Noble warns of ‘stressful’ year ahead

Financial Times

Noble Group, one of Asia’s largest commodities traders, warned investors that 2012 would be another “stressful” year as it posted a 57 per cent fall in fourth-quarter net profit. Hong Kong-based Noble, which is listed in Singapore, made a net profit of $105.7m in the three months to the end of December, having shocked the market in the third quarter with its first quarterly loss in more than a decade.

Richard Elman, Noble’s acting chief executive, said 2012 would be “challenging”.

“It’s steady as she goes, cautious, watching everything very carefully, not doing anything silly, and continuing to grow and build the business,” said Mr Elman, who founded Noble in 1987.

“There will be some opportunities during the year no doubt, but I think it’s going to be another stressful year.” The group reported net profit of $431.3m for 2011, down from $605.6m for 2010. Tanuj Shori, analyst at Nomura in Hong Kong, said the earnings were “bang in line” with the market’s estimates. “Everyone should have been expecting a weak result for Noble because markets were weak, so I don’t think these earnings should come as a surprise,” said Mr Shori.

The commodities trading industry suffered a sharp drop in profitability in the second half of last year amid weaker demand and widespread defaults in some markets such as cotton.

Glencore, the world’s largest commodity trader, lost more than $330m trading cotton last year, contributing to an 18 per cent drop in earnings in its trading business. Other agricultural traders such as Cargill, Bunge, and Archer Daniels Midland have also reported tough trading conditions.

ADM, Bunge and Cargill, along with Louis Dreyfus Commodities of France, are known by their initials as the “ABCD” of companies that dominate global agricultural trading flows. But trading houses based in Asia, including Noble, Olam and Wilmar, are challenging their dominance.

The weakness in Noble’s metals and minerals division, which reported a 66 per cent year-on-year drop in its operating income, stands in contrast to Glencore’s metals trading business, which reported relatively firm earnings for the second half of the year. Noble however is more reliant on iron ore trading, which suffered from low freight rates and a fall in exports from India.

Noble, which has net debt of $4.6bn, sought to reassure investors about the strength of its balance sheet.

The company said its $1.5bn of gross cash was double its entire 2012 refinancing needs, and that it had unused committed banking facilities of $4.5bn. Noble said it had not yet decided when to launch an initial public offering of shares in its agricultural division, called Noble Agri.

The shares closed up 0.3 per cent at S$1.38.

The results came as Singapore-based Wilmar International announced the acquisition of a 10 per cent stake in Goodman Fielder, Australia’s largest listed food company, for $124m. The news pushed shares in Goodman up 30 per cent as traders bet it could be the prelude to a full bid or further share buying.

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