glencore ceo ivan glasenberg510d6ef6-8fa2-4...40232 240 741 50 80 104 100 240 531 323 16 241 450 419...
TRANSCRIPT
Glencore CEO
–
Ivan GlasenbergMiami, 15th
May, 2012
I 2
Why invest in Glencore?
1. Unique market position in global commodities
2. Strong track record of value creation driven by capital discipline and a focus on returns
3. Management are owners not renters of assets
4. Strong pipeline of high quality production growth with low capital cost
5. Marketing operations are scale-able at low incremental capital cost
6. Robust balance sheet
7. Xstrata merger and Viterra
acquisition create unique natural resources group
Glencore -
a uniquely compelling way for investors to benefit from commodity demand growth
I 3
Position throughout the value chain allows Glencore to capture value at each stage
Producers typically solely focused on sale of own products while
other marketing peers do not have Glencore’s
scale and access to own supply
Met
als
and
Min
eral
sEn
ergy
Pro
duct
sA
gri.
Prod
ucts
Oil
Coal / coke
Significant presence
Lesser presence
Key:
Ferroalloys / nickel /cobalt / iron ore
Marketing,Storage and freight
Marketing,Storage and freight
Processing / refining
Upstream production
Agriculturalproducts
Alumina / aluminium
Zinc /
copper /lead
n/a n/a
What does Glencore do?
I 4
How is Glencore’s
business model unique?
Scale
Strong competitive positions in core activities
Unique breadth of local presence with critical mass: more than 50 offices in more than 40 countries
Largest global user of letters of credit
98 active banking relationships
Diversification
54 geographies
18 major commodity groups
Vertical integration
Production to delivery to customer
No single competitor in all markets
Human capital
Culture and high retention rates
Long-term customer/supplier relationships
7 000
customer and supplier relationships
Supplier relationships provide unique access to compelling asset
deals
I 5
After management buy-out…..
$1.2 bn
Strong track record of value creation…
…to current 2012
$44 bn
Equity value creation since 1996
Value creation
+3550%
2002
Subs-
tantial
Glencore coal assets contrib-
uted
to forming Xstrata plc
1974
Establishment of Glencore focused on physical marketing of commodities
1987 / 1988
Transition into an integrated producer with acquisition of US smelter and Peruvian mine
1980s 1990s 2000s 2010s1970s
1990
Acquisition of a stake in Xstrata (then Sudelektra
AG)
2007
Selected Glencore aluminium & alumina assets contributed
to create
UC
Rusal
2011
IPO of Glencore
1993 / 94
Manage-
ment
buyout (“MBO”)
1995
Glencore acquires first building block of Prodeco
2004
First public bond issue of $950m
1981
Acquisition of a Dutch grain trading company, foundation of Agricultural Products division
2008
Merger of Katanga and Nikanor
resulting in a 8.5% holding in the combined entity
Purchase of initial 40% stake in Vasilkovskoye
Gold (via Kazzinc)
2009
Government approves start of West African hydrocarbon projects development phase
1997
Acquisition of majority stake in Kazzinc
2012
Merger with Xstrata
2009 –
2010
Issuance of $2.3bn
convertible bond
2012
Acquisition of Viterra
vs. +121% S&P Index+50% FTSE 100
I 6
%
Last 10 years RoE
range (1)
Averages
61%
50% 51%
36%
58%
45%
34%
21% 19% 21%
15%11%
15%18%
15% 15%
13%
4% 6%5%
38%
Note: (1) Net Income / average equity excl. minority interests. Data based
on last 10 full reported financial years for all companies, ending FY2010. Length of historical period for some peers is limited by availability of publicly disclosed financials. Glencore pre-expectionals.
… driven by best in class RoE
I 7Note: (1) Based on broker consensus estimates provided by Capital IQ and Enterprise Value as of 10 May 2012.
