Glencore reported full year revenue of $256.0bn, up 26%, though below market expectations. Underlying cash profit (EBITDA) rose 60% to $34.1bn, reaching record levels. Performance was driven by higher and more volatile energy prices which benefitted the energy products portfolio, particularly marketing and industrial coal assets.
Underlying free cash flow of $24.0bn helped net debt post a year-on-year improvement from $6.0bn to $0.1bn.
For the coming year, management expect some challenges to the broader economic outlook but remain confident several positive tailwinds remain in play. China's reopening, supply constraints and a global focus on decarbonisation were called out specifically.
The board has proposed a package of shareholder returns totalling $7.1bn. That's split between a base dividend of $0.40, a "top-up" dividend of $0.04 and a $1.5bn buyback programme.
The shares fell 1.8% in early trading.
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Our view
The top line may have missed market expectations, but Glencore took full advantage of a messy energy market last year to line its coffers. There's good news for shareholders too, as they get to share in the spoils with a topped-up dividend and fresh $1.5bn buyback.
But goldilocks conditions rarely last long. Guidance for production over the next few years was materially below market consensus and higher costs mean margins won't be as frothy. But there's still plenty of scope for cash generation, and the $10.6bn of free cash expected in 2023 is still a mammoth amount.
Glencore's business model is based on two key areas. The first, like your run of the mill miner, is a large industrial portfolio producing metals and minerals.
Industrial assets represented around three quarters of operating profit at the half year mark. Just north of a quarter came from metals and minerals, including copper and nickel. These metals are essential for global efforts to reduce carbon emissions and Copper in particular is an area of focus for Glencore.
There's also a relatively large coal operation, which doesn't do it any favours with more ESG conscious investors. However, it was a key driver of the oversized profits seen last year. More recently, prices have come down from their highs but the coal division's still expected to be the biggest driver of profit in 2023.
Then there's a marketing business, which acts as a global commodity marketplace and is blossoming in volatile conditions. Customer orders are filled, either through its own products or a third party's, and then delivered. Glencore earns a slice of profit capitalising on different prices for the same commodities in different locations or time periods. Performance relies more on volatility in the market than whether prices are high or low. It's a low-margin business model but has been another benefactor of the energy market turmoil seen across the globe.
It's important to flag now, the Marketing business is extremely complex with a lot of moving parts. Investors should be aware of the risk that brings.
Healthy conditions over the last couple of years have helped bring the balance sheet into good shape. Net debt's almost non-existent and the distribution policy is to return cash to investors to bring net debt back up to its $10bn target, that's why returns can be so generous in current conditions. Though there's no guarantees and this model means returns will likely fall when the group generates less cash.
We must note recent bribery and market manipulation charges highlight significant governance risks. CEO, Gary Nagle, has some work to do to restore investor confidence in this regard.
Glencore offers something different to its peers, with the addition of its marketing arm offering an avenue for profit in a range of economic conditions. The group trades ahead of its long-term price/book value, reflecting current healthy conditions.
Glencore key facts
All ratios are sourced from Refinitiv. 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 Refinitiv. 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.
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