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8
Responsibly
sourcing the
commodities
for everyday life
Annual Report 2018
Our strategy
for a sustainable
future
Page 16
Sustainability
Page 36
We are one of
the world’s largest
globally diversified
natural resource
companies, employing
around 158,000 people
in 150 mining and
metallurgical sites,
oil production assets
and agricultural
facilities around
the world.
glencore.com
Highlights
Net income
atttributable to
equity holders
(US$ million)
3,408
5,777
Earnings per share
(basic)
(US$)
0.24
0.41
3,408
0.24
1,379
0.10
2016
2017
2018
2016
2017
2018
Adjusted EBITDA◊
(US$ million)
15,767
15,767
14,545
10,268
Adjusted EBIT◊
(US$ million)
9,143
9,143
8,459
Total borrowings
(US$ million)
34,994
33,218
33,934 34,994
3,930
2016
2017
2018
2016
2017
2018
2016
2017
2018
Net debt/
FFO to net debt◊
(US$ millon/%)
14,710
15,526
14,710
120
Cash generated by
operating activities
before working capital
changes (US$ millon)
Funds from
operations◊
(US$ millon)
13,210
13,210
11,866
11,595
11,350
11,595
7,868
7,770
10,216
90
60
30
0
Front cover: Environmental Advisor Alinta Skewes
at Glencore’s McArthur River Mine, Australia.
2016
2017
2018
2016
2017
2018
2016
2017
2018
FFO to net debt (%)
Financial
review
Page 52
Lost time injury
frequency rate
(LTIFR)
1.06
1.40
1.02
1.06
2016
2017
2018
Carbon emissions
(million tonnes CO2)
30.3
23.1
21.6
18.5
11.9
11.6
11.8
2016
2017
2018
Scope 1
Scope 2
Community
investment
(US$ millon)
95
84
90
95
2016
2017
2018
◊ Alternative performance measures
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 214 for definition and
reconciliations and note 2 of the
financial statements for reconciliation
of Adjusted EBIT/EBITDA.
Read more
Page 214
Contents
Strategic report
At a glance
Chief Executive Officer’s review
Well positioned for the future
Our market drivers
Business model
Our strategy for a sustainable future
Climate change – looking beyond 2020
Key performance indicators
Principal risks and uncertainties
Sustainability
Financial review
Business review
– Metals and minerals
– Energy products
– Agricultural products
Corporate Governance
Directors and officers
Chairman’s introduction
Corporate governance report
Directors’ remuneration report
Directors’ report
Financial statements
Independent Auditor’s Report
to the members of Glencore plc
Consolidated statement of income
Consolidated statement of
comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes of equity
Notes to the financial statements
Additional information
Alternative performance measures
Other reconciliations
Production by quarter – Q4 2017 to Q4 2018
Resources and reserves
Shareholder information
2
4
8
10
12
16
20
22
24
36
52
60
80
90
94
96
98
113
118
124
135
136
137
138
140
141
214
219
221
228
236
Glencore Annual Report 2018
1
At a glance
We are one of the world’s largest
natural resource companies.
Active at every stage of the
commodity supply chain,
we are uniquely diversified
by geography, product and
activity, maximising the value
we create for our business
and its diverse stakeholders
$170m
annual investment
2018–24 to secure
long-term production
at our Integrated
Nickel Operations
One of the world’s largest natural resource companies
150
90
50
c.158,000
4
5
7
sites
countries
offices
people
Three business segments
Metals and
minerals
Energy
Agriculture
Active at every stage of the commodity chain
$200m
to increase Collahuasi
copper concentrator
throughput capacity to
170ktpd. Commissioning
2021
1
Exploration,
acquisition and
development
2
Extraction and
production
3
Processing
and refining
4
Blending and
optimisation
5
Logistics
and delivery
Highly diversified
3
+90
commodities
business
segments
Focused on sustainability
With impressive market insight
40+
c.3,000
years’
experience
employees in marketing
Lost time injury
frequency rate
(per million
hours worked)
1.60
1.34 1.40
Total recordable
injury frequency rate
(per million
hours worked)
5.02
4.35
4.05
CO2e Scope 1
(million tonnes)
CO2e Scope 1
23.0 23.1
(million tonnes)
21.6
21.6
23.0 23.1
21.6
21.6
18.5
18.5
CO2 Scope 2 –
location based
CO2 Scope 2 –
(million tonnes)
location based
(million tonnes)
14.6
14.3
14.6
14.3
11.9 11.6 11.8
11.9 11.6 11.8
1.02 1.06
3.08 3.18
Financial review
Page 52
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Sustainability
Page 36
2
Glencore Annual Report 2018
Key
Metal and minerals sites
Energy products sites
(Number of assets where grouped)
Agriculture sites
Corporate offices
Marketing office/other
$1.2bn
in downstream oil
related investments
4
4
5
5
7
7
c.15Mtpa
increase in high
quality coal
production from
HVO and Hail
Creek acquisitions
What makes
us different?
Adjusted EBITDA
2018 (%)◊
Revenue◊1 by region
and segment 2018 (%)
Non-current assets2
by region (%)
• High-quality, low-cost
assets in desirable
commodities
• Entrepreneurial
culture: employees
empowered to
make decisions
• Long-term
relationships with
broad base of
suppliers and
customers
• Marketing business
less correlated to
commodity prices
• Maximum flexibility
and economies
of scale
$78.0bn
(2017: $78.2bn)
Metal and minerals
$83.4bn
(2017: $80.5bn)
Energy products
$139.0bn
(2017: $128.3bn)
$15.8bn
(2017: $14.6bn)
Business segments
Metals and minerals
Energy
Agriculture
Regions
Americas
Asia
Europe
Africa
Oceania
1 Revenue by geographic destination is based on the country of incorporation of the sales counterparty.
However, this may not necessarily be the country of the counterparty’s ultimate parent and/or final
destination of the product, see note 2 of the financial statements.
2 Non-current assets are non-current assets excluding other investments, advances and loans and
deferred tax assets. The percentage contributions are derived from the information included in note 2
of the financial statements.
Glencore Annual Report 2018
3
Strategic ReportFinancial statementsGovernanceAdditional information Chief Executive Officer’s review
We have delivered both record Adjusted EBITDA
and significant cash returns to shareholders in 2018.
With our attractive commodities and high margin
assets, we look to the future with confidence
from sanctions imposed on
Dan Gertler, Katanga’s deliberations
with Gécamines over the required
recapitalisation of its main
operating subsidiary (see note 33),
a new mining code introduced in
2018 and the recent appearance
of excess levels of uranium in the
cobalt hydroxide being produced
at Katanga.
Katanga resolved the matter with
Gécamines in a constructive manner,
while after careful consideration of
its legal and commercial options and
obligations to a broad stakeholder
universe, Glencore settled its dispute
with the various entities affiliated
with Dan Gertler, in a manner that
sought to appropriately address all
applicable obligations and concerns.
In contravention of the applicable
stabilisation protections afforded by
the previous mining code, the new
mining code includes significant
immediate changes to royalties,
various taxation requirements and
repatriation of profits. Given the legal
risks of non-compliance, our DRC
subsidiaries are currently complying
with the new code “under protest”.
We hope to be able to negotiate a
reasonable resolution with the DRC
government on various key issues
during 2019, but remain willing to
take the necessary steps to protect
our legal rights.
In early July, a Glencore subsidiary
received a subpoena from the United
States Department of Justice (DOJ)
to produce documents and other
records with respect to compliance
with the Foreign Corrupt Practices
Act and United States money
laundering statutes. A committee
comprising only Independent
Non-Executive Directors, led by
our Chairman, Tony Hayward, is
overseeing the Company’s response
to the DOJ investigation. We take
ethics and compliance seriously
and are cooperating with the DOJ.
A record performance in a
challenging environment
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,
marked by deteriorating market
sentiment as well as some company
specific challenges.
The prospect of synchronised
global economic growth greeted
the start of 2018, supporting positive
commodity fundamentals and
prices. However, by the end of H1 and
into Q3, a strong US dollar, increased
volatility and heightened US trade
policy tension, began to weigh on
broader markets, with widespread
concern around sustainability of
Chinese growth also resurfacing.
Industrial metals bore the brunt
of increasingly negative sentiment
in the second half, although
average 2018 prices were generally
higher year-on-year, e.g. nickel
+26%, thermal coal +22% and copper
+6%. While most commodities
ended the year materially lower
than where they started, thermal
coal was broadly unchanged,
as demand for high quality coals
remained robust against a backdrop
of limited reinvestment in supply.
Notwithstanding the volatility in
commodity prices, like previous
years, underlying demand for
our key commodities remained
generally healthy throughout
the year.
The year also brought specific
challenges for Glencore,
commencing in the form of a
number of issues at our copper
and cobalt operations in the
Democratic Republic of Congo
(DRC), including those arising
4
Glencore Annual Report 2018
Creating
long-term,
sustainable
returns for
shareholders:
As one of the world’s
largest diversified
resource companies we
have a key role in enabling
the transition to a
low-carbon economy
Our well positioned
portfolio includes
copper, cobalt, zinc,
vanadium and nickel
Our commodities
underpin the
infrastructure and
chemistry needed
for a low-carbon world
We aim to prioritise capex
towards commodities
essential to the energy
and mobility transition
We are committed to
enabling the transition
to a low-carbon economy
Page 20
Commodity fundamentals
still positive
Post the peak in mining sector
capex some six years ago, sector
reinvestment has remained limited,
the growth capex pipeline has
contracted and the demand
backdrop has been solid.
This underpinned favourable
fundamentals for a number of our
key commodities, including copper,
nickel and thermal coal. In the case
of our key base metals, inventory
drawdowns have reduced stockpiles
to record lows in some instances.
As we move through 2019, should
market supply side data prove
correct, inventory drawdowns are
likely to continue beyond already
critical levels for some commodities,
in the absence of a material
demand slow-down.
Strong financial performance
Higher average commodity
prices in 2018 underpinned an
8% increase in Adjusted EBITDA
to $15.8 billion. Net income before
significant items rose 5% to $5.8 billion,
while significant items reduced
Net profit attributable to equity
holders to $3.4 billion, mainly due to
non-cash impairments of $1.6 billion,
primarily reflecting impairments
of the carrying values of our
Mutanda and Mopani assets.
Our performance reflects our
continuing efforts to maximise
and optimise the cash generating
capability of our unique business
model.
Our Marketing business reported
Adjusted EBIT of $2.4 billion, down
17% compared to 2017. Reasonable
market conditions in our Energy
Products and Metals and Minerals
businesses were hampered by a
“basis risk” hedging breakdown
related to alumina sourcing into
medium-term % LME linked legacy
sales contracts as well as cobalt
market challenges in H2 2018.
Looking ahead, we maintain our
long-term Marketing Adjusted EBIT
guidance range of $2.2 to $3.2 billion.
We are confident of an improved
year-over-year performance,
suggesting a 2019 result towards
the middle of our guidance range.
Industrial Adjusted EBITDA of
$13.3 billion in 2018 was 15% higher
than 2017. Our asset portfolio
continued to deliver overall
competitive all-in unit costs which,
despite some minor production
challenges during the year, allowed
the Company to capitalise on
healthy average commodity prices
and generate attractive margins.
Enhancing corporate
governance and sustainability
We recently established an Ethics,
Compliance and Culture committee
to provide oversight and leadership
of the Group’s key ethics, compliance,
culture and governance matters.
The new committee will assume
responsibility for implementing the
new Corporate Governance Code,
including, amongst other matters,
assessing and monitoring our
culture to ensure alignment with
our purpose, values and strategy.
We have continued to strengthen
our controls and made substantial
investments to enhance our
compliance programme across
the Group. In this regard, we were
disappointed by the conduct that
led to Katanga’s settlement with
the OSC. Glencore is working with
Katanga to implement the various
changes to improve its reporting
and control functions and to
address some cultural failures
that contributed to this conduct.
Our commitment to operate
transparently and responsibly
is reflected in our ambition to
integrate sustainability throughout
every aspect of our business.
This is a key strategic priority
for the Group.
Glencore Annual Report 2018
5
Strategic ReportFinancial statementsGovernanceAdditional information Chief Executive Officer’s review continued
This commitment to sustainability
also encompasses our desire to
uphold respect for human rights,
protect the wellbeing of our people,
our host communities and the
natural environment, while sharing
lasting benefits with the regions
where we work and society as
a whole.
Sadly, we recorded thirteen fatalities
at our operations in 2018, an increase
on 2017. This is disappointing and
unacceptable. We have created
a new position with oversight and
responsibility for all of Glencore’s
industrial mining assets and have
appointed Peter Freyberg to this role.
Peter brings a wealth of operational
experience from his management
of our coal assets and will focus his
attention on co-ordinating our goals
of producing safely, productively
and sustainably. Our goal remains
one of zero fatalities.
We have also made progress on our
post-2020 climate change strategy.
Following consultation with the
investor signatories of the Climate
Action 100+ initiative, we have
agreed steps to further our
commitment to the transition
to a low-carbon economy.
As one of the world’s largest
diversified resource companies, we
have a key role to play in enabling
transition to a low-carbon economy.
We do this through our well-
positioned portfolio that includes
copper, cobalt, nickel, vanadium and
zinc – commodities that underpin
energy and mobility transformation.
We believe this transition is a
key part of the global response
to the increasing risks posed
by climate change, which must
pursue the twin objectives of both
limiting temperatures in line with
the goals of the Paris Agreement
and supporting the United Nations
Sustainable Development Goals,
including universal access to
affordable energy.
Conviction to create value
In 2018, we complemented
our portfolio with acquisitions
(and some non-core disposals)
designed to create long-term
value for shareholders, a number
of which were first announced
in 2017. These include:
2018 announced
distributions
and buybacks
$5.2bn
Minimising our impact
on the environment
5%
reduction in carbon
emissions intensity
by 2020 vs 2016
• 49% of Rio Tinto’s Hunter
Valley Operations (thermal coal)
with Yancoal retaining 51%,
gaining access to sizeable high
quality energy coal resources,
operatorship and marketing rights
• 82% of Rio Tinto’s interest in
the Hail Creek mainly coking
coal mine
• 78% in ALE Combustiveis
(ALE), Brazil’s fourth largest
fuel distributor
• Chevron’s South African and
Botswana mid/down-stream oil
business (funded already in the
two-stage process, with final
ownership transfer expected
to Glencore in H1 2019)
• Non-core disposals during the
year included our Tahmoor coal
mine and our interest in the
Mototolo platinum operation
Both Hail Creek and HVO have
been successfully integrated into
our portfolio and we have identified
some $185 million of managed
annual cost savings/margin
improvements to be realised upon
completion of the restructure plans
at these assets. These low-cost
high-quality assets are expected
to play an important role within our
coal portfolio in the coming years.
Record shareholder cash returns
Reflecting the strength of our
operating cashflow, we announced
$5.2 billion of distributions and
buybacks in 2018, comprising a
$0.20 per share ($2.84 billion) base
distribution (in respect of 2017
cash flows), $0.32 billion of share
trust purchases and $2 billion
of share buy-backs.
Consistent with the continued
strong cash flow generation
seen in 2018, 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.
6
Glencore Annual Report 2018
Management changes
and succession
2018 has also been a year of change
in the management of the Group,
notably with the retirement of two
of our longstanding Department
Heads, Telis Mistakidis in Copper
and Stuart Cutler in Ferroalloys,
resulting in the most meaningful
implementation of our development
and succession plans since our IPO.
Telis has been succeeded
by Nico Paraskevas and Stuart by
Jason Kluk and Ruan van Schalkwyk.
With Peter Freyberg’s appointment
to the role of Head of Industrial
Mining Assets, Gary Nagle replaces
Peter as Head of Coal Assets, while
Japie Fullard succeeds Gary as
Head of Ferroalloys assets.
We wish Telis and Stuart well in
their retirement. I look forward
to working with our new team
and colleagues in developing our
business in the coming years and
nurturing the next generation
of leadership at Glencore.
Looking forward
We look ahead with confidence,
remaining focused on creating
sustainable long-term value for
all our shareholders.
Strategic priorities
Integration of sustainability
throughout our business
Maintain a robust and
flexible balance sheet
Focus on cost control and
operational efficiencies
Ivan Glasenberg
Chief Executive Officer
28 February 2019
Our strategy for a
sustainable future
Page 16
This payment comprises a fixed
$1 billion pay-out in respect of
Marketing activities and a variable
component of ~$1.8 billion,
representing ~35% of industrial
free cash, compared to our policy
minimum of 25%.
Near-term focus on deleveraging
and shareholder returns
The 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.
Outside of our base distribution
policy, for the balance of our
equity cash flows, we currently
envisage prioritising:
• Buybacks funded by cash
generation
• Net funding: focus on consistently
maintaining Readily Marketable
Inventories (RMI) at levels below
$20 billion
• Net debt: maintain in the
$10 billion–$16 billion guidance
range, while limiting Net debt/
Adjusted EBITDA to around 1x,
in the current uncertain
economic cycle backdrop
Reflecting this, and taking account
of the illustrative annualised free
cash that the business generates
at current spot commodity prices,
we announced on 20 February 2019
a new $2 billion buyback program,
which will run until the end of the
year. 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.
Glencore Annual Report 2018
7
Strategic ReportFinancial statementsGovernanceAdditional information Well positioned for the future
We remain focused on our strategy to sustainably
grow total shareholder returns while operating
responsibly. We are confident we can offer
a differentiated value proposition to investors
Uniquely
diversified by
commodity,
geography
and activity
The right
commodity mix
for changing
needs
Well-capitalised,
low-cost, high-
return assets
• Fully integrated from
mine to customer
• Presence in 50 countries
across 150 operating sites
• Producing and marketing
more than 90 commodities
across three business
segments
• Diversified across multiple
suppliers and customers
• Future demand patterns
• Since 2009, over $40 billion
for maturing economies are
likely to favour mid and late
cycle commodities
• Major producer of later cycle
commodities including the
enabling materials (copper,
cobalt, nickel) that underpin
the battery chemistry and
infrastructure likely to power
electric vehicles and energy
storage systems
has been invested in
industrial assets
• Low-cost long-life assets in
many of the world’s premier
mining districts support
sustainable long-term
cash flows
• Mine-life extension
potential embedded
in key commodities
Adjusted EBITDA◊ diversified by
commodity and geography (%)
Volume of commodities required
to enable 30% EV sales by 2030
Industrial Adjusted EBITDA
mining margins
● Copper
● Zinc
● Nickel
● Ferroalloys
● Coal
● Oil
● Marketing
● Americas
● Europe/Asia
● Africa
● Oceania
● Marketing
+4.1mt
Copper
+1.1mt
Nickel
+314kt
Cobalt
38%
Metals and minerals,
down from 40%
46%
Energy products,
up from 41%
8
Glencore Annual Report 2018
Business
review
Page 60
A unique
marketing
business that
extracts value
across the entire
supply chain
A conviction
to create value
Significant
cash flow
generation and
distribution
potential
• As a marketer of commodities,
• Capital allocation framework
we can extract value from
the full-range of arbitrage
opportunities
• We create value from our
economies of scale, our
extensive (including third
parties) supply base, our
logistics, risk management
and working capital
financing capabilities
balances preservation
of capital structure with
attractive investment and
growth opportunities
• Conviction to create value
through partnerships, M&A
and organic investment
• Unique ability to source and
structure deals using trading
and strategic relationships
Resilience of marketing earnings
Investing in M&A
150
120
90
60
30
0
2012
2013
2014
2015
2016
2017
2018
Marketing Adjusted EBIT Indexed
Industrial Adjusted EBITDA Indexed
$2.9bn
Including HVO, Hail Creek
and a $1bn loan to acquire
a South African oil business
Investing in brownfield growth
$1.2bn
Expansionary capital investment
in African copper, Zhairem,
Integrated Nickel Operations
and Koniambo
• Funds from operations (FFO)◊
up 2% to $11.6 billion in 2018
• FFO/Net debt◊ of 78.8%
• Minimum distribution
policy based on a fixed/
variable payout of prior year
cash flow, comprising a fixed
$1 billion from marketing
and a minimum pay-out
ratio of 25% of Industrial
asset free cash flow
Earnings per share
$0.24
down 41%
2019 distribution recommended
$2.8bn
$0.20/share
2019 announced buyback
$2.0bn
Glencore Annual Report 2018
9
Strategic ReportFinancial statementsGovernanceAdditional information Our market drivers
We are dependent upon the supply
of and demand for our commodities
Key
market
drivers
Impact
on our
industry
How we are
responding
10
Glencore Annual Report 2018
1 Future commodity
supply
• The pro-cyclical nature of mining investment
means that new mines are usually approved
when commodity prices are higher
• Given the long development time frames
required to bring new mine supply on line,
the timing as to when this appears in
the economic cycle is difficult to predict
and could appear at low points in the
economic cycle, creating excess supply
in the market
• Over-investment creates oversupply and
with it a potentially prolonged period of low
commodity prices
• Although commodity prices have increased
significantly from the lows seen in early 2016,
the experience of the last economic cycle has
increased investor pressure on companies to be
more cautious about investing in new supply
• Balancing a finite, declining resource base
with the need to grow to meet expected future
demand is an inherent challenge for companies
in the resource sector
$38bn
estimated 2018 sector reinvestment compared
to a 13 year average of $43bn (estimated)
• Our disciplined approach to capital allocation
attempts to ensure that supply and demand
forces retain a level of balance
• Given the unpredictability of costs, risks
and timing of large-scale greenfield projects
we prefer to add supply via targeted capital
efficient/low risk brownfield expansions
when required
Our zinc production
increased by
2%
against a significant global
supply shortfall vs demand
2 Demand for the commodities
we produce
• The industrialisation and urbanisation of
3 Energy and emissions
transformation
• Momentum to decarbonise the global economy
developing economies over the last decade has
driven significant growth in commodity demand
is gathering pace as nations increasingly
coordinate efforts aimed at minimising
greenhouse gas emissions to achieve the Paris
Agreement climate change goals and transition
the world to a low-carbon economy
• China’s rapid growth over this period now means
that it accounts for up to half of global demand
for most commodities
• As developing economies mature, the
commodities that drive their growth change
• Increased levels of industrialisation and
• This transition is likely to increase the cost for
China accounts for close to
50%
of global demand for
most commodities
urbanisation suggest demand growth rates
for commodities may be lower in the future
• Negative demand could generate excess
supply along with lower commodity prices
• Early-cycle commodities such as iron ore, coking
coal and cement may become less important
as demand patterns shift in favour of mid and late
nickel, thermal coal and agricultural products
An extra 1.7 billion people forecast
to increase global energy demand
>25%
by 2040 under IEA New Policies Scenario
The Paris Agreement aims to keep the global
temperature rise this century to well below
2ºc
as well as pursue efforts to limit the
temperature increase even further to 1.5ºc
fossil fuels, impose levies for emissions and
increase costs for monitoring and reporting
and to reduce demand for fossil fuels
• Third parties, including potential or actual
investors, may also introduce policies adverse
to Glencore due to our interest in fossil fuels,
particularly coal
energy sources more competitive with fossil
fuels which are likely to have increased
market share over the longer run. In particular,
many analysts believe that demand for coal
may reduce sooner than previously expected
cycle commodities such as copper, zinc, cobalt,
• Technological advances are making renewable
• With the expectation that growth drivers in the
• We continuously assess the risks and
global economy will remain weighted towards
consumer spending, and therefore commodity
opportunities presented by decarbonisation
of energy and mobility across our product
demand growth will be focused in the higher-end,
and operational portfolio
• We are a major producer of the commodities
and support the global transition to a
fast growing consumer sectors, our diverse
commodity portfolio, supplying this demand,
is well placed to benefit from this transition
that underpin the current battery chemistry
and infrastructure initiatives that are expected
to power electric vehicles and energy storage
systems and this new source of demand
• As a major producer and consumer of fossil fuels,
we recognise our responsibility to understand
and manage our greenhouse gas emissions,
low-carbon economy
• In consultation with the investor signatories of
the Climate Action 100+ initiative, we have agreed
steps to further our commitment to the transition
to a low-carbon economy
1 Future commodity
supply
• The pro-cyclical nature of mining investment
means that new mines are usually approved
when commodity prices are higher
• Given the long development time frames
required to bring new mine supply on line,
the timing as to when this appears in
the economic cycle is difficult to predict
and could appear at low points in the
economic cycle, creating excess supply
in the market
• Over-investment creates oversupply and
with it a potentially prolonged period of low
commodity prices
• Although commodity prices have increased
significantly from the lows seen in early 2016,
the experience of the last economic cycle has
increased investor pressure on companies to be
more cautious about investing in new supply
• Balancing a finite, declining resource base
with the need to grow to meet expected future
demand is an inherent challenge for companies
in the resource sector
$38bn
estimated 2018 sector reinvestment compared
to a 13 year average of $43bn (estimated)
• Our disciplined approach to capital allocation
attempts to ensure that supply and demand
forces retain a level of balance
• Given the unpredictability of costs, risks
and timing of large-scale greenfield projects
we prefer to add supply via targeted capital
efficient/low risk brownfield expansions
when required
Our zinc production
increased by
2%
against a significant global
supply shortfall vs demand
Principal risks
and uncertainties
Page 24
Climate change –
looking beyond 2020
Page 20
2 Demand for the commodities
we produce
• The industrialisation and urbanisation of
developing economies over the last decade has
driven significant growth in commodity demand
• China’s rapid growth over this period now means
that it accounts for up to half of global demand
for most commodities
• As developing economies mature, the
commodities that drive their growth change
China accounts for close to
50%
of global demand for
most commodities
• Increased levels of industrialisation and
urbanisation suggest demand growth rates
for commodities may be lower in the future
• Negative demand could generate excess
supply along with lower commodity prices
• Early-cycle commodities such as iron ore, coking
coal and cement may become less important
as demand patterns shift in favour of mid and late
cycle commodities such as copper, zinc, cobalt,
nickel, thermal coal and agricultural products
An extra 1.7 billion people forecast
to increase global energy demand
>25%
by 2040 under IEA New Policies Scenario
• With the expectation that growth drivers in the
global economy will remain weighted towards
consumer spending, and therefore commodity
demand growth will be focused in the higher-end,
fast growing consumer sectors, our diverse
commodity portfolio, supplying this demand,
is well placed to benefit from this transition
• We are a major producer of the commodities
that underpin the current battery chemistry
and infrastructure initiatives that are expected
to power electric vehicles and energy storage
systems and this new source of demand
3 Energy and emissions
transformation
• Momentum to decarbonise the global economy
is gathering pace as nations increasingly
coordinate efforts aimed at minimising
greenhouse gas emissions to achieve the Paris
Agreement climate change goals and transition
the world to a low-carbon economy
The Paris Agreement aims to keep the global
temperature rise this century to well below
2ºc
as well as pursue efforts to limit the
temperature increase even further to 1.5ºc
• This transition is likely to increase the cost for
fossil fuels, impose levies for emissions and
increase costs for monitoring and reporting
and to reduce demand for fossil fuels
• Third parties, including potential or actual
investors, may also introduce policies adverse
to Glencore due to our interest in fossil fuels,
particularly coal
• Technological advances are making renewable
energy sources more competitive with fossil
fuels which are likely to have increased
market share over the longer run. In particular,
many analysts believe that demand for coal
may reduce sooner than previously expected
• We continuously assess the risks and
opportunities presented by decarbonisation
of energy and mobility across our product
and operational portfolio
• As a major producer and consumer of fossil fuels,
we recognise our responsibility to understand
and manage our greenhouse gas emissions,
and support the global transition to a
low-carbon economy
• In consultation with the investor signatories of
the Climate Action 100+ initiative, we have agreed
steps to further our commitment to the transition
to a low-carbon economy
Glencore Annual Report 2018
11
Strategic ReportFinancial statementsGovernanceAdditional information Business model
As a global producer and marketer of commodities,
we are uniquely diversified by geography, products
and activities. Integrating our marketing and industrial
business sets us apart from our competitors and helps
us generate value
Inputs and resources
on which our business
model depends
Assets and natural resources
• Our resources and reserves are
overall long-life and of a high
quality, enhancing the scale and
value of our marketing business
• We are a disciplined producer,
seeking to align supply with
demand and value over volume
Our people and partners
• We have established long-term
relationships with a broad
range of suppliers and
customers across diverse
industries and geographies
• c.158,000 employees and
contractors spread across
90 sites/offices and six continents
Financial discipline
• We deploy capital in a disciplined
manner, seeking to create value
for all our stakeholders
• Our hedging strategies protect
us against price risks and ensure
that our marketing profitability
is primarily determined by
volume-driven activities and
value-added services rather
than absolute price
Unique market knowledge
• As an integrated commodity
producer and marketer,
we are uniquely positioned
to generate value at every
stage of the commodity chain
3 business segments,
spanning the metals,
energy and agricultural
markets, producing
90 commodities
from 150 sites
Metals and
minerals
Energy
Agriculture
Exploration, acquisition and development
Our focus on brownfield sites and exploration close to existing
assets lowers our risk profile and lets us use existing infrastructure,
realise synergies and control costs.
Extraction and production
We mine and beneficiate minerals across a range of commodities,
mining techniques and countries, for processing or refining at
our own facilities, or for sale.
Processing and refining
Our expertise and technological advancement in processing
and refining mean we can optimise our end products to suit
a wider customer base and provide security of supply as
well as valuable market knowledge.
Our business activities
are driven to achieve
our strategic imperatives
and our commitment
to developing a
sustainable business
Safety
The safety of our people is our top
priority. We aim to eliminate fatalities
and provide a safe workplace.
Health
We want to protect and improve
the health of our workforce and
local communities.
Environment
We aim to minimise any negative
environmental impact from our activities
and promote efficient use of resources,
such as energy and water.
12
Glencore Annual Report 2018
Our marketing
business
Page 15
Our commodities in
everyday products
Logistics and delivery
Our logistics assets allow us to handle large volumes
of commodities, both to fulfil our obligations and to
take advantage of demand and supply imbalances.
These value added services make us a preferred
counterparty for customers without such capabilities.
Geographic
arbitrage
Product
arbitrage
Time
arbitrage
Safety
3%
increase in total recordable
injury frequency rate
Payments to
Governments
$5.7bn
Minimising our impact
on the environment
-9%
reduction in carbon
emissions (scope 1 and
scope 2 – location based)
Adjusted EBITDA◊
$15.8bn
2018 announced
distributions/buybacks
$5.2bn
Our marketing business
We move commodities
from where they are plentiful
to where they are needed.
Blending and optimisation
Our ability to blend and optimise allows us to offer a wide range of
product specifications, resulting in a superior service and an ability
to meet our customer specific requirements.
Anti-bribery and corruption
Offering, paying, soliciting or accepting
bribes is unacceptable. We work to
identify and reduce the risks of bribery
and corruption across all our business.
Community and human rights
We foster sustainable growth and respect
human rights wherever we operate.
Sustainability
framework
Page 37
Our strategy for a
sustainable future
Page 16
Glencore Annual Report 2018
13
Strategic ReportFinancial statementsGovernanceAdditional information Business model continued
Strength through
combination
Our scale and presence both as a producer
and marketer of commodities is unrivalled.
We are present at every point of the
value chain, from where commodities are
sourced to where they are consumed:
• Global scale
• Long-term relationships
• Unique insights
• Differentiated opportunities
Glencore
Metals and
minerals
Energy
Agriculture
4.5mt1
Copper metal and
concentrates marketed
3.2mt1
Zinc metal and
concentrates marketed
1.7bn bbl
Crude oil and oil
products marketed
1,200
Vessels on the ocean
at any one time
7,000+
Long-term relationships
with suppliers and
customers
Exploration
Extraction/
production
Processing/
refining
Blending/
optimisation
Logistics/
marketing
Traditional miner
Marketer
1 Estimated metal unit contained.
Strategy and risk
A supportive strategy
Our Marketing Business supports
the creation of incremental value
from a pool of allocated capital
through critical mass, blending,
storage and arbitrage opportunities.
Our presence at every stage of the
value chain allows us to leverage
our scale and diversity.
How we manage risk
We mitigate credit risks through
application of measures including
credit insurance, letters of credit,
security arrangements and bank
or corporate guarantees.
We manage market exposure
by reducing price risks arising from
timing differences to acceptably
low levels.
Our policies/procedures seek to
ensure we comply with applicable
sanctions, laws and regulations.
14
Glencore Annual Report 2018
Principal risks
and uncertainties
Page 24
Our marketing
business
We move commodities from where they
are plentiful to where they are needed
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Arbitrage
opportunities
Many of the physical commodity
markets in which we operate are
fragmented or periodically volatile.
This can result in arbitrage: price
discrepancies between the prices
for the same commodities in
different geographic locations
or time periods.
Other factors with arbitrage
opportunities include freight
and product quality.
Geographic
arbitrage
Disparity
Different prices for the same
product in different geographic
regions, taking into account
transportation and transaction
costs.
Execution
Leverage global relationships
and production, processing and
logistical capabilities to source
product in one location and
deliver in another..
Product
arbitrage
Disparity
Pricing differences between
blends, grades or types
of commodity, taking into
account processing and
substitution costs.
Execution
Ensure optionality with
commodity supply contracts,
and look to lock-in profitable
price differentials through
blending, processing or
end-product substitution.
Time
arbitrage
Disparity
Different prices for a commodity
depending on whether delivery
is immediate or at a future date,
taking into account storage
and financing costs.
Execution
Book “carry trades” that benefit
from competitive sources of
storage, insurance and financing.
Market insight and
customer understanding
Our global scale and presence in
more than 90 commodities across
50 countries gives us extensive
market knowledge and insight
to help us fully understand the
needs of our customers.
Anticipating supply and demand
Our integrated marketing
and industrial businesses work
side-by-side to give us presence
across the entire supply chain,
delivering in-depth knowledge
of physical market supply
and demand dynamics and
an ability to rapidly adjust to
market conditions.
Creating opportunities
The significant scale of both our
own production and the volumes
secured from third parties allows
us to create margin opportunities
from our ability to supply the
exact commodities the market
needs through processing and/or
blending and optimisation
of qualities.
Generating revenue
We generate revenues as a
fee-like income from physical
asset handling and arbitrage, as
well as blending and optimisation
opportunities. Our use of hedging
instruments results in profitability
being largely determined by
these activities rather than by
absolute price movements.
Glencore Annual Report 2018
15
Financial statementsGovernanceAdditional information
Our strategy for a sustainable future
We recognise our ongoing responsibility to not only
deliver financial performance but also make a positive
contribution to society and create lasting benefits
for stakeholders in a manner that is responsible,
transparent and respectful to the rights of all
Strategic objective
To sustainably grow
total shareholder
return while
maintaining a strong
investment grade
rating and acting as a
responsible operator
16
Glencore Annual Report 2018
CEO’s review
Page 4
Strategic priorities
1
Integration of
sustainability
throughout
our business
We believe that by being a better operator with a reputation for
doing things the right way, we will be seen by our stakeholders
as a partner of choice. We are achieving this through taking an
approach of continuous improvement. This approach is delivered
through our health and safety programmes, advancing our
environmental performance, respecting human rights and
by developing, maintaining and strengthening our relationships
with all of our stakeholders.
3%
Increase in Total Recordable
Injury Frequency Rate in 2018
2
Maintain
a robust
and flexible
balance sheet
3
Focus on cost
control and
operational
efficiencies
We recognise that a robust and sufficiently flexible balance sheet
contributes to the delivery of sustainable, long-term shareholder
returns and ensures that Glencore is well placed to withstand the
cyclical nature of the natural resource industry. We aim to increase
returns on capital and cash flows while targeting a maximum 2x
Net debt/Adjusted EBITDA ratio throughout the cycle. We aim to
only deploy capital when strict and clearly defined financial criteria,
relating to returns and payback, can be met.
$10 – $16bn
Managed Net debt range
Our major industrial assets are mainly long-life and low-cost,
reflecting our substantial investment into existing assets as well
as our appetite, capabilities and belief in some commodities
and geographies where our peers are not materially present.
Our industrial assets provide a consistent source of volumes for
our marketing operations, which are supplemented by third party
production. Our marketing activities use their scale and capabilities
to extract additional margin throughout our business model and
provide a superior service to our customers and a reliable supply
of quality product.
We seek to increase the value of our business by improving the
competitiveness of our assets through an ongoing focus on cost
management and logistical capabilities, including operating safely
and efficiently. We take a disciplined approach towards all of our
assets and will divest when another operator places greater value
on them, or curtail production in response to oversupply when it
makes sense to do so.
+15%
Increase in Industrial Adjusted EBITDA
Glencore Annual Report 2018
17
Strategic ReportFinancial statementsGovernanceAdditional information Our strategy for a sustainable future continued
Strategic priorities
Performance in 2018
Priorities going forward
KPIs
Principal risks
SafeWork programme
Continued to progress
our SafeWork programme,
an initiative that focuses
on eliminating fatalities
and occupational diseases.
Regrettably, there were
thirteen fatalities during the
year. We continue to work
towards the elimination of
fatalities from our business.
Our TRIFR and LTIFR
increased by 3% and 4%
respectively compared
to 2017.
Climate change
On track for meeting
group-wide carbon emission
intensity reduction target
of at least 5% on 2016 levels
by 2020.
As one of the world’s
largest diversified resource
companies, we have a key role
to play in enabling transition
to a low-carbon economy.
We do this through our well
positioned portfolio that
includes commodities that
underpin energy and mobility
transformation that is a key
part of the global response
to the increasing risks posed
by climate change.
Water management
Operations continue
to implement our water
management guideline
which aligns with the
ICMM’s position statement
on water and its water
management framework.
Community engagement
Our community
development programmes
are an integral part of our
community and stakeholder
engagement strategies.
In 2018, we spent $95 million
on these programmes
(2017: $90 million).
Conservatively repositioned
Capital structure and credit
profile managed through
targeting a maximum 2x
Net debt/Adjusted EBITDA
throughout the cycle,
augmented by an upper
Net debt cap of c.$16 billion.
Year-end Net debt and FFO/
Net debt were $14.7 billion
and 78.8% respectively.
Net income attributable
to equity holders for 2018
was $3.4 billion.
Conviction to create value
Targeted bolt-on acquisitions,
low-cost/risk organic growth
and recycling of capital enabled
capital efficient growth in
compelling commodities.
Credit rating
The Group’s credit
ratings are currently Baa2
(positive outlook) from
Moody’s and BBB+ (stable)
from Standard & Poor’s.
Bonds
Issued $0.625 billion of
non-dilutive cash settled
convertible bonds due 2025.
Issued a six-year CHF 175 million
bond. Post-2018 maturities
capped at c.$3 billion in any
one year.
Credit facility
Revolving credit facility
refinanced and resized
to reflect current funding
needs. Committed available
liquidity of $10.2 billion
at year end covers more
than three years of
bond maturities.
Industrial
Strong Adjusted EBITDA
mining margins of 38%
and 46% respectively in our
metals and energy operations
reflect the benefit of higher
prices that more than offset
modest inflationary and
cost pressures as well as the
optimisation of cost structures
and efficiencies over the last
two years.
Marketing
Achieved $2.4 billion Adjusted
EBIT across our marketing
business. The benefits of
supportive market conditions
during the year, particularly
in the first half, were partially
offset by some customer
non-performance in cobalt
as well as alumina basis
risk exposure.
Supply
Continued our disciplined
approach to supply.
Partial restart of idled
zinc production in 2018.
Additional contribution
forecast from 2019 with
an increase in McArthur
River zinc production.
1
Integration of
sustainability
throughout
our business
2
Maintain
a robust
and flexible
balance sheet
3
Focus on cost
control and
operational
efficiencies
18
Glencore Annual Report 2018
our business to support our
commitment to continuously
improve our standards of
health, safety, environmental
and community and human
rights performance.
As part of our commitment
to a low-carbon economy,
we will limit our coal
production capacity
broadly to current levels.
Balance sheet strength
We are committed to
maintaining our balance
sheet strength to ensure
growth and shareholder
returns regardless of
the commodity price
environment.
Sustainability
We will continue to
implement activities that
promote an approach of
Transparency
We are committed to
operating transparently,
• Safe and healthy
workplace – TRIFR,
LTIFR and occupational
responsibly and meeting or
disease cases
consistent improvement for
exceeding applicable laws
sustainability throughout
or external requirements.
• Health, safety
and environment
• Climate change
• Community relations
and human rights
• Environmental
performance – water
withdrawn, greenhouse
gas (GHG) emissions,
meeting our commitments
on climate change
• Long-term value for
communities – community
investment spend
Investment grade rating
We will preserve a robust
• Returns to shareholders –
• Supply, demand and
Funds from operations,
prices for the commodities
capital structure and business
Net funding and Net debt
we produce
it is capable of supporting
commitment to targeting,
portfolio that reflects our
• Value for our shareholders
• Currency exchange rates
– Adjusted EBIT/EBITDA,
Net income attributable
to equity holders
• Liquidity
• Counterparty credit
and performance
receiving and maintaining a
strong BBB/Baa investment
grade rating. In this regard,
we are targeting a maximum
2x Net debt/Adjusted EBITDA
through the cycle, augmented
by an upper Net debt cap
of c.$16 billion. In the current
uncertain economic cycle
backdrop, aiming to limit
Net debt/Adjusted EBITDA
to around one times.
Industrial activities
Our industrial activities
will continue to focus
on controlling costs and
generating sustainable
operating and capital
Positioned to leverage
our scale and diversity
Our marketing activities’
priorities are to maximise
the returns and cash flows
from the pool of allocated
efficiencies. Our marketing
capital, which, in turn,
business supports the
creation of incremental
supports the strengthening
of our balance sheet. Our
value through critical mass,
presence at every stage
blending, storage and
geographical arbitrage.
of the value chain means
that Glencore is uniquely
positioned to leverage
our scale and diversity.
• Returns to shareholders –
• Geopolitical, permits
Funds from operations,
and licence to operate
Net funding and net debt
• Laws and enforcement
• Value for our shareholders
– Adjusted EBIT/EBITDA,
• Operating risk
Net income attributable
• Cyber risk
to equity holders
Strategic priorities
Performance in 2018
Priorities going forward
KPIs
Principal risks
Key performance
indicators
Page 22
Principal risks
and uncertainties
Page 24
SafeWork programme
Continued to progress
Climate change
On track for meeting
Water management
Operations continue
our SafeWork programme,
group-wide carbon emission
to implement our water
an initiative that focuses
on eliminating fatalities
intensity reduction target
management guideline
of at least 5% on 2016 levels
which aligns with the
and occupational diseases.
by 2020.
Regrettably, there were
As one of the world’s
thirteen fatalities during the
largest diversified resource
ICMM’s position statement
on water and its water
management framework.
year. We continue to work
companies, we have a key role
Community engagement
towards the elimination of
to play in enabling transition
Our community
fatalities from our business.
to a low-carbon economy.
development programmes
Our TRIFR and LTIFR
increased by 3% and 4%
respectively compared
to 2017.
We do this through our well
are an integral part of our
positioned portfolio that
community and stakeholder
includes commodities that
engagement strategies.
underpin energy and mobility
In 2018, we spent $95 million
transformation that is a key
on these programmes
part of the global response
(2017: $90 million).
to the increasing risks posed
by climate change.
Conservatively repositioned
Conviction to create value
Credit rating
Capital structure and credit
Targeted bolt-on acquisitions,
The Group’s credit
profile managed through
targeting a maximum 2x
low-cost/risk organic growth
ratings are currently Baa2
and recycling of capital enabled
(positive outlook) from
Net debt/Adjusted EBITDA
capital efficient growth in
Moody’s and BBB+ (stable)
compelling commodities.
from Standard & Poor’s.
throughout the cycle,
augmented by an upper
Net debt cap of c.$16 billion.
Bonds
Issued $0.625 billion of
Credit facility
Revolving credit facility
refinanced and resized
Year-end Net debt and FFO/
non-dilutive cash settled
Net debt were $14.7 billion
convertible bonds due 2025.
to reflect current funding
and 78.8% respectively.
Net income attributable
Issued a six-year CHF 175 million
needs. Committed available
bond. Post-2018 maturities
liquidity of $10.2 billion
to equity holders for 2018
capped at c.$3 billion in any
at year end covers more
was $3.4 billion.
one year.
than three years of
bond maturities.
Industrial
Marketing
Supply
Strong Adjusted EBITDA
mining margins of 38%
Achieved $2.4 billion Adjusted
Continued our disciplined
EBIT across our marketing
approach to supply.
and 46% respectively in our
business. The benefits of
Partial restart of idled
metals and energy operations
supportive market conditions
zinc production in 2018.
reflect the benefit of higher
during the year, particularly
Additional contribution
prices that more than offset
in the first half, were partially
forecast from 2019 with
modest inflationary and
offset by some customer
an increase in McArthur
cost pressures as well as the
non-performance in cobalt
River zinc production.
optimisation of cost structures
as well as alumina basis
and efficiencies over the last
risk exposure.
two years.
1
Integration of
sustainability
throughout
our business
2
Maintain
a robust
and flexible
balance sheet
3
Focus on cost
control and
operational
efficiencies
Sustainability
We will continue to
implement activities that
promote an approach of
consistent improvement for
sustainability throughout
our business to support our
commitment to continuously
improve our standards of
health, safety, environmental
and community and human
rights performance.
As part of our commitment
to a low-carbon economy,
we will limit our coal
production capacity
broadly to current levels.
Balance sheet strength
We are committed to
maintaining our balance
sheet strength to ensure
it is capable of supporting
growth and shareholder
returns regardless of
the commodity price
environment.
Industrial activities
Our industrial activities
will continue to focus
on controlling costs and
generating sustainable
operating and capital
efficiencies. Our marketing
business supports the
creation of incremental
value through critical mass,
blending, storage and
geographical arbitrage.
Transparency
We are committed to
operating transparently,
responsibly and meeting or
exceeding applicable laws
or external requirements.
