First-half revenue was up 49% to $174bn reflecting broad based growth across the business. Underlying cash profit (EBITDA) increased 86% to $10.1bn ($9.9bn expected).
Marketing profit more than doubled with the trading arm benefitting from disruption and volatility in the energy arms. Industrial growth was also strong, supported by higher commodity prices, while production was mixed, with copper the standout.
Free cash outflow deteriorated to $2.7bn due to more cash being absorbed by operations and increased capital expenditure. Net debt fell $0.9bn to $9.6bn.
Glencore announced a new $0.5bn buyback plus a 8.5 cents per share distribution reflecting the appreciation of its holding in Bunge Global.
Full-year production guidance was broadly unchanged. Market volatility is expected to remain high but below first-half levels.
The shares were up 4% in early trading.
Our view
The stars aligned well for Glencore in the first half, with key commodity prices such as copper, zinc and thermal coal up 39%, 22% and 24% respectively. Production was largely as expected, but while there were some sharp declines, copper, which is the industrial segment's biggest revenue generator, expanded output by 15%.
Production of most commodities looks set to improve in the second half, with steelmaking coal expected to see the biggest uplift. On the flipside, production cost guidance has also been increased, which means any fall in commodity prices would be amplified at the bottom line.
Thermal coal is expected to become a smaller part of the energy mix as cleaner sources of heat and electricity grow. But the transition is gradual, and adoption rates differ greatly by country. Meanwhile, disruption in the Strait of Hormuz has raised questions about LNG’s future importance, prompting some energy producers to turn to coal.
With coal supply growth constrained, prices have been strong, helping it remain a significant contributor for Glencore. Against that backdrop, its managed decline of production back to 50% of 2019 levels by 2035 looks well thought through.
Over time, we expect transition metals such as copper and nickel to become more dominant, a shift which we support. For copper in particular, there are some ambitious investment plans, with strong execution and attractive financing the key to unlocking value. However, given the breadth of Glencore’s business, investors looking to tap into the copper boom may find miners with more direct exposure elsewhere.
Volatile oil and gas markets are also playing into the group's hands. Glencore's Marketing division helps customers secure the commodities they need and get them to the right place at the right time. When supply chains are disrupted and markets become more unpredictable, that service becomes more valuable, creating additional profit opportunities for the group.
If energy prices stabilise, Marketing’s exceptional growth is unlikely to continue. It's also important to flag that Marketing is extremely complex, with several moving parts and associated risks.
Glencore’s balance sheet is in good shape, and the 3.6% dividend yield looks fairly strong, with buybacks now in the mix as well. But neither is guaranteed.
We think the outlook is encouraging for Glencore, with growing copper exposure and a clear plan for coal. However, commodity prices remain a key driver. Favourable market conditions have driven the valuation close to ten-year highs. That, alongside the uncertain geopolitical backdrop, could drive more volatility than usual.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste, and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery, and corruption are also contributors to ESG risk.
According to Sustainalytics, Glencore's management of material ESG issues is strong.
Glencore's already paid $1.1bn in fines relating to past governance issues, but anti-corruption policies have improved more recently. A new 2024-26 climate action plan was recently approved by 90% of shareholders, which includes plans for a phasing down of thermal coal operations. There’s also a 2050 net-zero carbon emissions target in place along with interim plans to reduce direct, indirect and supply chain emissions by 15% and 50% by 2026 and 2035.
Glencore key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. 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.