Download - Glencore 2016 half-year results
2016 Half-Year Results
24 August 2016
Ernest Henry copper mine, Australia
Forward looking statements
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2
Highlights
Ivan Glasenberg – Chief Executive OfficerNew wheelhouse, Synclinorium shaft, Mopani, Zambia
Solid H1 performance in difficult market conditions
• Strong cash generation despite lower commodity prices and production• EBITDA(1,2) $4bn, -13%; industrial EBITDA $2.7bn, -20%; marketing EBIT(2) $1.2bn, +14%• Solid cash flow generation with FFO of $2.8bn • Capex of $1.6bn, -51%
• Industry-leading cost positions• Outstanding first-half operational unit cost performance in key commodities; Copper 97c/lb,
Zinc -3c/lb (15c/lb ex gold), Nickel 246c/lb and Thermal coal $37/t
• Marketing remains a unique, low-risk defensive earnings driver• Adjusted EBIT up 14% to $1.2bn• Full year guidance unchanged at $2.4-2.7bn
• Continued strong liquidity and balance sheet flexibility• Committed available liquidity of c.$15bn• Public market credit spreads and CDS substantially normalised
• Targeting even lower Net Funding and Net Debt of $31-32bn and $16.5-17.5bn respectively by the end of 2016• $2.3bn reduction in Net funding and Net debt to $39bn and $23.6bn respectively at 30 June• Agreed asset disposals of $3.9bn, successfully delivering towards $4-5bn target; opportunity
to be selective around remaining sales processes• Annualised free cash flow generation >$4.5bn(3) at current spot prices
4Note: (1) Refer to basis of preparation on page 4 of 2016 Half-Year Report. (2) Refer to note 3 of the financial statements for definition and reconciliation of Adjusted
EBITDA/EBIT. (3) After estimated taxes and interest of $2.2bn, estimated industrial capex of $3.5bn and $0.1bn of marketing capex, pre the impact of any asset
disposal processes yet to be completed, basis spot annualised EBITDA of c.$10.5bn as calculated in reference to note 2 on slide 18. Excludes working capital changes.
Sustainability and governance
5
Safety• Regrettably 12 fatalities from 4 incidents YTD
• All fatalities at our “focus assets”
• LTIFR 1.28, 4% improvement
• TRIFR 4.79, 5% improvement
• Continued effort on ensuring leading practice
at our “Focus Assets”
Environment• Global tailings storage facility review under
way
Governance• Analysis of implications of climate change on
our portfolio published, with a particular focus
on the coal business
• Publication of our payments to host
governments underscores our commitment to
transparency
2.74
2.49
2.06
1.88
1.58
1.321.28
2010 2011 2012 2013 2014 2015 2016H1
LTIFR(1) 2010 to June 2016
53% reduction
Note: (1) Lost time incidents (LTIs) are recorded when an employee or contractor is unable to work following an incident. In the past Glencore recorded LTIs which resulted in lost days from the next
calendar day after the incident whilst Xstrata recorded LTIs which resulted in lost days from the next rostered day after the incident - therefore the combined LTI figure is not based on data of
consistent definition (historically, prior to merger). From 2014 Glencore records LTIs when an incident results in lost days from the first rostered day absent after the day of the injury. The day of the
injury is not included. LTIFR is the total number of LTIs recorded per million working hours. LTIs do not include Restricted Work Injuries (RWI) and fatalities (fatalities were included up to 2013).
Historic data has been restated to exclude fatalities and to reflect data collection improvements.
Financial performance
Steven Kalmin – Chief Financial Officer
Altyntau-Vostok, Precious Metals refinery, Kazzinc
Summary
Solid H1 2016 performance in difficult market conditions ...
