Wrap Text
Plans to reduce net debt and adapt business to current commodity landscape
GLENCORE PLC
(Incorporated in Jersey under the Companies (Jersey) Law 1991)
(Registration number 107710)
JSE Share Code: GLN
LSE Share Code: GLEN
HKSE Share Code: 805HK
ISIN: JE00B4T3BW64
Baar, Switzerland
7 September, 2015
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN ARE NOT
FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN
OR INTO THE UNITED STATES, AUSTRALIA, JAPAN, JERSEY, SOUTH AFRICA
OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. THIS
ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES IN THE UNITED STATES,
CANADA, SOUTH AFRICA, AUSTRALIA, JAPAN, JERSEY OR ANY JURISDICTION
IN WHICH THE SAME WOULD BE UNLAWFUL.
Update on Glencore’s plans to reduce net debt and adapt the
business to the current commodity landscape
Glencore plc (the “Company”) today announces a fully committed proposed equity capital
raising of up to US$2.5 billion alongside additional capital preservation / debt reduction
measures which, taken together, have an aggregate value of up to US$10.2 billion, and certain
other portfolio optimisation and cost reduction actions, with the objective of reducing net debt to
the low US$20s billion by the end of 2016.
Highlights:
- A proposed equity issuance of up to US$2.5 billion to reduce indebtedness and increase
financial strength;
o 78 per cent. of the proposed equity issuance underwritten by Citi and Morgan
Stanley; and
o commitments from Glencore senior management (including CEO, CFO and
several Board members) to take up the remaining 22 per cent. of the proposed
equity issuance.
o More details of the proposed equity issuance will be provided in due course.
- Additional measures with a value of up to US$7.7 billion to be implemented between
now and the end of 2016, including:
o approximately US$1.6 billion to be saved from the suspension of the 2015 final
dividend, intended to do so in the current commodity environment;
o approximately US$800 million to be saved from the suspension of the 2016
interim dividend, intended to do so in the current commodity environment;
o approximately US$1.5 billion to be generated from further reduction in working
capital;
o approximately US$2.0 billion to be raised from the sale of assets, including, but
not limited to, proposed precious metals streaming transaction(s) and the
minority participation of 3rd party strategic investors in certain of Glencore’s
agriculture assets, including infrastructure;
o US$500 million to US$800 million to be generated from a reduction in long-term
loans and advances made by Glencore (c.US$4 billion at 30 June 2015); and
o US$500 million to $1.0 billion to be saved from an additional reduction in
industrial capital expenditure to the end of 2016.
- Ongoing focus on portfolio optimisation and reduction of operating expenditures:
o operations at Katanga and Mopani are under review and in the process of
suspending certain African production until the completion of the remaining cost-
transforming projects which are on schedule to be completed by the first half of
2017. An 18 month suspension will remove approximately 400,000 tonnes of
copper cathode from the market.
o This review is detailed in a separate RNS which was released today.
Ivan Glasenberg, Chief Executive Officer, and Steven Kalmin, Chief Financial Officer, made the
following statement:
“Notwithstanding our strong liquidity, positive operational free cashflow generation, lack of debt
covenants, modest near-term maturities and the recent affirmation of our credit ratings, recent
stakeholder engagement in response to market speculation around the sustainability of our
leverage, highlights the desire to strengthen and protect our balance sheet amid the current
market uncertainty.
The measures we have announced today do not affect our core business activities and overall
franchise value and have been designed to sensibly accelerate the deleveraging of our balance
sheet, maximise future cash flow generation in the current weak commodity price environment
and substantially improve our financial and credit metrics, stability and strength, in the event of
a prolonged weaker pricing environment.
We remain very positive on the long-term outlook for our business and this is reinforced by
senior management’s commitment to take up 22 per cent. of the proposed equity issuance.
Copper and zinc are both supply-challenged and an essential ingredient of future global growth.
In seaborne thermal coal, a capex drought and low prices have helped rebalance the market.
