Management s Discussion and Analysis of Financial Condition & Results of Operations Six Months Ended 30 June 2016

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1 Management s Discussion and Analysis of Financial Condition & Results of Operations Six Months Ended e Financial Results Six Months Ended Three Months Ended (million tonnes/ US$ million) Tonnage Revenue 23, , , ,934.7 Operating income from supply chains, net (1) Operating income margin Losses on supply chain assets (1) (33.5) (23.3) (17.3) (4.4) Share of profits and losses of joint ventures and associates (1) (31.8) (39.2) (16.1) (17.2) Total operating income (1) Other income net of other expenses Selling, administrative and operating expenses (294.4) (281.8) (155.4) (136.6) Profit before interest and tax (1) Net finance costs (75.8) (93.2) (39.1) (44.2) Taxation (8.2) 3.3 (6.4) 16.1 Profit/(loss) for the period from continuing operations (1) (28.0) Exceptional non-cash losses, net of tax (2) - (112.3) - (60.4) Post-tax loss from discontinuing businesses (3) (52.8) (50.1) (27.0) (36.8) Non-controlling interests Net profit/(loss) (14.4) (54.9) 62.6 (1) Three and six months ended e adjusted for exceptional non-cash losses and other items. See note 2 below. (2) Three and six months ended e includes exceptional non-cash losses recorded in operating income from supply chains of US$8 million, impairment losses on supply chain assets of US$5 million and share of losses related to Noble Agri of US$99 million. (3) Represents results of businesses which are discontinuing or to be discontinued in the near future. These businesses include certain gas & power product divisions in Europe; certain mining & metals product divisions in North America and Europe; and certain energy product divisions in North America. 1

2 Overview We have made significant progress on our key initiatives and are well on track to raise the US$2 billion in liquidity that was previously announced. With the successful completion of the US$500 million rights issue, we have generated over US$700 million since e, against this US$2 billion. The sale of Noble Americas Energy Solutions is also progressing well and is targeted to close in the next few months. We continue to rationalize our businesses in order to focus on liquidity and to reallocate capital to the franchise businesses that offer strong immediate returns. We expect to complete this restructuring by the end of the year and, as Management, we are convinced this strategy of focusing on our core competence of being a physical commodity merchant will see us generate solid returns for our shareholders. We are making progress in deleveraging, reflected by our gearing declining from net debt to capitalization of 55 at the end of FY to 47 on a pro forma basis, as at e, including the US$500 million raised from our rights issue. As well as reducing our leverage, we are also rebalancing the mix of secured and unsecured debt in our capital structure, as we strive to match our asset light business model with the appropriate funding structure. In the second half of, we will continue to pursue the same goals that have been laid out previously. We will complete the initiatives to rationalize low return or loss making businesses while devoting resources to those businesses in which we have a competitive advantage and where we expect to see continued strong returns over a cycle. Our focus on generating additional liquidity, especially in the latest quarter, has directly impacted our ability to generate operating profit. To preserve liquidity, we constrained working capital to all businesses, including those with strong franchises. This led to businesses operating well below optimal earnings capacity during the period. It is a testament to the strength of the franchises that despite these challenges volumes grew in our Oil Liquids and Energy Coal businesses by 23 and 6, respectively, year over year. Headline Group tonnage in the first half was down over as a result of a focus on reducing counter party risk in our Chartering and Iron Ore businesses, as well as the impact of curtailing certain businesses that weren t generating required minimum returns. Selling, administrative and operating expenses are up 4 year-on-year, due to restructuring and retention costs, however the underlying run rate was down in the first half, year over year. We continue to implement the plans to achieve our cost reduction targets by the first half of Profit from continuing operations for the six month period was US$38 million, prior to the booking of losses that arose from businesses that we are exiting. This was achieved despite the challenges of managing the supply chains in a liquidity constrained environment. Transition and are never easy, but with clear goals, a tremendously dedicated team and with the progress that we have made to date, we are determined to deliver. 2

