Trafigura Group Pte Ltd (“Trafigura” or the “Group”), a market leader in the global commodities industry, has today published its 2020 Annual Report. The results show that in an extraordinary period for global commodity markets, the Group delivered exceptional customer service and a strong overall commercial and financial performance.
• Oil and Petroleum Products and Metals and Minerals trading divisions delivered record gross profit and EBITDA; volumes maintained at similar level to previous year
• Power and Renewables trading division established during the year
• Record Group equity of USD7,790 million and significantly strengthened balance sheet due to strong earnings and cash flow
Key financial performance:
• Group revenue of USD147 billion, compared to USD171.5 billion in FY2019
• Gross profit USD6.8 billion, compared to USD2.9 billion in FY2019
• EBITDA USD6.0 billion, up from USD2.1 billion in FY2019
• Net profit USD1.6 billion, up from USD0.9 billion in FY2019
• Industrial assets adversely impacted by COVID-19 and economic downturn, resulting in impairments to asset values
“Amidst unprecedented market conditions, Trafigura’s expertise in physical commodity trading, risk management and logistics was called upon to an exceptional degree. I am proud to say that our people around the world rose to the challenge, working professionally with resourcefulness, discipline and in difficult circumstances to address our customers’ supply issues, deliver reliable service and maintain operational performance,” said Jeremy Weir, Trafigura’s Executive Chairman and Chief Executive Officer.
The company’s success reflected its core strategy to advance trade efficiently and responsibly, using its global scale, cross commodity reach and in-depth market knowledge to connect producers and consumers of energy and industrial raw materials around the world. The success was also a result of the investments made over several years in recruiting and developing talent and in establishing world-class trading infrastructure, IT and risk control systems.
“We were on hand to provide support to our counterparties, helping minimise the impact of COVID-19 and volatile market conditions on their operations. This strong focus on customer service and flexibility further strengthened our long-term relationships. Margins were boosted by understanding the rapidly changing market environment and by commercialising arbitrage opportunities,” continued Jeremy Weir.
Industrial assets in all regions suffered from the contraction in demand and restrictions in the movement of goods and people caused by the pandemic. The Group took a conservative approach to assessing the value of its fixed assets and maintained a disciplined approach to investment. The fuel distribution and retailing business Puma Energy made a loss during the year and its equity value was adjusted downwards on the Group’s balance sheet. The Nyrstar zinc and lead smelting business, of which Trafigura took control in 2019, is in the midst of a turnaround, but made a loss. The value of the Colombian port and logistics venture operated by subsidiary Impala Terminals was also impaired. In total, impairments contributed a loss of USD1.57 billion in FY2020.
This financial year, total capital expenditure – principally focused on maintaining and upgrading Nyrstar’s smelting assets after years of under investment – was largely offset by realisations from asset disposals via the profitable sale of equity stakes in shipowners Scorpio Tankers and Frontline.
As a result of the Company’s performance and transparent approach to communication with financial stakeholders, it maintained access to abundant funding throughout the year. All of the Group’s committed unsecured syndicated lines were refinanced at similar levels. The successful bond issue in September 2020 showed that Trafigura continues to benefit from a flight to quality in commodity finance in the face of difficulties encountered by some smaller players during the year. Trafigura also continued to diversify sources of funding – for example arranging a “low-carbon aluminium” financing facility at preferential rates.
Transparency and governance
Efforts over recent years to drive greater transparency within the commodities trading sector have contributed to improved international reporting standards. Similarly, Trafigura is progressing various initiatives to improve the transparency of global supply chains and to ensure responsible sourcing, in particular of the metals and minerals supplied, in line with increasing demands from customers, consumers, financing partners and regulators.
Following the significant steps taken in 2019, including eliminating the practice of using intermediaries for business origination and development across global operations, the Company continued to extend and rigorously enforce a robust compliance programme in 2020. This has resulted in systemised processes and significantly strengthened controls related to vessel screening, counterparty due diligence, and the closer oversight of higher-risk third party service providers.
Well positioned for a changing world
Efforts to reduce carbon emissions in order to address the problem of climate change, already gathering pace before the COVID-19 pandemic, are expected to accelerate further. Renewable energy will supply an increasing share of the world’s power supply, and electric and hydrogen-fuelled vehicles will account for an expanding proportion of the global automobile fleet. New technologies and new environmental regulations will likely result in market disruptions, but also provide business opportunities.
At the end of 2020, Trafigura is in an excellent position to navigate and benefit from these trends. As a leading trader in non-ferrous metals, the Company has significant and growing exposure to a sector where demand – for copper, cobalt, aluminium, nickel and other products – is set to expand substantially as a result of electrification and renewable energy technologies.
As a leading trader in oil and gas, and metals and minerals, Trafigura is playing its part in the energy transition. Whilst oil will remain important and required for many years and the Company will continue to build market share, it is providing cleaner fuels and alternative energy sources as well as investing in new technologies such as storage systems and hydrogen.
This year, Trafigura established a third trading division focused on Power and Renewables. A growing electricity market that is also experiencing significant disruption offers opportunity to apply the Company’s commercial and risk-control skills. This third division is expected to take its place alongside energy and metals as a core Trafigura business over the next few years.
As a major charterer and supplier of shipping and as an operator of industrial assets, the Company aims to reduce the carbon emissions for which it is responsible. This year, the Group has set ambitious but realistic targets to curb greenhouse gas emissions from its own operations in the next three years and is also setting out a path to reduce emissions indirectly attributable to its activities over time. The details of these targets and other environmental, social and governance ambitions, initiatives and performance will be published in the 2020 Responsibility Report.
“For the Trafigura Group, this was a year that proved and improved the strength of our business. We emerge from it with a stronger balance sheet, an improving asset portfolio and an enhanced and increasingly diversified trading platform that we believe is well placed to adapt to and to assist the accelerated global transition to a lower-carbon world. These are all reasons to be excited about the prospects for the Trafigura Group, not merely to prosper from renewed growth in the global economy following the travails of 2020, but also to play a key role in building a better future,” concluded Jeremy Weir.