NOBLE GROUP LIMITED () ANNOUNCEMENT ( Company, Noble or the Group ) makes reference to the paper published by Muddy Waters LLC ( Muddy Waters ). We categorically reject their allegations as inaccurate, unreliable and misleading. EXECUTIVE SUMMARY We categorically reject the assertion that Noble exists to borrow and burn cash In fact, our balance sheet has never been stronger. Furthermore, the time period of 20 years referenced by Muddy Waters has seen Noble grow from a company with $377m of revenue to revenues of more than $85Bn. Muddy Waters have also omitted the impact that the Agri business has had on Group results over the last few years and most importantly, the Free Cash Flow metric quoted in their report incorrectly omits the approx. $3.4Bn of cash proceeds received from the sale of our 51% interest in Noble Agri. This is an important omission given that over the past several years, the Group has made significant investments in its Agricultural Platform, which we substantially recouped through the sale at a premium to book value. We categorically reject the notion that Noble s debt levels are unsustainable Our balance sheet has never been stronger or more liquid. As at the end of December 2014, our debt to capitalizations was at a historic low of 38%. Also we carried $5.2bn of liquidity headroom. In terms of our debt profile, half of the outstanding debt has a maturity of over 2 years. We categorically reject the assertion that Intra Quarter Debt levels increase by +$3Bn We acknowledge that our debt does fluctuate intra-quarter, however this is more a reflection of market practice, and nowhere near the +$3bn claimed.
We categorically reject the unfounded allegations that Noble misled investors or manipulated the accounting in the acquisition and disposal of PT Alhasanie ( PT ALH ) The acquisition and disposal proceeds of PT ALH, and the accounting of them, are fully explainable through arms length commercial arrangements and third party independent valuations. Through arms length commercial arrangements, going back to 2003, Noble secured long term off take arrangements by assisting in the development of various mines in the Sanga Sanga River area on the Mahakam River in East Kalimantan, Indonesia. As regulatory and market changes developed over time, Noble acted accordingly to protect this investment and the interests of both shareholders and clients. It is worth noting that since Noble s involvement in the asset, Noble has realized over $40m in direct cash gross profits on sales from this mine, underpinning the asset value.
1. We categorically reject the assertion that Noble exists to borrow and burn cash We have commented on many of the cash flow issues in earlier rebuttals, for completeness though we will also address below. The 20 year time frame referenced in the report has seen Noble Group grow from a company with $377m of revenue to revenues of more than $85Bn. In addition, over this time frame, the Group s strategy has developed from Asset Light to Asset Medium and then most recently, with the sale of 51% of our stake in Noble Agri, back to Asset Light in 2014. The Group s initial growth phase and transition from Asset Light to Asset Medium, which commenced in the late-2000 s, invariably required significant investments in supply chains assets which negatively impacted the Group s cash flows. However, the Free Cash Flow metric quoted in the report incorrectly omits the approx. $3.4Bn of cash proceeds on the sale of our 51% interest in Noble Agri. This is an important omission as over the past several years, the Group made significant investments in its Agricultural Platform, including Brazilian sugar mills and crush facilities. The cost of these expenditures was substantially recouped with the sale of 51% of our stake in Noble Agri. In addition to this, cash flows from our operating activities will change year to year depending on many factors including the underlying operating results and changes in working capital. We have summarized two examples below, taking two different years that highlight some factors that influence cash flows: FY2011 Cash flow from operating activities +$2,319MM: Operating Profit before working capital changes for FY2011 was +$970MM. During Quarter 3, the commodity market was overshadowed by continued concerns over sovereign risk in the Euro zone. Given those risks Noble maintained a low risk profile. The impact of this risk off strategy was decreased trading as seen in working capital, with usage dropping by $1,000MM, one of the biggest drivers of this change being inventory which decreased by $1,116MM. These reductions in working capital positively impacted operating cash flows. FY2014 Cash flow from operating activities -$1,103MM: Operating Profit before working capital changes for FY2014 was +$955MM. During 2014 we completed the sale of the Agri business, which reduced working capital requirements by close to $2Bn. This decrease in working capital was offset by underlying growth in continuing operations. As Noble increased physical volumes in our growing oil and metals businesses which are significantly more working capital intensive than our traditional businesses, net working
capital needs increased correspondingly. Furthermore, net fair value increased driven by growth across all of our businesses, predominantly in Hards and Oil Liquids (including the impact of the volatility in oil liquids prices). Importantly, it is not only the size of the fair value balance that is changing but also the nature. Much of the fair value growth related to short term physical hedges, vessels on the water, gasoline in pipes, and metals in warehouses, diversifying our portfolio even further. These increases in working capital negatively impacted operating cash flows in 2014. 2. We reject the notion that Noble s debt levels are unsustainable Our balance sheet has never been stronger or more liquid. As at the end of December 2014, Noble s Gross Debt was less than $4bn and our debt to capitalizations was at a historic low of 38%. Also we carried $5.2bn of liquidity headroom. It is also important to note that we no longer have major long term capex commitments, except for the commitments to X2 Resources. This gives us flexibility to decide what we invest in and how, and, as a result, control over our leverage. In terms of our debt profile, half of the outstanding debt has a maturity over 2 years and more than 70% of debt is in the form of capital markets bonds. 3. We reject the assertion that Intra Quarter Debt levels increase by +$3Bn We acknowledge that our debt can be higher intra-quarter than at the end of the quarter. Because we manage our debt conservatively and have significant liquidity headroom we have capacity in our working capital that allows us to both absorb short term volatility intra quarter as spot prices move, particularly in highly liquid inventory markets, without having to adjust balance sheet levels to compensate, while also taking advantage of any market dislocations observed, but to suggest our working capital requirements increase by $3bn intra-quarter is a gross exaggeration. Fluctuations in debt levels through the year is common practice for any company based on its business and payment cycles, and especially in the case of commodity trading companies given the sensitivity to market price movements. However, our intra quarter debt level is nowhere near the +$3bn claimed. It can fluctuate up to +$1bn. Iceberg previously made this assertion on the basis that Noble pays high financing costs. Whilst it is true that Noble pays higher financing costs, it is not derived from a +$3Bn blow out of intra quarter debt. Noble s interest expense is high due to our debt maturity profile, our fixing of interest rate exposures and the level of liquidity headroom we choose to maintain. Both our debt maturity and our liquidity headroom are extremely conservative relative to our peer group.
