Glencore eyes new ag acquisitions - potentially in the US

24.02.2017

Rising revenues, and the sale of half of its agriculture business, have swollen the war chest of commodity giant Glencore, and the company is eying new acquisitions in the US and South American farming sector.

"We need to definitely grow South America and US a bit more," Ivan Glasenberg, Glencore's chief executive, told investors.

"We need to get bigger in the United States, it's a part of the business we miss."

Eyes on US expansion

Last year Glencore sold 50% of its agricultural business to the Canada Pension Plan Investment board.

But Mr Glasenberg said the sale was as part of a "shrink to grow strategy," and that the company was keen to expand in the US agriculture sector, and wanted to carry this out without weighing on the company balance sheet.

"It was to set up a structure where we can grow," he said.

"And, as you well know, the Canadian pension fund wished to grow in this area, they had set aside a lot of capital to grow in this area," he said.

"They were the ideal partner."

Infrastructure needed

And Mr Glasenberg said the company's sights were set on agriculture infrastructure specifically. "We don't have infrastructure in the United States in the ag part of the business."

"You can't trade in the ag space without big infrastructure."

"The industry is ripe for consolidation at the moment," said Chris Mahoney, Glencore's director of agricultural products.

And he agreed that "something in the US would be good".

'Difficult conditions' for ags

But profits in the company's agriculture segment dropped despite higher volumes, thanks to acquisitions as well as "higher capacity utilisation in Argentina".

The company noted "difficuticut operating conditions,"

"In Argentina, where the fiscal environment has improved, [processing] margins were reasonable in the post-harvest period, but contracted somewhat with farmer retention later in the year," the company said.

The company's sugar milling volumes increased thanks to "ample third-party cane".

But conditions for wheat milling in Brazil were "challenging," in early 2016, due to "poor domestic economic conditions"

Shares rally

Glencore's adjusted net income rose by 48% to $1.99bn in 2016, beating analyst expectations of $1.59bn.

The company's earnings before interest, tax, depreciation and amortisation were reported at $10.3bn, up 18% year on year.

Glencore said net debt had dropped 40% $15.5bn at the end of 2016, and could fall below $10bn by the end of 2017.

Glencore shares rose as much as 6.5% on the news, and were trading up 5.1% at 342.36 pence in afternoon deals in London.


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