Glencore plc

Good morning.

Thank you for attending the call. And as you will see from the slides, I'll start off on the first part of the presentation on the 2020 half-year scorecard. And as you will see, it's a strong performance under challenging conditions because of the COVID-19 situation. As you'll see, our business model, once again, has a resilient cash generation. Group adjusted EBITDA is $4.8 billion, which is down 13%, and this is basically in line with lower prices and some production issues around COVID-19 and the cost impacts thereof. This is offset by strong marketing performance, which we will talk about later. and cash generated from operating activities before working capital changes is $4.3 billion, which is down 20% from the first half of last year. Net capex cash flow is $1.7 billion, which is down 22% from the same period last year, and you will see the free cash flow is up 50%, up to $2 billion for the first half of this year. As I said, this is supported by record marketing results for the six months, and marketing EBIT is $2 billion, which is up 108% year-on-year, supported by favorable oil marketing conditions, which you are all aware, as experienced by a large number of our competitors in the oil business. A solid operational performance in this challenging environment, Most of our metals operated relatively normally, and metals and minerals EBITDA is $2.2 billion, which is down only 16% from the same period last year, and the mining margins are running relatively similar, around about 26% as opposed to 27% last year. Energy assets were disproportionately impacted, and that's naturally, we are aware of the lower coal prices, which we've experienced during the first half of this year, Well, various issues around consumers not importing as much in their countries because of the COVID effect on the industrial assets and the demand in those areas, mainly India and China, and that has affected the world seaborne coal price. So the energy products EBITDA is $0.7 billion, which is down 65%. The full year cost margins forecast in our key commodities, we've given a few of the numbers there. Once again, displays the strong performance of our industrial assets, where we are in the lowest quartile in most of these commodities. These assets, long-term, great assets, especially in copper, you'll see our cost of production around about $0.106. Per pounds, in $0.05, nickel $2.57, and thermal coal, even under the COVID time, where we had to cut a bit of production across the board, our costs are still $46.00. The balance sheet, Steve will talk more about that later and give the details, but the net debt is $19.7 billion. It's been temporarily affected with the increase slightly because of the oil department working capital reset, which Steve will talk in more detail later. The spot illustrated free cash flow generation at current spot prices. You will see we will generate an avatar of around $4.1 billion under the current spot environment. It could be a bit higher with recent increases in copper, gold, and silver prices, and our avatar at these levels for prices around about $10.5 billion for the year. As we said, we always will target net debt between $10 billion to $16 billion. We would like it down to $16 billion by the end of the year. At a preferred range, we should, with this type of generational cash flow, get to those levels by the end of the year. We have a large amount of available liquidity, $10.2 billion, and we only have maximum maturing bonds of $3 billion in any given year. Safety performance, we are working hard in this area, and our industrial teams are working hard to progressing with enhanced group-wide fatality reduction program, and we're seeking to have a major step change in our performance there. Year-to-date performance, we have had six fatalities, over five incidents at our various operations around the world, and this is an unacceptable level, and the team is working very hard to reduce this area with intervention programs across the board where it is required. If you turn to the next slide, talking about our commitment to the transition to a low-carbon economy, and as you will see, we are lining our business with a Paris-compliant pathway. And we're focusing on our scope three emissions. And as you will see, our diversified portfolio of metals and minerals is well positioned to support the transition to a lower carbon economy. We are proud of our capital investments. to align ourselves with this transition while maintaining strong operating standards. And as you will see, the expansion of their operations is mainly in the areas of low carbon energy, cobalt, nickel, copper, which is the future of this low carbon energy, and that's where our expansion projects will be. By aligning our capital investment decisions with the goals of the Paris Agreements, we project a reduction, as we said in our previous results presentation, from the December results, our scope 3 emissions will reduce by 30% by the year 2035, and this is primarily driven by depletion of our coal reserves as we move later on in our production levels, and therefore we should achieve the scope 3 reduction of 30%. In addition to consideration of emissions from our products, we continue to reduce our own operational footprint, both our Scope 1 and 2 targets, and we'll issue our targets at the end of this year in that area. But we have exceeded our current Scope 1 and 2 targets up to date. So that we are pleased to say on our Scope 3, we are moving to reduce that as we move forward and should be reduced by 30% by the year 2035. So with that, I hand over to Steve to talk about the detailed financial performance for the first half of the year.

