New Britain Palm Oil Limited : Final Results

27 February 2013

NEW BRITAIN PALM OIL LIMITED

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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 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 preliminary results for the year ended 31 December 2012.

Financial Results

·      Revenue decreased 13.2% to USD 677.0 million (2011: USD 780.1 million) due to lower volumes and lower prices for palm oil

·      Profit before tax decreased 70.4% to USD 81.6 million* (2011: USD 275.5 million*) excluding the changes in fair value of biological assets under IAS 41 but including the net gains of USD 11.3 million on agricultural products transferred to inventories at balance date.  Including the changes in fair value of biological assets under IAS 41, the statutory profit before tax as reported in the statement of comprehensive income is USD 4.4 million (2011: USD 59.4 million)

·      Earnings Per Share attributable to ordinary shareholders decreased 74.4% to USD 36.0 cents* (2011: USD 140.8 cents*)

·      EBITDA decreased 51.9% toUSD 162.1 million* (2011: USD 336.7 million*)

·      Gross margin of 36.6% (2011: 50.0%) reflecting the impact of lower selling prices and margin pressure from the significant appreciation in the Papua New Guinea Kina against the US Dollar

·      Average selling price achieved for crude palm oil during the year was USD 1,062/tonne (2011: USD 1,108/tonne)

·      Average selling price achieved for palm kernel oil during the year was USD 1,337/tonne (2011: USD 1,748/tonne)

·      As at the year end, the Group had made "forward sales" of CPO of approximately 94,000 tonnes of its 2013 production at an average price of USD 893/tonne; as at 20 February 2013 the forward sales of the Group were approximately 123,500 tonnes at an average price of USD 890/tonne

·      Net cash generated from operating activities of USD 141.8 million (2011: USD 155.3 million)

·      The Group had cash holdings at the end of 2012 of USD 18.8 million (and bank overdrafts plus short term borrowings of USD 35.6 million)

·      An interim dividend of USD 15 cents was paid in November 2012, no final dividend is being proposed

* IAS 41 is an accounting standard that requires the company to value the oil palm trees over their entire future lifetime of 20 plus years.  The fair value movements year-on-year under IAS 41 are non-cash items and therefore are not used by management when measuring the company's operational performance because they are not reflective of the underlying business. Management believes that the inclusion of these adjusted profitability measures (excluding IAS 41 fair value changes) 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 the changes in fair value of biological assets under IAS 41 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 IAS 41.  Refer to notes 3 and 4 for a reconciliation of the adjusted measures to those including the impact of IAS 41

Operational Results

·      During the year, a total of 2,273,081 tonnes of fresh fruit bunches were processed (2011: 2,421,003 tonnes), including 684,594 tonnes from smallholders (2011: 682,373 tonnes)

·      The Group's crude palm oil extraction rate for the year was 22.35% (2011: 22.79%)

·      The Group's palm product extraction rate for the year was 27.59% (2011: 28.21%)

·      Total oil production was 545,207 tonnes (2011: 591,477 tonnes), with 507,942 tonnes of crude palm oil ("CPO") and 37,265 tonnes of palm kernel oil ("PKO") produced (2011: 551,657 tonnes and 39,820 tonnes respectively)

·      Oil shipments (CPO, PKO and refined oils, excluding the Liverpool refinery) were 511,015 tonnes (2011: 592,050 tonnes)

·      CPO prices traded during the year between USD 770 and USD 1,195/tonne, starting the year at USD 1,055/tonne and ending at around USD 770/tonne with current prices trading at approximately USD 850/tonne

·      In 2012 the Group made further progress with the integration of the 26,000 hectares of estates at its subsidiary Kula Palm Oil Ltd (KPOL) acquired in April 2010. KPOL's production of 175,197 tonnes of crude oils (both crude palm oil and crude palm kernel oil) was 6,858 tonnes, lower than in 2011 (by 4%) due to significant portion of older matured estates being taken out of production for replanting. On a like-for-like basis comparing 2012 with 2011, KPOL fruit yields increased to 25.8 from 23.9 tonnes per hectare

