Just two days before its latest financial results were due out, Noble Group said early yesterday it expects to post a net loss for the fourth quarter and full year ending Dec 31, after a massive US$1.2 billion (S$1.68 billion) write-down.
The Singapore-listed commodity trader expects to recognise US$1.2 billion of non-cash impairments and exceptional adjustments in the fourth quarter, in addition to the non-cash loss of US$546 million from the sale of Noble Agri.
Noble's write-down primarily accounts for the fact that its coal portfolio was not sufficiently hedged for the possibility that prices will stay lower for longer, the group said in a statement to the Singapore Exchange. The majority of its long-term contracts are for coal, and it has made a "conservative" downward revision of its 2020 forecast price of thermal coal from US$85 per tonne to US$55 a tonne, chief executive Yusuf Alireza said in a conference call. The downgrade is a more than 20 per cent discount to the market consensus forecast of US$69 a tonne of thermal coal in 2020.
Noble made similar adjustments across its portfolio of net fair value gains on commodity and other derivative financial instruments, resulting in a "significant increase" in the effective discount rate to 20 per cent, it said. Mr Alireza said the adjustments are non-cash items and have no impact on the group's cash position, and the firm is on track to meet its goal of being cash flow-positive by year end, a target set in its second-quarter earnings announcement. "We achieved that goal early in the third quarter, and again in the fourth quarter. In fact, we have positive cash flow from operations in the second half of 2015 of approximately US$650 million. Our liquidity position continues to be our primary focus, and we ended the year with a record US$1.95 billion in cash."
Noble also said its net asset value per share as at Dec 31, after the write-down and with Noble Americas Energy Solutions carried at historic cost, remains in excess of 70 Singapore cents per share.
With commodity prices tumbling, its shares have shed more than 65 per cent over the past year after claims by Iceberg Research, an anonymous group, that it was inflating its assets by billions of dollars.
Noble rejected the claims and appointed PricewaterhouseCoopers to undertake a review. It concluded that the firm had complied with international accounting rules.
Iceberg then called the US$1.2 billion a late compromise between the auditor and Noble. "Any commodity specialist will find the reasons given to justify the impairment absurd. Noble has just admitted their forward curves were far too aggressive 48 hours before they issue their annual results. Forward curves move every day. A company does not realise there is a problem 48 hours before the annual results," it said in an e-mail. It will issue its fourth report on Noble before the firm reports earnings after trading hours on Thursday, it said.
Noble's shares rose half a cent or 1.35 per cent after the profit warning to close at 37.5 cents yesterday.