Glencore 2016 core profit up 18% on commodity rebound
LONDON: Commodities trader and miner Glencore reported an 18% rise in 2016 profit, buoyed by a rebound in raw material prices, and said it had never been better-placed financially, signalling a readiness for small purchases or a special dividend payout.
Analysts said the results beat expectations, driving the share price around 1% higher by 0909 GMT, building on gains of nearly 20% so far this year. The wider sector was nearly 1% lower.
Companies across the mining sector, which was pounded by the commodity market rout of 2015, have exceeded expectations following a recovery in the price of raw materials such as iron ore and coal last year.
Glencore’s earnings before interest, tax, depreciation and amortisation (ebitda) were US$10.3bil, up 18%.
For the trading, or marketing division that sets Glencore apart from other miners, adjusted earnings before interest and tax (ebit) were US$2.8bil, up 14% and above previous guidance of US$2.5bil-US$2.7bil.
It now says, marketing this year should deliver between US$2.2bil and US$2.5bil in profit, adding the lower range reflected the sale of 50% of Glencore Agriculture in December 2016.
Glencore, like other miners, has embarked on asset sales to drive down debt and has said it will maintain a lower net debt to ebitda ratio, a crucial measure of available cash in capital-intensive mining.
Chief Executive Ivan Glasenberg said that ratio could slip below 1 this year, compared with its goal of 2:1 and the 3:1 ratio it used to favour.
Net debt by the end of 2016 had fallen to US$15.5bil, a fall of US$14.1bil, compared with 18 months ago.
“Since our IPO in 2011 and subsequent acquisition and integration of Xstrata, Glencore has never been so well positioned as it is today,” Glasenberg said.
He told reporters in a media call surplus cash could be used for small deals or “boltons” on the edge of existing assets, rather than huge acquisitions, and perhaps big dividends.
“We could do many things. We could give our long-suffering shareholders a generous gift of a special dividend,” Glasenberg said. “To ourselves as shareholders, that would not be a bad thing to do.” Glencore’s board recommended yesterday a dividend of 7 US cents per share after promising late last year it would reinstate payouts.
A glitch in the recovery was the decision to hedge 55 million tonnes of coal in a rising market, which led to what Glencore labelled an “opportunity cost” of US$980mil.
Glasenberg, however, said Glencore would carry on hedging as appropriate and was in the process of locking in coal prices with Japan over a year-long contract.
Analysts said the results were ahead consensus.
“Today’s results strengthen our view on the stock. The results were solid,” Bernstein wrote in a note, adding it rated Glencore “outperform”. – Reuters of