Annual Report - New Britain Palm Oil Limited...range of Holdings Number of Holders 1 - 1,000 1,084 1,001 - 5,000 86 5,001 - 10,000 95 10,001 - 100,000 262 100,001 and over 87 Total

AnnualReport2013

www.nbpol.com.pg

CorporateDirectory

SeCretarYFrancis Gohteup Goledu

COUNtrY OFiNCOrPOratiONpapua new Guinea

reGiStered OFFiCe aNdaddreSS FOr SerViCeBebere plantationMosaKimbeWest new Britain provincepapua new Guineatel: +675 985 2177www.nbpol.com.pg

SHare SHare reGiStrieSpnG Registries limitedlevel 2, Aon HouseMacgregor Streetport Moresbypapua new Guineatel: +675 321 6377

Capita Registrarsthe Registry34, Beckenham RoadBeckenhamKent englandtel: +44 (0) 20 8639 2488

aUditOrSpricewaterhouseCooperslevel 6, Credit HouseCuthbertson Streetport Moresbypapua new Guinea

BaNKerSoCBC BankMalayan Banking BhdAustralia and new ZealandBanking GroupBank of South pacificWestpac Bank

SOliCitOrSAshurstBradshaw lawyersSol-law (Solomon Islands)

StOCK eXCHaNGeSport Moresby Stock exchangelondon Stock exchange

Corporate Directory

Corporate profile 1

Shareholding Statistics 2

Five Year Summary of performance 3

Board of Directors 4

Chairman’s Statement 6

General Business overview 8

Financial Review 14

operations Review 16

Research Review 26

Downstream processing Review 27

Sustainability Review 28

Corporate Governance Content 34

Financial Content 43

Contents

New Britain Palm Oil limited

CorporateProfile

New Britain Palm Oil Limited (NBPOL) strives to remain a world leader in the palm oil industry, delivering on its commitment as a producer of certified, sustainable and traceable food ingredients grown in Papua New Guinea and Solomon Islands, sold globally.

NBPOL has further consolidated its position in the region by expanding its core activities of palm oil production.

NBPOL continues to pursue its objectives of enhancing shareholder value. It also places high value on its social responsiveness to the community by seeking to achieve the highest standards of environmental management and by building lasting relationships with all stakeholders.

annual report

2013

1

Shareholding Statistics

rank Shareholder Number of Shares

Percentage Holding as at

31 march 2014

1 Kulim Malaysia Berhad 73,482,619 48.97%

2 West new Britain provincial Government 12,000,000 8.00%

3 pacific Rim plantation Services pte ltd 6,739,000 4.49%

4 AXA Framington 5,350,733 3.57%

5 Independent public Business Corporation 4,686,829 3.12%

6 national Superannuation Fund limited 3,782,667 2.52%

7 Zurich Assurance 2,272,362 1.51%

8 the Mercantile Investment trust plC 2,229,650 1.49%

9 pnG Sustainable Development program limited 2,153,626 1.44%

10 Schroder International Selection Fund 1,457,143 0.97%

11 City natural Resources High Yield trust 1,074,000 0.72%

12 nambawan Super limited 1,032,664 0.69%

13 petercam SA 981,235 0.65%

14 Investec Global Strategy Fund 883,231 0.59%

15 portfolio 21 Investments 849,873 0.57%

16 Alliance SF uK ethical Fund 845,905 0.56%

17 Fidelity Worldwide Investment Managed Funds 784,243 0.52%

18 Credit Suisse AG 761,291 0.51%

19 Wellington trust Co. 757,144 0.50%

20 Jp Morgan natural Resources 750,748 0.50%

others 27,173,141 18.11%

Total Shares in Issue 150,048,104 100.00% diStriBUtiON OF SHareSrange of Holdings Number of Holders

1 - 1,000 1,084

1,001 - 5,000 86

5,001 - 10,000 95

10,001 - 100,000 262

100,001 and over 87

Total 1,614

marKetaBle ParCelSAll parcels held by shareholders are marketable parcels.


2

Five Year Summary of Performance

2013 USd’000

2012 USd’000

2011 USd’000

2010 USd’000

2009 USd’000

Revenue 558,652 677,014 780,073 461,175 323,835

profit from ordinary Activities before tax* 17,304 81,637 275,542 131,243 85,298

profit after tax* 12,485 55,716 217,675 94,648 60,794

Cash flow from operating activities 142,647 141,805 155,295 75,347 87,653

Average Crude palm oil (Cpo) price 868 1,062 1,108 850 710

Average palm Kernel oil (pKo) price 965 1,337 1,748 1,202 821

at Year eNd

Share Capital 180,333 180,333 124,954 124,879 124,879

Shareholders' equity 669,947 792,487 822,696 567,041 343,942

Working Capital 160,489 197,813 284,291 (96,806) 58,842

Total Assets 1,480,529 1,697,073 1,705,809 1,435,750 728,820

2013 2012 2011 2010 2009

GeNeral StatiStiCS

earnings per share (uS Cents)* 7.40 36.00 140.80 60.20 41.80

Dividends per share (uS Cents) 12.00 31.00 15.00 0.00 28.00

Dividend cover (times) 0.62 1.16 3.52 n/A 3.40

net Asset Backing per share (uSD) 5.77 6.55 6.91 5.24 3.28

PrOdUCtiON VOlUme (mt)

FFB from own plantations 1,496,146 1,588,486 1,738,630 1,434,393 1,039,826

FFB from outgrowers 589,524 684,594 682,373 549,863 431,575

total FFB processed 2,085,670 2,273,080 2,421,003 1,984,256 1,471,401

Primary Products

Crude palm oil (Cpo) produced 462,060 507,942 551,657 444,421 335,528

palm Kernels (pK) produced 111,440 119,225 131,331 100,655 74,361

oil palm Seeds (million sold) 7 15 12 8 5

own Mature oil palm (hectares) 69,067 66,746 68,438 69,139 40,009

own palm products Yield (Mt/hectare) 6.0 6.6 7.2 5.7 7.2

Secondary Products

PK Processed into:

palm Kernel oil (pKo) 45,796 37,265 39,820 34,246 30,723

palm Kernel expeller (pKe) 57,037 47,356 50,282 42,609 38,309

Cpo Refined** 60,702 71,382 63,034 69,726 72,256

Refined palm oil (Rpo) produced** 57,810 67,826 59,741 66,434 68,798

Fatty Acid Distillate (pFAD) produced** 2,980 3,533 3,183 3,064 3,485

rPO Fractionated into**:

palm olein (Rpl) 43,640 48,695 27,120 29,222 21,755

palm Superolein (RpSl) 17,731 20,049 18,688 18,055 12,658

palm Stearin (RpS) 12,961 14,661 16,398 15,448 11,537

palm Mid Fraction (pMF) 11,273 14,419 0 0 0

* this is a non-gaap profit measure excluding net gains/losses arising from changes in fair value of biological assets under IAS 41 but including net gains on agricultural products recorded in inventories at year-end. this is not a historical cost profit measure and is stated before depreciation of the biological assets.

** excluding the uK Refinery

annual report

2013

3

alan Chaytor

antonio monteirode Castro

Nicholas thompson

Sir Joseph tauvasa

ahamad mohamad

Sir Brown Bai

dato’ Kamaruzzaman abu Kassim

ernie Gangloff

Board of Directors


4

aNtONiO mONteirO de CaStrONon-executive ChairmanAntonio was the Chief operating officer of British American tobacco (“BAt”), a constituent of the FtSe 100 index, prior to his retirement in December 2007. He is a Senior Independent Director of BlackRock latin American Investment trust plC, a Director of tupperware Brands Corp. and a Director of Getúlio Vargas Foundation, an academic and research organisation in Brazil.

NiCHOlaS tHOmPSONChief executive Officernick joined the Company in 1984 after completing a Masters Degree in tropical agriculture development. His progress through the Company included successfully managing the project development at Kapiura and then the research station at Dami. From october 1991, he was both Senior Manager of the Mosa group of plantations and Deputy Director plantations. nick was appointed Managing Director in June 1994 after completing his MBA at Bath university, in the uK.

alaN CHaYtOrexecutive directorAlan has been working with nBpol since 1984 when the Company was a part of Harrisons & Crosfield plC. He went on to become the soft commodities director for Harrisons & Crosfield plC based in Singapore. Alan started pacific Rim plantation Services pte ltd in 1994, and lived in Singapore until 2002. He is an active member in the trade and various palm oil associations and bodies. A major and committed shareholder through his wholly owned company, pacific Rim. Alan has responsibility for sales and marketing and investor relations in the uK.

aHamad mOHamadNon-executive directorAhamad Mohamad is the Managing Director of Kulim (Malaysia) Berhad, a subsidiary of JCorp. Kulim is a company listed on the Bursa Malaysia. He also holds positions on the board of a number of other companies including healthcare within JCorp Group as well as charitable enterprises. Ahamad graduated with Bachelor of economics (Honours) degree from the university of Malaya.

datO’ KamarUzzamaN aBU KaSSimNon-executive directorDato’ Kamaruzzaman Abu Kassim is the president and Chief executive officer of Johor Corporation (“JCorp”) and has been serving JCorp for more than 20 years. Being a Board Member of JCorp, he also sits as the Chairman of several companies in JCorp Group, namely Kulim (Malaysia) Berhad, KpJ Healthcare Berhad, Damansara Realty Bhd, Damansara ReIt Managers Sdn Bhd, the manager of Al-Aqar KpJ Reit, Johor land Berhad, Sindora Berhad, tanjung langsat port Sdn Bhd and Damansara Assets Sdn Bhd. Dato’ Kamaruzzaman is also a Director of Waqaf An-nur Corporation Berhad, an Islamic endowment institution which spearheads JCorp’s Corporate Responsibility programmes. He also sits as president for a

few non-Government organisations (nGos) namely Malaysia Yachting Association, Johor Yachting Association and Johor Motor Club. He graduated with a Bachelor of Commerce majoring in Accountancy from the university of Wollongong, new South Wales, Australia.

Sir JOSePH taUVaSa,KBeindependent Non-executive directorSir Joseph comes from West new Britain province, papua new Guinea. He is the current Chairman of South pacific Brewery limited, a pnG’s Councilor on ABAC (ApeC Business Advisory Council) and Chairman of the external Stakeholder Advisory panel of the Hidden Valley Joint Venture Mine in pnG. He was a former Chairman of Air niugini, a director of Westpac Bank pnG limited, a Director of lihir Gold limited and a Member of CRA Advisory Board in pnG. He also served as president of the Institute of national Affairs, president of the pnG Australia Business Council.

Sir BrOwN Bai, KBe CSm CBeindependent Non-executive directorSir Brown is the chairman of the Rural Industries Council of papua new Guinea, chairman of petromin pnG Holdings and chairman of lihir Gold project Benefits program. He is also a director of Goodman Fielders, Associated Mills of pnG and Heduru Moni ltd and the incumbent Managing Director and Chairman of the pnG palm oil producers Association and works as a consultant primarily to the agricultural industries. He serves as a member of national tripartite Consultative Council representing the private sector in pnG. Sir Brown was a former Managing Director of the pnG Banking Corporation and between 1976 to 1999 Sir Brown served in the public service where he held various positions including Deputy Director of the office of national planning, Secretary for the Department of primary Industries, Secretary for Department of prime Minister and the national executive Council and Secretary for treasury. He also served as a member of the Board of the pnG Central Bank and was pnG’s Ambassador to the eeC, Belgium, luxemburg, netherlands and Greece

erNie GaNGlOFFindependent Non-executive directorMr Gangloff commenced his career in 1982 working for various private sector organisations in papua new Guinea before being employed by the Kramer Group in 1988 where he moved to the position of Finance Director. As Finance Director he oversaw the financial management of the Kramer Group’s operations in pnG, Vanuatu, Solomon Islands, tonga and Australia. Mr Gangloff joined Deloitte in 2002 and initially provided accounting services to private sector clients before transferring to the Risk Management Services Division. He was appointed as a partner of the firm in 2011 responsible for the Risk Management and Consulting Services Division. Mr Gangloff commenced private practice as Gangloff Consulting in mid 2013. ernie is the current Vice president of the Business Council of pnG and a Council member of the Institute of national Affairs and a professional member of the pnG Institute of Directors.

annual report

2013

5

Chairman’sStatement

The past year has been challenging, palm oil prices remained subdued for the first half of the year and akin to 2012 we endured another exceptionally wet first quarter in our biggest production location (West New Britain), which hampered both crop harvesting and collection. At most of our production sites and regionally across South East Asia as a whole, FFB production was reportedly lower than expected in the second half of the year, suggesting this to be a biological yield effect.

the combined effects of lower palm oil prices and lower production has seen the Group’s profit before tax (excluding IAS 41 adjustments) drop significantly from uSD 81.6 million in 2012 to uSD 17.3 million in 2013. on the positive side the Group has made good progress in reducing its uS dollar based production costs and this has been coupled with a devaluation of the papua new Guinea Kina so that we have had both Dollar and Kina related cost reductions. looking forward the Group is well positioned to capitalise on an improving palm oil pricing environment with lower production costs and strong demand for sustainable and traceable palm oil products.

our downstream business new Britain oils (nBo) has performed well, continuing to build sales volumes of traceable and sustainable refined oil products. Based in liverpool nBo successfully doubled its refining capacity at the start 2013, commissioning a second deodorizer and by mid-year nBo had signed a ground-breaking supply agreement with olenex C.V.,a joint venture between Archer Daniels Midland Company (ADM) and Wilmar International limited (Wilmar). the agreement is pioneering in the industry, ensuring unprecedented supply chain cooperation and offering the widest range of sustainable and traceable palm oil fractions and locations in europe to date. the european market will benefit from the significant increase in availability of RSpo-certified sustainable palm oil fractions and derivatives, the shortage of which has been blamed for the limited adoption of sustainable palm oil in the past. the total european palm oil market for food is approximately five million tonnes per year; the u.K. market alone is 550,000 Mt per year. this agreement increases the total supply of sustainable palm oil for the u.K. food market to 350,000 Mt per year. this amounts to more than 60% of the u.K.’s annual palm oil market for food applications.

on the corporate front the company was faced with an unsolicited partial takeover bid from our largest shareholder Kulim Malaysia Berhad. the independent board of directors recommended that the shareholders should reject the offer based on its price and its partial nature. Subsequently the partial offer was withdrawn following the intervention of the pnG Securities Commission on the basis that the offer did not meet a retrospectively introduced national interest test. At this point in time there has been no further information forthcoming from Kulim or the pnG Securities Commission.

nBpol has teamed up with Greenpeace, WWF, Forest peoples program, Rainforest Action network and a handful of other progressive palm oil companies to form the palm oil Innovation Group (poIG) to push the boundaries of current requirements of the Roundtable on Sustainable palm oil (RSpo). the poIG aims to build on RSpo standards and commitments by both demonstrating innovation to implement RSpo existing standards but also on additional critical issues. With a focus on the three thematic areas of environmental responsibility, partnerships with communities, and corporate and product integrity, poIG members will strengthen their commitments to socially and environmentally responsible palm oil production. the poIG is a constructive alliance that focuses on leveraging its experience to innovate the palm oil industry and act as advocates for these innovations.

It is pleasing to report that as part of our cost reduction initiatives the company has improved its energy use efficiency from the greater use of renewable local by-products such as methane, palm oil fruit fibre and shell. Methane has been successfully captured and used directly in gas-fired generators at two sites in West new Britain. As a result of these initiatives the company now exports electricity into the local electrical grid. We have upgraded our biomass boilers at our other sites so that we have greater capacity and reliance on mill by-products as opposed to diesel fuel. this has had the effect of reducing our costs as well as the carbon footprint of the provinces in which we operate.

In 2013 there was a dramatic fall in the value of the Kina, with almost a complete reversal of the advances the Kina made in 2011 and 2012. As largely predicted, the completion of the construction of the large liquid natural gas project in pnG relieved the upward pressure on the Kina, coupled with lower world commodity prices the Kina has subsequently been under downward pressure. A strong local currency in pnG has an obvious inflationary effect on our costs (domestic wages and any locally consumed services and materials) when reported in a uS dollar format.

palm oil prices remained subdued in 2013 and this has obviously had a major impact on the Group’s results. Crude palm oil prices peaked in April 2012 at uSD 1,200 and had fallen to uSD 770 by December; in 2013 the prices remained range bound between uSD 770 and uSD 930. the total


6

effect of prices on profitability when comparing 2013 with 2012 amounts to a uSD 79.7 million reduction in profit.

As stated last year the Group had completed the task of achieving certification of all of our plantations and smallholders by the Roundtable of Sustainable palm oil (RSpo). Audits in 2013 have continued without any major non-conformance to the standard. As in previous years we pass on the full the benefit of sustainability to our smallholders, this year we will include smallholders from those sites who have successfully completed a full year under RSpo certification. the Company calculates any sustainability premium paid by our oil customers and where there is no premium paid we use the average value of Greenpalm certificates (an offset trading scheme). the Company then pays the smallholders a one off annual premium based on the tonnes of fruit supplied.

We publish a full Sustainability Report separate from the Annual Report on a biannual basis and our fourth sustainability report is published alongside this annual report.

In the Group’s operations not related to palm oil, the sugar operation at Ramu produced 30,302 Mt of sugar, sugar sales of 31,401 Mt were sold to retail and industrial customers in pnG contributing to a small stock drawdown. In light of the high sugar stocks that have been carried forward of 21,730 Mt the company took the decision to reduce the area under cane production and convert approximately 2,000 hectares to oil palm. this will be done over a period of three years which started in December 2013. the sugar operation is dedicated towards supplying papua new Guinea’s domestic sugar requirements.

the beef enterprise continues to show improved returns and productivity. the total herd at the end of the year numbered 20,375 head with a record of over 4,000 head in the expanded feedlots.

Whilst the past two years have been extremely challenging for the Group with disappointing production, extraction rates and profitability, the measures taken in 2013 to reduce cash costs of production, together with the depreciation in the currency in 2013, sees the Group very well placed to return to growth in the current year with significantly improved operating margins.

I would like to take this opportunity to personally thank the management team and all of our employees for their efforts through another difficult year and look forward to a stronger performance in 2014.

antonio monteiro de CastroNon-executive Chairman

annual report

2013

7

Economic growth has eased from 2012 as the construction phase the PNG LNG project nears completion. In 2013 economic growth eased whilst domestic demand remained fairly robust which has driven imports higher and the trade balance lower.

General BusinessOverview

PaPUa NewGUiNea

West newBritain

SOlOmONiSlaNdS

new Ireland

Higaturu

Milne Bay

Ramu Agri-Industries ltd

poliamba

Main Area of nBpol operation

Guadalcanal plains palm oil ltd

liverpool

UNited KiNGdOm

new Britain oils refinery Specialised in certified sustainable and fully traceable palm-based food ingredients. opened in May 2010.


8

area OF CUrreNt OPeratiONS (Hectares as at 31 december 2013)

Current Operations Oil Palm Sugar Cane Pasture

West new Britain 36,948 - 394

Guadalcanal (acquired in April 2005) 6,274 - -

Ramu (acquired in october 2008) 11,490 7,718 8,888

Higaturu (acquired in April 2010) 8,819 - -

Milne Bay (acquired in April 2010) 10,730 - -

poliamba (acquired in April 2010) 5,622 - -total 79,884 7,718 9,282

the overview is presented with the following sections: a general business overview of the economies in which the Group’s main operations are based, an overview of the palm oil market, commentary on the Group’s financial results; an operations review including research & development, future plans and downstream processing and finally highlights from the Group’s sustainability progress and initiatives.

the review contains forward looking statements which have been included by the directors in good faith based on information available at the time of writing. Such statements should be treated with due care and caution and shareholders are advised to take professional financial advice concerning the information contained herein because of the inherent uncertainties, both economic and business risks, which are characteristic in any forecast. none of the statements contained in this report should constitute or be construed as a profit forecast for the Company and the Group.