Thank you, Ivan. We continue then the presentation on slide seven. And good morning to all those on the call. On page seven, just a scorecard across a variety of sort of financial metrics, all of which will have some more detailed slides as we move down the track. But EBITDA, $4.8 billion, as Ivan said, down from $5.6 billion. down 13%, relatively small percentage considering the backdrop that we experienced in H1, and that was as much as marketing increasing $1.1 billion, industrial $1.9, primarily due to lower prices, but now set up for a much stronger second half 2020, as well as an annualised performance, which will show some of the cash flow going forward. We'll provide the industrial bridges, as we normally do, Later on, as well as marketing comparisons, industrial 2.6, V4.5, very much commodity price, but we've had some cost and volume impacts, COVID-related, particularly in our metals business and coal business to some extent down in South America. Marketing, a half-yearly performance of 2 billion. We've noted the oil, stronger performance and conditions. There was also a more normalised metals performance where the base period largely non-cash cobalt mark-to-market adjustment that we realized in first half last year and that's obviously hasn't reoccurred as we wouldn't have expected to have occurred. Good cash flow generation pre-working capital, funds from operation actually up 5% and free cash flow in fact up 50% because of lower capex as well and now settled into sort of the $4 billion range in terms of capex which is also driving free cash flow through the business. And CapEx, as I said, $1.7 billion, tracking comfortably within, in fact, below the $4 billion annual guidance that we have at the moment. Net debt plus 12%. I'll talk a bit about that later on. Some slides and tracking towards the end of the year. Temporarily also higher due to the working capital reset, predominantly the oil business. The marketing leases also have increased $0.4 billion, reflecting some of the short-term nature of particularly tankage. and vessels supporting some carry trades, contango trades, particularly in the oil business. Those will all resolve themselves and roll out within a couple of years. And also some of the cash margin, initial margin required to hedge those particular transactions that increase, consumed 0.5 billion. We'll talk about that later on. So jumping then into page 8, this is the industrial, 2.6 billion. Comparison 20 against 21. It's worth noting that $2.6 billion for a half year price is in volume affected as well. We are annualizing at $7.5 billion to the industrial spot. So there's near tripling impact, particularly we're going to see in the metals and I'll talk about both price and volume impacts as we move forward. So that is going to be expected to be quite a big step change as we roll into H2 cash flows as well as out into 2021 as well. Where it impacted us, the metals and minerals has been the more stable contributor, just down 16%. Good cost performances and improved Katanga contribution. We spoke 12 months ago about the turnaround of some of the ramp-up development assets. Katanga has performed as we would have hoped and expected, at least operationally, and that's set up for continued cash flow generation going forward. And we'll see some of the price impact as we roll into the second half. Of course, the energy side was down from the 2.1 to 0.7. Coal being a big factor there, but also the oil business, fairly small. On the industrial side, good trading performance. If there's one negative from both the volatility and lower prices that we have seen is both on the upstream, the E&P, and also some of the demand-driven downstream impact through... refining and marketing in our South African business has been impacted by the low oil prices as well. So the waterfall on slide nine sheds more light on that pricing, has been pretty much the, and has been the dominant driver, 2.1 billion, spread 1.2 across energy, within energy 1 billion, 0.2 on the oil side, metals 832. It's important to note, and this is where I have highlighted and pausing just on how the momentum on the industrial metals business is going now into the second half, where all the prices, if we take spot prices today relative to the average realized or the average prices during the first half of 2002, there's material increases. And that's getting, as I said, on the industrial side, $2.6 billion in the first half on a sort of annualized spot basis, tracking about $7.5 billion. So copper price was $5.502 for the first half average. Again, spot today is 18% higher. Zinc for spot price today is 17% higher against first half average. Gold is 24% higher. Silver, the standout today, is 60% higher. at over $26, $27 a pound against $17 with significant producer of silver through byproducts. Oil is up 10%, coal broadly flat. Nickel is up about 16% against first off average and cobalt not so much the average but just on a spot basis since the end of June is up close to 20% in pricing both on the metal side and the hydroxide pay abilities which is what we're mostly exposed to out of our DOC operation. So very positive cash flow and earnings momentum going into the industrial metal side of the business as well. Volume impacts for us, 273 negative, mostly COVID-related, as we had suspensions either short-term or extended. Of course, the Antamina was pretty well chronicled during the period. It had lower zinc production period on period of 32%. That's now ramping back up. Columbian Coal was down 43%. Lockdowns and shutdowns was 