A fall in production has hit half-year profits at UK-listed palm oil processor New Britain Palm Oil.
CEO Nick Thompson said heavy rain made it harder to collect and transport fresh fruit bunches. The wet weather also meant the fruit absorbed more water, cutting extraction rates, Thompson noted.
"The impact of lower fresh fruit bunches being processed coupled with lower extraction rates has resulted in total oils produced in the first half of 2012 falling by 26,438 tonnes compared to the same period last year," Thompson said.
"As I have previously stated, the production of palm oil is largely a fixed cost business and hence a reduction in throughput impacts the group's profitability. This factor together with lower average selling prices achieved and the significant year on year appreciation in the Papua New Guinea Kina against the US dollar by some 20% has negatively impacted the group's results."
New Britain Palm Oil, which is based in Papua New Guinea but also listed in London, reported net profit of US$45.9m for the six months to the end of June, compared to $89.6m a year earlier. Revenue fell from $403.9m to $366.1m.
22 August 2012
NEW BRITAIN PALM OIL LIMITED
("NBPOL", the "Group" or the "Company")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012 (UNAUDITED)
New Britain Palm Oil Limited (LSE: NBPO), one of the world's largest fully integrated producers of sustainable palm oil, today announces its unaudited interim results for the six months ended 30 June 2012.
Financial results
· Revenue of USD 366.1 million (H1 2011: USD 403.9 million)
· Profit before tax of USD 63.6 million (H1 2011: USD 158.7 million including the exceptional one-off profit on disposal of a joint venture interest of USD 8.9 million) excluding the effects of revaluing biological assets under IAS 41
· Basic EPS of USD 29.5 cents per share (H1 2011: USD 77.8 cents per share) excluding the effects of revaluing biological assets under IAS 41
· EBITDA, excluding the effects of revaluing biological assets under IAS 41, of USD 99.8 million (H1 2011: USD 187.0 million)
· Average CPO price achieved of USD 1,100/tonne (H1 2011: USD 1,122/tonne)
· Average PKO price achieved of USD 1,476/tonne (H1 2011: USD 2,096/tonne)
· At the end of the period, the Group had approximately 105,000 tonnes of CPO sold or price forward for 2012 at an average price of USD 1,092/tonne
· Subsequent to the period end, an interim dividend for 2012 of USD 15 cents per share was declared payable on 2 November 2012
Operational results
· During the first half of 2012, a total of 1,223,179 tonnes of fresh fruit bunches were processed (H1 2011: 1,295,230 tonnes)
· Total oil production in the period was 291,728 tonnes (H1 2011: 318,166 tonnes), with 272,821 tonnes of Crude Palm Oil (CPO) and 18,907 tonnes of Palm Kernel Oil (H1 2011: 297,813 tonnes and 20,353 tonnes respectively)
· CPO prices traded during the first half between USD 970 and 1,195/tonne, starting the period at around USD 1,055/tonne and ending at around USD 1,005/tonne, current prices are approximately USD 985/tonne. At the end of the first half, the Group had approximately 105,000 tonnes of CPO sold or price forward for 2012 at an average price of USD 1,092/tonne
· As at 30 June 2012, the Group had shipped 266,954 tonnes of all oils at USD 1,128/tonne (H1 2011: 292,523 tonnes at USD 1,190/tonne) as well as 14,933 tonnes of palm kernels at USD 464/tonne (H1 2011: 16,213 tonnes at USD 622/tonne)
· The Group's crude palm oil extraction rate for the period was 22.3% (FY 2011: 22.8%)
· The Group's palm product extraction rate for the period was 27.6% (FY 2011: 28.2%)
· The Liverpool refinery and bakery fats plant continues to grow its sales volumes of high grade sustainable and traceable palm oil products in a segregated supply chain
· During the period, the Company acquired the remaining 20 per cent. in Kula Palm Oil Limited from the Independent Public Business Corporation of Papua New Guinea ("PNG") as well as the remaining 18.71 per cent. in Poliamba Limited from the New Ireland Development Corporation through the issue of c. 4.09 million ordinary shares
· Subsequent to the period end, the Company acquired 100% of Vitroplant Orangerie Bay Limited, a land holding company in PNG with 5,351 hectares of state leases, for consideration of USD 4.4 million
Commenting on the results, Mr Nick Thompson, Chief Executive Officer, said:
"The Group's results for the first half of 2012 were disappointing as compared to the first half of 2011. The decrease in profitability is due to a number of significant contributing factors and we have prepared a variance analysis in this announcement to separately identify and discuss these factors. Some of the larger variances were out of our control such as the PKO price whilst others such as margin pressure from the significant increase in the currency appreciation will be addressed through management cost saving initiatives. Operationally we expect FFB production and oil extraction rates to normalise in 2013.
