19th Aug 2015 08:20
LONDON (Alliance News) - Glencore PLC on Wednesday reported a substantial fall in earnings, as expected, in the first half of the year, due to weaker commodities and oil prices and following the company's mixed production results earlier this month.
Glencore, like its peers, is suffering from steep declines in commodity prices such as iron ore and copper, whilst also battling the decline in oil prices, compounded by a slowdown in economic growth in China, the world's largest importer of metals.
Shares were down 5.4% at 166.45 pence, easily the biggest FTSE 100 faller in a down market Wednesday morning.
The multi-commodity miner reported a pretax loss of USD527.0 million in the first half of 2015, swinging from a USD2.49 billion profit a year before, as revenue dropped to USD85.70 billion from USD114.06 billion.
Glencore had already warned earlier in August it would book a USD790 million impairment related to its assets in Chad due to the decline in oil prices. Exceptional items totalled USD1.55 billion in the first half, comprised of the Chad impairment, a USD377 million foreign exchange loss, a USD256 million loss on Glencore's stake in London-listed Lonmin PLC, and USD235 million related to a metal leak. The metal leak occurred at the company's Koniambo mine in New Calendonia back in December 2014.
That is a large rise in exceptional items, compared to the USD290 million booked in the first half of 2014.
Net income before exceptional items also fell dramatically to USD882.0 million from USD2.01 billion.
Glencore reported earnings before interest, tax, depreciation, amortisation and exceptional items of USD4.61 billion in the first half of 2015, down 29% from USD6.46 billion a year earlier.
Ebit before exceptional items was down 61% to USD1.42 billion from USD3.62 billion, with the fall in earnings mainly caused by the fall in commodity prices.
Marketing Ebitda, meaning Glencore's trading arm, was down 27% to USD1.20 billion with an Ebit of USD1.10 billion, down 29%, both caused by "tough metals' trading conditions", with aluminium and nickel particularly affected by the collapse in physical premiums and subdued levels of global stainless steel production.
Glencore said it expects "better second half contributions from metals and agriculture to underpin full year Marketing Ebit guidance of USD2.50 to USD2.60 billion".
Industrial Ebitda, meaning metals and energy production, was down 29% to USD3.40 billion also due to weaker commodity prices and a weaker exchange rate environment. Despite the fall, Glencore said its Ebitda mining margin fell to 24% from 30% whilst its energy Ebitda margin only fell one point to 28%, "reflecting the quality" of its asset portfolio, it said.
In terms of the earnings by business segment, metal and mineral commodities experienced the largest fall to an Ebitda of USD2.89 billion from USD4.41 billion and an Ebit of USD991.0 million, down from USD2.79 billion, even as revenue climbed to USD32.01 billion from USD31.58 billion.
Its energy product segment, including oil and coal, produced an Ebitda of USD1.64 billion compared to USD1.72 billion and an Ebit of USD458.0 million from USD621 million, as revenue dropped to USD42.96 billion from USD71.30 billion.
Its agricultural products such as wheat produced an Ebitda of USD332.0 million, down from USD619 million, and an Ebit of USD230.0 million, compared to USD508.0 million a year earlier, with revenue falling to USD11.85 billion from USD12.58 billion.
Net debt at the end of the first half had fallen to USD29.60 billion, compared to USD30.50 billion at the beginning. By the end of 2016, the miner is hoping to have net debt fall further to around USD27.0 billion.
"As the group is currently generating positive cashflow and has extensive balance sheet flexibility and optionality, including via potential further reduction in net working capital and the sizeable
long term advances/loan book, we believe this target is eminently achievable," Glencore said in a statement.
The miner kept its interim dividend flat year-on-year at 6.0 cents per share for the first half, alleviating worries that the company would cut its dividend to cope with the fall in commodities prices and its large debt.
Glencore said its flat interim dividend reflected its "confidence in the quality of our underlying operations, commodities mix and sustainable cash flow profile".
Glencore's asset disposals also continued in the period, with the distribution of its 23.9% stake in Lonmin completed in June at a fair value of USD298 million, which led to the USD256 million loss recorded as an impairment, and the sale of assets inherited from the Xstrata acquisition in 2013 of the Tampakan copper project and of its stake in the Falcondo nickel operation and the Sipilou nickel project for a total of USD290 million.
Glencore already released its production figures for the first half earlier in August, and the results were mixed. Copper, lead, coal, gold and silver production all fell in the period with zinc, ferrochrome and oil being the only areas experiencing a lift year-on-year.
The biggest rise was in Glencore's oil entitlement, up 68% to 5.3 million barrels in the period, whilst zinc production was up 12% year-on-year to 730,300 tonnes and ferrochrome production was 16% higher at 756,000 tonnes.
Copper production fell 3% year-on-year to 730,900 tonnes, whilst coal production fell 4% to 68.7 million tonnes. Lead production dropped 2% to 146,200 tonnes from 148,900 tonnes, whilst gold production fell 10% to 411,000 ounces from 458,000 ounces, and silver production was down 3% to 16.2 million ounces from 16.7 million ounces.
The miner also slashed its capital expenditure budget earlier in August after spending USD3.0 billion in industrial capital expenditure in the first half. That is now expected to total USD6.0 billion for the full year, down from its previous guidance range of USD6.50 to USD6.80 billion.
On Wednesday, it said it will look to spend no more than USD5.0 billion in 2016 based on current market conditions.
"Our core industrial assets remain well positioned on their respective cost curves. We remain by far the most diversified commodity producer and marketer and are well positioned to benefit from any improvement in pricing when it finally and inevitably materialises," said Chief Executive Ivan Glasberg.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
GlencoreLonmin