·      RAIL harvested 417,011 tonnes of sugar cane (2011: 397,328), yielding 36,208 tonnes of sugar (2011: 36,387)

·      Seed sales reached 14.7 million, a 25% increase on sales achieved in 2011 (11.8 million seeds)

·      The Liverpool refinery has continued to capture market share and the Group is doubling the refining capacity of this site with the addition of a second deodoriser ready for commissioning in the second quarter of 2013

·      Following the successful certification of Milne Bay Estates and Higaturu subsequent to year end, the Group's production is now 100% certified sustainable (including smallholders), from estates to customer and includes the Liverpool refinery

·      We have completed the consolidation of the Group's shareholding in its Papua New Guinea subsidiaries and acquired a new company called Vitroplant Orangerie Bay Limited ("Vitroplant") which has state leases and environmental permits for 5,351 hectares of land and agreements for a further 6,000 hectares with various incorporated land groups holding customary land. We aim to develop these areas over the next 3 to 5 years

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

"The past year has presented a number of unprecedented climatic and market-related challenges, some of which have had a significant adverse effect on the Group's performance. Very wet conditions at our biggest production site in West New Britain Province in Papua New Guinea hampered harvesting in the first quarter of 2012. We also saw the full effects of the appreciation of the Papua New Guinea currency (PNG Kina) compared to the US Dollar. The appreciating PNG Kina has increased our domestic wages and any locally consumed services and materials in US Dollar terms. Lower world palm oil prices were another major factor that impacted the Group's results. In 2012 crude palm oil prices peaked at close to USD 1,200 in April but had fallen to USD 770 by December. Far more dramatic was the fall in palm kernel oil prices which reached USD 2,330 per tonne in 2011 and fell to a low of USD 725 in 2012. Whilst only 10% of our oil is palm kernel oil, this large fall in prices had a significant impact on our 2012 performance compared to 2011.  The Group's profitability has been significantly impacted by these factors which have culminated in a 2012 profit before tax and IAS 41 adjustments of USD 81.6 million.

The Group has put in place certain measures to ensure that 2013 will be a more robust trading year. Operationally we entered 2013 better prepared to cope with the wet weather in the January to April period. Harvest intervals are under control at all sites and adequate labour numbers are on hand to cope with temporary harvesting delays caused by bad weather. To mitigate currency effects we have looked and continue to look at efficiency and cost saving measures across the business. We have already locked in cheaper fertiliser and oil freight costs for 2013. Improvements in management and general overhead costs are also expected in 2013.

The Group is undoubtedly better placed with the measures now in place and those coming through to take advantage of any upward movement in palm oil prices."

Enquiries:

Notes to editors

NBPOL is a large scale integrated industrial producer of sustainable palm oil in Australasia, headquartered in Papua New Guinea ('PNG'). It has over 78,000 hectares of planted oil palm estates, over 7,700 hectares of sugar cane and a further 9,200 hectares of grazing pasture, (some of which will be converted to oil palm); twelve oil mills; two refineries, one in PNG and one in Liverpool, UK; and a seed production and plant breeding facility. The Company is listed 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), planting, cultivating and harvesting its own land, and processing and refining palm oil (both in PNG and the UK). 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'). The Company is a certified supplier of sustainable palm oil from its entire production base in West New Britain Province in PNG, at RAIL in PNG, and from its entire Solomon Islands estate, under RSPO guidelines.

In September 2011, the World Economic Forum ("WEF") identified NBPOL as one of 16 out of a study of 1,000 companies from across the developing world that are best showing how to grow profits at the same time as actively tackling environmental and social challenges. Describing NBPOL, the WEF report says that "the company has developed new ways to engage small farmers, who provide one-third of the company's supply. These close ties have not only helped to reduce poverty, but also enable the company to develop one of the world's first fully traceable palm oil supply chains."

Disclaimer

This document includes statements that are forward-looking in nature.  Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of New Britain Palm Oil Limited to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Any such forward-looking statements speak only as of the date of this document and New Britain Palm Oil Limited does not undertake to update forward-looking statements to reflect events or circumstances after that date.  Information contained in this document relating to the Group should not be relied upon as an indicator of future performance.

