Glencore plc

Good morning and welcome to Glencore's 2021 financial results. Presenting today will be Gary Nagel, CEO, and Stephen Kalman, CFO. Gary, would you like to join us, please?

Thanks, Martin. Morning. Morning to everybody who's come in person and all those who are attending online on the WebEx. Great to once again be able to do this in person. And we'll kick off on a... Summary of highlights of 2021 results. 2021 was a terrific year for the company. We've printed a record adjusted EBITDA of $21.3 billion, a record marketing performance in our marketing and trading business, an EBIT of $3.7 billion, and an industrial business, a $17.1 billion adjusted EBITDA. All of those records across our business. As a result of the terrific results that we have, Our net debt is now significantly below our cap of $10 billion, down to $6 billion. And as a result, we've been able to announce a $4 billion distribution back to shareholders. That will be made up of cash of $3.45 billion and a buyback of $550 million. So what's driven these terrific results? Well, on the industrial side, we've really seen strong demand across the world as we've seen countries emerge from COVID-19. and we've seen a constrained supply environment, partly COVID-driven, partly regulatory-driven, partly geopolitically-driven. And on top of that, we have very low inventories across the world and across all commodities. So it's really resulted in very strong margins across our business. And when we look at our business and our competitiveness in terms of our cost base, the margins are incredibly strong and have provided terrific results for us. On the marketing side, As I said, 2022 is a record result for our business, and the strong trading performance is, in fact, continuing into 2022. The market conditions remain favorable. We see dislocations in the market. We see arbitrage opportunities. And going forward, we continue to see those opportunities. And fortunately for 2021, a terrific result and hopefully a good one in 2022 as well. On the ESG side, just turning to our scorecard, we have a sector-leading climate change strategy. During the course of 2021, we, in fact, improved on that strategy. Going into the year, we never had a short-term target for Scope 1, 2 and 3 emission reductions. We've now introduced that into our climate change strategy. So we've said now by 2026, we will be down 15% across Scope 1, 2 and 3 emissions. We've also increased our targets for our medium-term target of 2035, where we've now increased it from what used to be a 40% reduction, now a 50% reduction of our 2019 base year, and our net zero ambition for 2050 remains. On our social side, and unfortunately it's very difficult to report, but we have had four fatalities in our business during 2021, and that is four too many. We continue to work very hard day and night. Peter and his team putting significant effort into our SafeWork program. We've revised our SafeWork program, SafeWork 2. It's being rolled out. We are seeing some excellent results, but so far not good enough. We are not there. We do believe in zero harm in our business, and we do believe we can get there. Diversity and inclusion and our strategy around that was launched during the year. and continues on previous efforts done around our business on diversity and inclusion. And it's a key theme for me as CEO and for the management team. And, in fact, we have a task force set up of which I lead to ensure we drive that through our business. On the governance side, and I've spoken about this before, we have a best-in-class ethics and compliance program. I truly believe it is. And it's not something that is just a standing still product. We continue to work at it day in, day out to continue to improve our business and ensure we're a responsible and ethical operator. As announced this morning, we also expect to resolve the US, UK and Brazilian investigations during the course of 2022. And we've recorded a provision for these costs in our accounts. I'll now hand over to Steve on the financial details.