Capital efficient model allows shareholders to benefit from robust FCF generation
2012E-2014E Capex as percentage of aggregate value(1)
2012E-2014E EBITDA CAGR (Based on broker consensus)(1)
8% 4% 1% 11%
+
Capital discipline is a key focus at Glencore
8%
24%
36%32%
28%
40%
31%
I 8
0.01% 0.01%
0.09%
0.00% 0.00%
0.00%
0.04%
0.08%
0.12%
Xstrata Anglo American Rio Tinto BHP Billiton Glencore
Acquisition of Shares by Directors in 2011-2012YTD
(1)
CEO
and CFO
holdings in peers
Note: (1) Based on FY2011
annual reports for the comparable companies. For the period 30 June 2010 –
30 September 2011 for BHP
Billiton
Glencore management are owners not caretakers of assets
0.02% 0.02%0.11%
0.01%
0.25%
Freeport
16.82%
I 9
Unique pipeline of production growth from low-risk, low-cost and high
grade brownfield
operations
Asset grades
Cu % content per tonne
of P&P
reserves
Source: Company filings, IPO prospectus., broker consensus estimates
4.2%
3.4%
1.9%
0.8%0.7%
Katanga Mutanda Mopani Kazzinc Global Average
12.9%
10.3%
7.4% 7.3%
6.4%
5.5%
2011A to 2015E copper equivalent volume growth CAGR
%
Note: (1) Relates to the expectd
Cu equivalent 2011-15E production CAGR expected across the entire Industrial Asset’s portfolio
(1)
I 10
5
10
15
20
25
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IV
Source: Glencore expansion projects data from IPO prospectus technical reports. Peer projects from Deutsche Bank research note (Higher capital intensity –
a higher long-term price, 11 January 2012). Cu conversion prices updated to spot prices on 2 March 2012: (Copper -
$8,625.0/MT, Brent Crude Oil -
$124.0/bbl, Coal -
$103.9/MT, Zinc -
$2,088.5/MT, Cobalt -
$31,150/MT). Prodeco
capex
calculated as 2010 –
2014 expansionary capex
less capex
allocated to the port as per IPO prospectus. Kazzinc capex
and production as per IPO prospectus. Kazzinc and Mopani represents expected capex
for LOM
over production ramp-up until 2015E.Notes: (1) Includes own mines’
production only.
USD (‘000) / tonne
Cu eq.(2)
Glencore projects
Cu eq
prod’n
(‘000)
Total Capex ($m)
Efficient capex
programme underpins high returns
Low-cost incremental tonnes from flagship growth
projects
10
(1)
40 232
240
741
50 80 104
100
240
531
323
16 241
450
419
231
227
597
201
134
421
248
70 319
441
365
317
171
308
374
82 387
113
243
117
40 120
46 427
146
414
205
985
300
145
310
130
193
159
199
900
5,20
05,
300
16,0
0090
01,
350
1,75
01,
600
3,80
08,
200
4,80
024
03,
500
6,50
06,
000
3,30
03,
200
8,20
02,
750
1,80
05,
500
3,20
090
04,
000
5,50
04,
500
3,80
02,
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3,50
04,
200
900
4,00
01,
100
2,30
01,
100
350
1,00
035
03,
200
1,02
02,
800
1,32
36,
000
1,75
077
01,
477
550
734
576
635
Peer copper projects
I 11
$[90]bn
pending merger of equals with Xstrata–
$500m of synergies in 2013 –
full inclusion of Xstrata production within Glencore’s
marketing operations
–
Scope for optimisation
of combined development portfolio to allow faster/cheaper/lower
risk growth
–
Improved diversification within the enlarged business
–
Completion expected Q3 2012
$[6]bn
pending acquisition of Viterra
announced in March 2012–
Acquisition of a first class asset with leading positions in two
key agricultural export markets
–
Tier 1 portfolio of assets in Canada and Australia
–
Currently at a key regulatory turning point in Canada given pending Canadian Wheat Board deregulation
–
Turns Glencore into a truly global trader in wheat, barley and canola, boosting Glencore’s
global origination capabilities by filling a key geographic gap in origination markets
–
Expected to be earnings-enhancing to Glencore in the first full year after consolidation
(1)
–
Completion expected Q3 2012
Note: (1) This statement should not be interpreted to mean that future
earnings per share of Glencore will necessarily match or exceed
the historical earnings per share ofGlencore.