• Health, safety
and environment
• Climate change
• Community relations
and human rights
• Safe and healthy
workplace – TRIFR,
LTIFR and occupational
disease cases
• Environmental
performance – water
withdrawn, greenhouse
gas (GHG) emissions,
meeting our commitments
on climate change
• Long-term value for
communities – community
investment spend
• Returns to shareholders –
Funds from operations,
Net funding and Net debt
• Supply, demand and
prices for the commodities
we produce
• Value for our shareholders
– Adjusted EBIT/EBITDA,
Net income attributable
to equity holders
• Currency exchange rates
• Liquidity
• Counterparty credit
and performance
• Returns to shareholders –
Funds from operations,
Net funding and net debt
• Value for our shareholders
– Adjusted EBIT/EBITDA,
Net income attributable
to equity holders
• Geopolitical, permits
and licence to operate
• Laws and enforcement
• Operating risk
• Cyber risk
Investment grade rating
We will preserve a robust
capital structure and business
portfolio that reflects our
commitment to targeting,
receiving and maintaining a
strong BBB/Baa investment
grade rating. In this regard,
we are targeting a maximum
2x Net debt/Adjusted EBITDA
through the cycle, augmented
by an upper Net debt cap
of c.$16 billion. In the current
uncertain economic cycle
backdrop, aiming to limit
Net debt/Adjusted EBITDA
to around one times.
Positioned to leverage
our scale and diversity
Our marketing activities’
priorities are to maximise
the returns and cash flows
from the pool of allocated
capital, which, in turn,
supports the strengthening
of our balance sheet. Our
presence at every stage
of the value chain means
that Glencore is uniquely
positioned to leverage
our scale and diversity.
Glencore Annual Report 2018
19
Strategic ReportFinancial statementsGovernanceAdditional information Climate change – looking beyond 2020
As one of the world’s largest diversified resource
companies, Glencore has a key role to play in enabling
transition to a low-carbon economy. We do this through
our well positioned portfolio that includes copper,
cobalt, nickel, vanadium and zinc – commodities that
underpin energy and mobility transformation. We believe
this transition is a key part of the global response to the
increasing risks posed by climate change
We recognise climate change
science as set out by the United
Nations Intergovernmental Panel on
Climate Change. We believe that the
global response to climate change
should pursue twin objectives: both
limiting temperatures in line with
the goals of Articles 2.1(a)1 and 4.12
of the Paris Agreement (“the Paris
Goals”) and supporting the United
Nations Sustainable Development
Goals, including universal access
to affordable energy.
To deliver a strong investment case
to our shareholders, we must invest
in assets that will be resilient to
regulatory, physical and operational
risks related to climate change.
To meet the growing needs of a lower
carbon economy, Glencore aims
to prioritise its capital investment
to grow production of commodities
essential to the energy and mobility
transition and to limit its coal
production capacity broadly to
current levels3.
20
Glencore Annual Report 2018
1
Paris-consistent
strategy/capital
discipline
2
Public Scope 1
and 2 targets
3
Review
of Progress
4
Alignment with
Taskforce on Climate-
related Financial
Disclosures (TCFD)
recommendations
5
Corporate climate
change lobbying
Following engagement with investor signatories of the Climate Action
100+ initiative, we are taking the following steps to further our commitment
to the transition to a low-carbon economy:
1 As Glencore rebalances its portfolio towards commodities that support the
transition to a low-carbon economy, the intensity of Scope 3 emissions is expected
to decrease. Starting in 2020, we will disclose our longer-term projections for the
intensity reduction of Scope 3 emissions, including mitigation efforts.
Glencore recognises the importance of disclosing to investors how the company
ensures that material capital expenditure and investments are aligned with the
Paris Goals. This includes each material investment in the exploration, acquisition or
development of fossil fuel (including thermal and coking coal) production, resources
and reserves, as well as in resources, reserves and technologies associated with the
transition to a low-carbon economy. Starting in 2020, we intend to report publicly
on the extent to which, in the Board’s opinion, this was achieved in the prior year and
the methodology and core assumptions for this assessment. These disclosures will
be made in our Annual Report.
2
In 2017, we announced our first target of reducing our greenhouse gas emissions
intensity by 5% by 2020 compared to a 2016 baseline. We are currently on track to meet
this target. Glencore recognises the importance of continued reductions of greenhouse
gas emissions from our operations. We are developing new, longer-term targets based
on policy and technological developments that support the Paris Goals, and intend to
make these public in our Annual Report in 2020. We will report annually on our progress.
3 Glencore reports annually on the progress in meeting its climate change objectives.
The disclosure is included in our Annual Report and supported by further details
in the Sustainability Report. We are committed to transparency and will continue to
publish data on our climate change performance on our website, including continued
disclosure of our Scope 3 emissions. We will give consideration to how our climate
change objectives can be reflected in the design of the relevant schemes for
executive management.
In addition to our reporting under 1 and 2 above, every three years, we will review
any changes to the Nationally Determined Contributions (NDCs) in line with the
Paris Agreement mechanism, and other relevant policy, economic and technology
developments to assess societal progress in the energy transition and to update
our scenario-based portfolio assessment.
4 Glencore was an early supporter of the voluntary guidance on consistent climate
related financial disclosures produced by the TCFD. We are pleased to publicly
support the TCFD guidance and have started to implement its recommendations
in our annual reporting.
Consistent with TCFD recommendations, as appropriate, Glencore will continue to
disclose the metrics, targets and scenarios we use to assess and manage relevant
climate-related risks and opportunities.
5 Glencore believes that it is appropriate that we take an active and constructive
role in public policy development and to participate in relevant trade associations.
Glencore acknowledges “IIGCC Investor Expectations on Corporate Climate Lobbying”
and recognises the importance of ensuring that its membership in relevant trade
associations does not undermine its support for the Paris Agreement and the Paris Goals.
Glencore will consider whether its membership in relevant trade associations aligns
with the company’s stated positions in this statement. The result of this review,
including any material misalignments identified and actions that will be taken,
will be made public in 2019.
1 Article 2.1(a) of The Paris Agreement states the goal of “Holding the increase in the global average temperature to well below
2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels,
recognising that this would significantly reduce the risks and impacts of climate change.”
2 Article 4.1 of The Paris Agreement reads: “In order to achieve the long-term temperature goal set out in Article 2, Parties
aim to reach global peaking of greenhouse gas emissions as soon as possible, recognising that peaking will take longer for
developing country Parties, and to undertake rapid reductions thereafter in accordance with best available science, so as to
achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second
half of this century, on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty.”
3 This may include the exercise of our pre-emptive rights to acquire minority stakes of joint-venture partners in our
existing operations.
Glencore Annual Report 2018
21
Strategic ReportFinancial statementsGovernanceAdditional information Key performance indicators
Our financial and non-financial key performance
indicators (KPIs) provide a measure of our performance
against the key drivers of our strategy
Financial key performance indicators:
Adjusted EBIT/EBITDA◊
(US$ million)
15,767
Links to strategy
14,545
15,767
10,268
8,459
9,143
3,930
EBITDA
EBIT
Net funding/Net debt
and FFO to net debt◊
(US$ million)
14,710
Links to strategy
120
32,619
31,053
32,138
90
60
30
0
Net debt
Net funding
FFO to net debt (%)
15,526
14,710
10,216
2016
2017
2018
2016
2016
2017
2017
2018
2018
Definition
Adjusted EBIT/EBITDA provide insight into our overall business
performance (a combination of cost management, seizing market
opportunities and growth), and are the corresponding flow drivers
towards our objective of achieving industry-leading returns.
Adjusted EBIT is the net result of revenue less cost of goods sold
and selling and administrative expenses, plus share of income
from associates and joint ventures, dividend income and the
attributable share of Adjusted EBIT of relevant material associates
and joint ventures, which are accounted for internally by means
of proportionate consolidation, excluding Significant items.
Adjusted EBITDA consists of Adjusted EBIT plus depreciation and
amortisation, including the related Proportionate adjustments.
2018 performance
Adjusted EBITDA was $15.8 billion and Adjusted EBIT was $9.1 billion,
increases of 8% in each case compared to 2017, primarily driven by
generally higher commodity prices, higher production in copper,
zinc and coal, including ramp-ups at Katanga and Lady Loretta
(Mount Isa) and the acquired coal joint venture interests.
Definition
Net funding/Net debt demonstrates how our debt is being managed
and is an important factor in ensuring we maintain an investment
grade rating status and a competitive cost of capital.
Net debt is defined as total current and non-current borrowings
less cash and cash equivalents, readily marketable inventories
and related Proportionate adjustments.
The relationship of FFO to net debt is an indication of our financial
flexibility and strength.
2018 performance
Net funding as at 31 December 2018 increased by $1.1 billion to
$32.1 billion, while Net debt (net funding less readily marketable
inventories) increased by $4.5 billion over the year to $14.7 billion.
Such increases reflected ~$3.8 billion disbursements on business
acquisitions (HVO, Hail Creek, oil downstream business) yet to
contribute to FFO on a full 12 months basis, plus enhanced returns
to shareholders.
FFO to Net debt reduced from 111% to 78%, remaining at healthy levels,
reflecting the timing of business acquisition cash flows.
Funds from
operations (FFO)◊
(US$ million)
11,595
Links to strategy
11,350
11,595
7,770
Net income attributable
to equity holders
(US$ million)
3,408
Links to strategy
5,777
3,408
1,379
2016
2017
2018
2016
2017
2018
Definition
Funds from operations (FFO) is a measure that reflects our ability
to generate cash for investment, debt servicing and distributions
to shareholders.
It comprises cash provided by operating activities before working
capital changes, less tax and net interest payments plus dividends
received, related Proportionate adjustments and Significant items,
as appropriate.
2018 performance
FFO of $11.6 billion was 2% up on 2017, reflecting the improved
Adjusted EBITDA noted above, offset by higher tax payments
on 2017 earnings assessed in 2018.
Definition
Net income attributable to equity shareholders is a measure
of our ability to generate shareholder returns.
2018 performance
Net income attributable to equity holders declined in 2018 compared
to 2017, primarily reflecting the impact of non-cash impairments in
the carrying values of our Mutanda and Mopani copper assets, due to
various updated regulatory, technical, tax and other key assumptions,
all of which combined to reduce expected future cash flows.
Announced distributions and buybacks in 2018 totalled $5.2 billion,
in excess of net income attributable to shareholders, reflecting actual
FFO generation and confidence in the sustainable underlying cash
generation of the business.
◊ Refer to APMs section on page 214 for definition and reconciliations.
22
Glencore Annual Report 2018
Strategic priorities
Integration of sustainability throughout our business
Maintain a robust and flexible balance sheet
Focus on cost control and operational efficiencies
Our strategy for
a sustainable future
Page 16
Financial
review
Page 52
Non-financial key performance indicators:
Safety: Total recordable
injury frequency rate (TRIFR)
(per million hours worked)
Link to strategy
3.18
4.05
3.08
3.18
Water withdrawn
(million m3)
1,020
Link to strategy
971
924
1,020
2016
2017
2018
2016
2017
2018
Definition
We believe that every work-related incident, illness and injury is
preventable and we are committed to providing a safe workplace.
TRIFR is the sum of fatalities, lost time injuries, restricted work injuries
and medical treatment injuries per million hours worked. The metric
represents all injuries that require medical treatment beyond first aid.
2018 performance
We are saddened to report that in 2018 thirteen people lost their
lives at our operations (2017: nine people). All loss of life is unacceptable
and we are determined to eliminate fatalities across our Group.
Our TRIFR is 3.18 per million hours worked, an increase of 3% on the
3.08 recorded in 2017.
Definition
Water withdrawal is a measure of our operational resource efficiency.
Our operations have an ongoing responsibility to increase the reuse
of processed and use of recycled waste water in order to reduce
our impact on local water supplies. Recycled water is predominantly
used in place of fresh water for processes such as dust suppression.
2018 performance
In 2018, we withdrew 1,020 million m3 of water (2017: 924 million m3).
The increase of water withdrawal is fully attributable to our portfolio
expansion (i.e. incorporation of Volcan). We are committed to managing
our impact on water resources responsibly. We prioritise efficient
water use, water reuse/recycling, responsible waste water disposal and
maintaining any equipment that may pose a hazard to water quality.
Link to strategy
Community investment
(US$ million)
Link to strategy
Carbon emissions
(million tonnes CO2)
30.3
Scope 1
Scope 2
35.0
11.9
23.1
2016
33.2
11.6
21.6
2017
30.3
11.8
18.5
2018
Definition
Our CO2 emissions reporting is separated into Scope 1 and Scope 2 –
location-based emissions. Scope 1 (measured in CO2e) includes
emissions from combustion in owned or controlled boilers, furnaces
and vehicles/vessels and coal seam emissions (direct emissions).
Scope 2 – location-based emissions (measured in CO2) applies the grid
emission factor to all our purchased electricity, regardless of specific
renewable electricity contracts (indirect emissions). We monitor and
report both the direct and indirect emissions generated by the industrial
activities, entities and facilities where we have operational control.
2018 performance
During 2018, we emitted 18.5 million tonnes CO2e of Scope 1.
The improvement over 2017 is mainly as a result of lower coal seam
emissions in our Australian coal operations.
We emitted 11.8 million tonnes CO2 of Scope 2 – location based.
The small year-on-year increase in Scope 2 emissions is due to newly
acquired assets, volume increases and production ramp-ups which
outweighed reductions from site closures and divestitures.
95
84
90
95
2016
2017
2018
Definition
Community investments are our contributions to, and financial
support of, the broader communities in the regions where we operate.
Funds are set aside to support initiatives that benefit communities
and local sustainable development. We also make in-kind contributions,
such as equipment and management. We support programmes
for community development, enterprise and job creation, health,
education and the environment.
2018 performance
In 2018, the funds we made available for community investments were
$95 million, an increase on the amount invested in 2017 ($90 million).
Our community development programmes are an integral part
of our community and stakeholder engagement strategies and
our investments supported various initiatives in all of our
operating regions.
Non-financial indicators includes information and data from our industrial activities, including only assets where we have operational control,
and excluding investment, marketing and holding companies. The 2016 data includes Glencore Agriculture; 2017 and 2018 data excludes
Glencore Agriculture.
Glencore Annual Report 2018
23
Strategic ReportFinancial statementsGovernanceAdditional information Principal risks and uncertainties
Glencore is exposed to a variety of risks that can have an
impact on our business and prospects, future performance,
financial position, liquidity, asset values, growth potential,
sustainable development and reputation. Risk management
is one of the core responsibilities of the Board and its Audit
and HSEC Committees, and it is central to the decision
making process. Our principal risks and uncertainties –
whether under our control or not – are highly dynamic
and our assessment and our responses to them are
critical to our future business and prospects
Our risk management framework
identifies and manages risk in a way
that is supportive of our strategic
priorities of opportunistically
deploying capital, while protecting
our future financial security and
flexibility. Our approach towards
risk management is framed by
our ongoing understanding of the
risks that we are exposed to, our
risk appetite and how these risks
change over time.
The Board assesses and approves
our overall risk appetite, monitors
our risk exposure and sets the
Group-wide limits, which are
reviewed on an ongoing basis. This
process is supported by the Audit
and HSEC Committees, whose roles
include evaluating and monitoring
the risks inherent in their respective
areas as described on pages 104–106.
The current assessment of our
principal risks, according to exposure
and impact, is detailed on the
following pages. In accordance
with UK Financial Reporting Council
guidance, we define a principal
risk as a risk or combination of risks
that could seriously affect the
performance, future prospects or
reputation of Glencore. These include
those risks which would threaten the
business model, future performance,
solvency or liquidity of the Group. We
look at risk appetite from the context
of severity of the consequences
should the risk materialise, factors
influencing the risk and the
Company’s ability to mitigate it. In
compiling this assessment we have
indicated the impact and likelihood
of these risks in comparison with
a year ago in the chart opposite.
24
Glencore Annual Report 2018
The commentary on the risks
in this section should be read in
conjunction with the explanatory
text under Understanding the
information on risks which is set
out on page 26.
The natural diversification
of our portfolio of commodities,
geographies, currencies, assets and
liabilities is a source of mitigation
for some of the risks we face. In
addition, through our governance
processes and our proactive
management approach we seek
to mitigate, where possible, the
impacts of certain risks should
they materialise. In particular:
• Our liquidity risk management
policy requires us to maintain
(via a $3 billion minimum
prescribed level) sufficient cash
and cash equivalents and other
sources of committed funding
available to meet anticipated and
unanticipated funding needs,
including ensuring that the
quantum of bonds maturing in
any one year does not exceed
some $3 billion
• Making use of credit enhancement
products, such as letters of credit,
insurance policies and bank
guarantees and imposing limits
on open accounts extended
• Our management of marketing
risk, including daily analysis of
Group value at risk (VaR)
Changes in principal risks
We believe that our principal risks
have remained the same although
our assessment of their possible
negative effect and the scale of
impact has altered. In particular
we believe that geopolitical and
compliance impacts have increased.
Also, pressure for divestment from
coal and coal producing companies
continues to grow. In formulating
a more focused set of risks, we
have (i) combined “Reductions in
commodity prices” and “Fluctuations
in supply of or demand for
commodities” into “Supply, demand
and prices of commodities”; and
(ii) incorporated “Skills availability
and retention” into “Operating”.
2018 developments
Highest impact risks
Significant changes were:
1. Supply, demand and prices
of commodities: there has
been considerable volatility in
commodity prices over the past 12
months. Any significant downturn
in the current commodity price
environment, especially in copper,
coal or zinc would have a severe
drag on our financial performance.
Additionally, the potential effects
of new trade barriers could
reduce demand for certain of
our commodities or restrict our
supplies. As a result, this continues
to be the Group’s foremost risk.
2. Currency exchange rates: 2018
reflected a generally stronger
US dollar versus producer country
currencies. While beneficial
over the short term to our locally
denominated operating costs,
this can be indicative of challenges
in world economic conditions
and resulting risks to commodities’
demand and prices. Additionally,
rates can change for reasons
2018 developments and overview
of principal risks and uncertainties
5
11
1
2
4
3
8
2
6
7
9
10
e
r
e
v
e
S
j
r
o
a
M
e
t
a
r
e
d
o
M
r
o
n
M
i
t
c
a
p
m
I
Unlikely
Possible
Likely
Almost certain
Probability
Key
Risk impact
Moderate
Major
Severe
External risks
1
2
3
4
5
Supply, demand and prices of commodities
Currency exchange rates
Geopolitical, permits and licences to operate
Laws and enforcement
Liquidity
Business risks
6
7
8
Counterparty credit and performance
Operating
Cyber
Sustainability risks
9
10
11
Climate change
Community relations and human rights
Health, Safety, Environment
Indicates change in 2018
unlinked to commodities,
which could result in mismatched
impact of pricing and currency
movements, resulting in
income volatility.
3. Geopolitical, permits and
licences to operate: this risk has
become more prominent in 2018,
particularly in light of the various
developments in the DRC.
4. Laws and enforcement: the
DoJ investigation has considerably
heightened the importance of this
risk, together with other relevant
examples, including sanctions
imposition by US authorities.
5. Liquidity: while our net debt and
net funding are relatively stable,
and cash flow coverage is healthy,
we remain cognisant that access
to credit is vital and that debt
markets can be volatile.
6. Cyber: actual and attempted
attacks on organisations continued
to be prevalent. Over time, we have
invested in our security platforms
and data protection, and we
continue to develop our approach
and responses to this evolving risk.
7. Health, Safety, Environment:
a serious failure in HSE
management could result in an
emergency or catastrophe within
the business, which could result in
injuries or fatalities and also impact
employees safety, production and
Glencore’s reputation. In particular,
catastrophic hazards such as
tailings dam failures and collapses
of pit walls or underground
structures represent significant
unquantifiable risks. Despite our
efforts, our safety performance,
particularly as to fatalities,
continues to be challenging,
mainly reflecting the location and
nature of many of our operations.
In response to the above
challenges, capital expenditure
remains at controllable levels
and initiatives continue to ensure
we operate at optimal working
capital levels. The Group is committed
to maintaining a strong BBB/Baa
investment grade rating balance
sheet, which should support growth
and shareholder returns regardless
of the commodity price environment,
noting also the additional principal
risks which the Group faces.
Glencore Annual Report 2018
25
Strategic ReportFinancial statementsGovernanceAdditional information Principal risks and uncertainties continued
Longer-term viability
In accordance with the requirements
of the UK Corporate Governance
Code, the Board has assessed
the prospects of the Group’s
viability over the four-year period
from 1 January 2019. This period
is consistent with the Group’s
established annual business
planning and forecasting processes
and cycle, which is subject to review
and approval each year by the Board.
The four-year plan considers
Glencore’s adjusted EBITDA, capital
expenditure, funds from operations
(FFO) and net debt, and the key
financial ratios of net debt to
adjusted EBITDA and FFO to net
debt over the forecast years and
incorporates stress tests to simulate
the potential impacts of exposure
to the Group’s principal risks
and uncertainties.
These scenarios included:
• A prolonged downturn
in the price and demand of
commodities most impacting
Glencore’s operations
• Foreign exchange movements
to which the Group is exposed
as a result of its global operations
• An increase in costs associated
with open regulatory
investigations and adverse
geopolitical developments
• Consideration of the potential
impact of adverse movements
in macro-economic assumptions
and their effect on certain key
financial KPIs and ratios which
could increase the Group’s
access to or cost of funding
The scenarios were assessed taking
into account current risk appetite
and any mitigating actions Glencore
could take, as required, in response
to the potential realisation of any
of the stressed scenarios.
Based on the results of the
related analysis, the Directors have
a reasonable expectation that the
Group will be able to continue in
operation and meet its liabilities
as they fall due over the four-year
period of this assessment. They
also believe that the review period
of four years is appropriate having
regard to the Group’s business
model, strategy, principal risks
and uncertainties, and viability.
26
Glencore Annual Report 2018
Understanding the information on risks
There are many risks and uncertainties
which have the potential to significantly
impact our business, including
competitive, economic, political, legal,
regulatory, sustainability and financial
risk. The order in which these risks
and uncertainties appear does
not necessarily reflect the likelihood
of their occurrence or the relative
magnitude of their potential material
adverse effect on our business.
We have sought to provide examples
of specific risks. However, in every
case these do not attempt to be an
exhaustive list. These principal risks and
uncertainties should be considered in
connection with any forward looking
statements in this document as
explained on page 237.
Identifying, quantifying and managing
risk is complex and challenging.
Although it is our policy to identify
and, where appropriate and practical,
actively manage risk, our policies
and procedures may not adequately
identify, monitor and quantify all risks.
This section describes our attempts
to manage, balance or offset risk.
Risk is, however, by its very nature
uncertain and inevitably events may
lead to our policies and procedures
not having a material mitigating
effect on the negative impacts of
the occurrence of a particular event.
Our scenario planning and stress
testing may accordingly prove to be
optimistic, particularly in situations
where material negative events occur
in close proximity. Since many risks
are connected, our analysis should
be read against all risks to which
it may be relevant.
In this section, we have sought to
update our explanations, reflecting
our current outlook. Mostly this
entails emphasising certain risks
more strongly than other risks rather
than the elimination of, or creation of,
risks. Certain investors may also be
familiar with the risk factors that are
published in the Group debt or equity
prospectuses or listing documents.
These provide in part some differing
descriptions of our principal risks.
A recent example is available on our
website at: glencore.com/who-we-
are/governance
In addition, more information on
our risks is available in the relevant
sections of our website.
To provide for concise text:
• Where we hold minority interests
in certain businesses, although these
entities are not generally subsidiaries,
the interests are mostly taken as
being referred to in analysing these
risks, and “business” refers to these
and any business of the Group
• Where we refer to natural hazards,
events of nature or similar
phraseology we are referring to
matters such as earthquake,
flood, severe weather and other
natural phenomena
• Where we refer to “mitigation”
we do not intend to suggest that
we eliminate the risk, but rather it
shows the Group’s attempt to reduce
or manage the risk. Our mitigation
of risks will usually include the
taking out of insurance where it is
customary and economic to do so
• This section should be read as a
whole – often commentary in one
section is relevant to other risks
• “commodity/ies” will usually refer
to those commodities which the
Group produces or sells
• “law” includes regulation of any type
• “risk” includes uncertainty and
hazard and together with “material
adverse effect on the business”
should be understood as a negative
change which can seriously affect
the performance, future prospects
or reputation of the Group. These
include those risks which would
threaten the business model,
future performance, reputation,
solvency or liquidity of the Group
• A reference to a note is a note
to the 2018 financial statements
• A reference to the sustainability
report is our 2018 sustainability
report to be published in April 2019
Strategic priorities
Integration of sustainability throughout our business
Maintain a robust and flexible balance sheet
Focus on cost control and operational efficiencies
External risks
1
Supply, demand and prices of commodities
Risk movement in 2018: Stable
Link to strategic priorities
Risk appetite
Low. Outside of the inherent risk of commodity
prices on unmined reserves/resources, flat
price exposure on extracted or trading related
positions is to be hedged, when possible.
Additionally, we seek to ensure this risk is
minimised through scale of operations
and diversity of product.
Risk description
The revenue and earnings of substantial parts
of our industrial activities and, to a lesser extent,
our marketing activities, are dependent upon
prevailing commodity prices. Commodity
prices are influenced by a number of external
factors, including the supply of and demand
for commodities, speculative activities
by market participants, global political and
economic conditions, related industry
cycles and production costs in major
producing countries.
We are dependent on the expected volumes
of supply or demand for commodities which
can vary for many reasons, such as competitor
supply policies, changes in resource availability,
government policies and regulation, costs
of production, global and regional economic
conditions and demand in end markets for
products in which the commodities are used.
These reasons also include technological
developments, e.g. commodity substitutions,
fluctuations in global production capacity,
global and regional weather conditions, natural
disasters and diseases, all of which impact
global markets and demand for commodities.
Furthermore, changes in expected supply
and demand conditions impact the expected
future prices (and thus the price curve) of
each commodity.
2
Currency exchange rates
Link to strategic priorities
Risk appetite
Low. Where possible foreign exchange (“FX”)
exposure to non-operating foreign exchange
risk are to be hedged.
Risk description
The vast majority of our transactions are
denominated in US dollars, while operating
costs are spread across many different countries,
the currencies of which fluctuate against the
US dollar. A depreciation in the value of the US
dollar against one or more of these currencies
will result in an increase in the cost base of the
relevant operations in US dollar terms.
The main currency exchange rate exposure
is through our industrial assets, as a large
proportion of the costs incurred by these
operations is denominated in the currency
of the country in which each asset is located.
The largest of these exposures are to the
currencies listed on page 62.
Comments/impacts to the Group
A significant downturn in the price of commodities generally results
in a decline in our cash flow and profitability, and could potentially result
in impairment and balance sheet constraints. It is especially harmful to
profitability in the industrial activities, which are more directly exposed
to price risk due to the higher level of fixed costs. Government policy
decisions can be very important, e.g. in reducing the demand for coal
or increasing its pricing (via carbon taxes) – see Climate change below.
New or improved energy production or technologies can also reduce
the demand for some commodities such as coal. Major decisions by
governments can also lead to lower growth of some countries or regions,
such as US/China trade decisions and Brexit.
Any adverse economic developments, particularly impacting China
and fast growing developing countries, could lead to reductions in
demand for, and consequently price reductions of, commodities.
Future demand for certain commodities might decline (e.g. fossil fuels),
whereas others might increase (such as copper, cobalt, and nickel for
their use in electric vehicles and batteries), taking into consideration
the “greening” of the global economy.
This risk is currently prevalent in various commodities, such as steel,
coal and oil. In particular, many analysts believe that demand for coal will
reduce sooner than previously expected due to significant cost reductions
in renewable and alternate capacity.
The dependence of the Group (especially our industrial business) on
commodity prices, supply and demand of commodities, make this the
Group’s foremost risk. See the Chief Executive Officer’s review on page 4
and the financial review on page 52.
Mitigating factors
Achieving operational efficiencies and enhanced focus on cost control.
Diversification of our portfolio of commodities, geographies, currencies,
assets and liabilities. Maintaining a global portfolio of customers
and contracts.
Preparing for shifts in commodity demand by putting a special focus
on the parts of the business that will potentially grow with the anticipated
increase of electric vehicles and battery production and closely monitor
fossil fuel (particularly thermal coal) demands.
See the Chief Executive Officer’s review on page 4 and the financial
review on page 52.
Risk movement in 2018: Stable
Comments/impacts to the Group
Currency fluctuations tend to move in inverse correlation to commodity
prices and supply and demand fundamentals as noted above, such that
decreases in commodity prices are generally associated with increases
in the US dollar relative to local producer currencies and vice versa. If this
occurs then it is detrimental to us through higher equivalent US dollar
operating costs at the relevant operations. This negative, however, would
usually be offset to some extent by the increases in commodity prices
which had influenced this change.
Mitigating factors
The FX inverse correlation described above usually provides a natural partial
FX hedge for the industrial business. In respect of commodity purchase
and sale transactions denominated in currencies other than US dollars,
the Group’s policy is usually to hedge the specific future commitment
through a forward exchange contract. From time to time, the Group
may hedge a portion of its currency exposures and requirements in an
attempt to limit any adverse effect of exchange rate fluctuations.
Glencore Annual Report 2018
27
Strategic ReportFinancial statementsGovernanceAdditional information Principal risks and uncertainties continued
External risks continued
3
Geopolitical, permits and licences to operate
Risk movement in 2018: Increase
Link to strategic priorities
Risk appetite
High. We operate in countries with less developed
political and regulatory regimes. To be considered
a truly diversified commodities group, operations
in these jurisdictions are required.
Comments/impacts to the Group
Policies or laws in the countries in which we do business may change
in a manner that may be adverse for us, even those with stable political
environments e.g. many governments have sought additional sources
of revenue by increasing rates of taxation, royalties or resource rent
taxes or may increase sustainability obligations.
We have no control over changes to policies, laws and taxes.
Risk description
We operate and own assets in a large number
of geographic regions and countries, some of
which are categorised as developing, complex
or having unstable political or social climates.
As a result, we are exposed to a wide range
of political, economic, regulatory, social and tax
environments. The Group transacts business
in locations where it is exposed to a risk of overt
or effective expropriation – resource nationalism
continues to be a challenging issue in many
countries. Our operations may also be affected
by political and economic instability, including
terrorism, civil disorder, violent crime, war
and social unrest.
Increased scrutiny by governments and tax
authorities in pursuit of perceived aggressive
tax structuring by multinational companies has
elevated potential tax exposures for the Group.
The terms attaching to any permit or licence
to operate may be onerous and obtaining these
and other approvals, which may be revoked,
can be particularly difficult. Furthermore, in
certain countries title to land and rights and
permits in respect of resources are not always
clear or may be challenged.
Adverse actions by governments and others
can result in operational/project delays or loss
of permits or licences to operate.
The suspension or loss of our permits or licences
to operate could have a material adverse effect
on the Group and could also preclude Glencore
from participating in bids and tenders for future
business and projects, therefore affecting the
Group’s long-term viability.
Our licences to operate through mining rights
are dependent on a number of factors, including
compliance with regulations. It also depends
on constructive relationships with a wide and
diverse range of stakeholders.
In 2018 our operations have been subject to significant tax increases in
the DRC (see below) and Zambia. Some other tax authorities have taken
a tougher approach to engaging with the Group which has in some
cases led to litigation. See also 4 below.
The continued operation of our existing assets and future plans are in
part dependent upon broad support, our “social licence to operate”, and
a healthy relationship with the respective local communities – see further
Community Relations and Operating risks concerning workforce disputes.
In July 2018, a New DRC Mining Code came into effect. The New DRC
Mining Code introduced amongst other measures (1) a cap on a Company’s
ability to repatriate excess capital earned above its initial investment
amount; (2) significantly higher taxes and royalties; and (3) potential state
ownership in certain projects of up to 10%.
Mitigating factors
The Group’s industrial assets are diversified across various countries.
Also, the Group continues to actively engage with governmental
authorities in light of upcoming changes and developments in
legislation and enforcement policies.
See map on pages 2–3 which sets out our global operational footprint.
We endeavour to design and execute our projects according to high
legal, ethical, social, and human rights standards, and to ensure that
our presence in host countries leaves a positive lasting legacy (see
sustainability risks below). This commitment is essential to effectively
manage these risks and to maintain our permits and licences to operate.
The Group has an active engagement strategy with the governments,
regulators and other stakeholders within the countries in which
it operates or intends to operate. Through, strong relationships with
stakeholders we endeavour to secure and maintain our licences
to operate.
In 2018, we also published our third Payments to Governments report.
This detailed total government contributions in 2017 of over $4 billion.
It also set out details of payments on a project by project basis.
We also continue to be an active member of the Extractive Industries
Transparency Initiative (EITI).
28
Glencore Annual Report 2018
External risks continued
4
Laws and enforcement
Link to strategic priorities
Risk appetite
Medium. The Group maintains programmes
which seek to ensure that we comply with
or exceed the laws and external requirements
applicable to our operations and products.
However, some of our industrial activities
are located in countries that are categorised
as developing, complex or having political
or social climates and/or where corruption
is generally understood to exist.
Risk description
We are exposed to extensive laws including
those relating to bribery and corruption,
sanctions, taxation, anti-trust, financial
markets regulation, environmental protection,
use of hazardous substances, product safety
and dangerous goods regulations, development
of natural resources, licences over resources,
exploration, production and post-closure
reclamation, employment of labour and
occupational health and safety standards.
The legal system and dispute resolution
mechanisms in some countries may be
uncertain so that we may be unable to enforce
our understanding of our rights. Successful
lawsuits based upon damage resulting from
operations could lead to the imposition of
substantial penalties, the cessation of operations,
compensation and remedial and/or preventative
orders. Moreover, the costs associated with
legal compliance, including regulatory permits,
are substantial and increasing. Any changes to
these laws or their more stringent enforcement
or restrictive interpretation could cause additional
significant expenditure to be incurred or
cause suspensions of operations and delays
in the development of industrial assets. Failure
to obtain or renew a necessary permit or the
occurrence of other disputes could mean
that we would be unable to proceed with the
development or continued operation of an
asset and/or impede our ability to develop
new industrial properties.
As a diversified sourcing, marketing and
distribution company conducting complex
transactions globally, we are exposed to the
risks of fraud, corruption, sanctions breaches
and other unlawful activities both internally
and externally. Our marketing operations are
large in scale, which may make fraudulent
or accidental transactions difficult to detect.
In addition, some of our industrial activities
are located in countries, where corruption is
generally seen. Corruption and sanctions risks
remain highly relevant for businesses operating
in international markets as shown by recent
regulatory enforcement actions both inside
and outside the resources sector.
Risk movement in 2018: Increase
Comments/impacts to the Group
During the year:
1. Following the designation by the US Government (“USG”) of Dan Gertler
and affiliated companies as Specially Designated Nationals (“SDNs”),
thereby imposing blocking sanctions on them and companies owned
50% or more by them, the Group had to consider whether it was able
to satisfy contractual obligations to make royalty and pas-de-porte
payments in respect of KCC and Mutanda. Following litigation processes
and negotiations, these obligations are now being satisfied other than
in US dollars and without the involvement of US persons, which Glencore
believes appropriately addresses all applicable sanctions regulations.
2. United Company Rusal plc was designated by the USG as a SDN, which
led to Mr Glasenberg resigning from his position as a director of Rusal
and required careful monitoring of the trading relationship with Rusal.
3. A dispute between Katanga Mining Limited (“KML”) and La Generales
des Carrieres et des Mines (“Gecamines”) led to a $5.6 billion
recapitalisation of KCC and additional settlement costs totalling
$248 million, see note 33 of the financial statements.
4. On 3 July 2018, a subsidiary received a subpoena from the US Department
of Justice (DOJ) to produce documents and other records with respect
to compliance by the Group with the Foreign Corrupt Practices Act and
US money laundering statutes. The requested documents related to
our business in Nigeria, the DRC and Venezuela from 2007.
In the event that the DOJ investigation identifies wrong doing, the
costs to the Group, whether by way of legal fees, penalties, ongoing
monitoring, reputational or otherwise, could be material.
5. The Ontario Securities Commission (“OSC”) approved a settlement pursuant
to which KML, a subsidiary, acknowledged that it had (i) misstated its
financial position and results; (ii) failed to maintain adequate disclosure
and internal controls; (iii) failed to disclose material weaknesses in its
internal controls; and (iv) failed to adequately describe the heightened risks
associated with its operating environment, specifically the elevated
risk of corruption in the DRC and its reliance on individuals and entities
associated with Dan Gertler. Adverse findings were also made against
certain of its former directors and officers (“FDOs”).
KML agreed to make voluntary payments to the OSC totalling C$30m
and to submit to a review by an independent consultant of its metal
accounting. The FDOs have been subjected to fines and costs orders
and director and officer bans of up to C$2.5m and six years.
6. In December 2018, investigations were commenced relating to
transactions in Brazil with Petrobras by a number of trading companies,
including Glencore.
7. Other investigations concerning Glencore which commenced during
the year include an investigation by PRC authorities into shipments
of lead materials into China.
8. See Risk 3 opposite concerning adverse tax matters.
Mitigating factors
We seek to ensure compliance through our commitment to complying
with or exceeding the laws and external requirements applicable
to our operations and products and through monitoring of legislative
requirements, engagement with government and regulators, and
compliance with the terms of permits and licences.
We seek to mitigate the risk of breaching applicable laws and external
requirements through our risk management framework which is described
on page 104. The Group has dedicated Legal and Compliance resources
in place and internal policies, procedures and control with compliance to
assist Group businesses. Furthermore, the Group conducts training and
awareness, with active monitoring. However, there can be no assurance that
such policies, procedures and controls will adequately protect the Group
against fraud, corruption, sanctions breaches or other unlawful activities.
In response to the heightened risks, the Board has established a committee
that focuses on monitoring ethics and compliance, and seeking to ensure
that business practices are aligned with the Company’s culture, see
page 100.
Glencore Annual Report 2018
29
Strategic ReportFinancial statementsGovernanceAdditional information
Principal risks and uncertainties continued
External risks continued
5
Liquidity
Link to strategic priorities
Risk appetite
Low. It is the Group’s policy to operate a BBB
rating or above balance sheet and to ensure
that a minimum level of cash and/or committed
funding is available at any given time.
Risk description
Our failure to access funds (liquidity)
would severely limit our ability to engage
in desired activities.
Liquidity risk is the risk that we are unable
to meet our payment obligations when due,
or are unable, on an ongoing basis, to borrow
funds in the market at an acceptable price to
fund our commitments. While we adjust our
minimum internal liquidity threshold from
time to time in response to changes in market
conditions, this minimum internal liquidity
target may be breached due to circumstances
we are unable to control, such as general market
disruptions, sharp movements in commodity
prices or an operational problem that affects
our suppliers, customers or ourselves.
Business risks
6
Counterparty credit and performance
Link to strategic priorities
Risk appetite
Low. Where possible, credit exposure is
covered through credit mitigation products.
Risk description
Financial assets consisting principally
of receivables and advances, derivative
instruments and long-term advances and
loans can expose us to concentrations of
credit risk.
Furthermore, we are subject to
non-performance risk by our suppliers,
customers and hedging counterparties,
in particular via our marketing activities.
30
Glencore Annual Report 2018
Risk movement in 2018: Stable
Comments/impacts to the Group
A lack of liquidity may mean that we will not have sufficient funds available
for our marketing and industrial activities, both of which employ substantial
amounts of capital. If we do not have funds available for these activities
then they will decrease.
This is particularly the case during the current period when the
US Federal Reserve and European Central Bank are adopting tighter
monetary policies, which could lead to the credit markets contracting
and becoming more expensive.
Note 26 details our financial and capital risk management including
liquidity risk.
Note 28 details the fair value of our financial assets and liabilities.
Mitigating factors
In light of the Group’s extensive funding activities, maintaining investment
grade credit rating status is a financial priority. The Group’s credit ratings are
currently Baa2 (positive outlook) from Moody’s and BBB+ (stable outlook)
from Standard & Poor’s. Glencore’s publicly stated objective, as part of its
overall financial policy package, is to seek and maintain strong Baa/BBB
credit ratings from Moody’s and Standard & Poor’s respectively. In support
of this, Glencore targets a maximum 2x Net debt/Adjusted EBITDA ratio
through the cycle, augmented by an upper Net debt cap of ~$16 billion. This
financial policy facilitates access to funds, even in periods of market volatility.
The Financial Review on page 52 sets out the Group’s Net Funding
and Net Debt in 2018. However, it should be noted that the credit ratings
agencies apply a haircut to the value of our RMI, such that their calculated
net debt is higher.
We remain cognisant that access to credit is vital and that market
conditions can change rapidly. As such, we have over the years reduced
our bond portfolio significantly and optimised our bond debt maturity
profile to no more than c.$3 billion of bonds maturing per annum.
As at 31 December 2018, the Group had available undrawn committed
credit facilities and cash amounting to $10.2 billion (31 December 2017:
$12.8 billion), comfortably ahead of our $3 billion minimum prescribed level.
Risk movement in 2018: Stable
Comments/impacts to the Group
Non-performance by suppliers, customers and hedging counterparties
may occur and cause losses in a range of situations, such as:
• A significant increase in commodity prices resulting in suppliers being
unwilling to honour their contractual commitments to sell commodities
at pre-agreed prices
• A significant reduction in commodity prices resulting in customers
being unwilling or unable to honour their contractual commitments
to purchase commodities at pre-agreed prices
• Suppliers subject to prepayment or hedging counterparties may find
themselves unable to honour their contractual obligations due to
financial distress or other reasons
Mitigating factors
We monitor the credit quality of our counterparties and seek to reduce
the risk of customer non-performance by requiring credit support from
creditworthy financial institutions including making extensive use of
credit enhancement products, such as letters of credit, bank guarantees
and insurance policies. Specific credit risk policy rules apply to open
account risk with an established threshold for referral of credit positions
by departments to central management. In addition, note 26 details
our financial and capital risk management approach.
Business risks continued
7
Operating
Link to strategic priorities
Risk appetite
Low. It is the Company’s strategic objective
to focus on its people and to conduct safe,
reliable and efficient operations.
Risk description
Our industrial activities are subject to numerous
risks and hazards normally associated with
the initiation, development, operation and/or
expansion of natural resource projects, many
of which are beyond our control. These include
unanticipated variations in grade and other
geological problems (so that anticipated
or stated reserves, may not conform to
expectations). Other examples include natural
hazards, processing problems, technical
malfunctions, unavailability of materials and
equipment, unreliability and/or constraints of
infrastructure, industrial accidents, labour force
challenges, disasters, protests, force majeure
factors, cost overruns, delays in permitting or
other regulatory matters, vandalism and crime.
The maintenance of positive employee
and union relations and the ability to attract
and retain skilled workers, including senior
management, are key to our success. This
attraction and retention of highly qualified and
skilled personnel can be challenging, especially,
but not only, in locations experiencing political
or civil unrest, or in which they may be exposed
to other hazardous conditions.
Risk movement in 2018: Stable
Comments/impacts to the Group
The development and operating of assets may lead to future upward
revisions in estimated costs, delays or other operational difficulties or
damage to properties or facilities. This may cause production to be
reduced or to cease and may further result in personal injury or death,
third party damage or loss or require greater infrastructure spending.
Also, the realisation of these risks could require significant additional
capital and operating expenditures.
Some of the Group’s interests in industrial assets do not constitute
controlling stakes. Although the Group has various structures in place
which seek to protect its position where it does not exercise control,
these other shareholders may have interests or goals that are inconsistent
with ours. They may take action contrary to the Group’s interests or be
unable or unwilling to fulfil their obligations.
Infrastructure availability remains a key risk, e.g. availability of continuous
high-voltage power to our copper operations in the Democratic Republic
of Congo. We are continuing to monitor the progress of long-term power
solutions via the Inga dam refurbishment.
Many employees, especially at the Group’s industrial activities, are
represented by labour unions under various collective labour agreements.
Their employing company may not be able to satisfactorily renegotiate
its collective labour agreements when they expire and may face
tougher negotiations or higher wage demands than would be the case
for non-unionised labour. In addition, existing labour agreements may
not prevent a strike or work stoppage.
Mitigating factors
Development and operating risks and hazards are managed through
our continuous project status evaluation and reporting processes and
ongoing assessment, reporting and communication of the risks
that affect our operations along with updates to the risk register.
We publish quarterly our production results and annually our assessment
of reserves and resources based on available drilling and other data sources.
Conversion of resources to reserves and, eventually, reserves to production
is an ongoing process that takes into account technical and operational
challenges, economics of the particular commodities concerned and
the impact on the communities in which we operate.
Local cost control measures are complemented by global procurement
that leverages our scale to seek to achieve favourable terms on
high-consumption materials such as fuel, explosives and tyres.
Details of the significant impairments recorded during the year are
contained in note 6. Deterioration in the price outlook or operating
difficulties may result in additional impairments.
One of the key factors in our success is a good and trustworthy
relationship with our people. This priority is reflected in the principles of
our sustainability programme and related guidance, which require regular,
open, fair and respectful communication, zero tolerance for human rights
violations, fair remuneration and, above all, a safe working environment,
as outlined on our website at: glencore.com/careers/our-culture
and in the Our People section on page 47.
Glencore Annual Report 2018
31
Strategic ReportFinancial statementsGovernanceAdditional information Principal risks and uncertainties continued
Business risks continued
8
Cyber
Link to strategic priorities
Risk appetite
Low. Where possible, cyber exposure risks
are mitigated through layered cyber security,
proactive monitoring and routine penetration
testing to confirm security of systems.
Risk description
Cyber risks for firms have increased significantly
in recent years owing in part to the proliferation
of new digital technologies, increasing degree
of connectivity and a material increase in
monetisation of cyber-crime.
A cyber security breach, incident or failure
of Glencore’s IT systems could disrupt our
businesses, put employees at risk, result in
the disclosure of confidential information,
damage our reputation and create
significant financial and legal exposures.
Although Glencore invests heavily to monitor,
maintain and regularly upgrade its systems,
processes and networks, absolute security
is not possible.