Good morning, everyone here. Physically, it's nice to join you again after a couple of years doing these things virtually. I think by now some of our slides and presentation and the flow is very familiar to many. We obviously had our investor update in early December. And from a financial perspective, I think this is clearly in terms of record territory, but also just clean, good performances across the board, both in the P&L, the balance sheet, the cash flow application, and the financial statements more broadly. I know Gary's covered many of these highlight points. Of course, EBITDA up 84% to 21.3%. We'll show the components in later slides. Translating into equity-free cash flow, $13 billion. That's the key number, ultimately, within any business. That's what drives your debt reduction, your capacity to make distributions and payouts to one's shareholders and is testament to whatever return on equity that can be generated in these businesses. And that's flowed through down to net debt getting through to six, below the 10 that we spoke about at the investor day in December, and facilitates both the base distribution that would have been paid regardless But once the base distribution is covered, we show the formulas of how we've calculated that later on, the billion plus 25% that leaves that surplus to determine what additional distributions that we may look to make. If we look on the industrial side today, clearly the biggest part of the business, not to diminish the huge contribution to the marketing, clearly done as well, but across both metals and energy, we've seen a performance up 118% to 17.1%. The real kicker from H1 into H2 was in the coal business. We'll show some metrics later on. You can see in the energy products just on the coal itself went from 0.9 in the first half, 4.3 billion in the second half to give a full year result of 5.2, and annualising at obviously high levels at the moment, even on a conservative forward Newcastle coal deck that we give as well. So 17.1 billion, good contributions across the board. Of course, commodity prices we'll see there. We'll see the industrial bridge on the next slide as well. You can see we've just shown the split. H1, H2 was 6.6, 10.5 in H2, and just the industrials annualizing conservative assumptions in terms of at least revenue on the coal side at 23.5 billion. So as we pick up into 2022, we've got sort of a higher 12% annualized tailwind even going into 2022 at current macros. If we do look at what the industrial bridge looks like, obviously the main bar is the price by 11.1 billion. Broad-based contribution across metals was 6.2 of that, with the copper business 3.7, both copper and cobalt contributing meaningfully there. Zinc was 1.1, our business there, and 0.7 each from the nickel and the ferro business. Ferro itself is almost into a podium position. They had a that a great result from our South African business during the year, both in production and margins. And the energy business was 4.9, coal 4.5. What gets lost often in the numbers, and it is a smaller part of our business, but you did see a meaningful turnaround just in the oil industrial business as well, where we have some upstream and some of the refining capacity of business we have done in South Africa. There was a meaningful turnaround also from 2020 to 2021. We've highlighted some of the price increases, average year-on-year on coal, 125 on Newcastle, cobalt, copper, zinc, nickel, ferrochrome and Brent oil averaging towards sort of 30s and 50%. From a volume side, not much to speak of, 2020 to 2021. At point three, we've commented on the challenges in South African coal and the constraints on the export line. Kazinx going through a transition generally in terms of zinc production as phasing out of the old before Jaram gets ramped up. Murren went through a large major maintenance shut, which happens every three to four years. We'll see a pickup in 2022. And Antipakai in terms of grades. So we would hope on the volume side to turn a sort of an orange bar into green or blue as we look into 2022. With Murren coming back, we've got some extra cobalt production out of Africa. And, of course, Cerahon on some pro forma basis would clearly come in 2022. The cost side, I'm sure we're going to get some questions on that later on. It has obviously dwarfed by the 11.1 on the price side, but we did see 0.9 of negative cost variances. At least 50% of that was in the pure energy, direct or potentially indirect. But calling out a few examples there on the zinc side of the business, particularly our European smelting business, was massively impacted by the surge in gas prices and challenges that came in, particularly in Q4 2020. If you look at the specific results on the European smelting, EBITDA for the year was 71 against a prior year period of 327. So we've seen 256 reduction just in that business. That mathematically recalculates back in what our sort of business zinc cost is, where we normally give a credit through the mining side. So that is where We have seen some particular pressure. We'll show some of the spot analysis as we do come through. So roughly a $200 million just year-on-year impact just on the zinc smelting business. Nickel-con-amber had its challenges early in the year. It closed much stronger in production with a 7,000 Q4 performance, but there was sort of $100 million there. And generally inflation and energy, which is the balance of the $600, roughly energy $300 and just other 300. Particular countries have started seeing higher levels of inflation towards the end of 2021. Kazakhstan was running about 7% to 8%. South Africa, about 4% to 5%. The others started to catch up, and that's more of a pressing issue today as we move forward. We'll talk a bit about that later on. Currency