Noble says Iceberg author a former staff; group posts US$240m Q4 loss

Singapore

NOBLE Group has fingered a former employee as the person behind Iceberg Research, as it reported on Thursday its first quarterly loss in three years due to a heavy impairment charge on an associate.

The author of the research reports is a "disgruntled" former employee that the group fired 11/2 years ago, Noble chief executive Yusuf Alireza revealed in a briefing call.

"We have a high degree of confidence we know who it is," he said. The company has handed the information over to the regulators and does not intend to take any legal action against the person.

"We don't plan to spend any management time on it or shareholders' resources on it... Our stakeholders will judge us not by an anonymous blogger but by our results, and that's what we want to focus on."

The largest commodities trader in Asia by revenue posted a net quarterly loss of US$240 million - its first since September 2011, against a net profit of US$117 million a year ago. For the three months ended Dec 31, revenue dropped 14 per cent to US$21 billion.

For the full year, net profit almost halved to US$132 million, missing by far the average estimate of US$470.6 million by 13 analysts, according to Bloomberg data. Revenue was 4 per cent higher at US$85.8 billion.

Notwithstanding these, "2014 was a landmark year for us", said Mr Alireza, pointing to how the sale of Noble Agri had freed up its balance sheet, and "breakthroughs" in performance and market penetration, in particular by its oil liquids and power businesses in the US.

The group said that it had written off US$438 million for the year, including a US$200 million charge for Yancoal Australia, the valuation for which had been criticised by Iceberg Research.

The little-known research firm had earlier questioned Noble's accounting treatment of certain subsidiaries and said that the group overstated the value of Yancoal - the Australia-listed coal miner in which Noble has a 13 per cent stake - by US$603 million.

Noble, however, said that its latest results had not been affected "in any way" by the Iceberg report. The group reviews the value of its associates and investments on a quarterly basis, and on a more detailed level annually.

It arrived at the value for Yancoal based on a cash flow model that has been verified by both internal control functions and its auditor EY, and used conservative assumptions around input variables such as production levels, fuel inputs and coal prices.

The model provides for a range of values, and "we have impaired Yancoal right below the bottom of that range", said Mr Alireza, who also called Iceberg's suggestion of using the market capitalisation of Yancoal as its value "naive".

Both its board and auditor are comfortable with the adjustments in value, he added.

Noble's shares have fallen 12 per cent since Iceberg published its first report on Feb 15. Its website does not provide any contact details nor other identifying information.

In its second report on Thursday, Iceberg pointed to a "divergence" between Noble's net profit and operating cash flow as a result of Noble overstating the fair value of its long-term contracts.

Noble has a practice of booking the entire profit for long-term unrealised contracts the same day they are signed, said Iceberg. It also suggested that Noble had manipulated projections for forward prices and tonnage to inflate the fair values of these contracts. "These contracts surged from near zero in 2009 to an unprecedented net US$3.8 billion," it said in a 28-page report released before Noble announced its results. Impairing these values would "dramatically impact" Noble's financial performance.

Iceberg further accused Noble of stretching accounting rules "to the maximum", though it said that there was no outright accounting fraud.

Noble rejected these claims of inflated unrealised contract values as "factually incorrect". Iceberg had ignored the fair value of inventory, and the effect of short-term rolling hedging versus the long-term physical contracts, it said.

The group has a consistent mark to market - or the practice in measuring the fair value of its contracts - policy, Mr Alireza emphasised. "This is our core business."

As part of the asset-light strategy that the group is pursuing, its business model relies on the group's ability to manage market, credit and operational risks for buyers and sellers. The group manages 12,000 contracts with a weighted average duration of five years.

These are marked to market in order to provide profit and loss figures daily, said Mr Alireza. "It's a function of risk management."

Iceberg Research is expected to release a third report that will focus on Noble's debt levels and its investment grade credit rating. Noble's shares, which were suspended on Thursday morning following the second attack by Iceberg, will resume trading on Friday.