Risk movement in 2018: Stable
Comments/impacts to the Group
Our activities depend on technology for industrial production,
efficient operations, environmental management, health and safety,
communications, transaction processing and risk management.
We recognise that the increasing convergence of IT and Operational
Technology (OT) networks will create new risks and demand additional
management time and focus. We also depend on third parties in long
supply chains that are exposed to the same cyber risks but which are
largely outside our control.
On 25 May 2018, the General Data Protection Regulation (GDPR) came
into force across the European Union (EU) and the European Economic
Area (EEA) which required us to verify that our systems and processes
are compliant.
Our IT security monitoring platforms frequently detect attempts to
breach our networks and systems. During 2018, none of these events
resulted in a material breach of our IT environment nor resulted in a
material business impact.
Mitigating factors
We have invested in global IT security platforms in order to proactively
monitor and manage our cyber risks. We conduct routine third party
penetration tests to independently confirm the security of our IT systems
and we seek to enhance monitoring of our Operational Technology (OT)
platforms. We publish security standards and educate our employees in
order to raise awareness of cyber security threats.
We have started a programme to evaluate the cyber security posture
of third parties that hold materially sensitive information about Glencore.
Our IT Security Council sets the global cyber security strategy, conducts
regular risk assessments and designs cyber security solutions that seek
to defend against emerging malware, virus, vulnerabilities and other
cyber threats. Our Cyber Defence Centre is responsible for day-to-day
monitoring of cyber vulnerabilities across the world and driving
remediation of threats.
We have an incident response team that is responsible for coordinating
the response in the event of a major cyber incident.
32
Glencore Annual Report 2018
Sustainability risks
9
Climate change
Link to strategic priorities
Risk appetite
High. Our business involves producing and
consuming fossil fuels along with processing
minerals which inevitably entails emitting
harmful emissions.
Risk description
Climate change is a material issue that
affects our business and creates both risks
and opportunities. As a significant producer
and consumer of energy products, energy
is a key input and cost to our business as
well as being a material source of our carbon
emissions. Proposals for a transition to a
low-carbon economy and its associated public
policy development, may increase costs for
fossil fuels, impose levies for emissions and
increase costs for monitoring and reporting
and to reduce demand for our energy products.
Third parties, including potential or actual
investors, may also introduce policies adverse
to the Company due to its interest in fossil fuels.
A number of national governments have
already introduced, or are contemplating
the introduction of regulatory responses
to greenhouse gas emissions. This includes
countries where we have assets such
as Australia, Canada and Chile, as well as
customer markets such as China, India
and Europe.
Climate change may increase physical risks
to our industrial assets, largely driven from
water related risks such as flooding or
water scarcity.
Risk movement in 2018: Increase
Comments/impacts to the Group
Many developed countries are pledging to stop using fossil fuels
(specifically coal) in power generation. In December 2018, global
investors collectively representing $11.5tn have set out their requirements
to investee power companies to set out transition plans consistent
with the goal of the Paris Agreement. They also expect explicit time
lines and commitments for the rapid elimination of coal use by utilities
in EU and OECD countries by 2030.
As a result of these factors, some other market participants and analysts
have a more bearish view (some strongly so) in relation to coal and
oil and believe that many fossil fuel assets could become “stranded”,
i.e. no longer capable of operating for an economic return with the
capital invested being irretrievably lost. Some investors may not invest
in our shares or divest their holdings due to our significant operations
in fossil fuels.
This is particularly relevant for us as the world’s largest producer
of seaborne thermal coal and a significant marketer of fossil fuels.
We are one of the major producers of key metals (including copper,
cobalt, nickel) that are currently essential for electric vehicles and
the transition to a low-carbon economy, although technological
change may over time reduce their requirement.
Mitigating factors
Through our sustainability programme, we strive to ensure emissions
and climate change issues are identified, understood and monitored
in order to meet international best practice standards and ensure
regulatory compliance.
We openly and transparently disclose our energy and carbon emissions
footprint. This supports our identification, understanding and monitoring
of emissions and climate change issues.
We seek to manage our coal business tightly around cash generation,
including ensuring that ongoing/further investment has relatively quick
cost pay-backs so as to mitigate “stranded-assets” risk.
We review and analyse high-level climate change trends, including
regulatory compliance and physical and reputational impacts for our
operating regions. We monitor revisions to energy and carbon scenarios
and their potential impact on our business.
Following engagement with investor signatories of the Climate Action
100+ initiative, we have furthered our commitment to a low-carbon
economy, amongst others by limiting our coal production capacity
broadly to current levels. Please refer to pages 20–21 for further details.
Our internal, cross-function and multi-commodity working group,
led by our Chairman, co-ordinates our understanding and planning
for the effects of climate change on our business, as well as the steps
we need to put in place to meet our group-wide carbon emission
intensity reduction target of 5% on 2016 levels by 2020. We are
continuing to invest in a range of emission reduction projects.
We participate in a wide range of public policy discussions on carbon
and energy issues and seek to ensure that there is a balanced debate
with regard to the ongoing use of fossil fuels.
Further information is available at:
glencore.com/sustainability/climate-change
Glencore Annual Report 2018
33
Strategic ReportFinancial statementsGovernanceAdditional information Principal risks and uncertainties continued
Sustainability risks continued
10
Community relations and human rights
Link to strategic priorities
Risk appetite
Low. It is our policy to ensure we proactively
engage with local communities to maintain
our social licence to operate.
Risk description
Our operations have a significant effect on
our workforce, and surrounding communities
and on society as a whole. We recognise the
contribution our business activities make
to the national and local economies in which
we operate. As a result, the continued success
of our existing operations and our future
projects are in part dependent on broad
support and a healthy relationship with the
communities surrounding our operations
as well as our ability to promote diversified
and resilient local economies.
Risk movement in 2018: Stable
Comments/impacts to the Group
A perception that we are not respecting human rights or generating local
sustainable benefits could have a negative impact on our “social licence
to operate”, our ability to secure access to new resources and our financial
performance. The consequences of adverse community reaction or
allegations of human rights incidents could also have a material adverse
impact on the cost, profitability, ability to finance or even the viability
of an operation and the safety and security of our workforce and assets.
Locally based events could escalate to disputes with regional and national
governments as well as with other stakeholders and potentially result in
reputational damage and social instability that may affect the perceived
and real value of our assets.
Mitigating factors
We take a proactive and strategic approach to our stakeholder and
community engagement. We support the advancement of the interests
of both our host communities and our assets. We take a cross-functional
approach to understanding and managing our socio-economic
contributions to deliver shared value while managing our impact
on society.
We uphold and respect the human rights of our people and our local
communities. Where we may cause adverse impacts on our stakeholders,
we seek to apply relevant international standards to understand, control
and mitigate the impact. We also seek to apply the Voluntary Principles
on Security and Human Rights in regions where there is a high risk to
human rights.
We seek to make our grievance mechanisms available to the community
members impacted by our operations. We review all complaints received
and take actions when necessary to address the issues raised.
Further information is available on our website at:
glencore.com/sustainability/community-and-human-rights
34
Glencore Annual Report 2018
Sustainability risks continued
11
Health, safety, environment
Link to strategic priorities
Risk appetite
Low. It is our policy to ensure we comply with
or exceed the health, safety and environmental
laws and external requirements applicable
to our operations and products.
Risk description
We are committed to ensuring the safety and
wellbeing of our people and the communities
and environment around us. Catastrophic
events that take place in the natural resource
sector can have disastrous impacts on workers,
communities, the environment and corporate
reputation, as well as a substantial financial cost.
The success of our business is dependent
on a safe and healthy workforce. Managing
risks to the safety and health of our people is
essential for their long-term wellbeing. It also
helps us to maintain our productivity and
reduce the likelihood of workplace
compensation claims.
Our operations at assets around the world
can have direct and indirect impacts on
the environment. Our ability to manage and
mitigate these impacts may result in the loss
of our operating licences as well as affecting
future projects and acquisitions.
Our operations are often sited close to
communities with limited healthcare.
Local health services might be in the early
stages of development, or local authorities
may not have the resources to cope with
the scale of need.
Risk movement in 2018: Increase
Comments/impacts to the Group
Our diversity, in terms of geographical locations, working conditions,
organisational cultures and workforce, means that we need to take a
local approach to transforming attitudes towards catastrophic hazard
management, including safety and health practices as well as resolving
environmental challenges.
Environmental, safety and health regulations may result in increased
costs or, in the event of non-compliance or incidents causing injury
or death or other damage at or to our facilities or surrounding areas
may result in significant losses. These include, those arising from (1)
interruptions in production, litigation and imposition of penalties and
sanctions and (2) having licences and permits withdrawn or suspended
while being forced to undertake extensive remedial clean-up action or
to pay for government-ordered remedial clean-up actions.
Liability may also arise from the actions of any previous or subsequent
owners or operators of the property, by any past or present owners
of adjacent properties, or by third parties.
A number of our assets are in regions with poor approaches towards
personal safety, little or no access to health facilities, and poor working
conditions, organisational cultures and workforce. As a result, we need
to take a flexible local approach to transforming our workforces’ safety
and health attitudes and culture.
We recognise the contribution a healthy community makes towards
the robustness of our production processes. Community members
are often our employees, contractors, procurement partners and
service providers. We work with local authorities, local community
representatives and other partners, such as NGOs, to help to overcome
major public health issues in the regions where we work, such as
HIV/AIDS, malaria and tuberculosis.
We regret that we recorded thirteen fatalities at our operations in 2018.
Mitigating factors
Our approach to sustainability and our expectations of our workers
and our business partners are outlined in our sustainability framework.
This underpins our approach towards social, environmental, safety
and compliance indicators, providing clear guidance on the standards
we expect all our operations to achieve. Through the reporting function
within the programme, our Board and senior management receive
regular updates and have a detailed oversight on how our business
is performing across all of the sustainability indicators.
We monitor catastrophic risks, in particular, across our portfolio
and operate emergency response programmes.
Compliance with international and local regulations and standards
is a requirement.
We remain focused on the significant risks facing our industry arising
from operational catastrophes such as the tailings dam collapses
in Canada (Mount Polley) and in Brazil (Samarco and Brumadinho)
in the last five years, and mine wall collapses at our operations in DRC
and Colombia. Tailing dams in particular remain a significant risk and
will be a greater area of focus via our dam safety assurance programme,
regular surveillance/inspections and verification of all corrective actions
taken. We seek to learn from these events, and proactively assess our
exposure to similar incidents and implement measures to avoid these.
Considerable ongoing investment continues in the Group’s SafeWork
health and safety programme.
See also the Sustainability review on page 36 and the HSEC Committee
report on page 112.
Further details will also be published in our 2018 sustainability report.
Glencore Annual Report 2018
35
Strategic ReportFinancial statementsGovernanceAdditional information Sustainability
Our approach to sustainability reflects our commitment to
operate transparently and responsibly. It also encompasses
our desire to protect the wellbeing of our people, our host
communities and the natural environment, while sharing
lasting benefits with the regions where we operate
and society as a whole
Lost time injury
frequency rate
(per million
hours worked)
Total recordable
injury frequency rate
(per million
hours worked)
1.40
4.05
1.02
1.06
3.08
3.18
Water withdrawn
(million m3)
Water withdrawn
(million m3)
1,020
971
971
924
924
1,020
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
CO2e Scope 1
(million tonnes)
CO2e Scope 1
(million tonnes)
23.1
23.1
21.6
21.6
18.5
18.5
CO2 Scope 2 –
CO2 Scope 2 –
location based
location based
(million tonnes)
(million tonnes)
11.9
11.9
11.6
11.6
11.8
11.8
Community
investment
(US$ million)
90
95
84
2016
2016
2017
2017
2018
2018
2016
2016
2017
2017
2018
2018
2016
2017
2018
Overview
We recognise that the success
of our business and the creation
of financial value is dependent on
our responsibility to make a positive
contribution to society while creating
lasting benefits for stakeholders
in a manner that is responsible,
transparent and respective to the
rights of all.
Our sustainability strategy, policies
and procedures support good
business practice and drive positive
change throughout our business.
Our sustainability strategy sets
out our ambitions against four core
pillars: health; safety; environment;
and community and human rights.
Each pillar has clearly defined
imperatives, objectives, priority
areas and targets.
36
Glencore Annual Report 2018
Oversight and ultimate responsibility
for our Group sustainability strategy
and framework, as well as its
implementation across the Group,
rests with the Board HSEC
Committee (the Committee).
The CEO, principally through the
support of the Group’s senior
management team, is responsible
for implementing and executing
the sustainability strategy.
We review our sustainability
strategy annually to confirm that
it is continuing to fulfil the needs
of our business.
Further details on this strategy,
our approach to its implementation,
performance and ambitions are
available in our sustainability-related
publications. These include an
annual sustainability report
published in accordance with the
core requirements of Global
Reporting Initiative (GRI):
• Our approach to sustainability
• Sustainability report and highlights
• Data book and GRI references
• Payments to governments report
• Modern slavery statement
All of our sustainability
communications are available
on our website: glencore.com/
sustainability
Sustainability framework
Corporate strategy
Integration of
sustainability
throughout
our business
Maintain
a robust and
flexible balance
sheet
Focus on cost
control and
operational
efficiencies
Values
Safety – Entreprenuerialism –
Simplicity – Responsibility – Openness
Code of Conduct
Group sustainability strategy
Health
Become a leader in the protection
and improvement of our people’s
and communities’ wellbeing
Safety
Become a leader in workplace
safety, eliminating fatalities
and injuries
Environment
Minimise any negative
environmental impact from
our operations and apply
the precautionary principle
in decision-making
Community and human rights
Foster sustainable growth and
respect human rights wherever
we operate
Board HSEC Committee
(the Committee) has oversight
and ultimate responsibility.
The Committee receives
regular updates and
has oversight of how our
business is performing across
all our internally defined,
sustainability-related
material risk areas.
Sustainability principles,
guidance and policies
Integrated throughout the
business and give guidance
on the standards we expect.
Group HSEC policies
Operational policies
Developed for the specific needs
of individual assets
Management, data reporting,
risk management and assurance
to monitor compliance
Material topics
• Internal and external
materiality assessment
process to identify
material topics
• Material topics are the focus
of our sustainability strategy
review and reporting
• Operational activities
focus on addressing
and progressing the
material topics
Glencore Annual Report 2018
37
Strategic ReportFinancial statementsGovernanceAdditional information Sustainability continued
External commitments
We are signatories to the United
Nations Global Compact (UNGC),
aligning our strategies and
operations with its principles,
which cover human rights, labour,
environment and anti-corruption.
The UNGC also encourages
participants to support the
Sustainable Development Goals
(SDGs), with an emphasis on
collaboration and innovation.
We welcome the SDGs and
the advent of a systematic global
approach to society’s overall
development. We believe that
we can play a role in supporting
our host governments to meet
the SDGs.
In addition, we uphold the
International Labour Organization
(ILO) Declaration on Fundamental
Principles and Rights at Work
and the UN Universal Declaration
of Human Rights. We work in
accordance with a number of
specific international frameworks,
including the Core Conventions
of the ILO and the UN Guiding
Principles on Business and
Human Rights. We are members
of the Plenary of the UN’s Voluntary
Principles on Security and
Human Rights.
We have been a member of the
International Council on Mining
& Metals since 2014. We endorse
its sustainable development
framework principles and
are an active member of its
working groups.
We strongly support transparency in
the redistribution and reinvestment
of the payments we make to
local and national governments.
We are active participants in the
Extractive Industries Transparency
Initiative (EITI). We comply
with the EU Accounting and
Transparency Directives; in line
with those provisions, we publish
separate annual reports detailing
material payments made to
governments, broken down
by country and project.
Performance overview
Achieved
On track
Not achieved
Material topic
2015–2020 strategic priority
Performance indicator
2017
2018
Status
Catastrophic hazard
management
• No major or catastrophic
environmental incidents
Number of health and safety incidents
(major and catastrophic)
Workplace health
and safety
• No fatalities
• 50% reduction of Group
LTIFR by the end of 2020,
against 2015 figure of 1.341
• 50% reduction in TRIFR by
the end of 2020 using 2014
figures as baseline of 5.021
• Year on year reduction in
the number of new cases
of occupational disease
Number of environmental incidents
(major and catastrophic)
Total number of catastrophic and major incidents
Fatalities at managed operations
Lost time injury frequency rate
1.02
1.06
Total recordable injury frequency rate
New occupational disease cases
Number of HPRIs reported
9
0
9
9
13
0
13
13
3.1
46
3.2
32
368
434
21.6
18.5
Climate change
• 5% (minimum) carbon
CO2e Scope 1 (million tonnes)
emission intensity reduction
on 2016 baseline by 2020
CO2 Scope 2 – Location based (million tonnes)
11.6
11.8
Total energy use (petajoules)
202
208
Carbon emissions intensity (tGHG/tCu)
4.38
4.09
Water and effluents
• Complete implementation of
water management guideline
Share of sites that have implemented the water
management guideline by the end of 2019 (%)
n/a
n/a
Human rights and
grievance mechanisms
• No serious human
rights incidents
Community
engagement and
social commitment
compliance
• Implement our social
value creation strategy
• Distribute the community
leadership Programme Toolkit
Serious human rights incidents
0
0
Community investment spend ($ million)
90
95
Product stewardship
• Ongoing engagement
with organisations and
interested stakeholders
on responsible sourcing
Continued engagement with a broad range of
stakeholders, including customers, regulatory
organisations and industry associations
1 Baseline figures include Glencore Agriculture.
38
Glencore Annual Report 2018
As part of our commitment to
responsible product stewardship,
we follow the UN globally
harmonised system for classification
and labelling of chemicals (GHS),
the EU REACH regulations on the
registration, evaluation, authorisation
and restriction of chemicals, and the
London Bullion Market Association
(LBMA) Responsible Gold guidance.
Where appropriate, we participate
in the REACH consortia related
to the materials we produce; these
include the consortia for zinc,
cadmium, sulphuric acid, lead
and precious metals.
Risk management and assurance
The identification, assessment
and mitigation of risk determines
our approach to sustainability
management. All of our assets
apply our risk management
framework and its supporting
guidelines.
We align our framework with
international standards. The
framework provides a harmonised
approach to managing our health,
safety, environment, community,
human rights and reputational
risks, as well as those linked to
the management of financial
and legal issues.
Our assets use the framework
to identify hazards, including
those with potentially major
or catastrophic consequences,
and to develop plans to address
and eliminate, or mitigate, the
related risks. For each of the
identified catastrophic hazards
we have implemented a
standardised approach to
identifying and understanding
their causes and controls.
Total CO2e Scope 1
and CO2 Scope 2
emissions –
location based
30.3mt
2017: 33.2mt
Carbon intensity
reduction
5.6%
versus 2016 baseline
Our internal HSEC assurance
programme has a primary focus
on our systematic management
of the catastrophic hazards and
their relevant controls and critical
controls. Internal and external
senior subject matter experts
participate in this programme
and the Committee receives
reports on its findings. We actively
follow up and verify these findings.
The assurance programme is
contributing to improving standards
and performance group-wide.
Creating long-term,
sustainable returns
As one of the world’s largest diversified
resource companies, Glencore has a
key role to play in enabling transition
to a low-carbon economy.
To deliver a strong investment case
to our shareholders, we must invest in
assets that will be resilient to regulatory,
physical and operational risks related
to climate change.
Glencore Annual Report 2018
39
Strategic ReportFinancial statementsGovernanceAdditional information Sustainability continued
Materiality assessment
We focus our approach to reporting
on our sustainability performance
and progress on the topics identified
as being material to our development,
performance and position as well as
for our future prospects.
We undertake a sustainability-
related materiality assessment
every two years. This assessment
establishes the material topics
for our sustainability strategic
review and publications.
We align our materiality assessments
with GRI requirements and consider
topics at global and local levels,
as well as considering information
relating to our business and the
natural resources sector; our
regulatory requirements and the
topics raised during engagement
with our people and external
stakeholders including local
communities, investors, the media,
governments and NGOs.
Our material topics for the 2017–18
period are:
• Catastrophic hazard management
• Workplace safety and health
• Climate change
• Water and effluents
• Waste and air emissions
• Human rights and grievance
mechanisms
• Community engagement and
social commitment compliance
• Our people
Engaging with our stakeholders
We engage with all relevant stakeholder groups to build
meaningful relationships and understand their expectations
and aspirations. Through recognising the importance of
open and transparent engagement, we are able to minimise
our negative societal impact, optimise the value we bring
to local communities, and maintain our licence to operate.
We reach out to our stakeholders at local, national, regional
and international levels. We hold transparent negotiations
with union officials and our employees receive regular
briefings on health and safety matters. Many of our assets
hold open days, when local community members can visit
our sites and interact with our operational teams.
We engage on a broad variety of topics with a wide
range of stakeholders with diverse interests and opinions.
Our stakeholders include our employees and contractors,
host communities, civil society, unions, governments,
business partners, non-governmental organisations,
investors and the media.
Where appropriate, we take an informed and constructive
role in public policy development processes. For example,
we are working with policy makers directly and through
trade associations, on issues related to clean energy,
carbon reporting and carbon pricing, recognising that
governments and industry must work together to establish
policy frameworks that deliver the optimal balance of social,
environmental and economic considerations appropriate
for individual nations.
40
Glencore Annual Report 2018
Our material topics
Catastrophic hazard management
We are committed to ensuring the
safety and wellbeing of our people
and the communities and
environment around us.
Catastrophic events that take place
in the natural resource sector can
have disastrous impacts on workers,
communities, the environment and
corporate reputation, as well as
having substantial financial cost.
We are actively identifying, monitoring
and mitigating the catastrophic
hazards within our business.
We require hazards that could lead
to catastrophic or fatal events to
be controlled at all times. We ensure
that those who might be directly
exposed have appropriate awareness
of such hazards, along with other
legitimate stakeholders.
The Board receives regular updates
on this area and actively encourage
an approach of ongoing improvement.
Workplace health and safety
The health and safety of our people
is our top priority. Our ambition
is to become a health and safety
leader, and to create a workplace
without fatalities, injuries or
occupational diseases.
We take a proactive, preventative
approach towards health and safety.
Our aim is to establish a positive
safety culture that supports all of
our workforce being empowered
to have the authority to stop work
if they consider a workplace or
situation unsafe. We believe that
all occupational fatalities, diseases
and injuries are preventable.
An important tool in improving
safety at our operations has been
the recording of high potential
risk incidents (HPRIs).
The reporting of HPRIs represents
a positive part of our strategy to
reduce fatalities and, as such, we do
not target a reduction in this metric.
They support the identification of
activities that we need to prioritise
in order to advance further our
safety performance.
During 2018, the majority
of our HPRIs related to mobile
equipment, ground/strata failure,
lifting and cranage, working at
height, fire and explosion, energy
and electrical safety. For each of
these hazards, we have developed
protocols that detail the actions
necessary to identify and mitigate
the associated risk.
We encourage our workforce to
recognise the need to record and
report HPRIs through the promotion
of a risk-based safety culture.
We are saddened to report that we
have not met our goal of zero fatalities.
In 2018, thirteen people lost their
lives at our operations, compared
to nine during 2017. All loss of life is
unacceptable and we are determined
to eliminate fatalities across our Group.
Our lost time injury frequency rate
(LTIFR) reflects the total number
of lost time injuries per million
hours worked and does not include
restricted work injuries or fatalities.
Our LTIFR is recorded when an
employee or contractor is unable
to work following an incident;
days recorded begin on the first
rostered shift that the worker is
absent after the day of the injury.
In 2018, our LTIFR was 1.06 per
million hours worked (2017: 1.02).
Despite our LTIFR increasing slightly
(4%) year-on-year, we are continuing
to embed our SafeWork programme,
build capacity throughout our
business and we remain committed
towards achieving a fatality
and injury-free work place. Each
commodity department has in place
a safety work plan that reflects the
specific production process for their
operations. We are continuing our
efforts to establish a sustainable
culture of safety in our work places
that contribute towards our long-term
goal of reducing employee and
contractor lost-time injuries by 50%
by the end of 2020 against a 2015
figure of 1.34.
The total recordable injury frequency
rate (TRIFR) is the sum of fatalities, lost
time injuries, restricted work injuries
and medical treatment injuries per
million hours worked. The metric
represents all injuries that require
medical treatment beyond first aid.
Our 2018 TRIFR of 3.18 is regrettably
a 3% increase on 2017’s rate of
3.08. However, we are continuing
to support the changes that are
necessary to deliver the progressive
improvement required to achieve
our long-term goal of achieving a
50% reduction in TRIFR by the end
of 2020, using our 2014 TRIFR of
5.02 as the baseline.
Lost time injury
frequency rate
(per million
hours worked)
1.40
1.02
1.06
2016
2017
2018
Total recordable
injury frequency rate
(per million
hours worked)
4.05
3.08
3.18
2016
2017
2018
Number of HPRIs
reported
405
368
434
2016
2017
2018
New occupational
disease cases
89
46
32
2016
2017
2018
2016 data includes Glencore
Agriculture; 2017 and 2018
excludes Glencore Agriculture.
Glencore Annual Report 2018
41
Strategic ReportFinancial statementsGovernanceAdditional information CO2e Scope 1
(million tonnes)
23.1
21.6
18.5
2016
2017
2018
CO2 Scope 2 –
location based
(million tonnes)
11.9
11.6
11.8
2016
2017
2018
Emissions intensity
(tGHG/tCu)
4.34
4.38
4.09
2016
2017
2018
Total energy use
(petajoules)
222
202
208
2016
2017
2018
Sustainability continued
Climate change
The impact on our business
As a significant energy products
producer and consumer, we are
aware that energy is a key input
and cost to our business as well
as being a material source of our
carbon emissions. We are working
to mitigate the physical impacts
of climate change where we can
and consider resource efficiency
when making operational decisions.
Wherever we operate, we seek
to optimise our energy and
carbon footprint.
We recognise the global climate
change science as laid out by the
Intergovernmental Panel on Climate
Change (IPCC). We believe that the
global response to climate change
should pursue twin objectives: both
limiting temperatures in line with the
goals of Articles 2.1(a)i and 4.1ii of the
Paris Agreement (the “Paris Goals”)
and supporting the United Nations
Sustainable Development Goals,
including universal access to
affordable energy.
We believe the measures
implemented by national and
intra-national governments, as
well as public sentiment, will drive
public policy developments and
programmes that restrict global
greenhouse gas emissions (GHGs).
This is likely to affect our business
and represents both risks and
opportunities that we need to
manage. We support a least-cost
pathway to achieving climate
change goals that considers the
cost and consequences of all
available policy options and does
not hinder socio-economic
development.
Addressing climate change
across our business
To address the impacts, opportunities
and risks relating to climate change
within our business, our internal
cross-functional and cross-commodity
working group, led by our Chairman
with Board oversight, considers and
examines climate change issues.
42
Glencore Annual Report 2018
This working group is overseeing
the ongoing integration of carbon
emissions and energy into our
annual business planning process
and the mapping to 2020 of our
forward projected energy and
carbon footprint. Its work is feeding
into a detailed review of our carbon
emissions and energy profile. It
includes an assessment of potential
mitigation and abatement projects,
and underpins the basis of our
internal Marginal Abatement Cost
Curve (MACC).
How we are taking action
We use renewable energy sources
where possible; renewable sources
deliver 12% of our total energy
needs (2017: 14%). In Australia, we
use coal seam gas from our mines
to supplement power generation
at a number of our assets and
have flares installed at those
underground coal mines with the
necessary supply and concentration
of methane.
We play an active role in engaging
with governments and other
interested stakeholders to develop
strategies for reducing the impact
of climate change. We actively
support the development of low
emission technologies and some
renewable energy sources.
We are investing in a number
of low carbon energy projects that
address direct and indirect emissions
from our operations. They include
treatment of fugitive emissions
from coal processing and ventilation
and a large-scale carbon capture
and storage demonstration project
in Australia.
Reporting on our emissions
We divide CO2 emissions reporting
into three different scopes, in line
with the Greenhouse Gas Protocol,
and measure both the direct
and indirect emissions generated
by the industrial activities, entities
and facilities where we have
operational control.
During 2018, we emitted 18.5 million
tonnes CO2e of Scope 1 (direct
emissions) from our consumed fuel
(2017: 21.6 million tonnes). This figure
includes emissions from reductants
used in our metallurgical smelters.
It also includes CO2e of methane
emissions from our operations,
which is around 25% of our Scope 1
emissions. The reduction in Scope 1
emissions is mainly due to lower coal
seam emissions at our Australian
coal operations.
In 2018, we emitted 11.8 million
tonnes CO2 of Scope 2 location-
based (indirect emissions)
(2017: 11.6 million tonnes). We apply
appropriate country-by-country
grid emission factors to all of our
purchased electricity, regardless
of specific renewable electricity
contracts. The increase of our Scope 2
emissions is based on our new assets
and overall production increases/
ramp-ups which outweigh any
reductions as a result of site closures
and divestitures.
Our Scope 3 emissions include
those from a broad range of sources,
including the use of the fossil fuels
that we have sold to our customers
and shipping transportation by our
time-chartered vessels. We report
our Scope 3 emissions in our 2018
Sustainability Report.
Financial Stability Board’s
Task Force on Climate-related
Financial Disclosures (TCFD)
We support the TCFD’s voluntary
framework for the reporting
of climate-related financial risk
disclosures for use by lenders, insurers,
investors and other stakeholders.
Our 2018 carbon emissions
intensity, measured in terms of
tonnes of greenhouse gases emitted
per tonne of copper equivalent
industrial production (tGHG/tCu), is
4.09tGHG/tCu (2017: 4.38tGHG/tCu;
2016: 4.34tGHG/tCu1). Lower coal
seam emissions due to the closure
of underground assets in Australia
drove this reduction. Expected
mine planning changes at certain
assets including Mutanda are likely
to increase emissions intensity
temporarily. However, we believe
that we are on track to achieve
our group-wide carbon emission-
intensity reduction target of at
least 5% on 2016 levels by 2020.
We welcome the opportunity
to engage with our stakeholders
on climate change matters and
report on our progress.
Our Climate Change Considerations
for our Business publication analyses
the robustness of our portfolio
against climate-related scenarios
and provides an assessment of the
risks and opportunities available to
Glencore in a low-carbon economy.
In response to the guidance
produced by the TCFD, we have
provided a cross-reference table
below. The table references
the sections in this report and
other publications that meet the
guidance of the TCFD.
Cross reference table to Task Force on Climate-related Financial Disclosures
Governance: Disclose the organisation’s governance around climate-related risks and opportunities
(a) Describe the Board’s oversight of climate-related risks and opportunities.
Board Committees: Page 100
Risk – Board leadership: Page 103
(b) Describe management’s role in assessing and managing climate-related
Board activities during 2018: Page 101
risks and opportunities.
HSEC Committee report: Page 112
Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy,
and financial planning where such information is material
(a) Describe the climate-related risks and opportunities the organisation
Principal risks and uncertainties/climate change: Page 33
has identified over the short, medium, and long term.
(b) Describe the impact of climate-related risks and opportunities on
the organisation’s businesses, strategy, and financial planning.
(c) Describe the resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios, including a 2°C
or lower scenario.
Principal risks and uncertainties/climate change: Page 33
2017 Climate Change Considerations for Our Business: Page 20
Risk management: Disclose how the organisation identifies, assesses, and manages climate-related risks
(a) Describe the organisation’s processes for identifying and assessing
Approach to risk management: Page 104
climate-related risks.
2017 Climate Change Considerations for Our Business: Page 14
(b) Describe the organisation’s processes for managing climate-related risks.
Addressing climate change across our business: Page 42
(c) Describe the targets used by the organisation to manage climate-related
Principal risks and uncertainties: Page 33
risks and opportunities and performance against targets.
Reporting on our emissions: Page 42
Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material
(a) Disclose the metrics used by the organisation to assess climate-related
Reporting on our emissions: Page 42
risks and opportunities in line with its strategy and risk
management process.
(b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas
Reporting on our emissions: Page 42
(GHG) emissions, and the related risks.
Key performance indicators: Page 23
(c) Describe the targets used by the organisation to manage climate-related
Addressing climate change across our business: Page 42
risks and opportunities and performance against targets.
1 The 2016 and 2017 carbon intensity have been updated in accordance with the Greenhouse gas protocol in order to account for acquisitions and divestments.
Glencore Annual Report 2018
43
Strategic ReportFinancial statementsGovernanceAdditional information Water withdrawn
(million m3)
971
924
1,020
2016
2017
2018
Sustainability continued
Water and effluents
Water is an essential component of
our business activities. We recognise
that water is a shared and finite
resource and we are conscious of
the increasing concerns of our local
stakeholders and other local water
users regarding ongoing availability
of water, security of access and
the potential for impacts on
water supply.
We are committed to managing
our impact on water resources
responsibly. We prioritise efficient
water use, water reuse/recycling,
responsible waste water disposal
and maintaining any equipment that
may pose a hazard to water quality.
We engage with local water users
to avoid material adverse impacts
on the quality and quantity of
water sources or compromising
their access to water.
In 2018, we withdrew 1,020 million m3
of water (2017: 924 million m3).
The increase is mainly due to the
inclusion of the Volcan zinc assets.
We publicly report to the CDP
Water Disclosure programme.
Waste and air emissions
Most of the waste that Glencore
generates is mineral and includes
tailings, slag and rock. Our assets
have rigorous management
systems to dispose of waste
while preventing environmental
contamination. We reuse as
much waste as possible.
Our metal and coal assets
generate tailings (residues of
mineral processing), which are
stored in purpose-built tailings
storage facilities (TSF). Our assets
evaluate natural phenomena
such as flooding and seismic
activity and incorporate these
considerations into their TSF
designs where relevant.
Piloting water catchment assessments
Our Horne Smelter is progressing a pilot project on the International Council
for Mining & Metals’ (ICMM) catchment-based approach to water management.
Catchment-based water management is a comprehensive, systematic approach
to identifying, evaluating and responding to local water-related risks through the
lifecycle of an asset as well as capturing an asset’s impact on other local water users.
The project is supporting an improved understanding of water, better investment
planning and prioritisation and stakeholder engagement.
The site will initiate a water management action plan that aligns with the
Mining Association of Canada’s water stewardship protocol.
The learnings of this project will be shared group-wide.
44
Glencore Annual Report 2018
Total amount of
hazardous and non-
hazardous mineral
waste generated
(million tonnes)
2,025
2,137
2,264
2016
2017
2018
Sulphur dioxide
emissions
(thousand tonnes)
401
358
381
2016
2017
2018
Our TSFs are heavily regulated,
undergo regular inspections,
and are monitored continuously
for integrity and structural stability.
We require the design, construction,
operation, and closure of our TSFs
and associated dams to comply
with internationally-recognised
engineering standards and in
line with our management plans.
Since 2016, our approach has been
built around a Dam Safety Assurance
Programme with a foundational
assessment against more than 100
criteria in dam safety and governance
best practice. This Programme sets
out clear and consistent requirements
for maintenance procedures and
annual inspections, and details
assurance processes to be followed.
We work in partnership with a leading
external expert, Klohn Crippen Berger
(“KCB”). The Programme improves
our identification and minimisation or
elimination of potential health, safety,
environmental, social or business
risks associated with our TSFs.
We conduct risk assessments on our
TSFs to evaluate the risks associated
with a TSF failure, and to identify
the associated preventing and
mitigating controls. We carry out
regular surveillance and quarterly
to annual TSF safety inspections to
assess the compliance of the TSFs
with regulations and engineering
standards. Any corrective actions
taken following a safety audit are
subject to verification. A full corporate
audit of technical and governance
procedures is carried out by KCB
every 12–18 months.
The slight increase in waste
produced during 2018 was primarily
due to increased stripping ratios at
a number of assets and the ramp-up
of some assets after completion
of optimisation projects.
Our operations emit emissions
such as sulphur dioxide (SO2),
dust and nitrogen oxide as well
as generate waste, which can
affect the environment and
nearby communities.
We monitor all material emissions
and continuously look for ways to
reduce those that pollute the air
around us. Wherever we operate,
we comply with relevant regulatory
limits and/or international standards
for air emissions regarding SO2.
Our open cut operations emit dust
from excavation and movement
of material. We monitor dust levels
at affected communities and
minimise dust in a number of ways.
Human rights and
grievance mechanisms
We prioritise respect for human
rights everywhere that we operate.
We uphold the human rights of our
people and our local communities,
including vulnerable groups such
as women, children, indigenous
people and victims of conflict.
Respect for human rights is
enshrined in our Code of Conduct,
which lays out the essential
requirements for our people and
stems from our values.
Our Code of Conduct also explicitly
aligns our security procedures
with the UN Voluntary Principles
on Security and Human Rights
(Voluntary Principles). We also
endorse the Voluntary Principles
within our public Group Human
Rights Policy.
As a member of the Voluntary
Principles Initiative, we are working
with the member governments,
companies and NGOs to develop
further our approach towards
human rights. We have
implemented the Voluntary
Principles at our assets with a
high risk of human rights
breaches since 2013.
Our Group Human Rights Policy
applies to all Glencore operations
and offices over which we have
operational control. The policy
requires our operations to identify
and assess risks of human rights
breaches as part of our general
risk assessment processes, which
include baseline and impact studies
at existing operations and due
diligence on new operations
and business partners.
Assets conduct regular human
rights training for their workforce.
This covers general human rights
awareness during day-to-day
activities for our wider workforce,
as well as focused Voluntary
Principles training for our security
employees and contractors.
Glencore Annual Report 2018
45
Strategic ReportFinancial statementsGovernanceAdditional information Our community development
programmes are an integral part
of our community and stakeholder
engagement strategies. We design
our programmes to help reduce
dependency on our operations,
encourage self-reliance and
contribute to sustainable growth
in our host regions.
We are continuing our Community
Leadership Programme (CLP)
training for our assets’ general
managers and site-based
community practitioners. During
2018, we held CLP training sessions
in Australia and Peru; a European
training session took place in
February 2019.
In 2018, we spent $95 million
on community development
programmes (2017: $90 million).
Product stewardship
Our products are vital to today’s
society, creating devices used daily,
all over the world. Our goal is to
provide competitively priced
commodities that meet our
customers’ needs and contribute
to global society, while addressing
any associated health, societal
and environmental risks.
We work with experts, industry
consortia and our peers to study
the properties and impacts of our
products throughout their lifecycles,
to spread understanding of our
products. We engage with a broad
range of stakeholders, including
civil society, governments and our
customers, to promote responsible
commodity sourcing.
In 2018, Glencore did not produce,
process or market any “conflict
minerals” originating from the
conflict areas as defined under
the Dodd-Frank Act (tin, tungsten,
tantalum and gold from the DRC
and adjoining countries).
Community
investment
(US$ million)
90
95
84
2016
2017
2018
Community
complaints
1,063
1,057
963
2016
2017
2018
Sustainability continued
At operations with a relatively high
risk of breaches of security-related,
human rights, we require our own
employees and private security
contractors to undergo specific
training on human rights, aligned
with the Voluntary Principles.
Where possible, we also provide
awareness-raising sessions on
the Voluntary Principles to public
security forces deployed on
our concessions.
All our operations are required
to have in place grievance
mechanisms that are accessible,
accountable and fair, and that
enable our stakeholders to
raise concerns without fear
of recrimination. We align our
grievance mechanisms with the
requirements of the UN Guiding
Principles on Business and
Human Rights.
During 2018, we received 1,057
complaints from the communities
living around our operations
(2017: 1,063 complaints). The majority
of the complaints received
related to Chad E&P, Mount Isa
and Mangoola primarily regarding
access to property (Chad), air
emissions (Mount Isa) and noise
(Mangoola). We take all complaints
seriously and continuously look for
new ways to minimise our impacts.
Community engagement and
social commitment compliance
The communities surrounding
our operations are our neighbours,
employees, business partners
and future workforce. Through our
commitment to two-way dialogue
with our local communities, we aim
to secure a broad base of support
for our activities. We aim to foster
sustainable growth where we
operate. We work with communities
to deliver socio-economic
development through investment
in infrastructure, procurement,
health and education projects.
We contribute to society throughout
our value chain, via employment,
procurement, enterprise
development, infrastructure and
social investment programmes.
46
Glencore Annual Report 2018
Our people
Our employees and contractors are fundamental
to our success. At Glencore, our people are at the
heart of everything we do. We foster an environment
where our different backgrounds, cultures and
beliefs are supported and encouraged.
Our people
Our people are our greatest
asset and we offer them diverse
opportunities and support for
their development throughout
their careers at Glencore, with
competitive rewards and benefits.
We emphasise our grievance
procedures and their importance,
and aim to ensure the wellbeing and
protection of our entire workforce.
A Corporate Human Resource
Framework provides a holistic
guidance to our Human
Resource Managers.
In 2018, we updated and redistributed
our Corporate Human Resources
Policies, ensuring we fulfil our
Duty of Care to our employees
and contractors.
Our progress in 2018
Our rankings as an Employer of
Choice continue to improve as we
tackle issues more transparently
and timely. We aim to proactively
engage with young talents and
prospective employees.
In 2018, we updated and redistributed
our marketing content and material,
reinforcing our Employer Value
Proposition to ensure attraction
and retention of top talent.
We are proud that according
to Universum Global’s ranking of
Employers of Choice, we continue
to improve our standing within the
Swiss market and gained four points
amongst business students. We
were recognised again on the list of
the Top 100 Employers in Switzerland
as well as being ranked as one of
the Best Employers in Switzerland
thanks to our employees providing
their personal opinions on working
at our HQ in Baar.
Diversity
Diversity is at the core of Glencore
and it is applied from our varied
commodities and portfolios, to our
global operations, and at our offices
internationally. We support the
International Labour Organization
Declaration on Fundamental
Principles and Rights at Work. We
recognise and uphold our people’s
rights to a safe work environment,
freedom of association, collective
representation, fair compensation,
job security and developmental
opportunities.
Glencore is committed to
developing and uplifting members
of the communities in which it
operates. Our Alloys team in
South Africa have enrolled more
artisans than any other group in
the industry, having invested more
than $18 million in the past five years.
Upon successful completion of
the programme, participants are
able to access employment in any
sector relevant to their training,
including mining, construction,
and manufacturing.
More than 25 Glencore employees
were nominated for a place on
the list of Top 100 Women in Mining.
Ultimately, four of our female
employees joined the list of leaders
pioneering initiatives to improve
worldwide diversity and foster
women’s professional development
within our industry.
Our South African Coal assets
have introduced a Women’s
Development Programme called
We Lead – a mentoring programme
focused on supporting and
advocating for female colleagues.
Union relations
2018 saw the end of 230 days
of negotiations at our Oaky Creek
Coal mine in Australia. It also
saw the beginning of active
engagement with IndustriALL,
a global union federation.
In accordance with local labour
laws, regular labour negotiations
with South American unions
occur every three years. Our last
negotiations at Lomas Bayas took
place at the end of 2014 where a
collective bargaining agreement
for 38 months was agreed.
In November 2017 we entered
into negotiations and were able
to complete them under the new
legislation, without disruption,
by early January 2018.
Wellbeing
The safe work culture is inherent
to Glencore. We strive for a trained,
competent, and motivated workforce
and continue to promote and support
health and wellness programmes
for all our workers and surrounding
communities.
At Antapaccay, we developed a
Leadership Programme for staffing
levels, supervisors, superintendents
and managers with the intention
to promote and underpin the
practice of reaching targeted goals
by encouraging the appropriate
behaviours and attitudes
and developing key attributes,
such as leadership, teamwork,
communication, and drive for results,
among others. The programme
reached a participation rate of 96%
and achieved a total satisfaction
rate of 93%.
Glencore Annual Report 2018
47
Strategic ReportFinancial statementsGovernanceAdditional information Sustainability continued
“Tamatumani” – a second start
for the Inuit
Raglan Mine’s programme named
Tamatumani (“second start” in Inuktitut)
was recognised for its commitment to
training and workforce development of our
Inuit employees. The programme intends to
offer permanent employment opportunities
within our operations to the Inuit, while
fostering development of their individual
skills, and promote the economic development
of Nunavik. Our Tamatumani programme
implements several initiatives favouring
harmonisation of cultures within the company.
HR Governance and Strategy
We will continue to place an
emphasis on strengthening our
HR governance on the basis of
our Corporate HR Framework,
measuring ourselves against
our KPIs.
The new UK Corporate Governance
Code will form an important part
and basis of the HR Governance
from 2019 onwards.
Outlook – Our focus for 2019
Talent
Throughout 2019, we will continue
to focus on talent attraction and
retention to ensure the continued
success of our business. We will
also introduce the launch of our
Corporate Scholarship Programme,
focusing on mining engineers to
address the predicted shortage
of such qualifications in the
years ahead.
Employer Branding
We maintain the emphasis on our
Employer Brand Proposition being
Dedicated – Driven – Diversified.
The upgraded Employer Branding
will be launched in Q1 of 2019 along
with updated campaigns whereby,
amongst many other activities,
our own employees are given the
opportunity to speak about their
experience at Glencore.
48
Glencore Annual Report 2018
Our values
Our values reflect our purpose,
our priorities and the ways by
which we conduct ourselves.
They are the fundamental basis
of our sustainability management
system, along with our Code of
Conduct and our Group Policies.
Safety
Our first priority in the workplace is
to protect the health and wellbeing
of all our people. We take a proactive
approach to health and safety;
our goal is continuous improvement
in the prevention of occupational
disease and injuries.
Entrepreneurialism
Our approach fosters the highest
level of professionalism, personal
ownership and entrepreneurial
spirit in all our people while never
compromising on their safety and
wellbeing. This is important to our
success and the superior returns we
aim to achieve for all our stakeholders.
Simplicity
We aim to achieve our key
deliverables efficiently as a path
to industry-leading returns,
while maintaining a clear focus
on excellence, quality, sustainability
and continuous improvement in
everything we do.
Responsibility
We recognise that our work can
have an impact on our society and
the environment. We care about
our performance in relation to
environmental protection, human
rights, and health and safety.
