Noble sees $1bn rise in net debt amid profits bounce back

Noble Group, the commodities trader facing allegations of aggressive book keeping, said it was not concerned with 22 per cent increase in borrowings as it provided limited new disclosure on its accounting policies with its quarterly results.

The Hong Kong-based company said the near $1bn rise in net debt to $3.97bn in the three months to March and a similar increase in working capital reflected a "substantial" number of supply agreements maturing and a build-up of oil storage trades.

"We are pleased with the results", said chief executive Yusuf Alireza after Noble announced a rebound in first quarter net profits to $107m, from a $240m net loss in the last three months of 2014. "All four of our core business lines were profitable and contributed to the bottom line," he said.

Year-on-year, however, earnings for the first quarter fell 30 per cent. Revenue declined 7 per cent to $16.6bn but total volume of commodities traded leapt 67 per cent compared with the same period last year to 65.8m tonnes.

Noble is Asia's biggest commodity trading house and has a market value of $4.5bn. It mines, ships and finances iron ore, coal and agricultural commodities including grains, sugar, palm oil and coffee. It also has a growing oil business, where trading volumes have increased by 50 per cent in the past year.

Its shares have dropped 25 per cent since the middle of February when an unknown group called Iceberg Research published the first of three reports criticising the Singapore-listed company's financial reporting.

Noble has also been attacked by Muddy Waters, the US short seller, which has questioned the trader's financial strength and governance. Noble has rebuffed the allegations.

Since the Iceberg attack - which Noble claims was the work of a disgruntled former employee - the commodities trader has promised to make its accounting clearer and has denied that it books too much of the profit from long-term deals soon after a contract comes into force.

For the first time, Noble split out the performance of its four major business lines - energy, gas and power, mining and metals and investment. The company also provided a limited breakdown of gains and losses on its long-term contracts and how many were priced using its own valuation techniques.

However, Charles Spencer, analyst at Morgan Stanley, said the increased disclosure might not be enough to fully repair investor confidence.

"Investors we spoke with had hoped to see the total unrealised gains included in the profit and loss account for the first quarter of 2015 as well as 2014 disclosed," he said in a note to clients.

Net gains on commodity contracts fell almost 9 per cent to $4.1bn in the quarter while Noble saw a cash outflow from operating activities of $600m due to supplier payments.

Robert van der Zalm, chief financial officer, said Noble had faced marginally tighter credit terms from some of its counterparties during the quarter but there had been no material impact on the company.

In emailed comments, Iceberg said Noble continued to "bleed cash" and ultimately would be judged on its ability to generate money rather than volumes or accounting profits. "Debt is not repaid by mark-to-market gains [on commodity contracts]," it said.

The results announcement came as Noble said it had secured $2.25bn of commitments for a loan facility that will be used for general corporate purposes and to replace maturing credit lines. Mr Alireza, the chief executive, said the pricing and numbers of banks involved the deal, were "consistent" with a year ago.

On Noble's outstanding bonds, Mr van der Zalm said the company would assess nearer the time how to refinance or repay a $500m note that is due in August.

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