London - Glencore PLC, the commodity trader and metals producer run by billionaire Ivan Glasenberg, reported profit that beat estimates as a strong performance from its marketing division helped it weather a rout in resource prices.
Adjusted net income declined 7 percent to $4.29 billion in 2014 from a year earlier, the Baar, Switzerland-based company said on Tuesday. That beat the $4.08 billion average of 18 analysts’ estimates compiled by Bloomberg. Adjusted earnings before interest, tax, depreciation and amortisation at its trading business, which includes the sale of commodities from crude to cotton and copper, rose 15 percent to $3 billion.
The Bloomberg Commodity Index of 22 raw materials dropped to its lowest in more than 12 years in January amid slowing demand from China, the biggest buyer of copper and iron ore and the largest consumer of energy. The results distinguish Glencore from BHP Billiton Ltd., Rio Tinto Group and Vale SA, the world’s biggest mining companies, which last month reported lower profit as declines in iron ore, copper and oil sapped earnings.
“Once again we proved the trading is resilient against commodity price movements,” Chief Executive Officer Glasenberg, 58, said in a phone interview. “We have a different strategy to our peers. We still believe we’ve got the right exposures in the right commodities.”
Glencore fell as much as 3.7 percent and was down 2.4 percent to 293.35 pence as of 8:38 a.m. in London trading, valuing the company at about 38.4 billion pounds ($59 billion). It reported a 9 percent increase in its dividend to 12 cents a share.
Share buyback
While the company decided not to extend a $1 billion share buyback programme initiated in August, Glencore will consider further purchases when it announces first-half results in under six months, Chief Financial Officer Steve Kalmin said in a phone interview.
“Once we start getting more confident about the fundamentals prevailing through our commodity suite” and the company is able to more accurately forecast cash flow as well as generate surplus cash, then it will consider buybacks, he said.
Glencore’s underlying free cash flow is the strongest among its peers thanks to the stability and significant cash-generation properties of its trading division, Credit Suisse Group AG analysts wrote in a report on Monday before the results.
Price volatility
“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,” Glasenberg said in the statement.
Some traders are benefiting from increased commodity-price volatility and the return of a contango structure to crude markets where future prices are higher than current levels. That allows traders to profit by buying futures contracts and storing oil for delivery at a later date. The decline in prices means traders are also paying less to finance their activities.
Crude prices have dropped almost 50 percent from a June peak as the Organisation of Petroleum Exporting Countries refused to cut production and US output reached a three-decade high.
Glencore’s world-leading position in the export of energy coal sapped profits at its mining division after the price of the fuel dropped about 17 percent last year. In response to the slump, the company has started scaling back its coal-mining operations in Australia amid a global supply glut.
Spending Cuts
To combat falling prices and waning demand, investors have demanded the world’s biggest mining companies slash spending on new mines and return more cash to shareholders.
Producers will cut spending on projects and exploration by $20 billion this year, according to estimates from Macquarie Group Ltd, as they rein in growth plans amid waning prices. Last month, Glencore trimmed its spending for 2015 to a range of $6.5 billion to $6.8 billion from an earlier target of $7.9 billion.
Net debt dropped 15 percent to $30.5 billion, Glencore said. The company booked $847 million of impairment charges on platinum, iron ore and oil assets for the year.
Glencore completed the $29 billion acquisition of Xstrata PLC in 2013 to add coal, copper, zinc and nickel mines to its trading empire.
Its approach to Rio Tinto about a possible merger was rebuffed by its larger rival in October. That effectively barred it from bidding for six months under UK takeover rules. Rio last month reported a 9 percent decline in underlying profit for 2014 and announced a plan to buy back $2 billion of shares.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director of Glencore.
Bloomberg