Openness
We value open relationships and
communication based on integrity,
co-operation, transparency and
mutual benefit, with our people,
our customers, our suppliers,
governments and society in general.
Ethics and Compliance
Glencore’s success is founded on a reputation, built over
many years, as being an honest and reliable business
partner. By upholding our commitment to ethical
business practices, we seek to maintain this reputation
and meet our long-term objectives through being
regarded as a business partner of choice.
Our Approach
We seek to maintain a culture of
ethical behaviour and compliance
throughout the Group, rather than
simply performing the minimum
required by laws and regulations.
We will not knowingly assist any
third party in breaching the law, or
participate in any criminal, fraudulent
or corrupt practice in any country.
To support this, we have a Group
compliance programme that
includes a range of policies,
procedures, guidelines, training
and awareness, monitoring and
investigations. Our permanent and
temporary employees, directors
and officers (as well as contractors,
where they are under a relevant
contractual obligation) must comply
with our relevant compliance
policies, procedures and guidelines,
in addition to complying with
applicable laws and regulations.
When we enter into joint ventures
where we are not the operator,
we strive to influence our partners
to adopt similar policies to ours.
Board Oversight and Governance
We provide training to the Board
of Directors emphasising the role
of the Board in the oversight and
implementation of an effective
ethics and compliance programme.
Furthermore, the Board receives
regular updates on the programme
through the relevant committees.
These updates cover all focus areas
(including anti-corruption, sanctions
and money laundering) and include
topics such as team and programme
structure, policies, procedures and
guidelines, as well as updates on
the training and awareness activities
the Group facilitates. We also
report to the Board on material
investigations and reports into
our Raising Concerns programme.
We have also established an
Ethics, Compliance and Culture
Committee with effect from
1 January 2019 which further oversees
the operation and implementation
of our compliance programme.
The Group has a Business Ethics
Committee (BEC) which comprises
Glencore’s CEO, CFO, and General
Counsel, senior management and
members of the compliance team.
The BEC considers compliance
issues relevant to the Group and
reviews and approves our policies,
procedures and guidelines.
The BEC reports to the Board
through the relevant committees.
The BEC approves policies,
procedures and guidelines which
are then implemented by our
compliance function.
Group Policy Framework
and Compliance Structure
Our policy framework encompasses
our values, Code of Conduct and
policies, procedures and guidelines
on various compliance topics
including anti-corruption, sanctions,
anti-money laundering, the
prevention of fraud, market abuse,
the prevention of the facilitation
of tax evasion, competition law,
data protection and conflicts of
interest. This framework reflects
our commitment to uphold good
business practices and to meet or
exceed applicable laws and external
requirements. We emphasise their
importance in our business activities,
including recruitment and induction.
Training and awareness on our
policies, procedures and guidelines,
as well as strong leadership,
are critical components of our
compliance programme. They
ensure our employees understand
the behaviour expected of them
and provide guidance on how
they can identify and practically
approach legal and ethical
dilemmas in their daily work lives.
Employees can access the
compliance policies, procedures and
guidelines through various channels,
including via the compliance team,
the Group intranet or local intranet of
the specific asset at which they work.
Our managers and supervisors are
responsible for ensuring employees
understand and comply with the
policies and procedures. We monitor
and test their implementation
on a regular basis. Employees and
contractors who have access to a
work computer must confirm their
awareness and understanding
of our compliance requirements
electronically every year. Certain
assets implement their own
policies, procedures and guidelines
in addition to those of the Group.
These are designed to address specific
local requirements, while being
consistent with our policy framework.
We employ compliance officers
(generally based in Glencore’s major
offices in Baar, London, Rotterdam,
New York and Singapore), regional
compliance officers (responsible for
implementation of the programme
in specific geographical jurisdictions)
and compliance coordinators (who sit
in individual offices and/or assets
across the globe). Compliance officers
are full time compliance employees
who provide dedicated compliance
support to the business. Regional
compliance officers manage
implementation of the compliance
programme at a regional level and
provide guidance to the business
and to local compliance coordinators.
Local compliance coordinators,
guided by the corporate and regional
compliance teams, take on a
compliance role in addition to their
primary role. Where necessary,
in certain of our assets, we appoint
compliance coordinators on a
full-time basis. To ensure the
effective implementation of our
compliance programme worldwide,
Glencore Annual Report 2018
49
Strategic ReportFinancial statementsGovernanceAdditional information Sustainability continued
we nominate and appoint qualified
and appropriate individuals for
compliance coordinator roles, given
the nature and risks identified at our
operations and offices following a
formal nomination and appointment
procedure. These compliance
coordinators support our employees
in day-to-day business considerations,
particularly those seeking advice
on ethical, lawful behaviour or policy
implementation. Employees may
access the contact details of our
compliance officers and coordinators
via the Group intranet and their
local intranet.
Risk Assessments
We conduct local office/asset
compliance risk assessments at
appropriate intervals to understand
and record compliance risks faced by
the business as well as the controls
necessary to mitigate them. We
account for changes and external
factors affecting the business
which may create compliance risk.
A group compliance risk register is
maintained to identify, assess and
evaluate compliance risks. These risks
are considered when drafting policies
and procedures applicable to the
business. In the performance of local
office/asset risk assessments, regional
compliance officers must review
relevant documents and conduct
risk interviews as part of site visits.
Training and Awareness
Our employees receive induction
sessions and ongoing training on
a range of compliance issues. In 2018,
33,944 employees and contractors
(2017: 31,737) completed our Code of
Conduct e-learning which includes
guidance on raising concerns.
In addition, 27,510 (2017: 22,872)
completed e-learning training our
global anti-corruption policy, which
includes guidance on important
topics such as facilitation payments,
the giving and receiving of gifts and
entertainment and dealings with
public officials.
We tailor our trainings and make
them relevant for our employees
and contractors by including real-life
hypothetical scenarios which illustrate
how legal and ethical dilemmas
might manifest themselves in their
daily work activities.
The target audience of the Code
of Conduct e-Learning is employees
with regular access to a work
50
Glencore Annual Report 2018
computer and the training on
anti-corruption targets those
whose function may require them
to interact with third parties.
For those employees who do
not have regular access to a work
computer, we provide training
in other ways including induction
sessions, pre-shift general training
and toolbox talks. In addition,
compliance officers and compliance
coordinators conduct face-to-face
training for relevant employees to
raise awareness about compliance
risks related to their functions and to
train them on Glencore’s compliance
policies, procedures and guidelines.
Monitoring
As part of the Group compliance
programme, we conduct monitoring
on a risk-based basis to test and
verify compliance with the Group
policies, procedures and guidelines
and with the laws and regulations
applicable to Glencore’s marketing
and industrial activities. This entails
performing periodic and ad hoc
testing reviews in accordance with
the corporate testing and monitoring
plans, analysing documents and
procedures and, in the case of
findings, collaborating with the
relevant marketing office or industrial
operation to determine the most
appropriate course of action, including
any required corrective action.
Bribery and corruption
Glencore’s Global Anti-Corruption
Policy is available on the Group
website. It contains our clear position
on bribery and corruption: the offering,
paying, authorising, soliciting or
accepting of bribes is unacceptable.
We conduct analysis for corruption
risks within our businesses and
work towards addressing these
risks through policies, procedures,
guidelines, training and awareness,
monitoring and controls.
Certain of our operations screen
potential new employees before
hiring using a risk-based approach.
Recruitment is required to take place
in line with the Corporate Recruiting
Policy and guidance for avoiding
corruption risks in the hiring process,
including guidance in relation to the
hiring of relatives of public officials.
It is prohibited to recruit or employ
current or former public officials
or their relatives in consulting roles,
secondments or employment in
order to influence a public official
in his or her official capacity for the
purpose of obtaining an advantage.
As per our Global Anti-Corruption
Policy, facilitation payments should
not be made. We also do not permit
the use of any of our funds or
resources as contributions to any
political campaign, political party,
political candidate or any such
affiliated organisations. Although
we do not directly participate in
party politics, we do on occasion
engage in policy debate on subjects
of legitimate concern to our
business, employees, customers,
end users and the communities
in which we operate. Any of our
officers, employees or associated
persons who lobby on our behalf
must comply with all applicable
laws and regulations (including
but not limited to complying with
the laws and regulations relating
to registration and reporting).
We may only give and receive
appropriate, lawful business gifts
and entertainment in connection with
our work, provided that such gifts
and entertainment satisfy the general
principles set out in the Global
Anti-Corruption Policy and are not
given or received with the intent or
prospect of influencing the recipient’s
decision-making or other conduct.
Furthermore, we have approval
procedures in place which provide
specific requirements for certain
types of gifts and entertainment
and certain operations, including
our procedure for gifts and
entertainment for public officials
which applies whenever an employee
of our marketing operations intends
to arrange entertainment, travel,
accommodation or a gift for a public
official and the value of the courtesy
exceeds a specific threshold.
In addition to our standard “Know
Your Counterparty” programme,
the Group has implemented the
Third Party Due Diligence Procedure
which seeks to ensure that our third
party relationships which present
the highest corruption risk are
conducted in accordance with
applicable laws and regulations and
our Global Anti-Corruption Policy.
The procedure sets out a detailed
process whereby circumstances
that may pose a corruption risk are,
on a risk basis, reviewed, addressed
and taken into consideration when
deciding whether and on which
conditions to proceed with a
third party relationship, particularly
intermediaries, joint-ventures and
service providers. The procedure
also requires, where necessary,
for ongoing monitoring and review
of the relationships to ensure
compliance with our Global
Anti-Corruption Policy.
sets forth our approach to sanctions
and how we work toward complying
with applicable sanctions and
appropriately manage sanctions risk.
The Glencore Sanctions Procedure
outlines the steps and procedures
we take to ensure compliance
with the Global Sanctions Policy.
We report on an annual basis
in respect of our total payments to
governments, and provide country-
by-country and project-by-project
information in this regard. Additionally,
and where applicable, we have aligned
our reporting on such payments
with the requirements of Chapter 10
of the EU accounting directive.
Sanctions
Glencore is committed to respecting,
upholding and complying with all
sanctions applicable to our business
and to all transactions in which we
engage, regardless of our role or
location. The applicability and scope
of the applicable sanctions can differ
per transaction, jurisdiction and other
factors. Our Global Sanctions Policy
Reporting Misconduct
Everybody working for Glencore
(including suppliers) must promptly
raise any situations in which the
Glencore Code of Conduct, its
underlying policies or the law appear
to be breached with a supervisor
or manager locally.
Where a concern remains
unresolved through these local
channels, or should an employee,
contractor, supplier or other
stakeholder, for whatever reason
and at any time, feel uncomfortable
utilising the local channels in
resolution of their concerns, the
concern can be raised via Glencore’s
“Raising Concerns” web platform at
glencore.com/raising-concerns/.
The website allows any stakeholder
to raise concerns on an anonymous
basis. Additionally, there are
telephone numbers for raising
concerns, which are published
on the Raising Concerns website.
In 2018, we received a total of 215
(2017: 183 and 2016: 153) reports
regarding situations in which Group
policies appeared to be breached and
which were brought to the attention
of the Raising Concerns Programme.
Discipline
In accordance with our Code
of Conduct, anybody working for
Glencore who breaches the law,
the Code of Conduct, or other policies
or procedures may face disciplinary
action including dismissal. In 2018,
Glencore dismissed 399 employees
(2017: 284 and 2016: 318) for breaching
the Code of Conduct. The dismissals
predominantly related to failures
to follow safety instructions or
policies, or misappropriation of
company property.
Non-Financial Information Statement
We aim to comply with the Non-Financial Reporting Directive requirements.
The table below sets out were relevant information is located in this report:
Reporting requirement
Policies
Reference in 2018 annual report
1. Environmental Matters
• Sustainability Policy
• Code of Conduct
2. Employees
3. Human Rights
4. Social Matters
• SafeWork program
• Conflict of Interest Program
• Sustainability Policy
• Diversity Policy
• Corporate Anti-Discrimination
and Harassment Policy
• Corporate Recruiting Policy
• Code of Conduct
• Human Rights Policy
• Annual Modern Slavery Statement
• Sustainability Policy
• Code of Conduct
• Sustainability Policy
Code of Conduct
•
• Climate change, page 20
• Climate change risk, page 33
• Health, safety, environment risk, page 35
• Sustainability report, page 36
• Operating risk, page 31
• Our people, page 47
• Community relations and human rights risk
page 34
• Sustainability report, page 36
• Community relations and human rights risk,
page 34
• Sustainability report, page 36
• Our people, page 47
5. Anti-corruption and anti-bribery
• Global Anti-Corruption Policy
• Third Party Due Diligence Procedure
• Code of Conduct
• Laws and enforcement risk, page 29
• Ethics and Compliance, page 49
6. Business model
• Business model, page 12
7. Principal Risk and Uncertainties
• Principal risk and uncertainties, page 24
8. Non-financial key performance indicators
• Non-financial key performance indicators,
page 23
Glencore Annual Report 2018
51
Strategic ReportFinancial statementsGovernanceAdditional information Financial review
Asset restarts and cash-generative mine acquisitions
contributed to Adjusted EBITDA of $15.8bn. Net debt
established within our self-imposed cap supports
shareholder returns well in excess of minimum levels
Strong financial
performance
Adjusted EBITDA
was $15.8 billion, up 8%
compared to 2017,
supported by favourable
fundamentals and volume
increases from asset
acquisitions and restarts.
Net income decreased
mainly due to non-cash
impairments. Current cash
generation supported
shareholder returns of
$5.2 billion announced in
2018, with similar levels
announced for 2019.
Group Adjusted
EBITDA
$15.8bn
2017: $14.5bn
Funds from
operations
$11.6bn
2017: $11.4bn
Returns to
shareholders
$5.2bn
announced
Adjusted
EBITDA
(US$ million)
Funds from
operations
(US$ million)
Returns to
shareholders
(US$ million)
15,767
14,545
11,350
11,595
5,157
10,268
7,770
2016
2017
2018
2016
2017
2018
2016
2017
2018
1,000
0
Basis of presentation
The financial information in the Financial and Operational
Review is on a segmental measurement basis, including
all references to revenue (see note 2) and has been
prepared on the basis as outlined in note 1 of the financial
statements, with the exception of the accounting
treatment applied to relevant material associates and
joint ventures for which Glencore’s attributable share
of revenues and expenses are presented. In addition,
the Peruvian listed Volcan, while a subsidiary of the
Group, is accounted for under the equity method for
internal reporting and analysis due to the relatively
low economic interest (23%) held by the Group.
During the year, the Glencore Agri joint venture continued
its transition to a fully independent stand-alone group
through bedding down of its independent governance
structure and the firm establishment of its own stand-
alone capital structure and credit profile. As a result of its
increasing independence and Glencore’s management
evaluating the segment’s financial performance on a net
return basis as opposed to an Adjusted EBITDA basis,
the financial results of Glencore Agri are no longer
adjusted and presented on a proportionate consolidation
basis, but rather are presented on a basis consistent
with its underlying IFRS treatment (equity accounting).
Applicable comparative balances have been restated
to reflect these changes.
The Group’s results are presented on an “adjusted” basis,
using alternative performance measures (APMs) which
are not defined or specified under the requirements
of IFRS, but are derived from the financial statements,
prepared in accordance with IFRS, reflecting how
Glencore’s management assess the performance of the
Group. The APMs are used to improve the comparability
of information between reporting periods and segments
and to aid in the understanding of the activities taking
place across the Group by adjusting for Significant items
and by aggregating or disaggregating (notably in the
case of relevant material Associates accounted for on
an equity basis) certain IFRS measures. APMs are also
used to approximate the underlying operating cash
flow generation of the operations (Adjusted EBITDA).
Significant items (see reconciliation below) are items
of income and expense, which, due to their variable
financial impact or the expected infrequency of the
events giving rise to them, are separated for internal
reporting, and analysis of Glencore’s results.
Alternative performance measures are denoted by
the symbol ◊ and are further defined and reconciled
to the underlying IFRS measures in the APMs section
on page 214.
52
Glencore Annual Report 2018
Highlights
US$ million
Key statement of income and cash flows highlights2:
Net income attributable to equity holders
Adjusted EBITDA◊
Adjusted EBIT◊
Earnings per share (Basic) (US$)
Funds from operations (FFO)2◊
Cash generated by operating activities before working capital changes
Purchase and sale of property, plant and equipment – net3◊
US$ million
Key financial position highlights:
Total assets
Net funding3◊
Net debt3◊
Ratios:
FFO to Net debt3◊
Net debt to Adjusted EBITDA◊
Adjusted EBITDA/EBIT◊
Adjusted EBITDA by business segment is as follows:
2018
2017 Change %
3,408
15,767
9,143
0.24
11,595
13,210
4,899
5,777
14,5451
8,4591
0.41
11,3501
11,866
3,7891
(41)
8
8
(41)
2
11
29
31.12.2018
31.12.2017 Change %
128,672
32,138
14,710
135,593
31,0531
10,2161
78.8%
0.93x
111.1%1
0.70x1
(5)
3
44
(29)
33
US$ million
Metals and minerals
Energy products
Agricultural products
Corporate and other
Total
2018
2017 Restated1
Marketing
activities
Industrial
activities
Adjusted
EBITDA
Marketing
activities
Industrial
activities
Adjusted
EBITDA
Change
%
1,767
795
21
(91)
8,478
5,312
–
(515)
10,245
6,107
21
(606)
2,029
1,054
99
(175)
8,281
3,599
–
(342)
10,310
4,653
99
(517)
2,492
13,275
15,767
3,007
11,538
14,545
(1)
31
(79)
17
8
Adjusted EBIT by business segment is as follows:
US$ million
Metals and minerals
Energy products
Agricultural products
Corporate and other
Total
2018
2017 Restated1
Marketing
activities
Industrial
activities
Adjusted
EBIT
Marketing
activities
Industrial
activities
Adjusted
EBIT
Change
%
1,742
742
21
(91)
4,053
3,209
–
(533)
5,795
3,951
21
(624)
2,005
990
99
(175)
4,496
1,424
–
(380)
6,501
2,414
99
(555)
2,414
6,729
9,143
2,919
5,540
8,459
(11)
64
(79)
12
8
1 Adjusted for presenting 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 above.
3 Refer to page 56.
◊ 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 214 for definition and reconciliations and note 2 of the financial statements for reconciliation
of Adjusted EBIT/EBITDA and capital expenditure.
Financial results
Net income attributable to equity
holders decreased from $5,777
million in 2017 to $3,408 million in
2018 and EPS similarly decreased
from $0.41 per share to $0.24 per
share, as the net positive impacts
of generally higher commodity
prices and increased production
compared to prior year, were offset
by impairments, mainly in our
African copper portfolio, owing to
increased costs and regulatory
and operational challenges.
Adjusted EBITDA of $15,767 million
and Adjusted EBIT of $9,143 million,
were both 8% improvements on 2017,
primarily resulting from higher
commodity prices and production
increases, offset by cost inflation,
lower grades for some by-products
and reduced third-party smelting
profitability. Market sentiment and
its influence on commodity prices
represented a tale of two halves;
relatively buoyant market conditions
over H1 2018 were tempered by US/
China trade uncertainty and the
somewhat related concerns on
the sustainability of Chinese growth
over H2. Notwithstanding these
macro influences, we saw notable
year-over-year average price
increases for cobalt (30%), nickel
(26%), coal (GC Newc. 21%) and
copper (6%), although year-end
prices (except coal) were mostly
significantly lower than the yearly
average. The positive impact on
Adjusted EBITDA of the higher prices
and increased copper and cobalt
production, notably from Katanga,
Glencore Annual Report 2018
53
Strategic ReportFinancial statementsGovernanceAdditional information Financial review continued
Earnings
A summary of the differences between reported Adjusted EBIT and income attributable to equity holders,
including significant items, is set out in the following table:
US$ million
Adjusted EBIT◊
Net finance and income tax expense in relevant material associates and joint ventures2
Proportionate adjustment Volcan2
Net finance costs
Income tax expense3
Non-controlling interests
Income attributable to equity holders of the Parent pre-significant items
Earnings per share (Basic) pre-significant items (US$)◊
Significant items◊
Share of Associates’ significant items4
Mark-to-market valuation on certain coal hedging contracts5
Unrealised intergroup profit elimination adjustments5
(Loss)/gain on disposals and investments6
Other (expense)/income – net7
Impairments8
Income tax expense3
Non-controlling interests’ share of significant items9
Total significant items
Income attributable to equity holders of the Parent
Earnings per share (Basic) (US$)
2018
9,143
(529)
(72)
(1,514)
(1,761)
498
5,765
0.41
(40)
–
237
(139)
(764)
(1,643)
(302)
294
(2,357)
3,408
0.24
2017
Restated1
8,459
(498)
–
(1,451)
(1,572)
570
5,508
0.39
(6)
225
(523)
1,309
34
(628)
(187)
45
269
5,777
0.41
1 Adjusted for presenting 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 note 2 of the financial statements and to APMs section for reconciliations.
3 Refer to other reconciliations section for the allocation of the total income tax expense between pre-significant and significant items.
4 Recognised within share of income from associates and joint ventures, see note 2 of the financial statements.
5 Recognised within cost of goods sold, see note 2 of the financial statements.
6 Refer to note 4 of the financial statements and to APMs section for reconciliations.
7 Recognised within other expense – net, see note 5 of the financial statements and to APMs section for reconciliations.
8 Refer to note 6 of the financial statements and to APMs section for reconciliations.
9 Recognised within non-controlling interests, refer to APMs section.
following its successful restart and
ramp-up from December 2017, was
tempered by increasing commodity
linked input costs, such as oil
and reagents and some overall
inflationary cost pressures in the
industry. The latter, including where
general country inflation ran high
(e.g. Argentina), was somewhat
offset by a strengthening US dollar
(on average) against many of our
key producer country currencies.
Average year-over-year increases in
the US dollar against the Kazakhstani
Tenge and the Australian dollar were
6% and 3% respectively.
The Metals and minerals Adjusted
EBITDA mining margin was
consistent with prior year at 38%,
while Energy was at 46%, up
from 41% in 2017, reflecting higher
coal prices and the incremental
contribution from the HVO and
Hail Creek acquisitions.
Marketing Adjusted EBITDA and
EBIT decreased 17% to $2,492 million
and $2,414 million respectively:
• Metals and minerals Adjusted
Marketing EBIT was down 13%
over 2017, primarily on account of
various challenging market
dynamics within the alumina and
cobalt markets in H2, outweighing
generally healthy underlying
demand and supportive physical
commodity market conditions.
During the year, extreme
aluminium and alumina market
volatility created an anomalous
dislocation between the two
markets’ pricing relationship (basis
risk), causing losses on sourcing
the required alumina to meet
certain “% LME” linked legacy sales
contracts. This alumina basis risk
exposure reduces significantly
from 2019. In cobalt, we experienced
some customer contractual
non-performance and cyclically
weak fundamentals in H2
• Energy products Adjusted
Marketing EBIT was down 25%
compared to 2017, reflecting the
strong 2017 base, oil forward curves
being in backwardation for almost
all of the year, thereby reducing
trading opportunities, and a
more cautious approach to coal
marketing opportunities from an
expected risk/return perspective
(11% lower thermal volumes)
• Glencore Agri’s standalone
Adjusted EBITDA was down 23%
compared to 2017, primarily due
to poor crop sizes in Australia and
Argentina, continued industry
margin pressures and a decline
in the sugar price. Glencore’s
attributable share of profits was
$21 million (being the Agricultural
products Adjusted Marketing
EBIT), down 79% on 2017
54
Glencore Annual Report 2018
• Impairments of $1,643 million
(2017: $628 million) see note 6.
2018 impairments relate primarily
to the Mopani copper operations
in Zambia ($803 million), the
Mutanda copper operations in
the DRC ($600 million) and loans
extended under prepayment and
other arrangements ($191 million).
2017 impairments related
mainly to Chad oil ($278 million),
Cameroon oil ($81 million) and
junior loans extended to a coal
terminal facility ($149 million).
The 2017 impairments were
partially offset by a reversal
of $243 million related to the
Equatorial Guinea oil operations
Net finance costs
Net finance costs were $1,514 million
in 2018, a 4% increase compared
to $1,451 million in the comparable
period, primarily attributable
to higher average base rates
(mainly US$ LIBOR) over the year,
with interest expense increasing
8% to $1,742 million and interest
income rising 36% to $228 million.
Income taxes
An income tax expense of $2,063
million was recognised during 2018,
compared to an income tax expense
of $1,759 million in 2017. Adjusting for
a net $302 million (2017: $187 million)
income tax expense related to
significant items (primarily currency
translation effects and tax losses
not recognised less tax benefits
from impairments), the 2018
pre-significant items income
tax expense was $1,761 million
(2017: $1,572 million). The 2018
effective tax rate, pre-significant
items, was 30.9%, broadly in-line
with 30.5% in 2017.
• Industrial Adjusted EBITDA
increased by 15% to $13,275 million
(Adjusted EBIT was $6,729 million,
compared to $5,540 million in
2017). As noted above, the increase
was primarily driven by stronger
average year-over-year commodity
prices, increased copper and
coal production, offset by cost
increased/inflation (net of
FX benefits)
Significant items
Significant items are items of
income and expense which, due to
their variable financial impact or the
expected infrequency of the events
giving rise to them, are separated
for internal reporting and analysis of
Glencore’s results to provide a better
understanding and comparative
basis of the underlying financial
performance.
In 2018, Glencore recognised a net
expense of $2,357 million (2017: a net
income of $269 million) in significant
items comprised primarily of:
• A $40 million expense
(2017: $6 million) representing
Glencore’s share of significant
expenses recognised directly
by our associates, primarily
impairment charges recognised
within Century and Glencore Agri
• A loss on disposals and
investments of $139 million
(2017: a gain of $1,309 million) see
note 4. In 2018, the loss primarily
relates to the disposal of our
interest in the Mototolo platinum
joint venture in South Africa,
mainly on account of recycling
foreign currency translation
reserves to the statement of
income. In 2017, the gain primarily
relates to the disposal of Zinc
Africa ($232 million), an oil storage
business (HG Storage, $674 million)
and a royalty portfolio ($210 million)
• Other expenses – net $764 million
(2017: other income of $34 million)
see note 5. Balance primarily
comprises:
– $270 million (2017: $78 million)
relating to the costs incurred
in settling Katanga’s capital
deficiency and various historical
commercial disputes with
Gécamines ($248 million)
and a settlement with the
Ontario Securities Commission
($22 million). The recapitalisation
of KCC concluded in June 2018
with the conversion of $5.6 billion
of intercompany debt into equity,
with $1.4 billion of that share
capital passed onto Gécamines
to maintain its 25% interest in
KCC. Also see note 33. In 2017,
Glencore recognised the
cumulative effect ($78 million)
of certain accounting issues that
resulted in Katanga restating it
2014–2015 results
– $142 million (2017: $Nil) of
acquisition related expenses
incurred in connection with
the acquisition of HVO and Hail
Creek (see note 25). The expenses
are primarily stamp duty and
property transfer related taxes
– $139 million (2017: $290 million)
of mark-to-market gains on
equity investments/derivative
positions accounted for as
held for trading
– $58 million (2017: $80 million)
of net foreign exchange losses
– $86 million (2017: $75 million)
relating to certain legal matters.
In 2018, $24 million of legal costs
were incurred in relation to
the DOJ investigation initiated
in July 2018 (see note 31) and
$62 million in respect of costs
related to claims brought against
the Group by the Strategic
Fuel Fund Association of South
Africa. The 2017 balance is a cost
estimate for potential settlement
of claims brought against the
Group related to an operation
disposed in 2005
– $325 million (2017: $Nil) relating
to costs and liabilities that
the Group assumed following
the termination of a 50:50
consortium arrangement with
Qatar Investment Authority and
the consortium’s investment
in OSJC Rosneft
Glencore Annual Report 2018
55
Strategic ReportFinancial statementsGovernanceAdditional information Financial review continued
Cash flow and net funding/debt
Net funding
US$ million
Total borrowings as per financial statements
Proportionate adjustment – net funding1
Cash and cash equivalents
Net funding◊
Cash and non-cash movements in net funding
US$ million
Cash generated by operating activities before working capital changes
Coal related hedging included above (via statement of income)
Proportionate adjustment – Adjusted EBITDA2
Share in earnings from other associates included within EBITDA
Net interest paid2
Tax paid2
Dividends received from associates2
Funds from operations◊
Net working capital changes3
Acquisition and disposal of subsidiaries – net3
Exchangeable loan provided for a conditional acquisition of an oil refinery/downstream business
Purchase and sale of investments – net3
Purchase and sale of property, plant and equipment – net3
Net margin (calls)/receipts in respect of financing related hedging activities
Acquisition of non-controlling interests in subsidiaries
Distributions paid and transactions of own shares – net
Coal related hedging (refer above)
Cash movement in net funding
Foreign currency revaluation of borrowings and other non-cash items
Total movement in net funding
Net funding◊, beginning of the year
Net funding◊, end of period
Less: Readily marketable inventories2
Net debt◊, end of period
31.12.2018
31.12.2017
Restated1
34,994
33,934
(810)
(2,046)
(757)
(2,124)
32,138
31,053
31.12.2018
31.12.2017
Restated1
13,210
11,866
–
1,893
(6)
(1,200)
(2,406)
104
(225)
2,124
(1)
(1,162)
(1,337)
85
11,595
11,350
1,526
(2,834)
(1,044)
(5,152)
32
–
(3)
(342)
(4,899)
(3,789)
(507)
(58)
(5,144)
–
(1,368)
283
(1,085)
1,255
(561)
(1,175)
225
1,843
(2,212)
(369)
(31,053)
(30,684)
(32,138)
(31,053)
17,428
20,837
(14,710)
(10,216)
1 Adjusted for presenting 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 APMs section for definition and reconciliations.
3 Refer to Other reconciliations section.
Assets, leverage
and working capital
Total assets were $128,672 million as
at 31 December 2018, compared to
$135,593 million as at 31 December
2017, a period over which, current
assets decreased from
$49,294 million to $44,268 million,
due to reductions in inventories and
receivables, primarily as a result
of generally lower year-over-year
31 December spot commodity
prices. Non-current assets
decreased from $85,867 million
to $84,404 million, including
$848 million of negative mark-to-
market adjustments (recognised in
other comprehensive income),
primarily in relation to our
investment in Rusal and Russneft
(see note 10).
56
Glencore Annual Report 2018
The reconciliation in the table
above is the method by which
management reviews movements
in net funding and net debt and
comprises key movements in
cash and any significant non-cash
movements on net funding items.
Net funding as at 31 December
increased by $1,085 million to
$32,138 million, whereas net debt
(net funding less readily marketable
inventories) increased by
$4,494 million to $14,710 million. The
increase in net funding included
disbursing on the remaining
announced business acquisitions
which completed in H2 2018
($1.7 billion Hail Creek coal acquisition
and the $1.0 billion loan extended
to acquire Chevron’s South
African oil refinery and associated
downstream activities), not yet
funded with underlying funds
from operations. Such timing,
along with a greater reduction in
accounts payable over accounts
receivable during the year and
increased shareholder returns
(distributions and buy-backs),
led to the $4,494 million increase
in net debt. Funds from operations,
despite the lagging $1,069 million
increase in taxes paid, was 2%
above 2017, comfortably covering
the $4,899 million of net capital
expenditure and $5,144 million
in distributions to shareholders
and non-controlling interests.
The ratio of Net debt to Adjusted
EBITDA was 0.93 times in 2018
compared to 0.70 times in 2017,
and the ratio of FFO to Net debt
was 78.8% in 2018 compared
to 111.1% in 2017.
Value at risk
One of the tools used by Glencore
to monitor and limit its primary
market risk exposure, namely
commodity price risk related to
its physical marketing activities,
is the use of a value at risk
(VaR) computation. VaR is a risk
measurement technique which
estimates the potential loss that
could occur on risk positions
as a result of movements in risk
factors over a specified time
horizon, given a specific level of
confidence. The VaR methodology
is a statistically defined, probability
based approach that takes into
account market volatilities, as well
as risk diversification by recognising
offsetting positions and correlations
between commodities and markets.
In this way, risks can be measured
consistently across all markets and
commodities and risk measures
can be aggregated to derive a
single risk value.
Glencore has set a consolidated
VaR limit (1 day 95%) of $100 million
representing some 0.2% of equity,
such level being comfortably
not exceeded during the period.
Glencore uses a VaR approach
based on Monte Carlo simulations
computed at a 95% confidence
level with a weighted data history
for a one day time horizon.
Average market risk VaR
(1 day 95%) during 2018 was
$34 million, representing less
than 0.1% of equity. Average
VaR during 2017 was $25 million.
Business and investment
acquisitions and disposals
Net outflows from business
acquisitions were $2,895 million
(2017: $871 million), primarily
comprising the acquisitions of a
49% interest in the HVO coal joint
venture, adjacent to many of our
existing New South Wales operations
and an 82% interest in the Hail Creek
coking coal mine in Queensland.
In October 2018, Glencore advanced
$1,044 million to a prospective
business partner under an
exchangeable loan arrangement
to acquire Chevron’s South African
oil business. The transaction is
expected to close in H1 2019.
The net outflow in 2017 is
primarily due to the acquisition
of an additional interest in Volcan
($653 million), the acquisition of the
remaining 31% interest of Mutanda
not previously owned ($524 million),
an increase in our interest in
Katanga to 86.3% from 75.3%
($38 million) and a $300 million
investment in Yancoal. These were
offset by disposals and ongoing
smaller stake retentions in HG
Storage ($502 million), Zinc Africa
($222 million) and BaseCore Metals
($150 million).
Liquidity and funding activities
In 2018, the following significant
financing activities took place:
• In March 2018, Glencore signed
new one-year revolving credit
facilities for a total amount of
$9,085 million, refinancing the
$7,335 million one-year revolving
credit facilities signed in May 2017.
Funds drawn under the facilities
bear interest at US$ LIBOR plus
a margin of 40 basis points.
Glencore also voluntarily reduced
the medium term facility size from
$5,425 million to $5,115 million
As at 31 December 2018, the
facilities comprise:
– a $9,085 million one year
revolving credit facility with a
12-month term-out borrower’s
option (to May 2020) and a
12-month extension option
– a $5,115 million medium-term
revolving credit facility
(to May 2022)
• In March 2018, Glencore issued
a $500 million non-dilutive cash
settled guaranteed convertible
bond due 2025. Concurrent
with the placing of the bond,
Glencore purchased cash-settled
call options on an equivalent
number of Glencore shares to
economically hedge the exposure
to the potential exercise of the
conversion rights embedded in
the bond. In September 2018,
an additional $125 million was
issued under this arrangement
on the same terms
• In October 2018, Glencore issued
a 6-year CHF 175 million, 1.25%
coupon bond
As at 31 December 2018, Glencore
had available committed undrawn
credit facilities and cash amounting
to $10.2 billion.
Credit ratings
In light of the Group’s extensive
funding activities, maintaining
investment grade credit rating
status is a financial priority.
The Group’s credit ratings are
currently Baa2 (positive outlook)
from Moody’s and BBB+ (stable)
from Standard & Poor’s. Glencore’s
publicly stated objective, as part of
its overall financial policy package,
is to seek and maintain strong Baa/
BBB credit ratings from Moody’s
and Standard & Poor’s respectively.
In support thereof, Glencore targets
a maximum 2x Net debt/Adjusted
EBITDA ratio through the cycle,
augmented by an upper Net debt
cap of c.$16 billion. In the current
uncertain economic cycle backdrop,
Glencore aims to limit the Net debt/
Adjusted EBITDA ratio to around
one times.
Glencore Annual Report 2018
57
Strategic ReportFinancial statementsGovernanceAdditional information Financial review continued
First tranche of proposed distribution
Applicable exchange rate reference date (Johannesburg Stock Exchange (JSE))
Applicable exchange rate announced on the JSE
Last day to effect removal of shares cum distribution between Jersey and JSE registers
at commencement of trade
Last time to trade on JSE to be recorded in the register for distribution
Ex-distribution date (JSE)
Ex-distribution date (Jersey)
Distribution record date for JSE
Distribution record date in Jersey
Deadline for return of currency elections form (Shareholders on Jersey Register only)
Removal of shares between the Jersey and JSE registers permissible from
Applicable exchange rate reference date (Jersey)
Annual General Meeting (shareholder vote to approve aggregate 2019 distribution)
H1 distribution payment date
Close of business (UK) 11 April
2019
12 April
12 April
23 April
24 April
25 April
Close of business (SA) 26 April
Close of business (UK) 26 April
29 April
29 April
1 May
9 May
23 May
58
Glencore Annual Report 2018
Distributions
The Directors have recommended
a 2018 financial year cash distribution
of $0.20 per share amounting
to $2.8 billion, excluding any
distribution on own shares and
ignoring any issuance of shares
which may take place prior to
the record dates. Payment will
be effected as a $0.10 per share
distribution in May 2019 (see above)
and a $0.10 per share distribution
in September 2019 (in accordance
with the Company’s announcement
of the 2019 Distribution timetable
also made on 20 February 2019).
The distribution is proposed to
be effected as a reduction of the
capital contribution reserves of the
Company. As such, this distribution
would be exempt from Swiss
withholding tax. As at 31 December
2018, Glencore plc had CHF 35 billion
of such capital contribution
reserves in its statutory accounts.
The distribution is subject to
shareholders’ approval at its
AGM on 9 May 2019.
The distribution is ordinarily paid
in US dollars. Shareholders on the
Jersey register may elect to receive
the distribution in sterling, euros
or Swiss francs, the exchange
rates of which will be determined
by reference to the rates applicable
to the US dollar as stated above.
Shareholders on the Johannesburg
register will receive their distribution
in South African rand. Further
details on distribution payments,
together with currency election
and distribution mandate forms,
are available from the Group’s
website (glencore.com) or from
the Company’s Registrars.
Glencore Annual Report 2018
59
Strategic ReportFinancial statementsGovernanceAdditional information Metals and
minerals
We produce and market a
diverse range of metals and
minerals – such as copper
(Cu), cobalt (Co), zinc (Zn),
nickel (Ni) and ferroalloys –
and also market aluminium/
alumina and iron ore from
third parties
Adjusted EBITDA
(US$ million)
Adjusted EBIT
(US$ million)
10,310
10,245
7,616
6,501
5,795
3,744
2016
2017
2018
2016
2017
2018
Mining margin
38%
Strong cash flow
generation/
conversion
Marketing
Adjusted EBIT
$1.7bn
Robust demand for
our commodities amid
tightening supply
Copper marketing
volumes up
Own source Cu
production up
13%
2017: 4.0mt
11%
2017: 1,310kt
60
Glencore Annual Report 2018
Own mineral resources
Reserve Life (approx. years)
Copper
20
Zinc
19
Nickel
18
In-house smelting/refining capability
(Kt)
Copper metal
Zinc metal
Lead metal
1,560
1,390
425
Ferrochrome
Nickel metal
2,339
139
Headcount
c.130,000
Employees & contractors
Market knowledge
40+
years’
experience
Industrial
Assets in
20
70
countries
operating sites
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Inputs
Sustainably producing
the metals and
minerals which play
an essential role in
modern life
Outputs
Socio economic
contribution
($)
Community support
initiatives
89m
Public
infrastructure
14m
Safe
working
Fatalities
12
2017: 9
TRIFR
3.35
2017: 3.23
LTIFR
0.97
2017: 0.99
Own source production
(Kt)
Copper
1,454
Lead
273
Cobalt
42
Nickel
124
Zinc
1,068
Ferrochrome
1,580
Marketed volumes
(tonnes of metal and concentrates)
Copper
Zinc
4.5m
3.2m
Lead
Nickel
0.9m
199k
Ferroalloys
Alumina/aluminium
8.3m
10.2m
Glencore Annual Report 2018
61
Additional informationFinancial statementsGovernance
Metals and minerals continued
Highlights
Adjusted EBITDA of $10.2 billion
was broadly unchanged from 2017.
An increased contribution from
Industrial Assets, reflecting
the assets’ leverage to higher
commodity prices and the
continued ramp-up at Katanga,
was offset by a 13% decrease in
Marketing Adjusted EBITDA,
hampered by challenging
alumina (basis risk) and cobalt
market conditions in H2 2018.
Katanga’s successful restart was
a significant contributor to the
improved Industrial performance,
with African Copper recording
Adjusted EBITDA of $1.3 billion,
a near doubling over last year.
The improved copper results
were offset by a lower contribution
from zinc, the base period including
some $76 million related to the
sold African assets. Across the
portfolio, Adjusted EBITDA mining
margin was a steady and healthy
38%, similar to the level achieved
in 2017.
US$ million
Revenue◊
Adjusted EBITDA◊
Adjusted EBIT◊
Adjusted EBITDA margin
Marketing
activities
51,980
1,767
1,742
3.4%
Industrial
activities
31,385
8,478
4,053
27.0%
2018
83,365
10,245
5,795
12.3%
Marketing
activities
51,017
2,029
2,005
4.0%
Industrial
activities
29,448
8,281
4,496
28.1%
2017
80,465
10,310
6,501
12.8%
Market conditions
Selected average commodity prices
S&P GSCI Industrial Metals Index
LME (cash) copper price ($/t)
LME (cash) zinc price ($/t)
LME (cash) lead price ($/t)
LME (cash) nickel price ($/t)
Gold price ($/oz)
Silver price ($/oz)
Metal Bulletin cobalt price 99.3% ($/lb)
Metal Bulletin ferrochrome China import charge chrome 50% Cr index,
CIF Shanghai, duty unpaid (¢/lb)
Iron ore (Platts 62% CFR North China) price ($/DMT)
2018
362
6,527
2,919
2,239
13,118
1,269
16
33
90
66
2017
341
6,173
2,893
2,315
10,414
1,258
17
25
101
71
Change %
6
6
1
(3)
26
1
(6)
32
(11)
(7)
Currency table
AUD : USD
USD : CAD
USD : COP
EUR : USD
GBP : USD
USD : CHF
USD : KZT
USD : ZAR
Spot
31 Dec 2018
Spot
31 Dec 2017
Average
2018
Average
2017
Change in
average %
0.70
1.36
3,254
1.15
1.28
0.98
381
14.35
0.78
1.26
2,986
1.20
1.35
0.97
333
12.38
0.75
1.30
2,956
1.18
1.33
0.98
345
13.25
0.77
1.30
2,952
1.14
1.28
0.98
326
13.31
(3)
–
–
4
4
–
6
–
62
Glencore Annual Report 2018
Marketing
Highlights
Marketing Adjusted EBITDA
was 13% lower year over year at
$1.8 billion. Trading conditions
were particularly challenging in
H2 on account of two key factors:
(1) a “basis risk” breakdown related
to required sourcing of alumina
(which rallied during the period
in excess of the aluminium
metal proxy %-based hedging)
for supply into such “% of LME”
legacy sales contracts; and
(2) cobalt market challenges
in the form of some customer
contractual non-performance
and cyclically weak fundamentals.
The alumina basis risk exposure
reduces significantly from 2019.
In general, underlying industrial
demand remained solid through
2018, with destocking evident in
some of our core commodities,
notably copper and nickel.
Financial information
US$ million
Revenue◊
Adjusted EBITDA◊
Adjusted EBIT◊
Selected marketing volumes sold
Copper metal and concentrates1
Zinc metal and concentrates1
Lead metal and concentrates1
Gold
Silver
Nickel
Ferroalloys (incl. agency)
Alumina/aluminium
Iron ore
1 Estimated metal unit contained.
2018
51,980
1,767
1,742
2017
51,017
2,029
2,005
Change %
2
(13)
(13)
Units
mt
mt
mt
moz
moz
kt
mt
mt
mt
2018
4.5
3.2
0.9
2.0
81.4
199
8.3
10.2
79.6
2017
Change %
4.0
2.8
1.0
2.0
89.1
204
8.7
10.7
47.7
13
14
(10)
–
(9)
(2)
(5)
(5)
67
Glencore Annual Report 2018
63
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
Our commodities
in everyday life:
Copper
Chile mined
more than
28%
of 2018 mine supply2
China imported
9.4Mt
of copper in 20182
China’s share of
2018 copper demand
c.50%
What and where
Copper is the 26th most abundant
element in the Earth’s crust and
typically occurs in mineralised form
as a sulphide, oxide or carbonate.
In rare instances, it also exists in its
“native” pure form. It often occurs
alongside other metals including
gold, molybdenum, cobalt and zinc.
Copper is an excellent conductor
of electricity and heat, while being
malleable and resistant to corrosion.
Copper’s end uses can be grouped
by construction (c.30%), consumer
goods (25%), electrical networks
(25%), transport (10%) and industrial
machinery (10%)1.
The majority of copper resources
are found in regions where there
has been significant plate tectonic
activity, often leading to volcanic or
earthquake events1. These regions
are typically known as “copperbelts”,
with key examples being the
Andean (South America), Central
African, Australian and South
Western (USA) copperbelts.
64
Glencore Annual Report 2018
From the ground
to finished metal
Today, copper-bearing ore bodies
typically grade below one percent
contained copper and are mined
using open pit (majority) and
underground mining methods.
The mined ore is generally processed
as a sulphide (c.80%) or oxide (c.20%).
In the sulphide route, ore is crushed,
ground, and then “floated” and dried
to produce a copper concentrate
with a typical grade of c.25–30%
contained copper. This is smelted
and refined to produce high
purity copper.
In the oxide route, ore is crushed,
ground and then treated with
either stirred tanks or stacked
onto impervious membranes
called leach pads. Both methods
dissolve the copper into solution
with sulphuric acid (leaching).
The solution is purified through
solvent extraction, after which
electrolysis (electrowinning)
is utilised to produce high
purity copper.
Recycling copper
Copper ranks amongst the most
recyclable metals as it retains its
chemical and physical properties
through the recycling process.
Today, copper scrap accounts
for approximately 20% of global
refined copper supply2.
Copper scrap is produced at
various points along the supply
chain; at smelters, refineries
and at the point of direct use.