Xstrata & Viterra
enhance Glencore’s
position
Appendix
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Notes: (1) Adjusted EBITDA is revenue less cost of goods sold, less selling and administrative expenses, plus share of income from associates and joint controlled entities, plus dividend income, plus depreciation and amortisation. (2) Adjusted EBIT is Adjusted EBITDA less depreciation and amortisation. (3) Pre other significant items.(4) FFO
is Operating cash flow before working capital changes less net interest paid, less tax paid, plus dividends received from associates.
US$ m 2011 2010 % Change
Revenue 186,152 144,978 28%
Adjusted EBITDA (1) 6,464 6,201 4%
Adjusted EBIT (2) 5,398 5,290 2%
Glencore net income (3) 4,060 3,799 7%
Funds from operations (FFO) (4) 3,522 3,333 6%
Net debt 12,938 14,756 (12%)
FFO to Net debt 27.2% 22.6% 20%
Key financial highlights
I 14
2011 2010
Total assets $86.2bn $79.8bn
Glencore shareholders' funds $29.3bn $19.6bn
Net debt $12.9bn $14.8bn
Adjusted current ratio 1.5x 1.3x
FFO to Net debt 27% 23%
Net debt to Adjusted EBITDA 2.0x 2.4x
Robust balance sheet with almost $7 billion of
committed liquidity headroom as at 31 December
2011
12% fall in net debt over the year to $12.9bn
Strong and improving cashflow
coverage ratios with
FFO
to Net debt increasing 20% from 22.6% to
27.2% and Net Debt to Adjusted EBITDA falling to
2.0x
No material refinancing in next 12 months
S&P and Moody’s investment grade credit ratings
strengthened in July 2011 to BBB (stable) and Baa2
(stable) respectively
–
Following announcement of Xstrata merger,
both agencies have flagged possible
upgrade potential
Average VaR
(1 day 95%) was $39m (2010: $43m),
representing a modest 0.1% of shareholders’
equity
Notes:
(1) All definitions as per Preliminary Results Release 2011.
Robust balance sheet(1)
I 15
Key statisticsGlencore operates significant industrial and marketing activities across the various business segments
Notes: (1) Marketing employees includes managers, support staff and employees in global offices.(2) Excludes exceptional items
Marketing activities Industrial activities
Financial
(3)
Geographical presence Over 40 countries Over 30 countries
Employees Close to 3,000 Over 58,000
Main activity Sourcing, distribution and marketing
Controlled and non-
controlled investments in producing and
development assets
Operational
(1)
FY 11 Revenues
FY 11 EBITDA $6.5bn
FY 11 EBIT $3.0bn$2.3bn
Total assets: $86.2bn
Glencore shareholders’
funds: $29.3bn
FY 11 Net income
Glencore
Over 40 countries
Over 58,000
A leading integrated producer and marketer
of commodities
$186.2bn
$5.4bn
$4.1bn(2)
Standard & Poor’s: BBB (stable)
Moody’s: Baa2
(stable)
I 16
Glencore overview
Unique
Global Infrastructure
Zinc/Copper/Lead
XstrataZinc/Copper
Alumina/Aluminium
Xstrata Nickel
Coal
Xstrata Coal
Nickel
Xstrata Alloys
GrainOil
Main OfficesOfficesAgents
Xstrata
Century Aluminum
Xstrata
XstrataRusalCentury Aluminum
Prodeco
Xstrata
Los Quenuales
Sherwin Alumina
Various Rusal
Companies
Various Russneft
Companies
Mopani
Kazzinc
Shanduka
Cobar
Xstrata
Moreno
Sinchi
Wayra
Murrin Murrin
Chemoil
Rusal
AR
Zinc
Rusal
Katanga Mutanda
Pasar
