Noble Group Limited’s Earnings: What’s Next After First Quarterly Loss In 3 Years?

Talk about stormy seas for commodities supply chain manager Noble Group Limited (SGX: N21).

Shortly after two reports from an anonymous blogger named Icceberg Research were released, criticizing the company’s accounting practices and business performance, the commodities firm announced its fiscal fourth quarter earnings yesterday and reported its first quarterly loss in three years.

With that, let’s take a closer look at Noble Group’s latest results.

Financial highlights

For the whole of FY2014, Noble Group recorded revenue of US$85.8 billion, which is up about 4% from a year ago.

However, due to a lower operating margin (a fall from 1.92% in 2013 to 1.74% in 2014), the company’s operating income from supply chains actually declined 6% year-on-year to US$1.49 billion.

Moving further down the income statement there was a huge increase in losses on supply chain assets as well as share of losses of joint-ventures and associates. These, coupled with higher selling, administrative and operating expenses, saw Noble Group’s net profit for the year fall by 44% to US$132.5 million.

Noble Group’s fourth quarter was particularly bad as it recorded net profit of a negative US$240 million, its first quarterly loss in three years as mentioned earlier.

Despite having earned a profit in 2014, the company’s operating cash flow in 2014 was actually a negative US$1.1 billion, down significantly from the positive operating cash flow of US$805 million seen in 2013.

Noble Group ended 2014 with US$903 million in cash and US$3.97 billion in total borrowings. This is an improvement from a year ago; Noble Group had US$1.056 billion in cash and US$6.141 billion in total borrowings as of end-2013.

Operational highlights

Noble Group’s revenue growth in 2014 was achieved on the back of a 15% increase in tonnage to 215 million from its Energy and MMO (Metals, Minerals, and Ores) segment. If we include the tonnage from the company’s Agriculture business, 2014 would have seen a 19% increase from 233 million tonnes in 2013 to 278 million tonnes.

Late last year, Noble Group actually sold a 51% stake in its then-subsidiary Noble Agri Ltd. The latter is now considered an associate of Noble Group and will be equity-accounted going forward. The final cash consideration for the sale has been agreed at US$1.46 billion, slightly lower than the US$1.5 billion previously announced.

Interestingly, the sale of Noble Agri Ltd would allow Noble Group to offload a large portion of its workforce and assets, allowing the company to move closer toward its objective of being an asset-light firm.

During 2014, Noble Group had made a total of US$438 million in impairments, write-offs and provisions, of which the most prominent is the US$200 million impairment taken on Australia-listed coal miner Yancoal. Coincidentally, the large impairments were made shortly after Iceberg Research’s reports were released; the reports had been critical of the way Noble Group had recorded the value of Yancoal on its balance sheet.

Foolish Summary

Investors might want to watch Noble Group’s ability to generate cash flow from its operations in the future since the company’s supposedly even more asset light now following the restructuring of its business which involved the partial sale of Noble Agri Ltd.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in companies mentioned.