Glencore delivers an exceptional financial performance in H1

Glencore plc (LON:GLEN) has announced its 2022 Half-Year Report.

Highlights

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

“Notwithstanding what has clearly been a very complex environment for our markets, our operations, and the world in general, we are pleased to report an exceptional financial performance for Glencore over the period.

“Global macroeconomic and geopolitical events during the half created extraordinary energy market dislocation, volatility, risk, and supply disruption, resulting in record pricing for many coal and gas benchmarks and physical premia, underpinning a $10.3 billion increase (119%) in Group Adjusted EBITDA to $18.9 billion. Marketing Adjusted EBIT more than doubled to $3.7 billion, with energy products the standout, while Industrial Adjusted EBITDA increased $8.4 billion to $15.0 billion period-on-period.

“Allied to the record EBITDA, our net working capital significantly increased during the period, with some $5 billion invested into Marketing, primarily Energy, in line with the materially higher oil, gas and coal prices, and their elevated volatilities. Despite this build, significant cash was generated, which reduced Net debt to $2.3 billion, allowing for today’s announcement of $4.5 billion of “top-up” shareholder returns, comprising a $1.45 billion special distribution ($0.11 per share) alongside a new $3.0 billion buyback program (c.$0.23 per share). Today’s additional returns lift total 2022 shareholder returns to c.$8.5 billion.

“Looking ahead, tightening financial conditions and a deteriorating macroeconomic environment present some uncertainty for commodity markets through the second half of the year. However, with few short-term solutions to rebalance global energy markets, coal and LNG prices look set to remain elevated during this period, particularly given the current challenge of securing sufficient and reliable energy supply for the Northern hemisphere winter ahead.

“For metals, the outlook is more complex, balancing supply risks, amid labour, water and energy shortages, supply chain disruptions, growing sovereign risk uncertainty and rising costs, against likely weakening end-use markets ex-China. There are some recent signs of China recovering from its Q2 trough, which could help to offset potentially weaker conditions in other key consuming markets.

“The combined strength of our diversified business model across metals and energy industrial and marketing positions has proved itself adept in all market conditions, which should allow us to both successfully navigate the shorter-term challenges that may arise, as well as meet the resource needs of the future. I would like to thank all our employees for their efforts and tremendous contribution during these turbulent times and as always, we remain focused on creating sustainable long-term value for all our stakeholders.”

1 Refer to basis of presentation on page 6.

2 Refer to page 10.

3 Includes $585 million (2021: $857 million) of Marketing related lease liabilities.

4 H1 2022 ratios based on last 12 months’ FFO and Adjusted EBITDA, refer to APMs section for reconciliation.

◊ 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 67 for definitions and reconciliations and to note 3 of the financial statements for reconciliation of Adjusted EBIT/EBITDA.

ENERGY MARKET VOLATILITY AND HIGH PRICES DRIVE RECORD FIRST HALF EARNINGS

–       Elevated energy market dislocation, volatility, risk and supply disruption, led to record prices for many coal and gas benchmarks and physical premia, underpinning a $10.3 billion increase in Group Adjusted EBITDA to $18.9 billion

–       Industrial Adjusted EBITDA increased $8.4 billion to $15.0 billion period-on-period, benefitting primarily from record coal prices, augmented by the incremental 66.7% contribution from Cerrejón, acquired in January 2022

–       Marketing Adjusted EBIT more than doubled to $3.7 billion, with energy products performing exceptionally well amid the complex, volatile and elevated market risk backdrop, characterised by extreme dislocations and price movements

–       We currently expect more normal Marketing conditions to prevail in the second half of the year

INDUSTRIAL UNIT COSTS HIGHER, PRIMARILY DUE TO THE BROAD INFLATIONARY ENVIRONMENT AND LOWER BY-PRODUCT CREDITS

–       H1 unit costs were: Copper 54¢/lb, zinc 9¢/lb (48¢/lb ex-gold), nickel (ex Koniambo) 370¢/lb and thermal coal $75.4/t

–       Full year estimated unit costs: Copper 93¢/lb, zinc 29¢/lb (63¢/lb ex-gold), nickel (ex Koniambo) 359¢/lb and thermal coal $79.4/t (all including updated by-product credits, as appropriate)

–       H1 Industrial capex was $2.0 billion (H1 2021: $1.8 billion); full year guidance unchanged at $5.4 billion

INCOME FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS OF $12.1 BILLION

–       Including a $1.5 billion gain on acquiring the remaining 66.67% interest in Cerrejón and disposal of Ernest Henry

STRONG BALANCE SHEET

–       Allied to the record EBITDA, our net working capital significantly increased during the period, with some $5 billion invested into Marketing, primarily Energy, in line with the materially higher oil, gas and coal prices, and their elevated volatilities

–       Despite the working capital build, significant cash was generated during the half, which reduced Net funding and Net debt to $28.0 billion and $2.3 billion respectively from prior period levels of $30.8 billion and $6.0 billion.

–       Period-end Net debt of $2.3 billion allows for “top-up” returns under our shareholder returns framework, where Net debt is managed around a $10 billion cap, with sustainable deleveraging below the cap periodically returned to shareholders

–       Announced today “top-up” shareholder returns of $4.5 billion, comprising a $1.45 billion special distribution ($0.11/share) and a $3.0 billion share buyback (c.$0.23 per share)

–       Total shareholder returns for 2022 of c.$8.5 billion, including the $3.4 billion base distribution and $0.6 billion buyback announced in February 2022

–       Spot illustrative free cash flow generation of c.$18 billion from Adjusted EBITDA of c.$32.3 billion.

Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 responsibly-sourced commodities that advance everyday life. Through a network of assets, customers and suppliers that spans the globe, we produce, process, recycle, source, market and distribute the commodities that enable decarbonisation while meeting the energy needs of today.