PaPUa New GUiNea eCONOmY

GDp growth in 2013 is expected at approximately 5% year on year with continued downside risks to growth. Inflation remains lower than originally expected while market pressure on the papua new Guinea Kina (pGK) to depreciate remains high. economic growth has eased from 2012 as the construction phase the pnG lnG project nears completion. In 2013 economic growth eased whilst domestic demand remained fairly robust which has driven imports higher and the trade balance lower. exports are down some 9% year on year while imports

have climbed by over 13% impacting the country’s trade surplus, down to circa pGK400m from circa pGK1,600m a year ago. this trend may persist with commodity terms of trade still declining and a pickup in fiscal spending prior to the 2014 budget boosting domestic demand and therefore imports. through the first nine months of 2013, government expenditure was only 54% of the full year appropriation of pGK7.0b however it was 10% higher than the corresponding period in 2012. Development expenditure was up 6.5% with recurrent spending 12% higher. Government spending will continue to buffer sharp declines in the non-mineral sector of the economy however growth is moderating. Growth is likely to continue on a moderating path through the first half of 2014 while inflation pressure may begin to creep higher over the same time frame. the current account is expected to remain in a deficit, leading to overall sustained depreciation pressure on the pGK, despite the posted rate on the central bank website being unchanged for a number of months.

the pGK has remained a regional underperformer however the moves are in line with economic fundamentals of a widening currency account deficit. At the current juncture, expectations are for downwards pressure to remain on the pGK until lnG shipments being in late 2014 although the impact of these revenues are expected to stabilise the pGK decline and forecasts suggest the strong pGK levels experienced in 2011/2012 are unlikely to be repeated in the medium term.

annual report

2013

9

PGK tO USd eXCHaNGe rateS (January 2009 to december 2013)

Jul 10Jul 09 Jan 10Jan 09 Jan 11 Jul 11 Jan 12 Jul 12 Jul 13Jan 13

0.30

0.32

0.34

0.36

0.38

0.40

0.42

0.44

0.50

0.48

0.46

Palm Oil marKet reView aNd OUtlOOK

Commodities did not share the same enthusiasm for 2013 as the financial markets and have ended mixed, mostly on the downside. Crude oil prices in the world market mostly remained at elevated levels following production disruptions in Middle east region, especially in libya. However, gains were limited for uS benchmark West texas Intermediate on higher supplies domestically that was made possible by the shale production technology revolution.

Weather extremes have become more apparent as have increased agricultural commodity price volatility. Grains ended lower on higher harvests in the uS, Russia and Black Sea regions. Cocoa prices rallied during the year following supply side concerns in West Africa on reports of unfavourable weather conditions. Strong demand as evident by increase in quarter on quarter grindings in Asia and other regions also supported this uptrend. Sugar and Coffee prices extended the downtrend in a well-supplied market. A firm uS dollar and fund liquidation were also responsible.

Vegetable oils, except for palm oil have mostly depreciated in value. Global oilseed output for 2012/13 rose to 474.3 million Mt from 446 million Mt harvested in 2011/12 following a jump in soybean production from South America

SOlOmON iSlaNdS eCONOmY

the Solomon Islands economy continues to hinge on log production and mineral exports, predominantly gold. log production in 2013 was down 3% compared to 2012 but on an improving trend in the fourth quarter, with other production (gold, fish, copra, palm oil) also picking up in the second half of the year. export growth rebounded back to slightly positive growth of 2% year on year whilst imports were relatively flat. Inflation in December eased to 3% year on year with the slowdown coming from both the imported and domestic categories (transport and communications). Growth will continue to be underpinned by the outlook for commodity production while public investment is likely to provide a downside buffer for growth. Mineral production is at risk if gold prices make production unprofitable while unsustainable logging practices temper long term growth prospects. Inflation has stabilised however it will likely increase in the coming months on a lower base. In 2013, the Solomon Islands Dollar (SBD) depreciated by a further circa 3.5% against the uS Dollar, continuing on from the 4% depreciation seen in 2012 although the SBD had previously moved significantly higher through government intervention back in 2011 (an upwards revaluation of circa 10%) to ease external inflationary pressures at that time.

PGK/USd PeriOd aVeraGe - 0.4082 PeriOd lOw - 0.335 PeriOd HiGH - 0.4822



10

and rapeseed output from europe. the production of the eight major vegetable oils for marketing year 2012/13 stood at 160.7 million Mt, up by 3.3 million Mt year on year. Despite lower production growth for the marketing year 2012/13, the future significant rise in seed oil output for the next marketing year has constantly weighed on prices. Weak growth in consumption demand has also been a pricing factor. total consumption demand of eight major vegetable oils increased by 4.8 million Mt to 157.7 million Mt during the period. Vegetable oil stock build up persisted in marketing year 2012/13 which were estimated to have risen to 18.1 million Mt from the 2011/12 ending stock level of 17.5 million Mt.

palm oil prices traded weakly in the first half owing to the high carryover inventory. Bargain buying at the lower levels and weather threats to production in Malaysia and Indonesia helped the market to bounce back in the second half.

PrOSPeCtS FOr marKet Year 2013/14

A large increase in the supplies of vegetable oil for marketing year 2013/14 is in sight following a bounce in seed oil output. A higher rapeseed harvest for the second consecutive year and a surge in sunflower production from the Black Seas region and soybean harvests from both north and South America is expected to augment the supplies. As a result, global vegetable oil production for marketing year 2013/14 is forecast to increase by 8.5 million Mt to 169.2 million Mt compared to previous year annual increment of 3.3 million Mt. Combined output of palm oil and palm kernel oil is forecast to increase by 2.9 million Mt to 65.2 million Mt during the same period.

on the demand front, total consumption demand of eight major oils is forecast to increase by 6.6 million Mt to 164.3 million Mt. Robust demand from the food and feed use segment, coupled with prospects of increased usage in biodiesel production (on adoption of higher mandatory blends in Indonesia and Brazil) are seen as major contributing factors. Combined demand for palm oil is forecast to increase by 2.2 million Mt year on year to 63.3 million Mt during the period. palm oil demand growth is forecast to slowdown in the coming year following the increase in seed oils availability. However, palm oil still dominates the overall vegetable oil consumption basket.

Despite improvement in the vegetable oil consumption growth for 2013/14, it still lags behind the vegetable oil supply growth potentially resulting in a stock build up. Global vegetable oil ending stocks are forecast to rise to 20.3 million Mt from 18.1 million Mt prevailing at the end

of 2012/13. In relative terms, stocks to use in 2013/14 measures to 12.3% compared to 11.5% in the previous year and past five-year average of 10.7%. While increase in supplies might weigh on prices, weather uncertainty in particular reports on an el nino weather system developing in mid 2014 and a general improvement in consumer sentiment should provide underlying support to prices.

FiGUre 1: Palm Oil (Palm aNd Kalm KerNel COmBiNed SHare iN GlOBal VeGetaBle Oil CONSUmPtiON)

0%

10%

20%

shar

e in

con

sum

ptio

n in

%

30%

40%

50%

60%

70%

100%

90%

80%

food & feed use126.5 mil Mt

industrial use37.8 mil Mt

total use164.3 mil Mt

OtHerS

raPeSeed Oil

Palm COmBiNed

SUNFlOwer Oil

SOYBeaN Oil

annual report

2013

11

FiGUre 2: StOCKS tO USe ratiO treNd OF maJOr VeGetaBle OilS

1980/81 1995/961985/86 2000/011990/91 2005/06 2009/10 2013/14

5.00%

7.00%

9.00%

11.00%

13.00%

15.00%

17.00%

19.00%

21.00%

shar

e in

con

sum

ptio

n, in

%

eiGHt maJOr OilS COmBiNed

Palm Oil

SOYBeaN Oil



12

HiGH PriCe & lOw PriCe

ClOSe PriCe

PriCe treNd

Between January and December 2013 Cpo prices (CIF Rotterdam) averaged uSD 857 per Mt. this compares with uSD 999 for 2012 and uSD 1125 for 2011. prices posted a low of uSD 795 per Mt in July 2013 and at its peak traded at uSD 935 per Mt in november 2013.

Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 14Jan 13

0

200

400

600

800

1000

1200

1400

1600

FiGUre 3: CPO treNd, BaSiS: CiF rOtterdam, iN USd Per mt

FiGUre 4: aVeraGe marKet PriCeS OF SeleCted OilS USd Per mt

Grade dec 2013 Jan-dec 2013 Jan-dec 2012 Jan-dec 2011

Crude palm oil CIF Rotterdam 912 776 999 1,125

RBD palm olein FoB Malaysia 828 783 989 1,148

Crude palm Kernel oil CIF Rotterdam 1143 762 1,110 1,648

Crude Coconut oil CIF Rotterdam 1269 785 1,111 1,730

Crude Dutch Soybean oil FoB ex-mill 989 1,163 1,226 1,299

Crude eu Sunflower Seed oil, FoB nWe ports 982 1,269 1,263 1,360

Crude Dutch Rapeseed oil 1012 1,190 1,240 1,368

annual report

2013

13

FinancialReview

The Group’s results in 2013 reflect a profit before tax of USD 17.3 million (excluding the changes in fair value of biological assets under IAS 41 but including the net gains of USD 8.2 million on agricultural products transferred to inventories at balance date) compared to USD 81.6 million in 2012. Other (losses)/gains include net foreign exchange losses of USD 17.5 million as compared to gains of USD 8.0 million in 2012, a reflection of the local currency appreciation during 2012 as compared to significant depreciation in 2013.

Results

iNCOme StatemeNt

Revenue fell by 17.5% over the comparative period to uSD 558.7 million (2012: uSD 677.0 million), largely due to lower average selling prices achieved. In 2013, the Group shipped 517,731 Mt of all oils at uSD 898/Mt (2012: 511,015 Mt at uSD 1,085/Mt) as well as 917 Mt of palm kernels at uSD 214/Mt (2012: 27,092 Mt at uSD 363/Mt). As a result, the Group’s revenues from palm products are uSD 99.2 million lower than the same period last year. Sugar sales for 2013 were 31,401 Mt at an average price of uSD 1,464/Mt (2012: 31,697 Mt at an average price of uSD 1,761/Mt) with revenues of uSD 46.0 million, a decrease of uSD 9.8 million (17.6%) on last year. As sugar sales are denominated in pnG Kina, uS Dollar revenues have suffered from the depreciation in the currency. Seed revenues of uSD 5.6 million are much lower than the prior year (uSD 11.8 million) driven by reduced demand and lower volumes of 6.9 million seeds sold versus 14.7 million in 2012.

Gross profit was uSD 192.0 million, a decrease of 22.6%, from uSD 248.0 million for last year, reflecting the impact of lower selling prices, although supported by the depreciation in the papua new Guinea Kina against the uS Dollar. By business segment, our palm products business reflected a 34% gross margin (uSD 168.5 million) versus 35% (uSD 211.3 million) in 2012, whilst our sugar business reflected a 45% gross margin (uSD 20.7 million) versus 51% (uSD 28.5 million) and our seeds business 34% (uSD 1.9 million) versus 61% (uSD 7.2 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 2013, the Group paid uSD 62.8 million for 589,524 Mt of smallholder fruit compared to uSD 95.2 million for 684,594 Mt in 2012. 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. However, the year on year depreciation in the pnG Kina against the uS Dollar by approximately 17% has reduced those costs denominated in the local currency, particularly labour and overheads. In addition to

reVeNUeS

USD558.7millions

GrOUP PrOFit BeFOre taX

USD17.3millions

diVideNdS

12centsper share

GrOUP PrOFit aFter taX

USD12.5millions


14

the currency impact, we have continued to progress our cost optimisation and efficiency review benefiting from the cheaper fertiliser and oil freight costs locked in at the end of 2012 as well as making reductions in management and general overheads across the Group. the benefits of supplying more of our electricity needs through the Clean Development Mechanism (“CDM”) methane projects have also had a marked impact on reducing our direct milling and refining costs in 2013.

other (losses)/gains include net foreign exchange losses of uSD 17.5 million as compared to gains of uSD 8.0 million in 2012. 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. the net gain is lower by uSD 3.1 million year-on-year (uSD 8.2 million against uSD 11.3 million) impacted by lower oil stocks but at a higher margin than the prior year due to lower costs of production and higher oil prices at year-end. the unrealised gain of uSD 4.1 million recognised in 2012 on derivative financial instruments relating to forward sales of refined oils has been released in 2013. no such gain or loss has arisen in 2013.

Distribution costs were lower by uSD 6.2 million (8.0%) compared to last year despite shipping slightly higher volumes reflecting mainly the reduction in average freight costs to our customers (uSD 108 per Mt as compared to uSD 114 per last year) and partially the currency depreciation with respect to wharfage and port costs. Administrative expenses were lower by uSD 17.2m (16.7%) as compared to 2012 reflecting management’s cost cutting initiatives and the currency depreciation.

net finance costs have decreased to uSD 9.6 million compared to uSD 10.6 million in the corresponding period last year reflecting lower total borrowings and improved working capital across the Group.

profit before tax for the period was uSD 71.0 million including IAS 41, and uSD 17.3 million excluding IAS 41, compared to 2012 of uSD 4.4 million including IAS 41 and uSD 81.6 million excluding IAS 41.

tax expense for the period was uSD 21.0 million including IAS 41 and uSD 4.8 million excluding IAS 41 compared to 2012 of a tax expense of uSD 2.7 million including IAS 41 and uSD 25.9 million excluding IAS 41.

earnings per share including the effects of IAS 41 increased from uSD 0.4 cents in 2012 to uSD 31.9 cents in 2013. earnings per share excluding IAS 41 were uSD 7.4 cents compared to uSD 36.0 cents last year.

BalaNCe SHeet

the Company’s balance sheet reflects cash balances of uSD 30.9 million and total borrowings of uSD 272.6 million. Borrowings comprise uSD 181.7 million pertaining to the five year term facility taken out in April 2010 for the acquisition of Ctp (pnG) limited (renamed Kpol), uSD 41.9 million working capital financing for the liverpool refinery, uSD 35.8 million to Ramu (including bank overdrafts of uSD 9.0 million) and uSD 13.2 million of short term trade finance.

trade and other receivables are lower at uSD 85.2 million compared to uSD 126.9 million last year, reflecting the timing of shipments and value of oils shipped. Inventories are also lower at uSD 171.4 million compared to uSD 193.0 million at the end of 2012 mainly due to changes in oil and sugar stocks with fluctuations due to timing of shipments and movements in price, but also the depreciation in the local currency.

there have been no movements in issued share capital during 2013.

CaSHFlOw aNd CaPital eXPeNditUre

net cash generated from operating activities increased marginally to uSD 142.6 million compared to uSD 141.8 in 2012, reflecting the lower cash costs of production together with a much improved working capital position.

Investing activities decreased by uSD 86.5 million from uSD 157.2 million in 2012 to uSD 70.7 million in 2013. purchases of property, plant and equipment decreased by uSD 76.2 million following completion of significant capital projects and scaling back non-essential programmes to reflect market conditions. expenditure on plantation development and biological assets totalled uSD 29.1 million (a decrease of uSD 10.3 million from the same period last year) reflecting the completion of 970 hectares of new plantings and 2,986 hectares of replanting with a further 1,356 hectares under preparation for replanting.

Financing activities includes the payment of an interim dividend in relation to 2013 of uSD 10 cents per share. Subsequent to period end, the Board declared a final dividend of uSD 5 cents per share in respect of the year ended 31 December 2013 to be paid at the end of April 2014.

the Group ended the period with net cash balances of positive uSD 8.7 million having started the year with negative cash balances of uSD 16.8 million.

annual report

2013

15

OperationsReview

Palm Oil PrOdUCtiON

In 2013 the Group processed 2,085,670 Mt of Fresh Fruit Bunches (FFB), some 8.2% lower than in 2012. Adverse weather conditions once again affected harvesting and crop movements in the first half of the year and, in line with oil palm plantations in the wider South east Asian region, nBpol experienced a biological drop in yield which was especially pronounced in the second half of the year. only Ramu returned a significant increase in yield (from 103,000 Mt of FFB in 2012 to 145,500 Mt in 2013 as the age profile matured and another 2,004 hectares came into production.

the wet weather affected extraction rates with 507,855 Mt of crude oil (crude palm oil and palm kernel oil), produced from the Group’s 12 oil mills, a reduction of 7% from the 545,207 Mt produced in 2012. In 2013 the last export of 282 Mt of palm kernels was completed as the new kernel crushing plants put into Milne Bay estates and poliamba came into full production. there will be no further palm kernel exports and the company is now able take full advantage of palm kernel oil revenues.

Full year FFB production from the Group’s estates was 1,496,146 Mt compared to 1,588,486 Mt in 2012, with an additional 589,524 Mt purchased from 16,000 smallholders compared to 684,594 Mt purchased in 2012. the bulk of smallholder crop comes from West new Britain and Higaturu and like the plantations, smallholder harvesting and access was severely impaired also reducing their yields at these sites. Smallholder purchases represented 28% of the total crop in 2013 - a drop of 2% from 2012.

Oil Palm FreSH FrUit BUNCH PrOdUCtiON (mt) 2009-2013

2009 2010 2011 2012 20130

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2,500,000

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1,500,000

OUtGrOwerS

eState


16

the Group’s average estate yield of FFB per hectare (ha) over 69,067 hectares of oil palms under harvest was 21.7 Mt/ha compared to 23.8 Mt/ha from 66,746 ha in 2012. this represented a drop of 9% as a result of the biological drop in yield (approximately 10% in Malaysia and Indonesia), adverse weather conditions affecting crop recovery especially at West new Britain and Higaturu in the first six months and an increasing area of young palms coming into production especially at Higaturu, Milne Bay and poliamba. At Ramu yields increased from 12.7 to 14.4 Mt/ha reflecting the drier conditions, better access the increasing age profile of the palms there.

mONtHlY FFB PrOdUCtiON (mt) 2013

Jan AprFeb May octMar Jun novJul DecAug Sep0

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GPPOl

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wNB

rail

the reduced production in the latter half of the year allowed for significant improvements to road, culvert, bridge and drainage infrastructure; pruning and upkeep programs were all completed and harvesting rounds were well under control at the end of the year. throughout 2013 there was also a strong focus on reducing operating costs. All this has meant that the Group is well positioned as we move into 2014 when yields are expected to increase significantly in the second and third quarters following the end of the biological downturn.

At West new Britain, Ramu and Higaturu rainfall was higher than in 2012 and much higher than the long-term average. A negative impact of this was that the fruit absorbed more water thereby reducing extraction rates especially at these sites.

Site raiNFall FiGUreS (2013 VerSUS lONG term aVeraGeS aNd 2012)

Site 2013 (mm) long term average (mm) 2012 (mm) Soil moisture deficit

WnB 4,290 3,728 4,147 none

Gpp 2,180 2,183 2,603 Aug-Dec

RAI 2,456 1,996 2,335 none

Hop 3,315 2,734 2,678 none

MBe 2,384 2,808 2,910 none

pol 3,280 3,139 3,790 none

annual report

2013

17

OperationsReview

As the extraction rates improved so did fruit quality directly reflecting the reduced harvesting intervals, pruning standards and crop recovery ensuring the Group estates are better positioned moving into 2014 than at the beginning of 2013.

Group Crude palm oil extraction rates decreased from 22.35% in 2012 to 22.15% in 2013. they improved significantly in the second half of the year, with drier weather, rising from an average 21.98% from Jan to June to 22.45% from July to December. As the extraction rates improved so did fruit quality directly reflecting the reduced harvesting intervals, pruning standards and crop recovery ensuring the Group estates are better positioned moving into 2014 than at the beginning of 2013. the lower capacity requirements at the mills also provided an opportunity for further maintenance to be carried out.

the Group’s palm kernel extraction rates increased from 5.25% in 2012 to 5.34% in 2013 reflecting an increased focus on loose fruit recovery in the field and tighter controls in most mills. the combined crude palm oil and palm kernel extraction rates meant the Group achieved an average palm product extraction rate of 27.50% down 0.09% from the 27.59% achieved in 2012. the decrease is a reflection of the reduced crude palm oil extraction rates in the first six months of the year.

GrOUP Palm PrOdUCt eXtraCtiON rateS 2013 (%)

Jan AprFeb May octMar Jun novJul DecAug Sep

16

18

20

30

24

22

26

28

pal

m K

erne

land

Cru

de

oil

exr

eact

ion

Rat

e (%

)

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CPO


18

over the last 33 years, there has been a dramatic increase in production. the decline in the last two years has been due to much higher rainfall affecting the operational recovery of fruit, the effects on production of the extensive replant programs especially at Higaturu, Milne Bay and poliamba, (6,774 ha out of a total of 25,171 ha in three and a half years) and the biological downturn in 2013.

Palm PrOdUCt (CrUde Palm Oil + Palm KerNelS) PrOdUCtiON 1980 - 2013

0

100

200

700

300

500

400

600

1981

1990

1991

1994

1980

1986

2000

2005

1982

1984

1995

1997

1985

1987

1989

2008

2010

2002

1983

1998

2001

1988

1993

1992

2011

2007

2004

2012

2013

2009

2006

1996

1999

2003

thou

sand

Mt

HeCtaraGe StatemeNt aS at 31 deCemBer 2013

Group land Use wNB GPP rai KPOl GrOUP

Mature oil palms 23+ yrs 1,654 1,326 - 3,644 6,625

Mature oil palms 18 - 22 yrs 4,002 880 - 2,325 7,206

Mature oil palms 13 - 17 yrs 7,987 256 - 5,990 14,232

Mature oil palms 8 - 12 yrs 14,844 968 3,337 5,561 24,710

Mature oil palms 3 - 7 yrs 5,543 2,100 6,474 2,178 16,294 total mature Oil Palms 34,029 5,529 9,811 19,698 69,067

Immature oil palms 0 - 3 yrs 2,919 745 1,679 5,474 10,817 total Oil Palm 36,948 6,274 11,490 25,171 79,884

Grazing pastures 394 - 8,888 - 9,282

Sugar Cane - - 7,718 - 7,718

other Areas 2,887 445 2,152 2,059 7,544

Reserves & undeveloped land etc 13,379 1,020 3,714 12,069 30,183 total 53,610 7,740 33,962 39,299 134,611

annual report

2013

19

The age profile of the Group’s palms remains supportive towards yield growth with a weighted average palm age of 10.8 similar to 10.7 reported last year.

