Glencore plc

Thank you. Thank you for joining us today for our first half 2021 results. Presenting today will be Gary Nagel, CEO and Stephen Kalman, CFO. Without any further ado, I'll hand over to Gary to start today's presentation.

Thanks Martin. Hi morning everybody on the call or good afternoon, good evening, wherever you are in the world. I'm particularly pleased to present a very strong first half financial performance. As you'll see on our first slide, we've printed some record numbers for our company for a half year, an adjusted EBITDA of $8.7 billion and an equity-free cash flow of $5.4 billion. And that's testament to our continued focus of our value over volume, which has certainly contributed towards a very strong financial result. We've seen materially higher commodity prices across our portfolio, resulting in a very strong cash generation within the business. As a result of that cash generation, you'll see that our net debt is now printed towards the lower end of our range. The range that we've always put out is the $10 billion to $16 billion of net debt, coming in at the lower end of the range of $10.6 billion, which is particularly pleasing in allowing us to provide additional top-up dividends, special dividends to our shareholders, about our base of $1.6 billion, an additional $1.2 billion special dividend to our shareholders. That dividend is split between a cash distribution of half a billion dollars and the remainder as a bar back over the course of the remainder of this year. Our marketing business has been particularly strong as well, with $1.8 billion in the first half of the year, As you would have seen from our half-year production update, we're guiding the top end of our range for the remainder of the year. Our guidance is normally $2.2 to $3.2 billion of marketing EBIT for the year, so we're guiding towards the top end of that range for the full year 2021. Another pleasing part of our strong marketing performance is we've seen a real broad-based performance across our commodities. each commodity performing particularly well, no single one really outstripping the others, so it's been very pleasing in that sense and conditions remain very favourable within the marketing division. Turning to our ESG scorecard and it's been a very strong first half of the year in terms of ESG and we presented a very strong scorecard here. Safety, unfortunately we have lost one of our colleagues this year. an unacceptable outcome for us despite improved metrics across the board that still is unacceptable to our business and we continue our unrelenting focus to become a fatality-free business As part of that, we are rolling out our relaunched SafeWork program. That program is – the relaunch has been successful. There's still some way to go, and we are seeing some green shoots in terms of the new program that we're rolling out. On the environmental side, we have a sector-leading approach. As everybody knows, in terms of our climate change strategy, it encompasses our Scope 1, 2, and 3 emissions. which does separate us apart from some of our competitors and peers within the industry. We've revised our targets recently. We've now put out a short-term target of a 15% reduction in all our Scope 1, 2 and 3 emissions by 2026. We've increased our target for our medium-term target of 2035 from 40% to a 50% reduction and that is in accordance with the Paris Accord, the one and a half degree scenario. and we maintained our net zero ambition by 2050. With respect to on the governance side of our business, we have launched a newly refreshed code of conduct, which has been worked on over the last couple of years, and we continue to work on a very strong compliance program. We believe we have the best in class compliance program that focuses on ethics, compliance, and ensuring we run our business as a responsible operator. We've also had a very successful transition in management. As you know, I've taken over from Ivan, effective 1st of July. Tony Haywood has stepped down and been replaced by Calidas, and the new management team is operating well, successfully, and the business is well set up for the second half of the year. With that, I'll turn over to Steve on the financial results.