• EBITDA of $4bn, down 13%; EBIT $875M, down 38%
• Marketing EBIT of $1.2bn, up 14%
• Net income pre-exceptional items $300M(1), down 66%
• Industrial capex of $1.5bn, down 51%
• Funds from operations of $2.8bn, down 21%
… underpinned by industry-leading cost performance …
• Significant declines in H1 unit operating costs compared to FY2015: Copper 97c/lb, Zinc -3c/lb (15c/lb ex gold credit), Nickel 246c/lb and Thermal coal $37/t
… and our unique balance sheet flexibility
• Net funding of $39bn, down $2.3bn (5%)
• Net debt of $23.6, down $2.3bn (9%)
• Committed liquidity of c.$15bn
Focussed on preserving our investment grade ratings
• Moodys and S&P ratings currently at Baa3/BBB- with stable outlooks
• Targeting upgrade to strong Baa/BBB rating in the medium term
• Delivery of revised Net funding and Net debt targets by end 2016 ensures high probability that Net debt to Adjusted EBITDA falls closer to 2x
• pro-forma ratio comfortably <2x basis debt reduction targets and relevant Adjusted EBITDA at spot prices
7(1) Attributable loss to equity holders pre-significant items of $369M; refer to significant items table on page 5 of 2016 Half-Year Report.
Solid marketing EBIT performance of $1.2bn
8
Marketing EBIT contribution, up 14%, reflecting some normalisation of trading conditions that impacted H1 2015.
• Metals and minerals
• Strong performance, up 92% y/y driven by strong contributions from copper and zinc as well as improved earnings from aluminium and nickel relative to the impact that lower premiums and weak stainless production had on the prior period
• Energy
• Weaker year-on-year performance reflects particularly supportive oil market conditions seen in H1 2015, along with a continued challenging coal market backdrop
• Agriculture
• Weaker earnings in large part due to a lower Viterra Canada contribution. Seasonally, H2 much better for ViterraCanada and Australia, which is again expected to be the case
444
852
479
252199
122
2015 H1 2016 H1
Metals and Minerals Energy Products
Agricultural Products Corp and Other
Adjusted Marketing EBIT ($M)
1,071
1,217+14%
Marketing is a unique, low-risk defensive earnings driver
9
Historical
guidance
range:
$2-3bn
Marketing EBIT ($M)
Long-term
guidance
range:
$2.7-3.7bn
299
295
342
283
227
153
Interest
expense
allocation
($M)
• H1 2016 EBIT performance reflects the strength and resilience of the business model
• Marketing earnings are generated from the handling, blending, distribution and optimisation of physical commodities, augmented by arbitrage opportunities – all of which are less sensitive to flat price movements
• Highly cash flow generative business
– Minimal fixed assets/capex required
– Relatively low effective tax rate
• Unchanged 2016E EBIT guidance range of $2.4 to $2.7bn
• Working capital’s correlation with commodity prices ensures cash flow is insulated in periods of lower prices
• Average VaR (1 day 95%) of $36M in H1 2016, represents less than 0.1% of shareholders’ equity ($41M H1 2015)
0 1'000 2'000 3'000 4'000
2008
2009
2010
2011
2012
2013
2014
2015
2016FH2 Guidance
$1.2-1.5bnH1: $1.2bn
Robust industrial performance underpinned by lower costs
10
Industrial EBITDA down 20%, reflecting the impact of lower commodity prices, substantially mitigated by lower costs and favourable FX movements
• Metals and minerals
• Significant operating cost reductions along with favourable FX, mostly offset the impact of lower prices, leaving EBITDA largely unchanged year-on-year. EBITDA mining margin increased from 24% to 28%
• Energy
• Substantially lower oil and coal prices weighed on EBITDA, partially mitigated by cost savings, efficiencies and FX
• Agriculture
• Softer earnings reflect difficult EU oilseed processing and biodiesel margin conditions
2'436 2'365
1'140
571
71
29
2015 H1 2016 H1
Metals and Minerals Energy Products
Agricultural Products Corp and Other
Adjusted Industrial EBITDA ($M)
3,431
2,735
-20%
Cost savings and favourable FX significantly mitigated the impact of lower commodity prices
11
3'431
(2049)
252
720
(203)
634
(50)
2'735
2015 H1EBITDA
Price Volume Cost Inflation FX Other 2016 H1EBITDA
Higher grades and
strong performance
at Antapaccay,
Alumbrera.
