Glencore Xstrata reports merger synergies better than expected

20th Aug 2013 07:09

Maiden first-half results from newly-formed Glencore Xstrata showed encouraging progress in integrating the two businesses with cost savings much higher than expected.A statutory goodwill impairment of $7.6bn was made after the merger due to negative mining industry sentiment and the heightened risks associated with greenfield and large scale expansion projects such as Xstrata is involved, with a further $776m writedown from other operations.Commodity metal prices declined on average by 15% during the first half of the year, leading to pro forma earnings before interest and tax (EBIT) falling 39% to $2.0bn on pro forma revenues down 1.7% to $121.4bn.With a May completion of the merger, little synergy benefits have been felt in the period to end-June, but they were "now flowing strongly", the FTSE 100 company said. Chief Executive Officer Ivan Glasenberg wrote: "The synergies/cost savings from the merger will be materially in excess of previous guidance, based on timely preparation and decisive action."Total assets were up 48% to $155.9bn thanks to the merger, and as expected net debt more than doubled to £34bn as the company processes the final stages of its considerable pipeline.However, Glasenberg was encouraged by the solid progression of development projects."Once complete, in the next 12-18 months, Glencore will have a very competitive position on the cost curves within each of its core commodities," he said.The streamlining of the two businesses' head offices and business units were almost complete and "ample scope" was evident for further operational efficiencies within the enlarged group, particularly in the former Xstrata businesses, with several smaller disposals planned.An interim dividend of $0.054 per share was declared. OH