Noble Group on Thursday predicted a return to “business as usual” in 2017 as the commodity trader announced a second successive quarterly loss after passing on profitable trading opportunities to focus on cutting its debts.
The Singapore-listed company has endured a torrid couple of years, battling a savage downturn in commodity markets and concerns about its accounting.
Noble’s share price has plunged almost 80 per cent since early 2015, and it has spent the past year selling off assets and conserving cash in an effort to retain the confidence of lenders.
The latest results, the first full quarter under new co-chief executives Jeff Frase and Will Randall, showed the progress that Noble has made towards its $2bn capital raising target.
But the figures also highlighted the challenges facing the company, once Asia’s largest commodity trader.
In the third quarter, Noble reported a net loss of $28.1m, compared to a profit of $24.7m in the same period last year, as strengthening its balance sheet took priority over short-term profitability.
This was most evident in Noble’s core energy business, where working capital constraints, combined with a lack of market volatility, contributed to a sharp decline in operating profits.
However, adjusted net debt, which counts inventories of oil and coal as cash, stood at $1.92bn at September 30, compared to $2.4bn at June 30.
That figure should fall further once Noble completes the proposed sale of its North American retail power unit, called Noble Americas Energy Solutions and one of the company’s more reliable businesses, for $800m.
Noble, which has defended its accounting as being in line with industry practice, is restructuring to focus on four core units: oil, gas and power trading in North America, coal and a streamlined metals division.
“We expect both from a cost and working capital point of view to get back to business as usual in the first quarter of 2017,” said Paul Jackaman, Noble’s finance director.
“A normal well capitalised business … should be generating around $1bn of operating income a year. That should translate into $500m to $550m of earnings before interest.”
After a spike in prices, Mr Jackaman said that he was confident about the value of Noble’s long-term coal contracts, which are carried on its balance sheet at about $600m.
Thermal coal, burnt in power stations to generate electricity, has more than doubled this year to $110 a tonne.
This is significantly above the so-called anchor price of $55 a tonne used by Noble to calculate the value of its supply agreements.
“Noble’s third-quarter net income was below our forecast, but higher coal prices as well as the company’s improving balance sheet and liquidity should ease investors’ concerns,” said Charles Spencer, analyst at Morgan Stanley.
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