Glencore reports a lower earnings performance in 2023

Glencore plc (LON:GLEN) has announced its Preliminary Results for 2023.

Highlights

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

“Against the backdrop of a rebalancing and normalisation of international energy trade flows, our Marketing and Industrial segments posted a lower, albeit healthy, earnings performance in 2023, delivering Group Adjusted EBITDA of $17.1 billion, cash generated by operating activities of $15.1 billion and Net income attributable to equity holders of $4.3 billion.

“Aided by healthy operational cash generation, after funding $5.6 billion of net capex and $10.1 billion of shareholder returns, the 2023 year-end Net debt outturn was contained to $4.9 billion vs $0.1 billion in 2022. With a Net debt/Adjusted EBITDA of 0.29x, we continue to enjoy significant financial headroom and strength.

“For 2024, basis 2023 cash flows, we are recommending to shareholders a $0.13 per share (c.$1.6 billion) base cash distribution, comprising $1 billion from Marketing cash flows and 25% ($0.6 billion) of Industrial attributable cash flows.

This distribution, along our shareholder return journey, must be contextualised by the significant announcement in November 2023 that we had entered into a binding agreement with Teck Resources Limited (Teck) to acquire a 77% effective interest in its steelmaking coal business, Elk Valley Resources (EVR) for $6.93 billion in cash. These are world-class assets, expected to meaningfully complement our existing thermal and steelmaking coal production in Australia, Colombia, and South Africa. EVR also supports the transition as an input into steel production needed for certain renewable energy infrastructure. The transaction is subject to mandatory regulatory approvals and, while closing could occur earlier, it is expected no later than Q3 2024. The acquisition of EVR unlocks the potential, subject to shareholder approval, for a value accretive demerger of our combined coal and carbon steel materials business and, in support thereof, we advised that Glencore could demerge the combined company, only once Glencore had sufficiently delevered towards a revised $5 billion Net debt cap, expected to occur within 24 months from close.

Over the past few years, our capital structure and credit profile has been managed around a $10 billion Net debt cap, with sustainable deleveraging (after base distribution) below the cap periodically returned to shareholders via special distributions and buybacks. Under this framework, we announced $20.3 billion of shareholder returns since 2020, comprising $10 billion of base distributions and $10.3 billion of “top-up” returns. Following the EVR announcement, we are now managing the balance sheet around a revised $5 billion Net Debt cap, alongside our continued commitment to minimum strong BBB/Baa ratings.

Although there are no “top-up” returns at this point, the business is expected to be highly cash generative at current spot commodity prices (spot illustrative annualised free cash flow generation of c.$5.2 billion from Adjusted EBITDA of c.$15.0 billion), which augers well for top-up returns to recommence in the future.

“As the world moves towards a low-carbon economy, we remain focused on supporting the energy needs of today whilst investing in our transition commodities portfolio. During 2023, we acquired a 30% equity stake in Alunorte alongside a 45% equity stake in Mineracao Rio do Norte S.A., securing low carbon and cost alumina units for our Marketing business. In copper, we acquired the remaining 56.25% interest in the MARA brownfield copper project in Argentina that we did not already own, as well as the balance of Polymet shares (c.18%). Polymet formed a 50:50 JV with Teck, establishing the New Range Copper Nickel venture in Minnesota. These additions, along with a near doubling of El Pachon’s resource, added more than 5 billion tonnes of resource to our copper resource inventory in 2023.

“While we continue to remain focused on operating safely, responsibly and ethically and creating sustainable long-term value for all our stakeholders, the strength of our diversified business model, across industrial and marketing, focusing on metals and energy, has again in 2023 proved itself adept in a range of market conditions.”

1 Refer to basis of presentation on page 7.

2 Significantly impacted in 2023, having absorbed the lag effect of settlement in H1 2023 of $2.7 billion of 2022 final income tax payments in Australia and Colombia.

