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|Ivan Glasenberg, chief executive officer of Glencore.|
“We reduced the debt considerably: net funding by $14.7 billion and net debt $14.1 billion, respectively, over the past 18 months,” Ivan Glasenberg, chief executive officer of Glencore, said during a Feb. 23 earnings call with analysts. “And the debt has moved down, $32.6 billion; and net debt down at $15.5 billion. So, a significant decrease since the implementation of the deleveraging process of the company.”
Glencore sold 50% of its agricultural segment during this process, which allowed the company to reduce debt but also focus on growing its ag sector.
“It was a shrink to grow,” Glasenberg said. “Yes, it’s (ag) a smaller part of our business, because now we’re only equity count 50% of it. But the idea of selling 50% was the reason that we did. It was to set up a structure where we can grow.”
Growing the ag sector of Glencore will include new infrastructure in areas of the world that the company does not have a strong footprint.
“We've always said in the ag space, we need to grow, we want to grow,” Glasenberg said. “We need to get bigger in the United States. It's a part of the business we miss. We don't have infrastructure in the United States in the ag part of the business. We need infrastructure. Infrastructure is the key to the business. You can't trade in the ag space without big infrastructure. So we need to buy infrastructure. We need to definitely grow South America and United States a bit more.”
Chris Mahoney, director of Glencore Plc Agricultural Products segment, said the industry is “ripe for consolidation at the moment.”
“The business has struggled a bit generally in the last two to three years,” he said. “And I think to succeed you need to have the right scale, something in the U.S. would be good. And I think the timing is good for everything.”
Overall, Glencore’s adjusted EBITDA for 2016 was $10.268 billion, up 18% from $8.694 billion compared to 2015.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the Agricultural Products business segment of Glencore Plc totaled $592 million for the year-ended Dec. 31, down 19.3% from $734 million in 2015. Glencore noted the disposal of 50% of the Agricultural Products division was completed on Dec. 1, 2016, which reflects 11 months’ results on a 100% consolidated basis and one month on a 50% proportionate consolidated basis.
The Agricultural Products business segment’s revenue for the year was $21.97 billion, down slightly from $23.146 billion in the same period of last year.
During 2016 the Agricultural Products business segment prices and volatility generally remained subdued during the period, with its grain and oilseed marketing business performing consistently well in the circumstances. The marketing of wheat, Brazilian corn, soymeal and the rapeseed complex, supported by the company’s asset ownership, exceeded expectations, Glencore said.
Viterra Canada, a part of Glencore’s Agricultural Products business segment, faced challenges in the first half of 2016, as the crop harvested in September 2015 was below average, with margins suffering from competition among handlers in the face of low prices and farmer retention. Glencore said the margins improved in the final quarter with a near-record, albeit poor quality, crop harvested in September 2016. South Australia was broadly similar, with the first half impacted by the disappointing October 2015 harvest and the final quarter benefiting from a record 2016 South Australian crop. In the meantime, the company had added storage and was well prepared for the large Viterra Australia intake. The crop size and delayed Australian harvest also is expected to positively impact results in the first quarter of 2017.
Agricultural Products processed/produced 14.485 million tonnes, up 25% compared to 11.546 million tonnes in the same period of last year. The increase was due to 2.939 million tonnes (25%), mainly relating to the acquisitions, in late 2015 and early 2016, of the Becancour and Warden crush plants in Canada and the U.S., respectively, and higher capacity utilization in Argentina.
At Becancour, margins were poor early in the year as sales of meal proved challenging, but increased in the second half. In Argentina, where the fiscal environment has improved, margins were reasonable in the post-harvest period, but contracted somewhat with farmer retention later in the year, Glencore said. Crush volumes for the year were 7.68 million tonnes, up from 6.069 million tonnes in 2015.
Wheat milling in Brazil was challenging in early 2016 as demand contracted due to poor domestic economic conditions. However, Glencore said the business did recover in the second half. Wheat milling produced 989,000 tonnes, up slightly from 976,000 tonnes compared to the year prior.
Rice milling increased 33% in 2016 to 274,000 tonnes, up from 206,000 tonnes in the same period of last year.
“As we look forward, increasingly favorable fundamentals provide the potential to create significant long-term value for Glencore shareholders via our leading portfolio of well capitalized tier one assets and resilient marketing business,” Glasenberg said.
Switzerland-based Glencore is one of the world’s two biggest wheat traders, handling 18% of the world’s seaborne trade, and is one of the top three agricultural exporters in Russia, Canada, Australia, and the E.U. The group is vying for a position among the world’s biggest ‘ABCD’ commodity traders – Archer Daniels Midland Co., Bunge Ltd, Cargill Inc., and Louis Dreyfus Commodities BV.