Glencore's numbers head south in 'robust' 2015

Glencore's numbers were down sizeably in its preliminary 2015 results on Tuesday, with adjusted EBITDA falling 32% to $8.7bn (£6.25bn), as the company blamed substantially weaker commodity prices partially offset by cost efficiencies and favourable currency conditions in producer countries.

Its marketing EBITDA was down 11% to $2.7bn, which Glencore said reflected the high 2014 agricultural base and challenging metals marketing conditions in the first half of 2015, offset by a 'robust' performance from oil marketing.

Industrial EBITDA was down 38% to $6bn, reflecting lower prices in all of Glencore's key commodities, as well as the company's action to reduce supply and associated capital expenditure and operating costs within its coal, zinc, copper and oil assets.

"These steps are aimed at preserving resource value for the longer term," the board said in a statement.

Adjusted EBIT slipped 68% to $2.17bn, and net income attributable to equity holders was down 69% to $1.34bn, pre-significant items.

Basic earnings per share, pre-significant items, dropped 69% to 10c.

The company described its results as robust, however, pointing to its total assets of $128.5bn, down 16%, and net debt of $25.89bn, down 15%.

"Our rigorous focus on debt reduction, supply discipline and cost efficiencies enabled Glencore to record a robust performance in difficult market conditions," said chief executive Ivan Glasenberg.

"Our diversified portfolio, based around a core of Tier 1 assets, combined with our highly resilient marketing business, underpins our ability to continue to be comfortably cash generative at current and even lower commodity prices," he added.

Glencore's industrial capital expenditure in 2015 was $5.7bn, in line with previous guidance. The board cut 2016 industrial capital expenditure guidance at the same time by a further $300m, to $3.5bn.

The board said it "delivered significant real unit cost reductions in 2015" and was "targeting to capture a further $400m of savings during 2016."

Glencore's capital preservation and debt reduction programme continued apace through the year, with asset sales of $1.6bn to date, including $1.4bn from precious metals streaming transactions.

The board confirmed it had met opex, capex and working capital reduction targets, and remaining asset sales processes were proceeding well.

It expected to reach agreement on the sale of a minority stake in the Agricultural Products business in Q2 2016, with bids for the potential disposals of Cobar and Lomas Bayas also expected to be finalised during the second quarter.

"We are confident of achieving $4bn-$5bn of asset disposals during the remainder of 2016," the board explained.

The company's net funding at year-end decreased by $8.5bn to $41.2bn, aided by $6.6bn in working capital release, including $5.4bn of inventories. Net debt declined to $25.9bn.

Glencore's net funding and net deby targets for the end of 2016 were $32bn-$33bn and $17bn-$18bn respectively.

"We are targeting net funding of around $30bn and net debt of $15bn by the end of 2017," the board confirmed.

Glencore described its balance sheet as 'strong and flexible', supported by record committed available liquidty of $15.2bn at year end.

The firm said it refinanced the one year tranche of its revolving credit facility in February 2016 by signing $7.7bn of commitments from 37 banks, and would now broaden the facility via the launch of general syndication to around 30 additional banks in the second quarter.

Its board also pointed to recent rating actions from Moody's and Standard & Poor's as maintaining its investment grade ratings with stable outlook, at Baa3 and BBB- respectively.

Glencore "recorded net exceptional charges attributable to equity holders of $5.8bn primarily related to impairments, restructuring costs and net losses on disposals of operations, including $1.3bn already recognised in H1 2015," during the period.

The charges mainly related to lower prices impacting on its oil operations and Koniambo niockel asset, and the reception of a loss on cessation of control of Optimum Coal.

Glencore's 2016 marketing EBIT guidance remained unchanged at $2.4bn-$2.7bn.

Exane was quick to come out and bat for Glencore, saying the net debt was "bang in line" at $25.9bn. "Solid numbers in spite of weaker year-end should support the shares."

Bank of America Merrill Lynch said net debt was higher than its forecast of $25.4bn, though its other numbers were largely in line with $2.2bn EBIT coming in 6% lighter than its expectations.