Trafigura Group Pte Ltd. (“Trafigura” or the “Company”), a market leader in the global commodities industry, released its half year results. They show a strong performance by both trading divisions driven by significant volatility and dislocations in the global market, which make the physical trading and risk management activities of specialist companies such as Trafigura more relevant than ever.
Trafigura delivered a healthy profit for the first half of its 2020 financial year, 1 October 2019 to 31 March 2020, led by an exceptionally strong performance in physical oil trading. Net profit for the period rose 27 percent to USD542 million from USD426 million a year earlier.*
Group revenue for the period was slightly down from the same period of the previous year, at USD82,960 million, reflecting lower average commodity prices. Gross profit was USD3,126 million, compared to USD1,472 million, while gross profit margin for the period was 3.8 percent compared to 1.7 percent a year ago. EBITDA for the period was a record USD2,411 million which, excluding the impact of IFRS 16 on the first half of this financial year, equated to USD1,926 million, compared to USD1,112 million in the first half of 2019.
Both core trading divisions performed well. The Metals and Minerals division maintained a robust profitability, trading higher volumes in refined metals and bulk minerals, while the Oil and Petroleum Products division delivered its strongest first-half profit performance on record. The Shipping and Chartering business also delivered a very strong performance having positioned itself strategically with an increased fleet and a sizeable equity position to benefit from the expected IMO 2020 market disruption, which did materialize. Disruptions caused by OFAC sanctions that removed available VLCC tonnage and the deep contango market arising from COVID-19 oil demand drop supported freight rates and further enhanced the performance.
“At times like these, the physical trading and risk management activities of specialist companies such as Trafigura become more relevant than ever,” said Christophe Salmon, Trafigura’s Group CFO. “Our core competence lies in understanding the global supply chain in great detail, in having highly skilled trading teams and in managing infrastructure such as oil storage facilities, pipelines and freight capacity. During this period, our market intelligence on the impact of COVID-19 and of the decisions by OPEC and other oil producers on demand and supply, enabled us to act efficiently and effectively. This superior market understanding combined with our physical infrastructure and our capacity to manage the supply chain were key in balancing the oil market during these unprecedented times.”
Beyond the trading performance, other highlights in this half year included:
- The successful integration of zinc and lead refining company Nyrstar, following the company’s financial restructuring and absorption into the Trafigura financial statements in 2019. Nyrstar made a positive contribution of USD370 million to Trafigura’s gross profit and USD72 million on the Group’s EBITDA for the first time, showing the benefits of the turnaround plan being implemented since its consolidation within the Group last year. However, as expected as part of the company’s recovery plan, Nyrstar recorded a loss of USD137 million which is fully reflected in Trafigura’s profit for the period.
- A continuation of the Company’s disciplined approach to valuation of fixed assets. An assessment of the negative impact of the COVID-19 pandemic on global energy demand and increased global crude oil supplies causing refinery margins to reach record lows, led to an impairment of USD287 million in the value of the Company’s stake in the Nayara Energy oil refining operation. At the same time, the value of the holding in downstream company Puma Energy, having reported a loss for its 2019 financial year, was USD1,452 million on 31 March 2020, USD293 million lower than as at 30 September 2019.
- A strong start to operations of TFG Marine, the new joint venture with ship-owners Frontline Ltd. and Golden Ocean Group Ltd., which aims to build a significant share in a consolidating global bunker fuel market.
- A smooth transition of large parts of Trafigura’s operations to home-based working as the pandemic forced the reduction in use of office facilities. This underlined the benefits of the significant investment the Group has made in IT infrastructure around the world in recent years.
- Ample access to liquidity and rigorous financial control, including the simultaneous refinancing of two core credit facilities and the issue of notes with long-dated maturities in March 2020 at the height of the COVID-19 pandemic. As at 31 March 2020, Trafigura had access to bank credit lines totalling USD61 billion with significant available headroom.
In terms of the outlook for the second half of the financial year, the turbulent and uncertain market conditions described in the Interim Report continue to prevail, as governments work to bring the COVID-19 pandemic under control and to restart the global economy.
“We've been very thankful for the dedication, for the focus and for the commitment of all our staff as has been demonstrated during the first half year,” said Christophe Salmon. “Trafigura is a highly resilient company that is providing reliable and valuable services to producers and consumers of vital commodities. Those services were the wellspring of our revenues and profits in this reporting period, and we see every reason to be confident that this will continue to be the case for the second half of our financial year,” concluded Christophe Salmon.