Glencore to keep cutting debt, eyes return to dividend payments

Glencore held out the prospect of a return to dividend payments in 2016 as management promised to focus on delivering even lower levels of net funding and debt by the end of the year than previously indicated and provided investors with an update on its asset disposal programme.

Operating profits at the half-year stage in terms of adjusted earnings before interest, taxes and depreciation declined by 13% to $4.02bn, while net income was by off 66% to $300m.

In parallel, capital expenditures were more than halved to $1.57bn.

Chief Ivan Glasenberg said the company "remained mindful" that underlying markets continue to be volatile.

Nonetheless, Glasenberg was confident the firm could achieve even lower than previously indicated net funding and net debt levels by the end of this year.

"We remain confident and focussed on achieving even lower than previously indicated net funding and net debt levels by the end of this year," Glasenberg said in a statement.

Significantly, the commodity trader´s finance chief held out the prospect of a return to dividend payments in 2016.

Cash flow before working capital movements and capex (FFO) printed at $2.8bn (Credit Suisse: $3.3bn) with higher interest costs partly to blame, Credit Suisse commented.

The company´s gearing expressed as the ratio between its net debt to adjusted operating profits (adjusted EBITDA) fell from 2.98 at the end of 2015 to 2.91 as of 30 June, while interest cover (adjusted EBITDA/net interest) declined from 6.24 to 5.41.

Glencore aims for deeper debt reductions, updates on disposal programme

Significantly, in parallel to its latest set of results Glencore announced the sale of 30% of its Ernst Henry mine to Evolution for AUD$880m.

Furthermore, both the Vasgold and GRail asset sale processes remained underway with completions hopeful by year-end 2016, Canaccord Genuity analysts Tim Huff and Nick Hatch pointed out.

In the run-up to its interims, other analysts had also wondered aloud whether the company´s asset disposal programme remained on track, or not.

Glencore also revised its forecast for net debt at year-end fiscal year 2016 lower to between $16.5bn and $17.5bn, versus the $18.8bn which the two Canaccord Genuity analysts had penciled in.

Together with another $0.7bn reduction corresponding to the deconsolidation of its agriculture unit, Glencore also had room to beat on capital expenditures, the same two analysts said. Indeed, over the first six months of the year the commodities trader had splashed out under $1.6bn on investments (Canaccord: $1.8bn) yet maintained its full-year forecast.

"We think GLEN will keep sustaining capex tight for the remainder of 2016," was the expectation at Canaccord.

Rebecca O'Keeffe, Head of Investment at stockbroker Interactive Investor, commented: "Despite the 66% drop in net profit, Glencore's results - including the potential resumption of dividends next year, alongside a more aggressive debt reduction target, are a step in the right direction. However, with Glencore's share price having more than doubled year to date, after slumping 70% last year, we are seeing some profit taking in early trade."

As of 09:01 BST shares in Glencore were down 2.85% to 184.4p.