Glencore loses a fortune

In easily its worst year since listing on the London Stock Exchange in 2011, Glencore plunged to an $8.1 billion (£5.8 billion) pre-tax loss in 2015 from a £4.3 billion profit a year ago, as the commodity rout forced massive write-downs on the value of assets. Revenue sank, too, but there's nothing new here and the miner and commodities trader is, at least, taking action to save the business.

Scaling back costs by axing projects, restructuring and putting its dividend on ice until at least mid-2016 have helped Glencore shares nearly double since mid-January to their highest in almost five months. And it was over £6 billion of asset impairments and £2 billion of other costs and one-offs that made these numbers really ugly.

But at the cash profit level the results were largely in line with forecasts. Glencore made adjusted earnings before interest, tax, depreciation and amortisation of $8.7 billion, down 32%. That gave earnings per share of 10 cents - down 69%, but still ahead of City forecasts.

Much of the damage was done by the slump in metal prices and production cuts, with industrial profit down 38% to $6 billion. Profit at the marketing division, which sources, ships and trades commodities, fell just 11% to $2.7 billion.

The group is in the middle of a hefty debt reduction programme, attacking the $30 billion pile accumulated after its ambitious takeover of Xstrata in 2013. Shrinking to $25.9 billion in 2015, management wants to reduce it to $17-$18 billion this year, then to $15 billion by the end of 2017.

As well as progress on cost reductions, Investec Securities is keen to monitor further asset sales. Glencore expects to reach agreement on the sale of a 40% stake in its agriculture business in the second quarter. Experts value the interest at $3-$4 billion.

Bids for the Lomas Bayas and Cobar copper operations should be finalised soon, too, and management is confident of making $4-5 billion of asset disposals during the rest of 2016.

Spending will also be lowered this financial year, with its $3.5 billion target reduced by $300 million. Operational spending is expected to be reduced by $400 million.

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

After plummeting to within a whisker of all-time lows at the beginning of 2016, Glencore's market value has nearly doubled in six weeks. But there is perhaps a good reason, and it may be too soon to call the recovery.

"The stock has rallied strongly during the Chinese New Year period; however, this is likely to be due in part to thinner commodity trading in China during the period," says broker VSA Capital. "Furthermore, we do not rule out further volatility whilst deleveraging remains the focus of Glencore."

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