Glencore lifts interim profits but not buyback

Glencore said it would focus on cutting debt and sustaining shareholder returns as volatile conditions continue from a half-year where the mining and commodities trading giant was beset by several lawsuits and an ongoing investigation by US authorities.

Net income attributable to shareholders in the first six months of the year came out at $2.78bn, up 13% on the same period last year, while adjusted earnings before interest, tax, depreciation and amortisation rose 23% to $8.27bn, which was slightly short of the $8.5bn average analyst forecast. EPS of $0.19 per share was up 12%.

Against a commodities trading and price environment that was described as "volatile but favourable", Glencore's Marketing division lifted adjusted EBIT 12% to $1.5bn, in line with analyst forecasts and towards the top end of the company's long-term guidance for $2.2-$3.2bn per year. The Marketing arm, which physically sources commodities from suppliers around the world, sells them and transports them to customers, enjoyed a strong performances from metals and minerals and energy but said lower crop yields in key regions hit agricultural products performance - but a stronger second half is expected.

The Industrial business, which explores, mines and drills for oil, saw adjusted EBITDA surge 26% to $6.7bn, which was slightly below analysts' expectations. Chief executive Ivan Glasenberg said copper and zinc mine costs were higher than initial full-year guidance primarily due to project ramp-up expenses, lower by-product pricing, some modest energy cost inflation and production weighted to the second half.

Group-wide generation of funds from operations increased 8% to $5.6bn and total net cash generation improved 22% to $6.8bn. Some $2.2bn was funnelled into capital expenditure and early in July, just after the US Department of Justice launched its investigation into the company's business in Africa, directors unveiled a share buyback programme of up to $1bn to run over the rest of the year.

Net debt was cut to $9bn from $10.7bn, which was better than the $9.5bn expected by analysts.

Seeing cash generation as strong and the balance sheet healthy, Glasenberg said: "While broader market conditions are likely to remain volatile, confidence in our business prospects and current share trading levels point to near-term focus on deleveraging and shareholder returns/buybacks funded through cash generation.

"We remain focused on creating value for shareholders through the disciplined allocation of long-term capital."

Glencore shares fell 1.2% to 322.43p in early trading on Wednesday.

The EBITDA miss, said broker Liberum, can be attributed to timing of copper shipments that have delayed revenues into the second half.

"There was no increase in the announced $1bn buyback programme, which we thought to be possible given the continued weakness in the shares, or any update on the DOJ investigation," analysts added. "Production is weighted to the second half, but we expect continued weakness in earnings momentum as China demands slows with the real estate sector."

UBS said while EBITDA was 3% below consensus, driven by zinc and coal on higher and higher central costs, net debt and EPS were slightly better than expected, the latter driven by lower than expected depreciation.