U.S. Markets open in 2 hrs 50 mins

Edited Transcript of N21.SI earnings conference call or presentation 5-Aug-19 10:30am GMT

Half Year 2019 Noble Group Ltd Earnings Call

Wanchai Aug 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Noble Group Ltd earnings conference call or presentation Monday, August 5, 2019 at 10:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Matthew Hopkins

Noble Group Limited - Interim CFO

* Paul Jeremy Brough

Noble Group Limited - Executive Chairman of the Board

================================================================================

Conference Call Participants

================================================================================

* Bruno Bodin;GoldenTree Asset Management, LP;Analyst

* Raghav Bhandari

SC Lowy Financial (HK) Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by and welcome to the Noble Group Second Quarter 2019 Results Conference Call and Webcast.

I must advise you that this call is being recorded today, Monday, 5th of August 2019.

I would like to hand the conference over to your first speaker for today, Mr. Paul Brough, Chairman. Thank you. Please go ahead.

--------------------------------------------------------------------------------

Paul Jeremy Brough, Noble Group Limited - Executive Chairman of the Board [2]

--------------------------------------------------------------------------------

Good evening. This is Paul Brough, and good evening to all of those on this call, which is to discuss the unaudited results of Noble Group Holdings Limited for the 6 months ended the 30th of June 2019.

With me in Hong Kong today is Matthew Hopkins, our CFO; and I'm also joined today from various corners of Asia by Will Randall as well our senior traders, Manish Dahiya, who runs our Energy Coal business and LNG; and Ajay Mishra, who runs our metallurgical coal and coking business.

As is typically the case in these results calls and given the technology available to us, the CFO will talk through the results and generally answer most of the questions. We will not be able to answer any commercially sensitive questions, which undermine our market position or impair our competitive advantage, nor do we wish to speculate or discuss forward-looking information.

I will shortly hand over to Matthew Hopkins, but from my perspective looking at the first half of the year, we have had a more than satisfactory 6 months financially and we have made some progress with regard to rebuilding the trading business, executing some asset disposals and transitioning the Board from one focused on the restructuring to one focused on building the business. It has been very encouraging to witness the strength of our customer relationships for which we are very grateful and today was a focus on business and our customers.

I will now hand over to Matthew Hopkins to talk us through the numbers. Matthew?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [3]

--------------------------------------------------------------------------------

Thanks, Paul. And everyone on the call, thank you, too. We appreciate you joining us and spending the time on our results today.

So we have released 2 documents earlier today, the MD&A and the statutory accounts presentation and the summarized presentation. Broadly, I will be speaking to the presentation but I'm not intending to do a page turn here.

As Paul just mentioned, the headline here is that we have a satisfactory first half set of results to report and a satisfactory second quarter.

Not everything is going our way, but at group level, we have net profit after all finance costs after-tax of $46 million for the first half with $30 million in Q1 and $16 million in Q2. EBITDA metrics at group level are $144 million for the year so far, $75 million in Q1, $69 million in Q2.

We're reporting a strong liquidity position with stable cash balances at around $0.5 billion for each of year-end 2018, Q1 '19, Q2 '19 and this is despite an increase in working capital, some CapEx and sustaining significant cash balance costs.

Volumes are consistent at group level with 25 million tonnes for the year so far, 12 million of those in this quarter. Given our goal of rebuilding a track record through the 4 quarters of 2019, I would reiterate that the year so far really have been encouraging.

Turning to the Trading Co side of our business. The market conditions were actually quite mixed. The Energy segment, which contains LNG, oil products and energy coal, saw volatile markets, as we expected. LNG fell 6% over the quarter amid unchanged bearish Asian fundamentals. Newcastle coal prices traded lower as the market adjusted for the supply/demand mismatch.

The Energy segment delivered a strong result for the quarter with the teams taking advantage of this volatility with structured physical trades and an active approach to hedging. Volumes have increased and while it's not backed up to business plan levels, we have a satisfactory pipeline of new contracts that will push up the numbers. Our traders will continue to prioritize high-margin transactions even at the expense of volumes.

