The first half of 2009 has seen Glencore, one of the world’s largest suppliers of commodities and raw materials to industrial consumers, post a significant drop in net income as a result of plummeting commodity prices. But, the company asserts that there are signs of increased levels of business activity.
The first half of 2009 contrasted markedly with the same period last year for the commodity trader as the global economy and financial system sought to regain some level of stability following the economic meltdown in the second half of 2008. Against this challenging recessionary backdrop and low commodity price environment, Glencore reported a net income of US$1,121mn. This is a 57% drop from US$2.634 – the net income for the corresponding period last year.
According to a statement issued by the Swiss-based company, there are some “encouraging signs of increased levels of business activity” which, together with progressive commodity price rises in recent months, saw Glencore increase its gross and net income by 32% and 53% respectively in the second quarter of 2009, compared to the first quarter of 2009.
Funds from operations (FFO) of US$937mn alongside proceeds of US$555mn from the sale of investments allowed Glencore to fund net capital expenditure of US$474mn and investments in associates/subsidiaries of US$24mn. On a quarter over quarter basis, FFO improved by over 147%.
Net working capital outflows reached US$1.6bn, spread evenly between the two quarters. This was primarily a result of the commodity price increase during the period, for example crude oil (+80%), copper (+60%) and zinc (+40%).
Available liquidity, representing cash and undrawn amounts under Glencore's committed bank facilities, amounted to over US$3.7bn at June 30, 2009.
Net debt, taking into account readily marketable inventories, decreased to US$10.4bn from US$11.5bn, while gearing also improved to 38.5% from 42.7%.
In May 2009, Glencore successfully replaced its US$925mn 364-day revolving credit facility with a new US$815mn 364-day facility. At the same time, Glencore entered into a forward start facility, effectively extending US$6.7bn of the US$8.2bn medium-term revolving credit facility by one year to 2012.
In June 2009, Glencore renewed the liquidity back-up lines under its committed asset-backed receivables programme at the requested amount of US$1.5bn.
Short-term debt refinancing requirements remain modest, mainly focusing on the US$1.05bn Xstrata secured loan maturing in December 2009. According to the company, discussions with a number of banks are well advanced for a two-year replacement loan.
Glencore's ownership in Katanga Mining, a copper/cobalt producer in the Democratic Republic of Congo, increased from 8.5% to 77.9% during the first half of 2009, reflecting Glencore's conversion of convertible bonds and participation in Katanga's recent rights issue.
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