The future of copper demand
From air conditioners and electronics
through to renewable sources,
grid storage and the electric car
revolution, copper has a vast range
of household and industrial uses.
In the transition to a low-carbon
economy, copper has a key role
to play in energy storage systems
and the infrastructure that will
underpin electric vehicles.
It is the preferred metal in many
of these applications because of
its superior electrical conductivity,
and ability to heat up and cool
down quickly.
The recent alignment of environmental
considerations, political mandates,
technological progress and
consumer experience is expected
to underpin future copper demand
via the looming transformation
of energy and mobility.
It is estimated that 4.1Mtpa of
copper will be required to enable
a 30% EV share of global cars sales
by 20303. Copper will be required
in generation, grid infrastructure
and storage along with charging
infrastructure.
As early as 2020, forecast demand
from the EVs will consume
an additional c.390ktpa of
copper – equivalent to a large
mining operation3.
Market supply and demand outlook for copper
Demand growth for copper
continued to be healthy in 2018,
driven by emerging markets,
in particular China, which now
accounts for approximately 50% of
world refined copper consumption.
Sentiment was strong in H1 2018,
with the copper price reaching a
high of $7,262/t in early June. During
H2, global growth sentiment was
negatively impacted by escalation
and uncertainty surrounding the
ongoing US/China and other trade
disputes. Fundamental demand
however remained positive,
with year-over-year refined copper
demand growth of approximately
3% in 2018. China continues to invest
in primary smelting capacity, with
TCs/RCs (treatment charges) in 2018
reducing to levels not seen in the last
five years, on strong competition for
concentrates. In addition, cathode
premiums increased during the year,
with 2019 benchmarks settling
significantly above 2018 levels,
reflecting the decreasing trend in
copper exchange warehouse stocks
to historic lows by the end of 2018,
in terms of days of consumption.
Mine supply disruptions were not
a significant factor in 2018 when
compared to prior years, however
mine supply growth is being
constrained by a limited pipeline
of projects. Looking ahead, global
supply is expected to continue to
be impacted by ageing assets,
declining ore grades, limited sector
reinvestment, the diminished project
pipeline and some threat of mine
disruption. Recycling continues to
be an important source of supply,
with regulations on scrap and the
recycling industry affecting flows. In
the near term, Chinese scrap import
regulations are expected to result
in the increased import of cathodes
and concentrates, effectively diverting
such from other markets with, as yet,
only a marginal increase in scrap
conversion/replacement outside
China. Given this dynamic and a
healthy expected demand outlook,
the copper market could enter into
a period of substantial and sustained
supply deficits.
In the longer term, copper markets are
expected to continue to experience
solid growth rates, driven by
population growth and rising living
standards in emerging economies.
In addition, the energy and mobility
evolution, from power generation
and distribution to energy storage
and vehicles, is anticipated to
become an increasingly important
sector for copper.
Annual copper
required by 20303
4.1Mt
3.0%
2018E copper
demand growth2
0.3%
2019F mine
supply growth2
Sources:
1 Deutsche Bank “A User Guide
to Commodities – the AC to DC
of Copper” 27 July 2016.
2 Wood Mackenzie, Long-term
Copper Outlook, Q3 2018.
3 CRU Consulting, Mobility and
Energy Futures Perspectives
towards 2035, December 2017.
Glencore Annual Report 2018
65
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
Our commodities
in everyday life:
Zinc
China mined
35%
of 2018 zinc
mine supply
2018 global zinc
mine supply growth
2.5%
2018 forecast
one year ago: 5.1%
China’s share of
2018 zinc demand
48%
What and where
Zinc is the 25th most abundant
element in the Earth’s crust and can
be found in several mineralised forms.
It often occurs alongside other metals
including lead, silver, copper and gold.
Zinc’s most significant application
is in the manufacture of galvanised
steel (>50%) to protect against
corrosion. Other uses include the
production of brass, die casting
and batteries.
Most importantly, zinc is essential
for all living organisms.
Zinc use dates back to the Roman
Empire where it was used to make
brass and today it is the fourth most
common metal in use behind iron,
aluminium and copper.
China is the world’s largest mined
zinc producer at 35% of global supply,
followed by Peru at c.11% and Australia
at 8.5%. USA supply ranks fourth at 6%,
followed by India at c.6%.
66
Glencore Annual Report 2018
From the ground
to finished metal
Zinc bearing ore bodies typically
grade c.5–15% zinc and are
predominantly (c.64%) mined
underground, but also using
open pit and combined methods1.
The majority of mined ore is a zinc
sulphide known as Zinc Blende.
Over 90% of zinc is produced
using hydrometallurgical processes1.
Ore is crushed, ground, and then
“floated” and dried to produce a
zinc concentrate. This is roasted to
remove sulphur, then leached using
sulphuric acid and passed through
an electrolysis circuit to form
high purity zinc.
Pyrometallurgical techniques
are used when the ore has a high
lead content. Zinc and lead oxides
are smelted in a furnace and then
refined to produce high purity
zinc and lead.
Recycling zinc
Zinc is readily recyclable. Between
30% to 40% of zinc supply is sourced
from secondary or recycled zinc2.
Zinc is collected and recycled
through all stages from the
production of galvanised sheet
through to the recycling of end of
life products, where around 60%
of zinc is recovered and recycled.
Secondary zinc is largely derived
from two major sources. “Old scrap”
such as galvanised steel is a major
source of recyclable feedstock while
“New scrap” is recovered from
the processing, manufacturing
and fabrication phases.
The future of zinc demand
Urbanisation and industrialisation
of developing economies will likely
remain the major driver of global
zinc consumption.
Although the growth outlook
for developing economies has
moderated in recent years in line
with significant fixed asset
investment, particularly in China,
continuing urbanisation and
industrialisation will continue to
support growth in zinc consumption.
Led by South-East Asia, the regional
economy is forecast to triple in size
by 20401 along with an increase in
the urban population by 150 million
people. As a consequence
galvanising is expected to remain
the dominant first-use of zinc.
However, in the coming years, new
potential end-uses are emerging.
These include the use of zinc as
a micro-nutrient in agricultural
fertilizers along with the potential
large scale application of zinc-air
batteries in renewable energy
storage systems.
On the supply side, matching
longer-term supply growth
with demand is dependent on
environmental approvals in China
as well as a price environment
that encourages development of
currently unapproved mine projects.
Market supply and demand outlook for zinc
In 2018, the zinc price averaged
$2,919/t, a slight increase over
$2,893/t in 2017. The price was
supported by a combination of
relatively stable global demand
growth and tightness in the
metal market.
Global mine supply increased year
over year (but is still lower than 2015
levels), driven by ex-China growth.
In China, per the National Bureau
of Statistics (“NBS”), 2018 mine
production dropped by 148kt (-5%),
driven in part by environmental
controls at Chinese mines. Rest
of the World (“ROW”) mine supply
increased strongly – latest figures
from the International Lead and
Zinc Study group (ILZSG), as at
November 2018, indicate ROW
mine production increased
by 422kt (5.7%).
Despite the year-over-year
growth in global mine supply,
metal production decreased
slightly, in part also due to
environmental controls at Chinese
smelters, specifically in how they
dispose of their residues. Per NBS,
total Chinese metal production
decreased by 189kt (-3.2%) and
ROW smelters (ILZSG, November
2018) increased by 108kt (1.6%).
Therefore, a concentrates surplus
has started to build and spot TCs
on a CIF China basis have increased
from $38/dmt on average in 2017
to $69/dmt in 2018.
As global metal production declined,
zinc stocks on LME and SHFE have
been drawn by 53kt (29%) and 49kt
(71%), respectively, to meet demand.
The drop in SHFE stocks and strong
SHFE price opened up an arbitrage
window in China, with zinc consumers
turning to metal imports, up 5.8%
year over year to a record 715kt.
Lead recorded a slightly lower
average price in 2018, down to
$2,239/t from $2,315/t (3%), due in
part to higher metal production
in China, up by 458kt (9.8%) in
2018 per NBS.
Such lead metal production was
absorbed by demand, as Chinese
metal imports continued to increase
in 2018, up to 128kt (a 65% increase
year over year), and the concentrates
market remained tight, where
spot TCs dropped to historical lows,
averaging $23/dmt in 2018 vs $26/
dmt in 2017 on a CIF China basis.
Galvanising share
of zinc demand2
>50%
$2.5tr
Estimated
annual global
cost of corrosion2
up to
170
years
zinc’s corrosion
protection3
Sources:
1 Citi, A guide to the world of metals
and mining, 13 September 2011.
2 Wood Mackenzie.
3 International Zinc Association.
Glencore Annual Report 2018
67
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
Our commodities
in everyday life:
Nickel
2013–2018
1.9%
mine supply
compound annual
growth rate
2013–2018
5.6%
nickel demand
compound annual
growth rate
2019F growth in
Chinese battery
nickel demand
54%
What and where
Nickel is the 5th most common
element on Earth1 and is often
found with iron, copper and smaller
amounts of cobalt, gold, silver and
platinum group metals (PGMs).
Today, nickel’s primary use is in the
manufacture of stainless steel and
other alloys. Stainless steel is used
in a variety of industries, including
chemical and food processing
equipment, transportation and
construction. Nickel use in alloys
stems from its resistance to
corrosion, strength and heat
resistant properties.
More recently, and with the rapidly
emerging electric vehicle revolution,
nickel has a growing application
within battery technologies as a key
constituent of cathode materials.
Battery engineers are working hard
to increase the proportion of nickel
used given the metal’s ability to
improve battery performance.
68
Glencore Annual Report 2018
From the ground
to finished metal
Laterite (oxide) ores are the source
of two-thirds of nickel production
today. Sulphide ores are responsible
for the remaining third, although
their share of production is rapidly
diminishing such that sulphides will
likely account for less than 30% of
total nickel production by 2020.
Approximately 80% of oxide ore is
treated using a pyrometallurgical
flowsheet, of which 60% is nickel
pig iron (NPI) and 40% ferronickel/
nickel matte. The remaining 20% of
oxide ore is treated using a hydro-
metallurgical flowsheet (i.e. leaching).
NPI as a production route to stainless
steel accelerated from 2007 on the
back of high nickel prices, as China
sourced large tonnages of low-
grade lateritic nickel supplies from
Indonesia and the Philippines to
feed unused blast furnaces.
As the production flowsheet
improved, blast furnaces were
gradually replaced with electric arc
furnaces (EAFs). NPI is mixed with
chromium and other materials
to produce 200 and 300 series
stainless steel.
Recycling nickel
Like many other metals, nickel is fully
recyclable. Nickel along with nickel
containing alloys can be returned
to their original state or converted
into different forms such as recovery
of nickel from batteries for use in
new stainless steel. Approximately
68% of nickel from consumer
products is recycled.
The future of nickel demand
Like zinc, urbanisation and
industrialisation of developing
economies has been a major driver
of nickel demand in recent years,
predominantly in the form of
stainless steel.
Today, stainless steel accounts
for around 70% of primary nickel
consumption1 in a 2.4 million
tonne market2.
The importance of stainless steel
as a key nickel demand driver will
lessen significantly in the coming
years as battery production for
electric vehicles and energy storage
systems scales up in line with the
completion of new lithium ion
battery manufacturing capacity.
Electric vehicle battery demand
alone is forecast to exceed 1,500
GWh by the end of next decade3.
This compares with less than
50 GWh of estimated EV battery
demand at the end of 2018.
In the transition to a low-carbon
economy, nickel has a key role
to play in the battery chemistry
that is expected to power electric
vehicles and renewable energy
storage systems.
It is estimated that an additional
1.1Mtpa of nickel will be required to
enable a 30% electric vehicle share
of global cars sales by 20304.
Market supply and demand outlook for nickel
In 2018, primary nickel consumption
significantly exceeded supply, as
strong demand growth in stainless,
batteries, special steels and nickel
based alloys, offset supply gains.
Chinese NPI output. Global nickel
output in 2018 is estimated at
2.2Mt, marking a c.6% increase
on 2017, masking a 2% decline
in non-NPI supply.
Overall, based on our estimates,
primary nickel demand significantly
exceeded supply by nearly more than
170,000kt for a third consecutive
year bringing cumulative deficits
over the last three years to well over
400,000kt. This market imbalance
was further evident in rapidly
decreasing global inventory levels
and strong premium levels for all
primary nickel products excluding
ferronickel. Even applying a
conservative estimate for 2019
demand, the near-term outlook is
for continued deficits and further
draws in primary nickel stocks.
Nickel demand was particularly
strong during H1, when growth
was elevated across all regions
and market segments. In stainless,
the combined strength of Chinese
and Indonesian austenitic output
growth resulted in an estimated
6% global growth rate. Nickel
usage in special steels and nickel
based alloys outperformed our
expectations, driven by elevated
order intake from the oil and gas,
petrochemical and aerospace
industries. Primary nickel demand
in batteries also accelerated through
2018, with estimated annual growth
exceeding 35%. Overall we estimate
primary nickel demand in 2018
of 2.4Mt, representing a 6.5%
increase on 2017.
On the supply side, production
issues and general supply
disruptions prompted widespread
underperformance in non-nickel
pig iron (“NPI”) supply. This was
however offset by NPI output
growth, reflecting the ramp up
of Indonesian NPI capacity and
Forecast EV battery
demand by 2030
>1,500
GWh
170kt
2018E market deficit
6.5%
2018E primary
nickel demand
growth
Sources:
1 Nickel Institute – nickelinstitute.org
2 Glencore estimate.
3 BNEF, 16 October 2018, “The Dirt
on Clean Electric Cars”.
4 CRU “Mobility and Energy Future
– Perspectives towards 2035”,
prepared for Glencore by
CRU Consulting.
Glencore Annual Report 2018
69
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
Our commodities
in everyday life:
Cobalt
Non-DRC share
of 2018 cobalt
mine supply
29%
China produces
80%
of the world’s
cobalt sulphate
for batteries
DRC share of global
cobalt reserves
49%
What and where
Cobalt is considered a critical raw
material and technology enabler,
where its key unique properties of
hardness and temperature resilience
are deployed for use in gas turbines,
high temperature alloys, industrial
catalysts and energy storage.
Most importantly, cobalt is a key
ingredient in the battery chemistry
expected to underpin the energy
and mobility transformation that is
required for the transition to a
low-carbon economy.
Cobalt is relatively abundant
and widely scattered in the Earth’s
crust. However, it is only found in
economically exploitable quantities
in just a few countries, including
those in Central Africa, Australia,
Cuba, Canada and Russia.
Around 49% of the world’s reserves
are found in the Democratic
Republic of Congo which is also
responsible for close to 60% of annual
mine supply1. Geologically, cobalt
is normally associated with copper
and nickel mineralisation.
70
Glencore Annual Report 2018
From the ground to
commercial product
Historically cobalt was a
finished metal market, however,
growth in battery demand has
shifted the commercial product
increasingly towards intermediates
such as cobalt hydroxide,
which are amenable to battery
cathode applications.
Several methods exist to separate
cobalt from copper and nickel,
depending on the concentration
of cobalt and the composition
of the ore.
Cobalt deposits can be sulphides,
oxides or mixed ores.
At our DRC operations we
produce cobalt hydroxide, while
our Australian and Canadian
nickel operations produce
cobalt metal.
Recycling cobalt
Cobalt is readily recovered
from both the production and
manufacturing processes of
NiMH and Li-ion rechargeable
batteries as well as hard metal
and cemented carbide tools.
End of life products such as
catalysts, rechargeable batteries
and aerospace alloys are also an
important recycling feedstock.
In the coming years, the recovery
of cobalt from electric vehicle and
energy storage system batteries
is forecast to become an increasingly
important large source of supply.
The future of cobalt demand
Battery demand is the cornerstone
of the cobalt growth story.
This compares to current global
cobalt production of c.110kt.
Given the rising investment in
electric vehicles and energy storage
systems as a disruptive technology,
an increasing number of industry
analysts are mapping the demand
outlook for cobalt.
Meeting this forecast demand
growth profile will be challenging
for supply, requiring a significant
increase in mine production
output and recycling over the
next decade.
We have commissioned our
own analysis where CRU’s electric
vehicle study estimated annual
cobalt demand will exceed 300kt
by 2030 if the world aims to meet
the Electric Vehicles Initiative
target of 30% EV market share
in that year2.
While efforts continue to reduce
the proportion of cobalt in the
battery cathode, it appears that
cobalt will continue to play a critical
role (thermal stability) in electric
vehicle battery technologies for
the foreseeable future and across
an appropriate investment horizon.
Market supply and demand outlook for cobalt
Prices for cobalt metal reached
their highest levels in ten years
in 2018, moving above $95,000/t
during the first half. This was driven
by demand from consumers aiming
to secure cobalt for use in Li-ion
batteries and mitigate risks of
future supply.
During the second half of the year,
global sentiment was negatively
affected by the escalation of trade
disputes, increasing supply and
the enforcement of environmental
policies that temporarily limited
the use of refining capacity in China.
Cobalt prices declined, ending 2018
below 60,000/t.
Given its broad range of applications,
cobalt is expected to experience
good demand growth in its
traditional markets going forward
whilst battery sector demand is
likely to rise at double-digit rates,
leading to strong and sustained
consumption growth.
The significant increases in
anticipated demand will require
further investment in mine
supply and recycling capacity.
We estimate that mine supply
in 2018 increased by around 15%
year on year, predominantly
in the DRC.
Annual cobalt
required by 2030
>300kt
110kt
current annual
cobalt production
Sources:
1 USGS Mineral Commodity
Summary 2018, World Mine
Production and Reserves.
2 CRU “Mobility and Energy Future
– Perspectives towards 2035”,
prepared for Glencore by
CRU Consulting.
Glencore Annual Report 2018
71
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
While the Chinese government
launched strict supply-side
environmental restrictions in 2017,
the focus in 2018 clearly shifted
towards supporting the slowing
domestic economy and, as such,
the annual winter production cuts
were less severe than expected.
Instead, closures of Chinese
aluminium smelters were more
likely triggered by commercial
drivers, associated with inflated
raw material prices.
Iron ore
Iron ore prices were largely
stable in the year, averaging $66/t.
Within this, premiums for higher-
quality material strengthened and
penalties for impurities increased.
Chinese winter steel production
cuts, announced towards the
end of 2018, were less severe than
expected, which improved demand
for lower grade iron ore. Iron ore
inventories in China started then to
decrease and the market showed
indications of rebalancing, with the
year-end price around $71/t.
Other marketing highlights
Ferroalloys
In 2018, ferrochrome demand was
underpinned by a strong stainless
steel market, for which global
production is estimated to have
grown by 6% year over year.
Chinese domestic ferrochrome
production was affected by
temporary shutdowns as a result
of environmental inspections in
mid-2018, but was able to regain
lost volume during the second half
of the year. Ferrochrome prices
reflected this supply dynamic, with
firmness driven by environmental
shutdowns giving way to price
declines in H2 when Chinese
units returned incrementally to
the market.
The vanadium market was
supported throughout the year by
stricter environmental regulations
in China, strong demand across
product applications and continued
stock drawdown. Prices reached
all-time highs in Q4 in anticipation
of the implementation of the new
alloyed rebar standard in China.
Alumina/Aluminium
In recent years, the aluminium
market was shaped by the
impacts of Chinese industrial and
environmental policy. In 2018,
however, the greater impact was
US policy, in the form of sanctions
against Rusal, the second-largest
aluminium producer, and the
introduction of tariffs on aluminium
imports from certain countries.
2018 was one of the most volatile
years for aluminium prices. The LME
price, stable at around $2,150/t at the
beginning of the year, surged upon
announcement of US sanctions
against Rusal in April to above
$2,500/t. However, the price dropped
to $1,846/t (below its 2017 average)
towards the end of 2018, anticipating
the removal of Rusal sanctions. The
uncertainty over the ongoing US/
China trade war has led to negative
market sentiment on the demand
side. Nevertheless, the Western
aluminium market is still in deficit,
further reducing global inventories,
with premiums at year end towards
the high end of recent ranges.
In February, the world’s largest
alumina refinery, Alunorte, was
instructed to cut production by
50% due to alleged environmental
issues. Furthermore, the US
sanctions on Rusal led to a huge
spike in alumina prices, peaking
above $700/t. The high prices
induced a rise in Chinese alumina
exports, becoming a net exporter
for the first time. Overall, the global
alumina market stabilised, ending
the year at $408/t, comparable
with its opening price, but the
mid-year spike meant an average
price 34% higher than 2017.
72
Glencore Annual Report 2018
Industrial activities
Highlights
As noted above, Industrial Adjusted
EBITDA increased year over year
by 2% to $8.5 billion, primarily
reflecting the impact of higher
prices and increased own sourced
production, offset by fuel, energy
and consumables related inflationary
cost increases (net of modest FX
benefits), lower grades for some
by-products and reduced third-party
smelting profitability. Copper Africa’s
Adjusted EBITDA ($1.3 billion)
doubled compared to prior year,
following the successful restart of
Katanga’s processing operations
in late 2017 which contributed an
incremental ~150,000 tonnes of
copper. In addition, Lady Loretta
(Australia zinc), which had been on
care and maintenance since 2015,
contributed meaningful production
in H2, following its restart in 2018.
Offsetting this, 2017 included some
$76 million of Adjusted EBITDA
relating to the now sold African zinc
assets and our Volcan “share of
earnings” in 2018 was negative.
Across the portfolio, the Adjusted
EBITDA mining margin was steady
and healthy at 38%, with further
scale and productivity improvements
expected in 2019 as the annualised
ramp-up impact of Katanga and
Lady Loretta take hold. Countering
this is an expected step-down
in Mutanda’s production to circa
100,000 tonnes per year, on the
basis of the updated understanding
of oxide and transitional ore reserves,
pending a decision down the track
on whether and how to proceed
with investment into the processing
of sulphide reserves/resources.
Financial information
US$ million
Revenue◊
Copper assets
Africa (Katanga, Mutanda, Mopani)
Collahuasi1
Antamina1
Other South America (Alumbrera, Lomas Bayas, Antapaccay)
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Custom metallurgical (Altonorte, Pasar, Horne, CCR)
Intergroup revenue elimination
Copper
Zinc assets
Kazzinc
Australia (Mount Isa, McArthur River)
European custom metallurgical (Portovesme, San Juan de Nieva, Nordenham, Northfleet)
North America (Matagami, Kidd, Brunswick, CEZ Refinery)
Other Zinc (Argentina, Bolivia, Peru, Rosh Pinah2, Perkoa2)
Zinc
Nickel assets
Integrated Nickel Operations (Sudbury, Raglan, Nikkelverk)
Australia (Murrin Murrin)
Nickel
Ferroalloys
Aluminium/Alumina
Metals and minerals revenue◊
Represents the Group’s share of these JVs.
1
2 Disposed of in August 2017.
2018
2017
Change %
4,493
1,426
1,179
2,113
1,941
7,190
(142)
18,200
3,163
1,481
1,189
2,474
468
8,775
1,462
748
2,210
2,197
3
31,385
2,695
1,303
1,199
2,394
1,965
7,957
(295)
17,218
3,075
1,362
1,273
1,790
695
8,195
1,323
598
1,921
2,111
3
29,448
67
9
(2)
(12)
(1)
(10)
n.m.
6
3
9
(7)
38
(33)
7
11
25
15
4
–
7
Glencore Annual Report 2018
73
Strategic ReportFinancial statementsGovernanceAdditional information Metals and minerals continued
US$ million
Copper assets
Africa
Collahuasi1
Antamina1
Other South America
Australia
Custom metallurgical
Copper
Adjusted EBITDA mining margin2
Zinc assets
Kazzinc
Australia
European custom metallurgical
North America
Volcan
Other Zinc
Zinc
Adjusted EBITDA mining margin2
Nickel assets
Integrated Nickel Operations
Australia
Nickel
Adjusted EBITDA margin
Ferroalloys
Aluminium/Alumina
Iron ore
Metals and minerals Adjusted EBITDA/EBIT◊
Adjusted EBITDA mining margin2
Adjusted EBITDA◊
Adjusted EBIT◊
2018
2017 Change %
2018
2017 Change %
1,323
902
923
936
424
222
4,730
40%
1,160
667
196
249
(36)
81
2,317
37%
592
206
798
36%
670
(38)
1
8,478
38%
668
803
934
1,088
524
343
4,360
42%
1,203
645
169
359
–
244
2,620
41%
555
78
633
33%
655
5
8
8,281
40%
98
12
(1)
(14)
(19)
(35)
8
(4)
3
16
(31)
n.m.
(67)
(12)
7
162
26
2
n.m.
n.m.
296
633
656
234
92
41
63
551
675
546
186
194
1,952
2,215
747
387
91
138
(36)
(42)
769
371
78
260
–
152
1,285
1,630
158
157
315
542
(42)
1
99
12
111
528
5
7
2
4,053
4,496
370
15
(3)
(57)
(51)
(79)
(12)
(3)
4
24
(47)
n.m.
n.m.
(21)
60
n.m.
184
3
n.m.
n.m.
(10)
1 Represents the Group’s share of these JVs.
2 Adjusted EBITDA mining margin is Adjusted EBITDA (excluding custom metallurgical assets and Volcan) divided by Revenue (excluding custom metallurgical assets,
Volcan and intergroup revenue elimination) i.e. the weighted average EBITDA margin of the mining assets. Custom metallurgical assets include the Copper custom
metallurgical assets and Zinc European custom metallurgical assets and the Aluminium/Alumina group, as noted in the table above. Given the increased Zinc North
America smelting/processing revenue and its relatively small and declining margin contribution/weighting, its revenues and Adjusted EBITDA have also been excluded.
74
Glencore Annual Report 2018
US$ million
Capital expenditure◊
Copper assets
Africa
Collahuasi1
Antamina1
Other South America
Australia
Custom metallurgical
Copper
Zinc assets
Kazzinc
Australia
European custom metallurgical
North America
Other Zinc
Zinc
Nickel assets
Integrated Nickel Operations
Australia
Koniambo
Nickel
Ferroalloys
Aluminium/Alumina
Capital expenditure◊
1 Represents the Group’s share of these JVs.
2018
2017
Sustaining Expansion
Total
Sustaining Expansion
Total
510
263
201
397
233
204
422
25
7
31
7
–
932
288
208
428
240
204
352
214
180
308
218
161
381
45
–
46
12
–
733
259
180
354
230
161
1,808
492
2,300
1,433
484
1,917
165
279
114
100
116
774
160
22
–
182
159
–
171
–
–
11
–
182
182
1
215
398
1
–
336
279
114
111
116
956
342
23
215
580
160
–
121
256
74
65
77
593
131
14
–
145
163
2
52
–
–
13
–
65
102
–
241
343
4
–
173
256
74
78
77
658
233
14
241
488
167
2
2,923
1,073
3,996
2,336
896
3,232
Glencore Annual Report 2018
75
Strategic ReportFinancial statementsGovernanceAdditional information Production from own sources – Zinc assets1
2018
2017
Change
%
kt
kt
kt
kt
koz
koz
koz
kt
kt
koz
kt
kt
koz
kt
kt
kt
kt
koz
koz
kt
kt
koz
kt
kt
kt
koz
koz
201.2
46.9
8.7
52.4
643
210.5
52.9
4.7
49.7
585
6,210
5,780
303
132
532.5
175.8
6,362
436.0
156.4
7,114
101.1
39.0
1,893
123.7
47.3
2,271
95.2
13.9
28.0
4.5
744
99.8
13.6
41.2
3.4
637
6,989
7,775
–
–
–
930.0
273.3
95.9
643
92.1
3.7
157
962.1
272.5
100.4
585
22,501
23,866
(4)
(11)
85
5
10
7
130
22
12
(11)
(18)
(18)
(17)
(5)
2
(32)
32
17
(10)
(100)
(100)
(100)
(3)
–
(4)
10
(6)
Metals and minerals continued
Production data
Production from own sources – Total1
Copper
Cobalt
Zinc
Lead
Nickel
Gold
Silver
Ferrochrome
2018
2017
1,453.7
1,309.7
42.2
27.4
1,068.1
1,090.2
273.3
123.8
1,003
272.5
109.1
1,033
34,879
37,743
1,580
1,531
kt
kt
kt
kt
kt
koz
koz
kt
Production from own sources – Copper assets1
African Copper
(Katanga, Mutanda, Mopani)
Copper metal
Cobalt2
Collahuasi3
Copper in concentrates
Silver in concentrates
Antamina4
Copper in concentrates
Zinc in concentrates
Silver in concentrates
2018
2017
410.7
38.4
238.7
23.9
246.0
3,244
230.5
3,103
150.6
138.1
142.6
128.1
kt
kt
kt
koz
kt
kt
Change
%
11
54
(2)
–
13
(3)
(8)
3
Change
%
72
61
7
5
6
8
Kazzinc
Zinc metal
Lead metal
Lead in concentrates
Copper metal5
Gold
Silver
Silver in concentrates
Australia (Mount Isa,
McArthur River)
Zinc in concentrates
Lead in concentrates
Silver in concentrates
North America
(Matagami, Kidd)
Zinc in concentrates
Copper in concentrates
Silver in concentrates
Other Zinc: South America
(Argentina, Bolivia, Peru)6
Zinc in concentrates
Lead metal
Lead in concentrates
koz
5,550
6,579
(16)
Copper in concentrates
Other South America (Alumbrera,
Lomas Bayas, Antapaccay)
Copper metal
Copper in concentrates
kt
kt
Gold in concentrates and in doré
koz
Silver in concentrates and in doré koz
Australia (Mount Isa, Ernest Henry,
Townsville, Cobar)
Copper metal
Copper in concentrates
Gold
Silver
Total Copper department
Copper
Cobalt
Zinc
Gold
Silver
kt
kt
koz
koz
kt
kt
kt
koz
koz
72.8
225.9
256
1,722
151.5
58.9
74
1,399
78.1
245.3
348
1,821
164.6
65.9
67
1,721
1,316.4
1,165.7
38.4
138.1
330
23.9
128.1
415
11,915
13,224
(7)
(8)
(26)
(5)
(8)
(11)
10
(19)
13
61
8
(20)
(10)
Silver metal
Silver in concentrates
Other Zinc:
Africa (Rosh Pinah, Perkoa)
Zinc in concentrates
Lead in concentrates
Silver in concentrates
Total Zinc department
Zinc
Lead
Copper
Gold
Silver
76
Glencore Annual Report 2018
Production from own sources – Nickel assets1
Production from own sources – Ferroalloys assets1
Integrated Nickel Operations (INO)
(Sudbury, Raglan, Nikkelverk)
Ferrochrome7
Vanadium Pentoxide
2018
2017
Change
%
2018
1,580
20.2
kt
mlb
Change
%
3
(3)
2017
1,531
20.9
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
Murrin Murrin
Nickel metal
Cobalt metal
Koniambo
Nickel in ferronickel
Total Nickel department
Nickel
Copper
Cobalt
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
kt
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
59.5
0.5
14.4
27.0
0.9
29
464
58
119
4
35.5
2.9
57.0
0.5
15.6
28.0
0.8
32
653
75
136
6
34.1
2.7
4
–
(8)
(4)
13
(9)
(29)
(23)
(13)
(33)
4
7
28.3
17.5
62
123.8
41.4
3.8
29
464
58
119
4
109.1
43.6
3.5
32
653
75
136
6
13
(5)
9
(9)
(29)
(23)
(13)
(33)
Total production – Custom metallurgical assets1
2018
2017
Change
%
Copper (Altonorte, Pasar, Horne, CCR)
Copper metal
Copper anode
Zinc (Portovesme, San Juan de
Nieva, Nordenham, Northfleet)
Zinc metal
Lead metal
Silver
kt
kt
kt
kt
438.8
479.3
526.8
535.7
799.6
186.3
788.0
193.8
koz
10,087
13,656
(17)
(11)
1
(4)
(26)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis,
except as stated.
2 Cobalt contained in concentrates and hydroxides.
3 The Group’s pro-rata share of Collahuasi production (44%).
4 The Group’s pro-rata share of Antamina production (33.75%).
5 Copper metal includes copper contained in copper concentrates and blister.
6 South American production excludes Volcan Companie Minera.
7 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
Operating highlights
Copper assets
Own sourced copper production of
1,453,700 tonnes was 144,000 tonnes
(11%) higher than in 2017, mainly
reflecting the restart of Katanga’s
processing operations in late 2017,
partly offset by the completion
of open-pit mining at Alumbrera.
Africa
Own sourced copper production of
410,700 tonnes was 172,000 tonnes
higher than in 2017, reflecting
the staged recommissioning of
Katanga’s processing operations.
Cobalt production of 38,400 tonnes
was 14,500 tonnes (61%) higher than
in 2017, mainly relating to Katanga.
Katanga’s current cobalt production
is being temporarily stockpiled
on site, pending introduction of
a long-term solution to remove
excess uranium levels in such cobalt.
Collahuasi
Attributable copper production of
246,000 tonnes was 15,500 tonnes
(7%) higher than in 2017, reflecting
improved head grades and
recoveries, following commissioning
of 24 flotation cells.
Antamina
Attributable copper production
of 150,600 tonnes was 6% ahead
of 2017, and zinc production of
138,100 tonnes was 8% ahead,
in each case reflecting expected
variations in head grades.
Other South America
Copper production of 298,700
tonnes was down 24,700 tonnes
(8%) on 2017, mainly reflecting the
cessation of open pit operations
at Alumbrera (15,900 tonnes) and
disposal of Punitaqui (2,400 tonnes).
Australia
Own sourced copper production
of 210,400 tonnes was 20,100 tonnes
(9%) lower than in 2017, mainly
reflecting smelter maintenance
earlier in 2018 and mining issues
which have subsequently
been resolved.
Custom metallurgical assets
Copper cathode production of
438,800 tonnes was 88,000 tonnes
(17%) lower than in 2017, reflecting
reduced production at Pasar following
its acid plant failure in early 2018,
with subsequent maintenance,
and lower feedstock availability
in North America.
For similar reasons, copper anode
production of 479,300 tonnes was
56,400 tonnes (11%) lower than
in 2017, in addition to Altonorte’s
planned plant turnaround.
Glencore Annual Report 2018
77
Strategic ReportFinancial statementsGovernanceAdditional information
Metals and minerals continued
Zinc assets
Own sourced zinc production
of 1,068,100 tonnes was in line
with 2017, reflecting the offsetting
impacts of the disposals of the
African zinc assets in August 2017
and the restart of mining at Lady
Loretta in mid-2018.
Lead production of 273,300 tonnes
was in line with 2017, reflecting
stronger production in Australia
(due to Lady Loretta) offset by
mine planning changes at
Aguilar in Argentina.
Kazzinc
Own sourced zinc production of
201,200 tonnes was 9,300 tonnes
(4%) below 2017, relating to a
safety-related interruption and
investigation at one of the mines.
Total production including third
party feed was 309,700 tonnes,
in line with the prior year.
Own sourced lead production of
55,600 tonnes was 2,000 tonnes
(3%) below 2017, mainly relating to
mine planning changes at Zhairem
and the above noted interruption.
Total metal production including
third party feed was 149,500 tonnes,
in line with the prior year.
Australia
Zinc production of 532,500 tonnes
was up 96,500 tonnes (22%) on 2017,
mainly relating to the restart of
mining operations at Lady Loretta
(Mount Isa), together with an
increased production contribution
from McArthur River.
Own sourced copper production
of 52,400 tonnes was up 5% on 2017,
reflecting higher recoveries at
the smelter due to efficiency
improvements.
Lead production of 175,800 tonnes
was up 19,400 tonnes (12%) on 2017,
mainly due to Lady Loretta, plus
higher production from McArthur
River as noted above.
Gold production of 643,000 ounces
was 58,000 ounces (10%) higher
than in 2017, mainly reflecting
commissioning of the Dolinnoye
mine, which contributed some
40,000 ounces, and higher
grades and recoveries at the
Vasilkovsky mine.
North America
Zinc production of 101,100 tonnes
was down 22,600 tonnes (18%)
on 2017, while copper production
of 39,000 tonnes was 8,300 tonnes
(18%) down. These reflected
expected lower grades at both
operations and a decline in mined
ore production associated with
the transition to deeper areas in
the orebodies, as the operations
approach end of life.
78
Glencore Annual Report 2018
South America
Zinc production of 95,200 tonnes
was 5% down on 2017, mainly
relating to mine plan changes
implemented at Aguilar (Argentina)
and in Bolivia, partly offset by an
improved performance from Peru.
Lead production of 41,900 tonnes
was down 12,900 tonnes (24%)
mainly due to Aguilar, as noted
above.
European custom
metallurgical assets
Zinc metal production of 799,600
tonnes was in line with 2017.
Lead metal production of 186,300
tonnes was down 7,500 tonnes
(4%), due to planned maintenance.
Nickel assets
Own sourced nickel production of
123,800 tonnes was 14,700 tonnes
(13%) higher than in 2017, mainly
reflecting Koniambo running
two production lines throughout
the year.
Integrated Nickel Operations (INO)
Own sourced nickel production
of 60,000 tonnes was 2,500 tonnes
(4%) higher than the prior year.
Metallurgical mix and timing of
deliveries from smelter to refinery
are expected to result in higher
own sourced (versus third party)
production in 2019.
Murrin Murrin
Own sourced nickel production
of 35,500 tonnes was 1,400 tonnes
(4%) higher than in 2017, which was
affected by the periodic statutory
shutdown.
Koniambo
Production of 28,300 tonnes was
10,800 tonnes (62%) higher than
in 2017, reflecting the plant running
as a two-line operation throughout
the year. Ongoing work on the
processing plant is expected to
enable progressive capacity
expansion, targeting full capacity
by 2021/22.
Ferroalloys assets
Attributable ferrochrome production
of 1,580,000 tonnes was in line with
2017, while vanadium pentoxide
production of 20.2 million pounds
was also in line.
Glencore Annual Report 2018
79
Strategic ReportFinancial statementsGovernanceAdditional information Energy
products
Acquisitions in 2018 helped
to balance our coal portfolio
further towards higher energy
and hard coking coals
We funded the acquisition
of downstream oil assets in
South Africa and Botswana,
with completion expected
in H1 2019
Adjusted EBITDA
(US$ million)
Adjusted EBIT
(US$ million)
6,107
3,951
4,653
2,462
2,414
67
2016
2017
2018
2016
2017
2018
Crude oil
marketed (bbl)
944m
2017: 1,209m
Coal adjusted EBITDA
mining margin
46%
Healthy cash
generation
Major coal
acquisitions:
$2.9bn
Oil downstream
business funding:
$1.0bn
80
Glencore Annual Report 2018
Vessels
Mine life
(years approx.)
1,000+ 14
Headcount
c.25,000
Employees & contractors
Market knowledge
40+
years
experience
Industrial
Assets in
6
26
countries
operating sites
Inputs
Sustainably producing
the energy products
which play an essential
role in modern life
Outputs
Socio economic
contribution
($)
Community support
initiatives
6m
Public
infrastructure
5m
Safe
working
Fatalities
1
2017: Nil
TRIFR
2.58
2017: 2.56
LTIFR
1.38
2017: 1.12
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Own source production
(mt/mbbl)
Coal
129.4
Oil
4.6
Marketed volumes
(mt/mbbl)
Coal
98.6
Crude oil
944
Glencore Annual Report 2018
81
Additional informationFinancial statementsGovernance
Energy products continued
Highlights
Energy products Adjusted EBITDA
of $6.1 billion was up 31% over 2017.
The increase was predominantly
due to significantly stronger
year-over-year coal prices within
our industrial assets, aided by
incremental EBITDA from the
acquisitions of a 49% interest in
HVO in May 2018 and an 82%
interest in Hail Creek in August
2018 and the roll-off in 2017
of the remaining price hedged
coal tonnes. Oil prices were
supportive to our E&P assets,
and the drilling campaign in Chad
delivered higher year-over-year
production. Marketing Adjusted
EBITDA was down 25% owing to
subdued arbitrage opportunities,
lower volumes and the base effect
of the strong 2017 performance.
Adjusted EBITDA mining margins
improved to 46% from 41% in the
comparable period for the reasons
noted above.
US$ million
Revenue◊
Adjusted EBITDA◊
Adjusted EBIT◊
Adjusted EBITDA margin
Marketing
activities
126,348
795
742
0.6%
Industrial
activities
12,660
5,312
3,209
42.0%
2018
139,008
6,107
3,951
4.4%
Marketing
activities
118,199
1,054
990
0.9%
Industrial
activities
10,067
3,599
1,424
35.8%
2017
128,266
4,653
2,414
3.6%
Market conditions
Selected average commodity prices
S&P GSCI Energy Index
Coal API4 ($/t)
Coal Newcastle (6,000) ($/t)
Oil price – Brent ($/bbl)
2018
224
100
107
72
2017
178
84
88
55
Change %
26
19
22
31
82
Glencore Annual Report 2018
Marketing
Highlights
Adjusted EBIT of $742 million
was down $248 million (25%) year
over year, reflecting the strong
2017 base, oil forward curves
being in backwardation for almost
all of the year, thereby reducing
trading opportunities, and
a more cautious approach to
coal marketing opportunities
from an expected risk/return
perspective (11% lower
thermal volumes).
Financial information
US$ million
Revenue◊
Adjusted EBITDA◊
Adjusted EBIT◊
Selected marketing volumes sold
Thermal coal1
Metallurgical coal1
Coke1
Crude oil
Oil products
1
Includes agency volumes.
2018
126,348
795
742
2017
118,199
1,054
990
Change %
7
(25)
(25)
Units
mt
mt
mt
mbbl
mbbl
2018
94.4
3.6
0.6
944
760
2017
106.3
2.3
0.6
1,209
853
Change %
(11)
57
–
(22)
(11)
Glencore Annual Report 2018
83
Strategic ReportFinancial statementsGovernanceAdditional information Energy products continued
Our commodities
in everyday life:
Thermal
coal
2017 hard
coal production
6.8bn t
2017 Chinese
coal production
3.5bn t
Average 2018 NEWC
price increase
+22%
Physical properties
Coal is a fossil fuel formed from
the altered remnants of prehistoric
vegetation that originally amassed
in wetland areas. Natural processes
and movements in the earth’s crust
eventually buried this vegetation.
High pressures and temperatures
slowly transformed the vegetation
over hundreds of millions of years
into peat and then into lignite that
was eventually transformed into
progressively harder coals such as
sub-bituminous coals, bituminous
coals and eventually anthracite.
Coal can be found in many countries
around the world and more than
50 of them mine it commercially for
consumption in more than 80 countries.
In 2017, more than 6.8 billion tonnes
of hard coal along with 830 million
tonnes of lignite was mined. China
was the world’s largest coal producer
at 3.49bn tonnes, followed by India
(c.715Mt), USA (c.700Mt), Indonesia
(c.490Mt) and Australia (c.480Mt)1
84
Glencore Annual Report 2018
The role of thermal coal
Different types of coal have different
uses. The most significant of these
are in electricity and heat generation,
production of steel, manufacturing
of cement and production of
liquid fuels.
Today, more than 38% of the World’s
electricity is generated from coal and
over 70% of global steel production
is sourced from processes that
primarily use coking coal.
In its primary role as a source
of power and heat generation
(consuming c.5.4 billion tonnes
or c.70% of 2017 coal production)1,
thermal coal provides a secure,
reliable and affordable source of
energy that underpins sustainable
economic and social development
for developing economies.
Coal also benefits many stakeholders
around the world from the jobs,
royalties, export revenues and
infrastructure that mining provides.
Modern coal combustion
technologies are capable of reducing
emissions of SOx and NOx below
levels emitted by existing gas
power stations. Particulate capture
technologies are capable of capturing
better than 99.5% of particulate
emissions. Modern high efficiency,
low emissions (HELE) power stations
can significantly reduce the pollutants
released from coal combustion.
Carbon capture and storage (CCS)
technology has been used for many
decades; applying this technology
to coal plants can capture up to
90% of CO2 emissions.
Support for this technology is
essential to delivering reductions
in global CO2 emissions.
The future of thermal coal
Industrialisation and urbanisation of
developing economies, particularly
in Asia, will continue to drive growth
in global energy, electricity, steel
and cement.
world to transition to a low-carbon
economy in response to the risks
posed by climate change, and by
relevant subsequent analysis of
coal demand, particularly in Asia.
The South-East Asian economy
is expected to triple in size and its
energy needs are expected to grow
by almost two thirds by 20402.
Coal is expected to continue to be
a key input to industrial processes
as a competitive, safe, secure and
reliable baseload source of energy
for this time horizon.
This is supported by the policy
commitments made in the Paris
Agreement, the platform for the
All credible climate scenarios with the
objective to limit global temperature
increases in line with the Paris
Agreement recognise that the
deployment of CCS is essential across
all fossil fuel processes to achieve
emissions reduction and climate goals.
The transition from subcritical
technologies to HELE power plants
through to CCS will require greater
global financial support to accelerate
deployment and provide the
necessary emissions reductions.
Market supply and demand outlook for thermal coal
2018 global seaborne thermal coal
demand grew by more than 60Mt
(6.5%) from 2017, dominated by the
Pacific and sub-continent markets,
rising 8.8%. Indian and Chinese
thermal electricity demand growth
was 4.9% and 6.0% respectively,
supporting demand growth for
imported thermal coal. In Asia-Pacific
markets, excluding China and India,
import demand was buoyed by
8.9GW of newly commissioned coal
fired power stations to meet demand
for low cost base load electricity.
More than 50GW of new coal fired
generation capacity is currently under
construction in the region. Demand
growth in the Mediterranean offset
declines in the rest of Europe and
the Americas, keeping demand
outside of Asia flat overall.
Australian export coal supply
recovered from a weather-affected
2017 to be up 6% year over year,
however there remains few new
projects under development, which
should limit export growth going
forward. Russian supply increased
by 5.8%, mainly delivered to Asia,
while higher prices during H2
supported swing supply growth
from the US and capacity expansion
in Indonesia. Growth from Indonesia
continued to be dominated by
low-energy coals, which contributed
to an oversupply of these products.
