noble group 120229 standard chartered

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l Global Research l

Important disclosures can be found in the Disclosures AppendixAll rights reserved. Standard Chartered Bank 2012 research.standardchartered.com

Bharat Shettigar, +65 6596 8251

[email protected]

Credit Research | 07:30 GMT 29 February 2012

Noble Group – Back to business as usual

Q4-2011 results were decent, although margins are under pressure due to tough industry environment

Debt levels declined in Q4, and balance-sheet liquidity is strong

Gloucester Coal deal and potential agriculture IPO could lead to improvement in metrics in 2012

After a surprise net loss in Q3, Noble posted a decent set of results for Q4-2011.

That said, the industry environment remained challenging, and gross margins were

lower across all segments in Q4 compared to H1-2011.

Noble‟s 2011 revenues rose 42% y/y on the back of 19% tonnage growth, although

gross margin fell to 1.8% (from 2.9% in 2010). Margins declined in agriculture (2.5%versus 6.3%) and metals, minerals and ores (0.8% versus 3.1%), partly due to the

one-off issues in Q3. However, the energy segment posted record gross profits (USD

876mn in 2011 versus USD 540mn in 2010). SGA expenses came in at 48.5% of

gross profit (43.6% in 2010) due to the newly acquired sugar mills and the full-year

impact of the Timbues soybean crushing and Santos dry bulk terminal facilities.

Noble‟s capex and acquisition spending totalled USD 1.48bn in 2011, and the

company has said that committed capex for 2012-14 is only USD 900mn. Debt was

broadly flat for the year, at USD 6.13bn, although it declined by USD 970mn in Q4

due to lower working capital requirements. Net debt was reduced by USD 367mn,

which is impressive considering the sugar mill acquisition undertaken during the year.Balance-sheet liquidity remains strong, with a cash balance of USD 1.24bn

(excluding cash with futures brokers) and USD 4.55bn of undrawn, committed bank

facilities. Also, around 62% of Noble‟s total debt is covered by cash and readily

marketable inventory, and only 10% of the debt is repayable in the next 12 months.

Given the tough environment, Noble‟s 2012 earnings will remain under pressure.

That said, the company has reviewed the Q3 losses in its carbon credit and cotton

businesses and is likely to avoid unhedged high-risk exposures going forward. Also,

the proposed merger of its subsidiary, Gloucester Coal Ltd., with Yancoal Australia

Ltd. will provide USD 416mn (special dividends and capital return), which will be

largely used for debt reduction. That said, while we believe Noble is committed toinvestment-grade ratings and the immediate threat of downgrades has receded, a

change in the negative rating outlooks by Moody‟s and S&P wi ll be largely contingent

on a successful IPO of Noble Agri Ltd. (expected sometime in 2012).

The decent Q4 results are important for rebuilding the credibility of the Noble Group

credit. That said, given frequent management changes and the rating overhang,

Noble will continue to trade as a crossover credit in the near term. The NOBLSP

bonds have rallied significantly in the last couple of months, and the NOBLSP 20 and

NOBLSP 20N are currently trading marginally tighter than the CITPAC 21. Looking

across the curve, the NOBLSP 13 and the NOBLSP perps appear the most

attractive, but the liquidity of these bonds is poor, and bid-offer levels are wide. Forinvestors who want exposure to Noble and who have a constructive near-term view

on the market, we see the NOBLSP 20N as the best play. The NOBLSP 20N has a

call option in August 2015 and quotes at a Z-spread to call of 680bps.



Credit Research

GR12JA | 29 February 2012 2

Chart 1: NOBLSP versus comparables (Z-spread, bps) Chart 2: NOBLSP 20 spread movement (Z-spread, bps)

Source: Standard Chartered Research Source: Standard Chartered Research

Chart 2: Gross and EBITDA margin (%) Chart 3: SGA expenses (USD mn – LHS, % – RHS)

Sources: Company reports, Standard Chartered Research Sources: Company reports, Standard Chartered Research

CHIBEI 16

CHMETL 16

TENCNT 16

LIHHK 17

NOBLSP 15N

CHIOLI 20

CITPAC 21

NWDEVL 20

HENLND 19

KERPRO 21

XINAOG 21

NOBLSP 20

NOBLSP 20N

350

400

450

500

550

600

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

NWDEVL 20

NOBLSP 20N

CITPAC 21

XINAOG 21

200

400

600

800

1,000

May-11 Jul-11 Sep-11 Nov-11 Jan-12

Gross margin

EBITDAmargin

0.0

0.5

1.0

1.52.0

2.5

3.0

3.5

4.0

4.5

Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11

SGAexpenses

SGA as % of gross profit

(RHS)

0

10

20

30

40

50

60

70

80

0

50

100

150

200

250

Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11

Chart 4: Breakdown by segment in 2011 (% of total) Chart 5: Debt maturity profile – Dec-2011 (USD mn)