was a bit of a headwind of about 0.5%. It's turned into, depending on which day of the week, bubbles up and down, but we're probably slightly positive as we go into 2022 on the currency side. If we then look at a few scorecards specifically on copper, what's the highest contributor? $7.9 billion, EBITDA 2001 contributing 37%. Good increases across the board in copper. You can see the same smelting impact. More concentrated in South America, Canada, and Asia in those businesses that weren't as affected on the energy situation. But whether it's Africa, whether it's Kaloasi, Antamina, All their contributions at 7.9. A good cost performance down to 66.8 on the calculated. And if we look across to 222 on the guidance, we're down to 41 cents a pound across that business at the moment, even a bit down from the 45 cents which we updated in early December. And that's much a function of the continued improvements in some of the byproduct pricing, particularly on cobalt. And we'll show that spot analysis later on in pages, I think, 19 and 27. Production, 22. We went through all the production guidance. Nothing's changed since we were in early December. It's effectively Ernst Henry as we go 21 to 22, falling off the charts. And high margins at obviously 63% within the copper business. If we look in sync, really calling out again that surge in European power prices, it did result in suspending some production, particularly that in Italy, just to manage both the the sort of situation, the margin, the general access of power prices as well. So we're in good company across the board. There are, of course, energy, higher prices, higher gas. Negative impacting this in the business, it doesn't mean it's net-net overall bad for Glencoe. This is where we obviously felt some pain. But, of course, across marketing, across the general energy and prices and those things, it has, to a large extent, been compensated elsewhere. So the zinc business, 2.5 billion, 12%. and as we go into the 2022 spot analysis, we see costs coming down again with high prices, again, byproducts in copper, in lead and the likes, and we see EBITDA moving more to about $3 billion or so. That's on the zinc side. Still very healthy margins across our overall business where we have assets in South America, KaZinc, and obviously Australia. In terms of the nickel business... Smaller part of the business today. This is one, a lot of focus on nickel generally, battery technology, good commodity for the future. Some of a lot of our growth capital is going into this particular business, particularly revitalizing, extending lives of the Canadian business. A little bit jammed tomorrow, some big projects. We start seeing those tons and expanses. You're going to see a little bit of dipping both in grade and nickel over the next two or three years, at least on the Canadian side. Then you've got Raglan, Honoping Depth come obviously. Shorter term, we'll see a pickup in 2022. As I said, Murren went through a major maintenance shut, and you can see we were at 122,000 tonnes of nickel in 2021. We're holding still 115 this year, plus minus 5,000, 6,000 or 7,000 of that is Murren coming back. And we're certainly positioning for Connie Amber moving comfortably into the 20s. That, of course, all pushes our cash cost across the nickel business from 454 down to 411. And hopefully we can see a near doubling in this particular business from 868 on a spot basis. You can see 1.7 billion off to the right. Financially speaking, the star of the show on the industrial side, Teddy Cole, in the second half of 2021, 5.2 billion. You'd recall in early December we said 5355 is where we saw it coming for the full year. We did note in our production report a few weeks ago that we saw slippage of 1.5 million tonnes out of Australia. So production was fine, it was just the sales volume, which would otherwise have delivered in that 5355 range. Those sales are going to come through this year and at higher prices. So it was actually a fortuitous slip in terms of the developing of these things. It will delay in 2021, we'll pick it up in 2022, and that's looking quite good. A lot of people like looking at... at sort of composition in overall business, notwithstanding its strong EBITDA as coal, thermal coal share of group revenue last year was 4.2% within the overall pie and 3.8% in 2020. In terms of looking forward for a 222 guidance, again, we'll look at those numbers later on, but we see spot EBITDA a little over $10 billion. That's using a $175 billion. Newcastle number, which it's massively backwardated. We know obviously spot prices as well into the 200s. That's what we are reporting. So although it's spot, it's an annualised 12-month period. We're not guiding 2022 necessarily because we've obviously banked five weeks of profits already in coal within January, February. And of course, we're annualising well ahead of these numbers in those things. But looking at 175 applying over 121 million tonnes, but with a pickup in costs, and I'll go for those reasons later on. The higher you drive Newcastle at $175, there's a lot of royalties particularly that are linked to the price, as well as the energy. So we're up $6, and I'll show some of the numbers later on in terms of coal. On the marketing performance, up 11%, as Gary said, to $3.7 billion. Very broad-based, strong performance throughout all the all departments contributing meaningfully. The big gain really in 2020 to 21 was in the metal side, 1.7 up to 2.5, solid contributions throughout. Energy, still very respectable, 1.4, with a reduction just reflecting the exceptional results from the oil business in 2020, and coal performing very strongly over 21. So 3.7 billion the second year, of course, that we've been above, that ranges. I'm sure there'll