Glencore plc (GLCNF) claimed victory over its doubters Thursday, posting a 48% increase in annual profits and declaring that it had completed a rapid turn around from the 2015 wobble that briefly raised questions about its viability.
The mining and commodities trading house posted Ebitda of $10.3 billion for 2016, up 18% year-on-year and about 7% ahead of analyst consensus, boosted by successful cost cutting at its mining operations and a rebound in earnings from its trading division. Net income of $1.99 billion, was up 48% from $1.34 billion a year earlier.
Glencore shares climbed 2.6% on Thursday to 334.4 pence, adding to a year-to-date gain of over 20%. Glencore shares gained more than 206% over the whole of last year.
"Glencore delivered an impressive 2016 earnings result." noted Citigroup analyst Heath Jansen. The company beat analyst expectations "on earnings, Ebitda and net debt, which is a standout against peers, and likely to set the company up for a strong 2017."
London-listed Glencore said Thursday's results drew the curtain on its "plan of action" launched in 2015 when its shares plummeted on speculation that falling commodity prices would leave it swamped by debt raised to fund acquisitions.
Glencore shares tumbled 75% from mid-2015 to a low of nearly 75 pence at the start of 2016 after Investec analysts speculated that forward earnings could fall to zero unless spot prices improved, leaving the group's equity effectively worthless.
The company responded by selling assets and taking an axe to costs, enabling it to repay loans, while a rebound in the price of key commodities in the second half of 2016 also boosted cash flows.
"Glencore has never been so well positioned as it is today," said Glencore's CEO and largest shareholder Ivan Glasenberg in a statement. "Our swift and decisive actions to reposition and optimise our capital structure and industrial asset portfolio have reduced net funding by $14.7 billion over the past 18 months and generated more than $1.3 billion in cost savings at our industrial assets in 2016."
Glencore's bullish declaration mirrors that of Anglo American (AAUKF) , another mining company dogged by doubt's over its future during the commodity price slump. Anglo earlier this week said its balance sheet repairs were also completed after it rebounded to profitability.
Glencore said it would post annual free cash flow of about $6.9 billion in 2017 at current spot prices and adjusted EBITDA of $14.6 billion. Glasenberg, who has a well earned reputation for deal making, told reporters on a call that excess cash flow could be used to fund small acquisitions and opened the door to the possibility of returning cash to shareholders.
"We could give our long suffering shareholders a generous gift," he said.
Glencore's stock has gained almost 160% over the past year but remains well down on its five-year high of over 400 pence in early 2012.