Glencore Swung to ProFit In 2016

Glencore Swung to Profit in 2016

Glencore PLC, the world’s No.4 mining company by market value, has returned to a profit of $1.4 billion for the year 2016, after suffering $4.9 billion net loss in the previous year. The company plans to reward its shareholders by paying out dividends. The company has achieved this turnaround on the back of higher raw material pricing. Another major reason for this turnaround seems to be a result of the shift in the company’s strategy from investments in the form of mergers and acquisitions to cash generation, debt reduction and cash returns to the shareholders.

Glencore was badly hit by the commodity price soar in 2015. According to Ivan Glasenberg, the CEO of Glencore, the big reason for this price soar was the reduction in global supplies in key commodities such as copper, coal and zinc. This coupled with high debt levels, resulted in an investor revolt against the company. The share price took a dip, with a 29% drop in a single session. At the height of the downturn, Glencore launched a debt reduction plan that involved aggressive cost cutting and asset sales worth $4.7 billion. The sharp rise in the commodity prices have also helped the firm’s cashflow. The net debt declined by 40%, or by around $10 billion, to $15.5 billion from $25.9 billion at the end of 2015. The company’s trading business had an increase in earnings before interests and taxes (EBIT) of $2.8 billion, which was 14% more than what it had in 2015.

From the article, it can be inferred that Glencore, since it became a public trading company in 2011, has not been a very investor friendly company. It has chosen an aggressive acquisition strategy over offering dividends to the shareholders through the years. Because of this strategy, the debt levels have stayed high, which makes the company more leveraged, and this is a factor of elevated risk for the company. Due to this, the investors lost interest in