Portovesme Recylex
Xstrata
E&P
Assets
Biopetrol
Punitaqui
Perkoa
Rio Vermelho
Umcebo/ Optimum
Xstrata
Xstrata
Xstrata
Nyrstar
Volcan
Polymet
Columbia Falls
Timbues Renova
Ponta Pora
Kansuki
I 17
Definition
Examples
Glencore has the ability to implement and execute any combination of the following arbitrage opportunities
Diverse commodity range, supply base and extensive storage, handling and processing capabilities enable exploitation of price differentials across various products
Differences in grade, e.g. blending different grades to meet contract requirements at a lower overall cost
Locking in processing margins to take advantage of price differentials between unprocessed and processed product
Substituting products where an end-
product can be produced from a variety of commodities (e.g. animal feed)
Product2
Ethanol
Corn Vegoil
BiodieselEnergy distributor
Gasoline
Gasoil
Triangulation of freight movements and regional supply/demand dynamics allow for capitalisation and execution of value add and profit enhancing transactions
Glencore enters into generic and flexible purchase and sales contracts with various industry participants
Extensive and global commodity books provide opportunities to divert cargos and enter into swap agreements to optimise physical delivery schedule
Optimisation of existing contracts results in reduced shipping costs and higher profit margins compared to standard trades
Geographical1
Glencore is able to benefit from ‘inefficiencies’
in the shape of the forward price curves
“Carry trades”
booked in contango
market, benefiting from its comparatively lower financing and storage costs than that implied by the forward curve
Glencore can benefit from a backwardation market by pricing sales contracts as early as possible and deferring the quotation periods (QPs) of supply contracts
Timing3
Marketing illustration –
arbitrage opportunities
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Vanilla transaction executed by various industry participants…
Vanilla transaction executed by various industry participants…
… premium profit margins achieved by Glencore due to its extensive and global alumina book with insight into freight movements
… premium profit margins achieved by Glencore due to its extensive and global alumina book with insight into freight movements
Glencore enters into an exclusive 10 year purchase agreement from an Alumina refinery in the Mediterranean basin.
1
Glencore enters into a contract to supply alumina to a Black Sea customer (B)
The logical origin to supply alumina is from A. Net of freight costs, the sales agreement is priced at premium to the purchase contract thereby locking in a modest margin.
2
Approached by a large producer with commitments to deliver alumina into the Mediterranean, Glencore swaps its Mediterranean Alumina (A) for Northern European Alumina
(C) in exchange for the freight differential
3
Glencore has an existing alumina supply commitment to Iceland (D), typically sourced from Jamaica (E).
In light of the swap agreement, Glencore recognises the benefit of supplying the new Northern European Alumina (instead of the Jamaican) to Iceland due to reduced shipping costs.
