Anglo Profit Surge Has Little to Do With Commodities RallyBy
Earnings doubled in 2016, while received prices fell 3 percent
Job cuts, asset sales, output growth combined to lift margins
Anglo American Plc’s profit more than doubled in 2016 and with most commodities rebounding, it’s easy to guess why. But the earnings surge has little to do with metals prices.
These charts explain:
1. While the Bloomberg Commodities Spot Index rose 23 percent in 2016, prices for the raw materials that Anglo American produces dropped 3 percent, after weighting for the company’s output.
2. Cost savings, rather than commodity prices or production growth, were the biggest contributor to Anglo’s 25 percent rise in earnings. Anglo’s “under-recognized work on the operational side of the business is now really bearing fruit,” Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London, wrote in a note Monday.
3. Employees have been among the hardest hit by Anglo’s cost cutting, with headcount falling by 67,000 from 2013 to 2016. About a third of those workers left the company when Anglo sold the operations where they worked.
4. Even after offloading the paper mills, car factories and newspapers of its past, Chief Executive Officer Mark Cutifani inherited a sprawling empire of mining assets scattered across the world when he took the CEO role in 2013. Cutifani’s closed and sold high-cost operations to create a more profitable, focused business and said Feb. 21 he’s targeting more cuts to leave the company with just 30 assets, without giving a timeframe.
5. An engineer by training, Cutifani has ensured production didn’t suffer when costs were curbed. With volumes up 8 percent since 2012, economies of scale mean that margins have increased even if commodity prices didn’t.