3 Energy Six Months Ended Three Months Ended (US$ million / million tonnes) Volume (1) Revenue (1) 19,837 25, ,402 13, Operating income from supply chains (1) Profit before interest and tax (1) (1) Adjusted for discontinuing or to be discontinued business. Oil Liquids: Market Overview Selected Average Commodity Prices Six Months Ended Three Months Ended S&P GSCI Energy Index Crude Oil Brent (US$/bbl) Crude Oil WTI (US$/bbl) RBOB Gasoline (US$/gallon) NYMEX Heating Oil (US$/gallon) Source: Bloomberg Crude prices increased through to e from the lows of early April, despite the sharp temporary decline in prices following the Brexit vote. The price recovery into the end of the quarter was driven by high rates of crude oil supply distribution, with supply outages at the highest level for many years, including large wildfires in Canada, which closed a significant source of production and led to supply disruptions in Nigerian pipeline and oil facilities. Although prices rallied during the quarter, a bearish OPEC production report and a downward revision of US gasoline demand triggered a sell off on the last day of June. Prices have continued to trend downwards since. During the fourth quarter of and the first quarter of, gasoline prices were relatively high compared to diesel prices and this strong gas to heat spread drove up gasoline yields and drove down distillate yields. However, both gasoline and distillate stocks had a significant surplus at the end of the first quarter of. During the second quarter of, distillate stocks declined due to lower yields and lower exports. In contrast, however, gasoline stocks have not fallen, despite near record demand, as high yields and increased imports supported supply. The market began to reflect this disconnect in early May, with gasoline losing a significant amount of value versus diesel. Although the market had reached equilibrium by mid-june, it has remained volatile. 3

4 Oil Liquids: Performance Oil Liquids continued its steady performance contributing the majority of the Segment s earnings in the six months ended e. Volumes grew by 23 year-on-year and 16 quarter-on-quarter, although revenue declined relative to the first quarter of as oil prices continued to fall. Continued volume increases reflect the underlying growth across our businesses, as we execute on term crude supply deals, biodiesel, renewable production increases, and the optimization of our gasoline blending asset that supplies the Colonial Pipeline. Operating Income from Supply Chains, was impacted by working capital constraints as we managed for liquidity. The Gasoline business continues to deliver significant results from pipeline flows and trading around the physical assets. Our Colonial Pipeline blending asset had a strong 6 months, supported by gasoline and RBOB/Butane spreads, while our rack marketing business had another strong 6 months, taking advantage of the forward curve s contango structure. The Crude business increased revenues 48 year-on-year due to increased volumes related to a term waterborne supply deal with a major refiner, as well as being supported by other trading activity. The Renewables business is on track to meet expectations in, as our South Bend Ethanol asset, and our ethanol trading activities, have seen profitability improve due to strong ethanol markets and lower cash corn costs. The Distillates business has also seen positive performance, trading around its storage positions and term shorts (delivery contracts). The Latin American business continues to strengthen customer relationships across the region with key partnerships being formed and agreements negotiated. We continue to benefit from opportunities provided by our continuing gasoline and distillate supply contracts with Ecuador and our term storage agreements in Panama. Growth in the Middle East continues to be a key focus, as we seek to expand our presence in the region. 4

5 Energy Coal: Market Overview Selected Average Commodity Prices Six Months Ended Three Months Ended Coal API4 (US$/t) Coal API2 (US$/t) Coal Newcastle FOB (US$/t) Source: Bloomberg The main international energy coal indices (API2, API4 and Newcastle FOB) gained in the second quarter of and continued to rally after the quarter end. The energy coal market has rebounded from the lows at the start of, driven by some supply discipline in Indonesia, as weakness in Indonesian supply starts to mount as a result of six years of declining prices and limited access to financing. However, the major cause of the recovery in pricing was a result of China s mandated supply capacity cuts and the resultant increase in import demand. While the magnitude and sustainability of the increase in prices remains a topic for debate, it is accepted that the lows are behind us and that the market will be much more in balance going forward. The forward curve for all coal indices show a contango structure at the front end, with a somewhat weaker CAL17 and CAL18. We expect the contango in the coal market to continue consolidating as supply remains constrained and new demand continues to come online. Energy Coal: Performance The Energy Coal business performed well in the first half of with volumes increasing 6 compared to the first half of. The volume growth in the first half of, a generally tough market, reflects the strength of the business franchise and client relationships. The customer franchise remains strong and is being built out further as we continue to work with our partners to provide solutions and align interests, both on the supplier and customer side, and establish new long term relationships and partnerships. The business s foray into new partnerships and markets also continues to grow and develop, notably, the new joint venture with one of the Japanese Power Utilities, to both procure coal for their own requirements and also to manage the price risk and supply chain, commenced operations in Q2. It is a significant positive development in a top tier market with a highly reputable partner, a model we expect to expand further over time. The direct benefit of the recent increase in prices has been most clearly felt in Indonesia, followed also by the Australian suppliers and miners. Both of these countries are the largest origination sources for our coal business and the hardening in pricing is a welcome respite for the mining industry. The majority of our contractual relationships, primarily with 1 st and 2 nd quartile curve producers, have continued to perform well through the lows of the cycle. However, as the market recovered during the quarter, we are starting to see higher cost producers considering returning to the market. We continue to work with our mining partners to maximize returns, while developing long term mutually beneficial relationships. 5