42% lower on Ferrochrome, and some expected lower grades in Bukai, also in copper and gold as well. Cost side, you have the double whammy of both the COVID-related curtailments, both on cost as well as volumes. So we have additional shutdown costs mainly in South Africa across fair alloys, including high electricity prices, and Australia through Australia, Through both just the mine sequencing and also how we've managed supply, you've had some long wall and some strip pressure impacts through the first half of 2020 as well. FX clearly provided some relief primarily in Australia and South Africa. And you can see where we have separated as we've done in previous years. The X price, so the volume cost impacts of the African copper business has been a $423 million turnaround there, reflecting the positive EBITDA generation and turnaround particularly at Katanga. and the other is some SG&A. That's mostly timing. There was a bit more that got expensed into the first half given timing of when certain settlements of bonus accruals and calculations get finalised. This year we had more of it going into H1 so that again should be a positive timing difference as we roll into H2 and beyond. What we provided for the next four or five pages is just a one-page scorecard across the various businesses. So page 10, we've got copper performing very well in a cost perspective. You can see down at 109, full year down to 106, and even trending closer to $1 a pound as we go into 2021. You've got some African copper turnaround, so as we've said, further improvements. On a half-yearly basis, $1.3 billion of EBITDA, which... very consistent with Martin's modeling guidance. I know that he sort of gives you all, and we've sort of compared guidance against actuals, and it was bang on 1284, so that's pleasing on that front. If we do look, and we'll get to some of the spot cash flow generation around both cost, production, and current price on page 21 as we go forward, but on the spot basis, copper is around $4.1 billion. So compared to the first half, we've got a more than tripling of... EBITDA as we roll forward from the copper business, which is both copper but also the significant byproducts across gold and silver and cobalt that we have coming out of their business. It has increased its share of the overall EBITDA from 24% up to 20%. and decent both demand as well as primary supply losses in scrap and the likes that's keeping the market reasonably tight in terms of inventories and overall supply. If we go across to zinc, also we've got strong momentum. There's a lot of silver by-product in this business and gold and lead as well. 648 of EBITDA for the first half, which comes in well also against the guidance that we provide as well. But again, you've costs. We've got a near tripling of that EBITDA up to close to $2 billion if we look at that business on an annualized cash flow generation business or as well for H2 in that business and in fact we go into a negative cost structure post byproduct credits, gold and the like. So we're with $0.28 was the first half, four year gone, guidance $0.05. So clearly got a big negative As we go through that particular business, you've seen a lot of mine supply reduction, particularly in this area, including ourselves. We've calculated around 1 million tonnes, which has kept this market reasoning check and has more than offset initial supply growth that we're expecting in zinc. If we go across to nickel, we have alerted to some ramp-up timing factors over at Conneambo where we're running single-line operation for the balance of H2. And that was essentially the main factor in taking down guidance by 8,000 tonnes for the full year. But again, due to higher volume, we've got some recovery in both the Canadian and Australian business production second half. And due to higher price in nickel, you're still going to see EBITDA at first half a little over 200 million. On an annualised basis, you've got more than sort of two and a half times that, sort of more than doubling up to 539 as we look at. to see ConAbra, of course, getting its strides as the one asset today that operation is clearly lagging expectations. In terms of coal, this is the business that's been the most materially impacted by lower prices and sort of demand supply is trying to rebalance. We're trying to do our part, but clearly China and Indian lockdowns has had an impact across pricing and some of the European competitive energy markets. energy landscape. Cost structure has been stable at 46, 46, 46 against guidance and the like. But realizations and pricing both in Asia and the European market has seen us come in at 869 EBITDA against 2.1 billion in the prior period. As we said, we have taken full year production guidance low 18 million tonnes in last week's production guidance. That's with extended care and maintenance and also taking out tonnage out of various Australian operations also to rebalance It's not going to take too much to see that market hopefully find its floor and potentially move up at some point. If we look then at marketing on page 14, it's nice to see the big bar on the graph at $2 billion. So you've got it up and you're doubling up at 108%. So the metals and minerals side, it really belies the increase. $7.85 is a more normalized performance anyway. Last year, had we excluded the $3.50, we'd be up $88 million, but that's still a strong performance across metals. The energy side is where we've clearly seen the big increase, 92% from Allian Oil with exceptional market conditions, dislocation structure. and the