3rd Mar 2015 11:44
LONDON (Alliance News) - Metals and mining giant Glencore PLC Tuesday joined sector peers in slashing its capital expenditure plans, after it reported lower 2014 profits hit by the fall in the oil price and prices for other commodities.
In a statement, the company said its capital expenditure fell to USD8.57 billion in 2014, from a pro-forma USD11.32 billion in 2013, and it now expects total industrial capital expenditure for 2015 to be between USD6.5 billion and USD6.8 billion, down from its previous guidance of USD7.9 billion.
Glencore said it reviewed its capital expenditure budget to reflect the "volatile market backdrop," and on top of the cut to capital expenditure it said it will also curtail coal production in Australia and South Africa to better suit "current market demand," which will reduce expenditure further.
Glencore reported a closely-watched adjusted earnings before interest, tax, depreciation and amortisation of USD12.76 billion for 2014, down from a pro-forma USD13.07 billion in 2013, while net profit fell to USD2.31 billion, from a pro-forma USD2.47 billion. The pro-forma 2013 figures reflect the updated fair value acquisition accounting for the acquisition of Xstrata.
Adjusted Ebitda in its industrial unit, its mining business, fell 7% to USD9.8 billion as production growth, cost savings and weaker currencies in the countries in which it produces failed to offset the fall in commodity process, particularly for oil.
Adjusted Ebitda in the marketing division, its commodities trading business, rose 15% to USD3.0 billion, buoyed by strong earnings growth in its Agriculture business thanks to strong results from Viterra, which it acquired in 2012.
"The performance of our industrial activities inevitably reflected the weaker price environment, particularly in energy products, where price falls were the greatest," said Chief Executive Ivan Glasenberg. "This performance [from the marketing division], despite weaker commodity prices for many of our key commodities, was particularly pleasing."
The company will pay a final cash distribution of USD12 cents a share, up 9% on the year, "reflecting our continued confidence in the strength and prospects of the group".
Glencore reduced its net debt to USD30.53 billion, compared with USD35.39 billion a year earlier, with cash and cash equivalents totalling USD2.8 billion.
Glencore said the reduction in net debt reflects "robust operating cashflow, proceeds from the sale of Las Bambas, a 25% reduction in net capital expenditure and active working capital management."
"Our ultimate goal remains to grow our free cash flow and return excess capital in the most sustainable and efficient manner. As the most diversified raw material producer and marketer, Glencore is well positioned to react to and benefit from changes in commodity fundamentals. Glencore will continue to focus on maximising the value of the potential within our businesses. We look forward to the future with confidence," Glasenberg said in a statement.
"While there remains the potential for future economic setbacks and no shortage of bearishness towards commodities in financial markets, physical demand for our raw materials remains healthy. We anticipate tightening supply conditions to materialise in our key commodities in response to lower prices, production and/or investment cutbacks and falling grades," said Glasenberg.
Coal production was up 6% to 146.3 million tonnes after productivity improvements were made at thermal coal operations in Australia.
However, Glencore said it has decided to curtail coal production at Optimum in South Africa and a number of other coal operations in Australia to better align volumes and qualities with current market demand.
Copper production rose 4% to 1.5 million tonnes, principally down to the ramp up at Mutanda in the Democratic Republic of the Congo while Glencore's oil entitlement was 47% higher to 7.4 million barrels. First full year production and increased ownership of the Alen and Badila fields in Chad, alongside the acquisition of Caracal, drove the increase.
Zinc production remained flat from 2013, with production increases from Mount Isa, McArthur River and Perkoa offsetting lost production from the closures of the Perseverance and Brunswick mines in 2013, it said.
"As the most diversified raw material producer and marketer, Glencore is well positioned to react to and benefit from changes in commodity fundamentals. Glencore will continue to focus on maximising the value of the potential within our businesses," said Glasenberg.
Still, Glencore shares were down 1.9% to 294.80 pence per share on Tuesday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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