6 Gas & Power Six Months Ended Three Months Ended (US$ million / million MWh) Volume (1),(3) Revenue (2),(3) Operating income from supply chains (3) Profit before interest and tax (3) (1) Volume conversions from MMBTu to MWh based on current market heat rates. (2) The Gas & Power distribution business typically recognizes the net of sales and purchases as revenue. However, some businesses that we are expanding into, such as the distribution of LNG, recognize the gross revenue and cost of goods sold. (3) Adjusted for discontinuing or to be discontinued business. Gas & Power: Market Overview Selected Average Commodity Prices Six Months Ended Three Months Ended Gas Henry Hub (US$/mmBtu) Gas NBP (US$/mmBtu) LNG Spot JKM (US$/mmBtu) UK Power Baseload (US$/MWh) German Power Baseload (US$/MWh) USA PJM Baseload (US$/MWh) Source: Bloomberg Global gas markets regained support during the second quarter of, due to supply reductions in Europe, particularly from Norway, increasing generation demand in the US and continued delays in the startup of new liquefaction projects globally, and although the National Balancing Point (NBP) rally was moderated by the Sterling s depreciation post the Brexit vote, JKM rallied 23 in the period, while NYMEX natural gas increased 49. In the US, natural gas and power prices rallied in the latter part of the second quarter, with gas prices approaching US$3/mmBtu by the end of June, as gas fundamentals tightened. Specifically, generation demand for natural gas in June reached record highs for that time of the year, driven by 8 hotter weather than average (vs a 12 and 9 cooler than average April and May, respectively) and by very low gas-to-coal prices up until the end of May. 6

7 On the supply side, production declined from mid-may fueled by late season maintenance, as well as by continued regional declines, tightening the balance further. As a result, although natural gas stocks remained at or near record-high levels through the quarter, storage injections came down significantly relative to recent years from late May into June, particularly in the South Central region, which lent significant support to cash prices. European gas prices rallied in the second quarter of, mainly supported by fluctuations in Norwegian flows, which represent one of the main sources of gas supplies to the region. Specifically, both price-driven and maintenance-driven reductions in Norwegian exports to the UK and the European Continent, combined with underwhelming LNG imports into the region, slowed the pace of storage injections, particularly in the UK. In Asia, spot LNG prices as measured by the Platts Japan Korea Marker (JKM) rallied 23 in the second quarter of, largely driven by a rally in European gas prices (NBP) in the same period, given the active arbitrage between the two. The JKM rally has since extended, driven by a combination of stronger-thanexpected demand from China and India, a seasonal increase in cooling demand from the Middle East and continued delays in the start-up of new liquefaction projects. This tightening of the spot LNG market has pushed the JKM-NBP price spread to more than triple the level during same period in June. Gas & Power: Performance Revenues for the six month period ending e increased 23 year-on-year, primarily driven by increased volumes in LNG. Operating Income from Supply Chains was down significantly from prior year, impacted by both the working capital constraints, as we managed the business for liquidity, and by the restructuring of Brazil Power and the European Gas & Power businesses. A reduction in activity in European Gas & Power contributed to lower than expected revenues for the region in the quarter. Performance in the North American Gas & Power business was driven by the execution of existing transport/supply deals. The gas business performed well as spreads increased for existing transport deals, creating opportunities in both optimization and trading. The business continues to benefit from both new deals and actively managing around its physical flow. The global LNG franchise is currently being reorganized, with staff s and a refocusing of the business plan. We expect positive contributions in the coming quarters. Energy Solutions: Market Overview Low price volatility continued to impact the North American retail energy market, minimizing trading opportunities. At the same time, the forward years provided opportunities for customers to hedge positions at attractive pricing. Our risk management expertise places NAES in a strong position in this environment. Energy Solutions: Performance Operating Income from Supply Chains for the six months ended e was almost flat compared to the same period in. All regions are performing well and overall, the business continues to perform well, despite the distraction of the sales process. 7