NEW BRITAIN PALM OIL LIMITED

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012 (UNAUDITED)

The Group's results in 2012 reflect a profit before tax of USD 81.6 million (excluding the changes in fair value of biological assets under IAS 41 but including the net gains of USD 11.3 million on agricultural products transferred to inventories at balance date) compared to USD 275.5 million in 2011. It is important to note the one-off contribution of USD 8.4 million in 2011 in relation to the disposal of the Company's 50% interest in PT Dami Mas Sejahtera. Other gains includes net foreign exchange gains USD 8.0 million as compared to USD 38.1 million in 2011, a reflection of the pace of the currency appreciation during 2011 as compared to 2012.  

Results

Income Statement

Revenue fell by 13.2% over the comparative period to USD 677.0 million (2011: USD 780.1 million) due to lower volumes shipped and the lower average selling prices achieved. In 2012, the Group shipped511,015 tonnes of all oils at USD 1,085/tonne (2011: 592,050 tonnes at USD 1,162/tonne) as well as 27,092 tonnes of palm kernels at USD 363/tonne (2011: 28,447 tonnes at USD 573/tonne). As a result, the Group's revenues from palm products are USD 137.5 million lower than the same period last year. Sugar sales for 2012 were 31,697 tonnes at an average price of USD 1,761/tonne (2011: 28,403 tonnes at an average price of USD 1,795/tonne with revenues of USD 55.8 million, an increase of USD 4.9 million (9.6%) on last year. As sugar sales are denominated in PNG Kina, US Dollar revenues have benefited from the appreciation in the currency being the opposite effect of the currency appreciation on the Group's costs that are denominated in Kina.  Seed revenues of USD 11.8 million are much improved on the prior year (USD 9.0 million) driven by increased demand and higher volumes of 14.7 million seeds sold versus 11.8 million in 2011. External revenues derived from our Liverpool refinery (i.e. after eliminating intercompany oil sales) increased USD 26.1 million as compared to 2011.

Gross profit was USD 248.0 million, a decrease of 36.4%, from USD 389.8 million for last year, reflecting the fixed cost nature of palm oil production, decreased volumes shipped at lower average selling prices and the significant year-on-year appreciation in the PNG Kina against the US Dollar. By business segment, our palm products business reflected a 35% gross margin (USD 211.3 million) versus 50% (USD 355.7 million) in 2011, whilst our sugar business reflected a 51% gross margin (USD 28.5 million) versus 55% (USD 28.2 million) and our seeds business 61% (USD 7.2 million) versus 56% (USD 5.0 million). Cost of sales includes the cost of fruit purchased from smallholders, which decreased in line with the reduction in the world prices of CPO and PKO. During 2012, the Group paid USD 95.2 million for 684,594 tonnes of smallholder fruit compared to USD 116.0 million for 682,373 tonnes in 2011. Cost of sales also includes cultivation costs, milling costs, labour costs and depreciation, most of which were negatively impacted by the lower FFB production from our own plantations and the lower throughput of FFB at our mills. Fertiliser costs were 12.5% higher than the same period last year whilst labour costs have increased by 10% in PNG Kina terms. In addition, gross profit has been significantly impacted by the year on year appreciation in the PNG Kina against the US Dollar by approximately 12%, increasing those costs denominated in the local currency, particularly labour and overheads. The currency impact on costs in 2012 compared to last year was approximately USD 25.0 million.

In 2011 some of the PNG Kina appreciation effects were masked by an offsetting currency gain reported on our US dollar loans.  Whilst the currency effect is an on-going issue for the Group, the offsetting currency gain on our loans was a "one-off" impact.  Also included in other gains is the net gain arising on recognition of agricultural products transferred to inventories at the end of the period, reflecting the expected margin on closing inventories with the actual cost of production reflected as part of cost of sales. Despite the Group holding substantially higher oil stocks at the end of the year as compared to the end of 2011, the net gain is lower by USD 3.4 million year-on-year impacted by higher costs of production and lower market prices. An unrealised gain of USD 4.1 million has been recognised on derivative financial instruments relating to forward sales of refined oils and will be reversed against future revenues recognised in the period in which the physical sale of refined oils occurs.

