Noble Group Ltd. lost money in the second quarter and net debt increased as the embattled commodities trader withdraws from some markets in an attempt to conserve cash and reverse a two-year collapse in its shares.
The company made a loss of $54.9 million in the three months to June compared with a net profit of $62.6 million a year earlier, according to a statement on Thursday. Sales declined 32 percent to $12.5 billion. The Hong Kong-based firm was reporting its first earnings under new co-chief executive officers Jeff Frase and William Randall.
In a tumultuous 18 months, Noble Group has lost its blue chip status and investment-grade rating amid sliding markets and criticisms of its financial reporting. Former CEO Yusuf Alireza quit at the end of May and days later the company announced an emergency rights issue for about $500 million and said founder and chairman Richard Elman would step down within 12 months. Other measures aimed at raising capital included a pledge to sell once-core U.S. energy assets.
“Our focus on generating additional liquidity, especially in the latest quarter, has directly impacted our ability to generate operating profit,” Noble Group said in a statement. “To preserve liquidity, we constrained working capital to all businesses, including those with strong franchises.”
Noble Group has lost about two-thirds of its market value over the past year and fell to the lowest since 2003 last week before the new rights shares began trading on the Singapore exchange. The stock has slumped 49 percent this year even as commodity returns recovered about 15 percent from the lowest in a generation in January. The shares closed 4.7 percent higher at 15.5 Singapore cents on Thursday.
Net debt increased to $3.92 billion by June 30 from $3.69 billion three months earlier, the company said. The trader said it received a waiver from relevant banks relating to one of the financial covenants in its revolving credit facility and borrowing base facility for the period ended June 30.
“It’s still too early to talk about profitability for this company because they’re still focusing on deleveraging and resolving liquidity issues,” said Margaret Yang, a strategist at CMC Markets in Singapore. “Besides the headline numbers, investors would be more concerned about the proposed sale of Noble Americas Energy Solutions.”
The sale of the business has “already generated significant interest” from potential buyers and should close in the next few months, the company said. Considered core under Alireza, it’s a victim of Noble Group’s cut to junk status as the company seeks to raise cash and divest a capital-intensive business that its credit rating can no longer support, according to co-CEO Frase in June.
In another fund-raising move, Alireza last year sold the company’s remaining 49 percent stake in the Noble Agri Ltd. business to China’s Cofco Corp. for $750 million in cash. Parts of the company being discontinued include some gas and power divisions in Europe and mining and metals arms in North America and Europe, it said. The restructuring should be complete by the end of the year.
Noble Group posted a negative net cash flow from operations of $534 million in the first six months after a positive $651 million in the second half of 2015, mainly due to the tightening of the group’s uncommitted unsecured bank lines ahead of its bank debt refinancing.
Working capital increased to $4.61 billion by the end of June from $4.42 billion three months earlier. Liquidity headroom, or readily available cash and unutilized committed facilities, fell to $800 million as of June 30 from $1.9 billion on March 31, mostly because of the reduced size of the new revolving credit facility refinanced in May compared with the maturing facility.
Net fair value gains declined $974 million in the six months through June 30, mostly because of the roll-off of “in the money” level 1 oil liquids futures contracts in the first quarter and the reclassification of Noble Americas Energy Solutions to “assets and liabilities held for sale,” the company said. Level 3 net fair value gains remained largely unchanged in the first half, it added.