8 Mining & Metals Six Months Ended Three Months Ended (US$ million / million tonnes) Volume (1) Revenue (1) 2,821 4, ,425 2, Operating income from supply chains (1),(2) (29) - Profit before interest and tax (1),(2) (7) (2) -250 (20) (57) 65 (1) Adjusted for discontinuing or to be discontinued business. (2) Three and six months ended e adjusted for exceptional non-cash losses and other items. Metals: Market Overview Selected Average Commodity Prices Six Months Ended Three Months Ended S&P GSCI Industrial Metals Index LME cash aluminium price (US$/t) 1,644 1, ,572 1, LME cash copper price (US$/t) 4,796 5, ,729 6, LME cash zinc price (US$/t) 2,132 1, ,918 2, Bauxite Aus FOB (US$/t) Source: Bloomberg Aluminium prices continued to trend upward year-on-year in response to the production cuts implemented by smelters resulting from previous pricing pressures and the broader macroeconomic environment. Despite positive price trends in Alumina and Aluminium, Bauxite pricing has trended downward, driven by weaker demand in China. This was despite the fact that Malaysia suspended exports on environmental grounds during the first quarter of (a suspension that has now been extended till December ), a production cut which was offset by increased exports from Australia, India and Guinea. Broader commodity price strength supported base metals during the period, however large copper stockpiles in China continue to signal that, although imports have increased, there is unlikely to be a near term shortage of copper. 8

9 Metals: Performance Tonnage and revenue across the Metals business fell by 11 and 45 year-on-year, respectively, as we finalized the exit from the Base Metals (Copper, Zinc, Lead and Nickel) businesses in North America and Europe. This reallocation of working capital was completed during the second quarter of. We have created two businesses in Metals, our vertically integrated Aluminium supply chain (including the Jamalco Asset) and our Asia Base Metals franchise. Operating Income from Supply Chains in Q2 was impacted by capital restrictions and management s focus on the exit from our Base Metals businesses in North America and Europe. Jamalco has successfully reduced production costs by over US$100/tonne since 2013, supported by both specific cost reduction initiatives and lower fuel costs. The plant is currently operating profitably, and further improvements are expected, with projects currently underway including: development of a new powerhouse, improvements in fuel consumption, and broader cost reduction initiatives. Carbon Steel Materials: Market Overview Selected Average Commodity Prices Six Months Ended Three Months Ended Met Coal Platts PLV US$/tonne Iron Ore - US$/tonne Source: Platts, Bloomberg Steel prices in China finished the quarter down 7 from the end of March, however there was extreme volatility throughout the second quarter of with prices rising approximately 30 in April before giving back all of the gains in May. Meanwhile, outside of China, steel prices soared over 20 in the US and Middle East, while Europe saw increases of around 7. The geographic price divergence played a key role in supporting Chinese steel exports, which averaged 9.5Mt/month and are on track to exceed the 100Mt seen in, despite widespread anti-dumping measures against China. For the world as a whole, June was the 19 th consecutive month of negative, or zero, growth in crude steel production, the longest contraction since the fall of the Berlin Wall and longer than the 1998 Asian financial crisis (15 months) or the GFC (12 months). Chinese crude steel production remained the only major centre of global growth, sustaining annualized production of 840Mtpa and on track to reach a record 825Mt in. Ex-China crude steel output is tracking 800Mt, down 3 year-on-year. The exception is India where there is negative pressure on seaborne iron ore pricing as it resumes iron ore exports. Iron ore prices tracked the volatility in the steel market with prices increasing to more than US$70/tonne in April, only to fall back to US$50/tonne in May before finishing the quarter at US$54/tonne, up US$1 from the end of March but down 8.6 year-on-year. Prices were sustained on better than expected Chinese steel output which supported iron ore demand and lower than expected ore production, with Tier 1 suppliers, for the most part, underperforming in H1. 9

10 Carbon Steel Materials: Performance With such extreme price volatility, managing counter-party and performance risk continues to be the key focus and priority. As such, both volumes and revenues for the six months ended e fell by 34, driven primarily by reductions in Iron Ore and Special Ores & Alloys. Operating Income from Supply Chains continues to be impacted by the margin pressures felt across the industry. 10