At Ramu new plantings of 454 hectares were completed. there remain approximately 2,000 hectares of sugar land to be converted and the Group is identifying further areas available for cultivation.

At Higaturu two new grassland areas adjacent to the main road were acquired during the year and 229 hectares were planted after passing environmental and social impact assessments as well as RSpo approvals. these new plantings have now initiated a lot of interest from other customary land owners in the area and mobilisation of the “Higaturu grasslands” is expected over the next few years.

rePlaNtiNG PrOGrammeS

Replanting of the Kula Group (Milne Bay, Higaturu and poliamba) continued to be the focus with an additional 2,179 hectares replanted in 2013 out of a total of 2,986 for the Group. Since acquisition, we have replanted 6,774 hectares of aged palms with the Group’s high yielding Dami elite seedlings and yields are expected to increase across these sites as these palms mature.

New PlaNtiNG PrOGrammeS

the Group planted 970 new hectares in 2013 comprising the continuation of the Silovuti project in West new Britain where 287 hectares were planted, and accessibility to the area improved considerably with the newly proposed section of road receiving approval by the provincial Government and work commenced on clearing this road in the last quarter.

OperationsReview


20

annual report

2013

21

FrUit PrOCeSSiNG CaPaCitY

the Group has a total of twelve mills (five at West new Britain, one at Guadalcanal, one at Ramu, three at Higaturu, one at Milne Bay and one at poliamba), with a combined processing capacity of 630 Mt of FFB per hour.

At West new Britain the lower production meant there were no capacity issues. extraction rates were lower for the year at 21.98% compared to 22.36% in 2012. this was a direct result of the extremely wet weather in the first 6 months of the year. the average extraction rate from July to December improved to 22.45% and averaged 23% in the last quarter, which demonstrated a significant improvement once rainfall and field conditions normalised. Similar to the plantations the lower capacity requirement provided an opportunity for further maintenance to be carried out at all mills. At Kumbango the sixth steriliser was completed and a new centrifuge installed. numundo boilers were retubed and a new generator purchased. Waraston into its second year had all outstanding teething issues fully resolved. Modifications to the Kumbango Kernel mill plant, reception and drying areas were extremely successful allowing for significant improvements in the pKo extraction rate from 40.25% to 41.81%.

the biogas plants at Kumbango and Mosa ran throughout the year providing savings and reducing the dependence on diesel generators. the Kumbango plant now supplies the refinery, with the exception of the package boiler however work is in progress to utilise the excess gas as feedstock for the package boiler which will then allow the refinery to be completely run on biogas. In 2014 the energy management program will move into the second phase of automation and computer control of all generators at the Kumbango complex. the biogas plants also continue to feed the local grid as well as supply power to company housing. A palm kernel expeller boiler is currently being investigated with the aim to produce an additional 6 MW of power which combined with the current electricity produced would supply more than enough power to support the Mosa and Kumbango complexes and all of Kimbe town.

the Kumbango refinery saw a downturn in throughput from a drop in demand, particularly in local sales. Staffing has been strengthened to address ongoing maintenance issues and a new package boiler with dual burners installed. once connected to biogas a substantial reduction in operating costs will be achieved. the improved quality of the feedstock in the latter part of the year improved the operational efficiencies and allowed a more consistent product to be produced for local sales that started to materialise again towards the end of the year.

OperationsReview


22

the Kimbe Bulk terminal saw further improvements with the relocation of a larger generator to supply the larger pumps installed. these new pumps have allowed the loading times to be reduced by approximately 25% reducing the demurrage at Kimbe. In 2014 pnG ports will commence the expansion of the Kimbe wharf that will improve efficiencies and reduce delays.

At Guadalcanal rainfall was significantly lower than in 2012 and in line with the long-term average. this assisted with improvements in field management significantly improved fruit quality and extraction rates improved from 21.73% in 2012 to 22.47% in 2013. A new 20 Mt boiler was commissioned further enhancing the performance of the mill. A portion of land was purchased on the outskirts of Honiara in preparation for the relocation and expansion of the bulk station tank farm when further expansion of the project takes place.

In Ramu work continued in raising the Gusap palm oil Mill capacity to 60 Mt of fruit per hour which should be completed by the end of 2014. An additional steriliser was installed and the second boiler will be completed and commissioned in 2014. For the final phase of the expansion a new ramp facility has been designed and will be constructed in 2014. the lae export wharf expansion works that have plagued shipments for the last two years are expected to be completed by April 2014. this will significantly reduce demurrage costs being incurred due to wharf congestion delaying berthings.

the refurbishment and expansion to 70 Mt per hour of the Sangara mill at Higaturu was completed excepting some minor works which will be completed by the end of the first quarter of 2014. With major works ongoing during 2013, the Sanagara mill could only operate on one line most of the time putting extensive pressure on Sumberipa mill. Along with the weather this impacted on extraction rates which dropped from 21.95% in 2012 to 21.87% in 2013. the Mamba mill was mothballed in February due to the replanting of the whole plantation which was completed at the end of 2013. the mill will be back in production by the end of 2014 as the initial new plantings at Mamba are starting to come into production.

At Milne Bay the rainfall was less than last year and under the long term average. extraction rates improved from 22.57% in 2012 to 22.67% in 2013. A new boiler, turbine and genset were commissioned as was the new palm kernel mill along with a palm kernel oil storage tank at the Alotau bulk terminal.

poliamba had limited capital works during the year. the kernel mill commissioned in 2012 had teething problems resolved. Whilst rainfall was less than 2012 it was still higher than the long term average but did not significantly impact on operations. extraction rates dropped from 20.83% in 2012 to 20.50% in 2013.

annual report

2013

23

SUGar PrOdUCtiON

In 2013 Ramu harvested 320,467 Mt of cane from 6,354 hectares yielding 30,208 Mt of sugar. Start of harvest was delayed by 3 weeks due to wet conditions. this was followed by very dry conditions in the middle of the year and unplanned cane fires that disrupted harvesting and contributed to lower than expected yields. A successfully managed Integrated pest Management program meant there were no major pest and disease outbreaks and increased measures have been taken to eradicate Ratoon Stunting Disease a major constraint to increased production.

the sugar factory has a processing capacity of 500,000 Mt of cane and so has not been under pressure. the processing season started three weeks behind schedule due to unseasonably wet weather preventing field access. A rendement of 9.46% was achieved well above the

previous year’s 8.68% reflecting the very dry conditions during the middle of the year. overall sugar recovery was 81.76% above the target of 81.1%.

31,401 Mt of sugar was sold almost on par with 2012 (31,697 Mt). Retail sales continued to dominate at 93% of total sales. Market share in this sector remains robust despite the strength of the Kina earlier in the year and lower sugar prices worldwide (prices fell from over 19 uS cents per pound in January to 16 uS cents in December). Industrial sales improved slightly with 7% of sales due to the return of some customers. At year end 21,730 Mt remained in stock reflecting the lower sales than production incurred over the previous few years. until January 2015 the industry will continue to enjoy protection in the form of a 35% tariff on all imported sugar. Sugar prices are expected to rise around 8% in the second half of 2014 as surplus global stocks decline for the first time in 4 years.

OperationsReview


24

BeeF PrOdUCtiON

Combining the production from our two cattle operations in Ramu and numundo the Group continues to be the largest beef producer in pnG with a combined herd of 20,375 head. In 2013 we produced 1,435 Mt of beef up from 1,304 Mt in 2012, generating 17.4 million Kina in revenue with all produce sold into the domestic pnG market.

Breeding work continues to steadily improve the herd genetics at both sites and management focus on nutrition and animal condition is showing strong results. Constant work on improving pastures, increasing fodder crop production and increased feedlot capacity has seen slaughter weights continue to improve averaging 257 Kgs per head in 2013.

the Ramu and numundo premium Beef Brands continue to strengthen with the improved quality. Beef quality is high as all animals are now feedlot fed prior to slaughter. Domestic demand for consistently good quality beef remains high, a trend that looks set to remain for the next few years.

Whilst beef production will continue to play only a minor role in the overall investment strategy of the group it has its place especially in areas where cattle and oil palms can be intercropped or on areas where oil palms are unsuited as a sole commercial crop. the company’s commitment to excellence in all facets of the group’s operations is reflected in the improving quality of our cattle and increasing demand for our beef products.

Seed PrOdUCtiON

our Dami research facility is one of the world’s leading seed producers. In 2013 we sold 6.86 million seeds against a budget of 14 million and against the 14.74 million seeds sold in 2012. of this 5.17 were sold overseas in 8 different countries whilst the balance of 1.69 million seeds were for internal use and within pnG.

this was the first drop in seed sales in the last 5 years and can be attributed to lower palm oil prices and production volumes and the marked depreciation of some Asian currencies against the uSD. these were some of the factors that lead to plantation companies deferring their replant programmes and development plans which in turn impacted on seed sales.

In 2013 the Dami Seed production unit successfully maintained its re-certification of ISo 9001:2008 Quality Management Systems giving assurance to our customers of Dami’s reputation as a producer of high grade, elite oil palm planting material.

Management envisages seed sales to be potentially positively higher in 2014 if palm oil prices pick up and production returns to normal thereby encouraging plantation companies to restart their replanting and development programmes.

annual report

2013

25

ResearchReview

At the heart of New Britain Palm Oil’s operations is Dami Oil Palm Research Station which was established in 1967 and is home to the Group’s state of the art plant breeding and seed production unit. Over the last four decades the agronomy research and breeding team have delivered a steady increase in FFB yields by improving the genetics of the planting materials and developing complementary sustainable management practices.

At the heart of new Britain palm oil’s operations is Dami oil palm Research Station, the group’s state of the art plant breeding and seed production unit, which was established in 1967. over the last 4 decades the agronomy research and breeding team have delivered a steady increase in FFB yields by improving the genetics of the planting materials and developing complementary sustainable management practices. A steady improvement of 1.2% increase in FFB yield per annum from 20Mt/ha in the 70’s to over 35Mt/ha with the current planting materials has been achieved. the breeding focus has been as much about increasing the FFB yields as about increasing the oil yields (Cpo and pKo) from the fruit and the new progenies can now deliver over 9.0 Mt of oil per hectare.

today’s planting material starts yielding at 24 months after planting and achieves commercial yields of 17 to 20 Mt of FFB per hectare within the first year of harvest. Yields increase to 30 Mt FFB/ha two years later and peak at 35Mt FFB in years 5 or 6, to sustain a yield over 30Mt/ha over the following decade.

oil palm cloning has been a long-term vision for the group and our philosophy is to copy through tissue culture the best elite parent palms of the high yielding hybrids. In 2013 after many years of intense selection and concurring research in tissue culture the group initiated the production of its own semi-clonal seeds from cloned female Dura parents.

In 2013 Dami installed a new genetic software program specifically designed to accommodate the extensive breeding data for perennial crops. over 40 years of breeding research data was uploaded into the programs database. Work continues with the new Zealand service provider in customizing the program to the Dami breeding team’s requirement. the mining of the database through this software will revolutionise the breeding program, allowing a faster and better understanding of gene migrations and assisting identify the essence of the high yielding materials.

In 2013 nBpol also became the managing agents of the pnG oil palm Research Association and the focus is now on improved collaboration and better use of the now shared resources.


26

Downstream Processing Review

In West New Britain the Kumbango refinery has increased its supply of specialised palm products to Ferrero and continues to maintain a consistent quality supply of traceable sustainable stearin and other palm products for the bakery fats business in the UK which is being continually developed through the Liverpool refinery.

the laboratory improvements and training and development of the staff over recent years have assisted with the production of additional derivatives at the refinery involving high grade fractions and blending.

new Britain oils ltd (nBo), the uK refinery operation in liverpool experienced strong levels of growth in terms of sales volume, margins per Mt and number of customers. over 110 companies in the uK and Ireland have now received sustainable palm based products from nBo increasing the number of products across the food sector that can now be made with RSpo Certified sustainable oils.

Q4’10 Q3’11Q1’11 Q4’11 Q1’13Q2’11 Q1’12 Q2’13Q2’12 Q3’13 Q4’13Q3’12 Q4’12

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liVerPOOl reFiNerY qUarterlY % VOlUme iNCreaSe (VerSUS q3 2010)

the uK’s industrial bakery sector has seen a particularly dynamic shift towards RSpo certified supply chains, dominated at this stage by Mass Balance claims. the trend towards using fully segregated RSpo products is expected to gather more pace as many retailers’ approach their 2015 sustainability deadlines.

During 2013 nBo invested in developing in-house technical capabilities for bakery ingredients. In order to test the products and ensure they meet the exacting requirements of customers nBo recently opened a test bakery facility which allows the testing of internally developed margarines across a wide range of bakery applications, and replicates the processes used by our customers. As well as allowing a review of existing products it also provides the opportunity to develop new products and give greater technical support to customers. During the year 13 new bakery products were developed which have been instrumental in securing new business with some of the uK’s leading bakery manufacturers.

nBo successfully doubled its refining capacity at the start 2013, commissioning a second deodorizer and by mid-year nBo had signed a ground-breaking supply agreement with olenex C.V., a joint venture between Archer Daniels Midland Company (ADM) and Wilmar International limited (Wilmar). the agreement is pioneering in the industry, ensuring unprecedented supply chain cooperation and offering the widest range of sustainable and traceable palm oil fractions and locations in europe to date. this agreement increases the total supply of sustainable palm oil for the u.K. food market to 350,000 Mt per year which amounts to more than 60% of the u.K.’s annual palm oil market for food applications.

Sustainable palm oil sourcing has become important throughout the uK food industry with the main notable exception of foodservice (packed products for frying in cafés and restaurants), and the aim is to address this in 2014 by raising awareness of the issue among end users of frying oils.

annual report

2013

27

In 2013, NBPOL focused on developing new leadership initiatives and working with a broad range of stakeholders in seeking innovative solution to sustainability challenges in both operations and marketplace. Traceable and sustainable palm oil remains at the heart of NBPOL’s business model and the past year has seen an expansion of engagement with customers, NGOs and a range of other stakeholders to drive progress.

Sustainability Review

encouraged by such accolades, the Group continues to enhance its practices and launched a new Forest policy in June 2013, which takes into account new debates on high carbon stock as well as providing for a balance between the right to social development through nBpol’s ‘one Hour principle’.

nBpol believes that it can play a positive role beyond the Group’s immediate impacts and boundaries. the Group has therefore developed a strategic partnership with the not-for-profit organisation orangutan land trust, providing both financial support, advisory and assist in promoting olt’s work throughout its networks and supply chain.

NatiONal reCOGNitiON FOr GOOd CitizeNSHiP iN PaPUa New GUiNea

As the largest private employer in pnG with a footprint throughout the country, contributing to the economy and national development of the country is highly critical to the Group. It was therefore with great pleasure that nBpol was chosen as a recipient of the 2013 inaugural Good Citizen Award by the pnG Department of labor & Industrial Relations.

raiSiNG tHe Bar FOr Palm Oil SUStaiNaBilitY

nBpol, all its associated smallholders and its downstream processing have been 100% RSpo certified since the end of 2012, ensuring that all aspects of palm oil cultivation, production and refining are third-party audited annually against a stringent set of social and environmental criteria.

However, npol wishes to explore how further progress can be made, and has been engaging with stakeholders to develop a platform which is even more challenging and takes sustainability to the next level. In 2013 nBpol became a founding member of the palm oil Innovation Group, an initiative supported by organisations such as Greenpeace, WWF and Rainforest Action network.

the basis of poIG activity is a Charter which builds on the RSpo, but requires members to raise the bar considerably. Amongst other things, the Charter includes a complete ban on peat development, requires strengthened community engagement, the implementation of high carbon stock approaches as well as full traceability in the supply chain. the Charter also requires members to publish regular sustainability and carbon reports.

nBpol is committed to completing trial audits against the poIG Charter on all sites by year-end 2014.

leaderSHiP iN FOreSt PrOteCtiON aNd diSClOSUre

In 2013, for the second consecutive year, nBpol was named sector leader for agricultural products in the CDp’s annual forest footprint benchmark. the CDp forest programme is an investor-led initiative mapping companies’ exposure to and policies on deforestation.


28

annual report

2013

29

Sustainability Review

tHe ONe-HOUr PriNCiPle

In this approach, a Community needs Assessment uses three pillars of socially responsible development based on nBpol’s own research as to what can be achieved with investment in rural development and as indicators that act as proxies for development as a whole.

the three pillars are based on the one Hour principle.

•Accessto20litresoftapfedpotablewaterwithinone hour’s walk

•Accesstoamedicalhealthpostwithinonehour’swalk

•Accesstoaprimaryschoolwithinonehour’swalk

the three social pillars will be considered in the HCS land use decision making process for new developments, to ensure nBpol is meeting community needs while not causing deforestation.

All new developments will focus on land of lower carbon stock, typically including grassland and scrub. this will also assist in achieving nBpol’s Zero net GHG emissions commitment


30

New BritaiN Palm Oil FOUNdatiON

the nBpol foundation, created in 1997, seeks to improve the health and education of people living in the immediate area of the nBpol operations

the most prominent Foundation activity in 2013 was the completion of a Community Baseline Assessment (CBA) which focused on the education and health needs of communities in areas bordering nBpol operations in pnG. the CBA was conducted by the Voluntary Services overseas (VSo) the world’s largest independent international development organisation that works through volunteers.

the CBA was completed by VSo across three sites. the research took place in West new Britain, new Ireland and across the Ramu valley taking a 10km catchment area from nBpol operations. this assessment triangulated information from community members, service providers, government and civil society representatives to review access and quality to health and education services in their locations.

the assessment showed a significant variance between the three sites regarding health and education. the findings of the CBA will be used in a project starting in 2014 which will respond to the recommendations made for an integrated, holistic approach to community development that puts communities at the centre of all activities and interventions. this project aims to work in a

For further information, data and details on our sustainability initiatives and progress, please see our 2012/13 Sustainability Report, which is published as a partner report to this Annual Report, and can be downloaded from www.nbpol.com.pg

participatory way with five communities in the Ramu Valley responding to their identified needs and self-developed plans and priorities. this pilot will be guided by the one Hour principle (see box on this page).

CarBON redUCtiON

Since nBpol’s inaugural carbon report was published in early 2012, considerable work has been undertaken to provide accountability for and reduce the Group’s carbon footprint and to achieve the ‘Zero net GHG emissions’ commitment. Work has been undertaken to ensure that all sites can now provide carbon footprint data which is included in nBpol’s 2012-13 Sustainability Report.

to further strengthen efforts, nBpol has become a member of global non-profit organization the Forest trust (tFt). the focus of the initial work with tFt will be to assess and define High Carbon Stock forest areas within Group concessions. this work will help obtain a better understanding of the land carbon values and create the guidelines for responsible development.

nBpol is committed to plantation expansion that does not cause deforestation. nBpol’s work with tFt builds on the existing RSpo commitments by developing a set of measures we will take when developing new plantation areas in order to protect areas of High Carbon Stock.

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32

Corporate Governance ContentCorporate Governance Report 34

Remuneration Report 38

Financial ContentDirectors Responsibility Statement 43

Independent Auditor’s Report 44

Statements of Comprehensive Income 46

Balance Sheet 47

Statements of Changes in Equity 48

Statements of Cash Flows 49

Notes to the Consolidated Financial Statements 51

New Britain Palm Oil Limited

34

The Board believes in maintaining good corporate governance standards and practices. The Company, being dual listed on the Port Moresby Stock Exchange and on the London Stock Exchange, adopts the best practices and standards from both corporate governance codes (the “Code”). The Board reviews the Company’s governance practices and standards from time to time to ensure that adopted policies and practices remain effective.

The Company complied throughout 2013 with the provisions of the UK Corporate Governance Code, except in the following aspect:

B.2.1 The chairman of the nomination committee is a non-independent non-executive director. The Board is satisfied that though the committee is chaired by a Non-Independent Non-Excutive Director, this deviation from the recommendation of the Code did not negatively impact the way the committee discharged its duties or effectiveness.

The BOard Of direcTOrs The Board comprised members from many different business backgrounds with diverse experiences. This diversity gave the Board an international outlook when the Board consider the Group’s businesses and strategies.

retirementMichael St Clair-George, independent non-executive director, chairman of the Audit Committee and a member of the Remuneration Committee, retired from the Board at the conclusion of the last Annual General Meeting after serving on the Board since 2007. The Board was grateful to Michael St Clair-George for his invaluable contributions as a Board member and for chairing the Audit Committee.

