Noble released their interim results where net profit fell by almost 50%.
Keynotes from the report:
- Higher cost of sales and services. This can be attibuted to lower sales per assets in the logistics division.
- Inventory costs is rising and more short term debt is required to cover tat increase in inventory and receivables.
I doubt i can explain their financial statements as eloquently as the way Richard Elman does. So below is he’s take on the released results.
Results for the first six months and the second quarter are not flattered by comparisons to the prior year periods. As we have mentioned before our previous results were skewed by a very distorting freight super-cycle. Even with this factored-in we are still not satisfied with our results. In particular we note that the return generated on our shareholders’ equity for the interim period was 14.5%, which is below our target level of generating a circa 25% return on our shareholders’ equity. For the first six months of the year, our net margins fell to the same level as Bunge and Cargill, and we are not happy. Although we are very satisfied with where we are going on a five-year view, we are being hurt in the short-term by our inherent conservatism with regard to the current froth in the raw materials, dare we say it, “space”.
We feel very much the same way when our sister was glued to CNBC during the bubble stock market years
and wildly speculated away on stocks and made a killing. Secretly, when we saw her smug demeanor during
Thanksgiving, we used to hope fervently for her comeuppance. Mercifully, it finally came, but we had to
endure three years of condescending references to “your hero” Ben “or whatever his name was” Graham than we thought necessary. The current raw materials boom is somewhat similar. We pray for patience, and we continue to only try and pursue transactions that make long-term sense.
All of the above being said, this was not a completely disappointing quarter nor a poor first six months for the company. We continue to build very real long-term franchises and we are pleased with our progress. Recent examples include:
. . . . . . . . . . . . . . . . . . . .Grain port and handling facilities in Timbues, and Buenos Aires, Argentina. A Uruguayan grain port facility, Soybean crushing facilities in Qinzhou, China. A soybean processing facility in Harda, India. An ethanol operation in the United States that gives Noble a 5 percent market share in the entire country for ethanol. Appointment by the Chicago Board of Trade as the market maker for the CBOT Ethanol contract. One of the largest grain storage and distribution facilities in Jordan. A coal mining, sourcing and trading operation that has a 5 percent global market share for steam coal. Distribution and sales rights to one of the largest new potential sources of Vanadium (try flying on a jet with no Vanadium, it wouldn’t make it five feet in the air) with a potential 20 year turnover of US$3 billion. The purchase of the Petroplus glycol complex chemical trading operations, which have particular relevance to Eastern Europe and Turkey and we believe synergies with Asia. The establishment of one of the world’s largest originators and traders of carbon credits. . . . . . . . . . . . . . . . . . . .
In order to achieve this, the company must have balance sheet strength and liquidity. At the end of the interim period Noble’s net assets equaled US$810 million, an increase of 11% over the previous year interim period (note that the growth of net assets, most of which has been in cash and cash equivalents, has reduced the ROE generated by the company in 2006; we hope that as we invest in the business over time, the ROE will increase). The balance sheet remains highly liquid. Cash and cash equivalents (which include trade receivables and inventories) totaled US$2.07 billion, or 67% of Noble’s total assets.
It is worth remembering that less than five years ago – for the full year period of 2001 – Noble’s total turnover was US$1.8 billion, or 1/3 of the turnover for the first six months of this year. Net profit for the entire year of 2001 was US$23 million as compared to the US$25 million Noble earned in the second quarter of this year. Net assets at the end of 2001 stood at US$126 million, or about 15% of where they stand currently. We have grown quite a bit since then and we aim to continue to do so.
One last important point. Unusually in Asia, and actually in many other places, the three controlling shareholders of Noble have never sold a single share since our listing. In fact, in aggregate, we have increased our stake in the business over the passage of time. It isn’t always a bed of roses amongst the three of us and we occasionally drain a bottle of scotch and call each other nasty names. This being said, we are united by a common long-term vision for, and love of, Noble. We run the business as though it is the one asset that our children will have for their future. We hope our shareholders have a similar long-term vision.
In closing we extend our sincere thanks to our employees and our appreciation to our shareholders, bankers
and bondholders and to our customers for their support of the business.
Please find following a more comprehensive M. D. & A.
Richard Samuel Elman Tobias Josef Brown
Chief Executive Officer Chairman (Non-Executive)