Sources: Company reports, Standard Chartered Research Sources: Company reports, Standard Chartered Research

Agriculture

Energy

Metals,mineralsand ores

Logistics

0%

10%20%

30%

40%

50%

60%

70%

80%

90%

100%

Tonnage Revenues Gross profit

Bank

debt

Senior notes

Convertiblebonds

0

500

1,000

1,500

2,000

2,500

3,000

< 12 months 13-24 months 25-60 months > 60 months



Credit Research


Table 1: Noble’s financial highlights by segment

2007 2008 2009 2010 2011

Agriculture

Revenues (USD mn) 6,470.9 10,141.6 7,367.5 12,035.0 18,091.0

Gross profit (USD mn) 200.3 420.8 343.8 761.5 460.3

Gross margin (%) 3.1% 4.1% 4.7% 6.3% 2.5%

Tonnage (mn tonnes) 16.0 16.7 16.0 23.1 28.8

Gross profit per tonne (USD/tonne) 12.5 25.2 21.5 33.0 16.0

Energy

Revenues (USD mn) 10,949.3 18,160.3 18,205.8 36,911.5 51,241.0


Gross margin (%) 1.7% 1.9% 2.5% 1.5% 1.7%



Metals, minerals and ores

Revenues (USD mn) 4,552.7 6,188.6 4,725.9 6,894.6 10,476.0


Gross margin (%) 3.9% 2.1% 2.9% 3.1% 0.8%



Logistics

Revenues (USD mn) 1,264.6 1,599.8 884.0 855.0 924.0


Gross margin (%) 19.0% 28.0% 20.0% 13.4% 7.2%



Sources: Noble, Standard Chartered Research

Table2: Summary financials

2007 2008 2009 2010 2011

Income statement (USD mn)

Revenues 23,497 36,090 31,183 56,696 80,732

Adj. EBITDA 420 836 782 978 903

Gross interest expense (171) (235) (195) (360) (446)

Profit before tax 303 676 620 723 503

Net income 258 577 556 606 431

Balance sheet (USD mn)

Cash and equivalents 471 1,176 616 872 1,240

Total assets 6,710 8,153 10,655 17,338 19,830

Total debt 2,544 2,556 3,541 6,124 6,125

Net debt 2,073 1,380 2,925 5,252 4,885

Shareholders‟ equity 1,558 1,851 2,955 4,431 5,290

Cash flow (USD mn)

Net operating cash flow (564) 1,172 (947) (1,770) 1,898

Capex & investments (650) (706) (1,081) (1,256) (1,478)

Free cash flow (1,220) 466 (2,028) (3,026) 420

Dividends (35) (68) (108) (130) (183)

Key ratios

Adj. EBITDA growth (%) 65.9 98.9 (6.5) 25.1 (7.6)

Adj. EBITDA margin (%) 1.8 2.3 2.5 1.7 1.1

Total debt/capital (%) 62.0 58.0 54.5 58.0 53.7

Adj. debt/EBITDA (x) 2.3 1.1 0.4 2.5 3.9

Net debt/EBITDA (x) 4.4 1.6 3.7 5.0 4.9Adj. EBITDA/interest (x) 3.5 4.6 4.4 3.5 2.5

Sources: Company reports, Standard Chartered Research



Credit Research


Disclosures Appendix

Recommendations structure

Standard Chartered terminology Impact Definition

Issuer – Credit outlook

Positive ImproveWe expect the fundamental credit profile of the

issuer to <Impact> over the next 12 monthsStable Remain stable

Negative Deteriorate

Apart from trade ideas described below, Standard Chartered Research no longer offers specific bond and CDS recommendations.

Any previously-offered recommendations on instruments are withdrawn forthwith and should not be relied upon.

Standard Chartered Research offers trade ideas with outright Buy or Sell recommendations on bonds as well as pair trade recommendations

among bonds and/or CDS. In Trading Recommendations/Ideas/Notes, the time horizon is dependent on prevailing market conditions and may

or may not include price targets.

Credit trend distribution (as at 15 February 2012)Coverage total (IB%)

Positive 13 (15.4%)

Stable 168 (20.8%)

Negative 65 (15.4%)

Total (IB%) 246 (19.1%)

Credit trend history (past 12 months)

Company Date Credit outlook

Noble Group Limited 13-Dec-11 Stable

12-Aug-11 Stable

01-Mar-11 Stable

Please see the individual company reports for other credit trend history

Regulatory Disclosure:

Subject companies: Noble Group Limited

Standard Chartered Bank and/or its affiliates have received compensation for the provision of investment banking or financial advisory services within the past one

year: Noble Group Limited



Credit Research


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Document approved by

Victor Lohle

Senior Credit Analyst

Data available as of

07:30 GMT 29 February 2012

Document is released at

07:30 GMT 29 February 2012

noble group 120229 standard chartered

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