Distribution costs were higher by USD 0.8 million (1.1%) compared to last year reflecting the currency appreciation with respect to wharfage and port costs but mainly due to the increase in average freight costs to our customers (USD 114 per tonne as compared to USD 97 per last year). Administrative expenses were higher by USD 12.2m (13.4%) as compared to 2011 reflecting predominately the currency appreciation but also the increase in labour and staff costs and increases in general overheads in line with annualised inflation in PNG of 7.5%.

Net finance costs have increased to USD 10.5 million compared to USD 9.7 million in the corresponding period last year reflecting lower interest income and a marginal increase in total borrowings representing increased working capital requirements across the Group.

Profit before tax for the period was USD 4.4 million including IAS 41 and USD 81.6 million excluding IAS 41, compared to 2011 of USD 66.4 million including IAS 41 and USD 275.5 million excluding IAS 41.

Tax expense for the period was USD 2.7 million including IAS 41 and USD 25.9 million excluding IAS 41 compared to 2011 of a tax credit of USD 7.0 million including IAS 41 and USD 57.9 million excluding IAS 41.

Earnings per share including the effects of IAS 41 fell from USD 52.8cents in 2011 to USD 0.4 cents in 2012. Earnings per share excluding IAS 41 were USD 36.0 cents compared to USD 140.8 cents last year. 

Balance sheet

The Company's balance sheet reflects cash balances of USD 18.8 million and total borrowings of USD 326.7 million of which USD 205.6 million pertains to the five year facility taken out in April 2010, USD 49.1 million working capital financing for the Liverpool refinery, USD 47.0 million to RAIL (including bank overdrafts of USD 10.7 million) and USD 25.0 million of short term trade finance.

Trade and other receivables are lower at USD 126.9 million compared to USD 152.4 million last year, reflecting the timing of shipments and value of oils shipped. Inventories increased marginally to USD 195.9 million compared to USD 190.0 million at the end of 2011 mainly due to higher oil and sugar stocks at period end with fluctuations expected based on timing of shipments and movements in price.

Issued share capital has increased by USD 55.4 million to USD 180.3 million reflecting the acquisition of the remaining 20 per cent. in Kula Palm Oil Limited from the Independent Public Business Corporation of PNG as well as the remaining 18.71 per cent. in Poliamba Limited from the New Ireland Development Corporation through the issue of c.4.09m ordinary shares, together with the sale of treasury shares to fund the acquisition of Vitroplant and a transfer of treasury shares to landowners at RAIL for land rights.

Cashflow and capital expenditure

Net cash generated from operating activities was USD 141.8 million compared to USD 155.3 in 2011 reflecting the higher cash costs of production and lower selling prices achieved year on year together with increased working capital requirements.

Investing activities, excluding proceeds on disposal of the Company's 50% interest in PT Dami Mas Sejahtera in 2011, increased by USD 23.1 million from USD 134.1 million in 2011 to USD 157.2 million in 2012. Purchases of property, plant and equipment increased by USD 10.1 million reflecting higher capital expenditure at our mills (particularly at the KPOL estates including construction of palm kernel crushing facilities), refineries and fractionation plants (in PNG and in Liverpool), methane capture plants, housing and transport fleet. Expenditure on plantation development and biological assets totalled USD 39.3 million (an increase of USD 13.1 million from the same period last year) reflecting the completion of 1,057 hectares of new plantings and 4,784 hectares of replanting with a further 1,629 hectares under preparation for replanting.  This capital expenditure will support the future expansion and growth of the business.

Financing activities includes the payment of a final dividend in relation to the year ended 31 December 2011 of USD 15 cents per share and an interim dividend in relation to 2012 of USD 15 cents per share.  No final dividend for 2012 is being proposed.  The Group ended the period with net cash balances of negative USD 16.8 million having started the year with net cash balances of positive USD 55.1 million.