11 Corporate & Others Six Months Ended Three Months Ended (US$ million / million tonnes) Volume Revenue 146 2, , Operating income from supply chains (2) (13) (1) -773 (6) 21 - Profit before interest and tax (1) (2) (101) (92) -9 (53) (18) -198 (1) Adjusted for discontinuing or to be discontinued business. (2) Three and six months ended e adjusted for exceptional non-cash losses and other items. Logistics: Market Overview Freight rates improved in the second quarter of due to an increase in seaborne demand, which resulted in Capesize freight rates rallying to over US$8,000 per day. Scrapping rates have slowed as vessel owners have gained confidence, but we still expect to see record scrapping levels in. Although daily freight rates have improved from their historic lows, we expect them to remain range bound between US$5,000 and US$10,000 per day. Panamax and Supramax freight rates saw modest improvements during the quarter supported by grain flows from South America. The market continues to trade below operating costs, and consequently we continue to expect to see defaults in the later part of the year. Logistics: Performance The Logistics business has continued to focus on profitability over volumes, with Q2 volume of 9.5 million tonnes, down sharply from the same period last year, split 31 in house and 69 for external customers. The volume decline is a deliberate result of the business actively focusing on credit risk, as counterparty risk within shipping is at historically high levels. Operating Income from Supply Chains continued its positive trend from Q1, an improvement of over US$60 million from the previous six months. Associates: Performance The Corporate & Others Segment incorporates the Logistics business as well the investments in key associates. US$21 million of the total US$32 million in the Group s share of losses of associates and joint ventures for the six months ended e is included in this Segment, the majority of which is attributable to the six months performance of Yancoal Australia Limited. 11

12 Principal Associated Companies The following Associated companies are all publicly listed, and we encourage you to seek further information from the companies own websites and stock exs. Yancoal, listed on the ASX, saw the volume of production fall modestly in the first half of, down 9 on year with sales volume in the latest quarter at 4.74 million tonnes, down 2 year-on-year. These results were achieved despite the Donaldson coal operation being moved onto a care and maintenance basis in early May. More notably, however, the most recent three month period saw the first development coal extracted from the new Moolarben underground mine. The Moolarben complex achieved strong production results, up 46 on the year prior. Once fully developed, the integrated Moolarben Coal Complex (Stage 1 and Stage 2 combined) will produce up to 17 million tonnes of Run of Mine (ROM) coal per annum for a period of 24 years. In April, Yancoal announced the successful closing of the new financing arrangements with the issue of nine year bonds, securing up to US$950 million. Met coal sales were up 4 in the first six months, to 3.4 million tonnes, while thermal sales were down 12 to 4.5 million tonnes. Aspire Mining is an ASX listed company with a primary focus on the development of coal resources in Mongolia, especially for coal used in the steel making industry, a focus underpinned by Mongolia s close geographical position to some of the largest coking coal consumers worldwide China, Russia, Japan, and Korea. Aspire is the largest coal tenement holder in the Orkhon-Selenge Coal Basin in Northern Mongolia and it wholly owns the Ovoot Coking Coal Project. The Ovoot project is a large scale coking coal project with a current JORC Probable Reserve of 255 million tonnes. Aspire also has an indirect interest in the Nuurstei coking coal project. Nuurstei confirmed its first JORC Coal Resource of million tonnes, with the characteristics of a high quality hard coking coal, in the first half of. Additionally, Aspire Mining has also signed an agreement with the Mongolian Government, owner of the Tavan Tolgoi Coal Mine to look into blending coal opportunities with Aspire's Ovoot mine. In order to exploit its main resource base the company is also actively involved in facilitating and promoting the required rail based infrastructure solutions to ensure that its Ovoot asset has world class continental and seaborne connectivity. In this regard, Northern Railways LLC, a company backed by a consortium including Aspire, is currently progressing the development of the Erdenet Ovoot rail section. In late June, the Presidents of China, Russia and Mongolia agreed to prioritize the development of a new rail corridor between Russia and China, through Mongolia, and the new 3,500 kilometre rail corridor requires the development of 1,414 kilometres of rail to complete the route. The Erdenet to Ovoot route is part of this undeveloped section. Xanadu is an ASX Listed copper and gold exploration company with several advanced exploration projects in Mongolia s highly mineralized and vastly underexplored South Gobi region. Xanadu controls the Kharmagtai porphyry copper-gold projects in Asia. Exploration drilling at the Kharmagtai project, which has yielded outstanding results to date, continues to test a combination of targets which include high level goldrich porphyry mineralization and deeper tourmaline breccia mineralization within the highly prospective 25 km² area of interest. Xanadu has continued to make progress in proving out its copper and gold resource base and in the latest quarter received strong shareholder support in raising A$12.2 million to fund the continued development of its Kharmagtai copper gold project and the new gold discovery at Oyut Ulann. 12