We are confident that thermal coal’s position and availability as the lowest cost fuel source for
many large economies will underpin its key role in the global energy mix for many years to
come.
We have today an extensive portfolio of long-life, low-cost industrial assets, benefitting from the
unique capabilities of our marketing business. We reiterate our 2015 full year marketing EBIT
guidance of US$2.5 billion to US$2.6 billion and remain confident of our long-term guidance
range of US$2.7 billion to US$3.7 billion.”
Glencore is hosting an investor update call to discuss these debt reduction plans at 08:30AM
London time, 7th September 2015. Dial in details are as follows, and a replay facility will be
available for a period of 7 days from the date of this announcement:
Confirmation code: 5116451
Local - Switzerland: +41(0)44 580 7216
National free phone - Switzerland: 0800 345 602
Local - United Kingdom: +44(0)20 3427 1902
National free phone - United Kingdom: 0800 279 5004
Local - United States of America: +1646 254 3362
National free phone - United States of America: 1877 280 2296
Local - Hong Kong: +8523009 5112
National free phone - Hong Kong: 800 905 743
Local - South Africa: +2711 019 7015
National free phone - South Africa: 0800 984 126
Local - Sydney, Australia: +61(0)2 9253 5962
National free phone - Australia: 1800 027 830
1. BACKGROUND
On 19th August 2015, Glencore announced its 2015 interim results in which a number of
significant actions were outlined to protect Glencore’s balance sheet in the current challenging
commodity environment. These included:
- a reduction in industrial capital expenditure for the 2015 financial year to US$6 billion,
down from prior guidance range of US$6.5 billion to US$6.8 billion;
- a reduction in industrial capital expenditure for the 2016 financial year to a maximum of
US$5 billion, down from prior guidance of US$6.6 billion;
- a reduction in costs of approximately US$400 million in the 6 month period to 30th June
2015, with a further US$400 million targeted during the next 12 months; and
- a net debt target of US$27 billion by the end of 2016.
In spite of these measures, and notwithstanding the Group’s strong liquidity position, modest
near-term debt maturities and positive operational free cashflow generation, the Board has
determined that, in light of the current market volatility and speculation it is prudent, and in all
shareholders’ interests, to implement the additional measures outlined in this announcement as
soon as possible.
2. DETAILS OF THE PROPOSED EQUITY ISSUANCE
In accordance with the principles outlined above, Glencore is announcing that it intends to raise
up to US$2.5 billion by way of a proposed equity issuance to reduce indebtedness and increase
financial strength.
In connection with the proposed equity issuance, Glencore has received commitments from
Glencore senior management in respect of 22 per cent. of the proposed equity issuance, and
has entered into a standby equity underwriting agreement with Citi and Morgan Stanley in
respect of 78 per cent. of the proposed equity issuance.
The Company will, in due course, announce further details of the proposed equity issuance,
including as to its terms, following consultation with shareholders.
3. DETAILS OF THE PROPOSED ADDITIONAL DEBT REDUCTION MEASURES
3.1 Against current commodity backdrop, suspension of dividend payments until
further notice, starting with the 2015 final dividend
Glencore’s balance sheet remains strong and the Group’s committed lines of credit are
assured. The Board’s confidence in the fundamentally positive prospects of Glencore, its quality
of assets and marketing business, remains unchanged.
However, although the Group reported meaningful profits in the first half of 2015, the cash flows
of its industrial assets are geared to commodity prices. In light of the other actions being
announced today to strengthen and protect the balance sheet amid the current market
uncertainty, the Board has determined that it is right that a conservative stance be taken. As a
result, and despite Glencore’s sound financial position, a decision has been taken to suspend
the dividend until further notice, beginning with the final dividend for 2015. The previously
announced interim dividend for 2015 of US$0.06 per share will be paid.
This measure will save approximately US$2.4 billion between now and the end of 2016,
comprising approximately US$1.6 billion in respect of the final dividend for 2015, and
approximately US$800 million in respect of the interim dividend for 2016.
