Glencore Plc · LSE:GLEN
Glencore — FY2018 Earnings Presentation
44 slides from Glencore's earnings presentation, Feb 20, 2019
Slide 1: Preliminary Results 2018
Preliminary Results 2018 20 February 2019
Slide 2: Important notice concerning forward looking statements
Important notice concerning this document including forward looking statements This document contains statements that are, or may be deemed to be, “forward looking statements” which are prospective in nature. These forward looking statements may be identified by the use of forward looking terminolog
Slide 3: Highlights
Highlights Ivan Glasenberg – Chief Executive Officer Preliminary Results 2018
Slide 4: Summary: Record Adjusted EBITDA and returns to shareholders
Summary 3 Record Adjusted EBITDA and returns to shareholders, more to come High quality, high margin assets … compelling returns for … and the cash return story generated record results … shareholders … should continue Adjusted EBITDA(1) Distributions and announced buybacks New buybacks announced to
Slide 5: Sustainability performance
Sustainability performance 4 Our approach reflects our commitment to operate transparently and responsibly 16 13 9 Fatalities 2016 2017 2018 Lost time injury 1.4 1.02 1.06 frequency rate Per million hours worked(1) 2016 2017 2018 Total recordable injury 4.05 3.08 3.18 frequency rate Per million hour
Slide 6: Governance and Ethics
Governance and Ethics 5 Following the publication of the new UK Corporate Governance Code, the Board has established a new Ethics, Compliance and Culture committee (ECC). The Code introduces new provisions requiring the Board to establish the Company’s purpose, values and strategy and ensure that th
Slide 7: Climate change
Climate change 6 Furthering our commitment to the transition to a low carbon economy Following engagement with the investor signatories of the Glencore production growth 2019-2021 (2018=100) Climate Action 100+, we are furthering our commitment to the transition to a low carbon economy(1) Cobalt • A
Slide 8: Tailings Storage Facility (TSF) Management
Tailings Storage Facility (TSF) Management 7 Detailed assessment/audit of all material TSFs over the past three years(1,2) TSF inventory, including Non-operated JVs(1,2) • Significant asset footprint accumulated over the past 45 years through M&A (MIM/Falconbridge/Noranda/Xstrata) and organic growth
Slide 9: 2018 Financial performance
2018 Financial performance Steven Kalmin – Chief Financial Officer Preliminary Results 2018
Slide 10: 2018 Financial scorecard
2018 Financial scorecard 9 Record Adjusted EBITDA and returns to shareholders Funds from Adjusted EBITDA ($)(1) Industrial Adj. EBITDA ($) Marketing Adj. EBIT ($) operations ($) 15.8bn 13.3bn 2.4bn 11.6bn +8%, record result +15%, buoyed by higher -17%, result impacted by +2% vs 2017 average pricing
Slide 11: Industrial 2018 Adjusted EBITDA: $13.3bn
Industrial 10 2018 Adjusted EBITDA: $13.3bn Record Industrial performance Industrial Adjusted EBITDA EBITDA mining margin • Adjusted EBITDA up 15% to $13.3bn $13.3bn • Stronger year-on-year commodity prices, higher copper, 46% cobalt and coal production, partially offset by cost inflation, $11.5bn (
Slide 12: Industrial Adjusted EBITDA bridge
Industrial 11 Adjusted EBITDA bridge Variance 2018 vs 2017 ($M) 432 380 353 2,039 120 13,275 1,347 11,538 Price: Volume: Cost: FX: Copper +6% Katanga and Lady Inflation (including new DRC Mainly: Nickel +26% Loretta restarts, Mining Code) across the African AUD +c.$135M Cobalt +32% acquisitions of H
Slide 13: Industrial 2018 key commodity performance
Industrial 12 2018 key commodity performance Copper Zinc Nickel Coal • 1.454Mt (+144kt YoY) • 1.068Mt (-22kt YoY) • 124kt (+15kt YoY) • 129Mt (+9Mt YoY) • 30% Group EBITDA • 166¢/lb calculated $4.7bn • 15% Group EBITDA • 133¢/lb calculated $2.3bn • 5% Group EBITDA • 379¢/lb calculated $0.8bn • 33% G
Slide 14: Marketing 2018 Adjusted EBIT: $2.4bn
Marketing 13 2018 Adjusted EBIT: $2.4bn Market conditions, for the most part, were reasonable, however, were hampered in H2 by a “basis risk” pricing correlation Marketing Adjusted EBIT ($bn) breakdown related to sourcing alumina to meet the LME linked Agrifully consolidated Agriproportionately Agri
Slide 15: Marketing 2019 guidance
Marketing 14 2019 guidance Long-term Marketing Adjusted EBIT range of $2.2 to $3.2bn Long-term Marketing Adjusted EBIT guidance ($M) • We are confident of an improved year-on-year 3.5 performance towards the middle of our long-term 3.2 guidance range(1) 2.9 3.0 2.8 2.8 Performance towards the top en