Operational review

In 2012, the Group processed 2.3 million tonnes of Fresh Fruit Bunches ("FFBs") compared to the record production of 2.4 million tonnes in 2011. This was achieved during an exacting year where adverse weather conditions affected production, particularly in West New Britain. The recently acquired KPOL estates at Higaturu, Milne Bay and Poliamba all gave robust support to the Group by exceeding their respective annual crop targets. This resulted in a total oil production of 545,175 tonnes of crude oil (crude palm oil and palm kernel oil) produced from the Group's oil mills, representing an 8% drop compared to 2011.

FFB production from the Group's estates was 1.59 million tonnes with a further 0.68 million tonnes purchased from over 16,000 out grower blocks. The purchased crop represents approximately 30% of the total. The Group average estate yield of FFB per hectare (ha) over the 66,746 ha of oil palms under harvest was 23.8 tonnes/ha (2011: 25.4 tonnes/ha). The yields of FFB in West New Britain were 24.9 tonnes/ha, a 13% drop from the 2011 levels of 28.6 tonnes/ha as a direct result of the high rainfall inhibiting the workers' ability to collect and transport FFB. However, it is encouraging to note that the younger palms showed strong yield potential with third year palms yielding on average 27 tonnes/ha and fourth year palms exceeding yields of 30 tonnes/ha. Yields for Higaturu, Milne Bay and Poliamba were 25.8 tonnes/ha, an 8% increase from the 2011 levels of 23.9 tonnes/ha. Yields at Ramu were 12.7 tonnes/ha from the 2011 levels of 14.4 tonnes/ha, reflective of the very young age profile for those estates and the generally drier growing conditions, but broadly speaking yields per hectare have met original expectations. At Guadalcanal Plains Palm Oil Limited (GPPOL) in Solomon Islands, yields were 25.7 tonnes/ha, up from the 2011 levels of 24.4 tonnes/ha. Whilst Group FFB yield results were mixed in 2012, the fundamentals of the business were improved by the continued promotion of best agronomic practices, boosting the Group's human resource capacity and making further capital investments in transport and milling resources, ideally positioning the Group to take advantage of better growing conditions.

Poor weather conditions across all of the Group's operating sites, particularly high rainfall during the first 6 months of the year, presented onerous challenges to the teams on the ground. At the Group's largest production base in West New Britain, the rainfall was 48% higher during this period compared to the first half of 2011 (2,594mm versus 1,753mm). The negative impact of the high rainfall on crop production also resulted in the fruit absorbing more water, thereby reducing extraction rates and a decline in total oil volumes produced. In West New Britain, an annual rainfall of 4,175mm was recorded at the Dami Research Station against a long term average of 3,717mm. This compares to the annual rainfall in 2011 of 3,436mm. With higher than average sunshine hours and no soil moisture deficits recorded in 2012, indications remain positive for the 2013 crops.

Palm product (crude palm oil and palm kernel) extraction rates were considerably affected by the weather. In the first half of the year due to the direct impacts on field conditions and infrastructure that impede the harvesting, collection and transport of crop. In the second half of the year due to the impact of poorly pollinated fruit bunches some 6 months after the rains that resulted in lower oil and kernel contents. This saw the Group achieve an overall palm product extraction rate for 2012 of 27.59%, a drop from the 2011 result of 28.21%.

Hectarage Statement as at 31 December 2012

WNB - West New Britain; GPP - Guadalcanal; RAI - Ramu; KPOL - Kula Palm Oil Limited consisting of Higaturu, Milne Bay and Poliamba.

The Group now has 78,343 ha planted with oil palms of which 66,746 ha are under harvest, with the balance being immature oil palms that were planted over the last three years. In addition, the Group has 9,282 ha of cattle grazing pastures sustaining over 20,000 head of cattle and 7,721 ha of sugar cane. With the purchase of Vitroplant Orangerie Bay Ltd in July 2012 the Group acquired an additional 5,351 ha of state lease at Baibara and Mamai which is now being planned for development as an extension of Milne Bay Estates. This brings the Group's current land area to 134,536 ha, of which 103,133 ha are under cultivation.

