Glencore Plc (LON:GLEN), today announced preliminary results 2018.
Highlights
Glencore’s Chief Executive Officer, Ivan Glasenberg, commented: “We are pleased to report that we have delivered both record Adjusted EBITDA and significant cash returns to shareholders in 2018.
“Reflecting the strength of our uniquely diversified business model and commitment of our people, we achieved these results in a challenging operating environment. Our asset portfolio continued to deliver overall competitive all-in unit costs, which allowed the Company to capitalise on healthy average commodity prices and generate attractive margins. Adjusted EBITDA increased 8% to
$15.8 billion and net income before significant items rose 5% to $5.8 billion.“Our strong cash generation underpinned $5.2 billion of announced shareholder returns and buybacks in 2018. Reflecting the strength of these cash flows, we are again recommending to shareholders a 2019 base distribution of $0.20 per share (~$2.8 billion), payable in two equal instalments in 2019. We also announce today a new $2 billion buyback program, which will run until the end of 2019. We will proactively look to top this up (in August, or otherwise) as market conditions support, including automatically from a targeted $1 billion of non-core asset disposals in 2019.
“Our commodity portfolio and its key role in enabling the energy and mobility transition for a low-carbon economy enables us to look ahead with confidence and to remain focused on creating sustainable long-term value for all our shareholders.”
|
US$ million |
2018 |
2017 |
Change % |
|
Key statement of income and cash flows highlights2: |
|
|
|
|
Net income attributable to equity holders |
3,408 |
5,777 |
(41) |
|
Adjusted EBITDA◊ |
15,767 |
14,5451 |
8 |
|
Adjusted EBIT◊ |
9,143 |
8,4591 |
8 |
|
Earnings per share (Basic) (US$) |
0.24 |
0.41 |
(41) |
|
Funds from operations (FFO)2,3◊ |
11,595 |
11,3501 |
2 |
|
Cash generated by operating activities before working capital changes |
13,210 |
11,866 |
11 |
|
Purchase and sale of property, plant and equipment – net3◊ |
4,899 |
3,7891 |
29 |
|
US$ million |
31.12.2018 |
31.12.2017 |
Change % |
|
Key financial position highlights: |
|
|
|
|
Total assets |
128,672 |
135,593 |
(5) |
|
Net funding3◊ |
32,138 |
31,0531 |
3 |
|
Net debt3◊ |
14,710 |
10,2161 |
44 |
|
Ratios: |
|
|
|
|
FFO to Net debt3◊ |
78.8% |
111.1%1 |
(29) |
|
Net debt to Adjusted EBITDA◊ |
0.93x |
0.70x1 |
33 |
1 Restated to present Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting), previously proportionately accounted, refer to APMs section for reconciliations.
2 Refer to basis of presentation on page 7.
3 Refer to page 11.
◊ 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 106 for definition and reconciliations and note 2 of the financial statements for reconciliation of Adjusted EBIT/EBITDA and capital expenditure.
Another record Adjusted EBITDA performance
• Adjusted EBITDA of $15.8 billion, up 8%; Adjusted EBIT of $9.1 billion, also up 8%
• Net income attributable to equity holders down 41% to $3.4 billion, mainly due to non-cash impairments at Mutanda and Mopani, totalling $1.4 billion, compared to $1.3 billion of accounting gains on sales of investments in the base period
• Resulting EPS down 17¢ to 24¢/share
Marketing Adjusted EBIT down $0.5 billion, still well within our long-term guidance range
• Some industrial metal inventories (e.g. copper) reaching near-historical lows on exchange, indicating balanced to undersupplied markets
• Generally positive market conditions, hampered by alumina “basis risk” impact and a challenging cobalt market in H2
• Marketing EBIT guidance for 2019 towards the middle of our $2.2-3.2 billion long-term range
Industrial Adjusted EBITDA up $1.7 billion (15%) supported by ramp-ups, acquisitions and prices
• Restarts of Katanga’s processing operations and zinc mining at Lady Loretta (Mount Isa)
• HVO and Hail Creek contributed positively post-acquisition
• H1 commodity prices generally strong; H2 lower but still well above H1 2016 lows. Coal prices were strong throughout
• Looking forward, Mutanda’s updated mine plan reduces annual copper production to 100,000 tonnes per year from oxide and transitional ores (vs 200,000 tonnes historically), pending a future investment decision on whether and how to process the now increased sulphide reserves/resources.
• 2019 production guidance in all commodities expected higher than 2018
Governance issues being addressed
• Resolutions achieved at Katanga relating to recapitalisation of its main operating subsidiary and with the Ontario Securities Commission regarding accounting, governance and disclosure matters. A refreshed management team has been appointed
• Board committees have been created to oversee (1) the Group’s response to the U.S. Department of Justice’s investigation (2) the Group’s key ethics, compliance, culture and governance matters. We have appointed a Head of Industrial Assets (newly created position) to drive operational and sustainability improvements across the Group
Global transition to a low carbon economy
• Following engagement with the investor signatories of the Climate Action 100+ initiative, we are furthering our commitment to the transition to a low carbon economy
• As one of the world’s largest diversified mining companies, we have a key role in enabling transition to a low carbon economy
• We aim to prioritise capital investment to grow production of commodities essential to the energy and mobility transition and to limit our coal production capacity broadly to current levels
• Our commitments include: Paris-consistent capital discipline, developing new longer-term Scope 1 and 2 reduction targets, regular review of progress, alignment with TCFD recommendations and corporate climate change lobbying review
Targeted M&A moving to integration phase
• Hunter Valley Operations premium thermal coal mine (49% interest) and Hail Creek coking/thermal coal mine (82% interest) acquired and material integration benefits starting to flow
• Acquired fuel distribution network in Brazil
• Acquisition of Astron Energy (formerly Chevron’s Cape Town refinery and distribution assets in South Africa and Botswana), pending SA competition clearance. At 31 December, this is reflected as a loan to our prospective business partner
2018 announced returns to shareholders totalling $5.2 billion (approximately 36¢/share); further distributions and buybacks
in 2019
• Distribution of 20¢/share was enhanced by share trust purchases of $0.32 billion and a $2 billion buyback programme, now almost fully executed
• Dislocation between our current share price levels and the prospects, strength and embedded optionality in our business leads us to conclude that it is difficult to find a better investment than buying back our own shares
• We have therefore recommended a 20¢/share distribution for 2019 (basis 2018 cash flows), in line with the prior year, supplemented by a new $2 billion buyback programme, effective immediately and running until the end of 2019. We will proactively look to top this up (in August, or otherwise) as market conditions support, including automatically from a targeted $1 billion of non-core asset disposals in 2019, from a range of candidate assets
• Equity cash flows prioritised for: (1) buybacks funded by cash generation; (2) RMI managed consistently below $20 billion; and (3) net debt maintained in a $10-16 billion range, while limiting Net debt:Adjusted EBITDA to around one times, in the current uncertain economic cycle backdrop