Slide 16: Capex
Capex 15 $4.9bn net cash outlay in 2018, c.$4.8bn equivalent annual average 2019-2021 2018: $4.9bn Industrial Capex ($bn) By segment ($bn) • $3.6 sustaining capex, $1.3bn expansionary capex • Expansionary capex primarily at Katanga, Mopani, 1.1 1.0 1.4 1.3 1.4 1.3 Koniambo, INO and Zhairem 1.0 1.2 2
Slide 17: Balance sheet
Balance sheet 16 Conservative financial policies guide strength and flexibility Liquidity and funding Net funding ($) Net debt ($)(1) 32.1bn 14.7bn • Committed available liquidity of $10.2bn • Post 2018 bond maturities managed at c.$3bn in any one year +3% vs 2017 +$4.5bn, accounting for $3.9bn of M
Slide 18: 2019 Modelling guidance
2019 Modelling guidance Preliminary Results 2018
Slide 19: Industrial 2019 key commodity outlook
Industrial 18 2019 key commodity outlook - spot commodities / FX Copper Zinc Nickel Coal • 1.500Mt (+46kt YoY) • 1.195Mt (+127kt YoY) • 138kt (+14kt YoY) • 145Mt (+16Mt YoY) • 28% Group EBITDA • 146¢/lb illustrative $4.4bn (1) • 14% Group EBITDA • 114¢/lb illustrative $2.3bn • 4% Group EBITDA • 184¢
Slide 20: Production guidance update
Production guidance 19 Update Mutanda update • Sulphide reserve feasibility study planned for completion by the end of 2019, following which an investment decision will be considered • Re-optimised mine plan to extend life of the oxide resource is now expected to reduce annual production to c.100ktp
Slide 21: Illustrative spot free cash flow scenario analysis
Illustrative spot free cash flow scenario analysis(1) 20 Free cash flow through the cycle: c.$5-10bn Spot $6.8bn(2) Trough Downside Upside Supercycle $3.6bn $4.9bn $10bn $14.4bn 2018 2017 $6.9bn$7.7bn Unsustainable Through the cycle free cash flow $M 0 2000 4000 6000 8000 10000 12000 14000 16000 Pre
Slide 22: 2019 illustrative spot annualised cashflows
2019 illustrative “spot” annualised cashflows 21 Group $bn Copper(5) Guidance Nickel(6) Guidance Copper EBITDA 4.4 Total copper production (kt) 1500 Production (kt) 138.0 Cu from Zn & Ni departments. (kt) -140 Spot Ni price (c/lb) 563 Zinc EBITDA 2.3 Net relevant production (kt) 1360 Cost guidance (
Slide 23: Capital allocation: 2019 framework
Capital allocation 22 2019 framework • Our capital allocation framework balances: ◦ Preservation of an optimal capital structure Equity ◦ Attractive business reinvestment/growth opportunities ◦ Shareholder distributions cash flows • Today we are of the view that its difficult to find a better invest
Slide 24: Modelled buybacks
Modelled buybacks 23 Reducing modelled share capital by up to 9% by end 2019 (from 30 June 2018); amongst the highest FTSE 100 returns yield Share capital reduction scenarios 2019 returns yield: dividend + buyback announcements(1) Date Shares eligible for distributions 30 June 2018 14.254bn 31 Dec 2
Slide 25: Outlook
Outlook Ivan Glasenberg – Chief Executive Officer Preliminary Results 2018
Slide 26: Commodity fundamentals still positive
Commodity fundamentals still positive 25 Despite trade/China/Macro fears Policy uncertainty is rising(1) … … and trade/China/Macro fears have produced an economic drag(2) Global Economic Policy Uncertainty Index Manufacturing PMI Index 350 62 60 300 58 250 56 54 200 52 50 150 48 100 46 Feb-16 Oct-16
Slide 27: Commodity fundamentals still positive: Aluminium
Commodity fundamentals still positive 26 Despite trade/China/Macro fears Sector reinvestment remains limited(1) … … demand growth remains solid(2) … Sector capex ($bn) 8.0% 6.0% 4.0% Average: $43bn 2.0% 77 72 58 59 53 0.0% 41 44 42 43 42 Thermal Coal Zinc Nickel Aluminium Lead Iron Ore Copper 37 38
Slide 28: Commodity fundamentals still positive: inventories
Commodity fundamentals still positive 27 Despite trade/China/Macro fears … and inventories significantly reduced(1) In 2019 continued inventory draw downs are likely(2,3) Global inventories (rebased 100=Dec 2015) What’s the minimum 2019 demand growth needed for inventory draw? 6.5% 5.6% Minimum dema
Slide 29: Our investment case
Our investment case 28 Attractive commodities and high … generating strong and … and compelling returns for margin assets … sustainable cashflows … shareholders • Our commodity fundamentals • We should deliver strong annual free • $5.2bn distributions and buybacks are in great shape, inventories cas
Slide 30: Q&A
Q&A Preliminary Results 2018
Slide 31: Appendix
Appendix Preliminary Results 2018
Slide 32: 2018 Industrial mine costs/margin reconciliation
