Glencore still on track for flotation despite slump in profits in 2009

Glencore, the secretive Swiss commodities trader, yesterday insisted that its 2009 results were "credible" despite profits falling by 43 per cent.

The Baar-based group, which last year took the first steps towards a stock market flotation, blamed weak commodity prices for the drop in profits, to $2.7bn (£1.8bn). Revenues slid to $106.4bn, down from $152.2bn in 2008.

The results from the world's biggest commodities trading house echoes those from a number of mining companies, which have reported weak profit numbers for 2009 over recent weeks.

Despite the weak numbers, employee-owned Glencore said that its markets had strengthened recently, and while there was evidence of "mixed economic data and slower recoveries in certain parts of the world economy," the group expected a strong performance in 2010.

"Given the very weak start to the year, average prices for many commodities were significantly lower in 2009 compared to 2008," Glencore said in a two-page results statement.

"In 2009, there was a steady improvement in each quarter's profitability, in large part driven by the industrial asset activities, which experienced their cyclical low point in the first quarter and have since benefited from rising metals prices."

A source close to the company last week admitted that a public listing was being actively considered by Glencore's management. In December last year, it issued $2.2bn in convertible bonds, valuing the group at about $35bn. The bonds will be changed into equity if the firm is eventually listed.

Any announcement on a listing is still expected to be at least several months away, but Glencore has already moved to clean its balance sheet in preparation of a possible offering. According to yesterday's results announcement, net debt was down to $10.2bn, from $11.5bn a year ago, while the company has $3.8bn in undrawn debt facilities. Glencore has also committed to disposing of $1bn worth of assets over the next three to six months.

One asset that could go is the Colombian coal miner Prodeco. Glencore sold Prodeco to the Anglo-Swiss miner Xstrata, in which it has a 34 per cent stake, for $2bn last year as a way of participating in the FTSE 100 group's fundraising efforts. The capital raising included a £4.9bn rights issue, which Glencore resisted amid speculation that it was unable to take up its rights. Last week Glencore agreed to pay about $2.5bn for Prodeco, after exercising an option to buy back the company.

Glencore is understood to believe that Prodeco could now be worth as much as $5bn, although industry analysts put the valuation at considerably lower than that.

Glencore sounded a cautionary note for the rest of 2010, predicting continued volatility in commodity prices. A number of mining companies have indicated stronger prices in recent weeks.