The Minerals, Metals and Ores segment, which includes metals, tech metals, steel and freight also saw mixed conditions. Global trade tensions continued to weigh down base metal prices. Despite this, the base metal business delivered steady underlying performance in the first half and continues to focus on a measured build based on existing relationships in key origination markets. The new technology metals business is active in the market and executed physical rare-earth trades in neodymium and cobalt in the first half with end users in China.

Iron ore prices extended their gain in the second quarter of 2019 riding on demand growth. Iron ore shipments improved in the second quarter with supply showing signs of recovery after the supply shock of the Vale tailings dam disaster. The metallurgical coal and coke business delivered solid results in the first half and it focuses on, again, a measured ramp-up in volumes and maintaining its leadership position in the seaborne market. The special ores and industrial minerals business also continued to deliver stable volumes and profit margins.

Freight was an interesting market in the second quarter as Cape rates for dry bulk commodities markets recovered from the lows of the first quarter of 2019 to some extent driven by restart of Vale shipments. The desk managed to trade the market well and catch the volatility in the freight market during this first 6 months, which, at one stage, showed close to historical lows in the Cape segment, which since then have seen a strong rally.

Turning to the Asset Co side of our business, let me take you through updates on each of the businesses on that side of our structure. For our own vessels, we started the year with 5 vessels on our books. We now have 4 with a further sale at an advanced stage. As we predicted, the market came off and we pulled back. We've seen the market rally somewhat and we're now on track to deal with the rest of the fleet.

For plantations, we were pleased to announce an agreed sale in the quarter. As at the date of this call, we've received $37 million of the $67 million that we announced with the balance due by year-end. For Harbour, the underlying North Sea oil assets continues to produce well. The team there are working on the consolidation of additional assets into Chrysaor. Production is per plan and the operation continues the successful hedging program that has been put in place, and the business continues to grow its global platform.

Finally, in Asset Co, Jamalco. Let's now a slightly deeper dive so we have prepared a specific update to this part of the presentation you have. Firstly, we should say that after a strong Q1, Q2 performance was not at the same level. A couple of drivers here. Firstly, softer alumina process throughout the quarter. Brazil is back online plus one or two other factors, and we saw Atlantic alumina pricing at $291 per tonne versus somewhere in the high $300s only a couple of months earlier. Although Jamalco sold forward a portion of production with advantageous pricing, this is now running off towards year-end. The operation also had unexpected production losses in the quarter, including a refinery power outage and a fire at the port. We have something of a "do cry over spilt milk" philosophy, so as you might imagine, the reaction was rapid and robust and production is largely back to normal.

In a lower price environment, the cost of production is key. So the efforts that were planned are now around debottlenecking and bringing forward maintenance so that we can enter 2020 with lower costs. And if these strategic projects adjacent to the plant come into play, this will also drive energy costs in the right direction. We expect cost of production to remain in the first quartile of cost curve throughout and the Jamalco product continues to command a premium in the Atlantic Basin.

All that said, the incorporation remains a focus. We are in negotiations with the government of Jamaica on this point and what you see on the slide here is really all we can say at this stage with perhaps more elaboration on the next earnings call.

With that, I'll conclude the formal part of our call today and hand over back to the operator for any Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We have our first question from the line of Raghav Bhandari from SC LOWY.

--------------------------------------------------------------------------------

Raghav Bhandari, SC Lowy Financial (HK) Limited, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Congratulation on a good set of results especially at the Trading Co level. My question is more on the Asset Co side and Jamalco. Can you give us a sense of what were the cash costs in quarter 1 and quarter 2? I believe in quarter 1, we were somewhere between 290 to 310 or thereabouts. Would be good to get some guidance on this. What was like in quarter 2? And where do you expect that going forward? So that's part one of the Jamalco question. Part 2 is, when we're reporting Asset Co EBITDA, how is Jamalco reflected in there? Is it consolidated for 100% or is it just for a proportion at 55%? Would be good to understand this clearly. That's it for me.

