Noble Group Limited’s Latest Earnings: Profit Falls, But There’s Improved Transparency for All

Noble Group Limited  (SGX: N21) announced its fiscal first-quarter earnings for the financial year ending 31 December 2015 yesterday evening.

Although Noble had managed to make a profit, reversing the loss it suffered in the fourth quarter of 2014, the firm’s latest set of figures were still down on nearly all counts when compared to the same quarter a year ago.

Financial highlights

For the quarter ended 31 March 2015, Noble, which manages global supply chains for industrial, and energy products, saw its revenue drop 7% year over year to US$16.6 billion.

Due to higher expenses, the firm’s operating income margin had slipped to just 2.51% compared to 2.89% in the first quarter of 2014.

The larger losses from joint ventures and associates of US$71.6 million (versus a loss of “just” US$13 million a year ago), combined with the aforementioned lower revenue and operating income margin, had led Noble to suffer a 30% year over year decline in net profit to US$106.6 million.

Noble ended 31 March 2015 with net debt of US$3.97 billion, up from the figure of S$3.07 billion seen at end-December 2014. The higher level of borrowings came with it a weaker balance sheet as the commodities trader’s net debt to capitalization ratio had increased from 37.8% to 43.7% over the same period.

And since we’re on the topic of Noble’s balance sheet, it’s worth noting that the company had also announced yesterday that its latest revolving credit facility of US$2.25 billion had just received full commitments and should be moving toward completion soon. With this facility, the company may just increase its borrowings in the future.

During the reporting quarter, Noble’s operating cash flow came in at –US$597.1 million, down from the figure of –US$522.2 million seen a year ago.

Business highlights

In Noble’s Energy segment (which can be further subdivided into Energy Coal and Oil Liquids), the volume traded had marked a strong improvement from 24 million tonnes seen a year ago to 33.9 million tonnes for the reporting quarter.

But, due to price declines experienced in the Energy Coal sub-segment, Noble’s revenue for the Energy segment had fallen by 16.5% year over year to US$12.1 billion. The lower revenue had also contributed to a 14.8% drop in the segment’s profit before interest and tax (PBIT) to just US$202 million.

As for the Gas and Power segment, the volume traded during the quarter came in at 260.2 million MWh, up only slightly from 255.7 million MWh a year ago. The higher volume resulted in the segment’s revenue climbing by 14.7% from US$151 million to US$173.2 million.

However, as there is an issue of oversupply in the market now leading to lower prices, Noble’s PBIT in this segment stood at only US$34.2 million, down a big 60% from a year ago.

Moving on to the Mining & Metals segment (which is subdivided into Metals and Carbon Steel Materials), Noble grew its volume traded by two-thirds from 6.3 million tonnes a year ago to 10.6 million tonnes. Unfortunately, significant pricing pressure had weighed on this part of Noble’s business and the segment achieved a modest increase in revenue (stepping up from US$3.208 billion a year ago to US$3.382 billion) but drastic fall in PBIT (a 33% year over year decline to US$52.9 million).

Other takeaways and a Foolish summary

Noble’s latest set of financials were, like I mentioned earlier, down on nearly all counts from a year ago – that’s nothing to get excited about. With its net profit margin already being razor thin, it appears that the firm’s continuing to see more margin compression in its business and that there is no real sign of any reversal of this trend.

But on a positive note, after Noble’s business was recently criticsed by two research firms – which led to a big fall in its share price – the company has increased the level of transparency in its earnings releases, starting with this particular set of earnings that I’ve just walked through; for instance, the firm had given a better breakdown in the earnings release for its previously combined Energy business.

The increased transparency is great news for shareholders. But, investors would still need to watch and see if Noble can grow its revenue, profits, cash flow, and maintain a healthy balance sheet over time.

For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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 any companies mentioned.