Noble Q2 profit down 5%, but underlying performance and balance sheet still robust

Noble Group reported another quarter of lower profit as revenue continued to dip in the three months to June 30 amid a slump in commodity prices.
Noble Group reported another quarter of lower profit as revenue continued to dip in the three months to June 30 amid a slump in commodity prices.PHOTO: REUTERS

SINGAPORE - Noble Group reported another quarter of lower profit as revenue continued to dip in the three months to June 30 amid a slump in commodity prices.

But the Singapore-listed firm stressed that many aspects of the company's performance have improved over the past six months while its balance sheet remained highly liquid.

Profit for the second quarter was down 5 per cent year-on-year to US$62.6 million (S$86.88 million), following a 22 per cent drop in revenue to US$18.4 billion in the period.

A major drag on the earnings was Noble's share of losses incurred by associates such as Noble Agri, which widened 185 per cent compared to last year to US$67.7 million.

For the first six months this year, profit fell 22 per cent to US$169.2 million, while revenue dropped 16 per cent to US$35 billion.

"The year to date decline in first half group net profit… continues to reflect the fact that the first three months of 2014 saw our North American energy business benefit from the unusually extreme winter weather conditions at that time," Noble said on Monday (August 10).

The latest quarterly results highlight the persistent headwinds faced by Noble, which also reported a 29.6 per cent year-on-year decline in its first quarter net profit amid the commodity crunch that has also pressured companies and economies worldwide.

Noble however noted that there were bright spots in its performance, with tonnage up 40 per cent year-on-year for the first half this year, while gross margin for the period improved from 2.08 per cent to 2.13 per cent.

Steps to cut cost, including a total headcount reduction of over 15 per cent this year, contributed to run rate savings of US$70 million, Noble added.

At the same time, the past six months have seen Noble's management come under allegations of accounting fraud and poor governance.

Noble has refuted these claims, and the latest results announcement on Monday came with the first detailed description of how Yancoal's valuation was arrived at. The asset's valuation was one of the alleged issues that critics have focused on.

On its balance sheet, Noble said that its net debt stood at US$2 billion as of June 30 after adjustments for readily marketable inventories, lower compared with US$2.4 billion a year ago. Liquidity headroom remained at US$2.9 billion.

Along with its latest results and financials, Noble released the findings of a PwC review on its mark-to-market business model. The results were positive, with PwC concluding that "Noble has adopted an approach to valuations which is consistent with the relevant criteria, in all material respects."