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [3]

--------------------------------------------------------------------------------

Thank you for the question. Look, I know there's an appetite for granular information about Jamalco and the costs there. But frankly, there's nothing that we have been so explicit about. With our commercial interests in the mine, we probably continue to hold that line. The numbers do lend themselves to some analysis and it is possible to detect something from what we do report, but we're not really going to be explicit about quarter-on-quarter cost information for Jamalco. In respect of your second question, yes, I can answer that and the answer is at 100%.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

We have our next question from the line of Bruno Bodin from GoldenTree.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [5]

--------------------------------------------------------------------------------

I just wanted to delve up a little bit on the power outage that you had for Q2. I mean, can you give us an indication of what was the impact versus like if there had been no power outage or disruption for the quarter?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [6]

--------------------------------------------------------------------------------

Again, similarly, it's difficult to really be crystal clear in terms of enumeration. It's not that we don't have the data, but that isn't something that we'd want to be too transparent about. But clearly, that was a volume-reducing incident. The power outage is something that we rely -- we rely on power externally when we are -- when we need extra power in the plant. We actually have our own power-producing capacity within the plant. The external power into the plant is something that we sometimes pull on when we need it. When that is down, that clearly has an impact on volumes. It wasn't catastrophic. It was a decent high costly numbers in the month that it happened. But as I said in the presentation, that kind of thing is something that the team down there are accustomed to reacting to and jumping on quickly, and as we sit here today, largely back into normal production levels.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [7]

--------------------------------------------------------------------------------

But can you tell us what was -- how many days of outage you had? I mean, I guess it's not -- it shouldn't be a secret, right?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [8]

--------------------------------------------------------------------------------

I guess that's true. The -- it wasn't the entire month. So the production outage was reported. It happened during April. It was an event that happened and was then remediated in the same month. So not the entire month. That's probably as much as we ought to disclose on that. Thank you.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [9]

--------------------------------------------------------------------------------

And just one more question. On the cash balance, right, so I think you received some proceeds from sale, I mean, partially on the plantation. And it seems like your cash balance Q1 versus Q2 is not really moving up. But I just wanted to understand that a little bit more if you can explain, please.

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [10]

--------------------------------------------------------------------------------

Sure. So as far as Asset Co is concerned, the palm proceeds are a Q3 event largely. The vessels proceeds are also -- one of the vessels was monetized during the period. And as I said in the presentation, another one is close to an announcement hopefully.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [11]

--------------------------------------------------------------------------------

You said you received $37 million this quarter, right, is that correct? Or is that you agreed to it, but you've not received the cash yet?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [12]

--------------------------------------------------------------------------------

No. In respect of palm, as we sit here today, we've received $37 million. Some of that was received Q2, some of that was received Q3. In addition, there's another cash flowing, which is our decision to get into the market and buy back bonds as we see the opportunity. So that's also a negative factor into the overall cash movement calculation.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [13]

--------------------------------------------------------------------------------

So you bought back some bonds in Q2?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [14]

--------------------------------------------------------------------------------

Yes, we did. And so the details are in the materials. I know you haven't had them for very long, but you'll be able to drill down into what that number is. Thank you.

--------------------------------------------------------------------------------

Bruno Bodin;GoldenTree Asset Management, LP;Analyst, [15]

--------------------------------------------------------------------------------

Okay. And can you perhaps elaborate on potential repayments following sales? I mean, is it your intention to use the cash proceeds to pay down the Asset Co debt towards the end of the year with the proceeds from the plantation?

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [16]

--------------------------------------------------------------------------------

Yes, look, I mean, the way that the bonds are set up, the proceeds from divestments ring-fenced for -- to pay down the Asset Co bond balances. We do that judiciously and as required. So absolutely to the extent that you see cash flows from Asset Co divestments either now or later, you would expect that to be an Asset Co bond paydown.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Matthew Hopkins, Noble Group Limited - Interim CFO [18]

--------------------------------------------------------------------------------

All right. Well, ladies and gentlemen, it looks like that's the final question. So again, thank you for joining us this evening. We appreciate you spending the time looking at our results and contemplating them. I'm sure we'll have lots of questions over the coming weeks and we're happy to get into those. For now, thank you very much and good evening.

--------------------------------------------------------------------------------

Paul Jeremy Brough, Noble Group Limited - Executive Chairman of the Board [19]

--------------------------------------------------------------------------------

Goodbye.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Thank you. That concludes your conference call for today. Thank you for your participation. You may all disconnect your lines now. Thank you.