The Group continues to pursue its "30:30" initiative with the objective of raising fruit yields to 30 tonnes/ha and palm product extraction rates to 30%. Whilst results for this year have been disappointing, it is evident that the cropping potential in most of the Group's estates can reach 30 tonnes of fruit/ha.  Even during the strenuous conditions experienced in 2012 some 6 out of 44 estates exceeded 28 tonnes/ha and of those, 3 estates exceeded 30 tonnes/ha. Equally, the Group has shown that even under trying circumstances, 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. For 2012, 8 out of 12 mills exceeded palm product extraction rates of 27.5% and of those mills, 1 exceeded 30%. The key factors to achieving the target remain consistency, discipline and continual improvement, and these are the focus for management in terms of providing a springboard to raise overall average performance to the next level.

The Group expanded its palm oil production base with the addition of 1,057 ha of new plantings in West New Britain and Ramu. In addition the replanting of 4,784 ha was completed across West New Britain, Guadalcanal, Higaturu, Milne Bay and Poliamba during the year. This has allowed the Group to replace aged palms with the highest yielding elite seedlings from Dami Research Station's plant breeding programs. The age profile for the Group's oil palms remains supportive towards yield growth with a weighted average palm age of 10.7 years compared to 11.3 years reported last year. This is highly advantageous, not only to produce high fruit yields but also to maximise the ratio of oil to bunch. Commercial plantings within the Group are usually replanted after 22 years.

In 2012, Ramu harvested 417,011 tonnes of cane from 7,235 hectares, yielding 36,208 tonnes of sugar. Whilst the volume of cane harvested was 5% higher than 2011 where 397,328 tonnes of cane were harvested, the volume of sugar produced was just below the 2011 levels of 36,387 tonnes. Disruptions to the harvesting programme due to unplanned fires meant that approximately 9,000 tonnes of cane was cut but in no condition to be delivered to the factory. During the year some 31,697 tonnes of sugar was sold, 11% up on 2011 sales. Retail sales made up over 95% of total sales and were up 28% on 2011 sales, showing good growth in this sector. That said, industrial sales dropped off dramatically from 17% of total sales in 2011 to less than 5% of total sales in 2012. The industry enjoys protection in the form of a tariff of 35% for all imported sugar. This will remain in place until January 2015, when it is due to be reduced to 30%. The falling world sugar prices during 2012 made it attractive for some of the Group's industrial customers to import bulk sugar. Concerted lobbying by Ramu management for the PNG government to lift the tariff in order to protect the domestic sugar industry has not yet yielded any tangible results. Lobbying will continue in 2013.

World sugar prices were steady until March supported by high crude oil prices.  Prices then slid through the rest of the year as data showing that the market was oversupplied combined with concerns over the health of the global economy. There was a brief rally in July on concerns that heavy rains in top grower Brazil would decrease sugar yields but following the release of global production data indicating an increasing surplus, the overall trend for the rest of the year was downward. Sugar prices are expected to ease slightly over the next 12 months as the world sugar supply reaches a net surplus of 5.9 million tonnes.

In 2012, seed sales exceeded all forecasts and reached 14.7 million, a 25% increase from the sales achieved in 2011 of 11.8 million. Of those sales, 10.5 million were to customers overseas and 4.2 million for internal use and within PNG. The increased sales were as a result of the successful marketing and communications with customers, actively pursued by the Dami Oil Palm Research team.

Having commissioned the second fractionation plant in late 2011, the West New Britain refining operation has been supplying specialist palm products to Ferrero throughout 2012 and has been building the relationship with the team at Ferrero to ensure the supply of optimum quality product that can only be derived from fresh palm oil stock. The Ferrero team has made frequent visits to provide back up and support with technical expertise, equipment, training and knowledge, to guarantee continual development of their product range. As well as supplying Ferrero, the West New Britain team has been fine tuning the fractionation processes to maintain a consistent quality supply of palm products for the bakery fats business that is now rapidly developing in the UK through the Liverpool refinery. In 2013, it is planned to increase operational efficiencies in order to meet the growing demand from the plant in Liverpool and other specialised customers.

