The privately owned company generated record gross profits, earnings and cash flows in the year to September, allowing it to reward its top traders and executives with a total payment in excess of half a billion dollars.
The results show the ability of the big commodity traders — a group that includes Vitol, Glencore, Gunvor and Mercuria — to profit from the chaos in commodity markets as prices of oil and other raw materials crashed in March and April when containment measures to halt the pandemic hit demand.
While big oil producers struggled as prices for their core products tumbled, traders profited by betting on big price swings, storage deals and other opportunities created by market volatility.
“These figures reflect an outstanding performance by both core trading divisions, Oil and Petroleum Products and Metals and Minerals, in the volatile markets, which were mainly created by the Covid-19 pandemic,” said Trafigura’s chief financial officer Christophe Salmon.
The blockbuster results came in spite of losses at Trafigura’s industrial assets and almost $1.6bn of impairment charges on assets including its Impala Terminals businesses in Colombia, holding in Indian refiner Nayara Energy and stake in Puma Energy.
In the year to September, Trafigura posted net profit of $1.6bn, up from $867.8m in 2019, its best result since 2013.
Gross profit hit a record $6.8bn, compared to $2.9bn in the same period a year ago. Earnings before interest, tax, depreciation and amortisation came in at $6bn, up from $2.1bn.
The company, which is based in Singapore but run from Geneva, said it spent $586m repurchasing shares from employees, up from $337m in 2019.
Trafigura uses buybacks to return capital to its management and 850 senior staff. It slashed payments in 2019 to strengthen its balance sheet following a deal to take control of struggling zinc producer Nyrstar.
Adjusted net debt — Trafigura’s favoured leverage metric, which strips out borrowings from its securitisation programmes and inventories — fell to $2.76bn from $5.3bn, or 0.35 times its equity value of $7.8bn.
“Strong earnings and cash flows enabled us to significantly strengthen our balance sheet during the year,” said Mr Salmon.
The company highlighted its oil division’s bet on snapping up vast amounts of storage capacity as the pandemic hit, enabling it to buy up cheap barrels in the spot market to sell at a higher price once lockdowns eased.
“The team managed the fall in demand and the subsequent resumption well, backing their judgment by taking substantial long-term tankage positions in Asia, the US and Europe,” the company said.
US oil prices traded in negative territory for the first time ever in April as many traders were caught without access to storage at Cushing, Oklahoma, the key delivery hub for the benchmark West Texas Intermediate contract.
Metals trading was also strong thanks to a quicker recovery from the pandemic by economies in Asia and particularly China — the world’s biggest consumer of copper and other metals — boosting demand and prices.