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Glencore - COVID-19 update

Emilie Stevens, Equity Analyst | 26 March 2020 | A A A
Glencore - COVID-19 update

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Glencore plc Ord USD0.01

Sell: 445.15 | Buy: 445.40 | Change 3.45 (0.78%)
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In light of increasing government COVID-19 restrictions, Glencore announced that while there hasn't been any material disruption to its larger operations, smaller assets have had to restrict or stop operations.

The group have introduced a number of precautionary health and safety measures across their offices and industrial assets. Glencore continues to review its Industrial operations to ensure it's positioned appropriately during these times.

On March 20 the group said the Marketing business was performing in line with annualised operating profit guidance of $2.2bn - $3.2bn per year.

At the end of 2019, Glencore had access to $10bn in cash and undrawn credit. However, the group reports that this liquidity has increased since the start of this year.

The shares remained broadly flat following today's announcement.

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Full year results

Glencore reported full year underlying operating profit down 55% to $4.2bn. The group attributed the decline to lower commodity prices, an uncertain global trade environment and production challenges.

A dividend of $0.20 per share has been proposed, to be paid in two equal instalments.

Industrial revenue was down 3% to $42.7bn and underlying earnings before interest and tax (EBIT) was down 73% to $1.8bn. The decline was driven by lower commodity prices, in particular coal, ferrochrome and cobalt. The group was also impacted by production challenges in its African copper portfolio.

The declines came in both the Metals and Minerals and Energy Products segments, which saw underlying EBIT fall 75% and 60% respectively.

The Marketing business reported revenue down 4% to $194.2bn and underlying EBIT down 2% to $2.4bn. Within the division, underlying Metals and Minerals EBIT fell 37% to $1.1bn due to poor cobalt prices and inventory write downs. This was largely offset by a 78% jump in Energy Products EBIT to $1.3bn, mainly thanks to a good performance in oil. The group maintains its long term expectations Marketing EBIT of $2.2-$3.2bn.

The group generated $4.0bn of free cash, down from $6.9bn last year.

As of 31 December 2019, net debt stood at $17.6bn, up from $14.7bn last year. $1.3bn of the increase was the result of accounting changes. The group intends to lower its debt to 1x cash profits, or around $14bn - $15bn excluding marketing leases.

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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.