By Arnold Segawa

Mining and trading firm Glencore reported results for the first half of 2018 shocking market expectations with stellar profit growth. The results come on the back of a subpoena from the US Department of Justice last month to produce documents relating to its Congo business over compliance with the Foreign Corrupt Practices Act, which sent the miner’s intraday share price tumbling 11%.

Announcing the results on Wednesday, CEO Ivan Glasenberg attributed the performance to the miner’s diversified business model and commodity mix, which guaranteed a 13% increase in net income and a 23% increase in adjusted EBIDTA (which strips out exceptional items) to $8.3 billion. Revenue for the year was also up to $108.55 billion from $100.29 billion last year, as pretax profit grew to $3.72 billion from $2.87 billion. Although Glencore’s first half production report had reiterated full year guidance for all commodities, corruption inquiries into the Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela had dampened market expectations.

Despite a 12% gain in adjusted earnings for the marketing business, Glencore’s agricultural products earnings plunged 56% citing economic turbulence in Australia and Argentina.
‘Congo Effect’

Glencore’s Congo assets contributed $2 billion to Glencore’s annual earnings before interest, tax, depreciation and amortization. Following the reopening of the Katanga unit, copper revenue increased to $204.4 million in Q2 2018 from $146.5 million in Q1 2018 with Cobalt revenue gaining $141.1 million in Q2 2018 from nil in Q1 2018. With cobalt output up 31% in H1 2018 alone, the Katanga mine is set to offset some of Glencore’s reputational risk.

Debt reconciliation
The Anglo-Swiss miner also cut net debt 16% from $10.6bn reported in mid-2017 with Funds from operations edging up 8%. With the Funds from Operations to net debt ratio reported at 133.2%, Glencore’s latest results reaffirm the miner’s initiative shrink debt.

CEO Ivan Glasenberg reaffirmed the position in a statement noting, “We remain focused on creating value for shareholders through the disciplined allocation of long capital and we recently announced a $1 billion buy-back programme.” The latest results confirmation buybacks and distributions at $4.2 billion, comprising $2.85 billion distribution of 2017 cash flows. Michael Treherne, a portfolio manager at Vestact noted, “I was impressed to see their strong cash flow, which should bode well for the future. A few years ago, they had to sell a few assets just to shore up the balance sheet. Their management have done an amazing job to turn things around.”

Glencore shares were down 0.32 percent to 5,595 ZAC at 1240 CAT on Aug. 8.