Corporate Governance Report

New appointmentThe Board appointed Ernie Gangloff as a director on 20 January 2014. Ernie Gangloff’s profile and business experience can be found on page 5 of this report. Ernie Gangloff was appointed by the Board to chair the Audit Committee.

PNG experienceThe Company has strong Papua New Guinea (“PNG”)connections through its Board of Directors. The Company’s two executive directors, Nicholas Thompson and Alan Chaytor, have either lived in and or operated in PNG for almost three decades each. Though both directors are no longer based in PNG, they visit the Group’s operations in PNG and in the Solomon Islands regularly.

With the appointment of Ernie Gangloff, together with Sir Joseph Tauvasa and Sir Brown Bai, the Board now has three seasoned PNG resident directors, whom together with the two executive directors, the Board has unparallel access to knowledge and business networks within PNG.

Board communicationOutside scheduled Board meetings, Board members keep in touch with each other through telephone conversations and emails. Where time is of the essence, telephone conference meetings and written resolutions, as permitted by the Company’s Constitution, are used by the Board to transact Board businesses. The Board felt that its ability to discharge its duty was not compromised by using these alternative means to transact Board businesses and no adverse impact on clarity of communications were observed.

All directors are required to update and disclose their respective direct and indirect interests in the Company. Their respective interests are recorded in the relevant registers maintained by the secretary. Each director’s status, whether as an independent or non-independent director of the Company, is reflected in the table below:

Meetings eligible status attended to attend remarks

chairmanAntonio Monteiro de Castro Independent 4 4

executive directorsNicholas Thompson Chief Executive Officer 4 4Alan Chaytor Executive Director 4 4

Non-executive directors*Ahamad Mohamad Non-Independent 4 4*Dato’ Kamaruzzman Abu Kassim Non-Independent 4 4 Michael St Clair-George Independent 1 1 Retired 29 May 2013Sir Joseph Tauvasa, KBE Independent 4 4Sir Brown Bai, KBE CBE CSM Independent 4 4Ernie Gangloff Independent 1 1 Appointed 20 January 2014

* Ahamad Mohamad and Dato’ Kamaruzzaman Abu Kassim are directors representing the interests of Kulim (Malaysia) Berhad on the Board of Directors.

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Each Board member has direct access to the company secretary for regulatory and legal advice. Where required, the Board and each director can access the services of independent professional advisors at Company’s expense, as provided for under the Company’s Constitution.

s h a r e h O L d e r s c O M M u N i c aT i O N a N d aNNOuNceMeNTsAnalyst reports and share trading updates are circulated to each Board member. The Executive Director responsible for Investor Relations, Alan Chaytor, together with the Chief Executive Officer, Nicholas Thompson are tasked by the Board to meet with investors and analysts to understand their views and market sentiments and to relay these back to the Board. The Board, through both directors, have formal meetings with investors and analysts after the release of each half and full year results. The Board also kept shareholders informed and up-to-date by releasing announcements in a timely manner.

Apart from the usual recurring announcements, in response to Kulim (Malaysia) Berhad Notice of Partial Takeover Offer dated 2 July 2013, the Board constituted an independent directors committee to evaluate the Partial Takeover Offer. Both Dato’ Kamaruzzaman Abu Kassim and Ahamad Mohamad declared their interest in the matter and were excluded from the committee on grounds of conflict. With assistance from independent legal and financial advisors, the committee published its independent “Target Company Statement” dated 6 August 2013, which was prepared in accordance with the PNG Takeover Code. The Target Company Statement with the recommendation of the Independent Committee to reject the Partial Takeover Offer was released to Shareholders on 7 August 2013. The following announcements carrying updates were also released to shareholders:

20 Jun 2013 Kulim Intention to make conditional partial offer

03 Jul 2013 Notification of partial takeover offer09 Jul 2013 Partial takeover offer - update07 Aug 2013 Partial takeover offer update12 Aug 2013 Held a telephone conference call with

investors and analysts20 Aug 2013 Partial takeover offer - update22 Aug 2013 Partial takeover offer - update28 Aug 2013 Partial takeover offer - update02 Sep 2013 Partial takeover offer - update05 Sep 2013 Partial takeover offer - update

Details of each announcement can be found and retrieved from the Company’s website at www.nbpol.com.pg.

The independent Board members held a conference call on 12 August 2013 with shareholders and analysts to update and also to clarify and respond to questions directly. A recording of this telephone conference meeting can be found at the Company’s website.

chairMaN Of The BOard aNd The chief execuTiveThe duties performed by the Chairman and by the Chief Executive are separate and distinct. The Chairman is responsible for Board leadership where he directs and oversees the Board decision making process.

The Chief Executive is responsible for the day to day running of the Company and the Group. He implements the strategies and policies approved by the Board.

resPONsiBiLiTies Of The BOardThe Board sets the strategic objectives and performance targets for the Company and the Group. The Board also approves major transactions, acquisitions or investments, corporate budgets and capital expenditures. The Board sets guidelines and Board policies, including operational and financial policies that are implemented throughout the Group.

The Board receives monthly management accounts and operations report prepared by the CEO. At each quarterly Board meeting, the financial and operational performance of the Company and the Group are reviewed in detail by the Board and by the Audit Committee, with the assistance from the external auditor PricewaterhouseCoopers.

The Audit Committee, with the assistance of management and the external auditor, review not just the financial statements and reports but also review the adequacy of financial controls implemented. Non Audit Committee Board members are regularly invited by the Audit Committee chairman to participate in the Committee’s review and discussions.

The internal audit function reports significant non-conformance to management. Field and engineering audits are also regularly performed and their reports reviewed. These reports provide the Board and the Audit Committee important control and feedback information on the effectiveness of existing control systems implemented by management.

Whistle-blowing policy is implemented throughout the Group. The Board, through the Audit Committee, reviewed all incidents reported and where necessary existing management processes and procedures are modified to ensure that similar incident will not be repeated in the future.


36

The Risk Management Committee, a sub-committee reporting to the Audit Committee, identifies potential long term and short term business and reputational risks and together with management, the Risk Management Committee prepares contingency plans and strategies to mitigate identified risks.

In June 2013 the Board visited the company’s operations at West New Britain and at Poliamba. The Board reviewed each site’s production and milling operations. The Board value these visits as it gave Board members direct insight into the operating environment unique to each site and also a chance to interact with the local team managing the site.

The Board believes that through the site visits, reviews, reports and auditing processes, it is able to effectively manage and mitigate the financial and operational risks of the Company and the Group.

share deaLiNG ruLes The Board adopted the Share Dealing Rules set out in the Model Code. All Board members and senior executives of the Company and the Group are required to observe these rules. A closed period notice is published and circulated throughout the Group prior to the start of the closed period. Under the rules, any director who wish to deal in NBPOL shares outside of the closed period are required to notify and obtain approval from the Chairman of the Board before they deal in the Company’s shares. Senior executives must notify and obtain approval from the company secretary before dealing in the Company’s shares outside of the closed period. Each director and senior executive’s interest in the Company’s shares are recorded in the relevant register of Interests maintained by the company secretary and where relevant, an announcement about the share dealing will be released to the Stock Exchanges in accordance with the relevant Listing Rules.

discLOsure Of iNTeresTs Where there exist conflict of interest or where a director has a direct or indirect interest in a business tabled to be discussed at the Board, that director is required to declare his interest to the Board before the business is formally discussed. The Chairman may require that director so interested in the business to be excused from the discussions and decision making process. Where required, the Board may obtain independent advice to assist the Board in reviewing the matter and the nature of the interests disclosed so as to ensure that all businesses transacted at the Board are not only done in a transparent manner and arm’s length but are also beneficial to the Company and are in shareholders’ interest. The Company’s financial advisors, Sponsor or lawyers may be called upon to assist the Board where required.

evaLuaTiON Of BOard PerfOrMaNce aNd BOardrOOM reNewaL The Board conducts its own internal peer review. The Board does not feel that external evaluation will add to the existing process. The Board is satisfied that the present mix and composition of the Board is satisfactory. Further, through the Nomination Committee, the Board aim to appoint the best candidate available to ensure that the Board has the necessary industry and management experience and skill to manage the Company. Further, the Board had in the last two years undergone a Board renewal process where long serving directors retire and new directors are appointed.

NOMiNaTiON cOMMiTTee Chairman Ahamad Mohamad Members Antonio Monteiro de Castro; and Sir Joseph Tauvasa, KBESecretary Francis Goh

The Nomination Committee’s terms of reference can be viewed at the Company’s website at www.nbpol.com.pg.

The Board and the Committee recognize the importance of boardroom diversification and renewal and also the unique challenges in selecting suitable candidates that can contribute effectively to the board. The Board and the Nomination Committee follow the principle of appointing the best candidate available to the Board while maintaining a balance of skills, experience and knowledge on the Board.

The Nomination Committee chairman and members held discussions between themselves and with the Chairman of the Board and with other Board members on the appointment of Ernie Gangloff, please see page 5 of this report for a summary of Ernie Gangloff’s CV. No external search consultants or advertisements were used in the selection and recommendation of Ernie Gangloff for the directorship. The Board was pleased to appoint Ernie Gangloff as the chairman of the Audit Committee following the retirement of Michael St Clair-George at the last Annual General Meeting after having served for more than six years as an independent non-executive director. The Committee was satisfied that Ernie Gangloff’s qualifications and work experiences stood him in good stead to replace Michael St Clair-George as director and also the Chair of the Audit Committee. The Board agreed with this nomination and Ernie Gangloff was appointed to the Board on 20 January 2014.

As part of the Board process of retirement by rotation as set out in the Company’s Constitution, the Committee recommended the following directors for retirement and to stand for re-election at the last Annual General Meeting held on 31 May 2013 in Port Moresby, PNG.


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2013

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retirement and re-election of directors The following directors retired in accordance with the relevant sections of the Company’s Constitution governing retirement and re-election of directors to the Board:

1. Ahamad Mohamad;2. Dato’ Kamaruzzaman Abu Kassim; 3. Michael St Clair-George; and4. Sir Brown Bai, KBE CSM CBE

Each of the above was assessed by the Committee to be eligible for re-appointment and that their continued service were beneficial to the Board and to the Company. Michael St Clair-George retired at the conclusion of the AGM. The other directors were duly re-elected by shareholders at the said AGM.

Notes.1. Ahamad Mohamad retired under the Company’s Constitution 16.3(d)

where a non-executive director who served for 9 years or more shall retire and stand for re-election at each AGM.

2. Michael St Clair-George and Sir Brown Bai retired under the Company’s Constitution 16.3, where 1/3 of the Board shall retire. However, Michael St Clair-George elected to retire at the conclusion of the AGM instead of serving for another term on the Board.

3. Dato’ Kamaruzzaman Abu Kassim retire under the Company’s Constitution 16(3) (a) where a director appointed by the Board to fill a casual vacancy shall retire and stand for re-election at the next AGM following his first appointment to the Board.

audiT cOMMiTTee Chairman Ernie Gangloff Members Antonio Monteiro de Castro; Sir Joseph Tauvasa, KBE; and Sir Brown Bai, KBE CSM CBESecretary Francis Goh

The Audit Committee and the Internal Audit terms of reference can be viewed at the Company’s website at www.nbpol.com.pg. Non-Committee members including members of the Board of Directors and selected senior executives were invited to attend the Committee meetings.

The Audit Committee met four times in 2013, twice in London UK, once in Singapore and once in Port Moresby PNG. Auditors from PricewaterhouseCoopers (“PWC”) were present at each of the four meetings, either in person or they attended by way of telephone conferencing. The Committee was satisfied that PwC’s participation via telephone conferencing did not affect the clear communication between the Committee and PwC and no negative impact was observed on the effectiveness of either the Committee or PwC in discharging their respective duties.

At each of these four meetings, PwC confirmed to the Committee that they did not have any issues to raise with the Committee in the absence of management. Separately, as part of the Committee’s review, the Committee Chairman and members held discussions between themselves, with PwC and with management.

The Committee reviewed and monitored the integrity of the financial reports . The Committee also reviewed the Group’s internal control processes and policies, risk management systems and the adherence to Board policies where relevant. The Committee reviewed internal audit reports and the Committee looked to management to implement updates or changes recommended by the Committee.

The Committee evaluated the external auditor’s disclosure of non-audit services provided to the Company. The Committee observed that these non-audit services were limited to corporate tax advisory work and on accounting advice on the implementation of IAS41. The Committee noted that the non-audit fee involved were not significant. The Committee determined that the Auditor’s objectivity and independence were not prejudiced by the provision of these additional non-audit services.

reMuNeraTiON cOMMiTTee Chairman Sir Brown Bai, KBE CSM CBEMembers Antonio Monteiro de Castro; and Sir Joseph Tauvasa, KBESecretary Francis Goh

The Remuneration Committee met once in 2013 to review management’s remuneration proposal for the Company and the Group. The Committee’s Remuneration Report can be found on page 38 of this report.



38

Remuneration Report

1. reMuNeraTiON cOMMiTTeeThe Remuneration Committee’s long-term remuneration strategy remains to attract and retain leaders who are focused on delivering results. The Committee reviews and make recommendations on executive pay and bonuses and incentives plans under the NBPOL Long Term Incentive Plan to retain and reward good performances.

The Committee may appoint independent advisors to advise and make recommendations on remuneration matters.

A copy of the Committee’s terms of reference can be viewed at the Company’s website at www.nbpol.com.pg.

2. reMuNeraTiON POLicy The Committee recognizes that the Company has operations in places that can be challenging and it is important that the Group retains good experienced managers to ensure the continued efficient running of operations. The Committee also feels the need to attract new talents to manage the Group’s expansion and to build up a pool of talents for future leadership renewal.

The remuneration packages offered to executives must therefore achieve both of these goals, to retain and motivate executives with proven track records while also attracting new talents to deliver on the long-term growth strategy set in place by the Board of Directors.

The executive remuneration package consists of the following:

a) Basic salaryBasic salary is pegged to experience and managerial responsibilities discharged.

b) BenefitsBenefits include furnished accommodation with paid utility, telephone and internet connections; membership of professional associations; insurance cover for medical treatment and evacuation; directors and officers liability insurance; death in service and permanent disability insurance; medical attention; school fees for each child between 4 and 18 years old; air passage when taking annual leave to return to country of origin for senior expatriate staff; and paid annual leave.

c) short Term incentivesA yearly discretionary performance bonus may be recommended by the Remuneration Committee if, upon evaluation, the respective employee was found to have met or exceeded the performance targets set. It is the Committee’s view that to encourage good year to year performance, a significant portion of the total remuneration package should be in the form of discretionary performance bonus instead of higher basic salary. All employees of the Group are subjected to yearly performance review measuring their performance against a proprietary model with approved performance targets and weightage. The performance targets comprised of both individual and Group performances goals set against a range of financial and non-financial performance targets with appropriate weightage:

i) Costs versus Budget (35%)ii) Production 30:30 targets and oil quality (45%)iii) Sustainability Indicators (20%)

The Committee fixed the maximum performance based bonus for executives at not more than 75% of annual basic salary and not more than 100% of annual basic salary for senior executives.

d) Long Term incentivesAs part of the strategy for long term retention of talents within the Group and also the align employee’s long term interests with the interest of shareholders, the Company operates a Long Term Incentive Plan (“LTIP”). Please see paragraph 5 below for more details.

e) Pensions related BenefitsThe Company does not operate any pension plan nor offer any pension related benefits to employees

The Remuneration Committee conducts yearly review of the remuneration policy.There was no significant change to the remuneration policy in 2013.

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39

Remuneration Report

3. siGNificaNT decisiONs Of The cOMMiTTee It is the intent and policy of the Committee and management to reward good performance and as highlighted under the Policy section above, a significant portion of total remuneration is attributed to discretionary performance based bonus. Where a performance bonus is recommended, it is paid after the presentation of the audited full year financial results to shareholders.

Following weaker than expected results for the financial year 2012, please see the 2012 Annual Report for a review of the Company’s performance, the Committee together with management decided not to recommend any performance bonus for 2012 (to be paid in 2013) for all executives and employees of the Group as performance achieved in 2012 was below target set.

Also, as part of the overall strategy to manage the Group’s cost of production, the Committee together with management decided not to recommend any wage increase for all executive staff of the Group. Only employees who were promoted to the next level of responsibility and salary scale received the relevant pay increase.

The Committee recommended the granting of the 2013 Award as it believes that the LTIP helps align the Group manager’s performance and long-term career goals with the long-term development and growth of the Group. Please see paragraph 5 below for details on LTIP.

4. execuTive direcTOrs’ service aGreeMeNT aNd reMuNeraTiON deTaiLsService agreementsNicholas Thompson, executive director and chief executive officer, is entitled to full benefits as outlined in this Remuneration Report.

Alan Chaytor, executive director employed by the Company on a part-time basis where he devotes at least 30 percent of his time to the business of the Company, is not entitled to full benefits other than benefits relating to insurance cover for medical treatment and evacuation; directors and officers liability insurance and two weeks paid annual leave per calendar year.

Summary of significant provisions in Nicholas Thompson and Alan Chaytor’s service agreement:

a) the service agreement can be terminated either by the Company or by the executive director by giving the other 6 months notice. The Company may choose to terminate the agreement with immediate effect on payment of an amount in cash equal to the salary and benefits that the terminated executive director would have been entitled to had he been required to serve out the 6 months notice period. However, this payment would not apply if the executive director was in breach of the terms of his service agreement;

b) In the event that the Company merge with another company or if there is a change in control of the Company resulting in the executive director ceasing to hold the same position he held before the change, or where his duties, status or authority are materially diminished as a result of the change, the executive director may terminate his service agreement by giving the Company three months notice. The Company shall pay in cash, the equivalent of six months’ salary and benefits to the full-time executive director or three months’ salary and benefits to the part-time executive director. However, this does not apply if the executive director consented to the cessation or diminution prior to its occurrence or where he rejected the Company’s offer of alternatives that were at least equal in benefits, status, duties and authority he received prior to the change; and

c) Where an executive director’s employment is terminated without notice or if payment is made in lieu of notice, then certain stipulated post-employment restrictions shall apply. The executive director shall not solicit clients or employees nor engage in competing business activities for a period of six months following termination of his employment. However, these restrictions shall not apply if the executive director served out his notice period.


40

Remuneration Report

Remuneration details

executive directors remuneration including benefitsreceived in usd ‘000

Nicholas Thompson ceO

Basesalary

annualBonus Benefits

Long Termincentives Pension

Total2013

2013 507* 0 19 See NA 5262012 499 360 186 LTIP NA 1,045

alan chaytor executive director

Basesalary

annualBonus Benefits

Long Termincentives Pension

Total2013

2013 211* 0 NIL See NA 2112012 210 153 NIL LTIP NA 308

* The 2013 figure was higher compared to 2012 due to foreign exchange gain and not salary increase.

single figure total remuneration for director holdingthe position of ceO

NicholasThompson ceO

single figure in

usd ‘000

annual Bonuspayout against

maximumopportuntity %

LTiP vestingrates against

maximumopportunity %

2013 526 0% NA*2012 1,045 72% NA*2011 960 83% NA*2010 941 103% NA2009 788 75% NA

* LTIP was first implemented in 2012. The first LTIP options were granted in 2012 and will vest in 2015.

5. LONG TerM iNceNTive PLaN The Company’s Long Term Incentive Plan (“LTIP”), drafted by PricewaterhouseCoopers (“PwC”) in consultation with shareholders, was approved by shareholders at the Annual General Meeting held on 29 May 2012. At that same meeting, shareholders also passed a separate resolution approving the award of LTIP shares to the executive directors. A copy of the letter from the chairman of the Committee to shareholders dated 4 May 2012 explaining the workings of the LTIP can be found at the Company’s website www.nbpol.com.pg.

In 2013, the Committee recommended granting LTIP performance share awards to all eligible employees (the “2013 Award”).

Long Term incentive Plan

NicholasThompson

date ofgrant

Optionsgranted

share price ondate ofaward

Option period

2013 Performance Shares

28/11/13 96,556 £4.35 27/11/16 –27/11/23


28/06/12 125,679 £7.65 28/06/15 –27/06/22

2012 Deferred Bonus Shares

28/06/12 41,893 £7.65 See Notes*

alan chaytordate of

grantOptionsgranted

share price on date ofaward

Option period


28/11/13 42,113 £4.35 27/11/16 –27/11/23


28/06/12 52,941 £7.65 28/06/15 –27/06/22

2012 Deferred Bonus Shares

28/06/12 17,647 £7.65 See Notes*

Notes* The 2012 Deferred Bonus Shares were a one-off bonus awarded to Nicholas Thompson and Alan Chaytor. Half of the Deferred Bonus Shares will vest on the third anniversary from the date of grant and the balance on the fourth anniversary, subject to continuous employment.

As 2012 was the first year of award under the present LTIP and the first vesting will not take place until 27 June 2015, no options granted under the LTIP had lapsed or were eligible to be exercised.