The Board will review this matter on a regular basis and will resume dividend payments as soon
as conditions allow.
3.2 Additional reduction of working capital
In its 2015 interim results, Glencore announced that the unique flexibility of the Group’s capital
structure had enabled a working capital release (from sources other than readily marketable
inventories (“RMI”)) of more than $3.2 billion during the 6 months to 30th June 2015, reflecting
lower commodity prices and active working capital management, along with a $1.5 billion
reduction in RMI.
In addition, Glencore noted that scope existed for potential further reductions in net working
capital in the future.
Glencore today announces its intention to further reduce net working capital by an additional
US$1.5 billion by the end of June 2016, with these reductions targeted to be derived
approximately equally from industrial and marketing activities. The reduction in net working
capital within marketing will come from a mix of both RMI and non-RMI.
3.3 Reduction of long-term loans and advances made by Glencore
In its 2015 interim results, Glencore noted that the Group derives further balance sheet
flexibility from the potential to reduce its existing sizeable long-term advances and loan book,
which includes, inter alia, marketing pre-export facilities and some infrastructure loans. As at
30th June 2015, the long-term advances and loan book stood at approximately US$4 billion.
Glencore today announces its intention to begin reducing the amount of long-term loans and
advances outstanding by between US$500 million and US$800 million by the end of 2016,
primarily via ongoing loan amortisation and various refinancing initiatives.
3.4 Additional reduction of capital expenditure at the industrial assets
In its 2015 interim results, Glencore noted that in light of the challenging commodity pricing
environment, capital expenditure on industrial assets for 2015 would reduce to US$6 billion,
compared to previous guidance of a maximum of US$6.8 billion. At the same time, Glencore
indicated that it was targeting capital expenditure on industrial assets in 2016 up to a maximum
of US$5.0 billion.
In aggregate, the revised guidance given at the time of the 2015 interim results for capital
expenditure on industrial assets in 2015 and 2016 amounted to US$11 billion.
Glencore today announces a further reduction in expected capital expenditure on industrial
assets in 2015 and 2016 by an additional US$500 million to US$1 billion, such that the overall
anticipated capital expenditure on industrial assets in 2015 and 2016 is now US$10 billion to
US$10.5 billion. These additional reductions come from further currency support, cost deflation
and various minor project deferrals.
3.5 Precious metals streaming and sale of minority participations in certain assets to
3rd party strategic investors
Glencore today confirms that it is in discussions regarding a number of strategic transactions
which will generate proceeds for the Group. These include, but are not limited to, proposed
precious metals streaming transaction(s) and the minority participation of 3rd party strategic
investors in certain of Glencore’s Agriculture assets, including infrastructure.
In aggregate, the Group is targeting to raise US$2 billion from the sale of assets. Further
announcements will be made in due course, at the appropriate time.
For further information please contact:
Glencore plc
Investors
Paul Smith t: +41 41 709 24 87 m: +41 79 947 13 48 paul.smith@glencore.com
Martin Fewings t: +41 41 709 28 80 m: +41 79 737 56 42 martin.fewings@glencore.com
Elisa Morniroli t: +41 41 709 28 18 m: +41 79 833 05 08 elisa.morniroli@glencore.com
Media
Charles Watenphul t: +41 41 709 24 62 m: +41 79 904 33 20 charles.watenphul@glencore.com
Pam Bell t: +44 20 7412 3471 m: +44 77 9962 6715 pam.bell@glencore.co.uk
Citi
Michael Lavelle t: +44 20 7986 4000
Tom Reid
Robert Way
Morgan Stanley
Michel Antakly t: +44 20 7425 8000
Paul Baker
Henrik Gobel
www.glencore.com
www.youtube.com/glencorevideos
About the Company
Glencore is one of the world’s largest global diversified natural resource companies and a major producer
and marketer of more than 90 commodities. The Group's operations comprise of over 150 mining and
metallurgical sites, oil production assets and agricultural facilities.
