Noble Group Profit Drops While PwC Finds No Accounting Fault

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Noble Group Ltd. announced second-quarter profit fell amid a slump in commodity prices and released an auditor report commissioned by the company that it said counters criticism of its accounting practices.

Net income declined 4.5 percent to $63 million in the three months ended June from $66 million a year earlier, the Hong Kong-based trader said in a statement. Revenue dropped 22 percent to $18.4 billion, Singapore-listed Noble said. The company’s valuations of its long-term contracts comply with international rules, PricewaterhouseCoopers LLP said in the auditor report.

Noble Group faces challenges from falling commodities, including base metals, oil and coal, that have plunged amid concern slower economic growth in China will crimp global demand. The company’s shares have also lost about half their value since a previously unknown group called Iceberg Research published a report in February criticizing Noble’s accounting.

“PwC saying that the contract valuations look good is a positive,” said Ray Wepener, a proprietary credit trader at NH Investment & Securities HK Ltd. in Hong Kong. Separately, the company’s stock buybacks and debt redemptions in recent months “instills confidence in investors.”

Noble has rejected the criticism in several public letters and statements and hired PwC to review its accounting and valuation methods. The company also bought back its stock at least 11 times since June and last week redeemed $735 million in outstanding bonds.

Operating Income

Noble brought forward its quarterly results by three days after the stock lost 28 percent in the week ended July 31. The company said the declines in its share price were due to the spread of “misleading and untruthful information.”

The net fair value of commodity contracts and derivative instruments held by Noble dropped 10.7 percent to $4.1 billion on June 30, according to its financial statement.

The Bloomberg Commodity Index of 22 raw materials ended the quarter down 24 percent from a year earlier. The company’s shares declined 49 percent so far this year and closed at 58 Singapore cents on Thursday. Trading was closed for a public holiday in Singapore on Friday and Monday.

The company reported that its gross profit margin increased to 1.8 percent in the second quarter from 1.5 percent in the same period last year. Operating income also improved 3.1 percent to $325 million.

Aluminum Premiums

Noble said it plans to reduce its workforce by 16 percent to 1,564 employees by the end of the year as it cuts costs. It has also closed offices in Hamburg and Oslo as part of that effort.

“It is very pleasing that we have continued to build the profitability and diversity of our core businesses, especially in the light of the challenging market conditions,” Yusuf Alireza, the chief executive officer of Noble Group, said in a statement.

Noble’s metals and mining sector swung to a $50 million loss in the quarter from a $109 million profit the same period the previous year. Aluminum premiums, or the fee paid on top of benchmark cash prices, have fallen 70 percent during the first half of this year, the company said, highlighting increased production from China. Aluminum product shipments from China have risen 28 percent in the first seven months of this year as the country produces record-high volumes, pressuring global prices.

“The aluminum business, a very well established franchise, regularly holds inventory for distribution to customers and had a very difficult quarter as premiums for the metal in key distribution locations weakened sharply, and materially,” Noble said in a release. “Fundamental demand weakness continued to weigh heavily on prices and premiums across other non-ferrous metals including zinc, copper, and lead.”

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