For New Britain Oils Limited (NBOL), the wholly owned UK refinery operation based in Liverpool, 2012 has been another year of development and growth. The plant has been running either at or close to effective nameplate capacity for the second half of the year and this is testimony to NBOL's ever expanding product range, the growing interest in the UK for sustainable palm based ingredients and NBOL's growing credibility within the UK food and personal care markets. The decision to expand the refinery was taken in the expectation that the first deodoriser would be fully utilised during 2012 and so it was encouraging to see that happen this year. The second deodoriser has already been installed and will be fully commissioned during the second quarter of 2013. This, together with the packing and bakery plant commissioned in early 2012, will provide NBOL with the launch-pad for further growth from the second half of 2013 onwards.

Traceable, sustainable palm oil remains at the heart of NBPOL's business. Despite a difficult year with falling palm oil prices and operational challenges, the Group was able to maintain and even strengthen its performance enabling it to meet its sustainability commitments. Highlights of the year included the completion of RSPO certification across all sites, introduction of a sustainability-linked bonus structure for senior management, significant improvements in health and safety, as well as the complete phase-out of Paraquat.

Committed to sustainable palm oil production, NBPOL joined the RSPO in 2002 and was the second company in the world to obtain certification (2008) and the first to include its smallholder suppliers. When the Group acquired Poliamba, Higaturu and Milne Bay Estates (in 2010) it committed to RSPO certification by 2012. A significant amount of work was invested in all sites, and the Group was pleased to announce the certification of Poliamba in March 2012, as well as the recommendation for certification of Milne Bay Estates and Higaturu in late 2012. This means that all oil produced by NBPOL is now 100% certified sustainable and includes all smallholders.NBPOL's traceable and segregated supply chain is certified from estates to customer and includes the Liverpool refinery.

Current trading and outlook

The Group has put in place certain measures to ensure that 2013 will be a more robust trading year. Operationally we entered 2013 better prepared to cope with the wet weather in the January to April period. Harvest intervals are under control at all sites and adequate labour numbers are on hand to cope with temporary harvesting delays caused by bad weather. To mitigate currency effects we have looked and continue to look at efficiency and cost saving measures across the business. We have already locked in cheaper fertiliser and oil freight costs for 2013. Reductions in management and general overhead costs are also expected in 2013. The benefits of supplying more of our electricity needs through the CDM (Clean Development Mechanism) methane projects will also have a marked impact on our direct milling and refining costs in 2013 as well as generating external revenue from electricity sales to PNG Power. In addition, the Group has made substantial progress so that all of our sites have the capacity to crush palm kernels and export palm kernel oil and meal.

We have continued to invest and expand our downstream, refining and fractionation capacity and are pleased to note that the doubling of capacity at the Liverpool refinery is on schedule for final commissioning in the second quarter of 2013. In 2012 these investments delivered increasing quantities of refined, fractionated, certified and segregated, sustainable products.

On a global perspective the major oil palm growing region in South East Asia had a very good 2012 cropping year, with an increase in global palm oil production of some 2.43 million tonnes. With a slight dampening of off-take, Malaysian palm oil stocks rose in the second half of the year to exceed 2.5 million tonnes and prices responded by discounting palm oil by as much as USD 300 per tonne in comparison to the other vegetable oils.

I would like to take this opportunity to personally thank the management team and all of our employees for their efforts through a difficult 2012.

Antonio Monteiro De Castro

Non-executive Chairman

27 February 2013

NEW BRITAIN PALM OIL LIMITED

Consolidated Statement of Comprehensive Income (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)

The following balances comprise cash and cash equivalents and bank overdrafts at the end of the year:

Reconciliation of Profit After Income Tax To Net Cash GeneratedFrom 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 2011 Annual Report and have been consistently applied throughout the year. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current 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 2012.  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 2013 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 2011 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 2011 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 2012 is PGK 1.00 = USD 0.4775 (31 December 2011: PGK 1.00 = USD 0.4690).

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 2012 is PGK 1.00 = USD 0.4825 (31 December 2011: PGK 1.00 = USD 0.4300).