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2013

41

Remuneration Report

Until the appointed vesting date, shares options awarded cannot be exercised except for the following reasons:

a. In the event of a change of control, the options will vest on the date the change of control becomes effective. Provided the performance conditions are achieved, the level of vesting will be determined by the Remuneration Committee by reference to the time elapsed from the grant date to the change of control date.

b. Where employment is terminated by reason of death, ill health, disability, redundancy or such other reason as the Remuneration Committee may determine, unvested awards will vest on the usual vesting date but pro-rated for time served if the performance targets have been achieved.

The 2013 Award, like all LTIP awards, is subject to performance targets set out in the circular to shareholders. Performance for the 2013 Award is measured over a three year period ending in 2016. Should the Company performance fall below the minimum threshold performance targets set, then no shares will be issued. Where the Company performance achieved over the three year period is above the threshold but below the maximum 100 percent set out in the LTIP rules, the number of shares to be issued under the 2013 award will be reduced accordingly. It is therefore not possible at the time of printing this report to determine the actual number of shares that will be issued in 2015 pursuant to the 2012 Award or in 2016 pursuant to the 2013 Award.

Long Term incentive Plan vesting rOce % KPi

Performance Shares (Threshold) 30% 10% 80%Performance Shares (Maximum) 100% 15% 100%2012 Deferred Bonus Shares 100% NA NA

Unlike the Performance Shares, Deferred Bonus Shares are not subjected to performance criteria at time of vesting.

The LTIP also contains provisions where shares are subjected to claw back in event of material misstatement of accounts or gross misconduct.

6. NON-execuTive direcTOrs reMuNeraTiON deTaiLs The Company’s Constitution provides that total non-executive directors’ fees paid per annum shall not exceed PNG Kina 2 million (approximately USD 740,000 as at date of publication). The Board cannot increase this amount without shareholders approval.

Non-executive directors are paid an annual director’s fee. They do not receive any additional benefit or other payment from the Company. Each non-executive director receives a fix fee. If he holds additional responsibility such as chairing a sub-committee of the Board, an additional fee is paid. The fees paid in 2013 were the same as that paid in 2012. The Board last revised non-executive directors fees in 2007 and 2011.

The table below l ist the fees paid to each non-executive director in 2013.

Non-executive director’s fees Paid in usd ‘000

Name *2013 *2012

Antonio Monteiro de Castro, Chairman 208 207Ahamad Mohamad 89 99**Dato’ Kamaruzzaman Abu Kassim 74 14Sir Joseph Tauvasa 89 82Sir Brown Vai 89 99***Michael St Clair-George 32 89

* Directors’ fees denominated in PGK for 2013 were the same as that paid in 2012. However, the weakness of the PGK against the USD resulted in the 2013 figures expressed in USD being lower.

** Dato’ Kamaruzzaman Abu Kassim joined the Board on 1 November 2012 and the fees he received in 2012 were accordingly pro-rated.

*** Michael St Clair-George retired from the Board on 31 May 2013 at the conclusion of the Annual General Meeting.

Apart from the above, no additional fees or payment for loss of office were made to any director retiring from the Board.


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Remuneration Report

7. seNiOr execuTives reMuNeraTiON deTaiLs

2013 executives remuneration Table

Band in usd Number

*2013 2012

$100,000 – 109,999 8 13$110,000 – 119,999 8 5$120,000 – 129,999 13 8$130,000 – 139,999 10 5$140,000 – 149,999 9 10$150,000 – 159,999 9 5$160,000 – 169,999 6 4$170,000 – 179,999 6 11$180,000 – 189,999 3 5$190,000 – 199,999 3 12$200,000 – 209,999 1 7$210,000 – 219,999 5 2$220,000 – 229,999 3 6$230,000 – 239,999 1 5$240,000 – 249,999 0 1$250,000 – 259,999 1 0$260,000 – 269,999 3 4$270,000 – 279,999 1 4$280,000 – 289,999 2 2$290,000 – 299,999 3 4$300,000 – 309,999 2 2$310,000 – 319,999 1 0$320,000 – 329,999 0 2$350,000 – 359,999 0 1$360,000 – 369,999 1 2$370,000 – 379,999 0 2$390,000 – 399,999 2 3$400,000 – 409,999 0 1$440,000 – 449,999 1 0$450,000 – 459,999 0 2$460,000 – 469,999 1 0$480,000 – 489,999 1 2$510,000 – 519,999 0 1$520,000 – 529,999 0 1$540,000 – 549,999 0 1$620,000 – 629,999 0 1$690,000 – 699,999 0 2$700,000 – 709,999 0 1Total 104 137

Group total personnel cost spent. Please see Note 6 on page 69 of this report.

spent on Pay

year

Total personnel cost for the Group

in usd ‘000

Total distribution to shareholders by

way of dividend in usd ‘000

2013 99,336 16,6412012 114,685 45,924

8. sharehOLdiNG POLicyThe Company does not have a policy mandating directors to hold shares in the Company. Listed below are each director’s interests in the Company’s shares as at the date of this report:

director Number of shares

Antonio Monteiro de Castro 150,000 Nicholas Thompson 394,500 Alan Chaytor 6,739,000

9. discLOsure Of direcTOr’s exTerNaL aPPOiNTMeNTsExecutive DirectorsNicholas Thompson does not hold directorship in any company other than companies related to NBPOL.

Alan Chaytor is a director of various NBPOL subsidiaries. He is also the managing director of Pacific Rim Plantation Services Pte Ltd (the sole distributing agent of the Group’s palm oil products and managing agent of New Britain Oils Limited).

Non-Executive DirectorsPlease refer to the respective director’s CV on page 5 of this Report for a list of directorships held by each non-executive directors.

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Directors Responsibility Statement

Your directors take pleasure in presenting their Annual Report, including the financial statements and consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2013.

direcTOr’s resPONsiBiLiTes The directors are obliged under company law to prepare financial statements for each financial year and to present them annually to the Company’s shareholders at the Annual General Meeting.

The directors are responsible for the adaptation of suitable accounting policies and their consistent use in the financial statements, supported where necessary by reasonable and prudent judgements.

In addition, the directors are responsible for maintaining adequate accounting records and sufficient internal controls to safeguard the assets of the Company and to prevent and detect fraud or any other irregularities as described more fully in the Corporate Governance statement.

The directors also ensure the maintenance and integrity of the Company’s website.

The directors confirm that, to the best of their knowledge:

– the financial statements, of which the form and content is prescribed by the Papua New Guinea Companies Act 1997 and applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

– the Business Review, which is incorporated into the directors’ report, includes a fair and balanced review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

The names and functions of the directors of the Company are listed on pages 4 and 5 of this document.

By order of the Board

aNTONiO MONTeirO de casTrO NichOLas ThOMPsONChairman Chief Executive Officer Signed March 2014


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Independent Auditor’s Report to the Shareholders of New Britain Palm Oil LimitedrePOrT ON The fiNaNciaL sTaTeMeNTsWe have audited the accompanying financial statements of New Britain Palm Oil Limited (the Company), which comprise the balance sheets as at 31 December 2013, the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 December 2013 or from time to time during the financial year.

direcTOrs’ resPONsiBiLiTy fOr The fiNaNciaL sTaTeMeNTsThe directors are responsible for the preparation of these financial statements such that they give a true and fair view in accordance with generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

audiTOr’s resPONsiBiLiTyOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPiNiONIn our opinion, the accompanying financial statements:

1. comply with International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea; and

2. give a true and fair view of the financial position of the Company and the Group as at 31 December 2013, and their financial performance and cash flows for the year then ended.

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Independent Auditor’s Report to the Shareholders of New Britain Palm Oil LimitedrePOrT ON OTher LeGaL aNd reGuLaTOry requireMeNTsThe Companies Act 1997 requires in carrying out our audit we consider and report on the following matters. We confirm in relation to our audit of the financial statements for the year ended 31 December 2013:

1. we have obtained all the information and explanations that we have required;

2. in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records; and

3. we have no relationship with, or interests in, the Company or any of its subsidiaries other than in our capacities as auditor, taxation advisor, and reviewer on specific human resources matter. These services have not impaired our independence as auditor of the Company and the Group.

resTricTiON ON disTriBuTiON Or useThis report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1997. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditor’s report and for no other purpose. We do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

PricewaTerhOusecOOPers

GraNT BurNs sTePheN BeachPartner Partner

Port Moresby Registered under the Accountants Registration Act 199618 March 2014


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consolidated Parent entity2013 2012 2013 2012

Notes usd’000 usd’000 usd’000 usd’000

continuing operationsRevenue 4 558,652 677,014 272,866 322,949 Cost of sales 5 (366,610) (428,994) (179,037) (194,275)

Gross profit 192,042 248,020 93,829 128,674

Net biological assets gain/(loss) 9 53,678 (77,250) 18,084 (57,766)Other income 4 2,342 2,340 1,375 8,790 Other (losses)/gains 4 (9,368) 23,381 (14,985) 25,311 Distribution costs (71,767) (77,987) (36,625) (37,067)Administrative expenses (86,344) (103,581) (40,304) (58,595)Operating profit 6 80,583 14,923 21,374 9,347 Interest income 13 42 1 1,566 Finance costs (9,614) (10,578) (5,818) (6,398)Net finance costs (9,601) (10,536) (5,817) (4,832)

Profit before income tax 70,982 4,387 15,557 4,515 Income tax expense 7(a) (20,922) (2,746) (5,602) (2,108)Profit for the period 50,060 1,641 9,955 2,407

Other comprehensive income/(loss)Items that will subsequently be reclassified to

profit and loss:Cash flow hedges 440 4,319 440 4,319 Currency translation differences (148,929) 3,509 (142,219) 13,654 Income tax relating to components of other

comprehensive income (132) (1,296) (132) (1,296)Other comprehensive income/(loss) for the period,

net of tax (148,621) 6,532 (141,911) 16,677

Total comprehensive income/(loss) for the period (98,561) 8,173 (131,956) 19,084

Profit for the period is attributable to:Equity holders of the company 47,653 632 9,955 2,407 Non-controlling interest 2,407 1,009 – –

50,060 1,641 9,955 2,407 Total comprehensive income/(loss) for the period is

attributable to:Equity holders of the company (104,429) 7,164 (131,956) 19,084 Non-controlling interests 5,868 1,009 – –

(98,561) 8,173 (131,956) 19,084

earnings per share for profit for the period attributable to the equity holders of the company: 24 $ $

– Basic 0.319 0.004 – Diluted 0.319 0.004

Earnings before net gain arising from changes in fair value of biological assets are shown in Note 24.

Statements of Comprehensive Incomefor the Year Ended 31 December 2013

The accompanying notes to the financial statements form an integral part of the financial statements.

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Balance Sheet as at 31 December 2013




NON curreNT asseTs Property, plant and equipment 8 755,425 889,735 313,773 394,589 Biological assets 9 370,206 382,051 219,646 244,621 Intangible assets 10 47,084 56,846 – – Derivative financial instruments 17 – 375 – 375 Investments in subsidiaries 11 – – 327,778 395,737

1,172,715 1,329,007 861,197 1,035,322

curreNT asseTsCash and cash equivalents 12 30,925 18,817 8,554 7,950 Trade and other receivables 13 85,175 126,911 31,046 48,633 Biological assets 9 16,207 21,919 1,131 1,140 Inventories 14 171,411 193,040 49,494 67,457 Current income tax assets 7(c) – – 5,359 6,480 Derivative financial instruments 17 4,096 7,379 4,096 7,379 Amounts owed by group companies 15 – – 115,587 123,753

307,814 368,066 215,267 262,792 TOTaL asseTs 1,480,529 1,697,073 1,076,464 1,298,114

NON curreNT LiaBiLiTiesBorrowings 16 179,934 212,714 157,153 181,293 Deferred income tax liabilities 7(b) 286,999 331,163 148,033 174,521

466,933 543,877 305,186 355,814

curreNT LiaBiLiTiesBorrowings 16 92,698 114,007 30,389 49,308 Trade and other payables 18 47,918 49,368 25,066 21,531 Current income tax liabilities 7(c) 6,709 6,878 – – Amounts owed to group companies 15 – – 30,494 37,473

147,325 170,253 85,949 108,312 TOTaL LiaBiLiTies 614,258 714,130 391,135 464,126

NeT asseTs 866,271 982,943 685,329 833,988

sharehOLders’ equiTyIssued capital 19 180,333 180,333 187,265 187,265 Other reserves 20 70,649 224,201 78,590 220,501 Retained earnings 599,298 568,286 419,474 426,222

850,280 972,820 685,329 833,988 Non-controlling interest in equity 15,991 10,123 – –

TOTaL equiTy 866,271 982,943 685,329 833,988

For and on behalf of the Board

NicK ThOMPsON aLaN chayTOr Chief Executive Officer Executive DirectorDated 18 March 2014


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Statements of Changes in Equityas at 31 December 2013

attributable to equity holders of the company

issued Other retainedNon-

controlling Totalcapital reserves earnings Total interest equity

Notes usd’000 usd’000 usd’000 usd’000 usd’000 usd’000

cONsOLidaTedBalance at 1 January 2012 124,954 209,118 613,578 947,650 54,641 1,002,291

comprehensive incomeProfit – – 632 632 1,009 1,641 Other comprehensive incomeCash flow hedges, net of tax – 3,023 – 3,023 – 3,023 Currency translation differences – 3,509 – 3,509 – 3,509 Total other comprehensive income – 6,532 – 6,532 – 6,532 Total comprehensive income – 6,532 632 7,164 1,009 8,173 Transactions with ownersShare issue 19 50,565 – – 50,565 – 50,565 Treasury shares sold 19 4,414 – – 4,414 – 4,414 Treasury shares issued for land rights 19 400 – – 400 – 400 Acquisition of non-controlling interest 27 – 8,551 – 8,551 (45,527) (36,976) Dividends declared 21 – – (45,924) (45,924) – (45,924) Total transactions with owners 55,379 8,551 (45,924) 18,006 (45,527) (27,521)

Balance at 1 January 2013 180,333 224,201 568,286 972,820 10,123 982,943

comprehensive incomeProfit – – 47,653 47,653 2,407 50,060 Other comprehensive incomeCash flow hedges, net of tax – 308 – 308 – 308 Currency translation differences – (152,390) – (152,390) 3,461 (148,929) Total other comprehensive income – (152,082) – (152,082) 3,461 (148,621) Total comprehensive income – (152,082) 47,653 (104,429) 5,868 (98,561) Transactions with ownersCurrency translation differences – (1,470) – (1,470) – (1,470) Dividends declared 21 – – (16,641) (16,641) – (16,641) Total transactions with owners – (1,470) (16,641) (18,111) – (18,111)

Balance at 31 december 2013 180,333 70,649 599,298 850,280 15,991 866,271

PareNT eNTiTyBalance at 1 January 2012 125,012 203,824 467,883 796,719 – 796,719

comprehensive incomeProfit – – 2,407 2,407 – 2,407 Other comprehensive incomeCash flow hedges, net of tax – 3,023 – 3,023 – 3,023 Currency translation differences – 13,654 – 13,654 – 13,654 Total other comprehensive income – 16,677 – 16,677 – 16,677 Total comprehensive income – 16,677 2,407 19,084 – 19,084 Transactions with ownersShare issue 19 62,253 – – 62,253 – 62,253 Dividends declared 21 – – (44,068) (44,068) – (44,068) Total transactions with owners 62,253 – (44,068) 18,185 – 18,185

Balance at 1 January 2013 187,265 220,501 426,222 833,988 – 833,988

comprehensive incomeProfit – – 9,955 9,955 – 9,955 Other comprehensive incomeCash flow hedges, net of tax – 308 – 308 – 308 Currency translation differences – (142,219) – (142,219) – (142,219) Total other comprehensive income – (141,911) – (141,911) – (141,911) Total comprehensive income – (141,911) 9,955 (131,956) – (131,956) Transactions with ownersShare issue 19 – – – – – – Dividends declared 21 – – (16,703) (16,703) – (16,703) Total transactions with owners – – (16,703) (16,703) – (16,703)

Balance at 31 december 2013 187,265 78,590 419,474 685,329 – 685,329


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Statements of Cash Flowsfor the Year Ended 31 December 2013



cash fLOws frOM OPeraTiNG acTiviTiesCash receipts from customers 601,451 689,787 284,311 335,168 Cash payments to suppliers and employees (444,121) (523,391) (200,507) (244,395) Cash generated from operations 157,330 166,396 83,804 90,773

Income tax paid (5,082) (14,055) (2,145) (14,055) Interest paid (9,614) (10,578) (5,818) (6,398) Interest received 13 42 1 1,566

Net cash generated from operating activities 142,647 141,805 75,842 71,886

cash fLOws frOM iNvesTiNG acTiviTiesLoans provided to related companies – – (13,676) 8,372 Acquisition of subsidiary, net of cash acquired 26 – (4,405) – (4,405) Purchase of property, plant and equipment 8 (41,607) (117,893) (11,266) (41,031) Expenditure on plantation development 8 (26,458) (35,007) (9,159) (15,269) Expenditure on biological assets 9 (2,627) (4,340) (491) (1,475)

Net cash used in investing activities (70,692) (161,645) (34,592) (53,808)

cash fLOws frOM fiNaNciNG acTiviTiesProceeds from borrowings 46,604 50,763 – – Proceeds on sale of treasury shares 19 – 4,414 – – Repayment of borrowings (77,866) (69,252) (6,792) (24,375) Dividends received – – – 7,759 Dividends paid to company shareholders (14,522) (39,969) (14,584) (38,113)

Net cash used in financing activities (45,784) (54,044) (21,376) (54,729)

NeT iNcrease/(decrease) iN cash aNd cash equivaLeNTs aNd BaNK OverdrafTs 26,171 (73,884) 19,874 (36,651)

Effects of exchange rate changes on cash and cash equivalents and bank overdrafts (652) 1,999 (170) 794

Add : Cash and cash equivalents and bank overdrafts at the beginning of the year (16,818) 55,067 (17,050) 18,807

cash aNd cash equivaLeNTs aNd BaNK OverdrafTs aT The eNd Of The year 12 8,701 (16,818) 2,654 (17,050)



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Statements of Cash Flowsfor the Year Ended 31 December 2013recONciLiaTiONs Of PrOfiT afTer iNcOMe Tax TO NeT cash GeNeraTed frOM OPeraTiNG acTiviTies



Profit after income tax 50,060 1,641 9,955 2,407

Add/(less) non-cash items:Depreciation and amortisation 8 69,921 69,891 34,622 34,451 Net biological asset (gain)/loss 9 (53,678) 77,250 (18,084) 57,766 Recognition of fair value adjustment on inventory 4 (8,159) (11,258) (7,476) (10,852) Foreign currency exchange differences 23,186 (9,068) 23,668 (7,803) Deferred income tax 15,142 837 3,448 (938)

Add/(less) movements in working capital items:Decrease in trade and other receivables 33,383 26,626 9,234 11,072 Increase/(decrease) in current income tax liabilities 944 (25,529) 8 (19,459) (Decrease)/increase in trade and other payables (5,733) 2,391 7,234 7,756 Decrease/(increase) in inventories 17,581 9,024 13,233 (2,514)

Net cash generated from operating activities 142,647 141,805 75,842 71,886


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Notes to the ConsolidatedFinancial Statements1 sTaTeMeNT Of accOuNTiNG POLicies

New Britain Palm Oil Limited (“the company”) and its subsidiaries (together “the group”) operate in the oil palm, sugar and beef cattle industries in Papua New Guinea with oil palm operations also in the Solomon Islands. The group is a large scale industrial producer of sustainable palm oil and is fully vertically integrated, producing its own seed (which it also sells globally) and planting, cultivating and harvesting its own land as well as processing and refining palm oil in both Papua New Guinea and the UK. The group sells its palm oil predominately to countries within the European Union and the UK, whilst its sugar and beef cattle is sold mainly within Papua New Guinea.

The company is a limited liability company incorporated in Papua New Guinea. The address of its registered office is Bebere Plantation, Mosa, Kimbe, West New Britain Province, Papua New Guinea.

The company has its primary listing on the Port Moresby Stock Exchange and is also listed on the London Stock Exchange (Main Market). These consolidated financial statements were authorized for issue by the Board of Directors on 18 March 2014.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Basis of preparationThe consolidated financial statements of New Britain Palm Oil Limited have been prepared in accordance with International Financial Reporting Standards (“IFRS”) (including International Financial Reporting Interpretations Committee (“IFRIC”) interpretations). They have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) and biological assets at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

standards, amendment and interpretations effective in the year ended 31 december 2013The following new standards and amendments were applicable for the first time during the accounting period beginning 1 January 2013:

Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments only).

Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset and liability offsetting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. This has had no material impact on the group.

IFRS 10, ‘Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This has not resulted in any changes to the existing group.


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Notes to the ConsolidatedFinancial Statements1. sTaTeMeNT Of accOuNTiNG POLicies (cONTiNued)

(a) Basis of preparation (continued) standards, amendment and interpretations effective in the year ended 31 december 2013 (continued)

IFRS 11, ‘Joint arrangements’ focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. This has not resulted in any changes for the group.

IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles.

IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs.

Amendments to IAS 36, ‘Impairment of assets’, on the recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. The amendment is not mandatory for the group until 1 January 2014, however the group has decided to early adopt the amendment as of 1 January 2013.

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the group, except the following set out below:

IFRS 9, ‘Financial Instruments’ (effective date is open) is the first phase of replacing IAS 39, ‘Financial Instruments” with a standard that is less complex and principles based. The new standard addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not expected to change the entity’s existing accounting policy for its financial assets and liabilities. IASB has also amended IFRS 9 to allow entities to early adopt the requirement to recognise in OCI the changes in fair value attributable to changes in an entity’s own credit risk (from financial liabilities that are designated under the fair value option). This can be applied without having to adopt the remainder of IFRS 9.The group is yet to assess IFRS 9’s full impact. The group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.

IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The group is not currently subjected to significant levies so the impact on the group is not material.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the group.

Going concernThe group meets its day-to-day working capital requirements through operational cash flows and its bank facilities. The group’s forecasts and projections taking account of reasonably possible changes in trading performance, show that the group will be able to operate within the level of its current financing. After making enquiries, the directors are satisfied the group is able to pay its debts as they become due in the ordinary course of business and has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its financial statements on the basis that the group will realise its assets and settle its liabilities and commitments in the normal course of business.

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(b) consolidation (i) subsidiaries

Subsidiaries are all entities over which the Group has control, which is when the Group is exposed to or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases.

The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the group. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the group’s share of identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

(ii) Transactions and non-controlling interestsThe group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of non-controlling interests are also recorded in equity.

(c) segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief executive officer.

(d) Biological assetsBiological assets comprise oil palm trees from planting as seedlings through to maturity and the entire productive life of the trees, as well as livestock and growing cane.

(i) Oil palm treesOil palms are revalued to fair value at each reporting date on a discounted cash flow basis by reference to the fresh fruit bunches (“FFB”) expected to be harvested over the full remaining productive life of the trees up to 22 years. Oil palms which are not yet mature at the accounting date, and hence are not producing FFB, are valued at cost as an approximation of fair value.

All expenditure on the oil palms up to maturity is treated as an addition to the oil palms. Such costs include seedling costs, holing and planting, transport and field distribution, lining and pruning. The variation in the value of the oil palms in each accounting period, after allowing for additions to the oil palms in the period, is charged or credited in determining profit as appropriate, with no depreciation being provided on such assets.

(ii) LivestockLivestock is revalued to fair value at each reporting date based on an assessment of age, average weights and market value by the group’s external beef manager.

(iii) Growing caneGrowing cane is revalued to fair value at each reporting date based on the estimated market value of fully grown cane adjusted for the age and condition of the cane at the reporting date.


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(e) Property, plant and equipmentAll property, plant and equipment is stated at historical cost less depreciation unless otherwise stated. Historical cost includes expenditure that is directly attributable to the acquisition of items. All costs directly relating to plantation development are capitalised until such time as the oil palms reach maturity, at which point all further costs are expensed and depreciation commences. Such costs include roads, drainage, land preparation and an allocation of overheads. All costs directly relating to oil palm trees are accounted for in accordance with note 1(d).

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged against profit during the reporting period in which they are incurred.

Freehold land and capital work in progress are not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of residual values, over their estimated lives as follows:

Leasehold land 33 – 100 yearsLeasehold buildings 4 – 33 yearsPlant and equipment 3 – 15 yearsPlantation development expenditure 22 years

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are recognised within other income.

(f) inventories

Inventories comprise palm oil products, sugar stocks, nursery and seed stocks, consumables and spare parts. Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method.

Inventories of palm oil products comprises processed and refined palm oil products in tanks awaiting shipment at balance sheet date and are stated at the lower of cost and net realizable value. Cost includes all direct expenses, an appropriate proportion of manufacturing overheads and the fair value attributed to FFBs used in producing the oil stocks on hand at year end in accordance with IAS 41. The fair value of FFBs harvested from the group’s own plantations and sold during the year are recorded as part of the biological asset movement (note 9) and as part of “net biological assets gain/(loss)” in determining profit.

Sugar stocks are stated at the lower of manufactured cost and net realizable value. The cost of cane transferred to production is measured at fair value in accordance with IAS 41. Manufactured cost includes all direct expenses and an appropriate proportion of manufacturing overheads.

In respect of nursery and seed stocks, spare parts and consumables, cost includes direct materials and labour plus an appropriate proportion of fixed overheads.

Net realizable value is based on estimated selling price less any further costs expected to be incurred to completion and sale.

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(g) financial assets Classification

The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets and held-to-maturity financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(i) financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets.

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Loans and receivables are included in trade and other receivables in the balance sheet.

(iii) available-for-sale financial assetsAvailable-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

(iv) held-to-maturity financial assetsHeld-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the group’s management has the positive intention and ability to hold to maturity. If the group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available-for-sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the reporting date, which are classified as current assets.

Recognition and de-recognitionPurchases and sales of investments and other financial assets are recognised on trade-date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in the statement of comprehensive income as gains and losses from investment securities.

Subsequent measurementLoans and receivables are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in determining profit in the period in which they arise. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.

ImpairmentThe group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in determining profit. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through profit or loss.


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(h) impairment of non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. In determining recoverable value, reasonable and supportable future cash flow projections of the economic conditions that exist over the remaining life of each asset are developed. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is calculated by discounting cash flows using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(i) Borrowings and borrowing costsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in determining profit over the period of borrowings using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset in the period that they are incurred.

(j) derivative financial instruments and hedging activitiesThe group uses derivative financial instruments to hedge some of its exposure to fluctuations in palm oil prices. In order to protect against the impact of changing prices, the group enters into hedging transactions.

Derivative financial instruments are initially recognised in the balance sheet at fair value and are subsequently re-measured at their fair values. On the date a derivative contract is entered into, the group designates the contract as a hedge against specific future sales. The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged.

Derivatives that are designated against future sales qualify as cash flow hedges and are highly effective. Changes in the fair value of these derivatives are recognised in equity. Amounts deferred in equity are transferred to the statement of comprehensive income and classified as revenue in the same periods during which the hedged palm oil sales affect the statement of comprehensive income.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the committed or forecasted sale is ultimately recognised in determining profit. If the committed or forecast sale is no longer expected to occur, the cumulative gain or loss reported in equity is immediately recognised in determining profit.

At the inception of the transaction, the group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific forecast palm oil sales. The group also documents its assessment, both at the hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 17. Movements on the hedging reserve in shareholders’ equity are shown in note 20. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

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(k) income taxThe income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is recognised in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that they can be utilised against future taxable amounts.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset when the entity has a legally enforceable right to offset and intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised in equity are also recognised directly in equity.

(l) foreign currency translation (i) functional and presentation currency

Items included in the consolidated 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 functional currency’). The consolidated financial statements are 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 decision to use US Dollars as the group’s presentation currency is considered more beneficial for the market than using the group’s functional currency.

For presentation currency translation, 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 2013 is PGK1.00 = USD 0.3955 (31 December 2012: PGK 1.00 = USD 0.4775).

The statements of comprehensive income 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 for the year ended 31 December 2013 is PGK1.00 = USD 0.4313 (31 December 2012: PGK 1.00 = USD 0.4875).

(ii) Transactions and balancesTransactions denominated in a foreign currency are translated into the functional currency at the exchange rate at the date of the transaction. Assets and liabilities in foreign currencies are translated to the functional currency at rates of exchange ruling at balance sheet date. Gains or losses arising from settlement of transactions and from translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are brought to account in determining profit for the period.


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(l) foreign currency translation (continued) (iii) Group companies

The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthedate of the balance sheet;

• incomeandexpensesaretranslatedattheaverageexchangeratefortheperiod;and • allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed or sold, exchange differences that were recorded in equity are recognised in determining profit as part of the gain or loss on sale.

(m) revenue and other incomeRevenue comprises the fair value of consideration received or receivable for the sale of the Group’s products in the ordinary course of the group’s activities. Revenue is shown net of trade allowances, duties and taxes paid, and after eliminating sales within the group.

The group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria for each of the groups activities as described below are met.

(i) sale of palm oil and palm based productsSales revenue represents revenue earned from the sales of the group’s products, net of trade allowances and duties and taxes paid. Revenue is recognised when there has been a passing of title and risk to the customer, and:

• theproduceisinaformsuitablefordeliveryandsaleandnofurtherprocessingisrequired;• thequantityandqualityoftheproductcanbedeterminedwithreasonableaccuracy;• theproducthasbeendispatchedtothecustomerandisnolongerunderthephysicalcontrol

of the group (or property in the product has earlier passed to the customer); and• thesellingpricecanbedeterminedwithreasonableaccuracy.

(ii) sale of cattle and beef productsThe group sells all cattle and beef products locally. Sales of cattle and beef products are recognised when title and risk has passed to the customer.

(iii) sale of sugarSales of sugar are recognised when title and risk has passed to the customer and the group no longer has any physical control over the product.

(iv) interest incomeInterest income is recognised on a time-proportionate basis using the effective interest method.

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(n) cost of salesCost of sales comprise all direct manufacturing costs and an appropriate portion of manufacturing overheads required to bring the inventory to sale, together with the cost of purchasing FFBs and growing cane from independent smallholders. It excludes the fair value of FFBs harvested from the group’s own plantations.

(o) issued capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects is included in equity attributable to the company’s equity holders.

(p) cash and cash equivalentsCash and cash equivalents includes cash on hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less.

For the purpose of the statements of cash flows, cash and cash equivalents includes cash on hand and deposits held at call or short term maturity with banks (three months or less), net of bank overdrafts and short term borrowings. Bank overdrafts and short term borrowings are shown within borrowings in current liabilities on the balance sheet.

(q) accounts receivableTrade receivables are recognised at fair value, less provision for impairment. Trade receivables are generally due for settlement within 30 to 45 days.

A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in determining profit.

(r) ProvisionsProvisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(s) accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future for the goods and services received, whether billed by the supplier or not. The amounts are unsecured and are usually paid within 30 to 60 days of recognition.

(t) dividend distributionDividend distribution to the company’s shareholders is recognised as a liability in the group’s consolidated financial statements in the period in which the dividends are approved by the company’s directors.


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(u) LeasesLeases of property, plant and equipment where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership are assumed by the group, are classified as finance leases. Finance leases are capitalised, recording an asset and liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are amortised over the shorter of their estimated useful lives or the lease term. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

(v) defined contribution planThe group operates a defined contribution plan. A defined contribution plan is a plan under which the group pays fixed contributions into publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognised within staff costs when they are due.

(w) share based paymentsThe company may enter into lease, lease-back arrangements with neighboring land owners in exchange for the company’s equity instruments. The rights acquired under these arrangements are accounted for at the fair value of the rights received, unless the fair value cannot be measured reliably. In this case, the value of the rights acquired is based on the fair value of the equity instruments exchanged. In either situation the payments are accounted for as an increase in equity.

(x) intangible assetsSmallholder relationships assets have arisen on the acquisition of subsidiaries. These assets are shown at fair value on acquisition. They are deemed to have an indefinite life and are subject to annual impairment review or more frequently if events indicate a potential impairment. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(y) Parent entity subsidiaries

Investments in subsidiaries are accounted for at cost less impairment in the separate financial information of the company. Cost also includes direct attributable costs of investments. The results of subsidiaries are accounted for by the company on the basis of the dividends received and receivable.

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Notes to the ConsolidatedFinancial Statements2. fiNaNciaL risK MaNaGeMeNT

The group’s activities expose it to a variety of financial risks including market risk (including currency, commodity and cash flow interest rate risk), fair value risk, credit risk, liquidity risk, capital risk and agricultural risk. The group’s overall risk management program focuses on the unpredictibility of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. The group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out under policies approved by the Board of Directors.

(a) Market risk (i) foreign exchange risk

The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities (borrowings) and net investments in foreign operations.

The group’s revenues and a significant proportion of the group’s costs are in US dollars and therefore the group’s operations are exposed to some foreign exchange risk. It is not the group’s policy to hedge foreign currency risk. The group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. It is not the group’s policy to hedge foreign currency translation risk.

At 31 December 2013, if the Kina had weakened/strengthened by 5% against the US dollar with all other variables held constant, the profit for the period would have been USD39.0 million (31 December 2012: USD46.4 million) higher/lower, mainly as a result of foreign exchange gains/losses on translation of US dollar denominated borrowings, trade receivables and sales. Equity would have been USD0.2 million (31 December 2012: USD0.1 million) lower/higher, arising mainly from exchange gains/losses on translation of US dollar denominated derivative financial instruments.

(ii) commodity riskThe group derives a significant proportion of it’s revenues from the sale of palm oil products. The group uses derivative financial instruments for the purchase and sale of Malaysian/Sumatran palm oil to guarantee a minimum price for the sale of its own palm oil, for which there is no forward market, and to close out positions previously taken out. The group does not produce Malaysian/Sumatran palm oil, however the group has determined its palm oil to be highly correlated with the price of Malaysian/Sumatran palm oil.

During 2013, excluding the effect of any hedging activities, if the average prices received from the sale of palm oil products had been 10% higher/lower with all other variables held constant, the profit for the period would have been USD46.8 million (2012: USD57.3 million) higher/lower, mainly as a result of higher/lower commodity prices.

(iii) cash flow and interest rate riskAs the group has no significant interest-bearing assets, the group’s income and operating cash flows are substantially independent of changes in market interest rates.

The group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. Borrowings issued at fixed rates expose the group to fair value interest rate risk. It is not the group’s policy to hedge cash flow and fair value interest rate risk.

During 2013, if interest rates on US-dollar denominated borrowings had been 10 basis points higher/lower with all other variables held constant, the profit for the period would have been USD3.1 million (2012: USD3.4 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.


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Notes to the ConsolidatedFinancial Statements2. fiNaNciaL risK MaNaGeMeNT (cONTiNued)

(b) credit riskCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables. The group has no significant concentration of credit risk and it is not the group’s policy to hedge credit risk. The group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and has policies that limit the amount of credit exposure to any one customer. For banks and financial institutions, only independent rated parties with a minimum rating of “A” are accepted. No credit limits were exceeded during the reporting periods and management does not expect any losses from non-performance by counterparties.

(c) Liquidity riskCash flow forecasting is performed in the operating entites of the group and aggregated by group finance. Group finance monitors rolling forecasts of the group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on any undrawn borrowing facilities so that the group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Surplus cash held by the operating entities over and above the balance required for working capital is invested in interest bearing money market deposits with appropriate maturies or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

The table below analyses the group’s non-derivative financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between 1 Over1 year and 5 years 5 years

usd’000 usd’000 usd’000

at 31 december 2013Bank borrowings 89,233 181,176 9,286 Bank overdrafts 8,977 – – Trade and other payables 47,918 – –

at 31 december 2012Bank borrowings 111,592 214,715 14,878 Bank overdrafts 11,533 – – Trade and other payables 49,368 – –

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(c) Liquidity risk (continued)The tables below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contract maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between 1 Over1 year and 5 years 5 years

usd’000 usd’000 usd’000

at 31 december 2013Forward sale and purchase contracts – cash flow hedgesInflow 56,141 – – Outflow 1,373 – –

at 31 december 2012Forward sale and purchase contracts – cash flow hedgesInflow 41,899 4,900 – Outflow 4,156 – –

(d) capital risk managementThe group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “borrowings” and “trade and other payables” as shown in the balance sheet) less cash and cash equivalents excluding bank overdrafts. Total capital is calculated as “equity” as shown in the balance sheet plus net debt.

The gearing ratios at each balance sheet date were as follows:

2013 2012usd’000 usd’000

Total borrowings 320,550 376,089 Less: cash and cash equivalents (30,925) (18,817) Net debt 289,625 357,272 Total equity 866,271 982,943 Total capital 1,155,896 1,340,215 Gearing ratio 25% 27%


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(e) fair value estimationThe following table analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).• Inputsotherthanquotedpricesincludedwithin level1thatareobservablefortheassetor liability,

either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).• Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservable

inputs) (level 3).

The following table presents the group’s assets and liabilities that are measured at fair value at 31 December 2013:

Totalusd ‘000 Level 1 Level 2 Level 3 balance

assetsFinancial liabilities at fair value

through profit or loss – Derivatives used for hedging – 4,096 – 4,096 Total liabilities – 4,096 – 4,096

The following table presents the group’s assets and liabilities that are measured at fair value at 31 December 2012:

Totalusd ‘000 Level 1 Level 2 Level 3 balance

LiabilitiesFinancial liabilities at fair value

through profit or loss – Derivatives used for hedging – 7,754 – 7,754Total liabilities – 7,754 – 7,754

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.

The fair value contract prices by settlement date used by the group to fair value its hedges of crude palm oil (CPO), palm kernel oil (PKO) and refined bleached deodorised palm olein (RBDOL) were as follows:

Between Between Between Over1 to 3 months 4 to 6 months 7 to 12 months 12 months

usd/tonne usd/tonne usd/tonne usd/tonne

at 31 december 2013CPO 795 795 795 – PKO 1,103 1,103 – – RBDOL 868 893 931 905

at 31 december 2012CPO 810 810 810 – RBDOL 825 850 888 905

The carrying values less impairment provision of trade receivables and payables are assumed to approximate their fair values due to the short-term nature of trade receivables and payables.

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(f) agricultural riskThe agricultural activities of the group give rise to environmental and climatic risks. To manage the risks of these factors, the group’s activities are conducted in discrete locations with differing environmental and climatic conditions throughout Papua New Guinea and the Solomon Islands, with the exception of the sugar cane activity which is in one location. Each location has its own management experienced in agricultural activities. Climate and other environmental factors have an impact on production levels.

3. criTicaL accOuNTiNG esTiMaTes aNd JudGMeNTs

The preparation of consolidated financial statements in accordance with International Financial Reporting Standards requires management to make estimates and assumptions concerning the future that affect the amounts reported in the financial information and accompanying notes. The group’s estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates, by definition, rarely equal the related actual results. The estimates and assumptions have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:

(a) fair value of biological assetsThe nature of the group’s biological assets and the basis of determination of their fair value is explained under Note 1(d). The fair value assessments of biological assets are performed on a Level 3 basis (inputs are not based on observable market data for the assets) with the exception of livestock which are on a Level 2 basis (inputs are observable indirectly). The assessments are performed by management and are reviewed by the audit committee. Full assessments are performed at least annually.

Fair value assessments have been completed consistently with the prior year using the same valuation techniques.

(i) Oil palm treesOil palms do not include the land upon which the trees are planted or the property, plant and equipment used in the upkeep of the planted areas and harvesting of crops. The biological process commences with the initial preparation of land and planting of seedlings and ceases with the delivery of crop in the form of fresh fruit bunches (“FFB”) to the manufacturing process in which crude palm oil and palm kernel oil are extracted from the FFB.

Oil palms are revalued to fair value at each reporting date on a discounted cash flow basis by reference to the FFB expected to be harvested over the full remaining productive life of the trees planted at balance date up to 22 years, applying an estimated produce value for transfer to the manufacturing process and allowing for upkeep, harvesting costs and an appropriate allocation of overheads. The estimated produce value is derived from a long term forecast of crude palm oil prices to determine the present value of expected future cash flows over the next 22 years. The fair value measurement of oil palm trees at the reporting date is based on an estimated FFB crop harvest in 2013 of 1,731,676 tonnes. Production yields are based on historical levels.

The variation in the value of the oil palms in each accounting period, after allowing for additions to the oil palms in the period, is charged or credited to the statement of comprehensive income as appropriate, with no depreciation being provided on such assets.


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Notes to the ConsolidatedFinancial Statements3. criTicaL accOuNTiNG esTiMaTes aNd JudGMeNTs (cONTiNued)

(a) fair value of biological assets (continued) (i) Oil palm trees (continued)

The key assumptions used in the valuation are as follows:

short term cPO price*

Long termcPO price*

short termPKO price*

Long termPKO price*

Long termdiscount rate**

as at usd/tonne usd/tonne usd/tonne usd/tonne %

31 December 2013 $957 $830 $1,107 $980 8.55%31 December 2012 $1,043 $817 $1,193 $967 9.96%

* The prices assumed in the valuation are based on a combination of the World Bank’s long term forecasts for Crude Palm Oil (CPO) and Palm Kernel Oil (PKO) and management’s best estimate at each reporting date.

** The discount rate has been determined using a Capital Asset Pricing Model to calculate a post-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset. This is determined annually.

The short term prices are used for the next 12 months forecast in the valuation and long term prices are used for periods beyond.

A 10% increase or decrease to the long-term crude palm oil price used of USD830/tonne would result in an increase/decrease to the fair value of biological assets by USD90.6 million as at 31 December 2013. A 10% increase in the discount rate from 8.55% to 9.41% will result in a decrease to the fair value of biological assets by USD17.3 million. In addition, cash flows are projected over a number of years and based on estimated production. Estimates of production in themselves are dependent on various assumptions, in addition to those described above. Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash flows used in the assessment of fair value.

