Glencore Trains Focus on Shareholder Returns After Operating Earnings Surge

Glencore (GLEN.L), one of the biggest mining and commodities trading firms in the world, reported early Wednesday that adjusted operating earnings surged to a record in the first half, while noting that its near-term focus will be on deleveraging and shareholder returns/buybacks funded through cash generation.

Group revenue climbed to $108.55 billion in the six months that ended June 30, from $100.29 billion a year ago, the company said in its earnings statement.

Sales rose on the back of strong performances from metals and minerals as well as energy products segments, which reported gains of 17% and 23%, respectively, said the company, which disclosed last month the Department of Justice demanded Glencore hand over documents relating to compliance with corruption and anti-money laundering laws in connection with the firm’s business in the Democratic Republic of Congo.

In line with a strong growth in sales, adjusted earnings before interest, tax, depreciation and amortization climbed to $8.27 billion, from $6.74 billion, a 23% surge.

Noting the increasing returns to shareholders, the company said the expected distributions and share buybacks in 2018 totaled $4.2 billion, comprising $2.85 billion distribution of 2017 cash flows, $0.3 billion first-half share repurchases and a $1.0 billion second-half buy-back program.

“While broader market conditions are likely to remain volatile, confidence in our business prospects and current share trading levels point to near-term focus on deleveraging and shareholder returns/buybacks funded through cash generation,” Chief Executive Officer Ivan Glasenberg said in the statement.

Glencore’s net debt slumped to $9.0 billion in the first half from $10.67 billion a year earlier, bringing the net debt to adjusted earnings interest, tax, depreciation, and amortization ratio to 0.55 times, from 0.72 times in the prior-year period.

Looking ahead, the company said that at current spot prices the business remains “highly cash generative” with illustrative annualized adjusted earnings before interest, tax, depreciation, and amortization of some $17.7 billion. In commodities, it noted that the demand growth appeared “healthy and supply discipline persists”.