13 Resource Generation is an ASX and Johannesburg listed thermal coal exploration company, the largest shareholder in which is the investment entity wholly owned by the South African Government, Public Investment Corporation. The focus of the company is on developing its Boikarabelo coal mine in the Waterberg region of South Africa. This region accounts for 40 of the country s remaining identified coal resources and the asset it is exploiting has probable reserves of million tonnes of coal, on just 35 of the tenements under the Company s control. Stage 1 of the mine development targets saleable coal production of 6 million tonnes per annum. The company has revised the mine plan, and enhanced its development approach to produce higher yields while also deciding to outsource construction risk to qualified contractors (Heads of Agreement for the procurement and construction of the coal handling plant were concluded in May). In order to expand the economic base of the Boikarabelo project, a feasibility study for the construction of a 450MW or 600 MW independent mine-mouth power station to operate as an approved independent power producer ( IPP ) is under investigation. As at e, the company announced that further progress had been made towards securing the requisite debt funding to complete construction of the project. PT Atlas, operating in Indonesia, and listed on the Jakarta Stock Ex has re-organized its business into three units, Coal, Infrastructure and Energy. The company has five production hubs with combined reserves of over 300 million tonnes. The company has secured a number of coal supply contracts with PLN, which total 65 million tonnes over 20 years, as the company can meet the PLN specifications which require coal with low sulfur and low ash at CV of 4,200-4,700. The company has also completed its 80 mile long coal hauling road and the associated coal export terminal, which has the capacity to handle 6 million tonnes of coal per annum. These infrastructure initiatives and developments are aimed at supporting the coal production and sales from its MUBA Hub asset which has coal reserves and resources of 97.3 million and million tonnes, respectively. Taking advantage of new domestic initiatives in the electricity sector, the company has also formed a subsidiary with Toyota Tsusho of Japan and Gas Natural Fenosa of Spain to develop mine mouth power stations and hopes to produce up to 1500 MW of power output at two of its five hubs within the next five years. Cockatoo Coal suffered last year from a slow-down in metallurgical coal demand generally, and PCI coal demand, specifically, and in November the Group appointed Administrators. A Deed of Company Arrangement (DoCA) was proposed by shareholder Liberty Metals and Mining LLC and approved by Cockatoo s creditors on 1 March. The DoCA was effectuated on 30 May and the day to day management of the company has reverted to the Board of Directors. At the end of June, the company was granted the mining lease that extended the life of the Baralaba North Mine, allowing Cockatoo to produce its sought after low volatile PCI coal used in steel making at the targeted rate of 4.1 million tonnes of production, or 3.5 million tonnes saleable. Once Cockatoo Coal is in full production, it is expected to account for around 15 of the global tradable low vol PCI market. 13

14 Working Capital (US$ million) (1) 31 Mar 31 Dec Trade receivables 2,925 2,567 2,434 Prepayments, deposits and other receivables 1,071 1,206 1,166 Inventories 1,604 1,487 1,792 Trade and other payables and accrued liabilities (3,373) (3,456) (4,727) Net fair value gains on commodity contracts and derivative financial instruments 2,204 2,618 3,178 NAES working capital Working capital 4,608 4,422 3,843 (1) Noble Americas Energy Solutions ( NAES ) working capital has been classified as assets and liabilities held for sale. Refer to SGX results announcement for additional disclosure. Working capital increased by US$765 million in the first half of, but remains below historic levels as the Group continues to focus on managing liquidity. - In Q1, the increase was primarily due to decreases in trade and other payables, offset by decreases in net fair value gains on commodity and other derivative financial instruments ( net fair value gains ) and inventories. - In Q2, the increase was primarily due to a net increase in trade receivables, as approximately US$200 million of previously off balance sheet trade receivables in the US came on balance sheet to form part of the asset base in the US borrowing base facility, which closed in May. The remaining s in working capital were due to fluctuations in commodity prices and the timing of settlement of physical commodity contracts. Readily marketable inventories ( RMI ), at US$1,521 million at e, accounted for 95 of total inventory. The Group s RMI is highly liquid primarily comprising oil liquids products and LME metals. Given the highly liquid nature of these inventories, the Group believes it is appropriate to consider them together with cash equivalents when evaluating the Group s leverage. The approximately US$200 million reduction in inventories from 31 December to e is primarily due to a decrease in Metals inventories. Metals working capital levels have decreased by approximately US$400 million in the first half of as the business repositioning was completed in Q2. Net fair value gains declined US$974 million from 31 December to e primarily due to the roll-off of in the money Level 1 Oil Liquids futures contracts in Q1 and the reclassification of NAES to assets and liabilities held for sale as of e. The Group s Level 3 net fair value gains remained largely und in the first half of. Realization on the portfolio of long-term physical contracts continued to be in line with expectations in the first half of, as confirmed by the Group s back testing activities. 14

