December 7, 2016 / 8:15 AM / a year ago

UPDATE 2-Earnings drop at Trafigura on weak commodities, asset writedowns

* EBITDA falls to $1.6 bln after record 2015

* Expects challenging trading in commodities markets in 2017

* To inject $320 mln equity into Essar acquisition

* Share buybacks edge down to $719 mln (Adds details, figures)

By Julia Payne and Dmitry Zhdannikov

LONDON, Dec 7 (Reuters) - Commodities trading company Trafigura reported a 13 percent drop in 2016 core earnings due to weak prices and the writedown of assets in Colombia and Brazil, and it warned of more challenging trading conditions ahead.

“We expect challenging conditions to persist in commodities markets through 2017, with pressure increasing on producers and other players with large asset footprints,” Chief Financial Officer Christophe Salmon said in a statement.

The company said core earnings (earnings before interest, tax, depreciation and amortization) were $1.628 billion in 2016, down from $1.861 billion in 2015, which was a record year.

Net profit fell 12 percent to $975 million compared with $1.103 billion in 2015, while revenue was flat at $98.098 billion compared with $97.237 billion in 2015.

“Competition remained intense in all the markets in which the company operates, which was reflected in a reduced gross margin of 2.3 percent from 2.7 percent in 2015,” it said.

Trafigura was forced to write down the value of subsidiary Impala’s investment in the FDP rail project in Colombia by $43 million and lower the value of the Porto Sudeste iron ore export terminal in Brazil by $250 million.

“Because of depressed commodities prices, the ramp up of operations in Brazil was slower than our initial expectations,” Salmon told Reuters.

Trafigura, which vies with Glencore for the position of the world’s second largest oil trader, said traded volumes grew to a daily average of 4.3 million barrels, up 42 percent on 2015 on the back of growing Russian business, larger sales via mid-stream subsidiary Puma and rising structured finance operations.

Trafigura also grew volume across its metals and minerals book by 13 percent to 59 million tonnes.

Salmon said he expected margins to be supported in the future by a decrease in capital and operating expenses.

The firm said its cycle of asset investment has peaked as capital expenditure required to complete key projects dropped to $754 million in 2016 from $1.223 billion in 2015.

Capex in 2017 will include a $320 million equity injection into Indian refiner Essar, which Trafigura and fund UCP are buying together with Russian state oil major Rosneft.

Trafigura said the acquisition will be mainly financed by a non-recourse loan from a Russian bank while giving exposure to a strategic position in one of the fastest growing oil markets.

“Investment into Essar should contribute to trading volumes growth in 2017,” said Salmon.

The company said it had spent $719 million on share buybacks in 2016, down from $775 million in 2015 and $885 million in 2014. The company has said it would continue buybacks as part of shareholder rotation until 2017 provided it generates enough profits.

Reporting by Julia Payne and Dmitry Zhdannikov, editing by Louise Heavens

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