be a question later on as to whether the range is still appropriate, but we have delivered good performance there. But if you look back on the bottom right, we've seen that sort of holding within that range quite well. We've had two obviously solid years above. With also Viterra at the bottom left, you can see contributing meaningfully in that number, $473 million. That's our net of their income up from $211 million. We put a slide later on on page 30 just to give a few highlights on what that business does on a 100% basis. So it was well over $2 billion of EBITDA. Net income was around $1 billion, which is our pickup. And in H2, we got $150 million of dividends. That was the portion to Glencore, so that would have paid out $300. And mechanically now, that just flows straight through to shareholders because you generate that cash, we're below the $10 billion. We were obviously $150 better off our debt because of that. And that's absolutely one for one is now mechanically calculated in additional shale returns. And that will continue to be the case with that particular operation as we go forward. A few repeated slides from our December updates. So no reason to spend time on this, but it was just echoing and repeating the net debt managing around that 10 billion cap. with distributions periodically returned. The key for us is to generate the cash, not pay out in expectation of cash, generate the cash, and then continuously at six-monthly cycles, reload back up towards that 10. So we are at that $6 billion now, and culminating in obviously the $4 billion. As we get through to the August, we'll generate cash flow clearly over the six months of the year. The base distribution is covered, so all of it then, To the extent is surplus, one can be flexible, again, around the portion that would be additional special cash and or buybacks to continue those at that particular point in time. Cash coverage ratios, of course, down to the lowest levels I think this company's ever had at 0.29 of net debt EBITDA. And then, again, a follow-through of the slide we had back in December. Mechanically, we just run through the base, the billion plus 2.4 billion details on page 25 that you can see there. And then we've topped that clearly back up with a 550 buyback, meaningful opportunities coming in, obviously, in the second half. And we've just run through the flow chart logic in the green that Martin's put down, and I think it's all fairly clear and understood as we do the thought process there. From a CapEx perspective, nothing really to add since December. We're holding numbers as well. We actually – We're 100 million shy. We're 4.5 billion in December. We came 4.4. We've just rolled that 100 timing-wise into 2022, into 5.4 as opposed to 5.3. So no change cumulatively across all those periods. Maybe just cash flow. We were at less net cap expend than some of you might have had because of 0.3 billion sale of PPE. You can see on the bar on the left. That was, if you recall, we sold the Royalty, the Red Chris Royalty, royalty streamed to a third party in about August, September. They announced it. There was 160, sort of 160, 50 million or so. That was sale of PPE. And we also had some old surplus land from a refinery in Texas, the Corpus Christi. We sold that to a company that's looking to do energy exports out of the U.S. There was about $80 million of sale of some surplus land that came through in the second half of Well, that helped the cash flow, helped the debt reduction in the business as well. If we look through the cost trajectory feeding into the 2022 illustrative, copper continues to sort of move down the curve, 41 cents a pound down from 66, continued both in a volume and pricing impact, particularly cobalt, but all the byproducts, which it does enjoy, and zinc as well. The zinc business, from having... reduced somewhat its cost to still minus four, which is pretty good in anyone's mathematical calculators. Energy, European smelting clearly having an impact there. That's not necessarily going away anytime soon. We're just getting better by product credits and volumes and prices the way they were freshened up to at the end of January to minus eight cents. Nickel improves with production coming back in Murren, and we're clearly hoping for and planning for an improved Connie Amber performance as well as we look through 2022 up to the 125,000 tonnes. And coal, that's where you've got the big jump from 52 cost up to 59 that's up about $6 at the 175. It's always got to be anchored around what's your price assumption because a lot of variability in royalties against that price. So just that 53 up to 59, $6, $3 is purely royalties using 175. If we were using 137, which was the average in 2021, that $3 would, of course, come back. But so would billions of EBITDA. So we're happy with that extra royalties to the various state and governments. Energy is $2 of that. That's permanent, clearly now with the pricing that we see in oil and gas. And there's another $1 a tonne across the coal business, which is sort of $150 million or so as well. So what does that all mean? $26.5 billion of EBITDA. $14.1 billion. Everything is contemporized for spot flat, like we do on the metal side. Coal, we consistently take a forward average, $175 on Newcastle there as well. Marketing, we've taken midpoints. Obviously, the last few years, we've come ahead of this in some actual sense. So that runs it at the $2.7 midpoint of the range and then runs tax and interest based on... flow through tax and these things. We do have some tax losses in different jurisdictions that the actual tax spend may be lower than what's implied by the illustrative sense. And then with that good picture, I'll hand back to Gary to give some closing remarks. Thank you very much.