15 The Group s trade and other payables balance stabilized in Q2 following the decline in Q1. The from 31 March to e is primarily due to the reclassification of the liabilities of NAES as held for sale. The Q1 decrease in trade and other payables was driven by the following factors: - Approximately 30 due to the maturity of in the money Oil Liquids futures which rolled off resulting in a non-cash decrease in the net fair value gains asset, offset by a corresponding decrease in the due to brokers liability included within trade and other payables; - Approximately 50 due to the tightening of the Group s uncommitted unsecured bank lines, ahead of the May bank debt refinancing, which resulted in a reduction in the availability of term letters of credit. Such letters of credit instruments are commonly used in the industry as a source of funding working capital; and - The balance of the decrease was due to the timing of settlement of trade and other payables. The Group is taking active measures to replace and/or restructure its previously available bank lines along with securing alternative sources of working capital funding. As such, the Group does not expect further material decreases in trade and other payables to impact net working capital levels going forward. Aside from the tightening in certain uncommitted unsecured bank lines in Q1, as previously noted above, the Group s access to credit remains materially und, with some movement in ratings-based margin and collateral posting requirements following the downgrades in Q1, primarily in the Oil Liquids and Gas & Power businesses. There was minimal impact following the downgrade by S&P in June. To date, s in margin and collateral posting requirements have been covered by cash or through letters of credit from the Group s committed and uncommitted bank lines. As of e, the Group s off balance sheet readily marketable inventory sales program stood at US$228 million, compared to US$413 million at 31 March and US$1.1 billion at e, with the decrease primarily reflecting the reduction in the Metals business. 15

16 Selected Cash Flow & Net Debt Reconciliation (1),(2) (US$ million) 6 Months Ended 12 Months Ended Operating profit/(loss) before working capital s 175 (688) Exceptional non-cash losses - 1,053 Adjusted operating profit before working capital s Increase in working capital (728) (280) Others Net cash flows from/(used in) operating activities (3) (534) 117 Net cash flows from investing activities Interest paid on financing activities (103) (212) Acquisition of treasury shares - (30) Others (13) (29) Net cash flows used in financing activities (4) (116) (271) Net foreign ex differences & others 12 7 Decrease in net debt (1) Full Cash flow Statement available on the SGX results announcement (2) Inclusive of amounts related to businesses which are discontinuing or to be discontinued in the near future (3) Excludes movement in cash with futures brokers not immediately available for use (4) Excludes bank debt additions or repayments and redemption of senior notes The Group s net debt decreased US$410 million in the twelve months ended e. Further deleveraging is planned following receipt of the US$2 billion from the completion of capital raising initiatives. The operating cash flow result in the first half of included positive operating profit before working capital s, offset by an increase in working capital due to the tightening of the Group s uncommitted unsecured bank lines ahead of the May bank debt refinancing. Operating profit before working capital s in the first half of was approximately US$240 million when adjusted for US$65 million associated with businesses which are discontinuing or to be discontinued in the near future. Net cash flows from investing activities in the six and twelve months ended e includes the US$750 million in proceeds from the Noble Agri sale received in Q1. Investments under the Group s asset light business model now relate predominantly to discretionary items and remained at low levels during the first half of. 16