Thank you, Gary, and likewise, good morning and good afternoon or evening to those on the call as well. Many of you that have been following Glencoe over the years, some of the slides would be very familiar in terms of format and content, allow for historical performance validation as well as giving the building blocks around our expected performance going forward, particularly reflecting the macro world as well as our production and cost operational statistics as we have. In terms of some highlights, Gary covered it on page 7, but clearly the most important number which we do focus is the adjusted EBITDA. That was up 79% to 87%. It was a half-year record. I expect it will be short-lived as a half-year record as we move forward over the next 12 months. That does allow the business, everything hangs off that. That ultimately translated into an equity-free cash flow of $5.4 billion. The key driver of being able to deliver and driving net debt down to $10.6 billion as of 30 June 2001 and allowing some top up distributions which we'll talk about later on and paving the way towards higher payouts as we look beyond the current period as well. If we go on to page 8, that's our industrial make up today. Obviously a larger part of our business, it's the most exposed to the cycles and the upside in prices as well and just where one is set up in portfolio allocation and portfolio mix. We think we have the right commodities as well set up for some of the future emerging themes in economic development and energy transition as we do have. So the industrial business was up 152% to $6.6 billion. This is against first half of 2020. You can see bottom right of that graph, the transition or the trajectory from first half 2020. Second half 2020, then there was an improvement post that most COVID affected first half of 2020. So we moved from $2.2 billion last year, first half $5.2 billion. We had a nice progression, $6.6 billion. Now, and if we look at our spot annualized EBITDA, which we'll look at later on, That's running at $18.8 billion for our industrial part of the business. Half of that, just looking at a 50% piece, would be $9.4 billion. So as we look forward, there should be a continued, based on current macros, a continued increase. If we would deliver 50% of that on our spot illustrator, that would be another 42% pickup within our industrial business, and particularly that would come in the energy side. That's where we've been lagging in terms of coal prices, and you'll see that on a slide later on. So strong performances and strong EBITDA margins within the metals at 44%, the overall industrial at 38%. Looking at the waterfall from last half of 2020 to here, it's been primarily a price story, as you would expect, and you would see that across the sector as well. $4.4 billion pickup, broadly spread. Most of it was in the metals during this particular period. Energy is lagging, and we're going to see that both on the coal and the oil pickup as we move forward into the second half and into next year. Up at 4.4 billion, 2.3 came in our copper business. We'll see individual slides later on that will make more sense. Within our copper business also have some of the byproducts, particularly cobalt, and we've seen some improved pricing there. Our zinc business on pricing added 0.9 billion, nickel 0.4, and coal within that 4.3 billion. It is lagging. It was still up 0.5 billion. But our overall coal business was broadly flat for the year because we had some of the FX headwinds in particularly South Africa and Australia. The volume was a slight pickup at 0.4. Half of that was Antamina operation during the year, which was quite affected within the extended COVID mandatory shutdowns last year in Peru during the April, May, June period. So a strong additional contribution from that particular operation. The rest of it was with smaller ups and downs creating a net 388 pickup. Cost, Gary mentioned some of the delays at Connie Amber, which we expect to restart the second line within the next sort of month or two. But there was additional cost due to the maintenance and repairs of that particular operation contributing part of the increase in cost. And FX, as you would normally expect in higher prices, you get the stronger dollar coming through there and that affects our cost structures particularly in South Africa, Australia and a little bit in Canada as well. If we go into the individual slides, copper on page 10, this represented 45% of our EBITDA for the first half. Production was slightly up as you can see period on period. The big increase was both pricing and cost in this business that allowed us to deliver 3.9 billion EBITDA. in proportion and in absolute terms was the African copper business, something we highlighted a few years ago in the ability to turn around cash flow in this business around some of the focus assets. There was a $0.9 billion turnaround in African copper. Clearly, most of that's to do with the Katanga operation. And we'll be looking at recommissioning Rotunda is underway. And as Gary mentioned, that's something towards the end of the year that we'll look to update at our investor day in December on some updated future cost structures, capex and volumes to bring that operation back and more importantly the ramp up profile of bringing copper and cobalt and mindful of the particular markets that those products would clearly go into given the discipline around value and volume as well. The cost structure