Commodities trading behemoth Glencore Xstrata (GLEN) handily beat City expectations with its annual results for 2013. Although the headline figures were horribly skewed by $7.5bn (£4.5bn) of goodwill-impairment charges relating to the Xstrata acquisition, the underlying profit and production figures were surprisingly strong. Cash profits came in flat year-on-year at a staggering $13.1bn - more than the annual GDP of many of the African countries in which Glencore operates and well ahead of consensus forecasts of $12.3bn.
Glencore’s commodities-trading arm performed in line with expectations, generating cash profits of $2.6bn. Somewhat surprisingly, it was Glencore’s production arm - which includes the old Xstrata business - that was responsible for most of the beat. The so-called industrial division churned out cash profits of $10.5bn, down just 4 per cent year-on-year as increased production and cost-cutting substantially mitigated the impact of weaker commodity prices. Copper production climbed 26 per cent to 1.5m tonnes, ferrochrome output increased 32 per cent and coal production rose 4 per cent.
Cash generation was also aided by additional merger-related synergies. That will delight chief executive Ivan Glasenberg, who said last year he had found a lot of “fat to cut” at Xstrata. Mr Glasenberg now expects $2.4bn of annual synergies, up from $500m in the original merger announcement and above recent guidance of $2bn.
That said, net debt climbed to $35.8bn, including inventories (or $52.2bn excluding inventories) following the merger. And despite a much-talked-about capex-reduction strategy, total capital spending held steady at $9.3bn in 2013. The sale process for Glencore’s flagship Las Bambas copper project is nevertheless ongoing. If a deal can be struck at the right price, it would greatly help the company's balance sheet.
Analysts from Deutsche Bank forecast adjusted pre-tax profits of $6.0bn in 2014, giving EPS of 34¢, up from $3.6bn and 17¢ in 2013.
GLENCORE XSTRATA (GLEN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 334p | MARKET VALUE: | £ 44bn | |
| TOUCH: | 333-334p | 12-MONTH HIGH: | 382p | LOW: 253p |
| DIVIDEND YIELD: | 3.0% | PE RATIO: | NA | |
| NET ASSET VALUE: | 376¢* | NET DEBT: | 67% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
| 2010 | 145 | 4.3 | 35 | nil |
| 2011 | 186 | 4.0 | 72 | 15 |
| 2012 (restated) | 214 | 1.1 | 14 | 15.75 |
| 2013 | 233 | -7.0 | -67 | 16.5 |
| % change | +9 | - | - | +5 |
Ex-div:14 May Payment:30 May *Includes intangible assets of $9.1bn, or 68¢ a share £1=$1.67 | ||||