With a strong footprint in both established and emerging regions for natural resources, Glencore's
industrial and marketing activities are supported by a global network of more than 90 offices located in
over 50 countries.
Glencore's customers are industrial consumers, such as those in the automotive, steel, power
generation, oil and food processing. We also provide financing, logistics and other services to producers
and consumers of commodities. Glencore's companies employ around 181,000 people, including
contractors.
Glencore is proud to be a member of the Voluntary Principles on Security and Human Rights and the
International Council on Mining and Metals. We are an active participant in the Extractive Industries
Transparency Initiative.
Disclaimer
This Announcement is for information only and, save as expressly set out herein, does not constitute an
offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of any securities or
investment advice in any jurisdiction, including without limitation, the United Kingdom, the United States,
Canada, Australia, Japan, Jersey or South Africa. Any failure to comply with this restriction may
constitute a violation of the securities laws of such jurisdiction. Persons needing advice should consult an
independent financial adviser.
This Announcement has been issued by and is the sole responsibility of the Company. No representation
or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability
is or will be accepted by the Banks or by any of their respective affiliates or agents as to, or in relation to,
the accuracy, completeness or sufficiency of this Announcement or any other written or oral information
made available to or publicly available to any interested party or its advisers in connection with the
Company and any liability therefor is expressly disclaimed.
Citi and Morgan Stanley, each of which is authorised by the Prudential Regulation Authority and
regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation
Authority, are acting exclusively for the Company and no-one else in connection with the proposed equity
issuance and they will not be responsible to anyone other than the Company for providing the protections
afforded to their respective clients or in relation to the contents of this Announcement or any transaction
or any other matters referred to herein nor for providing advice in relation to the proposed equity
issuance.
The distribution of this Announcement and the proposed equity issuance in certain jurisdictions may be
restricted by law. No action has been taken by the Company or the Banks that would permit an offering of
such shares or possession or distribution of this Announcement or any other offering or publicity material
relating to such shares in any jurisdiction where action for that purpose is required. Any failure to comply
with these restrictions may constitute a violation of the securities laws of such jurisdiction. Persons into
whose possession this Announcement comes are required by the Company and the Banks to inform
themselves about, and to observe, such restrictions.
This announcement contains forward-looking statements. These statements are subject to a number of
risks and uncertainties and actual results and events could differ materially from those currently being
anticipated as reflected in such forward-looking statements. The terms “expect”, “should be”, “will be” and
similar expressions identify forward-looking statements. Factors which may cause future outcomes to
differ from those foreseen in forward-looking statements include, but are not limited to: general economic
and business conditions; demand for the commodities in which the Company has invested; factors
affecting the assets and operations to which the Company’s royalty interests relate; competitive factors in
the industries in which the Company operates; exchange rate fluctuations; legislative, fiscal and
regulatory developments; political risks; terrorism, acts of war and pandemics; changes in law and legal
interpretations. Forward-looking statements speak only as of the date of such statements and, except as
required by applicable law, the Company undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future events or otherwise. The
information contained in this Announcement is subject to change without notice and neither the Company
nor the Banks assume any responsibility or obligation to update publicly or review any of the forward-
looking statements contained herein.
No statement in this Announcement is intended to be a profit forecast and no statement in this
Announcement should be interpreted to mean that earnings per share of the Company for the current or
future financial years would necessarily match or exceed the historical published earnings per share of
the Company. Neither the content of the Company's website nor any website accessible by hyperlinks on
the Company's website is incorporated in, or forms part of, this Announcement.
This Announcement and the information contained herein do not constitute an offer of securities in the
United States. The securities referred to in this Announcement have not been and will not be registered
under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold
in the United States absent registration under the Securities Act or pursuant to an exemption from, or a
transaction not subject to, such registration requirements. The Company has not registered and does not
intend to register the offering of any securities in the United States or to conduct a public offering of any
securities in the United States.
Sponsor
Absa Bank Limited (acting through its Corporate and Investment Banking Division)
Date: 07/09/2015 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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