Glencore “extraordinary year” for 2021, reflecting rising demand

Glencore plc

Glencore plc (LON:GLEN) has announced its preliminary results for 2021.

Glencore’s Chief Executive Officer, Gary Nagle, commented:

“In spite of the ongoing challenges of Covid-19, 2021 was an extraordinary year for Glencore, reflecting rising demand for our metals and energy products, record Adjusted EBITDA and the transition to new leadership.

“Against the strong commodity backdrop, and leveraging the unique combination of our transition and energy commodities, along with the global reach and scale of our marketing business, the Group delivered an 84% increase in Adjusted EBITDA to
$21.3 billion. Marketing delivered another robust performance, with Adjusted EBIT up by 11% to $3.7 billion, while multi-year or record high prices for many of our commodities, underpinned the 118% jump in Industrial Adjusted EBITDA to $17.1 billion. Net income attributable to equity holders was $5.0 billion.

“The significant improvement in the Group’s financial results has driven Net debt down to $6.0 billion, allowing for today’s announcement of $4.0 billion of shareholder returns, comprising a recommended $3.4 billion ($0.26 per share) base distribution (in respect of 2021 cash flows), alongside a $550 million share new buyback (c.$0.04 per share) programme.

“Looking forward, we remain focused on our strategy to enable and deliver decarbonisation and meet the increasing demand for everyday metals, while responsibly meeting the energy needs of today. We look to the future confident that we have the right pathway to succeed in a net zero economy and create sustainable long-term value for all stakeholders, while operating in a responsible manner across all aspects of our business”

US$ million20212020Change %
Key statement of income and cash flows highlights1:   
Revenue                 203,751               142,338                        43
Adjusted EBITDA                   21,323                   11,560                        84
Adjusted EBIT                  14,495                   4,416                      228
Net income/(loss) attributable to equity holders                    4,974                 (1,903)                      n.m
Earnings/(loss) per share (Basic) (US$)                      0.38                    (0.14)                      n.m
Funds from operations (FFO)                   17,057                   8,325                       105
Cash generated by operating activities before working capital changes, interest and tax                   16,725                   8,568                        95
US$ million31.12.202131.12.2020Change %
Key financial position highlights:   
Total assets                  127,510               118,000                          8
Total equity                   36,917                34,402                          7
Net funding2◊                  30,837                 35,428                       (13)
Net debt2◊                    6,042                 15,844                      (62)
Ratios:   
FFO to Net debt282.3%52.5%                      437
Net debt to Adjusted EBITDA2◊                      0.28                      1.37                      (79)

1 Refer to basis of presentation on page 6.

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2 Includes $857 million (2020: $652 million) of Marketing related lease liabilities.

◊ Adjusted measures referred to as Alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards; refer to APMs section on page 109 for definitions and reconciliations and to note 2 of the financial statements for reconciliation of Adjusted EBIT/EBITDA.

UPDATE ON INVESTIGATIONS

As previously disclosed, Glencore is subject to a number of investigations by regulatory and enforcement authorities including the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission, the UK Serious Fraud Office and the Brazilian Federal Prosecutor’s Office. Glencore has been cooperating extensively with the various authorities in order to resolve these investigations as expeditiously as possible.

While Glencore cannot forecast with certainty the cost, extent, timing or terms of the outcomes of the investigations, the Company presently expects to resolve the U.S., UK and Brazilian investigations in 2022. Accordingly, and based on the Company’s current information and understanding, the Group has raised a provision as at 31 December 2021 in the amount of $1,500 million representing the Company’s current best estimate of the costs to resolve these investigations. The U.S. resolutions are expected to cover separate investigations into bribery and market manipulation. The resolution of the other investigations into the Group is not included within this provision and they remain ongoing.

We will provide further updates on the investigations at the appropriate time.

STRONG FINANCIAL PERFORMANCE

–       $21.3 billion Adjusted EBITDA, up 84% (y/y), underpinned by robust Marketing and Industrial results

–       Net income, pre-significant items: $9.1 billion, up 267%

–       Net income attributable to equity holders was $5.0 billion (loss of $1.9 billion in 2020). Significant items principally comprise the required accounting recycling to the income statement of Mopani’s non-controlling interests upon its disposal ($1.0 billion), impairment charges of $1.8 billion, mainly attributable to our Koniambo nickel operation and a $1.5 billion provision raised with respect to the regulatory investigations noted above.

–       Net cash purchase and sale of PP&E: $3.8 billion, down 3%

–       Shareholder returns of $4.0 billion announced, comprising a proposed $0.26/share ($3.4 billion) base distribution in respect of 2021 cash flows, alongside a new $550 million share buyback program

RECORD INDUSTRIAL ASSET ADJUSTED EBITDA CONTRIBUTION

–       Industrial Assets Adjusted EBITDA $17.1 billion, up 118%, underpinned by significantly higher commodity prices with many reaching record or multi-year highs, amid widespread supply/demand deficits

–       Metals $12.0 billion (+65%), Energy $5.6 billion (+439%); balance is Corporate and other

–       Unit cost results: Cu 67¢/lb (-27¢/lb y/y); Zn -4¢/lb (+3¢/lb y/y); Ni 454¢/lb (+78¢/lb y/y); coal $52.90/t ($50.6/t margin)

HIGHER AND BROAD-BASED MARKETING RESULTS

–       Marketing revenues $182 billion, up 46% y/y

–       Marketing Adjusted EBIT $3.7 billion, up 11% y/y

–       Energy Adjusted EBIT: $1.4 billion (-21%), as a strong 2021 coal result limited the net overall reduction, given oil’s lower contribution relative to the prior year, wherein it capitalised on the exceptional market conditions

–       Metals Adjusted EBIT: $2.5 billion (+50%), as all key markets exhibited strong demand, supply constraints and inventory drawdowns

–       Viterra agricultural business contributed $473 million (2020: $211 million) share of net earnings

HEALTHY BALANCE SHEET

–       Net debt being managed around a $10 billion cap, with sustainable deleveraging (after base distribution) below such cap periodically returned to shareholders via special distributions / buybacks, as appropriate.

–       Year-end Net debt of $6.0 billion allows for $4.0 billion of shareholder returns

–       Robust cash flow coverage ratios: FFO to Net debt of 282.3% and Net debt to Adjusted EBITDA of 0.28x

–       RMI of $24.8 billion, up $5.2 billion, due to the significantly higher commodity prices

–       Available committed liquidity of $10.3 billion; bond maturities capped at c.$3 billion in any given year

–       Spot illustrative annualized free cash flow generation of c.$14.1 billion from Adjusted EBITDA of c.$26.5 billion

MINING SECTOR-LEADING CLIMATE STRATEGY

–       Committed in 2021 to more aggressive total emissions reductions with a new short-term target of a 15% reduction by 2026, and a 10% increase in our medium-term target to a 50% reduction by 2035. Net zero ambition by 2050

–       Responsible decline of our coal portfolio will help meet critical regional energy needs and affordability as decarbonisation pathways will be non-linear across time and geography

–       Progress on our Climate Action Transition Plan will be put to shareholders for an advisory vote at the AGM in late April 2022

To view the full report please click https://www.glencore.com/dam/jcr:4d0dff31-868e-4cbb-8813-e06c1955fd71/GLEN-2021-Preliminary-Results.pdf

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