Glencore Posts A Half Year Drop, & Embraces Xstrata Deal

Glencore Posts A Half Year Drop, & Embraces Xstrata Deal


Glencore International Plc (LON:GLEN) today, posted an 8 percent fall in its half yearly profits, with falling prices and global economic weakness to blame. The Commodities trader reported a fall in net profits for the January-June period to $2.275 billion from $2.474 billion a year ago. Revenue for the half year period jumped 17 percent to nearly $108 billion, up from $92 billion for the same period a year ago.

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The Swiss-based company, which supplies raw materials such as oil, copper, and wheat, and owns plants, warehouses, and mines. The company blamed the “European sovereign debt crisis and corresponding softening growth outlooks in many developed and emerging economies”  for the drop in profits. The company also experienced a decline in average prices for many key commodities, ranging between 14 and 28 per cent.  Despite a drop in profits, the company’s diversification, sourcing of materials, marketing, and logistics departments improved a lot. Another encouraging sign is that it had billions of dollars spread in cash, and diversified it across 100 banks.


The Commodities trader’s marketing segment performed well, even during periods of weak market conditions, its marketing EBIT was down only by 11 percent to $1.12bn, while its Industrial EBIT declined 32 percent to $1.39bn.


“Looking forward, we neither anticipate nor assume any material improvement in overall market or economic conditions in the near term,” said Chief Executive Ivan Glasenberg, who owns 15 per cent of the shares in Glencore International Plc (LON:GLEN). “We will continue to diligently look to our own growth pipeline and end markets to maximize performance for our shareholders.”

The world’s largest publicly traded supplier of raw materials is in the middle of a merger deal with Xstrata PLC (LON:XTA). If the deal goes through, it will involveXstrata PLC (LON:XTA) investors swapping each of their shares for 2.8 newly issued Glencore shares. The alliance is expected to be completed by the fourth quarter, and will result in the formation of a new entity called Glencore Xstrata, with a market value of $90 billion. The newly formed entity will be responsible for projects ranging from mining to refining, storage, and shipping of basic commodities like coal, copper, and corn. The Swiss based company already holds a 34 per cent stake in Xstrata PLC (LON:XTA), but Qatar Holding, the government-backed investment fund, is demanding a higher price for its 11.3 percent stake. In the earnings report not much was told about the deal, except that the company has incurred $1 million in selling and administrative expenses and anticipates $69 million of additional merger expenses.

Commenting on the deal with the Anglo-Swiss mining group Xstrata PLC (LON:XTA), Chief Executive Ivan Glasenberg said that the company would not pay more than it’s worth. “If it doesn’t happen, it’s not the end of the world,” he said.