4a
Jamaican alumina (E) is then finally shipped to the Black Sea customer (B) resulting in a higher margin
Glencore’s
ability to optimise freight and rationalisation of existing contracts allow it to lock in a higher profit margin on a standard trade
4bPurchase contract Sales contract Swap agreement Optimisation
of existing contracts
Optimisation
of existing contracts
AA
B
A
C
C
D
E
B
Extensive and global alumina book provide flexibility to enhance
profit margins
Glencore’s
reputation as a secure and reliable counterparty present additional opportunities to optimise existing contracts
Triangulation of global freight movements allow Glencore to capitalise and execute value add and profit enhancing trades
Marketing illustration –
geographical arbitrage
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Glencore’s
diverse commodity range and processing ability enables it to exploit price differentials across various products, for example
–
Using differences in grade, e.g. blending different grades together to meet contract requirements at a lower overall cost
–
Locking in processing margins to take advantage of price differentials between unprocessed and processed product
–
Substituting products where an end-product can be produced from a variety of commodities (e.g. animal feed)
Illustrative example
-
Agriculture
After 3 months, relative forward price movements mean Glencore calculates that the margin would improve with a blend of 75% rapeoil
and 25% soyoil
Glencore improve their margin by selling rapeoil
and buying soyoil
Scenario Catalyst Outcome1 32
Ethanol
Corn Vegoil
BiodieselEnergy distributor
Gasoline
Gasoil
Different vegoil
blends (rapeoil, soyoil, palmoil) produce Biodiesel with different quality specifications and hence market values
Based on 12 month forward prices Glencore calculate an optimal Biodiesel producer’s margin with a feedstock of 100% rapeoil
Marketing illustration –
product arbitrage
I 20
Glencore is able to benefit from inefficiencies in the shape of the forward price curves –
In a contango
market, Glencore can book “carry trades”, benefiting from its comparatively lower financing and storage costs than that implied by the forward curve
–
Glencore can also benefit from a backwardation market by pricing
sales contracts as early as possible and deferring the quotation periods (QPs) of supply contracts
Time arbitrage is dependent on the existence of liquid forward and futures markets and competitive access to storage and financing
Illustrative example -
Oil in a contango
market
Glencore purchases 100 barrels of oil at $75 each
3 month forward price is $80 per barrel
Glencore sells forward 100 barrels at $80, resulting in a profit before financing, storage and other transaction costs of $5
At maturity Glencore delivers 100 barrels of oil
Profit per barrel is $5 less say $3 of financing, storage and other transaction costs
Scenario1 Outcome4Glencore’s
strategy3Catalyst2
$75 / bbl
Current value Forward price
$80 / bbl
Spot 3m forward
$70
$75
$80
$85
Marketing illustration –
time arbitrage
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Glencore’s
freight and logistics operations are key to supporting marketing strategies, understanding trade flows and adding additional value, for example
–
By being able to physically transport and store products to take
advantage of prevailing market conditions–
The scale of operations ensures low cost transportation, often allowing Glencore to win contracts by offering a lower unit price CIF (Cost, Insurance, Freight) than competitors
Illustrative example
-
General
Market price of a commodity in location X is $100
Prevailing market transport cost to ship the commodity to location Y is $10, total CIF price is $110
Glencore is able to operate at lower unit costs for freight due to scale, experience and vertical integration
Glencore can offer a CIF price of say $106-$110 and still win the contract as lowest cost provider
Scenario1 Outcome3Glencore’s
strategy2
Market = $10 / unit Glencore = $6 / unit
Marketing illustration –
freight & logistics
I 22
Simon MurrayIndependent Non Executive Chairman
Independent Non Executive DirectorsExecutive Directors
CEOIvan Glasenberg
CFOSteven Kalmin
INEDPeter CoatesAged 66
40 years of experience in the resource industry
Member of the Boards of Santos and Amalgamated Holdings
INEDWilliam Macaulay
Aged 66
Chairman and CEO
of First Reserve
Chairman of Dresser-Rand
SIDAnthony Hayward
Aged 54
Former CEO
of BP
Board member of TNK-BP and partner of AEA
Investors, founder of Vallares
INEDLeonhard Fischer
Aged 49
CEO
of RHJ
International and former CEO
of Wintherthur
Member of the Boards of Julius Baer Gruppe, AXA Konzern
and Arecon
INEDLi Ning
Aged 55
Executive Director of Henderson Land Development Company
Director of Hong Kong (Ferry) Holdings
Aged 55
BoD
Member since 2002
CEO
of Glencore since 2002
27 years with Glencore
Aged 41
CFO
of Glencore since 2005
12 years with Glencore
•
Aged 72•
Executive Chairman of GEMS•
Board member of Richemont
and Essar
Energy
Highly experienced Board of Directors and management team
World class management and board