Noble Group

Noble Group: Noble sagged another 4.6% today, extending its one-week decline to ~15%. In an article by the Business Times (BT) today, the newspaper questioned why there was no profit warning from the commodities trader in regards to its unexpected 4Q14 net loss of US$240m.

According to Bloomberg, the street had forecast Noble to turn in consensus net profit of US$98m. BT argued that had the group known that its 4Q results will be so vastly different from markets estimates, it should have made a made a cautionary profit warning announcement on SGX.

Instead Noble kept quiet until Iceberg Research entered into the picture with their damning report, highlighting among other allegations, the accounting treatment of Noble’s associates and the possible overstatement of the fair values of unrealised commodities contracts.

According to its 4Q14 results, Noble recognised an impairment loss of US$438m, which included about US$200m for Yancoal. This meant that despite Noble’s insistence that Iceberg’s allegations are factually inaccurate, Noble actually did undertake a large impairment for the value of Yancoal carried on its books, giving some substance to the Iceberg report.

In its analyst briefing however, Noble was quick to highlight that it had begun reviewing its balance sheet about 1½ months ago, which led to the write-downs, although it is interesting to note that Noble had on Feb 16 (a day after Iceberg’s report) indicated of no material adverse change to its accounts since the group last reported its earnings in Nov.

Moreover, just hours before the group released its earnings on 26 Feb, the group’s external auditors Ernst & Young had requested for more time to review Noble’s internal processes in light of Iceberg’s allegations, before signing off, leading to speculation on whether Iceberg’s claims did actually prompt the US$438m impairment charges.

Should this be the case, shareholders would be keen to hear Noble’s response to the other allegations/queries made by Iceberg, and the faster Noble clarifies, the better it will be for the investment community.