◊ 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 122 for definitions and reconciliations and to note 2 of the financial statements for reconciliation of Adjusted EBIT/EBITDA.

◊ 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 122 for definitions and reconciliations and to note 2 of the financial statements for reconciliation of Adjusted EBIT/EBITDA.

STRONG FINANCIAL PERFORMANCE

–       $17.1 billion Adjusted EBITDA, down 50% year-on-year (y/y), primarily reflecting the rebalancing and normalisation of international energy trade flows, with coal and LNG, and to a lesser extent, oil prices materially declining

–       Net income, pre-significant items (see page 9): $6.7 billion, down 65%

–       Post significant items, Net income attributable to equity holders was $4.3 billion, down 75%. Significant items, mainly comprising impairments, reflect lower cobalt price assumptions impacting Mutanda and macro assumption revisions at several zinc assets

–       Net cash purchase and sale of PP&E: $5.6 billion, up 22%

–       Proposed $0.13/share base distribution ($1.6 billion), in respect of 2023 cash flows

INDUSTRIAL ASSET RESULTS

–       Industrial Assets Adjusted EBITDA $13.2 billion, down 52%, primarily reflecting lower coal earnings with the significant reduction in energy prices in 2023

–       Metals $5.4 billion, down 41%, reflecting lower realised cobalt, nickel and zinc prices, and reduced volumes; Energy $8.5 billion, down 55%, mainly due to significantly lower coal prices

–       Unit cash costs: Cu 163¢/lb (+83¢ y/y), with c.50c/lb of reduced by-product credits (cobalt being the largest contributor) and a 10c/lb non-cash inventory adjustment; Zn 49¢/lb (-11¢ y/y); Ni 871¢/lb (+240¢ y/y), including 24c/lb of Koniambo expensed capex; coal $70.5/t (-$12.1/t) at a $70.2/t margin. 2024 unit cash costs projected to be lower across all of Cu, Zn, Ni, and coal

MARKETING RESULTS

–       Marketing Adjusted EBIT $3.5 billion, down 46% y/y

–       Energy Adjusted EBIT: $1.7 billion (-67%), in a return to a more stable market environment, following the extreme market volatility levels, dislocations and complexities exhibited during 2022

–       Metals Adjusted EBIT: $1.7 billion (+5%), reflecting broadly consistent physical marketing conditions for many of our most important commodities

–       Viterra EBITDA was $2.1 billion (2022: $2.0 billion), while Glencore’s equity accounted share of Viterra declined to $321 million ($494 million in 2022).

ROBUST BALANCE SHEET

–       Net debt to Adjusted EBITDA of 0.29x

–       Available committed liquidity of $12.9 billion; executed additional $3 billion 1 year committed liquidity facility in February 2024. Bond maturities capped at c.$3 billion in any given year

CLIMATE AMBITION

–       Extensive engagement with shareholders during the year on a range of climate matters, including seeking investors’ views on anticipated changes in our updated Climate Action Transition Plan that will be put to shareholders at the 2024 AGM.

–       There was broad support for our climate strategy, recognising the importance of maintaining a strategy that remains resilient to the risks and opportunities of the evolving energy transition, and encouragement to continue making progress towards our ambition of achieving net zero industrial emissions by 2050, subject to a supportive policy environment.

–       The principal areas of shareholder interest included a comparison of our targets and ambition to various relevant IEA scenarios, understanding progress on industrial emissions reduction between our short-term 2026 target and medium-term 2035 target and integration of the recently announced EVR acquisition into the climate strategy.

–       We will, among other actions, maintain our commitment to reducing our total industrial emissions footprint and report on progress against our targets and ambition, update our assessment of the resilience of our portfolio and expand analysis of our targets and ambition against a range of climate policy scenarios.

–       Glencore intend to publish our updated Climate Action Transition Plan in March 2024 and report on progress against our industrial emission reduction targets and ambition in our 2023 Annual Report.

View the full report here: