RCMA defies commodity rout, expands into energy
24 Feb 2016
EVEN as commodity producers and traders batten down the hatches and sell off businesses to tide through the difficult commodity environment, Singapore-based RCMA Group is expanding, and on the prowl for good assets to pick up.
The company, which trades over US$1 billion worth of rubber, coffee, sugar and cotton each year, is now moving into the energy business. It has started trading electricity in Singapore and Australia, and could eventually expand into the Philippines, Japan, South Korea, Vietnam and others. In Singapore, it will, from mid-February, start selling electricity to factories and businesses. Outside the country, it is open to buying trading and physical assets in sectors from coffee and rubber to power.
“2016 will be a time to purchase assets at reasonable prices or much lower prices than we’ve seen over the last few years,” said its CEO Chris Pardey.The expansion into energy follows RCMA’s diversification away from natural rubber in the past five years. In 2010, Mr Pardey, together with former colleagues at global trading giant Cargill – Douglas King and Michael Coleman – bought over RCMA from veteran rubber trader Oei Hong Bie.
In the years since, it has diversified into coffee, sugar and cotton in quick succession. A fourth shareholder, Jonathan Drake, former head of sugar trading at Cargill, joined RCMA when it started its sugar trading arm. Its decision to diversify its product portfolio rather than grow its significant footprint had been questioned by banks then, said Mr Pardey. The strategy, however, has worked – it is why RCMA hasn’t fared as badly as it could have as rubber prices fell 80 per cent from its peak in 2011, said Mr Pardey.
RCMA’s revenue surged to US$2.2 billion in 2011 on the back of high rubber prices, and has stayed between US$1.2 billion and 1.3 billion in the three years till 2014, records from Accounting and Corporate Regulatory Authority show. After reaching a record high US$32.8 million in profit after tax, it made profits of about US$7.5 million in 2013 and 2014. Singapore-listed rubber companies such as Sri Trang, Halcyon Agri and GMG Global have, in the meantime, all seen their revenues and profits fall in tandem with rubber prices.
RCMA’s financial results for 2015 are not yet finalised, but according to Mr Pardey, management figures show a net profit of about US$20 million. RCMA’s expansion into new products contrasts sharply with the other multi-product Singapore traders Noble Group and Olam International, which have in recent years simplified and reduced their product portfolios.
“There’s no question that with more things you do, there is a risk,” said Mr Pardey. The management keeps its shareholders updated daily on its positions and the risks it takes, he revealed. And when new products fall short of profitability expectations, they are quickly dropped – as RCMA did for coal in 2011 and fertilisers in 2014.
“We’ve got a very disciplined approach to risk and to analysing the businesses that we start. Up to now, every business we’ve started or bought has made money in the first year,” said Mr Pardey. “You can’t deny that as you diversify, you’ve got more things to control, but we have got a very clear track record of bringing the teams in, identifying the opportunities and the risks and then managing those risks.”
Now, RCMA is eyeing a role in the Singapore power market, which is in the process of being liberalised. The Singapore electricity futures market, set up last year, was what drew the firm into the sector. “We have the understanding of the price risks management, managing the futures market and hedging,” said Mr Pardey. “So we will be be able to work with producers and consumers in terms of managing their price exposure.”
Despite being a newcomer, RCMA has been the most active in the electricity futures market as power producers have been reluctant to step in due to an expectation that it would result in lower prices. The new energy business would probably be the most profitable one for RCMA last year, Mr Pardey said. Looking ahead, RCMA will not rule out buying power plants as well as branching out into renewable energy. “We’ve got lots of different projects in the energy space that we’ve considered and will be willing to consider,” said Mr Pardey.