2018 Industrial mine costs/margin reconciliation 31 Copper(1) Guidance Actual Nickel(1) Guidance Actual Total copper production (kt) 1465 1454 Total Nickel production (kt) 126.0 123.8 Cu from other depts (kt) -147 -137 Less Koniambo prod. (kt) -30.0 -28.3 Net relevant production (kt) 1318 Net releva
Slide 33: Key underlying EBITDA sensitivities
Key underlying EBITDA sensitivities 32 Approximate estimated impact on FY2019 EBITDA given a change of: $M $100/t on copper price 140 $10/t on NEWC thermal coal price 480 $10/t on coking coal (HCC) price 60 $100/t on zinc price 130 $1/lb on realized cobalt price 100 $1000/t on nickel price 140 Austr
Slide 34: 2019 Recommended distribution calculation
2019 Recommended distribution calculation 33 Distribution policy: 2019 Recommended distribution • $1bn fixed payment from Marketing free cash flow $M Marketing Industrial Total • Variable payment representing a minimum 25% of Adjusted EBITDA 2,492 13,275 15,767 Industrial asset free cash flow Non-ca
Slide 35: Buyback update
Buyback update 34 Shares eligible for distribution $2bn buy back – almost complete Shares eligible for distribution (million shares) • 493m shares purchased since July 2018 Issued share capital New $2+1bn buy back • $2bn - program to run to year end • $1bn – available via targeted disposal proceeds
Slide 36: Debt maturity profile – capital market notes
Debt maturity profile – capital market notes 35 $22bn as at 31 December 2018(1) • Managing annual debt maturities to around $3bn • Conservative debt maturity profile even when considering a downside free cash flow scenario ($4.9bn) 8000 7000 Illustrative 2019 free cash flow c.$6.8bn 6000 5000 Downsi
Slide 37: Own source production 2013-2018 History
Own source production 36 2013-2018 History Copper (kt) Zinc (kt) Lead (kt) Nickel (kt) Cobalt (kt) 1546 1445 315 124 42 1493 1502 1399 1387 308 1454 115 1426 298 295 109 28 27 101 23 1094 1090 98 96 21 1068 19 1310 273 273 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 2013 2014 2015 20
Slide 38: Responsibly sourcing the commodities that underpin everyday life
Responsibly sourcing the commodities that underpin everyday life 37 It is our responsibility to not only deliver financial performance but also make a positive contribution to society and operate in a responsible and transparent manner Our sustainability strategy 1) Health: Become a leader in the pr
Slide 39: 2019 Distribution timetable
2019 Distribution timetable 38 In respect of 2018 cash flows First tranche of proposed distribution 2019 Applicable exchange rate reference date (Johannesburg Stock Exchange (JSE)) Close of business (UK) 11 April Applicable exchange rate announced on the JSE 12 April Last day to effect removal of sh
Slide 40: Listed entity market valuations and selection of other entities
Listed entity market valuations and selection of other entities 39 Listed entities % owned Market value $M Russneft 25.0% 660 EN+ 10.6% 528 Volcan 23.3%(1) 472 Rosneft 0.6% 370 Century 47.4% 356 Yancoal 6.8% 202 Other(2) Various 304 Total 2892 Selection of other entities US oil infrastructure BaseCo
Slide 41: Illustrative spot free cash flow scenario analysis: assumptions
Illustrative spot free cash flow scenario analysis 40 Scenario assumptions Trough Downside Spot Upside Supercycle (Q1 2016) (FY 2016 ave.) EBITDA $bn 9.0 11.1 15.8 21.7 29.0 Free cash flow $bn 3.6 4.9 6.8 10.0 14.4 Copper $/t 4678 4867 6200 7000 10000 Zinc $/t 1686 2094 2670 3250 3750 Nickel $/t 854
Slide 42: Commodity fundamentals: copper
Commodity fundamentals: our key commodities have capacity to buffer a demand slow-down 41 Copper: demand growth has been resilient… … and inventory drawdowns persist in a slow-down Copper demand (kt)(1) Copper supply vs. demand scenarios (kt)(2) +2.8% 2013-2018 CAGR Supply demand Demand 2013-2018 CA
Slide 43: Commodity fundamentals: nickel
Commodity fundamentals: our key commodities have capacity to buffer a demand slow-down 42 … inventory drawdowns likely to persist in a Nickel demand growth has been strong … slow-down, even allowing for strong supply scenarios Nickel demand (kt)(1) Nickel supply vs. demand (kt)(1) Supply 2013-2018 +
Slide 44: Commodity fundamentals: zinc
Commodity fundamentals: our key commodities have capacity to buffer a demand slow-down 43 … inventory drawdowns are likely even with the Zinc demand growth has been resilient (kt)(1) … potential of significant supply growth Zinc demand (kt)(1) Zinc supply vs. demand (kt)(1) 2013-2018 CAGR +0.6% dema