Increased cobalt
production at
Mutanda
Lower fuel/energy
costs, operational
efficiencies /
restructuring,
overall
procurement
initiatives / benefits
South Africa,
Kazakhstan,
Argentina,
Colombia
KZT +86%,
ZAR +29%,
AUD +6%,
ARS +63%
COP +26%
CAD +8%
2016 H1
• 66% of negative price impact offset by real cost reductions and favourable FX movements
Next 12 months
• Continued focus on maximising free cash flow generation
Industrial Adjusted EBITDA ($M)
Strong first-half operational performance and industry-leading cost positions
12
10497 96
2016 FYGuidance
2016 H1Actual
2016 FYRevised
Copper costs (c/lb)(1,5) Nickel costs (c/lb)(3,7)Zinc costs (c/lb)(2,6) Thermal Coal costs ($/t)(4,8)
295
246
273
2016 FYGuidance
2016 H1Actual
2016 FYRevised
39
37
39
45
2016 FYGuidance
2016 H1Actual
2016 FYRevised
Average H1 2016 LME
393.2 c/lbAverage H1 2016
LME 213.5c/lb
Average H1 2016 LME
81.7 c/lbAverage NEWC H1 2016
($51/t) adjusted for
portfolio mix
• Significant reduction in cost structures over the first half of the year, underpinned by higher by-product credits and delivery of additional cost efficiencies/savings
• Full year unit cost estimates revised lower again to reflect stronger than expected cost improvements year to date
• Continued focus on cost efficiencies/reduction over the balance of 2016
H1 2016 Cu C1 costs (c/lb)(1)
Mutanda 105
Collahuasi 118
Antamina 38
Alumbrera 73
Lomas Bayas 127
Antapaccay 80
Nth Queensland 130
Cobar 128
C1 Weighted average: 91
C1 Including royalties 97
C1 Ex TC/RCs / freight /
Royalties: 70
Notes (1,2,3,4,5,6,7,8) - see slide 23
27
-3 -3
2016 FYGuidance
2016 H1Actual
2016 FYRevised
15
ex gold
18
ex gold
2016 Half-year credit metrics
13
13H1 13FY 14H1 14FY 15H1 15FY 16H1
2.8
2.7
2.8
2.4
2.7
3.0
2.9
Net
funding(1)
($bn)
Net debt(1)
($bn)
FFO to
Net debt
Net debt to
Adjusted
EBITDA
28%29% 29%
33%
30%
26%
25%
34.8 35.8
37.630.5 29.6
25.923.6
49.2
52.2
54.449.8
47.3
41.239.0
• Strong liquidity position with $14.9bn of committed available liquidity at end June• Comfortably covers next 3 years’ bond
maturities
• Healthy cashflow coverage ratios:• FFO to Net debt of 24.9%
• Net debt to Adjusted EBITDA of 2.91x
• Improving credit market conditions• Public market credit spreads and CDS
substantially normalised
• Issued 5 year CHF 250M bond at 2.25% in May
• Finalised new RCF of $7.7bn in May
• Net funding and Net debt targets by end 2016 ensure high probability that Net debt to Adj. EBITDA falls closer to 2x • Achievement of strong BBB/Baa in the
medium term remains a financial target
• No financial covenants
Note: (1) Refer to page 7 of 2016 Half-Year Report.