(ii) Growing caneThe determination of fair value for the group’s growing cane requires estimates to be made of the anticipated cane harvest, its age and condition at the balance sheet date, the sucrose content to be extracted and sugar prices. These estimates are based on management’s historical records and current planting statistics and production forecasts. Fair value of harvested cane is based on the accepted industry benchmark for allocating the fair value of sugar production between the value attributable to the cane grower and the value attributable to the miller. This has been adjusted to reflect the fact that the group mainly distributes and markets direct consumption sugar to the wholesale and retail Papua New Guinea market as opposed to predominantly producing raw sugar for export. The fair value of the growing cane at any point in time is based on the estimated fair value of the cane to be harvested less further costs to be incurred in growing and harvesting the cane up to the point of harvest, discounted to present value.

The fair value measurement of growing cane at the reporting date is based on an estimated estate crop of 297,318 tonnes of cane of which 295,511 tonnes will be harvested in 2014. A risk factor is applied to the expected harvest which increases based on time to harvest, reflecting the specific environmental and climatic risk. Were the cane harvest to differ by 10% from the amount estimated, the impact on the fair value measurement as at 31 December 2013 would be an increase/decrease of USD2.0 million.

(lii) LivestockThe fair value of livestock is based on the group’s assessment of age, average weights and market values at balance sheet date.

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Notes to the ConsolidatedFinancial Statements3. criTicaL accOuNTiNG esTiMaTes aNd JudGMeNTs (cONTiNued)

(b) fair value of agricultural produce – fresh fruit bunchesThe fair value of agricultural produce at the point of harvest is determined with reference to the market value of crude palm oil and palm kernel oil at the date of harvest, adjusted for freight, extraction rates, production costs, transportation and other costs to sell in order to arrive at an estimated fair value of the FFBs as there is no active arms length market for FFBs in Papua New Guinea.

(c) intangible assets (smallholder relationship asset)The group tests annually whether its intangible assets have suffered any impairment, in accordance with accounting policy 1(h). The recoverable amounts have been determined based on the fair value at each reporting date on a discounted cash flow basis by reference to an estimated produce value (future income stream) to the group, applying an estimated purchase price for the FFB that is harvested by the smallholders, and allowing for an appropriate allocation of manufacturing costs and overheads. The estimated produce value is derived from a long term forecast of crude palm oil prices to determine the present value of expected future cash flows and an estimated FFB crop harvested by the smallholders. Key assumptions used in the model on future pricing expectations are consistent with the assumptions used in the biological asset valuation as noted in 3(a)(i). A pre-tax discount rate of approximately 12.8% was used in the assessment.

(d) Property, plant and equipmentThe group reviews the residual value and useful lives of property, plant and equipment (Note 1(e)). It also considers at least annually whether there have been any impairment triggers that warrant the need to conduct an impairment review. There have been no such triggering events during the year.

(e) income taxesThe group is subject to income taxes in the various jurisdictions in which the company and its subsidiaries operate. The group estimates liabilities for tax based on its interpretations of local legislation. Should final tax outcomes be different from amounts initially recorded, such differences will impact current and deferred income tax liabilities.

As noted above, judgments are made in designing and applying the group’s accounting policies, including the above policies. Other than these items and the disclosures made elsewhere in these consolidated financial statements, there are no other items of critical judgment that warrant separate disclosure.


68

Notes to the ConsolidatedFinancial Statements4. reveNue aNd OTher iNcOMe/GaiNs


usd’000 usd’000 usd’000 usd’000

revenueSales revenue 561,782 674,392 275,996 320,327 Realisation of hedging instruments (3,130) 2,622 (3,130) 2,622

558,652 677,014 272,866 322,949

Other incomeDividend income – – – 7,759 Other income 2,342 2,340 1,375 1,031

2,342 2,340 1,375 8,790

Other (losses)/gainsNet foreign exchange (loss)/gain (17,527) 7,982 (22,461) 10,318 Unrealised gain on derivative financial instruments – 4,141 – 4,141 Recognition of fair value adjustment on inventory (*) 8,159 11,258 7,476 10,852

(9,368) 23,381 (14,985) 25,311

* Recognising the impact of fair valuing the biological produce on agricultural products in inventory

5. cOsT Of saLes


usd’000 usd’000 usd’000 usd’000

cost of salesCultivation costs 155,559 161,009 71,929 64,028 Milling and refining costs 67,983 89,024 29,684 30,076 Overheads 22,671 26,318 9,171 11,327 Purchased raw material costs (FFB and cane) 65,036 97,826 43,572 64,023 Depreciation 55,361 54,817 24,681 24,821

366,610 428,994 179,037 194,275

The fair value of FFBs harvested from the group’s own plantations and subsequently converted and sold during the year approximates USD207.6 million (2012: USD226.0 million). This cost is offset within “net biological assets gains/(losses)” as outlined in note 9. It does not form part of cost of sales.

annual report

2013

69

Notes to the ConsolidatedFinancial Statements6. OPeraTiNG PrOfiT


usd’000 usd’000 usd’000 usd’000

Operating profit has been determined after charging:

Personnel costs 99,336 114,685 27,222 33,662 Depreciation is included in:Cost of sales 55,361 54,817 24,680 24,821 Administration expenses 14,560 15,074 9,941 9,630

69,921 69,891 34,622 34,451

Auditors remuneration – Audit 604 652 308 350 – Taxation services 258 241 104 97 – Other services – 24 – 24 Donations 89 708 66 567 Lease payments:Minimum lease payments 1,734 1,586 1,024 1,102 Contingent rents (FFB royalty payments) 4,783 11,769 2,455 6,696

6,517 13,355 3,479 7,798

7. iNcOMe Tax


usd’000 usd’000 usd’000 usd’000

(a) income Tax expense

Current tax 5,737 216 2,144 – Deferred tax 15,142 837 3,448 (938) Over provision in prior years 43 1,693 9 3,046

20,922 2,746 5,602 2,108

The income tax expense has been calculated as follows:

Profit before income tax 70,982 4,387 15,557 4,515

Income tax at 30% 21,295 1,316 4,667 1,355

Tax effect of:Non-deductible (assessable) items (*) (415) (263) 926 (2,293) Over provision in prior years 43 1,693 9 3,046 Income tax expense 20,922 2,746 5,602 2,108

* Including minor impact of differing income tax rates in countries other than Papua New Guinea


70

Notes to the ConsolidatedFinancial Statements7. iNcOMe Tax (cONTiNued)


usd’000 usd’000 usd’000 usd’000

(b) deferred income Tax Liabilities

Balance brought forward (331,163) (312,329) (174,521) (165,270) Charge (credit) against profit (15,142) (837) (3,448) 938 Prior year adjustment – (10,290) – (4,705) Exchange differences 58,545 (5,152) 29,175 (2,929) Tax charged (credited) to equity 761 (2,555) 761 (2,555) Balance carried forward (286,999) (331,163) (148,033) (174,521)

This balance comprises the tax effect of:Accruals 85 344 – 227 Hedge liability (asset) (4,096) (7,754) (4,096) (7,754) Provisions 3,460 3,236 1,304 1,611 Inventory (64,262) (87,137) (36,068) (48,450) Prepayments – – – – Unrealised foreign exchange gains (losses) 603 (4,849) 603 (4,849) Income tax losses 1,630 5,226 – – Intangible assets (47,084) (56,846) – – Biological assets (385,282) (402,830) (219,646) (244,621) Property, plant and equipment (461,717) (553,268) (235,541) (277,902)

(956,663) (1,103,878) (493,444) (581,738) Tax effect at 30% (286,999) (331,163) (148,033) (174,521)

Deferred tax asset to be recovered after more than 12 months – – – –

Deferred tax asset to be recovered within 12 months 1,733 2,642 572 551

1,733 2,642 572 551

Deferred tax liability to be recovered after more than 12 months (268,225) (303,883) (136,556) (156,756)

Deferred tax liability to be recovered within 12 months (20,507) (29,922) (12,049) (18,316)

(288,732) (333,805) (148,605) (175,072)

Deferred tax liabilities (net) (286,999) (331,163) (148,033) (174,521)

annual report

2013

71

Notes to the ConsolidatedFinancial Statements7. iNcOMe Tax (cONTiNued)

deferred income Tax Liabilities accruals

hedgeliability (asset) Provisions inventory Prepayments

unrealised foreign

exchangegains

incometax

lossesintangible

assetsBiological

assets

Property, plant and

equipment Total

At 1 January 2012 41 199 921 (22,715) (39) 2,558 770 (16,750) (140,321) (136,993) (312,329)

Charged/(credited) to income statement 62 – 50 (3,051) 39 (4,055) 785 (28) 21,786 (16,426) (837)

Charged/(credited) to other comprehensive income – (2,555) – – – – – – – – (2,555)

Prior year adjustment (10,290) (10,290)

Exchange differences – 30 – (375) – 42 13 (276) (2,315) (2,271) (5,152)

at 31 december 2012 103 (2,326) 971 (26,141) – (1,455) 1,568 (17,054) (120,850) (165,980) (331,163)

Charged/(credited) to income statement (78) – 67 2,241 – 1,379 (802) (86) (16,100) (7,519) (20,898)

Charged/(credited) to other comprehensive income – 761 – – – – – – – – 761

Prior year adjustment – – – – – – – – – 5,756 5,756

Exchange differences – 337 – 4,621 – 257 (277) 3,015 21,365 29,228 58,545

at 31 december 2013 26 (1,228) 1,038 (19,279) – 181 489 (14,125) (115,585) (138,515) (286,999)

Deferred income tax assets are recognised for carried forward tax losses to the extent that the realisation of the related tax benefit through future taxable profits is probable. The group has recognised deferred income tax assets of US$0.5 million (2012: US$1.6 million) in respect of losses amounting to $US1.6 million (2012: US$5.2 million) that can be carried forward against future taxable income.


usd’000 usd’000 usd’000 usd’000

(c) current income Tax Liabilities/(assets)

Balance brought forward 6,878 32,638 (6,480) 12,478 Charge (credit) against profit 5,737 216 2,144 – Income tax paid (5,082) (14,055) (2,145) (14,055) Over provision in prior years 43 1,693 9 3,046 Prior year adjustment – (10,290) – (4,705) Exchange differences (867) (3,324) 1,113 (3,244) Balance carried forward 6,709 6,878 (5,359) (6,480)


72

Notes to the ConsolidatedFinancial Statements8. PrOPerTy, PLaNT aNd equiPMeNT

Plantation Land and Plant and capital Totaldevelopment Buildings equipment wiP

usd’000 usd’000 usd’000 usd’000 usd’000

consolidatedas at 31 december 2013Opening net book amount 205,930 321,303 274,353 88,149 889,735 Additions 26,458 166 1,626 39,815 68,065 Disposals – – (78) – (78)Transfers – 15,581 71,487 (87,068) – Exchange differences (33,662) (52,285) (37,016) (9,413) (132,376)Depreciation (10,532) (10,817) (48,572) (69,921)Closing net book amount 188,194 273,948 261,800 31,483 755,425

At cost 255,203 334,659 513,481 31,483 1,134,826 Accumulated depreciation (67,009) (60,711) (251,681) – (379,401)

188,194 273,948 261,800 31,483 755,425

as at 31 december 2012Opening net book amount 177,955 269,986 210,098 121,649 779,688 Additions 35,007 3,706 14,099 112,138 164,950 Acquisition of subsidiary – 4,405 – – 4,405 Disposals (41) – – – (41)Transfers – 49,965 97,937 (147,902) – Exchange differences 2,134 4,018 2,208 2,264 10,624 Depreciation (9,125) (10,777) (49,989) – (69,891)Closing net book amount 205,930 321,303 274,353 88,149 889,735

At cost 262,407 371,197 477,462 88,149 1,199,215 Accumulated depreciation (56,477) (49,894) (203,109) – (309,480)

205,930 321,303 274,353 88,149 889,735

Parent entityas at 31 december 2013Opening net book amount 99,044 145,924 131,194 18,427 394,589 Additions 9,159 14 – 11,252 20,425 Disposals – – (38) – (38) Transfers – 3,842 17,177 (21,019) – Exchange differences (17,341) (24,888) (21,999) (2,353) (66,581)Depreciation (5,160) (5,935) (23,527) – (34,622)Closing net book amount 85,702 118,957 102,807 6,307 313,773

At cost 133,021 162,321 262,978 6,307 564,627 Accumulated depreciation (47,319) (43,364) (160,171) – (250,854)

85,702 118,957 102,807 6,307 313,773

as at 31 december 2012Opening net book amount 87,571 107,355 96,559 74,842 366,327 Additions 15,269 – – 41,031 56,300 Transfers – 42,615 56,791 (99,406) – Exchange differences 1,484 1,563 1,406 1,960 6,413 Depreciation (5,280) (5,609) (23,562) – (34,451)Closing net book amount 99,044 145,924 131,194 18,427 394,589

At cost 141,203 183,353 267,838 18,427 610,821 Accumulated depreciation (42,159) (37,429) (136,644) – (216,232)

99,044 145,924 131,194 18,427 394,589

Refer to note 16 for information on the non current assets pledged as security by the group.

annual report

2013

73

Notes to the ConsolidatedFinancial Statements9. BiOLOGicaL asseTs


usd’000 usd’000 usd’000 usd’000

Oil palm treesBalance at the beginning of the year 375,431 433,688 244,621 294,983Increases due to expenditure to planted areas 2,627 4,340 491 1,475Gain arising from changes in fair value (*) 262,544 154,884 126,823 62,520Decreases due to harvest (207,589) (225,996) (108,739) (120,286)Exchange differences (69,252) 8,515 (43,550) 5,929Balance at the end of the year 363,761 375,431 219,646 244,621

LivestockBalance at the beginning of the year 10,184 9,130 1,140 1,167Increases due to expenditure on livestock 511 212 – –Gain arising from changes in fair value (*) 3,453 4,516 1,306 1,213Decreases due to sales (3,701) (3,782) (1,306) (1,213)Exchange differences (1,585) 108 (9) (27)Balance at the end of the year 8,862 10,184 1,131 1,140

Growing caneBalance at the beginning of the year 18,355 24,914 – –Increases due to expenditure on growing cane – – – –Gain arising from changes in fair value (*) 12,437 18,464 – –Decreases due to harvest (13,977) (25,548) – –Exchange differences (3,025) 525 – –Balance at the end of the year 13,791 18,355 – –

TotalBalance at the beginning of the year 403,970 467,732 245,761 296,150Increases due to expenditure 3,138 4,552 491 1,475Gain arising from changes in fair value 278,433 177,864 128,129 63,733Decreases due to harvest and sales (225,266) (255,326) (110,045) (121,499)Exchange differences (73,862) 9,148 (43,559) 5,902Balance at the end of the year 386,413 403,970 220,777 245,761

Classifed as:Current (**) 16,207 21,919 1,131 1,140Non Current 370,206 382,051 219,646 244,621

386,413 403,970 220,777 245,761

Net biological asset gain/(loss) 53,678 (77,250) 18,084 (57,766)

* Changes in fair value include the impacts of growth of the biological asset, production of product for harvest as well as the impacts of the changes in the values of the inputs into the fair value assessment.

** This includes components of livestock (which are expected to be sold within one year) and growing cane. It is not possible to determine the current component pertaining to oil palm trees, which are all classified as non-current.


74

Notes to the ConsolidatedFinancial Statements10. iNTaNGiBLe asseTs


usd’000 usd’000 usd’000 usd’000

Smallholder relationship asset 47,084 56,846 – –

47,084 56,846 – –

Balance brought forward 56,846 55,834 – – Currency translation differences arising during the year (9,762) 1,012 – – Balance carried forward 47,084 56,846 – –

The smallholder relationship assets were acquired with the purchase of controlling interests in subsidiaries. This asset reflects the relationship between the group and smallholders who cultivate and harvest FFB on land which is owned by the smallholders. The FFB is subsequently purchased by the company for processing as palm oil. This asset has an indefinite useful life and is tested annually for impairment in accordance with accounting policy 1(h). The smallholders have no opportunity to sell their FFB to other parties because of a lack of alternatives for processing FFB and their inextricable link to the group. As at 31 December 2013 no impairment has been identified. The asset has been pledged as security for liabilities along with the tangible assets of the group.

11. iNvesTMeNTs iN suBsidiaries

Parent entity2013 2012

usd’000 usd’000

Investments in subsidiaries 327,778 395,737 327,778 395,737

subsidiaries

The Group has the following subsidiaries as at the end of the financial year:

equity holding country of reportingName of subsidiary 2013 2012 incorporation date

Guadalcanal Plains Palm Oil Limited 80% 80% Solomon Islands 31 DecemberDami Australia Pty Limited 100% 100% Australia 31 DecemberNew Britain Nominees Limited 100% 100% PNG 31 DecemberNew Britain Plantation Services Pte Limited 100% 100% Singapore 31 DecemberNew Britain Oils Limited 100% 100% United Kingdom 31 DecemberRamu Agri-Industries Limited 100% 100% PNG 31 DecemberDumpu Limited 100% 100% PNG 31 DecemberKula Palm Oil Limited 100% 100% PNG 31 DecemberPlantation Contracting Services Limited 100% 100% PNG 31 DecemberPoliamba Limited 100% 100% PNG 31 DecemberVitroplant Orangerie Bay Limited 100% 100% PNG 31 DecemberUltra Oleum Pte Limited 100% – Singapore 31 DecemberVerdant Bioscience Pte Limited 52% – Singapore 31 December

During the year the company incorporated a new subsdiary entity, Ultra Oleum Pte Limited (with minimal set up costs) which took up an interest in Verdant Bioscience Pte Limited. Neither entity had significant transactions prior to 31 December 2013.

annual report

2013

75

Notes to the ConsolidatedFinancial Statements12. cash aNd cash equivaLeNTs


usd’000 usd’000 usd’000 usd’000

Cash and bank balances 30,925 18,817 8,554 7,950

30,925 18,817 8,554 7,950

For the purposes of the statement of cash flows, the following balances comprise cash and cash equivalents at the end of the period:

Cash and bank balances 30,925 18,817 8,554 7,950Short term borrowings (note 16) (13,247) (25,000) (5,900) (25,000)Bank overdraft (note 16) (8,977) (10,635) – –

8,701 (16,818) 2,654 (17,050)

13. Trade aNd OTher receivaBLes


usd’000 usd’000 usd’000 usd’000

Trade receivables 52,245 92,893 16,590 38,421 Provision for impaired receivables (112) (48) – –

52,132 92,845 16,590 38,421

Other receivables 29,010 28,818 12,358 10,095 Provision for impaired receivables (213) (178) (213) (178) Prepayments 4,246 5,426 2,311 295

85,175 126,911 31,046 48,633

As at 31 December 2013, trade receivables of USD 1.1 million (2012: USD 1.6 million) were past due but not impaired. These relate to a number of smallholders for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

Over 12 months 1,073 1,637 720 1,433 1,073 1,637 720 1,433

As at 31 December 2013, trade receivables of USD 0.3 million (2012: USD 0.2 million) relating wholly to seed and sugar sales, were considered impaired and were provided by management. The ageing of these receivables is as follows:

Over 12 months 325 226 213 178 325 226 213 178


76

Notes to the ConsolidatedFinancial Statements13. Trade aNd OTher receivaBLes (cONTiNued)

consolidated Parent entity

2013 2012 2013 2012usd’000 usd’000 usd’000 usd’000

Movements in the provision for impairment of trade receivables are as follows:

Opening balance 226 168 178 62 Provision for receivables impaired 99 116 35 116 Unused amount reversed – (58) – –

325 226 213 178

The creating and releasing of provision for impaired receivables is included in administration costs in the statement of comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

The carrying amounts of the trade and other receivables are denominated in the following currencies:

United States Dollar 17,224 53,050 13,868 33,337 Papua New Guinea Kina 53,313 63,538 17,178 15,296 United Kingdom Pounds 13,639 8,967 – – Other 999 1,356 – –

85,175 126,911 31,046 48,633

14. iNveNTOries


usd’000 usd’000 usd’000 usd’000

Palm oil products 90,447 89,340 30,666 40,916 Sugar stocks 26,077 32,988 – – Nursery and seed stocks 1,208 1,349 488 853 Consumables and spare parts 54,475 72,404 18,687 28,553 Provision for consumables and spare parts (795) (3,041) (346) (2,865)

171,411 193,040 49,494 67,457

As at 31 December 2013, consumables and spare parts of USD 0.8 million (2012: USD 3.0 million) were considered impaired and were provided for by management.

annual report

2013

77

Notes to the ConsolidatedFinancial Statements15. OwiNG (TO)/By GrOuP cOMPaNies

Parent entity2013 2012

usd’000 usd’000

Guadalcanal Plains Palm Oil Limited – 1,240 Dami Australia Pty Limited (24,494) (29,973) New Britain Nominees Limited 4,439 5,502 Kula Palm Oil Limited 33,301 33,462 New Britain Oils Limited 39,173 41,795 New Britain Plantation Services Limited (6,004) (7,500) Plantation Contracting Services Limited 6,981 8,422 Ramu Agri-Industries Limited 31,697 33,332

85,093 86,280

Reconciled to the balance sheet as follows:Amounts owed by group companies 115,587 123,753 Amounts owed to group companies (30,494) (37,473)

85,093 86,280

All balances owing to or from subsidiary companies have been eliminated on consolidation.

