Glencore Posts Biggest Profit Drop Since IPO on Metals Slump
By a lot of measures, 2015 was the worst year for Glencore Plc since the mining and trading giant became a public company.
Net income excluding some items plunged 69 percent to $1.34 billion during the year as prices for metals and oil collapsed, the Baar, Switzerland-based company said in a statement Tuesday. While that beat the $1.17-billion estimate from analysts, the firm suffered an adjusted loss in its mining division and plans to sell as much as $5 billion in assets.
Glencore executives struck an upbeat note on a call with reporters after the results, with Chief Executive Officer Ivan Glasenberg saying commodity prices have bottomed and sales into China are “pretty good.” While the company’s priority remains reducing its $25.9 billion debt load, a return to dividends is possible next year, Chief Financial Officer Steve Kalmin said.
The stock slipped 1.7 percent to 131.05 pence as of 8 a.m. in London.
Profits from the world’s biggest mining companies are evaporating as prices for copper, nickel, zinc and iron ore plunge because of gluts and slowing demand from China, the biggest customer. To weather the commodities collapse, Glencore is trying to save money and plans to reduce debt to as low as $17 billion by scrapping its dividend, cutting costs and selling assets and new shares.
“All on eyes on the second quarter for asset sales,” Ben Davis, a mining analyst at Liberum Capital Ltd. in London, said by e-mail. “It puts Anglo American to shame at the rate Glencore gets the important work done.”
Adjusted earnings before interest and tax from the trading division was $2.46 billion, compared with the company’s forecast of $2.5 billion and $2.79 billion in the previous year. Earnings from the mining unit swung to a loss of $292 million from a profit $3.9 billion in 2014.
Glencore reduced net debt to $25.9 billion from $30.5 billion, missing its target of about $25 billion. The company, which went public in 2011, plans to sell a stake in its agricultural division in the first half of 2016.
“Financial market sentiment weakened considerably during the course of 2015 amid concerns over slowing economic growth,” Glasenberg said in the statement. “The commodity sector was particularly adversely affected by a succession of disappointing China macroeconomic data, declining oil prices, and the strong U.S. dollar. As a result, sector focus quickly switched from cash distribution to balance sheet concerns and cash preservation.”
BHP Billiton Ltd., Rio Tinto Group and Vale SA have all reported plunging profits and cut dividends this year, at the same time painting a gloomy picture for a near-term recovery in metals, with most still in oversupply. A measure of six metals traded in London tumbled 24 percent last year, the most since the global financial crisis of 2008. Oil plummeted 30 percent after dropping 46 percent a year before.
The commodities slump means Glencore now generates most of its cash from trading as its mines and smelters around the globe struggle for profitability.
Glencore shares have jumped 44 percent this year as the company worked to shore up its balance sheet and won a vote of confidence from lenders when it refinanced a $8.45 billion revolving credit facility last month. The stock is still down 56 percent in the past year.
As the stock recovered, David Herro, chief investment officer of Harris Associates LP, has added to his holdings. The investor now controls more of Glencore than CEO Glasenberg with an 8.5 percent stake, up from the 5.1 percent declared in a regulatory filing in September.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.
–With assistance from Agnieszka de Sousa and Thomas Biesheuvel.