Debt Maturity Profile vs. Peers Capital) Liquidity Headroom vs. Peers (as % of Working 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Noble Peer A Peer B Peer C Peer D Peer E 132.6% 27.1% 34.1% <12 months 13-60 months > 5 years Noble Peer A Peer B It should also be noted that our Inventory Sales do not increase significantly at quarter end. These sales are more a reflection of the level of contango in the market. This is industry practice with all traders. 4. We categorically reject the unfounded allegations that Noble misled investors or manipulated the accounting in the acquisition and disposal of PT ALH In recent weeks we have deliberately not been drawn into detailed discussions of individual transactions when addressing the material misstatements concerning our activities that have been made by a number of parties. This approach, which we will continue to adhere to, has been adopted to ensure that we protect the commercial interests of our partners and our stakeholders. However, in the case of PT ALH, which has most recently again been the focus of a note, this time by Muddy Waters; we have decided to detail some aspects of the development of our interests there. This course of action is possible, as we believe we can once and for all lay to rest, without compromising any parties' commercial interests, some of the unfounded inferences that are being alluded to.
Through arms length commercial arrangements, going back to 2003, Noble has secured long term off take arrangements by assisting in the development of various mines in the Sanga Sanga River area on the Mahakam River in East Kalimantan, Indonesia. Due to this area being strategically located at the entry point of the river system, a second quartile cost profile could be secured for the sourced coal. PT ALH was one of the mines operating in the area and we first entered into commercial arrangements with PT ALH in 2005. During our relationship with PT ALH, Noble maintained a cost-plus structure to operate, manage and develop operational infrastructure on the site. This effectively gave Noble the economic upside on the resource in the ground. Over this timeframe (2005-2011) the value of the resource in the ground increased substantially as prices rose and the resource itself was increased by our investment, which is reflected in our carrying value post transaction. However this is not reflected in the notional cost price of the equity of ALH of $300k that Muddy Waters refer to as the total cost of ALH, as it fails to take into account the funding and debt that was made available to ALH up to that point that were written off as part of the transaction. It is worth noting that since Noble s involvement in the asset, Noble has realized over $40m in direct cash gross profits on sales from this mine. By 2011, however, mining laws had begun changing in Indonesia, placing restrictions on trading non-equity owners, causing potential disruption of coal supply to our customers in North Asia. In order to avoid such disruptions, and to protect Noble s previous investment, which had over time become embedded in the asset through the build out of local infrastructure, it was decided to acquire PT ALH. On acquisition, negative goodwill arose because of the increase in the value of the resource, the value of which was supported by an independent third party valuation. In 2012, Noble became aware of further potential changes to restrictions in foreign ownership laws for coal mines in Indonesia and a decision was made to sell the asset but to maintain coal off take rights to service our long term customers.
As a result, the disposal of PT ALH and the revision of the off take agreement were structured to maximize the commercial value to Noble, whilst minimizing the risks associated with the changing regulations. A sale transaction was considered with various parties in Indonesia following which the reported disposal was concluded. Based on a third party independent valuation, the impact of the off take revision was to increase the value of the agreement to Noble by +$37M, and reduce the net asset value of PT ALH by -$38M. Noble will not be providing any further commentary on this asset or the arms length transactions that were entered into. NOBLE GROUP LIMITED 10 April 2015 About Noble Group ooooo Noble Group (SGX: N21) manages a portfolio of global supply chains covering a range of industrial and energy products, as well as having a 49% interest in Noble Agri, its agricultural partnership with COFCO. Operating from over 60 locations and employing more than 40 nationalities, Noble facilitates the marketing, processing, financing and transportation of essential raw materials. Sourcing bulk commodities from low cost regions such as South America, South Africa, Australia and Indonesia, the Group supplies high growth demand markets, particularly in Asia and the Middle East. We are ranked number 76 in the 2014 Fortune Global 500. For more information please visit. For further details please contact: Mr. James Watson Bell Pottinger Tel: +852 2159 9479 Email: jwatson@bellpottinger.com
Ms. Candice Adam Argentus PR Tel: +44 20 7397 2915 Email: candice.adam@argentuspr.com Mr. Martin Debelle Citadel Tel: +61 2 9290 3033 Email: mdebelle@citadelpr.com.au