Capex more than halved in H1 2016
14
1'864 1'048 2'700
1'205
452
800
2015 H1 2016 H1 2016 E
Sustaining Expansionary
• H1 2016 industrial capex of $1.5bn, down 51%
• Full year 2016 industrial capex guidance unchanged at $3.5bn
• First-half capex reflects:
• Reduced spending profile, in line with limited expansion projects underway
• Lower sustaining capex in line with proactive supply reductions in copper, zinc, lead, coal and oil
• FX support from the stronger US dollar and achievement of overall group procurement benefits
• Post-2016 capex remains dependent on price and associated incentive to reactivate certain latent capacities
• Sustainable group capex of $2.7bn at current production levels
Industrial capex ($M)(1)
Note: (1) Total industrial capex including JV capex and capitalised interest, excluding Marketing capex of $71M in H1 2016 and $120M in H1 2015.
-51%
3,069
1,500
3,500
GRailSale process underway on potential sale of Glencore’s Hunter Valley coal haulage fleet
- expected completion Q4 2016, subject to regulatory approvals
Ernest Henry (EHM)Joint Venture with Evolution Mining where Evolution will have a 30% economic stake in the mine
and be entitled to 100% of EHM gold production, subject to an agreed life of mine and block model.
Evolution will pay AUD880 million to Glencore upon closing of the transaction as well as ongoing
monthly cash contributions equal to 30% of production and capital costs associated with copper
concentrates – expected completion Q4 2016
$3.9bn of the $4-5bn asset disposals target delivered to date –opportunity to be selective around remaining processes
15
Glencore AgriAgreed sale of 49.99% of Glencore Agri to Canada Pension Plan Investment Board (CPPIB) and
British Columbia Investment Management Corporation (bcIMC) for combined proceeds of $3.125bn
- expected completion Q4 2016, subject to regulatory approvals
Komarovskoye goldSale of the Komarovskoye gold deposit in Kazakhstan to Polymetal for $100M cash and deferred
consideration of up to $80M – completed 2 August 2016
Vasilkovskoye goldProcess underway exploring options around sale or streaming
Dec.1
5
Net re
ductio
n
Jun
.16
Ag
ri p
rop
ort
ionate
con
solid
atio
n
Asset dis
posals
Work
ing
cap
ital
Fre
e C
ash F
low
(annu
alis
ed s
pot fo
r six
mo
nth
s) Dec.1
6 E
Dec.1
7 E
RMI reduced
by $0.9bn
primarily to
reflect Agri
sale(2,3)
Increase to
reflect impact
of higher
prices
Targeting lower Net funding and Net debt by end 2016
16
• Continued progress on delivery of our debt reduction measures / targets
• 2016 Net funding and Net debt targets reduced further to $31-32bn and c.$16.5-17.5bn respectively reflecting:
• proportionate vs full consolidation of Glencore Agri (lowers Net funding, RMI and Net debt by $1.7b, $1bn and $0.7bn respectively)
• forecast higher free cash flow generation in H2 at current spot prices
• less one-off build in working capital to reflect higher prices
• We remain focused on preserving our current investment grade credit ratings and returning to strong BBB/Baa in the not too distant future
Debt bridge ($bn)
Net
funding
$41.3Net
funding
$39.0
Net
funding
$31-32bn
$4-5
c.$2.3
$1.7(2,3)
$2.3
Net
debt
$23.6
Net
debt
$16.5
-17.5
bn
RM
I $15.4
RM
I c.$
15bn
Net
debt
$25.9
RM
I $15.4
RM
I $14.5
Net
debt
c.$
15
Note: (1) 2016 H1 RMI comprises $10.9 billion (2015: $10.9 billion) of inventories carried at fair value less costs of disposal and $4.5 billion (2015: $4.4 billion) of
inventories carried at the lower of cost or net realisable value. Refer to Glossary on page 69 of the 2016 Half-Year Report. (2) Refer to Glossary on page 71 of the
2016 Half-year Report; Glencore Agri Net funding and Net debt already accounted for within discontinued operations at 30 June 2016. (3) See slide 21
