired 80% of Kula Palm Oil (formerly CTP PNG) for $175m NBO’s largest acquisition to date. Kula added over 25,000 ha of established oil palm plantations from three estates including five established mills and infrastructure to the group. The acquisition increased NBO’s plantation area by almost 50%. The acquisition was fully funded through debt arranged through a consortium of Asian financiers. NBO purchased the remaining 20% stake in Kula from the Independent Public Business Corporation and the New Ireland provincial government in 2012.

In 2013 profit before tax decreased 78.8% to $17.3m, excluding the changes in fair value of biological assets. This was due to a fall in palm oil prices and heavy rainfall in early 2013. Net foreign exchange losses of $17.5m were booked against the profit compared to gains of $8m in 2012, including non-cash unrealised exchange losses on restatement of borrowing of $23.2m.

NBO processed 2.09m tonnes of fresh fruit bunches in 2013, compared to 2.27m tonnes the previous year. The group’s crude palm oil (CPO) extraction rate was 22.15% versus 22.35% in 2012. Unfavourable weather conditions once again adversely affected harvesting and crop movements in the first half of the year. Other palm oil plantations in the wider South-east Asian region were also affected by adverse weather. NBO’s plantation yields per ha dropped 9% from 23.8 tonnes in 2012 to 21.7 tonnes in 2013, while smallholders dropped by 14% from 16.2 tonnes in 2012 to 13.9 in 2013. Revenue fell 17.5% to $558.7m in 2013, and NBO achieved an average realised price for CPO of $868 per tonne versus $1062 the previous year.

The group’s cash at the end of December 2013 included $30.9m as well as bank overdrafts and short-term borrowing of $22.2m, equating to a total net positive cash position of $8.7m. Total borrowing also decreased by 16.6% to $272.6m.

Company Strategy

NBO aims to increase its total processing capacity to 400 tonnes of fruit per hour. Currently, it has 12 processing mills with a total capacity to process around 320 tonnes of fruit per hour. Work on upgrading and refurbishing the Ramu and Kula mills as well as those in the Solomon Islands continues, with the majority completed in the second half of 2013.

NBO entered into a supply agreement with Olenex, a joint venture between Archer Daniels Midland and Wilmar, ensuring supply chain cooperation and offering the widest range of sustainable and traceable palm oil products to Europe. This arrangement is positive for capacity utilisation and a continued volume growth at the Liverpool refinery. NBO also entered into a joint venture with Sipef and BioSing to develop high-yielding F1 hybrid oil palms. The F1 hybrid is the first generation offspring of two distinct and genetically uniform parents with identical sets of chromosomes. This breeding technology could potentially roughly double the conventional yields per unit area. The partnerships should boost oil production and revenues in 2014.

Global palm oil inventories from major grower regions remain relatively low in 2014 due to continued wet weather; however, an increased supply of vegetable oils (particularly soybean oil) may limit any upward trend of palm oil prices in the interim.

The outlook for palm oil demand remains robust; the strengthening of the global economy and mandatory biodiesel implementation by the world’s two biggest palm oil producers bode well for future pricing. We believe that NBO production will see improved crop and extraction rates in 2014, leading to stronger earnings.