Glencore bounces back into profit in 2016

Glencore, the miner and commodity trader, has announced a return to profitability on the back of higher raw material prices and cost cutting.

After slumping to a $5bn loss in 2015, the Switzerland-based company said on Thursday net income attributable to equity holders had rebounded to $1.38bn last year.

The figures highlight the dramatic turnaround in commodity markets that has boosted earnings across the mining industry and helped companies such as Glencore to reduce their debt loads.

“The last 18 months have been challenging for Glencore,” said chief executive Ivan Glasenberg.

“On a positive note, we have demonstrated that Glencore is a strongly cash generative business, even at low points in the cycle, and is capable and willing to react decisively and quickly as circumstances require.”

Earnings before interest, tax, depreciation and amortization – the measure most closely watched by analysts – rose 18 per cent to $10.26bn, exceeding market expectations. Revenues were $152bn versus $147bn a year earlier.

Net debt declined by 40 per cent, or $10bn, to $15.5bn, below the company’s target of $16.5bn to $17.5bn, helped by asset sales and increased cash generation. Glencore will pay a dividend of $1bn this year.

At a divisional level, earnings before interest and tax at Glencore’s mining business surged to $1.1bn from a loss of $292m a year, reflecting higher prices, cost cutting and strong operational performance

The company’s trading arm – which sets Glencore apart from other resources groups – saw EBIT rose 14 per cent to $2.8bn, ahead of company guidance. This figure is closely followed by analysts because the trading arm is highly cash generative.

Glencore was one of the company’s hardest hit during the commodity price crash and one of the biggest gainers- alongside Anglo American – from the recovery. Its share price has risen 175 per cent over the past year to 325p.

At the height of the downturn, Mr Glasenberg launched a wide ranging debt reduction plan that involved asset sales and aggressive cost cutting. The company also suspended dividend payments and raised $2.5bn through a sale of new shares.

In December, Mr Glasenberg declared that programme largely complete and the famed deal-maker quickly returned to his acquisitive ways. In December, the company joined forces with Qatar’s sovereign wealth fund to buy almost a fifth of Rosneft, the state-controlled Russian oil producer.

Glencore then increased its shareholding in two Congolese copper and cobalt mines, deals that reinforced its position as one of the world’s largest copper producers.

If commodity prices hold up Mr Glasenberg will have further firepower to chase deals.

The new, more conservative balance sheet is likely to serve Glencore well,” said Tyler Broda, analyst at RBC Capital Markets.

“With an aversion to greenfields growth, a significant amount could come back to shareholders. But perhaps most importantly, this strong financial position will allow Glencore to return to the offensive to pursue value additive transactions in mining or agriculture, and on their terms.”