16. BOrrOwiNGs


usd’000 usd’000 usd’000 usd’000

Non-currentSecuredBank borrowings 179,934 212,714 157,153 181,293

currentSecuredBank overdraft 8,977 10,635 – – Bank borrowings 70,474 78,372 24,489 24,308 Short term borrowings 13,247 25,000 5,900 25,000

92,698 114,007 30,389 49,308

Total borrowings 272,632 326,721 187,542 230,601

The following securities are provided against the above bank overdraft and bank borrowings:

• Registeredequitablemortgageoveralltheassetsandundertakingsofthegroup;• Registeredmortgageleaseholdoverallstateleasesandsubleasesgreaterthan500hectarescomprisingall

available land and buildings owned by the company and its wholly owned subsidiaries; and• CrossGuaranteebetweenthecompanyanditswhollyownedsubsidiaries.


78

Notes to the ConsolidatedFinancial Statements16. BOrrOwiNGs (cONTiNued)

The exposure of the group’s borrowings to interest rate changes and the contractual repricing dates as at the balance sheet dates are as follows:


usd’000 usd’000 usd’000 usd’000

6 months or less 78,409 94,067 18,145 37,154 6-12 months 14,289 19,939 12,245 12,154 1-5 years 171,196 199,107 157,152 181,293 Over 5 years 8,738 13,608 – –

272,632 326,721 187,542 230,601

Borrowing facilities available to the group are fully drawn as at 31 December 2013 and 2012.

The effective interest rates of the group’s bank overdraft and bank borrowings as at the balance sheet dates are as follows:


usd’000 usd’000 usd’000 usd’000

Bank overdrafts 8.45% 8.45% – – Bank borrowings 2.78% 2.89% 2.32% 2.35%Short term borrowings 2.50% 2.75% 2.50% 2.75%

The fair value of borrowings approximates their carrying amounts. Borrowings are largely on floating interest rate terms and margins, and credit risk factors approximate currently obtainable levels for similar facilities.

The carrying amounts of the group’s borrowings are denominated in the following currencies:


usd’000 usd’000 usd’000 usd’000

United States Dollar 236,785 279,729 187,542 230,601 Papua New Guinea Kina 35,847 46,992 – –

272,632 326,721 187,542 230,601

annual report

2013

79

Notes to the ConsolidatedFinancial Statements17. derivaTive fiNaNciaL iNsTruMeNTs


usd’000 usd’000 usd’000 usd’000

Current assets– Forward contracts 4,096 7,379 4,096 7,379

Non Current assets– Forward contracts – 375 – 375

The group has entered into a number of hedge contracts in relation to future sales of palm oil. The purpose of these transactions is to protect the level of income in future years. It is not group policy to engage in speculative hedging activities.

The outstanding hedge contracts at balance sheet date were as follows:

Tonnes average price us$/tonne as at 31 december as at 31 december 2013 2012 2013 2012

CPO (sell) 35,250 4,500 901 978 CPO (buy) 1,500 2,500 915 829 PKO (sell) 3,000 – 1,164 – RBDOL (sell) 23,000 41,000 908 1,034 RBDOL (buy) – 2,000 – 1,043

Sell contracts represent a fixed and guaranteed amount of revenue to the group whilst the buy contracts represent the close out of sell positions previously taken, given there is no forward market for the group’s own palm oil. The minimum total revenue generated from these programs at 31 December 2013 will be USD54.8 million.

At 31 December 2013, the estimated fair value of the total hedge program was USD4.1 million in-the-money (31 December 2012: USD7.8 million in-the-money).

At the fair value contract price (note 2(e)) plus 10 per cent, the estimated fair value of the total hedge program at 31 December 2013 would be approximately USD0.8 million out-of-the-money. Conversely at the fair value contract price less 10 per cent the estimated fair value would be USD9.0 million in-the-money. The fair value contract price for forward sale and purchase contracts is estimated based on quotes from the market makers of these instruments and represents the estimated amounts that the group would expect to receive or pay to terminate the agreements at the reporting date.

The estimated net amount of gains (losses) contained in the hedge reserve which are expected to be reclassified to earnings within the next 12 months were as follows:


usd’000 usd’000 usd’000 usd’000

Forward contracts 4,096 7,379 4,096 7,379 Deferred taxation (1,229) (2,214) (1,229) (2,214)

2,867 5,165 2,867 5,165


80

Notes to the ConsolidatedFinancial Statements17. derivaTive fiNaNciaL iNsTruMeNTs (cONTiNued)

The estimated net amount of gains/(losses) contained in the hedge reserve which are expected to be reclassified to earnings beyond 12 months were as follows:


usd’000 usd’000 usd’000 usd’000

Forward contracts – 375 – 375 Deferred taxation – (113) – (112)

– 263 – 263

18. Trade aNd OTher PayaBLes


usd’000 usd’000 usd’000 usd’000

Trade payables 15,264 19,247 4,727 2,737 Accruals 32,654 30,121 20,339 18,794

47,918 49,368 25,066 21,531

annual report

2013

81

Notes to the ConsolidatedFinancial Statements19. issued caPiTaL


usd’000 usd’000 usd’000 usd’000

(a) issued and paid up capital

Ordinary shares 180,333 180,333 187,265 187,265

Balance brought forward 180,333 124,954 187,265 125,012 Share issue – 50,565 – 62,253 Treasury shares sold – 4,414 – – Treasury shares issued for land rights – 400 – – Balance carried forward 180,333 180,333 187,265 187,265

Number of shares‘000 ‘000 ‘000 ‘000

(b) issued and paid up capital

Ordinary shares 149,382 149,382 150,048 150,048

Balance brought forward 149,382 144,912 150,048 145,000 Share issue – 4,048 – 5,048 Treasury shares sold – 380 – – Treasury shares issued for land rights – 42 – – Balance carried forward 149,382 149,382 150,048 150,048

The company’s securities consist of ordinary shares which have equal participation and voting rights.

During 2012, the company issued 4,408,000 shares for USD 50,565,000 to acquire the remaining interests in Kula Palm Oil Limited and Poliamba Limited (note 27).

Treasury shares are held by New Britain Nominees Limited, a wholly owned subsidiary of the company. The purpose of these shares is to provide an opportunity for landowners to acquire shares in the company so that they will have a direct interest and benefit in the future growth and prosperity of the company. Treasury shares are eliminated on consolidation.

At 31 December 2013, New Britain Nominees Limited held 666,318 shares in the company (31 December 2012: 666,318). The acquisition of these shares has been funded by an interest free loan to New Britain Nominees Limited by the company.


82

Notes to the ConsolidatedFinancial Statements20. OTher reserves


usd’000 usd’000 usd’000 usd’000

foreign currency translation reserveBalance brought forward 213,090 209,581 217,941 204,287 Currency translation differences arising

during the year (152,390) 3,509 (142,219) 13,654 Balance carried forward 60,700 213,090 75,722 217,941

hedge reserveBalance brought forward 2,560 (463) 2,560 (463) Fair value gains (losses) in the year (2,006) 6,951 (2,006) 6,951 Deferred tax on fair value gains 602 (2,085) 602 (2,085) Transfers to sales 3,130 (2,622) 3,130 (2,622) Deferred tax on transfers to sales (939) 787 (939) 787 Exchange differences (479) (8) (479) (8) Balance carried forward 2,868 2,560 2,868 2,560

Transactions with non-controlling interests reserve

Balance brought forward 8,551 – – – Acquisition of non-controlling interest – 8,551 – – Exchange differences (1,470) – – – Balance carried forward 7,081 8,551 – –

Total reserves 70,649 224,201 78,590 220,501

Foreign currency translation reserveThe translation reserve comprises all foreign exchange differences arising from the translation of the consolidated financial statements of foreign operations and from functional currency to presentation currency.

Hedge reserve – cash flow hedgesThe hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments where the hedged transactions have not yet occurred.

annual report

2013

83

Notes to the ConsolidatedFinancial Statements21. divideNds


usd’000 usd’000 usd’000 usd’000

Dividends declared and paid 16,641 45,924 16,703 44,068 16,641 45,924 16,703 44,068

Number of shares (‘000) (note 19) 149,382 149,382 150,048 150,048Dividend per share 0.12 0.31 0.12 0.30

22. reLaTed ParTy TraNsacTiONs

Related parties comprise New Britain Palm Oil Limited’s shareholders, associated companies, other entities in which the shareholders or the group have the ability to control or exercise significant influence over their financial and operating decisions, key management personnel and director-related entities.

Kulim (Malaysia) Berhad, a company incorporated in Malaysia holds a significant interest in the company. Johor Corporation (Malaysia) holds a controlling interest in Kulim (Malaysia) Berhad.

Interests in subsidiaries are set out in note 11.

During the year, the group entered into the following significant transactions with related parties on normal commercial terms and conditions agreed between the related parties:

Payments to Kulim (Malaysia) Berhad for various agricultural consultancy services and reimbursement of expenses (excluding director’s fees and dividends) amounted to USD10,646 (2012: USD11,724).

Commissions to Pacific Rim Plantation Services Pte Limited (“Pacrim”), a director-related entity and also the group’s sales and marketing agent for CPO, PKO and refined products amounted to USD3,461,936 (2012: USD4,160,224). Costs totaling USD758,980 (2012: USD774,700) were paid to Pacrim in respect of project management services provided for the UK refinery and USD95,400 (2012: nil) for consultancy services. In addition, Pacrim (through its bankers) provided short term working capital funding to the group in respect to sales made to external parties which amounted to USD28,287,339 (2012: nil). Interest and handling charges paid to Pacrim amounted to USD15,158 (2012: nil). As at 31 December 2013, the group did not owe any amount to Pacrim (2012: nil).

During the year, sales of palm oil by the company amounting to USD147.0 million (2012: USD121.7 million) were made to New Britain Oils Limited, a wholly owned subsidiary of the company, on normal commercial terms and conditions.

The total payments made to the defined contribution plans on behalf of employees amounted to USD4,906,779 (31 December 2012: USD5,061,791).

Loans between wholly owned group companies are interest free and repayable on demand.


84

Notes to the ConsolidatedFinancial Statements22. reLaTed ParTy TraNsacTiONs (cONTiNued)

Key management personnel compensationKey management includes directors and senior general managers. The compensation paid or payable to key management for employee services is shown below:

consolidated2013 2012

usd’000 usd’000

Wages and salaries 2,846 5,064 Other short-term benefits 596 856

3,441 5,920

Other short term benefits comprise travel, medical, housing, utilities and educational allowances.

directors remunerationThe compensation paid or payable to directors (other than key management personnel) is shown below:


usd’000 usd’000

Wages and salaries 1,299 1,946 Other short-term benefits 19 120

1,318 2,066

Other short term benefits comprise travel, medical, housing, utilities and educational allowances.

Refer to the Remuneration Report on for additional information on the salaries and benefits paid to the directors.

23. cOMMiTMeNTs

(a) capital commitmentsThe group has commitments for future capital expenditure amounting to USD3.6 million at 31 December 2013 (2012: USD2.4 million).

(b) Operating lease commitmentsconsolidated Parent entity

2013 2012 2013 2012usd’000 usd’000 usd’000 usd’000

Not later than one year 1,587 1,735 1,065 1,192 Later than one year but not more than five years 6,348 6,939 4,261 4,767 More than five years 50,717 54,907 27,237 30,470

58,651 63,582 32,563 36,429

Future minimum lease payments relate to non-cancellable operating lease agreements in respect of mini-estate leases of land, on a renewable basis, for terms of 20 or 40 years and state-owned leases, on a renewable basis, for terms of 99 years.

annual report

2013

85

Notes to the ConsolidatedFinancial Statements24. earNiNGs Per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the company by the weighted average number of ordinary shares on issue during the year excluding ordinary shares purchased by the company and held as treasury shares (note 19).


usd’000 usd’000

Net profit attributable to ordinary shareholders used in basic and diluted EPS 47,653 632

Net biological asset (gain)/loss attributable to ordinary shareholders, net of tax (*) (36,572) 53,166

Net profit attributable to ordinary shareholders before net biological asset (gain)/loss) 11,082 53,798

Weighted average number of ordinary shares (‘000) used in basic and diluted EPS 149,382 147,787

Basic EPS (USD/share) 0.319 0.004 Basic EPS before changes in fair value of biological

assets (USD/share) 0.074 0.364

Diluted EPS is equal to basic EPS

* The net biological asset (gain)/loss attributable to ordinary shareholders, net of tax is reconciled to the statement of comprehensive income as follows:

Net biological asset (gain)/loss (53,678) 77,250 Income tax expense/(credit) 16,103 (23,175)

(37,575) 54,075 Attributable to:Ordinary shareholders (36,572) 53,166 Non-controlling interests (1,003) 909

(37,575) 54,075


86

Notes to the ConsolidatedFinancial Statements25. seGMeNT iNfOrMaTiON

Management has determined the operating segments based on the reports reviewed by the chief executive officer that are used to make strategic decisions.

The chief executive officer considers the business from both a geographic and product perspective. Geographically, management considers the performance of segments based on end markets for its products being Europe and the Asia-Pacific region. The reportable operating segments derive their revenue primarily from these geographical segments. Segments are defined as:

• EuropePalmProducts–thissegmentconsistsofsalesofpalmproductseithershippeddirectlyfromplantationsin Papua New Guinea and the Solomon Islands to European customers or direct sales from the UK refinery to customers in Europe

• Asia-PacificPalmProducts–thissegmentconsistsofsalesofpalmproductsfromplantationsinPapuaNewGuinea and the Solomon Islands to customers in Asia-Pacific

• Asia-PacificSeeds–thissegmentconsistsofseedsalesfromPapuaNewGuineatocustomersinAsia-Pacific• Asia-PacificSugar–thissegmentconsistsofsalesofsugarproductsfromplantationsinPapuaNewGuinea

to customers in Asia-Pacific (largely Papua New Guinea)• Asia-PacificLivestock–thissegmentconsistsofsalesofcattleandbeefproductsfromplantationsinPapua

New Guinea to customers in Asia-Pacific (largely Papua New Guinea)

The chief executive officer assesses the performance of the operating segments based on a measure of adjusted EBIDTA. This measurement basis excludes the effects of net gains or losses arising from changes in fair value of biological assets.

The segment information provided to the chief executive officer for the reportable segments for the year ended 31 December 2013 is as follows:

usd’000

europePalm

products

asia-PacificPalm

productsasia-Pacific

seedsasia-Pacific

sugarasia-Pacific

Livestock Total

Segment revenue 635,207 9,604 5,643 47,355 7,783 705,592Inter-segment revenue (146,940) – – – – (146,940)Revenue 488,267 9,604 5,643 47,355 7,783 558,652Segment cost of sales (470,103) (6,227) (3,721) (26,666) (6,833) (513,550)Inter-segment cost of sales 146,940 – – – – 146,940 Cost of sales (323,163) (6,227) (3,721) (26,666) (6,833) (366,610)

Segment gross profit 165,104 3,377 1,922 20,689 950 192,042

Adjusted EBITDA 79,404 2,821 1,716 11,371 1,516 96,826

Depreciation (63,550) (1,107) (658) (3,613) (993) (69,921)

Income tax expense (15,695) (846) (515) (3,411) (455) (20,922)

Total assets 1,327,123 62,864 6,985 69,308 14,249 1,480,529

Total assets include:Additions to non-current

assets 68,264 – – 2,033 394 70,692

Total liabilities 297,595 14,097 1,566 7,053 239 320,550

annual report

2013

87

Notes to the ConsolidatedFinancial Statements25. seGMeNT iNfOrMaTiON (cONTiNued)

The segment information provided to the chief executive officer for the reportable segments for the year ended 31 December 2012 is as follows:

usd’000

europePalm

products

asia-PacificPalm

productsasia-Pacific

seedsasia-Pacific

sugarasia-Pacific

Livestock Total

Segment revenue 695,164 27,428 11,823 56,716 7,533 798,664Inter-segment revenue (121,650) – – – – (121,650)Revenue 573,514 27,428 11,823 56,716 7,533 677,014Segment cost of sales (493,935) (17,359) (4,612) (28,175) (6,563) (550,644)Inter-segment cost of sales 121,650 – – – – 121,650 Cost of sales (372,285) (17,359) (4,612) (28,175) (6,563) (428,994)

Segment gross profit 201,229 10,069 7,211 28,541 970 248,020

Adjusted EBITDA 132,172 6,336 4,950 17,193 1,412 162,063

Depreciation (61,555) (2,584) (751) (4,154) (847) (69,891)

Income tax expense 6,221 (1,901) (1,485) (5,158) (424) (2,746)

Total assets 1,509,866 71,520 7,947 89,469 18,271 1,697,073Total assets include:Additions to non-current

assets 164,345 – – 3,732 1,213 169,290

Total liabilities 346,606 16,418 1,824 9,938 1,303 376,089

A reconciliation of adjusted EBITDA to profit before tax is provided as follows:

2013 2012usd’000 usd’000

Adjusted EBITDA for reportable segments 96,826 162,063

Depreciation (69,921) (69,891)Net finance costs (9,601) (10,536)Net biological asset gain/(loss) 53,678 (77,250)

Profit before tax 70,982 4,387

The amounts provided to the chief executive officer with respect to total assets and total liabilities are measured in a manner consistent with that of the financial statements. These assets and liabilities are allocated based on the operations of the segment.


88

Notes to the ConsolidatedFinancial Statements25. seGMeNT iNfOrMaTiON (cONTiNued)

Reportable segments’ liabilities are reconciled to total liabilities as follows:

2013 2012usd’000 usd’000

Segment liabilities for reportable segments 320,550 376,089

Deferred tax 286,999 331,163 Current tax 6,709 6,878

Total liabilities per the balance sheet 614,258 714,130

26. BusiNess cOMBiNaTiONs

There were no business combinations in the year ended 31 December 2013.

During the year ended 31 December 2012, the group made the following business combinations:

vitroplant Orangerie Bay LimitedIn July 2012, the group acquired 100% of the share capital of Vitroplant Orangerie Bay Limited. The only asset of the company was land. It had no liabilities.

Details of the acquisition are as follows:

usd’000

Purchase consideration– Cash paid 4,405Total purchase consideration 4,405

carryingamount fair value

usd’000 usd’000

Property (at fair value) – 4,405– 4,405

Total purchase consideration 4,405

Purchase consideration settled in cash 4,405Cash and cash equivalents in subsidiary –Total cash outflow on acquisition 4,405

annual report

2013

89

Notes to the ConsolidatedFinancial Statements27. TraNsacTiONs wiTh NON-cONTrOLLiNG iNTeresTs

During 2012 the company acquired the remaining interests in Kula Palm Oil Limited and Poliamba Limited (20% and 35% respectively). The group now holds 100% of the equity share capital of these subsidiaries. The acquisition was settled by the issue of shares in the company. The group derecognised non-controlling interests of USD 45.5 million and recorded an increase in issued capital of USD 50.6 million.

The effect of the transaction is summarised as follows:

2012usd’000

Carrying amount of non-controlling interests acquired (45,527)Consideration (by share issue) to non-controlling interests 50,565 Exchange differences 3,513

8,551

28. cONTiNGeNT LiaBiLiTies

At 31 December 2013 and 2012, the group had contingent liabilities in respect of legal claims arising in the ordinary course of business pertaining to land disputes and employee issues. The group has disclaimed liability in all cases and vigorously defends these actions. It is not practical to estimate the potential effect of these claims but legal advice indicates any liability that may arise in the unlikely event any of these claims are successful will not be significant.

29. eveNTs afTer The BaLaNce sheeT daTe

Subsequent to period end, the Board has declared a final dividend of USD 5 cents per share (gross) in respect of the year ended 31 December 2013 to be paid at the end of April 2014. The final dividend of USD 5 cents per share (gross) will be paid net of PNG withholding tax where applicable.

No other events have occurred after the balance sheet date that would require an adjustment to or a disclosure in the consolidated financial statements.

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New BritaiN Palm Oil limitedBebere PlantationMosaKIMBEWest New Britain ProvincePapua New Guineatel: +675 985 2177Fax: +675 985 2003www.nbpol.com.pg

Documents

Annual Report - New Britain Palm Oil Limited...range of Holdings Number of Holders 1 - 1,000 1,084 1,001 - 5,000 86 5,001 - 10,000 95 10,001 - 100,000 262 100,001 and over 87 Total