By Scott Patterson
Commodities trading came to the rescue of Glencore PLC last
year, helping offset a sharp downturn in raw-material prices that
hit the group's mining operations hard, leaving profit down by 7%
before acquisition-related and other charges.
The Swiss-based mining giant has proposed a 9% increase in its
dividend, surprising some analysts who had expected the company to
hold off on extra cash returns to investors.
Glencore reported net profit of $2.31 billion in 2014, a sharp
turnaround from a restated $8.05 billion loss the previous year,
weighed down by a goodwill charge related to the 2013 acquisition
of mining and metals group Xstrata PLC. Glencore originally
reported a net loss of $7.40 billion.
Glencore's profit, excluding one-time items, fell to $4.29
billion from $4.58 billion, a pro forma figure assuming Glencore
had completed the Xstrata deal in January rather than in May 2013.
But the figure was higher than the average analysts' estimate of
$4.04 billion according to a poll by data provider FactSet.
The company's results were hurt by $1.1 billion in write-downs
related to lower commodity prices, Mike van Dulken, head of
research at Accendo Markets, said in a note. Glencore's shares fell
about 3% in early trading.
Chief Executive Ivan Glasenberg said Glencores trading arm,
which the company calls "marketing" and is far bigger than at other
mining companies, proved its usefulness last year. "Even with
falling commodity prices we can still perform very well in the
marketing business," Mr. Glasenberg said in an interview. "This is
a cash-generating machine."
"Glencore's financial results reported this morning were strong
overall, beating our expectations on a number of metrics despite
the challenging price environment," Sanford C. Bernstein analyst
Paul Gait wrote in a note.
Earnings before interest and taxes at Glencore's marketing
division rose 18% to $2.8 billion from the previous year. The
company said the slump in oil prices in the second half of the year
helped drive trading volumes and profit higher. The shift, in which
in future prices for oil became more expensive than current prices,
led a number of energy firms to purchase oil at current prices on
the cheap and strike sales agreements at higher prices in the
future, locking in profits by doing so.
"Right now it's looking very well structured for oil trading,"
Mr. Glasenberg told analysts Tuesday.
Agricultural-products trading was also buoyant, with EBIT up
steeply at $856 million from $192 million in 2013, helped by the
Viterra grain-handling business.
Glencore took a hit in its mining business, reflecting its
exposure to falling coal prices. Glencore's industrial operations,
which includes its mines, reported a 17% fall in EBIT to $524
million in 2014 from the previous year. Mr. Glasenberg has said his
company's blockbuster merger with Xstrata is "a big play on
coal."
The company has trimmed coal output amid concerns that the
market is oversupplied. It shut down production at coal mines in
Australia during the Christmas break, and last week it said it
planned to curb Australian coal production about 15%. In late
January, it announced plans to reduce output in South Africa by at
least five million metric tons a year.
Glencore said net debt fell to $30.53 billion from $35.80
billion at the end of 2013.
Write to Scott Patterson at scott.patterson@wsj.com
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