for our copper business is down to $0.85 for the first half. We're looking at $0.80, so that's part of the reason for a tick-up in full-year illustrative guidance as well for copper, and that's the exact cost structure we guided in copper earlier this year at $0.80. A key contributor going forward will be additional cobalt units. As Katanga, that was the later part of its ramp-up journey, was some of the cobalt circuit. There'll be a significant pick-up H2 of H1, as well as the pricing of cobalt has also improved. In terms of a spot illustrative, off to the right, you can see $8.6 billion annualized for copper. We'll get into all the details of all the divisions later on in pages 21 to 26, but that's part of an overall business, the $21.8 billion EBITDA generating $11.5 billion of free cash flow at current spot macros, calculated with build-up in the normal fashion that we do as well. So copper business performed well across all divisions. all its metrics during the first half and going forward. The zinc business, if we look on page 11, that contributed 16% of our EBITDA. Production was up period on period, given specifically some of the Q2 last year LATAM suspensions and COVID-related production impacts, particularly in Peru and in Bolivia as well, and some of those operations as well. We're looking at roughly a 50-50 H1-H2 production split with our revised guidance of 1.17. Cost guidance very similar to what we indicated earlier in the year at minus 11 cents for the full year. We're looking to come in at slightly better at minus 12.8 cents. That's very influenced within the zinc business with significant byproducts across gold, silver and lead in this particular business. But given both productions, cost structures in this business, it will pretty much double up for the year, $1.4 billion on a spot basis at $2.9 billion. We're looking for zinc growth coming into the future. We'll update our scenarios again in three to six months, particularly as JIROM ramps up, as we say, to steady state in Q2 2022. If we look at nickel, production-wise, H1 at 47.7,000 tonnes. That was impacted in two areas, one of which was Murren in Australia. This was scheduled major maintenance. It happens every three or four years down there. We take down the operations for five or six weeks or so, so there'll be a big pick-up period on period at Murren, and we're also looking towards the re-establishment of two lines at Konyama towards the end of this month. We have... factored in part of that with assumptions of running for part of H2 2022 on a two-line operation. That's where you will see a 45%, 55% split in nickel production out to 105,000 tonnes for the full year. Cost-wise, we're holding costs pretty similar to where we said at the beginning of the year, slightly less due to the by-products as well. Particularly in Canada, we get PGM by-products and cobalt. Murren, we also get Cobalt, so there's both the volume and the pricing benefits from that particular operation. Relatively small share of EBITDA at the moment, at 4% for the first half, and probably similar for a full-year illustrative at $1.1 billion. The key for this business is, of course, growing its production and by-products, and some of the capital we are spending, it's absorbing quite a big share of the capex, as we have the major two projects in Canada that's extending the life of that particular operation both at Raglan and at Honoping Depths in the Sudbury region. Coal is probably one worth the sort of main focus as this is the key sort of expansion of both earnings and cash flows into H2 and hopefully beyond. For the first half, it was 11% of EBITDA, only a slight tick up from the first half of last year when coal was still reasonable through the first half of last year. Then you've had numerous COVID effects, demand conditions, displacement also from gas. It was a very tough year into H2. The start of this year was similarly impacted. And we've seen a huge acceleration in pricing, both in the thermal and the and the Coke and Coal. There's always going to be a lag in the coal business, both in terms of some fixed prices that would have historically been as part of the Japanese annual benchmarks. We rolled through first quarter this year in the 60s. All of that was repriced into the Japanese contracts. It's not as big a percentage of our overall business, but just that business moved from 60 in the mid-60s up to 110. So we were 912... for the first half, we put a full year or an illustrative spot EBITDA for this particular business of $5.9 billion and that's on the 104 million tonnes and a cost structure of 56 and a portfolio adjustment of 20. You'll see the details on page 21 or 26 later on. So that would indicate a margin of $57 a tonne on 104. giving the $5.9 billion or close to $3 billion for a half-year period. We will significantly be able to... I mean, not all of that's going to be extractable in the second half because we do have now some JPU pricing at $110. Spot price is, of course, $150 or so at the moment. We've assumed in an illustrative pricing of $6 billion an average Newcastle forward curve at that point of $133 billion. So if we continue at spot prices, obviously it's a volatile commodity. It's not as liquid across the various curves. It's performing very well at the moment and generating very strong cash flow at the moment. So we think it's sort of middle of the fairway projection of where spot illustrative is at the moment, not exactly spot being