Glencore M&A Firepower Undimmed After $2.9 Billion Dividend

Updated on
  • Glencore wants to grow its agriculture business, CEO says
  • Standstill agreement with Bunge has ended: Glasenberg

Glencore Trading Profits Jump on Metals, Raising Dividends

Glencore Plc surprised investors with a bigger dividend on the back of surging profit and commodity prices, but is still stockpiling cash as dry powder for future deals.

"We’re generating $10 billion of free cash flow on current commodity prices,” said Chief Executive Officer Ivan Glasenberg. “There is room if and when we want to do any acquisitions."

Ivan Glasenberg

Photographer: Simon Dawson/Bloomberg

Glencore nearly tripled its dividend payout to $2.9 billion and reported full-year results largely in line with expectations. The results leave Glasenberg well positioned to continue doing what he knows best -- deals. While competitors such as Rio Tinto Group shied away from dealmaking last year, Glencore announced acquisitions worth more than $4 billion in copper, oil, zinc and coal.

The stock added 3.9 percent to 399.3 pence as of 9:42 a.m. in London, the biggest intraday gain since August. In the past year, it’s up 22 percent.

Street Wrap: Glencore Dividend Boost Spurs Share Rally

Glencore executives insisted that the company would be opportunistic and there wasn’t a big acquisition on the radar. But they made clear that there will be lots of cash in 2018, either for acquisitions or to pay more to shareholders.

"There is a lot of surplus capital," said Steven Kalmin, the company’s head of finance.

Glasenberg painted a rosy view for commodities and the global economy, suggesting that relatively high prices for raw materials such as copper, coal and zinc are here to stay.

Debt Down, Profit Up

Glencore wants to grow its agriculture unit and believes the industry needs to consolidate, the CEO said Wednesday. The market is expecting it to try a big deal after Glasenberg made an informal takeover approach for U.S.-based grain trading rival Bunge Ltd. in May 2017. Glencore has been prevented from a hostile bid for Bunge due to a stand-still agreement, but Glasenberg said that restriction has now expired.

Full-year underlying profits reached an all-time high as the company benefited from its combination of trading and mining and higher commodity prices. Its traders delivered more than $3 billion in earnings before interest and taxes for the first time since the global financial crisis in 2008.

The commodities giant has recovered from a near-death experience in 2015, when investors worried that its debt was too high, thanks to a combination of disposals, rallying metals and coal prices and cost cutting. Billionaire Glasenberg has cut net debt to $10.7 billion, below a self-imposed target of $16 billion and down more than 70 percent from a peak of $38 billion in late 2013.

"Mission accomplished: net debt hits lower end of target," Paul Gait, mining analyst at Berstein, said in a note to clients.

The dividend is higher than expected, with Glencore paying out the equivalent of 36 percent of its industrial free cash flow, compared with a minimum pledge of 25 percent. However, it’s still relatively less generous than commodities rivals like Rio Tinto.

Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.

— With assistance by Javier Blas

(Updates with comments from analyst call.)
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