Glencore Reports FH2013 Loss
LONDON - Aug 20/13 - SNS -- Glencore Xstrata reported a net loss of U.S. $8,920 million on revenue of $121,393 million for the six months ending June 30, compared to a net income of $2,275 million on revenues of $123,507 million during the same six month period last year.
In releasing its financial statements the company said the loss resulted from the fact the company "recognized $10,127 million net of other significant expenses which mainly comprised a $1,160 million accounting loss related to the revaluation of Glencores initial 34% interest in Xstrata upon acquisition and a $7,658 million impairment of goodwill recognized on the acquisition of Xstrata.
"Upon acquisition of Xstrata, the underlying assets and liabilities acquired were fair valued, with an amount of resulting goodwill, to the extent possible, allocated to the business, leaving a residual goodwill of $7.7 billion which could not be supported and hence has been written off. . . . The size of the impairment was influenced by the deemed acquisition consideration, calculated by reference to Glencores share price on the date of acquisition."
Though Glencore has become a major player in agricultural commodities, partly through its purchase of Viterra, the commodity group remains a minor part of its overall operations.
A table of adjusted earnings before interest and taxes reveals agricultural products contributed $15 million toward the company's total EBIT of $1,186 million. Metals and minerals contributed $711 million and energy products $501 million.
Ag Segment Disappointing
"The agricultural products segment was substantially lower due to a combination of a crop shortfall in South Australia, some South American logistics and sourcing challenges (Brazil and Argentina) and a generally subdued environment," Glencore noted in its financial statements.
The agricultural segment reported adjusted EBIT of $15 million from trading revenue of $14,600 million during the first half of the fiscal year, compared to an EBIT of $114 million on trading revenue of $8,041 million during the same period last year.
By contrast, industrial activities in the agricultural segment posted a negative EBIT of $15 million on revenues of $1,470 million, resulting in a negative EBIT of $20 million for the segment. Last year's industrial activities generated a negative EBIT of $11 million on revenues of $1,405 million, for a segment net EBIT of $103 million.
Commenting on the results, Glencore said, "Old crop grain and oilseed prices remained firm in H1 2013, as a consequence of the 2012 US production shortfall. Brazil and Ukraine emerged as large exporters of corn limiting the need for US exports. Conversely, abundant South American crops and the prospect of record 2013 northern hemisphere production kept new crop prices in check and, towards the end of the period, as the crop outlook became more certain, new crop prices declined. Chinese wheat buying had little impact on the market in the face of large new crops.
"In the absence of any significant crop problems anywhere, stocks, whilst not overly burdensome, will be replenished and the market looks likely to be amply supplied in H2 2013. The overall result has been a grain market which has been unprospective."
Glencore added, "Grain and oilseeds volumes grew considerably in H1 2013 as a result of the acquisition of Viterra. The integration of Viterra has proceeded relatively smoothly, with cost savings as anticipated and full integration and ramp up expected next year. The disposals to Richardson were completed in the period and the sale to Agrium awaits Canadian competition approval, which is expected in the third quarter.
"Viterra's procurement business in Australia and Canada contributed in line with expectations. The significant crop reduction in South Australia in 2012 did impact H1 2013 results however. Generally, a lack of old crop carry charges and price volatility provided limited arbitrage opportunities. Our port joint venture in Taman (Russia) was idle for most of H1 2013, as the poor 2012 Russian grain crop was not export competitive. Oilseed and cotton results were satisfactory, but grain results were disappointing due to the lack of opportunities."
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