Trafigura Group Pte Ltd (“Trafigura”), a market leader in the global commodities industry, has today announced another successful and profitable year, with the company’s two core trading divisions, Oil and Petroleum Products and Metals and Minerals delivering a record performance.
- Gross profit of USD2,978 million, a 25 percent increase on 2018
- EBITDA up 24 percent at USD2,129 million
- Gross profit from Oil and Petroleum Products up by 64 percent
- Metals and Minerals matched its strong performance in 2018
- Gross trading margin of 1.7 percent compared to 1.3 percent in 2018
- Total trading volume across both divisions up four percent to 389 million metric tonnes
- Oil volumes increased to an average of six million barrels per day
- Net profit steady at USD867.8 million, in line with performance of 2018 and 2017
“Trafigura’s core strategy is to globally provide logistical services to producers and consumers of energy and industrial raw materials,” said Jeremy Weir, Trafigura’s Executive Chairman and Chief Executive Officer. “Our business relies on managing global supply chains of such commodities in the most efficient and reliable manner. These services are in particular demand now as a result of trade conflicts, geopolitical tensions and radical changes in commodity flows.”
In oil, the emergence of the US as the world’s leading producer has effectively re-engineered the global market, with barrels now moving predominantly from west to east. During the year, Trafigura consolidated its position as a leading player in exports of crude and of other products such as liquefied natural gas from the US and has built an unrivalled network of relationships with producers, refiners and end-users around the world. The company has also become a leading supplier of the materials required in the transition to a lower-carbon economy, including aluminium, cobalt, copper and nickel.
Net profit for the year did not fully reflect the strong trading performance due to financial impairments and value adjustments related to some of the company’s industrial assets and investments, however these adjustments demonstrate Trafigura’s disciplined and conservative approach to asset evaluation. This applies to Trafigura’s 49 percent holding in Puma Energy, where management is on course to achieve a turnaround.
An important event during the year was the acquisition of 98 percent of NN2 Newco Limited, the holding company of the operating business of Nyrstar, a leading zinc and lead smelting business, following a major financial restructuring between Nyrstar, its bondholders and bank creditors. The restructuring was completed on 31 July 2019, on which date the business became fully consolidated within the Trafigura balance sheet. This acquisition will create a stable basis for Nyrstar to turn around its operations following a period of financial distress. However, it also comes with significant short term costs, including a write-off of our remaining equity holding in Nyrstar N.V. and other impairments.
Trafigura realised significant gains as a result of two important transactions with ship owners Frontline Ltd. and Scorpio Tankers Inc. Following discussions that started in July 2019 Trafigura concluded contractual agreements in August and September with these two companies to sell 29 oil tankers through the sale of two subsidiaries and the exercise of purchase options embedded within the existing lease agreements. The tankers were sold in exchange for equity in Frontline and Scorpio Tankers, generating an income gain of USD201 million. This did not, however, fully compensate for the impairments, value adjustments and write-offs relating to the continuing equity investment in Nyrstar N.V. and other investments, which totalled USD315 million.
“The Frontline and Scorpio transactions are a testament of Trafigura’s ability to access assets that can serve our trading activity and be monetised at the right moment,” said Trafigura Group Chief Financial Officer Christophe Salmon. “Overall these results represent a continuation of Trafigura’s strong and steady financial performance, combining a dynamic trading business with conservative balance sheet management as well as a prudent and disciplined financial approach.”
Commitment to compliance, governance and transparency
For a number of years Trafigura has focused on developing effective and robust compliance practices. Key developments over the year included the elimination of using intermediaries or agents for business origination and development purposes.
In addition, the company is increasingly utilising technology to review, monitor, identify and flag high-risk counterparties and activities faster and more accurately and is continuing to introduce and enforce strong, systemised controls on expenses and conflicts of interest. Customised, frequent and mandatory compliance training continues to be developed across the company in accordance with Trafigura’s Code of Business Conduct. The company will continue to reassess its compliance programme while working with industry on improvements as technology, regulations and stakeholder expectations evolve.
Outlook: confidence in a rapidly changing world
It is expected that 2020 will be another good year for Trafigura given that market volatility and political and economic uncertainty experienced this year is unlikely to diminish in the next 12 months, reinforcing the need for flexible, risk-aware and resilient global platforms in the commodities business. The company’s long-term asset investments are expected to make progress and contribute to the bottom line, for example from mining operations and the shipping market.
From the many opportunities related to the wider changes underway in the world the most important is the growing recognition that climate change needs to be addressed and that to do so, entire energy and transportation economies need to change. By virtue of its global footprint, financial resources and talented people, Trafigura is well positioned to make a positive contribution.
Trafigura is intensely focused on the opportunities that addressing climate change will bring to its business and for example is already extensively involved in the supply chain of materials required for batteries. Through the newly created Power and Renewables Trading Division, its power trading activities are developing, as are investment opportunities in renewable energy.
Trafigura remains a major trader in energy and fuels. The company is taking action to reduce emissions and is contributing towards industry change, including the need for greater actions to curb emissions from shipping. Its Responsibility Report, to be published in January 2020, provides information on steps the company is taking to reduce these emissions.