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Glencore - profits rise despite weaker second half

George Salmon | 20 February 2019 | A A A
Glencore - profits rise despite weaker second half

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Glencore plc Ord USD0.01

Sell: 324.10 | Buy: 324.25 | Change -5.80 (-1.74%)
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Despite Glencore reporting record adjusted cash profits, full year results are behind what the market had expected, as concerns over Chinese growth weighed on second half results.

The group also announced its intentions for shareholder returns over 2019. It expects to distribute dividends of $0.20 per share, equating to $2.8bn, and buyback $2bn of shares. This program could be expanded later in the year, following $1bn of planned disposals. The prospective yield this year is 5.1%.

The shares were broadly unmoved following the announcement.

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Full year results

Glencore's adjusted operating profit (EBIT) rose 8% to $9.1bn, as improved returns in the Industrial business more than offset falling profits in Marketing.

Industrial Adjusted EBIT increased 21.5% to $6.7bn with stronger average year-on-year commodity prices and increased production outweighing cost inflation. Copper Africa delivered particularly strong results, following the successful restart of processing operations at the Katanga mine in late 2017. Looking ahead, the group expects to production to rise in all commodities over 2019.

The Marketing business reported adjusted EBIT of $2.4bn, down 17.3% compared to 2017. The decline reflects a strong prior year, and tougher trading opportunities in oil, alumina and cobalt markets. Looking ahead, the group is confident the division can deliver $2.2 to $3.2bn a year of adjusted EBIT.

Underlying operating cash flow rose from $11.9bn to $13.2bn, but $2.9bn of acquisitions, including the $1.7bn Hail Creek Coal deal, a 31.9% increase in capital expenditure, and higher returns to shareholder ensured net debt rose from $10.2bn to $14.7bn. The ratio of net debt to EBITDA consequently rose from 0.7 to 0.93, a level consistent with the group's target in the current climate.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.