c.$3.9bn
agreed to date
Realised on sale
completion:
forecast Q4
Net
funding
<$30bn
Net
debt
$25.9
bn
RM
I $15.4
(1)
Net
debt
$23.6
bn
RM
I $15.4
(1)
c.$1.0
Concluding remarks
Ivan Glasenberg – Chief Executive Officer
Copper anode, Mount Isa Mines copper smelter, Australia
Focussed and confident on delivering our debt reduction plan
We are highly cash generative at current spot prices …• Annualised free cash flow generation >$4.5bn(1) at current spot prices• Annualised spot price EBITDA of c$10.5bn(2)
... supported by Tier 1 cost positions in our key commodities …• 2016 full year unit cost guidance revised to(3): 96c/lb Copper, -3c/lb Zinc (18c/lb ex gold),
273c/lb Nickel and $39/t Thermal coal
… and the resilience of our marketing business• Earnings largely underpinned by logistics activities/services that are less sensitive to prices• Forecast H2 marketing Adjusted EBIT of $1.2-1.5bn
Targeting lower 2016 Net funding and Net debt of $31-32bn and $16.5-17.5bn• Asset disposals target now largely achieved – opportunity to be selective on remaining active
disposal processes
We possess significant growth optionality for the right market conditions• Our production cuts have preserved the value of our resources for the future• Our low-cost latent capacity includes: 300kt of copper, 500kt of Zinc, 100kt of lead and 15Mt
of thermal coal
18Note: (1) After estimated taxes and interest of $2.2bn, estimated industrial capex of $3.5bn and $0.1bn of marketing capex, pre the impact of any asset disposal
processes yet to be completed. Excludes working capital changes. (2) Basis 2016 FY Revised industrial unit costs/margins on slide 12 and associated 2016 FY
volumes as noted in slide 23; mid-point of marketing guidance on slide 9 plus $200M of marketing D&A, pre the impact of any asset disposal processes yet to be
completed. Prices as of 18 August 2016. (3) Relative to original 2016FY guidance in March 1 2015 Preliminary Results presentation on slide 12.
Q&A
Copper scrap recycling, Horne smelter, Canada
Appendix
Raglan wind power generation, Nickel, Canada
Glencore Agri accounting treatment
• Agreed sale of 49.99% of Glencore Agri to Canada Pension Plan Investment Board and British Columbia Investment Management Corporation
• Negotiated governance structure will result in the statutory accounting deconsolidation of Glencore Agri on close of sale
• In respect of our ongoing ownership stake of 50.01%, and for as long as we hold >35%, Glencore Agri meets the definition of a joint arrangement, classified as a joint venture as determined under IFRS 11 and accounted for using the equity method in accordance with IAS 28
• Post sell-down, it is currently expected that Glencore’s financial reporting of Glencore Agri will be consistent with the treatment of our interests in Cerrejón, Antamina and Collahuasi
• i.e. equity accounting for statutory reporting and proportionate consolidation for Financial Review / segment reporting to provide an enhanced understanding of underlying financial performance and position
21
Commodity prices
80
90
100
110
120
130
140
150
Jan.16 Mar.16 May.16 Jul.16
Copper
Zinc
Nickel
35
40
45
50
55
60
65
70
Dec.15 Nov.16 Oct.17 Sep.18 Aug.19 Jul.20
Jul 2016
Jun 2016
May 2016
Apr 2016
Mar 2016
Feb 2016
Jan 2016
Dec 2016
22
Indexed: January 2016=100
API4 thermal coal curvesIndexed base metal prices YTD
Data: Bloomberg, ICAP
Notes
Slide 12: Strong first-half operational performance and industry-leading cost positions