Similarly, over 60% of US export
supply growth was from higher
sulphur or lower energy products,
which have limited destination
markets. Price falls for these lower
energy coals during H2 has put
some of this Indonesian and US
coal supply under margin pressure.
In April 2018, the Korean government
raised per tonne import taxes on
coal, which favours an increased
demand for higher energy coal.
The continued long-term decline in
energy content of export coals from
Indonesia and Australia and lack of
investment in new supply capacity,
ensured that, by historical standards,
market prices for high-energy coals
stayed relatively higher compared
to lower energy coals. At the end
of 2018, market index prices for
Newcastle and API4 were 1.1% higher
than the end of 2017, compared to
end of 2018 prices for Newcastle
5500nar coal and 4700nar coal from
Indonesia, which fell respectively
23% and 31% year over year.
SE Asia Energy
demand growth
by 2040
~66%
up to
90%
CO2 emissions
capture through
HELE and CCS
<2ºC
Long-term Paris
Agreement target
Sources:
1
2 IEA World Energy Outlook 2018.
IEA Coal Information 2018.
Glencore Annual Report 2018
85
Strategic ReportFinancial statementsGovernanceAdditional information Energy products continued
Coking coal
Global steel production increased
4.7% year over year, with 73% of steel
being produced via blast furnace
using coking coal. Globally, pig iron
production from blast furnaces
increased by 1.5% in the seaborne
import markets, excluding China.
While Australian supply recovered
to meet the coking coal demand
growth, supply declines from
China, Mozambique and Russia
kept markets tight throughout 2018,
such that prices for premium HCC
averaged 10% above 2017 levels.
Oil
After a sustained period of oil price
gains since mid-2017, the direction
remained one of steadily rising oil
prices, from $67/bbl at the beginning
of the year to a peak of $86/bbl
at the start of Q4. The strong rally
reflected the prospect of material
supply shortages, led by anticipation
of a steep fall in Iranian output ahead
of reintroduction of US sanctions
and the numerous challenges
in Venezuela. Oil prices fell rapidly
in Q4, as part of the previously
discussed broader “risk asset”
market sell off. The associated
strong US dollar increases the
cost of oil for emerging markets
which, in turn, often threatens
to derail demand.
Worries about oversupply soon
followed, as strong US oil output
growth, together with the OPEC+’s
(including co-operating non-OPEC
producers) earlier production
boost, led to inventories building.
In December, OPEC+ initiated a
round of production cuts to
support oil prices.
Amidst the selloff, volatility surged,
with near-dated Brent implied
volatility at over 40%, when for
most of the year it hovered around
25%. The Brent curve dropped
back into contango, when for the
most of the year it was comfortably
backwardated. The backward
crude structure in 2018 compared
to 2017 had a dampening effect
on our traded volumes.
Refinery margins came under
more pressure during the year,
largely due to the weakness
in light ends product margins,
notably gasoline. The surge in
US crude production has seen
the global crude slate becoming
lighter, and while refineries
upgrade units in preparation
for the new IMO2020 marine
fuel standard, they have been
producing more light ends
products at the expense of
heavy products. This has led to
tightness in the heavy complex
and a divergence in margins
of light and heavy products.
86
Glencore Annual Report 2018
Industrial activities
Highlights
Energy Products’ Adjusted EBITDA
of $5.3 billion was 48% higher than
in 2017, largely due to the improved
price environment, with positive
contributions also from the HVO
and Hail Creek acquisitions and
the roll-off in 2017 of the earlier
economic hedges.
Prodeco’s results were down
significantly as it invests near
term in mine development
activities, expected to increase
the operation’s medium-term
volume productivity and
earnings prospects.
Higher prices resulted in
an improved oil contribution.
The quarterly sequential increase
in Q4 production augurs well
for continued volume growth,
following recommencement
of a Chad drilling programme
in H2 2017.
Looking forward, the full year effects
of the 2018 coal acquisitions and
the expected increase in Prodeco’s
production, drive an expected
increase in 2019 consolidated
production to around 145 million
tonnes of coal. Furthermore,
the expected H1 2019 acquisition
completion of a 75% interest in the
Cape Town oil refinery is expected
to contribute positively to Oil’s
reported results going forward.
Financial information
US$ million
Net revenue◊
Coal operating revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Impact of corporate coal economic hedging
Coal operating revenue
Coal other revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Coal other revenue (buy-in coal)
Coal total revenue
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Impact of corporate coal economic hedging
Coal total revenue
Oil
Energy products revenue◊
1 Represents the Group’s share of this JV.
2018
2017
Change %
1,286
6,309
1,629
1,112
838
–
1,088
4,892
1,500
1,199
789
(380)
11,174
9,088
9
1,070
79
2
–
1,160
1,295
7,379
1,708
1,114
838
–
12,334
326
12,660
3
672
17
6
1
699
1,091
5,564
1,517
1,205
790
(380)
9,787
280
10,067
18
29
9
(7)
6
n.m.
23
200
59
365
(67)
(100)
66
19
33
13
(8)
6
n.m.
26
16
26
Glencore Annual Report 2018
87
Strategic ReportFinancial statementsGovernanceAdditional information Energy products continued
US$ million
Coking Australia
Thermal Australia
Thermal South Africa
Prodeco
Cerrejón1
Coal result prior to hedging
Impact of corporate coal economic hedging
Total coal
Adjusted EBITDA margin2
Oil
Adjusted EBITDA margin
Energy products Adjusted EBITDA/EBIT◊
Adjusted EBITDA margin – pre economic hedge
Adjusted EBITDA margin – post economic hedge
Adjusted EBITDA◊
Adjusted EBIT◊
2018
673
3,206
685
208
387
5,159
–
5,159
46%
153
47%
5,312
46%
46%
2017 Change %
24
60
19
(42)
–
34
n.m.
48
32
48
541
1,999
577
359
387
3,863
(380)
3,483
41%
116
41%
3,599
41%
38%
2018
529
2,043
389
32
197
3,190
–
3,190
2017 Change %
249
876
289
192
210
1,816
(380)
1,436
112
133
35
(83)
(7)
76
n.m.
122
19
(12)
n.m.
3,209
1,424
125
1 Represents the Group’s share of this JV.
2 Coal EBITDA margin is calculated on the basis of Coal operating revenue before corporate hedging, as set out in the preceding table.
US$ million
Capital expenditure
Australia (thermal and coking)
Thermal South Africa
Prodeco
Cerrejón1
Total Coal
Oil
Capital expenditure◊
1 Represents the Group’s share of this JV.
Production data
Coal assets1
Australian coking coal
Australian semi-soft coal
Australian thermal coal (export)
Australian thermal coal (domestic)
South African thermal coal (export)
South African thermal coal (domestic)
Prodeco
Cerrejón2
Total Coal department
2018
2017
Sustaining Expansion
Total
Sustaining Expansion
Total
240
176
254
81
751
157
908
103
31
1
–
135
–
135
mt
mt
mt
mt
mt
mt
mt
mt
mt
343
207
255
81
886
157
1,043
153
162
175
54
544
98
642
73
26
1
–
100
–
100
226
188
176
54
644
98
742
2018
7.5
3.9
59.4
9.4
17.3
10.0
11.7
10.2
2017
6.1
4.0
49.1
7.5
18.7
10.0
14.6
10.6
129.4
120.6
Change %
23
(3)
21
25
(7)
–
(20)
(4)
7
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis except for joint ventures, where the Group’s attributable share of production is included.
2 The Group’s pro-rata share of Cerrejón production (33.3%).
Oil assets
Glencore entitlement interest basis
Equatorial Guinea
Chad
Total Oil department
Gross basis
Equatorial Guinea
Chad
Total Oil department
88
Glencore Annual Report 2018
2018
2017
Change %
kbbl
kbbl
kbbl
kbbl
kbbl
kbbl
1,827
2,799
4,626
8,818
3,827
12,645
2,529
2,524
5,053
11,914
3,450
15,364
(28)
11
(8)
(26)
11
(18)
Operating highlights
Coal assets
Attributable coal production of
129.4 million tonnes was 8.8 million
tonnes (7%) higher than in 2017,
reflecting the recovery in Australia
from weather-related and
industrial action disruption and
the acquisitions of interests in
HVO and Hail Creek, partly offset
by lower production at Prodeco
as equipment was reallocated to
additional overburden removal and
mine development activities. 2019
production guidance increase to
~145 million tonnes reflects a full
year’s contribution from HVO and
Hail Creek, and some planned ramp
up and business improvement
initiatives at existing operations.
Australian coking
Production of 7.5 million tonnes
was 1.4 million tonnes (23%) higher
than in 2017, reflecting recovery
from industrial action, in particular
at Oaky North, and the offsetting
impacts of the Tahmoor disposal
and Hail Creek acquisition.
Australian thermal and semi-soft
Production of 72.7 million tonnes
was 12.1 million tonnes (20%)
up on 2017, reflecting production
constraints in the base period
(both weather-related and industrial
action) and the incremental tonnes
from Glencore’s acquired interest
in the HVO joint venture.
South African thermal
Production of 27.3 million tonnes
was down 1.4 million tonnes (5%)
on 2017. Adjusting for the technical
accounting deconsolidation of
Wonderfontein (~4 million tonnes),
underlying production was up
by approximately 10%, mainly
reflecting productivity increases
at the Tweefontein and Izimbiwa
complexes.
Prodeco
Production of 11.7 million tonnes
was down 2.9 million tonnes (20%)
on 2017, due to a reallocation of
mining equipment from current
production to mine development
in order to secure longer-term
production and operating costs.
Reflective of work progression,
H2 production of 6.2 million tonnes
was 14% higher than H1.
Cerrejón
Attributable production of
10.2 million tonnes was broadly
in line with 2017.
Oil assets
Entitlement interest production
of 4.6 million barrels was 0.4 million
barrels (8%) below that recorded
in 2017, reflecting the Equatorial
Guinea fields being in a period of
natural decline, partly offset by an
11% increase in Chad production,
up 0.3 million barrels following the
recommencement of a drilling
programme in H2 2017.
Glencore Annual Report 2018
89
Strategic ReportFinancial statementsGovernanceAdditional information Agricultural
products
Glencore Agriculture
provides logistics, shipping
and handling services
for producers principally
in Canada and Australia.
It has a worldwide network
of crush plants, marketing
and distribution offices
Grain sold
(100% basis)
43.2mt
Oil/oilseeds sold
(100% basis)
31.1mt
Glencore Agri
Adjusted EBITDA
(100% basis)
Glencore’s share
of earnings
$484m
2017: $631m
$21m
2017: $99m
90
Glencore Annual Report 2018
Change in presentation
of reported financial results
During the year, the Glencore Agri
joint venture continued its transition
to a fully independent stand-alone
group through bedding down of its
independent governance structure
and the firm establishment of its
own stand-alone capital structure
and credit profile, including the
removal of all, but one (see note 10)
of the Group’s legacy guarantee
arrangements. As a result of its
increasing independence and
Glencore’s management evaluating
the segment’s financial performance
on a net return basis as opposed
to an Adjusted EBITDA basis, the
financial results of Glencore Agri are
no longer adjusted and presented
on a proportionate consolidation
basis, but rather are presented on a
basis consistent with its underlying
IFRS treatment (equity accounting).
Applicable 2017 comparative
segmental balances have been
restated to reflect these changes;
the underlying IFRS treatment
was consistent in both years.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Highlights
Poor crop sizes in Australia,
Argentina and Brazil (sugarcane),
dry spells in Europe over the summer
and trade tensions between the
US and China, impacted volumes
and compressed margins in various
distribution chains. In addition
to a smaller sugarcane crop, the
price fell by 25% on average year
over year. Our Canadian handling
operations performed well, as we
continue to compete effectively
in a well-supplied market through
best-in-class efficiency and service.
Overall Glencore Agri saw a 23%
reduction in standalone Adjusted
EBITDA and Glencore’s attributable
share of profits decreased by 79%
to $21 million.
US$ million
Adjusted EBITDA◊
Glencore’s attributable 50% share
of income◊
Market conditions
Selected average commodity prices
S&P GSCI Agriculture Index
CBOT wheat price (US¢/bu)
CBOT corn no.2 price (US¢/bu)
CBOT soya beans (US¢/bu)
ICE sugar # 11 price (US¢/lb)
Selected marketing volumes sold
Million tonnes
Grain
Oil/Oilseeds
Cotton and sugar
Processing/production data1
Farming
Crushing and long-term toll
agreement
Biodiesel
Wheat and rice milling
Sugarcane processing
Total agricultural products
1 Reported on a 100% basis.
Units
kt
kt
kt
kt
kt
kt
2018
484
21
2018
292
496
368
932
12
2018
43.2
31.1
1.5
2018
257
8,571
759
1,090
4,458
15,135
2017
631
99
2017
290
436
359
976
16
2017
45.3
29.6
1.2
2017
360
8,877
735
1,097
4,884
15,953
Change %
(23)
(79)
Change %
1
14
3
(5)
(25)
Change %
(5)
5
25
Change %
(29)
(3)
3
(1)
(9)
(5)
Glencore Annual Report 2018
Glencore Annual Report 2018
91
91
Additional informationFinancial statementsGovernance
92
Glencore Annual Report 2018
Corporate
Governance
Directors and officers
Chairman’s introduction
Corporate governance report
Directors’ remuneration report
Directors’ report
94
96
98
113
118
Glencore Annual Report 2018
93
Directors and officers
Directors
Experience
Dr Hayward is managing partner
of St James’s Asset Management
and Chairman of several private
equity firms.
He was CEO of BP plc from
2007–10, having joined BP in 1982.
He became group treasurer
in 2000, chief executive for BP
upstream activities and a member
of the main board of BP in 2003.
From 2011–15 he was CEO of
Genel Energy plc and chairman
from 2015–17.
Dr Hayward studied geology at
Aston University in Birmingham
and completed a Ph.D at
Edinburgh University. He is a
fellow of the Royal Society
of Edinburgh.
Experience
Mr Gilbert is co-chief executive
of Standard Life Aberdeen plc
(LON:SLA). Mr Gilbert was a
co-founder of Aberdeen Asset
Management, which was
established in 1983.
Mr Gilbert sits on the board
of directors of the Institute of
International Finance. He is also
a member of the international
advisory panel of the Monetary
Authority of Singapore and the
international advisory board
of British American Business.
He was appointed chairman
of the Prudential Regulation
Authority’s practitioner panel
in December 2013. He was the
deputy chairman of Sky plc
(LON:SKY) until October 2018.
Mr Gilbert was educated
in Aberdeen, has an MA in
Accountancy and an LLB and
is a Chartered Accountant.
Experience
Joined Glencore in September 1999
as general manager of finance and
treasury functions at Glencore’s
coal industrial unit. He moved
to Glencore’s head office in 2003
to oversee Glencore’s accounting
functions, becoming CFO in
June 2005. In November 2017
he was appointed as a director of
Katanga Mining Limited (TSX: KAT).
Mr Kalmin holds a Bachelor of
Business (with distinction) from
the University of Technology,
Sydney and is a member of the
Chartered Accountants Australia
and New Zealand and the Financial
Services Institute of Australasia.
Before joining Glencore, Mr Kalmin
worked for nine years at Horwath
Chartered Accountants.
Experience
Initially worked in Glencore’s
coal department in South Africa
as a marketer. Following time
in Australian and Asian offices,
in 1990 he was made head
of Glencore’s coal marketing
and industrial businesses,
and remained in this role
until he became Group CEO
in January 2002.
Mr Glasenberg is a Chartered
Accountant of South Africa, holds
a Bachelor of Accountancy from
the University of Witwatersrand
and an MBA from the University
of Southern California. He is
currently a non-executive
director of Rosneft (MCX:ROSN).
Experience
Before joining Glencore’s coal unit as
senior executive in 1994, Mr Coates
worked in senior positions in a range
of resource companies. He joined
Xstrata in 2002 as CEO of Xstrata’s
coal business, when Glencore sold
its Australian and South African
coal assets to Xstrata, and stepped
down in December 2007.
He was non-executive chairman
of Xstrata Australia (08–09), Minara
Resources Ltd from (08–11) and
Santos Ltd from (09–13 and 15–18).
He is currently a non-executive
director of Event Hospitality and
Entertainment Ltd (ASX:EVT).
Mr Coates holds a Bachelor of
Science degree in Mining Engineering
from the University of New South
Wales. He was appointed to the
Office of the Order of Australia in
June 2009 and awarded the
Australasian Institute of Mining
and Metallurgy Medal for 2010.
Experience
He was formerly company secretary
and general counsel of Informa plc
and before that a partner of CMS
in London specialising in corporate
law. Mr Burton holds a B.A. degree
in Law from Durham University.
He was admitted as a Solicitor in
England and Wales in 1990.
Ivan Glasenberg
Chief Executive
Officer (62)
H
Joined Glencore in April 1984;
Chief Executive Officer
since January 2002.
Peter Coates AO
Non-Executive
Director (73)
E H
Non-Executive Director
since January 2014; previously
Executive Director from
June to December 2013
and Non-Executive Director
from April 2011 to May 2013.
John Burton
Company
Secretary (54)
Appointed Company
Secretary in September 2011.
Anthony Hayward
Chairman (61)
I
N
E H
Chairman since May 2013; he
joined the Board in 2011 as the
Senior Independent Director.
Martin Gilbert
Senior Independent
Director (63)
I
R
A
Senior Independent Director
since May 2018; appointed
in May 2017
Officers
Steven Kalmin
Chief Financial
Officer (48)
Appointed as Chief Financial
Officer in June 2005.
94
Glencore Annual Report 2018
Experience
Mr Fischer is founder and
chairman of the investment
committee of DFG Deutsche
Fondsgesellschaft SE Invest.
He was CEO of BHF Kleinwort
Benson group S.A. from 2009–16,
before that CEO of Winterthur
group from 2003–06, and a
member of the executive board
of Credit Suisse group from
2004–07. He joined Credit
Suisse from Allianz, where he
had been a member of the
management board.
Mr Fischer holds an M.A. in
Finance from the University
of Georgia.
Experience
Ms Marcus was Governor
of the South African Reserve
Bank from 2009–14.
She worked in exile for the African
National Congress from 1970 before
returning to South Africa in 1990.
In 1994 she was elected to the
South African Parliament. In 1996
she was appointed as the deputy
minister of finance and from 1999
to 2004 was deputy governor
of the Reserve Bank. Ms Marcus
was the non-executive chair of
the Absa Group from 2007–09 and
has been a non-executive director
of Gold Fields Ltd and Bidvest.
She has acted as chair of a number
of South African regulatory bodies.
In 2018, she was appointed to the
Commission of Inquiry into the
S.A. Public Investment Corporation.
Ms Marcus is a graduate of the
University of South Africa.
John Mack
Non-Executive
Director (74)
R N
Appointed in June 2013.
Patrice Merrin
Non-Executive
Director (70)
I
E H
Appointed in June 2014.
Leonhard Fischer
Non-Executive
Director (56)
I
N R
A
Appointed in April 2011.
Gill Marcus
Non-Executive
Director (69)
A E N
Appointed in January 2018.
Notes
All the Directors are non-executive apart from Mr Glasenberg.
The non-executive Directors are designated as independent
apart from Mr Coates. Committee membership is as follows:
A Audit
E Ethics, Compliance and Culture
H
Health, Safety, Environment and Communities (HSEC)
I
Investigations
N Nomination
R Remuneration
denotes Committee chair
Experience
Mr Mack is the chairman of
Lantern Credit and a non-executive
director of Lending Club (NYSE:LC),
New Fortress Energy (NASDAQ:NFE)
and also serves on the board
of Tri Alpha. He also serves on the
board of Trustees of New York-
Presbyterian Hospital and the
University Hospitals of both
Columbia and Cornell.
Mr Mack previously served as
CEO of Morgan Stanley from
2005–09. He retired as chairman
in 2011. Mr Mack first joined
Morgan Stanley in May 1972,
becoming a board director
in 1987 and president in 1993.
From 2001 to 2005, Mr Mack
served as co-CEO of Credit Suisse.
Mr Mack is a graduate of
Duke University.
Experience
Following initial roles with
Molson and Canadian Pacific,
Ms Merrin worked at Sherritt
for ten years until 2004, latterly
as COO. She then became
CEO of Luscar, Canada’s largest
thermal coal producer. She
is currently a non-executive
director of Kew Media Group Inc.
(TSE:KEW) and Samuel, Son & Co.
Limited. She has been a director
and then chairman of CML
Healthcare, of Enssolutions,
NB Power, and Arconic. Ms Merrin
was a director of the Alberta
Climate Change and Emissions
Management Corporation from
2009 to 2014. Ms Merrin is a
graduate of Queen’s University,
Ontario and completed the
Advanced Management
Programme at INSEAD.
Board
diversity
Page 99
Glencore Annual Report 2018
95
Strategic ReportFinancial statementsGovernanceAdditional information
Chairman’s introduction
2018 was a mixed year for our Company. While we
delivered strong financial results and record cash
returns to shareholders, at the same time we were
faced with some material challenges
• In July we received a subpoena
from the US Department
of Justice (DOJ) to produce
documents and other records
with respect to compliance with
the Foreign Corrupt Practices Act
and US money laundering statutes.
In 2017, the Board established
a separate committee to oversee
the OSC investigation from Glencore
plc’s perspective. Following
receipt of the DOJ subpoena,
this committee was reconstituted
as the Investigations Committee
with an expanded remit to include
management and oversight of
the DOJ investigation so that it is
entirely separate from the Group’s
executives, who have no decision
making power concerning the
investigation
2. DRC Matters
There were three significant matters
which the Board had to address
in connection with the DRC:
• Katanga’s dispute with its DRC
government-owned partner
Gécamines which led to a
$5.6 billion recapitalisation
of the operating vehicle (KCC)
and settlement costs for
Katanga totalling $248 million
• The introduction of a new DRC
Mining Code which provides
for substantially increased taxes,
royalties and other onerous
provisions in contravention of
pre-existing stabilisation terms
• Litigation processes with affiliates
of Dan Gertler concerning
the effect of US sanctions on
Dan Gertler and his affiliates
on pre-existing payment
obligations to those entities
3. Rusal and En+
• In April the US Government
designated Rusal and En+ as
SDNs. Glencore had in place
various contracts with Rusal for
the purchase of Aluminium and
Alumina. It had also previously
Dear shareholders
I am pleased to present our corporate
governance report for 2018.
Your Board has overseen several
headwinds for the Group last year,
including:
On the financial side, although the
prices of most commodities ended
the year significantly lower than at
the beginning, average prices were
stronger than the prior year. This,
combined with volume growth in
copper and coal, was the main driver
behind an 8% increase in Adjusted
EBITDA of $15.8 billion which in
turn enabled us to make total cash
returns (including distributions, share
buy backs and share trust purchases)
in excess of $5.2 billion, while
net debt increased to $14.7 billion,
mainly to fund current year business
acquisitions. During the last year we
have grown the business through
delivery of major brownfield capital
projects and corporate transactions
on both the buy-side and sell-side.
Our world-class portfolio of assets
and marketing business stands us in
good stead for the uncertain market
conditions in the year ahead.
1. Regulatory Investigations
• The investigation by the Ontario
Securities Commission (OSC)
concerning Katanga, which began
in 2017, concluded in December
with the execution of a settlement
agreement by Katanga and
certain of its current and former
officers and directors. As part
of that settlement, Katanga
made a voluntary payment of
$22 million to the OSC. Katanga
also acknowledged that it had
misstated its financial position and
results, failed to maintain adequate
disclosure controls and adequate
internal controls and failed to
adequately describe certain risks
concerning corruption in the
DRC and reliance on associates
of Dan Gertler. The Board was
disappointed in the conduct that
led to this outcome and we have
implemented significant remedial
actions as a consequence
96
Glencore Annual Report 2018
signed a non-binding term sheet
with En+ regarding swapping
shares in Rusal for an interest in
En+. Glencore took various
measures to mitigate any risks to
its business as a result of the Rusal
and EN+ designation, including
determining not to proceed with
the EN+ exchange at that time
minister and official. Our latest
external Board evaluation process,
which has just been completed,
confirmed the effective operation
of the Board whose size and
composition I believe allows it to
function in an effective manner
for the benefit of the Group and
all its stakeholders.
Given the number and scale of
these challenges, the Board worked
closely with management in order
to ensure that suitable solutions
could be found in order to deal with
the relevant issues appropriately
in order to achieve outcomes in the
long-term interests of the Group.
During last year, a new 2018 UK
Corporate Governance Code was
published which is now in force.
Most of the changes appear to us
to be sensible and in particular the
Board looks forward to a new and
broader focus on the Group’s values,
culture and purpose, and the greater
employee and other stakeholder
engagement that the Code calls for.
As a result of these changes and
the Board’s greater focus on ethics
and compliance issues, we have
established a new permanent
committee of the Board, the Ethics,
Compliance and Culture Committee.
The new Code also requires greater
disclosure of a number of issues.
The 2019 Annual Report will reflect
all of these changes.
The Board continues to strengthen
and evolve. We again wish to thank
Peter Grauer for his five-year service
to the Board which ended last year.
Martin Gilbert has been appointed
as the Senior Independent Director,
bringing to that role his long
experience as both a leading career
asset manager and his significant
non-executive director experience.
In addition, Gill Marcus has brought
to the Board her long experience
as first a political activist and latterly
as a senior South African government
We are also acutely aware of the
obvious interest in management
succession. In addition to previous
changes to the leadership of our
aluminium team, we have also this
year seen the appointments of new
heads of the assets for copper, coal
and ferroalloys and new heads of
marketing in copper and ferroalloys.
Perhaps most significantly, Peter
Freyberg has been appointed to
a new position of responsibility for
all of the Group’s industrial mining
assets. The Nomination Committee
is appropriately extending its remit
under the new Code with regard
to management succession.
The HSEC Committee has continued
its considerable work on sustainability
matters. Certain challenges remain
at the forefront, particularly safety.
Last year the number of fatalities
at our operations rose to thirteen.
While we do operate various difficult
assets in challenging locations, this
is an unacceptable performance.
Although the Committee has
overseen various developments
in order to improve our safety
performance, clearly these have
not been sufficient and accordingly,
we are looking at new ways to achieve
a step change in performance.
The Committee has already begun
to engage with Peter Freyberg in
order to support him in ensuring
that real change is achieved.
Considerable work has also
been ongoing in relation to our
carbon strategy. As one of the
world’s largest diversified resource
companies, Glencore has a key
role to play in enabling transition
to a low-carbon economy. We do this
through our well-positioned portfolio
that includes copper, cobalt, nickel,
vanadium and zinc – commodities
that underpin energy and mobility
transformation. We believe this
transition is a key part of the global
response to the increasing risks
posed by climate change. We have
engaged with investor signatories
of the Climate Action 100+ initiative
on the additional steps we are taking
to further our commitment to this
critical transition (further details on
page 21). As an early supporter of the
voluntary guidance on consistent
climate related financial disclosures
produced by the Taskforce on
Climate-related Financial Disclosures,
we continue to disclose the metrics,
targets and scenarios we use to
assess and manage relevant climate-
related risks and opportunities.
We also recognise the importance of
continued reductions of greenhouse
gas emissions from our operations.
We are developing new, longer-term
targets based on policy and
technological developments that
support the goals of the Paris
Agreement.
While our Group continues
to face legacy challenges, your
Board believes that our people,
our industrial assets and marketing
businesses are industry-leading
and we continue to have confidence
in the long-term prospects of
the Group for the benefit of all
of its stakeholders.
Anthony Hayward
Chairman
28 February 2019
Glencore Annual Report 2018
97
Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report
This report should be read in conjunction with the Directors’
Report and the remainder of the Governance section
Board governance and structure
Overview
This governance report sets
out how Glencore has applied the
main principles of the UK Corporate
Governance Code (“the Code”) in a
manner which enables shareholders
to evaluate how these principles
have been applied. The Board
believes that the Company has
throughout the year complied with
all relevant provisions contained
in the Code, except for provision
A.4.1., which requires the Board to
appoint one of the Independent
Non-Executive Directors to be
the Senior Independent Director.
The position was vacant between
the time of Mr Peter Grauer’s
departure in March 2018 and the
appointment of Mr Martin Gilbert
as Senior Independent Director in
May 2018 and during Mr Gilbert’s
leave of absence from 16 May to
10 October 2018.
Ms Gill Marcus was appointed as a
Non-Executive Director on 1 January
2018. Mr Peter Grauer retired on 3
March 2018. Since then the Board
has comprised seven Non-Executive
Directors (including the Chairman)
and one Executive Director. A list
of the current Directors, with their
brief biographical details and
other significant commitments,
is provided in the previous pages.
The Chief Financial Officer attends
all meetings of the Board and Audit
Committee. The Company Secretary
attends all meetings of the Board
and its committees.
Division of responsibilities
As a Jersey incorporated company,
Glencore has a unitary Board,
meaning all Directors share equal
responsibility for decisions taken.
Glencore has established a clear
division between the respective
responsibilities of the Non-Executive
Chairman and the Chief Executive
Officer, which are set out in
a schedule of responsibilities
approved by the Board. While
the Non-Executive Chairman
is responsible for leading the
Board’s discussions and decision-
making, the CEO is responsible
for implementing and executing
strategy and for leading Glencore’s
operating performance and
day-to-day management.
The CEO and CFO have line of
sight across the Group. The CEO
is further supported by the Group’s
senior management team principally
comprising the General Counsel,
the heads of the businesses and
the head of strategy. The Company
Secretary is responsible for
ensuring that there is clear and
effective information flow to
the Non-Executive Directors.
Further details of these
responsibilities are set out opposite.
Board attendance throughout the year
Attendance during the year for all scheduled full agenda Board and all Board
Committee meetings is set out in the table below:
Board
of 6
Audit
of 4
Remuneration
of 2
Nomination
of 3
HSEC
of 5
Anthony Hayward1
Peter Coates
Leonhard Fischer
Martin Gilbert2
Ivan Glasenberg
Peter Grauer1
John Mack
Gill Marcus
Patrice Merrin2
6
6
6
4
5
1
6
6
6
–
–
4
3
–
1
–
4
1
–
–
2
1
–
–
2
–
1
2
–
3
–
–
1
3
3
–
5
5
–
–
4
–
–
–
5
1 Mr Grauer retired from the Board on 3 March 2018 and was present for all Board and Committee meetings
until that date. Subsequently, Dr Hayward was appointed as Chair of the Nomination Committee.
2 Mr Gilbert was granted a leave of absence between 16 May 2018 and 10 October 2018. During this period
Ms Merrin attended the Audit and Remuneration Committee meetings in his place.
In addition, there were another three limited agenda meetings of the Board.
98
Glencore Annual Report 2018
Roles and responsibilities
Chairman
• Leading the Board
• Shaping the culture in
the boardroom
• Promoting sound and effective
Board governance
• Ensuring effective communication
with shareholders
• Leading the annual performance
evaluation of the Board
Senior Independent Director
• Acting as confidant of the
Chairman and, when appropriate,
as an intermediary for other
independent Directors
• Acting as Chair of the Board if
the Chairman is unable to attend
• Leading the Chairman’s
performance appraisal along
with other independent Directors
• Answering shareholders’ queries
when usual channels of
communication are unavailable
Chief Executive Officer
• Leading the management team
• Developing the Group’s strategy
in conjunction with the Board
• Implementing the decisions
of the Board and its Committees
• Achieving the Group’s commercial
objectives
• Developing Group policies and
ensuring effective implementation
Other Non-Executive Directors
• Challenging the Chief Executive
Officer and senior management
constructively
• Bringing an independent mindset
and a variety of backgrounds and
experience around the Board table
• Providing leadership and
challenge as chairs or members
of the Board Committees, which
(except HSEC) comprise only
Non-Executive Directors
• Assisting the Senior Independent
Director in assessing the Chairman’s
performance and leadership
Company Secretary
• Ensuring that Board procedures
are complied with and that papers
are provided in sufficient detail
and on time
• Informing and advising the
Board on all governance matters
• Informing the Board on all
matters reserved to it
• Assisting the Chairman and the
Board regarding the annual
performance evaluation process
Board diversity
and experience
Tenure
Gender
1–2 yrs
3–6 yrs
7–9 yrs
10+ yrs
Male
Female
Tony
Hayward
British
Ivan
Glasenberg1
S. African
Martin
Gilbert
British
Leonhard
Fischer
German
Peter
Coates
Australian
John
Mack
American
Gill
Marcus
S. African
Patrice
Merrin
Canadian
Experience
Resources
Non-executive directorship
C-suite
Global transactions
Technical Skills
Leadership & Strategy
Financial Expertise
Ethics & Governance
Health & Safety
Investor Relations
Communications
& Reputation
Risk Management
1 Mr Glasenberg was appointed CEO and Director of Glencore International AG in 2002, and Glencore plc in 2011.
Senior Independent Director
Martin Gilbert is the Senior
Independent Non-Executive
Director. He is available to meet
with shareholders and acts as an
intermediary between the Chairman
and other independent Directors
when required. This division of
responsibilities, coupled with the
schedule of reserved matters for
the Board, ensures that no individual
has unfettered powers of decision.
Non-Executive Directors
The Company’s Non-Executive
Directors provide a broad range
of skills and experience to the
Board (see table above), which
assists in their roles in formulating
the Company’s strategy and in
providing constructive challenge
to executive management.
Glencore regularly assesses
its Non-Executive Directors’
independence. Except for Peter
Coates, due to his employment
by the Group during 2013, they are
all regarded by the Company
as Independent Non-Executive
Directors within the meaning
of “independent” as defined in the
Code and free from any business
or other relationship which could
materially interfere with the exercise
of their independent judgement.
Management of conflicts of interest
All Directors endeavour to avoid
any situation of conflict of interest
with the Company. Potential
conflicts can arise and therefore
processes and procedures are in
place requiring Directors to identify
and declare any actual or potential
conflict of interest. Any such
notifications are required to be
made by the Directors prior to,
or at, a Board meeting and all
Directors have a duty to update
the whole Board of any changes in
circumstances. Glencore’s Articles
of Association and Jersey law
allow for the Board to authorise
potential conflicts and the potentially
conflicted Director must abstain
from any vote accordingly. During
2018, no abstention procedures
for conflicts had to be activated.
Related Party Transactions
In the course of its business,
the Group enters into transactions
with organisations which may
constitute related parties.
All material related party
transactions are required to be
reviewed and approved by the
Board. In the event that a conflict
exists for a Director, he or she
will not be allowed to vote on the
resolution approving the transaction,
as noted above. Additionally,
the Board seeks advice whenever
an assessment is to be made as to
whether any material transaction
may be a related party transaction
under the terms of FCA Listing
Rule 11.
Transactions between the Group
and its significant joint ventures and
associates are summarised in Note
32 to the Financial Statements.
Acquisition and disposal of assets
The Board reviews and approves
all material proposed transactions,
including acquisitions and
disposals of assets. Additionally,
the Board assesses whether
material transactions comply with
FCA Listing Rule 10 requirements.
If required, the Board may
engage an independent third
party as consultant to review the
proposed transaction and provide
an independent opinion for the
Board to consider before making
a decision.
Glencore Annual Report 2018
99
Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
Board Committees
The following permanent
Committees are in place to assist
the Board in exercising its functions:
Audit, Nomination, Remuneration,
Health, Safety, Environmental and
Communities (“HSEC”). The Board
may also establish temporary
Committees for specific purposes,
such as the Investigations
Committee. As each Committee
reports to the Board, meetings
are held prior to Board meetings,
during which the chairman of
each Committee leads a discussion
concerning the Committee’s
activities since the previous
Board meeting.
In addition, the Board has
established a fifth permanent
Committee, the Ethics, Compliance
and Culture (“ECC”) Committee,
which began its work in 2019.
The ECC Committee takes
responsibility for ethics and
compliance in lieu of the audit
committee, and will also
oversee the Group’s culture
and related matters.
A report for 2018 from each
Chairman of the permanent
Committees is set out later in
this Corporate governance report.
All Committees’ terms of reference
are available at: glencore.com/
who-we-are/governance
Each Committee reports to, and
has its terms of reference approved
by, the Board and the minutes
of the Committee meetings are
circulated to the Board. Each
Committee regularly review its
terms of reference to ensure they
reflect the Board’s expectations
as to the Committee’s role.
In July 2018, following receipt of a
subpoena from the US Department
of Justice, the Board established
an Investigations Committee to
direct the Company’s response.
This Committee also took over the
responsibilities of the committee
established in 2017 to monitor
the investigation by the Ontario’s
Secretaries Commission into
allegations concerning Katanga
Mining Limited, which led to
the settlement by Katanga in
December 2018, as reported
on page 29.
Corporate Governance
Shareholders
Ongoing
engagement
Elect
Directors
Chief Executive Officer
and
Chief Financial Officer
Board of
Directors
Investigations
committee
ECC
committee
HSEC
committee
Audit
committee
Remuneration
committee
Nomination
committee
100
Glencore Annual Report 2018
Board meetings
The Board has approved a schedule
that sets out the matters solely
reserved for its approval, including
Group strategy, financial statements
and annual budget, risk appetite,
material acquisitions and disposals.
Meetings are usually held at the
Company’s headquarters in Baar,
Switzerland. Details of the Board
and Committee meetings held
during the year are detailed below.
The Board and its Committees
have standing agenda items to
cover their proposed business
at their scheduled meetings.
The Chairman seeks to ensure that
the very significant work of the
Committees feeds into, and benefits
as to feedback from, the full Board.
The Board and Committee meetings
receive support from senior
management through reports and
presentations, which among others
vary from operational, financial,
audit, risk, legal and compliance,
governance, and investor relations.
These reports and presentations
allow Directors to further their
understanding of the business and
provide the insights necessary for
defining the Company’s strategy and
objectives, in turn contributing to a
more effective Board. A summary
of the Board’s main activities during
2018 is set out on the next page.
Appointment and
re-election of Directors
All Directors will be offering
themselves for re-election at the
2019 AGM.
All of the Non-Executive Directors
have service agreements or
letters of appointment and the
details of their terms are set out in
the Directors’ remuneration report.
No other contract with the Company
or any subsidiary undertaking of the
Company in which any Director was
materially interested existed during
or at the end of the financial year.
Information, management
meetings, site visits and
professional development
It is considered of great importance
that the Non-Executive Directors
attain a good knowledge of the
Company and its business and
allocate sufficient time to Glencore
to discharge their responsibilities
effectively. The Board calendar
is planned to ensure that Directors
are briefed on a wide range of topics.
Board activities during 2018
Below are details of the main topics which were reviewed, discussed,
and when required, approved by the Board during 2018:
Regular updates
Financial & Risk
Strategy
• Chairman’s report
• Reports from
Committee Chairmen
• Reports from CEO, CFO,
Company Secretary,
General Counsel and
Senior Management
• Group performance report
• Customer performance
dashboard
• Finance reports, forecasts
and capital position updates
• 2019 budget/2020–22
business plan
• Dividend & buyback
programmes
• Financial statements
• Group risk appetite
• Group risk management
framework
Governance
& Stakeholders
• Annual report
• AGM and voting results
• Investor relations reports
• Analysts updates
• Corporate governance
framework
Legal, Regulatory
& Compliance
• Group policies
• Legal matters updates
and investigations
• Regulatory &
Compliance updates
• Group Compliance Programme
• Raising Concerns reports
• Strategic objectives
• Balance sheet and
shareholder returns
• M&A reviews
Health, Safety
& Environment
• Fatalities, major incidents
and other safety issues
• Environmental
incidents reports
• Human Rights and
Communities reports
• Carbon/Climate reports
Other activities
• Board and Directors’
performance
• Chairman’s performance
• Succession planning
Directors are also given the
opportunity to visit Group operations
and discuss aspects of the business
with employees, and regularly
meet the heads of the Group’s
main departments and other
senior executives. As well as internal
briefings, Directors attend appropriate
external seminars and briefings.
Meetings with heads of commodities
and other senior Group functions
take place alongside scheduled
Board meetings. In addition, in
order to better familiarise themselves
with the industrial activities, regular
site visits take place. During 2018
three operations were visited.
All Directors have access to the
advice and services of the Company
Secretary, who is responsible to
the Board for ensuring the Board
procedures are complied with, and
have access to independent and
professional advice at the Company’s
expense, where they judge this
to be necessary to discharge their
responsibilities as Directors.
Director induction and training
New Directors receive a full, formal
and tailored induction on joining
the Board, including meetings
with senior management.
The evaluation took place against
the backdrop of a difficult year
which has included major regulatory
investigations and several challenges
concerning the Group’s DRC assets.
The induction process for
Gill Marcus in 2018 provided a
comprehensive introduction to
the Group, its businesses and
the markets in which it operates;
the opportunity to meet with
Glencore employees, particularly
senior management; and a clear
appreciation of the Company’s
principal risks. In addition, training
was provided on the roles and
responsibilities of a UK listed
company director and the
Company’s Code of Conduct.
Board effectiveness
In the final quarter of 2018 an
evaluation was conducted by
Spencer Stuart, an external
board review specialist.
The Board was assessed as
performing well, with confidence
also in the effectiveness of its Audit
and HSEC Committees (its main
risk and oversight committees).
The evaluation was carried out
while the Board has been assessing
what changes should be put in
place to properly address the
requirements of the new UK
Corporate Governance Code and
therefore the recommendations
of the review partly reflect the
conclusions of those deliberations
– see details on the next page.
Glencore Annual Report 2018
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Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
External Board evaluation 2018
The Board is subject to an independent external
performance evaluation every three years. Evaluations
for 2016 and 2017 were conducted internally.
The Company engaged Spencer Stuart to conduct
the review which took place in Q4 2018.
The evaluation covered a broad range of areas
Board
Mechanics
Board
Composition
Board
Performance
Board
Committees
Board
Communication
Board and CEO
Succession Planning
Stakeholder
Relations
New Code
requirements
Overview of the process
Spencer Stuart
attended
Board and all
permanent
Committee
meetings
as observer
Spencer Stuart
interviewed
each Director
individually. They
also provided
commentary on
the Chairman’s
and their fellow
Directors’
performance
Spencer Stuart
also interviewed
the Chief
Financial Officer,
the General
Counsel and
the Company
Secretary
Spencer Stuart
interviewed
the lead
partner of the
Company’s
external
auditor and
representatives
of two
institutional
investors
Wide ranging
Board discussion
on the evaluation
report and
suitable actions
to reflect its
findings
Individual
feedback
shared with
each Director
including
the Chairman
(via the Senior
Independent
Director)
Outcome and outlook
Operation
of Board and
Committees
Increased focus
on compliance
and culture
Improving
engagement with
stakeholders
Succession
planning
Engagement
with investors
• Board and main
Committees
performing
effectively
• Incremental
improvements
to operation
and performance
discussed and
agreed
• Increased
scope of some
Committees
to reflect the
requirements of
the new Code
• Since January
• Appointing
• Board succession
2019, a dedicated
Board Committee
(the Ethics
Compliance
and Culture
Committee) has
been established
to oversee
compliance,
business ethics
and corporate
culture
• Co-operating
with DoJ on
its subpoena
Engagement
Directors who
will be responsible
for oversight
of engagement
with the Group’s
global workforce
plan now
concentrating
on the Directors
who will reach
the maximum
recommended
tenure
• Review
• CEO and senior
engagement
with other key
stakeholders
executives
succession
planning
to ensure
appropriate
transition of
executives
• Maintain open
and regular
dialogue with
investors and
stakeholders
• Consider
increased
engagement
from Senior
Independent
Director and
Committee
Chairmen
102
Glencore Annual Report 2018
Risk – Board leadership
The Board provides leadership and oversight on risk management. Specifically it:
1
provides a robust assessment
of the principal risks facing
the Group
The Board has carried out a robust
assessment of the principal risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity.
This assessment is essential in enabling
the Board to determine the Group’s
risk appetite, which is one of the critical
factors used when setting the Group’s
strategy and objectives. The Directors’
description of those risks and how
they are being managed or mitigated
is set out on pages 24–35.
2
reassesses the Group’s
long-term viability
Taking account of the Group’s
financial position and principal risks,
the Directors assess the prospects
of the Group and conclude whether
they have a reasonable expectation
that the Group will be able to continue
in operation and meet its liabilities as
they fall due over the period of their
assessment. Their conclusions are
set out on page 26.
3
monitors the Group’s risk
management and internal
control systems
The Board monitors the soundness
of the Group’s risk management
and internal control systems and
carries out regular reviews of their
effectiveness, including reviewing
the Group’s internal financial controls.
This monitoring and review covers all
material controls relative to financial,
operational and compliance functions.
Further details on pages 104–106.
Remuneration
Remuneration is covered in the
Directors’ remuneration report
which follows this section and
includes a description of the work
of the Remuneration Committee.
Diversity
The diversity policy which is
applied to appointments to our
administrative, management and
supervisory bodies with regard
to aspects such as, for instance,
age, gender, or education and
professional backgrounds is the
same as for all Group employees,
as described on page 47.
The Board is very cognisant
of the ongoing desire from
stakeholders for greater diversity
in senior management and boards.
In particular, leading UK institutional
shareholders have set a target
for women to comprise 30% of
senior management and boards
of FTSE100 companies by 2020.
While we support the aims of
diversity, we do not believe that a
one size fits all policy is appropriate.
Still today we find it challenging
to fill senior positions in remote
mining locations and for the
marketing of commodities,
by women.
Accountability and audit
Financial reporting
The Group has in place a
comprehensive financial review
cycle, which includes a detailed
annual planning/budgeting process
where business units prepare
budgets for overall consolidation
and approval by the Board.
The Group uses a large number of
performance indicators to measure
both operational and financial
activity in the business. Depending
on the measure, these are reported
and reviewed on a daily, weekly
or monthly basis. In addition,
management in the business
receives weekly and monthly
reports of indicators which are
the basis of regular operational
meetings, where corrective action
is taken if necessary. At a Group level,
a well-developed management
accounts pack, including income
statement, balance sheet, cash
flow statement as well as key
ratios is prepared and reviewed
monthly by management. As part
of the monthly reporting process,
a reforecast of the current year
projections is performed. To ensure
consistency of reporting, the Group
has a global consolidation system
as well as a common accounting
policies and procedures manual.
