London | Reuters — Glencore stepped up its debt reduction plan on Tuesday by promising to offload more assets to shore up its finances to cope with a commodities rout that wiped around a third off its 2015 profit.
The Swiss mining and trading house, whose agricultural arm includes Canadian grain handling giant Viterra, aims to slash net debt to $17-$18 billion by the end of 2016, $1 billion more than previously planned (all figures US$).
The company’s debt burden had reached a peak of $30 billion last year, one of the highest levels in the sector.
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“That (debt) structure would allow for the resumption of dividends in 2017 on the basis of what we know today,” chief financial officer Steven Kalmin said.
Glencore suspended its dividend last year after a slump in the prices of products such as oil and copper took its toll. BHP Billiton and Rio Tinto cut shareholder payouts last month as they braced for the worst commodities downturn in a generation.
The slide in prices was largely behind a 32 per cent fall in group adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to $8.7 billion, in line with analysts’ expectations.
Glencore differs from other mining groups by having a large and growing marketing division which is more resilient during commodity downturns.
Core profit from its trading arm fell only 11 per cent while profit from its mining and industrial business slid 38 per cent.
The company noted its agricultural marketing EBIT was down 46 per cent in 2015 at $461 million, compared to $856 million in 2014. The drop was “in large part due to the high comparable base” set by Canada’s “exceptionally strong” harvest in 2014, Glencore said.
Thus, Viterra’s Canadian operations “contributed solidly” in 2015 but couldn’t match the 2014 results, while Viterra’s Australian results were “in line with expectations.” Weaker currencies in both Canada and Australia also cut into Glencore’s U.S. dollar-denominated returns.
Agricultural earnings also dropped as a result of Russia’s “punitive” tax on wheat exports, imposed during the first quarter of 2015.
“Notwithstanding these external factors, the overall (agricultural) business performance was solid, given the reduced trading opportunities, constrained by low market prices and volatility,” the company said in its report.
China steady
CEO Ivan Glasenberg said the company was prepared for further potential drops in commodity markets, but noted that despite a slowdown in growth in top raw materials consumer China, Glencore’s business was holding up well.
Business in China is rebounding after a campaign against corruption delayed infrastructure projects last year, he said.
“Our order book in China is good. I think our copper sales into China are one of the best years we’ve seen.”
Investors concerned about the prospects for a prolonged period of low prices put pressure on Glencore last year to slash net debt, resulting in a series of measures including a capital raising and asset sales. Debt fell to $25.9 billion at the end of 2015.
Glencore lifted its target for disposals by $1 billion to $4-5 billion and said it “expect(s) to reach agreement” on the sale of a minority stake in the agriculture business in the second quarter of 2016.
“I believe the market was looking for more impetus and more progress particularly with respect to the agricultural stakes than has been announced this morning,” said Ken Odeluga, market analyst at City Index.
— Eric Onstad is a commodities correspondent for Reuters in London, England. Additional reporting for Reuters by Dmitry Zhannikov, Kit Rees and Sudip Kar-Gupta. Includes files from AGCanada.com Network staff.