• (1) 2016 H1 copper unit cost calculated on department production of 624.4kt (not including c.79kt additional copper produced as by-product in the zinc and nickel divisions) less 21.3kt produced at Mopani. 2016 FY copper unit cost calculated on guided mid-point of department production of 1.26kt less c.45kt forecast production at Mopani (excluding c.150kt of forecast copper production as by-product in the zinc and nickel divisions). Costs include TC/RCs, freight, royalties and a credit for custom metallurgical EBITDA
• (2) 2016 H1 zinc unit cost calculated on department production of 484.7kt (not including c.22kt of zinc produced as a by-product in other divisions) adjusted for c.85% payability, resulting in payable production of 412kt. 2016 FY zinc unit cost calculated on forecast department production of 1.03Mt (excludes c.65kt of zinc produced as by-product by other divisions) adjusted for 85% payability, resulting in payable production of 876kt. Zinc cost includes credit to account for custom metallurgical EBITDA
• (3) 2016 H1 nickel unit cost calculated on production of 51.5kt, excluding Koniambo. 2016 FY nickel unit cost calculated on forecast production of 100kt, excluding Koniambo
• (4) Average NEWC H1 2016 price of $51/t adjusted for portfolio mix (-$6/t) to generate a margin that can be applied across overall group ex-mine sales of 65Mt. 2016 FY coal unit cost calculated basis current spot NEWC price of $68/t adjusted for portfolio mix (-$11/t) to generate an annualised spot margin that can be applied across overall forecast group production of 125Mt (i.e. $18/t margin)
• (5) Reconciling actual H1 copper unit costs to H1 Adjusted Copper EBITDA of $1.344bn: • Add back $130M for Katanga and Mopani (primarily operating costs incurred at Katanga, with production currently suspended, pending delivery of the whole ore
leach upgrade project) and $80M for inventory changes to give underlying EBITDA of $1.554bn.
• Divide underlying EBITDA of $1.554bn by H1 production of 603.1kt (see Note 1 above) to give EBITDA/lb of $117c/lb.
• LME average price of $214c/lb over H1 2016 less EBITDA/lb of 117c/lb = cost per pound of c.$97c/lb
• (6) Reconciling actual H1 zinc unit costs (including gold credits) to H1 Adjusted Zinc EBITDA of $770M: • Divide Adjusted Zinc EBITDA of $770M by H1 payable metal production of 412kt (see Note 2 above) to give EBITDA/lb of c.$85c/lb
• LME average price of $81.7c/lb over H1 2016 less EBITDA/lb of $85c/lb = cost per pound of c.-$3c/lb. Add back Kazzinc gold credit of 18c/lb to give zinc mine
unit costs of 15c/lb
• (7) Reconciling actual H1 nickel unit costs to H1 Adjusted Nickel EBITDA of $168M: • Divide Adjusted Nickel EBITDA of $168M by H1 metal production of 51.5kt (see Note 3 above) to give EBITDA/lb of c.$147c/lb
• LME average price of $393c/lb over H1 2016 less EBITDA/lb of $147c/lb = cost per pound of c.$246c/lb
• (8) Reconciling actual H1 margin to H1 Adjusted Coal EBITDA of $506M: • Divide Total Coal EBITDA of $506M by H1 ex-mine sales of 65Mt to give EBITDA/t of $8/t
• NEWC average price of $51/t over H1 2016 adjusted to $45 /t to reflect portfolio mix less EBITDA/t of $8/t = cost per tonne of $37/t
23
2016 Production Guidance
Commodity Unit Actual
FY 2014
Actual
FY 2015
Actual
H1 2016
Guidance
FY 2016
Copper kt 1,546 1,502 703 1,410 ± 25
Zinc kt 1,387 1,445 507 1,095 ± 25
Lead kt 308 298 145 285 ± 10
Nickel kt 101 96 57 116 ± 4
Ferrochrome kt 1,295 1,462 762 1,575 ± 25
Coal Mt 146 132 59 125 ± 3
Oil kbbl 7,351 10,569 4,350 8,000 ± 300
24
Changes to previous guidance (1 March 2016) reflect:
Copper: +20kt to 1,410kt (± 25kt) – strong YTD performances across a number of assets, including
Collahuasi
Coal: -5mt to 125mt (± 3Mt) – lower South African output and weather related reductions in Colombia
Oil: -200kbbl to 8,000kbbl (± 300kbbl) – reduced workover activity in Chad, basis current lower margins,
and the wish to preserve the resource for an improved pricing environment