Management monitors the
publication of new reporting
standards and works closely with
our external auditors in evaluating
their impact, if any.
Risk management
and internal control
The Board has applied Principle
C.2 of the Code by establishing a
continuous process for identifying,
evaluating and managing the risks
that are considered significant
by the Group in accordance with
the revised Guidance on Internal
Control published by the Financial
Reporting Council. This process
has been in place for the period
under review and up to the date of
approval of the Annual Report and
financial statements. The process
is designed to manage and mitigate
rather than eliminate risk, and can
only provide reasonable and not
absolute assurance against material
misstatement or loss. The Directors
confirm that they have carried out
a robust assessment of the principal
risks facing the Group and have
reviewed the effectiveness of
the risk management and internal
control systems. This review
excludes associates of the Group
as Glencore does not have the ability
to dictate or modify the internal
controls of these entities. This report
describes how the effectiveness
of the Group’s structure of internal
controls including financial,
operational and compliance
controls and risk management
systems is reviewed.
Glencore Annual Report 2018
103
Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
Katanga – OSC Investigations
In November 2017, Glencore
announced the existence of a
formal investigation launched by
the Ontario Securities Commission
(“OSC”) into Katanga Mining Limited
(“Katanga”), following the completion
by Katanga of an internal review
of certain of its historic accounting
and the restatement of Katanga’s
financial statements.
In December 2018, Katanga and
the OSC entered into a settlement
agreement as described on page 29.
Since the start of the investigation,
Glencore has implemented various
structural and control changes
across its wider copper department
to enhance and strengthen its
financial processes and procedures.
Additionally, It has also improved
its compliance programme across
the Group.
Approach to risk management
Effective risk management is
crucial in helping the Group achieve
its objectives of preserving its
overall financial strength for the
benefit of all stakeholders, and
safeguarding its ability to continue
as a going concern, while generating
sustainable long-term profitability.
Spanning the organisational
structure, Glencore’s disciplined
approach to risk management
and control originates with strategic
responsibility in the hands of the
Board, which also retains operational
authority on matters exceeding
agreed thresholds of materiality.
The Board retains the authority
for assessing and approving the
Group’s overall risk appetite and sets
overall limits which are reviewed
annually. It is assisted by the work of
the Audit Committee for oversight
and by senior management for
day-to-day operational matters,
in order to maintain an effective
risk management governance
apparatus for the Group.
Additionally, the Group General
Counsel, in his capacity of
Head of Compliance, reports at
each scheduled meeting of the
ECC Committee (formerly to the
Audit Committee) on all material
compliance risks and matters.
Risk Management Framework
Management engagement
The Company’s senior management
reviews the major risks facing the
Group and decides if the level of risk
fits within the appetite approved
by Board or whether further steps
need to be taken to mitigate
these risks.
Together, central and business
management risk culture aims
to strike an appropriate balance
between the level of risk assumed
and the expected return.
Board committees
The Audit Committee is responsible
for reviewing the risk management
framework and internal controls.
Mandated by the Board, the
Audit and HSEC Committees were
responsible in 2018 for ensuring
that the significant risks identified
are properly managed. From 2019,
the ECC Committee assumes the
compliance and ethics remit.
Group functions
Group functions (Risk Management,
Compliance, Legal and Sustainable
Development) support the Business
Risk Owners and senior management
in mitigating risk across the Group.
Internal Audit
Internal Audit, as an independent
assurance provider, reviews the risk
management process and internal
controls established by management.
A risk-based audit approach
is applied in order to focus on
high risk areas during the audit
process. It involves discussions
with management on key risk
areas identified in the business
risk registers, emerging risks,
operational changes, new
investments and capital projects.
Risk Management Framework
• Risk culture
• Risk strategy and appetite
• Risk governance
Oversight
Tone from
the top
• Board of Directors
• Audit Committee
• HSEC Committee
• Ethics, Compliance and Culture Committee1
• Risk organisation
• External disclosure
• Risk monitoring and reporting
Infrastructure
People
Process
Technology
• Management team (executive)
• Group functions (incl. Compliance)
• Internal Audit
• HSEC Assurance
• Risk identification
• Risk assessment
• Risk management
Identify
Measure
Mitigate
Control
Report
Risk process
• Business segments
and functions
Marketing
risk process
Industrial
risk process
HSEC
risk process
• Principal risks
and uncertainties
(see pages 24–35)
External
Business
Sustainability
Prices; Supply
& demand
Legal &
Regulatory
Operating
Credit
Catastrophes
HSEC
1 Effective from 1 January 2019.
104
Glencore Annual Report 2018
The key results from this process
are forming the audit plan and
scope, which are reported to
the Audit Committee for their
review and ratification.
Industrial risk management
We believe that every employee
should be accountable for the risks
related to their role. As a result,
we encourage our employees
to escalate risks (not limited
to hazards), whether potential
or realised, to their immediate
supervisors. This enables risks to
be tackled and mitigated at an
early stage by the team with
the relevant level of expertise.
The management teams at
each industrial operation are
responsible for implementing
processes that identifies,
assesses and manages risk.
Any significant risks are reported
to Management and the Audit or
HSEC Committee as appropriate.
A Corporate Risk Management
Framework is implemented
on a Group-wide basis to ensure
consistency in the assessment
and reporting of risks.
The risks that may impact on
business objectives and plans
are maintained in a business risk
register. They include strategic,
compliance, operational and
reporting risks.
HSEC risk management
These risk management
processes are managed at asset
level, with the support and guidance
from the central sustainability
and HSEC teams, and subject
to the leadership and oversight
of the HSEC Committee.
The Group’s internal assurance
programme assesses compliance
with leading practices in health
and safety, environment and
communities, but mainly
focuses on catastrophic risks.
Further information is provided
in the report from the HSEC
Committee below and will
be published in the Group’s
sustainability report for 2018.
Marketing risk management
Glencore’s marketing activities are
exposed to a variety of risks, such
as commodity price, basis, volatility,
foreign exchange, interest rate,
credit and performance, liquidity
and regulatory. Glencore devotes
significant resources to developing
and implementing policies and
procedures to identify, monitor
and manage these risks.
Glencore has a disciplined and
conservative approach to Marketing
Risk (“MR”) management supported
by its flat organisational structure.
Glencore continues to update and
implement policies that are intended
to mitigate and manage commodity
price, credit and other related risks.
Glencore’s MR is managed at
an individual, business and central
level. Initial responsibility for risk
management is provided by the
businesses in accordance with and
complementing their commercial
decision-making. A support,
challenge and verification role is
provided by the central MR function
headed by the Chief Risk Officer
(“CRO”) via its daily risk reporting
and analysis which is split by
market and credit risk.
The CEO, as the central figure of
commercial leadership and control,
drives functional risk management
policy, supported by the CFO and
the CRO, with data and reporting
from the central risk team and
the other key functional units.
In turn the CEO reports to, and
seeks authority limits from, the
Board. The main oversight role is
performed by the Audit Committee
which receives a report from the CRO
at each of its scheduled meetings.
It also approves the Group-wide
risk profile, and any exceptions to
agreed positional thresholds.
At the heart of the risk management
regime is the process of continuous
challenge that takes place
between the CEO, the CRO and
the business heads which sets risk
appetite in accordance with Group
requirements and market conditions
for each commodity, subject to
the Audit Committee’s oversight.
The objective is to ensure that an
appropriate balance is maintained
between the levels of risk assumed
and expected return, which relies
on the commodity-specific expert
knowledge provided by business
heads. This is then subject to
challenge from the CEO based on
his overall Group knowledge and
experience. This healthy tension
is designed to manage risk
effectively while facilitating the
fast, commercial decision-making
that is required in a dynamic
commodity marketing company.
Another important consideration
of the MR team is the challenge
of dealing with the impact of large
transactional flows across many
locations. The function seeks
to ensure effective supervision
by its timely and comprehensive
transaction recording, ongoing
monitoring of the transactions and
resultant exposures, providing all
encompassing positional reporting,
and continually assessing universal
counterparty credit exposure.
Key focus points
Market Risk limits and reporting
The MR team provides a wide
array of daily and weekly reporting.
For example, daily risk reports
showing Group Value at Risk (“VaR”)
as shown on page 107 and various
other stress tests and analysis are
distributed to the CEO, CFO and
CRO. Additionally, business risk
summaries showing positional
exposure and other relevant metrics,
together with potential margin call
requirements, are also circulated daily.
The MR function strives to enhance
its stress and scenario testing as well
as improving measures to capture
risk exposure within the specific
areas of the business, e.g. within
metals, concentrate treatment and
refining charges are analysed.
Credit Risk Management
The Group continues to
make extensive use of credit
enhancement tools, seeking
letters of credit, insurance cover,
discounting and other means
of reducing credit risk from
counterparts. In addition, mark-to-
market exposures in relation to
hedging contracts are regularly
and substantially collateralised
(primarily with cash) pursuant to
margining agreements in place
with such hedge counterparts.
Glencore Annual Report 2018
105
Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
Dealing with requirements arising
from recent regulatory reform,
Glencore continued to implement
the requirements of financial
regulatory reform, including:
• The European Market Abuse
Regulation (MAR) which affects
the protection and disclosure
of inside information and the
prevention of market manipulation
• The Dodd-Frank Act, the
European Market Infrastructure
Regulation (EMIR) and the Swiss
Financial Market Infrastructure Act
(FMIA) which affect in particular
the areas of risk mitigation
(trade confirmation timeframes,
portfolio reconciliation, portfolio
compression and dispute
resolution) and trade reporting
Upcoming financial regulatory
reform proposals or requirements
include:
• Further requirements under
EMIR including mandatory
clearing and margining
requirements
• Further requirements under FMIA
including trade reporting, risk
mitigation, margin requirements
and mandatory clearing
• MIFID II including EU
authorisations and position limits
The impact of certain aspects of
these and other new regulations
to commodity market participants is
potentially considerable. The impact
on our marketing business will
largely be in the form of compliance
requirements (with associated costs),
rather than meaningful commercial
limitations. Glencore’s compliance,
finance, IT and risk teams continue to
work together in monitoring
and advising management on
these developments.
Internal Audit
Glencore has a dedicated Internal
Audit Activity reporting directly
to the Audit Committee. The role
of Internal Audit is to evaluate
and improve the effectiveness of
risk management, control, and
business governance processes,
and thus enhance and protect
organisational value.
Internal Audit reviews areas of
potential risk within the business
and suggests control solutions
to mitigate exposures identified.
The Audit Committee considers
and approves the risk-based audit
plan, areas of audit focus and
resources and is regularly updated
on audits performed and relevant
findings, as well as the progress on
implementing the actions arising.
In particular, the Committee
considered Internal Audit’s main
conclusions, its KPIs and the
effectiveness and timeliness
of management’s responses to
its findings.
The Audit Committee has
concluded that the Internal
Audit function remains effective,
taking into account the successful
review undertaken in 2017
by KPMG. As part of this work,
it considered the function’s
management framework and
its improvement programme.
Interactions with shareholders
The Board aims to present a
balanced and clear view of the
Group in communications with
shareholders and believes that
being transparent in describing
how we see the market and
the prospects for the business
is extremely important.
We communicate with
shareholders in a number of
different ways. The formal reporting
of our full- and half-year results
and quarterly production reports
is achieved through a combination
of releases, presentations, group
calls and individual meetings.
The full- and half-year reporting
is followed by investor meetings
in a variety of locations where
we have institutional shareholders.
We also regularly meet with existing
and prospective shareholders to
update or to introduce them to the
Company and periodically arrange
visits to parts of the business to give
analysts and major shareholders
a better understanding of how
we manage our operations. These
visits and meetings are principally
undertaken by the CEO, CFO and
senior members of the Investor
Relations team and an array
of business heads. In addition,
The Group-wide Credit Risk Policy
governs higher levels of credit
risk exposure, with an established
threshold for referral of credit
decisions by business heads
to the CFO and the CEO (relating
to unsecured amounts in
excess of $75 million with BBB
(or equivalent) or lower rated
counterparts). At lower levels of
materiality, decisions may be taken
by the business heads where key
strategic transactions or established
relationships suggest that an
open account exposure may
be warranted.
Compliance Risk
The Group has dedicated Legal
and Compliance resources to assist
Group businesses in complying
with regulatory obligations and
internal policies, procedures
and guidelines.
A Group compliance risk register
is maintained by Group Compliance
to identify, assess and evaluate
compliance risks. The risks
identified in the Group compliance
risk register are considered when
drafting policies and procedures
applicable to the business. Group
Compliance conducts local/office
compliance risk assessments at
appropriate intervals to understand
and record compliance risks faced
by individual operations as well
as the controls necessary to
mitigate them.
Group Compliance accounts
for changes and external factors
affecting the business which may
create compliance risk, and avoids
preconceptions regarding control
effectiveness or integrity of
employees or third parties.
Furthermore, the Group conducts
training and awareness, with
active monitoring.
Systems and reporting
The Group has not yet identified
a single trading system able
to manage the broad range of
requirements that its different
business profiles operate within.
Therefore, interfacing with multiple
source systems and transferring
data from one system to another
heightens risks relative to data
integrity, granularity, consistency
and timeliness.
106
Glencore Annual Report 2018
many major shareholders have
meetings with the Chairman
and appropriate senior personnel
of the Group including other
Non-Executive Directors, the
Company Secretary and senior
Sustainability managers.
AGM
The Company’s next AGM is due
to be held in Zug on 9 May 2019.
Full details of the meeting will
be set out in the AGM notice
of meeting, which will be sent to
shareholders in April. Shareholders
unable to attend are encouraged
to vote by proxy as detailed in
the notice.
All documents relating to
the AGM will be available on
the Company’s website at:
glencore.com/agm
Value at risk
The Group monitors its commodity
price risk exposure by using a
VaR computation assessing “open”
commodity positions which are
subject to price risks. VaR is one
of the risk measurement techniques
the Group uses to monitor and limit
its primary market exposure related
to its physical marketing exposures
and related derivative positions.
VaR estimates the potential loss in
value of open positions that could
occur as a result of adverse market
movements over a defined time
horizon, given a specific level of
confidence. The methodology is
a statistically defined, probability
based approach that takes into
account market volatilities, as well
as risk diversification benefits by
recognising offsetting positions and
correlations between commodities
and markets. In this way, risks can
be compared across all markets
and commodities and risk
exposures can be aggregated
to derive a single risk value.
Last year, the Board approved
the Audit Committee’s
recommendation of a one day,
95% VaR limit of $100 million for
2018, consistent with the previous
year. This limit is subject to review
and approval on an annual basis.
The purpose of this Group limit
is to assist senior management
in controlling the Group’s overall
risk profile, within this tolerance
threshold. During 2018 Glencore’s
reported average daily VaR was
approximately $33 million, with
an observed high of $76 million
and a low of $16 million.
There were no breaches in the
limit during the year.
The Group remains aware
of the extent of coverage of risk
exposures and their limitations.
In addition, VaR does not purport
to represent actual gains or
losses in fair value on earnings
to be incurred by the Group, nor
are these VaR results considered
indicative of future market
movements or representative
of any actual impact on its future
results. VaR remains viewed in the
context of its limitations; notably,
the use of historical data as a
proxy for estimating future events,
market illiquidity risks and risks
associated with longer time
horizons as well as tail risks.
Recognising these limitations the
Group complements and refines
this risk analysis through the use
of stress and scenario analysis.
The Group regularly back-tests
its VaR to establish adequacy of
accuracy and to facilitate analysis
of significant differences, if any.
The Board has again approved
the Audit Committee’s
recommendation of a one day,
95% VaR limit of $100 million
for 2019.
VaR development ($m)
80
70
60
50
40
30
20
10
0
Jan
2018
Mar
2018
May
2018
Jul
2018
Sep
2018
Nov
2018
● Metals and minerals
● Energy products
● Agricultural products
Glencore Annual Report 2018
107
Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
Mr Fischer and Ms Marcus served
throughout the year. Mr Gilbert
was granted a leave of absence
from the Board between May and
October 2018. During that period,
Ms Merrin served as member of the
Committee. Mr Peter Grauer retired
in March 2018, and participated in
one meeting prior to this date. All
are considered to be Independent
Non-Executive Directors and
deemed to be financially literate by
virtue of their business experience.
Additionally, all Committee members
are considered by the Board to
have recent and relevant financial
experience and have competence
in accounting. The Committee held
four scheduled meetings during
the year, which all the then current
Committee members attended.
John Burton is Secretary to
the Committee.
Governance processes
The Audit Committee usually invites
the CEO, CFO, General Counsel,
Group Financial Controller, CRO
and Head of Internal Audit and
the lead partner from the external
auditor to attend each meeting.
Other members of management
and the external auditor may
attend as and when required.
Other Directors also usually attend
its meetings. The Committee
also holds private sessions with
the external auditors and the Head
of Internal Audit without members
of management being present.
The Committee has adopted
guidelines allowing non-audit
services to be contracted with the
external auditors on the basis set
out below.
Role, responsibilities
and main activities
The primary function of the Audit
Committee is to assist the Board
in fulfilling its responsibilities
with regard to financial reporting,
external and internal audit, risk
management and controls.
• Considering the scope and
methodologies to determine the
Company’s going concern and
longer-term viability statements
• Reviewing and agreeing the
preparation and scope of the
year-end reporting process
• Considering applicable regulatory
changes to reporting obligations
• Evaluating the Group’s procedures
for ensuring that the Annual
Report and accounts, taken as
a whole, are fair, balanced
and understandable
• Reviewing the Group’s financial
and accounting policies and
practices including discussing
material issues with management
and the external auditors,
especially matters that influence
or could affect the presentation
of accounts and key figures
• Reviewing Glencore’s internal
financial and compliance
controls and internal controls
and risk management systems
• Considering the output from
the Group-wide processes
used to identify, evaluate
and mitigate risks, including
credit and performance risks,
across the industrial and
marketing activities
• Monitoring and reviewing
the effectiveness of Glencore’s
internal controls for which there
were no significant failings or
weaknesses noted
• Determining the global audit
plan, scope and fees of the audit
work to be undertaken by the
external auditor
• Recommending to the Board
a resolution to be put to the
shareholders for their approval
on the appointment of the
external auditor and to authorise
the Board to fix the remuneration
and terms of engagement of
the external auditor
During the year, the Committee’s
principal work included the following:
• Reviewing the full-year (audited),
and half-year (unaudited), financial
statements with management
and the external auditor
• Monitoring the independence
of the external auditor and
reviewing the operation of
the Company’s policy for the
provision of non-audit services
by it
Audit Committee
report
Chairman
Leonhard Fischer
Other members
Martin Gilbert
Gill Marcus
108
Glencore Annual Report 2018
• Considering and approving
two assignments above the
approval threshold with the
external auditors in respect
of non-audit services
• Evaluating the effectiveness
of the external auditor
• Reviewing the Internal Audit
department’s annual audit plan
and reviewing the effectiveness
of the Internal Audit function
• Reviewing reports on
the operation of the Group’s
Compliance programme,
including material reports under
the Group’s Raising Concerns
whistleblowing programme
Risk analysis
The Committee receives reports
and presentations at each meeting
on management of marketing and
other risks (excluding sustainability
risks which are reviewed by the
HSEC Committee) and at least
once a year considers an in-depth
study of the perceived main risks
and uncertainties and the Group’s
risk management framework
as a whole.
Significant issues related
to the financial statements
The Committee assesses whether
suitable accounting policies
including the implementation
of new accounting standards –
IFRS 9 ‘Financial Instruments’ and
IFRS 15 ‘Revenue from Contracts
with Customers’ have been adopted
and whether management has
made appropriate estimates and
judgements. They also review
the external auditor’s reports
outlining audit work performed
and conclusions reached in respect
of key judgements, as well as
identifying any issues in respect
of these.
During the year, the Committee
has focused in particular on these
key matters:
1. DRC Developments
The Committee considered
the impacts of the 2018 Mining
Code, which became effective on
10 July 2018, including the provisions
relating to mining permits and
renewals, royalties and taxation
and additional regulatory controls.
The Committee noted that Glencore
has advised the DRC authorities
that immediate introduction of
the 2018 Mining Code is in breach
of the pre-existing stabilisation
provisions. The Group will comply
with the code’s provisions “under
protest” to avoid penalties for non
compliance while it investigates
its various options.
2. Acquisitions and disposals
Accounting for acquisitions
involves significant management
judgements and estimates.
In 2018, the Committee analysed
the accounting treatment of
the Hail Creek and HVO (coal),
Volcan (zinc), and ALE Combustiveis
(oil downstream) acquisitions
and the dissolution of the QIA
and Rosneft strategic partnership.
3. Impairment
The Committee considered
whether the carrying value of
goodwill, industrial assets, physical
trade positions and material loans
and advances may be impaired
as a result of commodity price
volatility and some asset specific
factors. The Committee reviewed
management’s reports, outlining
the basis for the key assumptions
used in calculating the recoverable
value for the Group’s assets.
Future performance assumptions
used are derived from the Board
approved business plan. As part
of the process for approval of
this plan, the Committee considered
the feasibility of strategic plans
underpinning future performance
expectations, and whether they
remain achievable. Considerable
focus was applied to management’s
commodity price and exchange
rate assumptions and their
sensitivities within the models.
Assets based in DRC and Zambia
were subject to particular scrutiny.
The Committee discussed with
the external auditor their work
in respect of impairment review,
which was a key area of focus
for them.
4. Taxation
Due to its global reach, including
operating in high risk jurisdictions,
the Group is subject to enhanced
complexity and uncertainty
in accounting for income taxes,
particularly the evaluation of tax
exposures and recoverability
of deferred tax assets. The
Committee has engaged with
management to understand the
potential tax exposures globally
and the key estimates taken
in determining the positions
recorded, including the status
of communications with local
tax authorities and the carrying
values of deferred tax assets.
5. Counterparty exposures
The Group’s global operations
expose it to credit and performance
risk, which result in the requirement
to make estimates around
recoverability of receivables, loans,
trade advances and contractual
non-performance. As part of an
ongoing review, the Committee
considered material continuing
exposures, the robustness of
processes followed to evaluate
recoverability and whether the
amounts recorded in the financial
statements are reasonable.
Following its analysis of these
matters, the Committee satisfied
itself that the estimates made
by management are reasonable
and that financial statements
disclosures included in the
accounts are appropriate.
Compliance
The Committee monitored
the effectiveness of Compliance
controls through the reports
it received from management
at every meeting. These reports
focus on key compliance risks to
the Group, such as anti-corruption,
sanctions and money-laundering.
They also cover updates to the
Group Compliance programme,
including its policies, procedures
and guidelines, as well as updates
on the training and awareness
activities across the Group.
These responsibilities have now
been transferred to the new
Ethics, Compliance and Culture
Board Committee.
Glencore Annual Report 2018
109
Strategic ReportFinancial statementsGovernanceAdditional information The Committee has determined
that it is satisfied that the
work of Deloitte LLP is effective,
the scope is appropriate and
significant judgements have been
challenged robustly by the lead
partner and team. Additionally,
there are no contractual restrictions
on the Company’s choice of
external auditor. The Committee
has therefore recommended to
the Board that a proposal be put
to shareholders at the forthcoming
AGM for the reappointment of
Deloitte LLP as external auditor.
Leonhard Fischer
Chairman of the
Audit Committee
28 February 2019
Corporate Governance report continued
Internal Audit
The Committee monitored the
internal audit function as described
under Internal Audit on page 106.
External Audit
The Committee has evaluated
the effectiveness of the external
auditor and as part of this
assessment, has considered:
• The steps taken by the auditor
to ensure their objectivity
and independence
• The deep knowledge of the
Company which enhances
Deloitte’s ability to perform
as external auditor
• Competence when handling
key accounting and audit
judgements and ability to
communicate these to the
Committee and management
• The extent of the auditor’s
resources and technical
capability to deliver a robust
and timely audit including
consideration of the qualifications
and expertise of the team
• Auditor’s performance
and progress against the
agreed audit plan, including
communication of changes
to the plan and identified risks
and the proven stability that
is gained from the continued
engagement of Deloitte as
external auditor
• The benefit of lead audit
partner rotation
The Committee assesses the quality
and effectiveness of the external
audit process on an annual basis
in conjunction with the senior
management team. Key areas of
focus include consideration of the
quality and robustness of the audit,
identification of and response
to areas of risk and the experience
and expertise of the audit team,
including the lead audit partner.
Provision of non-audit services
by the external auditor
The Group’s policy on non-audit
services provided by the external
auditor is designed to ensure the
external auditor independence
and objectivity is safeguarded.
A specified wide range of services
may not be provided as they have
the potential to impair the external
auditor’s independence (Excluded
Services). The Audit Committee’s
approval is required for (1) any
Excluded Service (2) any other
engagement where either (i) the
fee is contingent, (ii) the fee may
exceed $500,000, or (iii) where
the fees for all non-audit work may
exceed $15 million in a particular year.
Subject to these restrictions and
other safeguards in the policy, the
external auditor may be permitted
to provide certain non-audit services
when it is concluded that they are
the most appropriate supplier due
to efficiency and status as a leading
firm for those specific services.
For 2018, fees paid to the external
auditor were $30 million, the total
non-audit fees of which were
$6 million; further details are
contained in note 29 to the
financial statements.
Reappointment of the
external auditor
Deloitte has been the auditor of
the listed entity since its IPO in 2011.
In 2018, a lead audit engagement
partner rotation occurred.
Since Mr Fischer will step down
from the Board by the 2020 AGM,
a new chairman of the Audit
Committee will be appointed,
probably with effect from that date.
The Audit Committee has concluded
that an audit tendering process
should be led by its new chair.
Accordingly following that
appointment the Committee
will determine the timetable for
a tender process.
110
Glencore Annual Report 2018
Nomination Committee
report
Chairman
Anthony Hayward
Other members
John Mack
Leonhard Fischer
Gill Marcus
Mr Mack, Mr Fischer and Ms Marcus
served on the Committee
throughout the year. Dr Hayward
was appointed as Chairman of
the Committee in May 2018 and
attended two meetings during
the year. Mr Peter Grauer retired
in March 2018, and participated
in one meeting prior to this date.
The Committee only comprises
Independent Non-Executive
Directors. The Committee met
three times during the year and
all members attended these
meetings, when eligible. In
addition, some of the discussions
and deliberations in respect of the
matters summarised below were
carried out at Board meetings.
John Burton is the Secretary of
this Committee.
Roles and responsibilities
The main responsibilities of the
Nomination Committee are to
assist the Board with succession
planning and with the selection
process for the appointment
of new Directors, both Executive
and Non-Executive, including
the Chairman. This involves:
• Evaluating the balance and
skills, knowledge and experience
of the Board and identifying
the capabilities required for
a particular appointment
• Overseeing the search process
• Evaluating the need for Board
refreshment and succession
planning generally
Main activities
The Committee focused on
two main tasks during this year.
Firstly, prior to the notice of
2018 AGM being compiled,
the Committee considered the
performance of each Director.
It concluded that each Director
is effective in their role and
continues to demonstrate the
commitment required to remain
on the Board. Accordingly, it
recommended to the Board that
re-election resolutions be put for
each Director at the 2018 AGM.
Secondly, the Committee
considered the composition
of the Board and refreshment.
The Committee continued its
work on succession planning.
The Committee notes
the recommendations of the
Hampton Alexander Review on
gender and the Parker Review
on ethnic diversity. It is part of
the Committee’s policy when
making new Board appointments
to consider the importance of
diversity on the Board, including
gender and ethnicity. This is
considered in conjunction with
experience and qualifications.
Anthony Hayward
Chairman of the
Nomination Committee
28 February 2019
Glencore Annual Report 2018
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Strategic ReportFinancial statementsGovernanceAdditional information Corporate Governance report continued
The Committee met five times
during the year. Each Committee
member served throughout
the year and attended all of the
meetings, except for one meeting
that Mr Glasenberg could not attend.
Every scheduled meeting had a
substantial agenda, reflecting the
Committee’s objective of monitoring
the achievement by management
of ongoing improvements in HSEC
performance. John Burton is the
Secretary of this Committee.
Responsibilities
The main responsibilities of the
Committee are:
• Provided leadership for
catastrophic hazard management
which is the most important
non-financial risk management
issue for the Group
• Continued oversight of
the SafeWork programme
implementation, focusing on
identification of fatal hazards
and an appropriate safety culture
• Oversaw the operation of the
Group’s assurance programme
for sustainability matters with
an emphasis on catastrophic
hazards and approved the
assurance plan for 2019
• Ensuring that appropriate
• Provided ongoing support for
management’s carbon/climate
policies. This included reviewing
the work of the climate change
working group, chaired by
Dr Hayward
• Considered engagement with
communities and NGOs on
sustainability matters
• Reviewed and oversaw the
Group’s sustainability report
• Held an investor roadshow
to inform and receive feedback
on the Company’s sustainable
development strategy and
approach to HSEC management
• Advised on the programme
and hosted the internal HSEC
Summit for the year, and
• Considered a variety of other
material HSEC issues such as
resettlement programmes,
incident reporting and
health strategy
Peter Coates
Chairman of the
HSEC Committee
28 February 2019
Group policies are developed
in line with our Values and Code
of Conduct for the identification
and management of current
and emerging health, safety,
environmental, community
and human rights risks
• Ensuring that the policies
are effectively communicated
throughout the Company
and that appropriate processes
and procedures are developed
at an operational level to comply
and evaluate the effectiveness
of these policies through:
– assessment of operational
performance
– review of updated internal
and external reports
– independent audits and reviews
of performance in regard to
HSEC matters, and action plans
developed by management
in response to issues raised
• Evaluate and oversee the quality
and integrity of any reporting
to external stakeholders
concerning HSEC matters
• Reporting to the Board
Main activities
During the year, the Committee:
• Reviewed and approved the
Group’s HSEC strategy
• Continued its work on reducing
fatalities, especially at the higher
risk assets. For this purpose it
received a report on, reviewed
and made recommendations
in respect of, each fatality
Health, Safety,
Environment
& Communities
(HSEC) report
Chairman
Peter Coates
Other members
Ivan Glasenberg
Anthony Hayward
Patrice Merrin
112
Glencore Annual Report 2018
Directors’ remuneration report
For the year ended 31 December 2018
Chairman
John Mack
Other members
Leonhard Fischer
Martin Gilbert
Introduction
On behalf of the Remuneration Committee,
I am pleased to present our Directors’
Remuneration Report for the year ended
31 December 2018. Consistent with prior years,
we have sought to make this report as short,
simple and straightforward as possible.
This report is prepared in full compliance with
applicable UK rules, unless stated otherwise.
Accordingly, over the following pages, we have
set out details of the implementation of our
reward policy in 2018 including the governance
surrounding pay decisions, members of the
Committee and its advisers and details of
what was paid to Directors during the year.
At the 2018 AGM, shareholders approved the
Directors’ Remuneration Report (excluding
the Directors’ Remuneration Policy) with a
vote of almost 99% in favour.
The Committee continues to ensure that
the Directors’ Remuneration Policy and its
implementation are attractive to shareholders
in reflecting good governance, reasonable
terms and complete transparency.
John Mack
Remuneration Committee Chairman
28 February 2019
Basis of reporting
We have prepared this Remuneration Report to reflect
the reporting requirements on remuneration matters
for companies with a UK governance profile, particularly
the UK’s Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (the “UK Remuneration Regulations”).
The report also describes how the Board has complied
with the provisions set out in the UK Corporate
Governance Code relating to remuneration matters.
Our auditors have reviewed and reported on certain
parts of the Directors’ Remuneration Report and stated
whether, in their opinion, those parts of the report have
been properly prepared. Those sections of the report
which have been subject to audit are clearly indicated.
Part A – Directors’ Remuneration Policy
The Directors’ Remuneration Policy was approved
by shareholders at the 2017 AGM and the Company
continues to abide by its terms. The Policy will be put
to a shareholder vote the earlier of once every three
years or when an amendment to the Policy is proposed
or required. As the Policy is not being put forward for
shareholder approval at the 2019 AGM, it has not been
included in this Annual Report. A summary is set out
below and it is reproduced in full on our website at:
glencore.com/who-we-are/governance.
Summary of Directors’ Remuneration Policy
General Policy for Executive Directors
To facilitate the attraction, motivation and retention
of Executive Directors and other senior executives
of high calibre and enable them to implement the
Group’s strategy and achieve its objectives. In practice,
the CEO has continued to waive participation in bonus
or LTI arrangements.
Base salary
Provides market competitive fixed remuneration.
The Committee has not increased the salary level
for any Executive Director since May 2011.
Benefits
To provide appropriate supporting non-monetary
benefits. Benefits received by Mr Glasenberg comprise
salary loss (long-term sickness) and accident insurance/
travel insurance with a cost limit of $20,000 p.a.
Pension
Provides basic retirement benefits which reflects
local market practice. Mr Glasenberg participates in
the standard pension scheme for all Baar (Switzerland)
-based employees with an annual cap on the cost
of provision of retirement benefits of $150,000 p.a.
Annual Bonus Plan (STI)
Supports the delivery of short-term operational, financial
and strategic goals. The Committee has set a maximum
annual bonus level of 200% of base salary.
Glencore Annual Report 2018
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Strategic ReportFinancial statementsGovernanceAdditional information Directors’ remuneration report
For the year ended 31 December 2018 continued
Long-Term Incentives
Glencore Performance Share Plan incentivises the
creation of shareholder value over the longer-term.
The Committee has set a maximum annual grant
level of 200% of base salary.
Significant Personal Shareholdings
Aligns the interests of executives and shareholders.
The Committee has set a formal shareholding
requirement for Executive Directors of 300% of salary.
The CEO has a beneficial ownership of over 8%
of the Company’s issued share capital.
Chairman and Non-Executive Director fees
Reflects time commitment, experience, global
nature and size of the Company. Chairman receives
a single inclusive fee. Senior Independent Director and
Non-Executive Directors receive a base fee. Additional
fees are paid for chairing or membership of a Board
committee. Non-Executive Directors are not eligible
for any other remuneration or benefits of any nature.
Potential rewards under various scenarios
Under the formal policy, consistent with other large
FTSE companies, the total available variable pay
(i.e. the maximum amount payable in respect of bonus
and long-term incentives) available to Mr Glasenberg
would be approximately $5,790,000 (being four times
base salary). As Mr Glasenberg continues to waive
entitlement to all variable elements, including both
bonus and long-term incentives, his base salary and
all benefits are set at less than 25% of the aggregate
remuneration which would potentially have been
available to him had he not waived participation
in these aspects. These waivers are considered
appropriate as the level of his personal shareholding
is sufficient to provide a keen alignment of interest
between him and of shareholders more generally
without the need to add additional aspects to his
package (and cost to other shareholders). His fixed
remuneration set out below was set at a modestly
below market level so the waivers do not reflect
any element of an excessive bias to fixed pay in the
traditional sense. Consistent with UK legislation, it
has been prepared using the following assumptions.
In 2018, Mr Glasenberg’s base salary was paid in
US dollars and his benefits and pension contributions
were paid in Swiss francs, as described in this report.
Fixed
• Consists of base salary, benefits and pension
• Base salary is applicable to both 2017 and 2018
• Benefits measured as benefits figure in the
single figure table
• Pension measured as pension figure in the
single figure table
Ivan
Glasenberg
Base Salary
$’000
Benefits
$’000
Pension
$’000
Total Fixed
$’000
On-target
and
Maximum
1,447
4
52
1,503
Based on what the Executive Director would receive
if performance was on-target (whether inclusive or
exclusive of share price appreciation and dividends):
• STI: Mr Glasenberg currently waives any right
to participate in the annual bonus plan
• LTI: He does not currently participate in the
Performance Share Plan
Executive Directors’ contracts
The table below summarises the key features of the
service contract for Ivan Glasenberg, the only person
who served as an Executive Director during the year.
All Non-Executive Directors’ contracts and letters
of appointment will be available for inspection on
the terms to be specified in the Notice of 2019 AGM.
Provision
Service contract terms
Notice period • Twelve months’ notice by either party
Contract date • 28 April 2011 (as amended on 30 October 2013)
Expiry date
• Rolling service contract
Termination
payment
• No special arrangements or entitlements on
termination. Any compensation would be limited
to base salary only for any unexpired notice period
(plus any accrued leave)
Change
in control
• On a change of control of the Company,
no provision for any enhanced payments,
nor for any liquidated damages
External appointments
The Executive Director’s external appointments
are noted on page 94. He assigns to the Group the
compensation received in relation to each appointment.
The appropriateness of these appointments is
considered as part of the annual review of Directors’
interests/potential conflicts.
114
Glencore Annual Report 2018
Non-Executive Directors’ Letters of appointment
and re-election
All Non-Executive Directors have letters of appointment
with the Company for an initial period of three years
from their date of appointment, subject to reappointment
at each AGM. The Company may terminate each
appointment by immediate notice and there are no
special arrangements or entitlements on termination
except that the Chairman is entitled to three
months’ notice.
The annual fees are paid in accordance with a
Non-Executive Director’s role and responsibilities.
The Chairman’s fee is inclusive of all his committee
responsibilities. The fees payable for 2018, which were
unchanged from 2017 except for the addition of fees
for membership of the Investigations Committee,
are as follows:
US$‘000
Directors
Chairman
Senior Independent Director
Non-Executive Director
Committee Fees:
Remuneration
Chairman
Member
Audit
Chairman
Member
Nomination
Chairman
Member
HSEC
Chairman
Member
Investigations
Member
1,150
200
135
45
25
60
35
40
20
125
40
40
Part B – Implementation Report
Implementation Report – Unaudited Information
Remuneration Committee
Membership and experience of the
Remuneration Committee
The members of the Committee provide a useful
balance of skills, experience and perspectives to
provide the critical analysis required in carrying out the
Committee’s function. Each of John Mack, Leonhard
Fischer and Martin Gilbert has had a long career in the
management of large financial services organisations
and therefore provides considerable experience
of remuneration analysis and implementation.
All members of the Remuneration Committee are
considered to be independent. Further details
concerning independence of the Non-Executive
Directors are contained on page 99.
Role of the Remuneration Committee
The terms of reference of the Committee set out its role.
They are available on the Company’s website at:
glencore.com/who-we-are/governance
Its principal responsibilities are, on behalf of the Board, to:
• Determine and agree with the Board the framework
for the remuneration of the Company’s Chairman,
the Chief Executive and the Executive Directors
• Regularly review the appropriateness and relevance
of the remuneration policy
• Establish the remuneration package for the Executive
Directors including the scope of pension benefits
• Determine the remuneration package for the
Chairman, in consultation with the Chief Executive
• Oversee schemes of performance related
remuneration (including share incentive plans) for,
and determine awards for, the Executive Directors
(as appropriate)
• Ensure that the contractual terms on termination
for the Executive Directors are fair and not excessive
• Monitor senior management remuneration
The Committee considers corporate performance on
HSEC and governance issues when setting remuneration
for the Executive Director. Additionally, the Committee
seeks to ensure that the incentive structure for the
Group’s senior management does not raise HSEC or
governance risks by inadvertently promoting and/or
rewarding behaviours that are not aligned with the
Group policies, values and culture.
Remuneration Committee meetings
The Committee met two times during the year and
considered, amongst other matters, the remuneration
policy and the packages applicable to the Chairman,
the CEO and senior management, and the content
and approval of the Remuneration Report.
The Chairman, CEO and CFO are usually invited to
attend some or all of the proceedings of Remuneration
Committee meetings, however they do not participate
in any decisions concerning their own remuneration.
Advisers to the Remuneration Committee
The Committee appointed and received independent
remuneration advice during the year from its external
adviser, FIT Remuneration Consultants LLP (FIT). FIT
is a member of the Remuneration Consultants Group
(the UK professional body for these consultants) and
adheres to its code of conduct. The Committee was
satisfied that the advice provided by FIT was objective
and independent.
FIT’s fees for this advice in respect of 2018 were $13,921
(2017: $4,872). FIT’s fees were charged on the basis of the
firm’s standard terms of business for advice provided.
FIT provided no other services to the Group in the year.
The Committee also receives advice from the
Company Secretary.
Glencore Annual Report 2018
115
Strategic ReportFinancial statementsGovernanceAdditional information Directors’ remuneration report
For the year ended 31 December 2018 continued
Relative importance of remuneration spend
The table below illustrates the change in total
remuneration, distributions paid and net profit
from 2017 to 2018.
2018
US$m
Distributions and buy-backs
Net income attributable
to equity holders
Total remuneration
4,841
3,408
5,063
2017
US$m
998
5,777
4,656
The figures presented have been calculated on the
following bases:
• Distributions and buy-backs – distributions paid
and shares bought back during the year
• Net income attributable to equity holders –
our reported net income in respect of the financial
year. The Committee believes it is a good indicator
of ongoing relative statutory performance
• Total remuneration – represents total personnel costs
as disclosed in note 23 to the financial statements
which includes salaries, wages, social security,
other personnel costs and share-based payments
Performance graph and table
This graph shows the value to 31 December 2018, on
a total shareholder return (TSR) basis, of £100 invested
in Glencore plc on 24 May 2011 (our IPO date) compared
with the value of £100 invested in the FTSE 350 Mining
Index. The FTSE 350 Mining Index is considered to be
an appropriate comparator for this purpose as it is an
equity index consisting of companies listed in London
in the same sector as Glencore.
The UK reporting regulations also require that a TSR
performance graph is supported by a table summarising
aspects of CEO remuneration, as shown below for the
same period as the TSR performance graph:
Performance
100
80
60
40
20
0
18 May
2011
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
Glencore
FTSE 350 Mining Index
Annual
variable
element
award rates
against
maximum
opportunity2
Long-term
incentive
vesting
rates against
maximum
opportunity2
Single figure
of total
remuneration1
(US$’000)
2018
2017
2016
2015
2014
2013
2012
2011
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
Ivan Glasenberg
1,503
1,513
1,509
1,510
1,513
1,509
1,533
1,483
–
_
_
_
–
–
–
–
–
_
_
_
–
–
–
–
1 The value of benefits and pension provision in the single figure vary as a result
of the application of exchange rates although in the relevant local currency these
parts of Mr Glasenberg’s remuneration have not altered since May 2011. In this
table the figures are reported in US dollars, the currency in which Mr Glasenberg
received his salary in 2018. The salary was payable in pounds sterling prior to 2014.
Therefore those figures have been translated into US dollars at the exchange rates
used for the preparation of the financial statements in those years.
Mr Glasenberg’s pension and other benefits are charged to the Group in Swiss
francs and these amounts are translated into US dollars on the same basis.
2 The CEO has requested not to be considered for these potential awards.
Percentage change in pay of Chief Executive Officer
and comparative ratios
The UK Remuneration Regulations provide for
disclosure of percentage changes of the CEO’s
remuneration against the average percentage change
for employees generally or an appropriate group of
employees. In addition, the UK Investment Association’s
2016 Remuneration Principles recommend disclosure
as to how the remuneration out-turn for a Company’s
CEO compares with that of a) its median employee and
b) its Executive Committee. Given that the CEO has,
since May 2011, waived any entitlement to any increase
in salary (and given that his only other unwaived benefits
are those provided to all employees at the Company’s
head office in Baar) no such comparisons or ratios
have been made.
Most recent shareholder voting outcomes
The votes cast to approve the Directors’ remuneration
report, for the year ended 31 December 2017 at the 2018
AGM were:
Votes “For”
Directors’ Remuneration Report
Votes
“Against”
Votes
“Withheld1”
98.94%
(10,489,162,726)
1.06%
(112,257,632)
(87,366,733)
1 A vote withheld is not counted in the calculation of the proportion of votes
for and against the resolution.
The Committee continues to seek a productive
and ongoing dialogue with investors on the Directors’
Remuneration Policy, remuneration aspects of corporate
governance, any changes to the Company’s executive
pay arrangements and developments as to executive
remuneration issues in general.
116
Glencore Annual Report 2018
Implementation of policy in 2018
There have been no changes to the Directors’ remuneration policy in 2018 and none is envisaged for 2019.
Implementation Report – Audited Information
Single figure table
US$’000
Ivan Glasenberg
Salary Benefits
Annual Bonus
Long-term
incentives
2018
1,447
2017
1,447
2018
2017
2018
2017
2018
2017
4
4
–
–
–
–
Pension
2018
52
2017
62
2018
1,503
Total
2017
1,513
The notes to the performance table above also apply in relation to the compilation of this table. As no bonuses
or long-term incentives have been granted to Mr Glasenberg, there are no relevant performance measures to be
disclosed although the first page of this report notes the alignment of his position with that of other shareholders.
Non-Executive fees
The emoluments of the Non-Executive Directors for 2018
were as follows:
Name
Non-Executive Chairman
Anthony Hayward
Non-Executive Directors
Peter Coates
Leonhard Fischer
Martin Gilbert1
Peter Grauer2
William Macaulay3
John Mack
Patrice Merrin
Gill Marcus4
Total 2018
US$’000
Total 2017
US$’000
1,150
1,150
260
280
157
48
n/a
200
224
190
260
240
127
275
57
200
175
n/a
The aggregate fees for all Non-Executive Directors
for 2018 were $2,509,000 (2017: $2,484,000).
The total emoluments of all Directors for 2018
(including pension contributions for Mr Glasenberg)
were $4,012,000 (2017: $3,997,000).
Directors’ interests
The Directors’ interests in shares are set out in the
Directors’ report which is set out after this report.
Mr Glasenberg’s holding is considerably in excess
of the formal share ownership guideline for
Executive Directors of 300% of salary.