ability to go and see some contango and carry structures, which we have loaded up quite materially in that particular area. So we are now guiding to the top end of that particular range of marketing. Also worth highlighting the strong agricultural performance. It does sometimes get crowded out within our overall business, but we've gone from pretty much zero. This is our share of their net income, ever done, appreciation, interest, and the likes at 50%. That was $118 million for the half-year period, which is a very strong underlying performance from that business. It's continued for the second half, and so augurs well also for the sort of valuation and the general monetization of that business to start materializing. If we move into page 15 on the CapEx side, it's trying to hold one's hands through the leases, the cash CapEx and the different effects, but we're around $1.7 billion across the business net cash on CapEx. You can see the industrial CapEx at $1.777. Marketing CapEx is But that's all, if you like, non-cash capitalized capitalization of vessels, tankage, supporting the carry trades. And from both the balance sheet and cash flow perspective, that all works its way out of the system within a couple of years. I think that was potentially one of the unintended consequences out of those new IFRS 16 standards. We're clearly not the owners or we're short-term renters of that and it does work its way out of the system relatively quickly as well. So 1.7, we've revised down the... Full year CapEx guidance, we were four to four and a half was the last update back in April, was the range we're now going to be, where it's comfortable to be by the end of that range at four billion. Tracking at 1.7, we'll obviously come back to you all in end of November, early December, with an eye on CapEx for 2021 and 22. The last update towards the end of last year or February this year was around five billion. I would think that none of the reductions this year is going to impact where we finish up. At least we should be able to have CapEx well contained within that $5 billion. Notwithstanding, there are some deferrals, but some of the longer-term care and maintenance factors around places in Chad, Conecum or Piney has taken out longer layers of capital out in some of the projections that will only ever come back with some incremental cash flows and EBITDA if those volume growth was to was to materialize as well. So that's on the capex side, the last two slides in terms of balance sheet. As I said, net debt temporarily higher just mathematically. We're tracking $2.8 million above our target range of the 16 cap and that's just 19.7 where we're at 0.9 of the marketing leases that we take out for the reasons that I've just mentioned. That's the 16, so that's the 2.8. That has been – and we'll see there's been strong free cash flow generation at an operating level. It's all been consumed in some net working capital which has taken us up to the 19-7. That's all been through the working capital reset in the oil business through the significantly low oil prices and demand environment as well. That part of our business – the overall business runs – it can run slightly positive working capital, net receivables over payables or slightly payables over receivables, but oil or payables over receivables. That tends to be the structure, the terms of trade, the discounting of receivables. And as we noted last week, we were around 45 days on payables and 20 days on receivables. Not too dissimilar from our integrated oral peers without naming any ones. You're obviously sort of a fave with some of the large integrated oral plays. They don't necessarily separate their marketing and training business, but if you look without fail, all of them are very, if you look payables, receivables, much larger on the On the former, every one of them in this lower oil and market environment have had some reductions in their payables, i.e. an increase in working capital and some numbers of one of their peers out there, if you look, was $6.7 billion, one was $4.2 billion, one was $3.6 billion, and you can certainly go and find them as well. There's also the additional margin calls, as I said, $0.5 billion in respect of some of the carried inventory and costs. their way out over time. So clearly still committed around the, as we said, the strong BBB ratings and against our targets. Still, even though 1.8, still comfortably within our through the cycle less than 2. And as we project ourselves forward, we're pretty comfortable and there's a credible pathway towards getting back below 16 by the end of the year. And on a pro forma basis, when we're at 16, with the EBITDA at spot around the 10.5 and potentially higher today, and I'll give some indication of that, then we're back down to 1.5 times or slightly below 1.5 times. So we'll be back, by the end of the year, we'll be back below in terms of both absolute and leverage ratios, and that'll happen by the end of the year, and we're already sitting in August, so we're one sixth of the way towards that as well. So those are the The liquidity is still strong at $10.2 billion, a very manageable profile and a business that's throwing off healthy levels of free cash flow generation as well. Page 17 I think is an important slide then as well as we look at the cash movements in net debt in H1 2020 top right. So you can see even that was $2 billion of free cash flow even in a low price environment and a COVID backdrop, strong performance free cash flow. Where has it ended up in terms of net debt and balance sheet? Clearly