New Britain Palm Oil revealed that it was taking the opposite
stance to rival Sipef on palm oil sales – reducing forward coverage – as it unveiled
a 70% slump in profits and a ditching of its dividend.
Sipef, which like New Britain has palm oil operations based
in Papua New Guinea, said last week that it had sold forward 53% of its
expected palm oil output for 2013, ahead of levels of 45% at the same time in
both 2012 and 2011.
The group cited an "uncertain price outlook" for
palm oil, adding that "the high stocks, in origin as well as the main
importing countries, will remain a burden to the market".
However, New Britain on Wednesday revealed a sharp cutback
in its forward sales, to 123,500 tonnes, less than one-quarter of the palm oil
analysts expect New Britain to produce this year, and well below the 220,000
tonnes it had sold ahead by late February 2012.
The strategy reflects the depressed price of crude palm oil and
palm kernel oil, a smaller but typically more expensive product whose values have
been particularly depressed.
"It's a testament to the market," a person familiar with New
"They do not think the pricing mechanism is right at the moment,"
with values of the total oils trading below levels well above $900 a tonne the
company is seeking.
Antonia Monteiro De Castro, the New Britain chairman, said
that the group was placed "to take advantage of any upward movement in palm oil
The 123,500 tonnes of crude palm oil sold forward achieved
an average price of $890 a tonne, well below the $1,078 a tonne it achieved on
forward sales a year ago, and the average 2012 price of $1,062 a tonne.
New Britain revealed the sales as it unveiled pre-tax profits
for 2012 of $81.6m, down from $275.5m the year before.
The drop was down in part to weaker palm oil selling prices,
from the $1,108 a tonne achieved in 2011, but also the impact of inundations on
production, which for total oils fell by 46,000 tonnes to 545,000 tonnes.
"The past year has presented a number of unprecedented
climatic and market related challenges," Mr De Castro said.
The group had made efficiency savings, improved its
preparations for heavy rains and sealed cheaper deals on fertilizer and freight
to support its performance in 2013, he added.
While New Britain has in previous statements prepared
investors for the drop in production and profits, its shares, which are listed
in London, fell 6% in early deals after it revealed it was ditching its final
The group, while committing to pay an interim dividend this
year, highlighted that it ended 2012 "with net cash balances of negative $16.8m,
having started the year with net cash balances of positive $55.1m".
Analysts at Liberum said: "The 70% fall in NBPO's pre-tax
profit has been well-flagged.
"What had not been expected is the decision not to pay a
The broker restated a "hold" rating on New Britain shares,
saying that while they have a long-term fair value of 750p, this assumes a palm
oil price of $1,100 a tonne.
"Our hold rating is based on the expectation that NBPO
shares will struggle to outperform while palm oil prices remain weak," Liberum
The shares stood at 505p in lunchtime deals, down 4.7% on