17 Funding and Credit Availability (US$ million) 31 Mar 31 Dec senior notes due Mar senior notes due Jan Malaysian Ringgit denominated sukuk due Jan 4.00 Chinese Yuan denominated notes due Jan 3.55 Thai Baht denominated guaranteed bonds due Apr 378 1, , , Total debt capital markets 1,555 1,654 1,947 Long term bank debt 1,188 1,839 1,846 Short term bank debt 2,273 1,547 2,128 Total debt 5,016 5,040 5,921 Cash and cash equivalents (1) 1,096 1,353 1,953 Net debt 3,920 3,687 3,968 Shareholders equity 3,379 3,399 3,292 Net debt/capitalization (2) Proforma net debt/capitalization (3) 46.9 n/a n/a Readily marketable inventory (RMI) 1,521 1,394 1,710 Adjusted net debt / Capitalization (2),(4) (1) Includes cash with brokers not immediately available for use and US$177 million of NAES cash classified as asset held for sale (2) Capitalization= net debt + shareholders equity (unrelated to any share price movement) (3) Proforma US$500 million in rights issue proceeds received on 4 August (4) Adjusted for RMI Total cash and cash equivalents at e stood at US$1.1 billion of which US$432 million was restricted with brokers and not immediately available for use and US$177 million of NAES cash classified as held for sale. The cash balance has increased post quarter-end with approximately US$500 million in net cash proceeds being received on 4 August as a result of the rights offering. Net debt increased by US$233 million, primarily to fund the increase in trade receivables, as explained previously. Liquidity headroom, being the sum of readily available cash and unutilized committed facilities, was at US$0.8 billion as at e compared to US$1.9 billion as at 31 March. The decrease in Q2 was primarily due to the reduced size of the new Revolving Credit Facility refinanced in May compared to the maturing Revolving Credit Facilities. During the first half of, the Group redeemed the following: - On 1 February, the Group announced the redemption of the RMB1 billion 4 Medium Term Notes and the RM300 million 4.3 Sukuks with an equivalent of US$261 million. - On 26 April, the Group redeemed the THB2,850 million 3.55 Guaranteed Bonds. 17

18 On 12 May, the Group closed a 364-day US$2.0 billion US Borrowing Base Facility, which is used to fund our US business requirements, especially in Oil Liquids and Gas & Power. This facility allows for the issuance of trade finance instruments such as letters of credit, as well as for drawdown of loans. At the same time, the Group also announced the closing of a 364-day US$1.0 billion syndicated committed unsecured Revolving Credit Facility. The amounts drawn was used to refinance the amounts due under the maturing Revolving Credit Facilities. The refinancing of both the Revolving Credit Facility and the US Borrowing Base Facility in May, along with the redemption of senior notes in April, addressed substantially all of the debt coming due in. Net debt to capitalization was 54 as of e. On a proforma basis, accounting for the US$500 million in net proceeds received as a result of the rights offering, net debt to capitalization was 47, compared to 52 as at 31 March. The Group continues to be focused on deleveraging with our target net debt to capitalization at around 45. The Group conducts a regular review of its debt maturity profile in conjunction with its capital and funding structure to ensure it maximizes efficiencies while maintaining a solid balance sheet. The funding and capital structure will continue to be refined to reflect the asset light business model and to ensure a competitive cost position. As at e, the Group had a total of US$11.1 billion in committed and uncommitted bank facilities, comprised of US$4.4 billion in committed facilities and US$6.7 billion in uncommitted facilities. Of the US$11.1 billion in bank facilities, US$6.9 billion was utilized, which consisted of US$4.2 billion in committed facilities and US$2.7 billion in uncommitted facilities. The reduction in total bank facilities was primarily due to the reduced size of the Revolving Credit Facility in May along with the reduction in the availability of bank lines ahead of the May bank debt refinancing as noted previously. The Group is in discussions with banks on a broader financing strategy which includes potential s to certain uncommitted facilities which are currently constrained and to ensure that the structure of the facilities support the structure of Noble s business going forward. The Group s uncommitted bank facilities comprise various bilateral bank credit facilities and other financing arrangements, provided by a diverse group of banks globally. The drawings under these facilities support trade finance activities such as the issuances of letters of credit and are largely self-liquidating in nature. The issuance of such letters of credit is not an incremental liability to that reported on the Group s balance sheet. The Group requested a waiver from the relevant banks in relation to one of the financial covenants in its revolving credit facility and borrowing base facility for the period ended e. The banks have provided approval to waive this financial covenant. The Group is in compliance with the terms & conditions of its facility agreements. 18