Trafigura Profit Drops 62% After 'Massive Problem' in Mongolia

Trafigura Group has reported a significant decline in its profit, attributing this downturn to $1.1 billion in losses connected to alleged misconduct by employees within its Mongolian oil operations.

Financial Overview

As a result of the issues in Mongolia, Trafigura's net profit dropped by 62%, amounting to $2.8 billion for the financial year ending in September 2024. This marks the lowest profit reported in four years. The company indicated that $357.5 million of this loss was directly tied to the alleged fraud in Mongolia, with the remaining losses factored into previous accounting periods. If the entire loss related to Mongolia had been applied to the current year's accounts, the net profit would have been approximately $2 billion.

Management Changes

This situation has cast a shadow over the tenure of CEO Jeremy Weir, who will transition to the role of non-executive chairman on January 1, 2025, after more than ten years at the helm. Richard Holtum, the current head of gas and power, is set to take over leadership. Trafigura is consequently required to restate several years of financial results due to these irregularities, which reportedly occurred over a span of about five years.

Additional Losses and Impairments

Besides the losses from Mongolia, Trafigura also faced a $297 million hit from its zinc smelting subsidiary, Nyrstar, along with smaller impairments from its retail fuel and Colombian logistics businesses. Despite these challenges, the company enjoyed a low effective tax rate of 2.8% for the year, down from 8% in the prior year.

Response to Allegations and Future Steps

Trafigura's management acknowledged the seriousness of the situation, describing it as a “massive problem.” They have committed to undertaking significant corrective measures, which will be evaluated by external reviewers. The company also highlighted the strong performance of its commodity trading teams, especially in the metals sector.

Recent Developments

The recent reports of substantial losses in the Mongolian oil business first emerged in February, with Trafigura confirming the discovery of employee misconduct in October. This situation follows a series of legal and compliance challenges faced by the company, including guilty pleas related to historical corruption in Brazil and manipulation of oil prices. Furthermore, Trafigura is currently battling a corruption trial in Switzerland, a first for a commodity trading house.

Outlook

Despite the profit decline, Trafigura remains a prominent player in the commodity trading industry, experiencing notable success in areas like copper trading. The company plans to address its internal controls and improve compliance as part of its strategy moving forward.

Profit, Losses, Mongolia