it's still there in the business. It hasn't gone. It hasn't disappeared. It's gone towards reduction in payables and creating more working capital flow than they otherwise would have been at the beginning of the year. So there's $3.1 billion there. And that was a function of both those margin calls as well as the payables and receivables in the oil business. We've then said, well, how do we – we want to sort of get back below the 16 in whatever environment we are as soon as we can. And mathematically, that does require the $2.8 billion reduction. The bottom right there says, what's the pathway? How do we get there? What assumptions are needed to get below the 16? And as a minimum, have debt reduction of $2.8 billion. which again, and we'll look at page 20, 19 to 21 later on, on the free cash flow at spot prices, which we've used that to post a number here as well. So that's $2 billion, which is half the $4.1 billion or so we're generating at the moment. We put it down $2.3 billion at CapEx, which is just mathematically $4 billion for a full year, and there's the $1.7, which we are at half here, at $4.3 billion in funds from operation to give the $2 billion. There is a step funds from operation of 4.3, just industrial metals alone will clearly get us there. I've spoken about how those prices. And then again, mathematically, this is not a target necessarily. It's saying how much of that $3.1 billion of working capital outflow in H1 would need to reverse back through high oil prices, margin calls coming back, additional volumes. And you just need 0.8 of that, which is about a quarter, so it's 25%. then that gives you a 2.8. Now, clearly, if that number's bigger, we're going to blow significantly below the 16. If we do this potential, still some long-term asset monetizations, there's some stakes of companies that we have. If any of that gets executed during the year, again, that's going to start making material inroads, getting us below that 16. So that's the pathway. It's tangible. It's near-term. It's credible. It's real. And we're very confident about that, that that should help both aesthetic sort of net debt It will get us much closer to being able to commence distributions again when we reunite back in February next year. But clearly the key thing, what's the underlying business doing? What's the quality of the earnings? How does that get capitalized and reflected long term? This is a very short term manageable phenomenon as we're going through the business. In terms of 220 modeling, modeling guidance, the building blocks the last two or three pages that we give as well. So that's across our main businesses, first half, second half, and there is some volume pickup that we expect second half. COVID was clearly a factor that suspended and had an impact on some of the fluency of operations during first half. So in copper, you can see 588 first half production, 667 at the midpoint, so we've got a pickup of 79,000 tonnes of 13%. Antamina was a big factor, that was out for the best part of six weeks, we got some extra Kazakhstan and Canada and their operational rates due to maintenance and activity levels in Australia and copper will get a better second half performance there. Cobalt broadly flat because that's primarily contained or anywhere that's performing well. Zinc will pick up 60,000 tons. That's a lot of that. That's amina as well. A lot of the South American smaller assets that we have are all out for extended periods of time in Argentina, Bolivia, Peru. Nickel will pick up 4,000 out of Canada and Australia. Australia, there's no expectations on the new reset that you can have a better second half of Konyamba that's running one line. Ferrochrome recovers somewhat but still taking it easy given market conditions down in the Ferrochrome market and coal actually declines because of some of the reductions that we're putting in Columbia and Australia. So back on page 19 reflecting both production unit costs and and current pricing, you have a copper business keeps on declining in unit cost, improving the overall cash flow and quartile position of that business. One of six full year guidance should get to closer to one when we've got Katanga up and running in terms of both copper and cobalt is getting there. That's ever dark spot prices in 4.1 billion on current production. We'll roll into next year, there'll be high production and even our spot 10.5 will be higher in 2021. Zinc $1.9 billion, Nickel $1.5 billion and the coal business $1.3 billion in the current margin environments as well. Then finishing the last slide then is page 21 showing that EBITDA spot price of $10.5, culminating in $4.1 billion of free cash flow. That's now copper and zinc taking top two on the podium across the current cost structure. These were also prices that were cut as of last Friday. There's generally increases across particularly zinc, cobalt, gold, silver and the likes. If we recap these numbers as of today, there'd be around another $300 million of EBITDA and free cash flow. That's the nature of the beast, the nature of the industry. So $10.5, $4.1 billion. The mix and the composition has sort of changed a bit, but I look back even into February February's results and we were $4.3 billion of free cash flow. So it's almost sort of as you were against February having been through a very interesting six-month period. So that's sort of where we're at and that's got the business obviously in a strong cash flow generating position, marketing most businesses humming pretty well at the moment. And with that, back to Ivan.