a bit more conservative, but at $3 billion for a half year. We should be able to pick up the current spot prices, the sort of substantial or vast majority of that into H2 2021. So there's going to be a significant pickup in our coal business both into H2 21 which is why I said I think our record half year earnings for this particular half is going to be fairly short lived with the big pickup second half on the coal industrial side. Our volumes were down period on period. We'll see a 47-53% split is what we're looking at in terms of production. We'll see some pickup clearly there. And then what will come to the market in three or four months' time in December is more looking into our 22 period in particular where we'll be able to bring in the Cerahontans as well. You would have seen the acquisition of our sort of minority of our partners in that particular business, which although we're looking to close in 2022, we are already economically exposed to those volumes already with the effective date being 1 January 2021. So big tailwind in this particular business. No doubts or questions will come from this later on as well. Page 14, we've got our marketing returns for the year at $1.8 billion. A very strong quarter, as Gary said, very broad-based and healthy contribution and strong participation across different businesses. Twelve months ago, although we tracked down slightly, it was very much an oil story for the first six months of 2020 with exceptional dislocation in returns between that. So in some respects, the 1.8 is actually a better print than the 2.1 from the previous year. We're looking at a top end of range guidance now at the $3.2 billion. People would say, why don't you just times by two? This was a very good performance. Even $1.4 billion for the second half, which would take us towards the operating... I mean, the top of the range would, on an annualised basis, $1.4 would be $2.8, which itself is within that top half of our range. So don't want to get ahead of ourselves too much here. We think $3.2 is a sensible target and guidance aims to range at this particular point. But it's nice within that bottom... chart on the right just to print another print hopefully towards the top of the range certainly for the half year and hopefully the full year as well around that 3.2 which is where we're looking at the moment and there were many questions back 15, 16, 17 through those peers what's it going to take to be that top of the range which we've held consistently throughout we're putting some nice data points around that top of the range where you've got conditions and cycles that are supportive of that of that range On page 15 you can see the capex numbers, not much to say on this other than we're tracking quite a bit below the $5 billion which of itself supports the equity free cash flow for this particular six months and to some extent help get our net debt to where it is lower than would have been the case had we spent capex at the 50% rate of our $5 billion. So at this rate, tracking much lower, too early to think about whether a number may be lower than the $5 billion. The underlying data, projects, scheduling of work and the mapping of our various assets would still suggest that a $5 billion is appropriate. We'll have the opportunity maybe at our Q3 production report if there's – see how we're tracking at that point as to whether that – $5 billion needs to be brought in a little bit, but we still think $5 billion is a sensible number to look for a full-year capex forecast. But we are tracking quite a bit below that at $1.8 billion. You can see the pie chart on the bottom right, most in copper, zinc, nickel, and a bit in coal and oil as well within this particular business. Some of the major projects are obviously continuing at the top right. Kaloasi, zinc, and the nickel projects are some of the main projects. On the balance sheet on page 16, probably the highlight of the presentation in terms of getting net debt to the lower end of the range, $10.6 billion. That includes about a billion of marketing leases as well. On a net debt adjusted EBITDA, we're down 2.69% and actually on a spot basis, we're closer to 0.5%, so very pleased with these. with these outcomes and the strength and the quality of the business in terms of being able to throw off this quantum of cash flow generation within relative short periods. So it is showing its strength when the business comes together in all material respects. We had very healthy levels of liquidity at the end of June at $9.3 billion. It could have been higher, much higher in fact, but we actually cancelled certain portions of our RCF as being surplus to requirements to save some commitment fees that were otherwise not necessary within the scope of the business as well. In terms of net debt evolution, how do we get to 10.6 billion? We started 15.8 at the beginning of the year. The equity cash flow was the 5.5, as we spoke earlier on, which was 7.3 of the FFO, which is Epidialis Tax and Interest, net capex 1.8. We did generate 0.3 of non-RMI and other cash flow 0.3. That's a number, as you know, within the business, can be a bit volatile depending on volumes and prices. It was 12 months ago we were speaking about a big outflow, particularly around the oil business with lower volumes, lower prices. Part of that came back second half, a little bit is now. But that can turn around, not in the sort of extremis of what we saw sort of 12 months ago, but that's