Trafigura, one of the world’s largest commodity traders, has announced a 12 per cent decline in annual profits as challenging market conditions curbed money-making opportunities and it was forced to write down the value of port and rail assets.
In the year to September, net profit was $975m, down from just over $1.1bn in 2015 which was a record year for trading the Geneva-based company.
In spite of the dip in profits Trafigura was still able to hand $719m to the 600 staff that control to the privately owned company through a share buyback, taking the amount it has paid out to senior trading and executives over the past four years to $3.2bn.
The results are a further indication that a two-year boom in oil trading that led to some of the highest profits on record for Trafigura and rivals such as Vitol, Mercuria and Gunvor is fading.
Jeremy Weir, Trafigura’s chief executive, said 2016 had shown the “resilience” of Trafigura’s business model.
“Last year’s trading environment was one that was challenging, it was highly volatile. There were periods of depressed prices due to oversupply. It was particularly challenging in the minerals and metals business, but less so in the oil markets,” he said.
Earnings before interest, tax, depreciation and amortisation – which Trafigura sees as the most accurate reflection of its operation performance because it strips out investment gains and impairments – fell 13 per cent to $1.63bn. The company’s gross margin was 2.3 per cent, down from 2.7 per cent a year earlier, while adjusted net debt was $8.6bn.
Trafigura reported record profit from oil and fuel trading in its last fiscal year as its traders took advantage of profitable arbitrage opportunities caused by the crash in oil prices.
But in the year to September gross profits from oil and petroleum products unit fell 13 per cent to $1.46bn. Nonetheless, the company traded more than 4.2m barrels a day of oil and refined fuels during the year, up 40 per cent from 2015.
Trafigura is now one of the biggest exporters of Russian crude, a through a series of deals with sanctions-hit Rosneft, the state-controlled producer. It has also expanded its oil trading operations in Asia and the Americas.
A “depressed price environment” saw Trafigura record impairment charges of $365m against various port and rail assets. The hit was partially offset by $244m gain from reversing a prior year writedown on an iron ore asset in Angola.
Trafigura’s metals and mining business saw gross profits fall 10 per cent to $831m.
Looking ahead Mr Weir said 2017 was going to be “very volatile” year.
“We’re moving into uncertain times, again, both politically and we’re also seeing that just recently in market environments, in the bond markets, foreign exchange, equities and that will move into the commodity markets where we’ve seen extraordinary price movements.”
After the end of its fiscal year, Trafigura took a 24 per cent sake in India’s Essar Oil, as part of a $13bn deal that saw Rosneft take control of the company. The deal is the Trafigura’s most ambitious oil investment to date and could eventually boosted its oil trading volumes by 10 per cent.
In its annual results statement, Trafigura revealed a capital contribution of $320m to the deal.
“It is well within our capex programmes in terms of its structured in a way which does not impact on our gearing ratios and it’s a very important facility to expand our business both regionally and also domestically within India”, said Mr Weir
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