In the first half of 2012 the Group processed 1,223,179 tonnes of fresh fruit bunches (FFB), 5.6% lower than the same period last year due to extremely high rainfall across all of our operating sites but particularly in West New Britain, our largest production base, where we processsed 13.8% less FFB year on year. Rainfall in West New Britain was 48% higher in this period compared to the first half of 2011 (2.59m versus 1.75m) inhibiting our workers' ability to collect and transport FFB. Such high rainfall also results in the fruit absorbing more water, thereby reducing extraction rates at our mills. The Group's crude palm oil extraction rate for the first half was 22.3% compared to the same period last year of 23.0% and the full year 2011 of 22.8%. The impact of lower FFB being processed coupled with lower extraction rates has resulted in total oils produced in the first half of 2012 falling by 26,438 tonnes compared to the same period last year.
The lower FFB production is certainly not a biological issue in the oil palm trees as evidenced by the fact that our operations at the KPOL sites (Higaturu, Milne Bay and Poliamba), at RAIL and at GPPOL processed a combined 6.1% increase in FFB production year on year. In addition, we have during July and August clawed back some of the FFB shortfall at West New Britain following improved weather conditions although extraction rates continue to come under pressure from the carryover effect of the preceding months. We therefore expect to return to normalised production and extraction rates in 2013 barring any adverse weather events.
As I have previously stated, the production of palm oil is largely a fixed cost business and hence a reduction in throughput impacts the Group's profitability. This factor together with lower average selling prices achieved and the significant year on year appreciation in the PNG Kina against the US Dollar by some 20% has negatively impacted the Group's results. We continue to see margin pressure due to the stronger local currency and we are embarking on several cost saving initiatives to counteract this impact and to help restore margins. These initiatives, together with a return to normalised production and extraction rates, as well as commissioning of new and expanded kernel crushing plants by the end of this year, are expected to lead to a reduction in our unit cash costs of production and to improved margins. We are also now seeing freight, fertiliser and fuel prices trending lower as compared to the first half of the year.
Global stocks of palm oil remain relatively low when compared to historical levels, however prices may remain at current levels of approximately USD 985/tonne in the near term given the seasonally high production period in Indonesia and Malaysia as well as slowing demand on the back of the European debt crisis and weaker growth in China. The supply and demand fundamentals however in the global vegetable oils sector generally remain tight and unforeseen negative weather events could impact global yields and therefore pricing. In the context of current prices, we are pleased to have sold or priced forward approximately 105,000 tonnes of CPO for the remainder of 2012 at an average price of USD 1,092/tonne.
Subsequent to the period end, the Company has grown its land bank through the acquisition of 100% of Vitroplant Orangerie Bay Limited, a land holding company in PNG, located in Central Province, adjacent to the Company's estates in Milne Bay. The total land area consists of 5,351 hectares covered by environmental permits issued from the Department of Environment and Conservation for oil palm plantation development. Following the Roundtable on Sustainable Palm Oil high conservation value land assessments and all other regulatory requirements, the Company expects to start to develop these areas over a 3-4 year period commencing in 2013. The Company actively continues to source additional land to support long-term growth and management remains confident that this land is available in and around our existing operating sites."