obviously we need to keep an eye on. to sort of very easily in the business turn into a positive 0.3 as well. So we're obviously mindful of how the working capital takes shape within the business. There was quite extensive increase in leases. This is primarily an oil business as it takes on volumes with respect to shipping and various storage within that business as well. So $10.6 billion, how might we see towards the end of the year on a So annualized spot basis, which we'll look at later on, $11.5 billion of free cash flow, that's not easily trans... that you can bank that within H2 2021. That's spot prices, spot volumes, spot costs, and looking at annual taxes, annual interest, and annual capex. But half of that's $5.75. We said we got some capex catch-up, which if you take the $5 billion, we will need to spend an extra $0.7 billion in capex if it was to come to the $5 billion. So broadly you can think about a $5 billion of equity free cash flow if you look at those numbers during H2. Working capital, we'll see how that develops. Does a minus 3 turn into a positive 3? We always need to plan for some variation in the working capital. We have $2 billion of shareholder distributions or payments going out in H2. We've topped it up with $1.2 billion. We have the $800 second half. second tranche of the earlier distribution of the six cents as well. So that does show us still generating surplus cash flow. We can continue to deleverage through the second half of this year, but we do need to plan for a business that we've been through cycles in our net debt. We don't want that. Now that we're at 10, we want to stay obviously in that level. So we don't want to be here in six months saying 10.6 has gone up by X because of prices or some other macros. We want to be a bit conservative in how we've applied our shareholder returns, which I'll talk about later on. We do know that when we get into February next year, that mechanically we're generating very healthy levels of cash this year. We will have a base distribution next year of high amounts. So if we roll into the – into page 17, here's the basis of the top-up distribution that that we've announced today. We've had our base distribution, the $1.6 billion from February, which is the $0.12. The top up is $1.2, which is the $0.04 a share, which is, we say circa $500, but it's $529 based on the share count at the moment and the buyback of $650. So there's the $1.2, giving a full year $2.8 billion or $0.21 a share. We don't want to be double-dipping or prepaying for what's going to come in February. As I said, mechanically, if we're around the $10 billion, we were $5.4 billion, circa $10 billion, $10 billion or so, free cash flow, equity free cash flow, current macros for the year. Mechanically, our base distribution policy, as you know, is going to be $1 billion for next year plus 25 industrial feet, so free cash flow. The split of that 10 might be 8 and 2, so you're going to have a $3 billion – base cash distribution coming in February. So that money we need to start thinking already is coming out in terms of balance sheet allocation. We want the ability and flexibility to continue with buybacks also through that period. So obviously part of the thinking was to make sure we stay at $10 billion and can progress towards the 100% payout once we're at that level and then generate through the $10 and then pay it out. I don't want to be at $10 billion, go to $10.3 and then pay out. I want to be going through $10 and then we can look towards our payout ratios as we go forward. But we're in the position where, as we said earlier on, we didn't know the pace of the deleveraging towards $10. It's happened much quicker than one might have thought six months ago, which is great, and we have the ability through this year and into next year to move the shareholder distributions towards the 100% where we're at. So just in terms of just to... Just to close it out, some of the building blocks and details around that second half as well as the annualized free cash flow. Page 19 was just some of the half-on-half production guidance for this year. We'll come out towards the end of the year with where we see the next three to five years. There's going to be growth in copper. We've got Mutanda to look forward to. Zinc, we've got Jaram into the future. Cobalt is also Mutanda. Nickel, obviously, Connie Amber. We can update on that as well and coal is some of the recovery both in South Africa, Australia as well as bringing Serahon as we go forward for most particular businesses. So something to look forward to across all those businesses. I think the cost structures are broadly covered on 20 and given the reasons as to how that's tracked as a function of volumes as well as byproducts. Finishing up on 21, you can see the buildup at the illustrative spot cash flows, 21 billion EBITDA. with 11.5 billion cash flow. The industrial is 18.8. There's more details on page 26 at 3 billion of marketing. That's not where we'll hit marketing this year based on guidance. That's a spot annualised which is middle of the range, 2.7 billion EBIT plus depreciation of 300 copper obviously. The largest there is zinc as we spoke about nickel. That's coal moving to 5.9 marketing and then we've got 5.2 billion of interest and taxes. and $5.1 billion of capex holding at that line. So very strong position through the first half and going forward in the business. I'll hand over back to Gary to wrap it up. Thanks, Steve.