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Glencore writes down coal, oil and freezes share buybacks

‘If the balance sheet and the free cash flow allows us to do it, we’ll do buybacks’ – CEO, Ivan Glasenberg.
Glencore CEO Ivan Glasenberg. Image: Simon Dawson, Bloomberg
Glencore Plc posted a lacklustre set of results by announcing a $2.8 billion writedown on coal, oil and copper assets and freezing share buybacks.

The results show the world’s biggest commodities trader is struggling in the face of sliding raw material prices and multiple corruption and bribery investigations around the world. The one bright spot was Glencore’s flagship trading business, which was helped by a strong year in oil.

“We’ll see how it looks going through the year, but we would like to do buybacks at some stage,” said Chief Executive Officer Ivan Glasenberg. “If the balance sheet and the free cash flow allows us to do it, we’ll do it.”

Still, overall the future of Glencore is marked by uncertainty. Glasenberg is planning to step down soon and several of his top lieutenants have already left. Glencore’s massive coal business is also facing risks as investors and activists pressure companies to do more on climate change.

While Glencore’s biggest rivals are in the process of exiting coal, Glencore has been a staunch defender, saying it’s essential to providing affordable and reliable power in developing countries.

“The world still needs coal,” Glasenberg said on Tuesday. “We will remain in the business while the world requires this lower-priced energy.”

Even so, Glencore is charting a long-term retreat from coal. So-called Scope 3 emissions will fall by 30% in the next 15 years, predominantly as a result of depleting mines in Colombia and South Africa, the company said.

Glencore took big writedowns on its two key Colombian coal mines, Prodeco and Cerrejon. The mines predominantly ship to Europe where the coal market has been hit hard by cheap gas prices. The company also lowered the value of its oil business in Chad, which it’s looking to exit, and a copper business in the Democratic Republic of Congo.

Glencore’s net debt of $17.6 billion came just above the target range of $10 billion to $16 billion. While the increase is partly due to new accounting standards, investors will have to wait for debt to fall before Glencore commits to a new buyback.

The company also said in the report that it’s “closely watching coronavirus developments and potential scenario impacts on global growth and markets and what adjustments, if any, are appropriate in our business planning.”

The impact of the coronavirus in China is “a bit unclear,” said Glasenberg. “In some commodities we have not seen an impact, orders are continuing, other commodities are slowing down.”

Financial highlights

  • Adjusted Ebitda for 2019 was $11.6 billion, the lowest in three years. It was a small beat compared with estimates.
  • Trading profit was $2.4 billion, near the bottom of its long-term range.
  • Glencore reiterated its guidance for the trading business of $2.2 billion to $3.2 billion. It didn’t give any additional guidance within that range.
© 2020 Bloomberg L.P.

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