Approval
This report in its entirety has been approved by the
Committee and the Board of Directors and signed
on its behalf by:
1 Appointed on 5 May 2017. Leave of absence 16 May–10 October 2018.
2 Retired on 3 March 2018.
3 Retired on 14 April 2017.
4 Appointed with effect from 1 January 2018.
John Mack
Remuneration Committee Chairman
28 February 2019
Glencore Annual Report 2018
117
Strategic ReportFinancial statementsGovernanceAdditional information Directors’ report
For the year ended 31 December 2018
Company Secretary
John Burton
Introduction
This Annual Report is presented by the Directors
on the affairs of Glencore plc (the “Company”)
and its subsidiaries (the “Group” or “Glencore”),
together with the financial statements and
auditor’s report, for the year ended 31 December
2018. The Directors’ report includes details of the
business, the development of the Group and likely
future developments as set out in the Strategic
Report, which together form the management
report for the purposes of the UK Financial
Conduct Authority’s Disclosure and Transparency
Rule (DTR) 4.1.8R. The notice concerning forward-
looking statements is set out at the end of the
Annual Report.
Corporate structure
Glencore plc is a public company limited by shares,
incorporated in Jersey and domiciled in Baar,
Switzerland. Its shares are listed on the London and
Johannesburg Stock Exchanges. On 31 January 2018
the Company delisted its shares from the Hong Kong
Stock Exchange.
Financial results and distributions
The Group’s financial results are set out in the
financial statements section of this Annual Report.
A total distribution of US$0.20 per share was paid
in two instalments in 2018.
The Board is recommending to shareholders an
aggregate distribution of US$0.20 per share in respect
of the 2018 financial year as further detailed on page 58.
Review of business, future developments
and post balance sheet events
A review of the business and the future developments
of the Group is presented in the Strategic Report.
A description of acquisitions, disposals, and material
changes to Group companies undertaken during the
year is included in the Financial review and in note 25
to the financial statements.
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Glencore Annual Report 2018
Financial instruments
Descriptions of the use of financial instruments and
financial risk management objectives and policies,
including hedging activities and exposure to price risk,
credit risk, liquidity risk and cash flow risk are included
in notes 26 and 27 to the financial statements.
Corporate governance
A report on corporate governance and compliance
with the UK Corporate Governance Code is set out
in the Corporate Governance report and forms part
of this report by reference.
Health, safety, environment & communities (HSEC)
An overview of health, safety and environmental
performance and community participation is provided
in the Sustainable Development section of the Strategic
report. The work of the HSEC Board committee is
contained in the Corporate Governance report.
Taxation policy
Our Tax Policy: glencore.com/group-tax-policy
and our second Payments to Governments report:
glencore.com/payments-to-governments-report
set out the Company’s approach to tax and transparency
and disclose the payments made by the Group on a
country-by-country and project-by-project basis.
Exploration and research and development
The Group’s business units carry out exploration and
research and development activities that are necessary
to support and expand their operations.
Employee policies and involvement
Glencore operates on diversity and recruitment
policies that aim to treat individuals fairly and not to
discriminate on the basis of gender, race, ethnicity,
disability, religion or beliefs, or on any other basis.
Applications for employment and promotion are fully
considered on their merits, and employees are given
appropriate training and equal opportunities for
career development and promotion.
If disability occurs during employment, the Group
seeks to accommodate that disability where reasonably
possible, including with appropriate training.
The Group’s Code of Conduct and other policies support
and protect the interests of employees in a number
of ways such as requiring open, fair and respectful
communication, zero tolerance for human rights
violations, fair remuneration and, above all, a safe
working environment.
Employee communication is mainly provided by
the Group’s intranet, corporate website and via emails.
A range of information is made available to employees
including all policies and procedures applicable to
them as well as information on the Group’s financial
performance and the main drivers of its business.
Employee consultation depends upon the type and
location of operation or office. Further information
on our people is set out on pages 47–48.
Directors’ conflicts of interest
Under Jersey law and the Company’s Articles
of Association (which mirror section 175 of the UK
Companies Act 2006), a Director must avoid a situation
in which the Director has, or can have, a direct or
indirect interest that conflicts, or possibly may conflict,
with the interests of the Company. The duty is not
infringed if the matter has been authorised by the
Directors. Under the Articles, the Board has the power
to authorise potential or actual conflict situations.
The Board maintains effective procedures to enable
the Directors to notify the Company of any actual or
potential conflict situations and for those situations
to be reviewed and, if appropriate, to be authorised by
the Board. Directors’ conflict situations are reviewed
annually. A register of authorisations is maintained.
Directors’ liabilities and indemnities
The Company has granted third party indemnities
to each of its Directors against any liability that
attaches to them in defending proceedings brought
against them, to the extent permitted by Jersey law.
In addition, Directors and Officers of the Company
and its subsidiaries are covered by directors & officers
liability insurance.
Directors and Officers
The names of the Company’s Directors and Officers
who were in office at the end of 2018, together with
their biographical details and other information,
are shown on pages 94–95.
Directors’ interests
Details of interests in the ordinary shares of the
Company of those Directors who held office during
2018 are given below:
Name
Executive Directors
Ivan Glasenberg
Non-Executive Directors
Anthony Hayward
Peter Coates
Leonhard Fischer
Martin Gilbert
Peter Grauer1
John Mack
Gill Marcus
Patrice Merrin
Number of
Glencore
Shares
Percentage
of Total Voting
Rights
1,211,957,850
8.69
244,907
1,585,150
–
50,000
129,792
750,000
–
43,997
0.00
0.01
–
0.00
0.00
0.00
–
0.00
1 Retired from the Board on 3 March 2018. Figures provided at date of retirement.
No Director has any other interest in the share capital
of the Company whether pursuant to any share plan
or otherwise.
No changes in Directors’ interests of those in office
at the date of this report have occurred between
31 December 2018 and 28 February 2019.
Share capital and shareholder rights
As at 31 January 2019, the issued ordinary share
capital of the Company was $145,862,001 represented
by 14,586,200,066 ordinary shares of $0.01 each, of which
632,503,005 shares are held in treasury and 140,406,542
shares are held by Group employee benefit trusts.
Major interests in shares
Taking into account the information available to
Glencore as at 31 January 2019, the table below shows
the Company’s understanding of the interests in 3%
or more of the total voting rights attaching to its
issued ordinary share capital:
Name of holder
Qatar Holding
Ivan Glasenberg
BlackRock Inc
Daniel Maté
Aristotelis Mistakidis
Harris Associates
Number
of shares
1,221,497,099
1,211,957,850
820,422,580
454,136,143
450,175,134
429,121,654
Percentage of
Total Voting
Rights
8.75
8.69
5.88
3.25
3.23
3.08
Share capital
The rights attaching to the Company’s ordinary shares,
being the only share class of the Company, are set out
in the Company’s Articles of Association (the “Articles”),
which can be found at glencore.com/who-we-are/
governance/. Subject to Jersey law, any share may
be issued with or have attached to it such preferred,
deferred or other special rights and restrictions as the
Company may by special resolution decide or, if no such
resolution is in effect, or so far as the resolution does
not make specific provision, as the Board may decide.
No such resolution is currently in effect. Subject to the
recommendation of the Board, holders of ordinary shares
may receive a distribution. On liquidation, holders of
ordinary shares may share in the assets of the Company.
Holders of ordinary shares are also entitled to receive
the Company’s Annual Report and Accounts (or a
summarised version) and, subject to certain thresholds
being met, may requisition the Board to convene a
general meeting (GM) or submit resolutions for proposal
at AGMs. None of the ordinary shares carry any special
rights with regard to control of the Company.
Holders of ordinary shares are entitled to attend and
speak at GMs of the Company and to appoint one or
more proxies or, if the holder of shares is a corporation,
a corporate representative. On a show of hands, each
holder of ordinary shares who (being an individual)
is present in person or (being a corporation) is present
by a duly appointed corporate representative, not being
himself a member, shall have one vote. On a poll, every
holder of ordinary shares present in person or by proxy
shall have one vote for every share of which he is the
holder. Electronic and paper proxy appointments and
voting instructions must be received not later than
48 hours before a GM. A holder of ordinary shares can
lose the entitlement to vote at GMs where that holder
has been served with a disclosure notice and has failed
Glencore Annual Report 2018
119
Strategic ReportFinancial statementsGovernanceAdditional information Directors’ report
For the year ended 31 December 2018 continued
to provide the Company with information concerning
interests held in those shares. Except as (1) set out above
and (2) permitted under applicable statutes, there are
no limitations on voting rights of holders of a given
percentage, number of votes or deadlines for exercising
voting rights.
The Directors may refuse to register a transfer of a
certificated share which is not fully paid, provided that
the refusal does not prevent dealings in shares in the
Company from taking place on an open and proper
basis or where the Company has a lien over that share.
The Directors may also refuse to register a transfer of
a certificated share unless the instrument of transfer is:
(i) lodged, duly stamped (if necessary), at the registered
office of the Company or any other place as the Board
may decide accompanied by the certificate for the
share(s) to be transferred and/or such other evidence as
the Directors may reasonably require as proof of title; or
(ii) in respect of only one class of shares.
Transfers of uncertificated shares must be carried out
using CREST and the Directors can refuse to register a
transfer of an uncertificated share in accordance with
the regulations governing the operation of CREST.
The Directors may decide to suspend the registration
of transfers, for up to 30 days a year, by closing the
register of shareholders. The Directors cannot suspend
the registration of transfers of any uncertificated shares
without obtaining consent from CREST.
There are no other restrictions on the transfer of
ordinary shares in the Company except: (1) certain
restrictions may from time to time be imposed by laws
and regulations (for example insider trading laws); (2)
pursuant to the Company’s share dealing code whereby
the Directors and certain employees of the Company
require approval to deal in the Company’s shares; and (3)
where a shareholder with at least a 0.25% interest in the
Company’s issued share capital has been served with a
disclosure notice and has failed to provide the Company
with information concerning interests in those shares.
There are no agreements between holders of ordinary
shares that are known to the Company, which may
result in restrictions on the transfer of securities or
on voting rights.
The rules for appointment and replacement of the
Directors are set out in the Articles. Directors can be
appointed by the Company by ordinary resolution at a
GM or by the Board upon the recommendation of the
Nomination Committee. The Company can remove a
Director from office, including by passing an ordinary
resolution or by notice being given by all the other
Directors. The Company may amend its Articles by
special resolution approved at a GM.
The powers of the Directors are set out in the Articles
and provide that the Board may exercise all the
powers of the Company including to borrow money.
The Company may by ordinary resolution authorise
the Board to issue shares, and increase, consolidate,
sub-divide and cancel shares in accordance with
its Articles and Jersey law.
Purchase of own shares
In July 2018, the Company started a $1 billion buy-back
programme, which was extended by a further $1 billion
in September 2018. Under the programme, the
Company purchased 422,113,105 of its own ordinary
shares in 2018, and an additional 83,900,992 shares
between 1 January 2019 and 26 February 2019.
The authority to purchase own shares was approved
by the shareholders on 2 May 2018. The Directors
will seek a similar authority at the Company’s AGM
to be held in 2019.
Going concern
The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are set out
in the Strategic Report. Furthermore, notes 26 and 27
to the financial statements include the Group’s
objectives and policies for managing its capital, its
financial risk management objectives, details of its
financial instruments and hedging activities and
its exposure to credit and liquidity risk. Significant
financing activities that took place during the
year are detailed in the Financial review section,
which starts on page 52.
The results of the Group, principally pertaining to its
industrial asset base, are exposed to fluctuations in
both commodity prices and currency exchange rates
whereas the performance of marketing activities is
primarily physical volume driven with commodity
price risk substantially hedged.
The Directors have a reasonable expectation,
having made appropriate enquiries, that the Group
has adequate resources to continue its operational
existence for the foreseeable future. For this reason
they continue to adopt the going concern basis
in preparing the financial statements. The Directors
have made this assessment after consideration of the
Group’s budgeted cash flows and related assumptions
including appropriate stress testing of the identified
uncertainties (being primarily commodity prices and
currency exchange rates) and undrawn credit facilities,
monitoring of debt maturities, and after review of
the Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting 2014
as published by the UK Financial Reporting Council.
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Glencore Annual Report 2018
Longer-term viability
In accordance with paragraph C2.2 of the Code, the
Directors have assessed the prospects of the Group’s
viability over a longer period than the 12 months required
by the going concern assessment above. A summary
of the assessment made is set out on page 26 in the
Principal risks and uncertainties section.
Based on the results of the related analysis, the Directors
have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as
they fall due over the four-year period of this assessment.
They also believe that the review period of four years
is appropriate having regard to the Group’s business
model, strategy, principal risks and uncertainties,
and viability.
Auditor
Each of the persons who is a Director at the date
of approval of this Annual Report confirms that:
a.
so far as the Director is aware, there is no relevant
audit information of which the Company’s auditor
is unaware; and
b. the Director has taken all the steps that he ought
to have taken as a director in order to make himself
aware of any relevant audit information and to
establish that the Company’s auditor is aware of
that information.
Deloitte LLP have expressed their willingness to continue
in office as auditor and a resolution to reappoint them
will be proposed at the forthcoming AGM.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual
Report and financial statements in accordance with
applicable law and regulations.
representation of the effects of transactions, other
events and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, income
and expenses set out in the International Accounting
Standards Board’s Framework for the preparation
and presentation of financial statements.
In virtually all circumstances, a fair presentation will
be achieved by compliance with all applicable IFRSs.
However, the Directors are also required to:
• Properly select and apply accounting policies
• Present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information
• Provide additional disclosures when compliance
with the specific requirements in IFRSs are insufficient
to enable users to understand the impact of particular
transactions, other events and conditions on the
entity’s financial position and financial performance
• Make an assessment of the Company’s ability to
continue as a going concern
The Directors are responsible for keeping proper
accounting records that disclose with reasonable
accuracy at any time the financial position of the
Company and enable them to ensure that the financial
statements comply with the Companies (Jersey)
Law 1991. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for
the maintenance and integrity of the corporate and
financial information included on the Company’s
website. The legislation governing the preparation and
dissemination of the Company’s financial statements
may differ from legislation in other jurisdictions.
Company law requires the Directors to prepare financial
statements for the Company for each financial year.
Signed on behalf of the Board
The financial statements are prepared in accordance
with International Financial Reporting Standards as
issued by the International Accounting Standards Board
and International Financial Reporting Standards as
adopted for use in the European Union (together “IFRS”).
The financial statements are required by law to be
properly prepared in accordance with the Companies
(Jersey) Law 1991. International Accounting Standard 1
requires that financial statements present fairly for each
financial year the Company’s financial position, financial
performance and cash flows. This requires the faithful
John Burton
Company Secretary
28 February 2019
Glencore Annual Report 2018
121
Strategic ReportFinancial statementsGovernanceAdditional information Directors’ report
For the year ended 31 December 2018 continued
Information required by Listing Rule LR 9.8.4C
In compliance with UK Listing Rule 9.8.4C the Company discloses the following information:
Listing Rule
Information required
Relevant disclosure
9.8.4(1)
9.8.4(2)
9.8.4(5)
9.8.4(6)
9.8.4(12)
9.8.4(13)
9.8.4(14)
Interest capitalised by the Group
See note 8 to the financial statements
Unaudited financial information as required (LR 9.2.18)
See Chief Executive Officer’s review
Director waivers of emoluments
Director waivers of future emoluments
Waivers of dividends
Waivers of future dividends
See Directors’ remuneration report
See Directors’ remuneration report
See note 18 to the financial statements
See note 18 to the financial statements
Agreement with a controlling shareholder (LR 9.2.2A)
Not applicable
There are no disclosures to be made in respect of the other numbered parts of LR 9.8.4.
Confirmation of Directors’ responsibilities
We confirm that to the best of our knowledge:
• the consolidated financial statements, prepared in accordance with International Financial Reporting Standards
and interpretations as adopted by the European Union, International Financial Reporting Standards and
interpretations as issued by the International Accounting Standards Board and the Companies (Jersey) Law 1991,
give a true and fair view of the assets, liabilities, financial position and income of the Group and the undertakings
included in the consolidation taken as a whole
• the management report, which is incorporated in the Strategic Report, includes a fair review of the development
and performance of the business and the position of the Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and uncertainties they face
• the Annual Report and consolidated financial statements, taken as a whole, are fair and balanced and
understandable and provide the information necessary for shareholders to assess the performance, position,
strategy and business model of the Company
The consolidated financial statements of the Group for the year ended 31 December 2018 were approved on the date
below by the Board of Directors.
Signed on behalf of the Board:
Anthony Hayward
Chairman
28 February 2019
Ivan Glasenberg
Chief Executive Officer
122
Glencore Annual Report 2018
Financial
statements
Independent Auditor’s Report
to the members of Glencore plc
Consolidated statement of income
Consolidated statement of
comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes of equity
Notes to the financial statements
124
135
136
137
138
140
141
Glencore Annual Report 2018
123
Independent Auditor’s Report
to the members of Glencore plc
Report on the audit of the financial statements
Opinion
In our opinion the financial statements:
• give a true and fair view of the state of affairs of Glencore plc and its subsidiaries (together "the Group") as at 31 December 2018
and of the Group's profit for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the
European Union and as issued by the International Accounting Standards Board ("IASB"); and
• have been properly prepared in accordance with the Companies (Jersey) Law 1991.
We have audited the financial statements of the Group which comprise:
• the consolidated statement of income;
• the consolidated statement of comprehensive income;
• the consolidated statement of financial position;
• the consolidated statement of cash flows;
• the consolidated statement of changes of equity; and
• the related notes 1 to 35.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European
Union and as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• United States Department of Justice investigation;
• Impairments;
• Revenue recognition;
• Fair value measurements;
• Classification of financial instruments;
• Credit and performance risk; and
• Taxation: Uncertain tax positions and the recognition and recoverability of deferred taxes
Our assessment of the Group's key audit matters is broadly consistent with 2017. The 'Katanga
Mining Limited Restatements' key audit matter as included in our 2017 Audit Report was removed
as that matter was concluded in the prior year. We identified the 'United States Department of
Justice investigation' as a current year key audit matter following the receipt by the Group in July 2018
of a subpoena in connection with the United States Foreign Corrupt Practices Act and Anti-money
laundering statutes.
We determined materiality for the Group to be $250 million (2017: $200 million), based on a
normalised 3-year average pre-tax profit.
We focused our Group audit scope primarily on the audit work at 42 components, representing the
Group’s most material marketing operations and industrial assets. These 42 components account for
87% of the Group’s net assets, 96% of the Group’s revenue and 98% of the Group’s adjusted EBITDA
(refer to segment information in note 2).
Materiality
Scoping
Significant changes
in our approach
Aside from the changes in key audit matters noted above, there were no significant changes to our
audit approach when compared to 2017.
124
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Glencore Annual Report 2018
124
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in the basis of preparation section of note 1 to the
financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them and their identification of any material uncertainties to
the Group’s ability to continue to do so over a period of at least twelve months from the date of
approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial
reporting framework and the system of internal control. We evaluated the directors’ assessment
of the Group’s ability to continue as a going concern, including challenging the underlying data and
key assumptions used to make the assessment, and evaluated the directors’ plans for future actions
in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the directors’ assessment of the Group’s ability to continue as a going concern, we
are required to state whether we have anything material to add or draw attention to in relation to:
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
• the disclosures on pages 24 to 35 that describe the principal risks and explain how they are being
managed or mitigated;
• the directors' confirmation on page 103 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or
• the directors’ explanation on page 26 as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the Group
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Independent Auditor’s Report
to the members of Glencore plc
Report on the audit of the financial statements
Opinion
In our opinion the financial statements:
• give a true and fair view of the state of affairs of Glencore plc and its subsidiaries (together "the Group") as at 31 December 2018
and of the Group's profit for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the
European Union and as issued by the International Accounting Standards Board ("IASB"); and
• have been properly prepared in accordance with the Companies (Jersey) Law 1991.
We have audited the financial statements of the Group which comprise:
• the consolidated statement of income;
• the consolidated statement of comprehensive income;
• the consolidated statement of financial position;
• the consolidated statement of cash flows;
• the consolidated statement of changes of equity; and
• the related notes 1 to 35.
Union and as issued by the IASB.
Basis for opinion
section of our report.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• United States Department of Justice investigation;
• Impairments;
• Revenue recognition;
• Fair value measurements;
• Classification of financial instruments;
• Credit and performance risk; and
• Taxation: Uncertain tax positions and the recognition and recoverability of deferred taxes
Our assessment of the Group's key audit matters is broadly consistent with 2017. The 'Katanga
Mining Limited Restatements' key audit matter as included in our 2017 Audit Report was removed
as that matter was concluded in the prior year. We identified the 'United States Department of
Justice investigation' as a current year key audit matter following the receipt by the Group in July 2018
of a subpoena in connection with the United States Foreign Corrupt Practices Act and Anti-money
laundering statutes.
Materiality
We determined materiality for the Group to be $250 million (2017: $200 million), based on a
normalised 3-year average pre-tax profit.
Scoping
We focused our Group audit scope primarily on the audit work at 42 components, representing the
Group’s most material marketing operations and industrial assets. These 42 components account for
87% of the Group’s net assets, 96% of the Group’s revenue and 98% of the Group’s adjusted EBITDA
(refer to segment information in note 2).
Significant changes
in our approach
audit approach when compared to 2017.
Aside from the changes in key audit matters noted above, there were no significant changes to our
Glencore Annual Report 2018
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125
Strategic ReportFinancial statementsGovernanceAdditional information
Independent Auditor’s Report to the members of Glencore plc continued
United States Department of Justice investigation
Description of key audit matter
How the scope of our audit responded to the key audit matter
The audit procedures performed in response to the DoJ
investigation included the following:
• Reviewed the scope and work plan of external legal counsel
and the appointed forensic accountants and, in consultation
with relevant Deloitte experts, assessed the competence,
capabilities and objectivity of management's experts and
whether their scope of work and approach is appropriate
and comprehensive enough to address the requirements
of the investigation;
• Held regular discussions with representatives of the
Board Oversight Committee, Glencore's Head of Legal
and Compliance and external legal counsel to understand
the status of the investigation and findings to date and
information provided to the DoJ. We also enquired of any
known or likely non-compliance identified and any potential
provisions required;
• Requested legal confirmations on any known or probable
exposures as a result of the investigation; and
• Obtained management's current assessment of whether or
not there is a material exposure that is probable and whether
the quantification of the potential exposure at year-end is
possible, and challenged the validity, completeness and
appropriateness of the contingent liability disclosures in
the financial statements.
The Group's businesses in Nigeria, Venezuela and the
Democratic Republic of the Congo (”DRC”) are currently under
investigation by the United States (“US”) Department of Justice
(“DoJ”) with respect to non-compliance with the US Foreign
Corrupt Practices Act (“FCPA”) and Anti-money laundering
(“AML”) regulations from 2007 to present.
Glencore’s activities in Nigeria within this period are limited
primarily to oil offtake agreements.
Its activities in Venezuela over the period which is subject to
the investigation cover certain oil offtake contracts with the
Venezuelan national oil company, Petróleos de Venezuela
(“PDVSA”). Glencore is currently one of a number of defendants
in a court case brought by the PDVSA Litigation Trust.
The group holds significant investments in copper and cobalt
operations in the DRC through Katanga Mining Limited
(“Katanga”) and Mutanda Mining SPRL (“Mutanda”), initially
acquired in 2007. In 2017, the group increased its stake in these
entities, ending any shareholder relationships with a former
shareholder, who became a Specially Designated National
(“SDN”) subject to US sanctions in the latter half of 2016. The
Group continues to honour legally binding royalty agreements
with an associated company of the former shareholder.
Each of these jurisdictions are considered high risk political
environments resulting in a higher risk of non-compliance
with the US FCPA and AML legislation.
On receipt of the subpoena, the Glencore plc Board of
Directors reconstituted the existing Investigations Committee
(the “Committee”) to assess the implications of the investigation
and to oversee the Company’s response to the DoJ’s
investigation. This Committee has engaged external
independent legal counsel in the US to lead the investigation,
who has in turn appointed forensic accountants to assist
in the investigation.
There is a risk that a material provision will be required to
settle the DoJ investigation which is not recorded in the current
year’s financial statements.
As at 31 December 2018, the company has disclosed a contingent
liability under IAS 37: Provisions, Contingent Liabilities and
Contingent Assets that the timing of the completion of the
investigations, the outcome and the subsequent discussions
with the authorities are uncertain. At present, it is not possible
to reliably estimate the timing or amount of any potential
settlement or fines, which could be material. Please refer
to note 31.
We also refer readers to page 96 for the Board discussions on
this matter.
Key observations
Based on the results of our procedures, we concluded that the timing of the completion of the investigations, the outcome and
the subsequent discussions with the DoJ are uncertain. At present, it is not possible to reliably estimate the timing or amount of
any potential settlement or fines, which could be material. We concurred that the recognition, measurement and disclosure of any
potential exposure in relation to the US Department of Justice investigation is in line with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets.
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The Group's businesses in Nigeria, Venezuela and the
The audit procedures performed in response to the DoJ
Democratic Republic of the Congo (”DRC”) are currently under
investigation included the following:
investigation by the United States (“US”) Department of Justice
(“DoJ”) with respect to non-compliance with the US Foreign
Corrupt Practices Act (“FCPA”) and Anti-money laundering
(“AML”) regulations from 2007 to present.
• Reviewed the scope and work plan of external legal counsel
and the appointed forensic accountants and, in consultation
with relevant Deloitte experts, assessed the competence,
capabilities and objectivity of management's experts and
Glencore’s activities in Nigeria within this period are limited
whether their scope of work and approach is appropriate
primarily to oil offtake agreements.
and comprehensive enough to address the requirements
Its activities in Venezuela over the period which is subject to
of the investigation;
the investigation cover certain oil offtake contracts with the
• Held regular discussions with representatives of the
Venezuelan national oil company, Petróleos de Venezuela
Board Oversight Committee, Glencore's Head of Legal
(“PDVSA”). Glencore is currently one of a number of defendants
and Compliance and external legal counsel to understand
in a court case brought by the PDVSA Litigation Trust.
the status of the investigation and findings to date and
The group holds significant investments in copper and cobalt
operations in the DRC through Katanga Mining Limited
(“Katanga”) and Mutanda Mining SPRL (“Mutanda”), initially
information provided to the DoJ. We also enquired of any
known or likely non-compliance identified and any potential
provisions required;
acquired in 2007. In 2017, the group increased its stake in these
• Requested legal confirmations on any known or probable
entities, ending any shareholder relationships with a former
exposures as a result of the investigation; and
shareholder, who became a Specially Designated National
(“SDN”) subject to US sanctions in the latter half of 2016. The
Group continues to honour legally binding royalty agreements
with an associated company of the former shareholder.
• Obtained management's current assessment of whether or
not there is a material exposure that is probable and whether
the quantification of the potential exposure at year-end is
possible, and challenged the validity, completeness and
Each of these jurisdictions are considered high risk political
appropriateness of the contingent liability disclosures in
environments resulting in a higher risk of non-compliance
the financial statements.
with the US FCPA and AML legislation.
On receipt of the subpoena, the Glencore plc Board of
Directors reconstituted the existing Investigations Committee
(the “Committee”) to assess the implications of the investigation
and to oversee the Company’s response to the DoJ’s
investigation. This Committee has engaged external
independent legal counsel in the US to lead the investigation,
who has in turn appointed forensic accountants to assist
in the investigation.
There is a risk that a material provision will be required to
settle the DoJ investigation which is not recorded in the current
year’s financial statements.
As at 31 December 2018, the company has disclosed a contingent
liability under IAS 37: Provisions, Contingent Liabilities and
Contingent Assets that the timing of the completion of the
investigations, the outcome and the subsequent discussions
with the authorities are uncertain. At present, it is not possible
to reliably estimate the timing or amount of any potential
settlement or fines, which could be material. Please refer
We also refer readers to page 96 for the Board discussions on
to note 31.
this matter.
Key observations
Based on the results of our procedures, we concluded that the timing of the completion of the investigations, the outcome and
the subsequent discussions with the DoJ are uncertain. At present, it is not possible to reliably estimate the timing or amount of
any potential settlement or fines, which could be material. We concurred that the recognition, measurement and disclosure of any
potential exposure in relation to the US Department of Justice investigation is in line with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets.
United States Department of Justice investigation
Impairments
Description of key audit matter
How the scope of our audit responded to the key audit matter
Description of key audit matter
How the scope of our audit responded to the key audit matter
The carrying value of the Group’s non-current assets within
the scope of IAS 36 Impairment of assets (“IAS 36”) includes
intangible assets, property, plant and equipment, non-financial
instrument advances and loans, and investments in associates
and joint ventures, and amounted to $79,238 million at
31 December 2018.
The volatility in expected future prices of certain commodities key
to the Group (particularly oil, copper, cobalt, zinc and coal), foreign
exchange rates, production levels, operating costs, discount rates
and macro-economic developments require management to
closely monitor non-current asset carrying values.
Given the nature of the Group’s industrial assets, developments
concerning geology, production or distribution of the Group’s
products, or changes in local income and mining taxes or
royalties may also trigger a need to consider impairment.
For loans, advances and other investments, assessing
counterparty risk, solvency and liquidity can be highly subjective.
Management completes an impairment review on all of the
Group’s significant assets and investments annually, as part
of the Group’s budgeting process.
As disclosed in note 6, the enactment of the 2018 Mining Code
in the DRC (“2018 DRC Mining Code”) – which increases tax
and royalty rates, introduces new taxes and includes a potential
restriction over the repatriation of funds out of the country –
was identified as an impairment indicator affecting Glencore’s
investments in the DRC. In addition, changes in Zambian tax
legislation and delays on ramp up of development projects were
identified as impairment indicators for the Mopani operation.
The outcome of impairment assessments could vary significantly
were different assumptions applied. Refer to “Key sources of
estimation uncertainty” within note 1, sensitivity disclosures
within note 6, as well as the Audit Committee Report on page
109. As a result, we have identified a fraud risk due to the
significant estimation uncertainty and subjectivity in certain
judgements and key assumptions applied by management
in the impairment assessment, including the potential for
management bias.
Impairments amounting to $600 million and $803 million were
recognised on the Mutanda and Mopani operations, respectively.
In addition, $49 million of other impairments were recognised in
various other industrial assets in relation to specific items within
Property, Plant and Equipment.
We reviewed management’s assessment of impairment risk and
their assessment of the indicators of impairment and challenged
the significant assumptions used. We performed a walkthrough
of management’s impairment analysis process and assessed the
design and implementation of key controls within this process.
We sought to identify additional potential indicators of
impairment through our review of operational performance
and financial results as well as the impact of any significant
regulatory changes.
Where indicators of impairment (or impairment reversals) were
identified, we utilised Deloitte valuation and mining specialists
to assess the appropriateness of management’s underlying
model inputs and significant assumptions.
In performing our challenge, we considered the risk of
management bias in the assumptions and estimates. We
challenged the significant inputs and assumptions used in
impairment and impairment reversal testing for intangible
assets, property, plant and equipment, and investments in
associates and joint ventures.
Our challenge included comparing inputs and significant
assumptions as noted above, to third party forecasts and
Deloitte developed discount rates. Production assumptions
were compared to life of mine plans where applicable as well
as reserves and resources estimates.
Operating costs and production levels were also compared
to the current period actual results, management approved
budgets and life of mine models. Further, we assessed whether
macro assumptions had been applied on a consistent basis
across the Group.
We challenged management’s sensitivity analysis by performing
independent sensitivity analyses on selected assets, including
those which were not identified as having indicators of
impairment but have a higher risk of impairment due to lower
available headroom in fair value models, volatility in key pricing
assumptions, or the existence of operational circumstances
which may indicate potential for impairment. Specifically, for
the operations impacted by the 2018 DRC Mining Code, we
applied various scenarios and interpretations of the legislation
to challenge management’s assumed position. For Mopani,
we applied various scenarios to evaluate a range of potential
outcomes on the probability of successful ramp-up and
execution of development projects.
With respect to non-financial instrument advances and loans
of $1,588 million, our procedures included challenging their
recoverability by reviewing supporting agreements and
obtaining evidence of current performance to identify potential
indicators of impairment.
We assessed the adequacy of impairment related disclosures
in the financial statements, including the key assumptions
used and the sensitivity of the financial statements to
these assumptions.
Key observations
Based on the results of our testing, we concluded that management’s assessment of impairment indicators was appropriate.
Where there were impairment indicators, our procedures found that the impairment models were in line with the underlying
mine plans and supported by acceptable inputs and assumptions. We concluded that the key pricing, foreign exchange and
discount rate assumptions were in line with third party evidence and our specialists’ acceptable ranges.
We found management’s disclosures on key assumptions and impairment sensitivities to be in compliance with IFRS requirements.
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Revenue recognition
Description of key audit matter
How the scope of our audit responded to the key audit matter
We have reviewed Glencore’s revenue recognition policies
Revenue for the year was $219,754 million (2017: $205,476 million).
Refer to note 1 for the revenue accounting policies.
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)
replaced all the previous revenue standards and interpretations
in IFRS with a revised framework for revenue recognition.
Identifying the point of control transfer and fulfilment of
performance obligations is a key judgement in determining
the timing of revenue recognition.
We presume a risk of material misstatement due to fraud related
to revenue recognition. The identification of revenue recognition
as a key audit matter primarily relates to the following:
Marketing operations:
We identified a risk that the capture of trades and their key
contractual terms within the trade book is incomplete or
inaccurate, impacting the timing and quantum of revenue
recognition for commodity sales with deliveries occurring
on or around year-end.
Judgement is required to determine when control is transferred
under certain contractual arrangements with third parties,
especially on or around year-end, and in particular where the
sale of goods is connected with an agreement to repurchase
goods at a later date.
As a majority of the Group’s trades are measured at fair value
through profit and loss, a complete and accurate trade capture
process that includes all specific and bespoke terms within the
commodity contracts is critical for accurate financial reporting
and monitoring of trade book exposures and performance.
Where sales are made at fixed prices with future delivery, the
consideration of embedded derivatives in sales contracts is
required for accurate financial reporting.
Marketing related activities depend on the reliability of the
trade capture systems and their IT infrastructure environment.
Industrial assets:
Substantially all output from industrial assets is sold by the
Group’s marketing divisions. Where third party sales occur, the
key risks relate to provisional pricing terms, metal concentrate
estimates and the consideration of embedded derivatives in
sales contracts.
Judgement must be exercised to determine when control
has transferred under bill and hold and other non-standard
contract arrangements.
Key observations
for compliance with the requirements of IFRS.
For marketing operations we:
• assessed the design, implementation and tested the
operating effectiveness of key controls surrounding the
completeness and accuracy of trade capture and the
revenue and trade cycle;
• tested the operating effectiveness of general IT controls
surrounding major technology applications and critical
interfaces involving revenue recognition and the
completeness and accuracy of trade capture;
• obtained third party confirmations where relevant to
assess completeness and accuracy of trade books;
• tested the accuracy of trades entered into around the
reporting date within the trade book system by tracing
and agreeing a sample of trades from their source
documents to the trade book system;
• utilised data analytics tools to test the completeness,
occurrence and accuracy of realised revenue and enhance
audit effectiveness over large transaction volumes;
• agreed, on a sample basis, deliveries occurring on or around
31 December 2018 between the trade book system and the
relevant shipping documents to assess whether the IFRS
revenue recognition criteria were met for recorded sales; and
• reviewed key contracts for the existence of embedded
derivatives and performed valuation testing as appropriate.
For industrial assets we:
• assessed the design and implementation of controls around
the methodology adopted by management to identify the
provisional pricing terms and the determination of estimates
of metal in concentrate sold to third parties;
• obtained third party confirmations to assess the completeness
and accuracy of third party sales; and
• reviewed key contracts for the existence of embedded
derivatives and assessed the pricing and other assumptions
utilised in the valuation against independent third-party
pricing sources and recalculated the mathematical accuracy
of the valuation.
Based on the results of our testing, we are satisfied that the revenue recognition policies are in line with IFRS and were appropriately
applied throughout the period.
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Revenue for the year was $219,754 million (2017: $205,476 million).
We have reviewed Glencore’s revenue recognition policies
Refer to note 1 for the revenue accounting policies.
for compliance with the requirements of IFRS.
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”)
For marketing operations we:
replaced all the previous revenue standards and interpretations
• assessed the design, implementation and tested the
in IFRS with a revised framework for revenue recognition.
operating effectiveness of key controls surrounding the
Identifying the point of control transfer and fulfilment of
completeness and accuracy of trade capture and the
performance obligations is a key judgement in determining
revenue and trade cycle;
the timing of revenue recognition.
We presume a risk of material misstatement due to fraud related
surrounding major technology applications and critical
to revenue recognition. The identification of revenue recognition
interfaces involving revenue recognition and the
as a key audit matter primarily relates to the following:
completeness and accuracy of trade capture;
• tested the operating effectiveness of general IT controls
Marketing operations:
• obtained third party confirmations where relevant to
We identified a risk that the capture of trades and their key
assess completeness and accuracy of trade books;
contractual terms within the trade book is incomplete or
inaccurate, impacting the timing and quantum of revenue
recognition for commodity sales with deliveries occurring
on or around year-end.
Judgement is required to determine when control is transferred
under certain contractual arrangements with third parties,
especially on or around year-end, and in particular where the
sale of goods is connected with an agreement to repurchase
goods at a later date.
As a majority of the Group’s trades are measured at fair value
through profit and loss, a complete and accurate trade capture
process that includes all specific and bespoke terms within the
commodity contracts is critical for accurate financial reporting
and monitoring of trade book exposures and performance.
Where sales are made at fixed prices with future delivery, the
consideration of embedded derivatives in sales contracts is
required for accurate financial reporting.
Marketing related activities depend on the reliability of the
trade capture systems and their IT infrastructure environment.
Industrial assets:
Substantially all output from industrial assets is sold by the
Group’s marketing divisions. Where third party sales occur, the
key risks relate to provisional pricing terms, metal concentrate
estimates and the consideration of embedded derivatives in
sales contracts.
• tested the accuracy of trades entered into around the
reporting date within the trade book system by tracing
and agreeing a sample of trades from their source
documents to the trade book system;
• utilised data analytics tools to test the completeness,
occurrence and accuracy of realised revenue and enhance
audit effectiveness over large transaction volumes;
• agreed, on a sample basis, deliveries occurring on or around
31 December 2018 between the trade book system and the
relevant shipping documents to assess whether the IFRS
revenue recognition criteria were met for recorded sales; and
• reviewed key contracts for the existence of embedded
derivatives and performed valuation testing as appropriate.
For industrial assets we:
• assessed the design and implementation of controls around
the methodology adopted by management to identify the
provisional pricing terms and the determination of estimates
of metal in concentrate sold to third parties;
• obtained third party confirmations to assess the completeness
and accuracy of third party sales; and
• reviewed key contracts for the existence of embedded
derivatives and assessed the pricing and other assumptions
utilised in the valuation against independent third-party
pricing sources and recalculated the mathematical accuracy
Judgement must be exercised to determine when control
has transferred under bill and hold and other non-standard
of the valuation.
contract arrangements.
Key observations
applied throughout the period.
Based on the results of our testing, we are satisfied that the revenue recognition policies are in line with IFRS and were appropriately
Revenue recognition
Fair value measurements
Description of key audit matter
How the scope of our audit responded to the key audit matter
Description of key audit matter
How the scope of our audit responded to the key audit matter
Determination of fair values of marketing inventories,
financial assets and liabilities is a complex and subjective
area often requiring significant estimates, particularly where
valuations utilise unobservable inputs (e.g. price differentials,
credit risk assessments, market volatility and forecast
operational estimates). At 31 December 2018, total Level 3
Other financial assets and liabilities amounted to $552 million
and $539 million respectively.
As $41,308 million of the Group’s advances and loans, marketing
inventories, accounts receivable, accounts payable, and other
financial assets and liabilities are measured at fair value at each
reporting date, these fair value measurements significantly
impact the Group’s results.
Refer to “Key sources of estimation uncertainty” within note 1
and additionally notes 11, 12, 13, 24, 25, 27 and 28.
Key observations
We assessed the design and implementation and tested
the operating effectiveness of key internal controls over
management’s processes for determining inputs to fair value
measurements and performed detailed substantive testing
on a sample basis of the related fair value measurements.
Using financial instrument specialists embedded within the
audit team with experience in commodity trading, we specifically
tested the evidence supporting significant unobservable inputs
utilised in Level 3 measurements in the fair value hierarchy as
outlined in notes 25 and 28 to the financial statements, which
included assessing management’s valuation assumptions
against independent price quotes, recent transactions and
other supporting documentation.
Based on the results of our testing, we are satisfied that the level 3 fair value measurements are supported by reasonable assumptions
in line with recent transactions and/or externally verifiable information.
We found the financial statement disclosures on fair value measurements to be adequate.
Classification of financial instruments
Description of key audit matter
How the scope of our audit responded to the key audit matter
We obtained an understanding of the trading strategies
and associated product flows within the Group’s marketing
departments, including assessment of the design and
implementation of the key controls over market risk
management using financial instrument specialists embedded
within the audit team with experience in commodity trading.
We evaluated and challenged management’s assessments
and conclusions relating to the implementation of IFRS 9, with
particular focus on the areas involving significant judgement
and changes in classification or measurement approach.
We analysed the trade books to understand unusual or complex
derivatives open at year-end. We also analysed the trading results
for portfolios designated as “own use” for evidence of any net
settlements, which may indicate potential tainting of the IFRS 9
“own use” criteria.
We challenged management’s judgement and conclusions
associated with classification and accounting for new
significant arrangements and/or significant changes to
existing arrangements containing a financing element. Our
challenge included evaluation of commercial substance of the
arrangements in context of applicable IFRS guidance and
industry practice.
We assessed the adequacy of related disclosures in the financial
statements in accordance with the requirements of IFRS.
Glencore trades a diverse portfolio of commodities and utilises a
wide variety of trading strategies in order to profit from volatility
in market prices, differentials and spreads whilst maximising
flexibility and optionality.
IFRS 9 Financial Instruments (“IFRS 9”) supersedes IAS 39
Financial Instruments and covers classification and
measurement of financial assets and liabilities, impairment
of financial assets and hedge accounting. Refer to note 1 for the
description of changes in classification and measurement as a
result of the adoption of IFRS 9. The most significant changes
relate to the reassessment of classification of financial assets
from four to three primary categories and the introduction
of an expected credit loss model for financial assets at amortised
cost. Implementation of these changes may require significant
judgement.
The classification of contracts relating to the Group’s marketing
operations is a judgemental area, particularly distinguishing sales
contracts where the Group physically delivers its own production
to a third party (“own use”), from those which form part of the
Group’s regular marketing operations. The majority of the
Group’s trades are measured at fair value through profit and loss.
Differences in classification affect the recognition of associated
gains and losses. Contracts which are designated as “own
use” are exempt from fair value measurement (i.e. mark-to-
market accounting).
Transactions for the sale or purchase of commodities may
contain a financing element and/or embedded derivatives, which
may require judgement in determining the most appropriate
classification, presentation and accounting treatment.
Refer to notes 1, 27 and 28.
Key observations
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Based on the results of our testing, we are satisfied that all significant assumptions applied in respect of the valuation and
classification of financial instruments are appropriate and that disclosures given around financial instruments are in accordance
with the requirements of IFRS.
Strategic ReportFinancial statementsGovernanceAdditional information
Independent Auditor’s Report to the members of Glencore plc continued
Credit and performance risk
Description of key audit matter
The Group is exposed to credit and performance risk arising
from the Group’s global production and marketing operations,
particularly in markets demonstrating significant price volatility
with limited liquidity and terminal markets.
This risk is heightened in times of increased price volatility,
where suppliers may be incentivised to default on delivery
and customers may be unwilling to take the deliveries or
unable to pay.
At 31 December 2018, total advances and loans and accounts
receivable classified as financial assets amounted to $926 million
and $14,355 million respectively. During the period, $191 million
of impairments of non-current financial assets were recognised
on non-current advances and loans.
Refer to notes 11, 13 and 27 and the Audit Committee Report
on page 109.
Key observations
How the scope of our audit responded to the key audit matter
We assessed the design and implementation of internal controls
relevant to the Group’s centralised and local credit and
performance risk monitoring procedures.
We challenged management’s assessment of the recoverability
of aged and overdue receivables, loans and advance payments
with delayed or overdue deliveries, considering historical patterns
of trading and settlement as well as recent communications with
the counterparties and other post balance sheet date evidence.
In addition, we challenged the valuation of significant fixed price
positions across the Group at year-end, with particular focus on
commodities demonstrating high price volatility during the year,
where the risk of non-performance is higher.
We concluded that the Group’s provisioning in relation to counterparty and performance risk was appropriately assessed.
Taxation: Uncertain tax positions and the recognition and recoverability of deferred taxes
Description of key audit matter
How the scope of our audit responded to the key audit matter
There is significant judgement around accounting for income
taxes particularly in light of the number of jurisdictions in which
the Group operates, including judgements concerning presence
of key corporate operations and holding companies, provisioning
for tax exposures, application of transfer pricing rules, the
recognition of deferred income tax assets and the taxation
impacts of any corporate restructurings.
As described in notes 6 and 7, and the Audit Committee
Report on page 109 the enactment of the 2018 DRC Mining
Code has introduced higher tax and royalty rates including a
new super profits tax (“SPT”) that overrides the existing tax
stability agreements with the DRC government. The calculation
of SPT is predicated on a base bankable feasibility study (“BFS”)
and the legality of the immediate application of the 2018 DRC
Mining Code is subject to legal challenge, therefore judgement
is required on how this legislation should be interpreted
and applied.
This gives rise to complexity and uncertainty in respect of
the calculation of income taxes and deferred tax assets and
consideration of contingent liabilities associated with tax years
open to audit and other exposures such as the implementation
of the 2018 DRC Mining Code.
As at 31 December 2018, the Group has recorded net deferred
tax liabilities of $6,839 million and net deferred tax assets of
$1,728 million. Additionally, the Group has $7,871 million of
available gross tax losses carried forward and deductible
temporary differences, for which no deferred tax assets have
been recognised. The assessment of tax-related contingent
liabilities has been disclosed in note 22.
Refer to “Key sources of estimation uncertainty” within note 1
and additional disclosures in notes 7 and 22, and the Audit
Committee Report on page 109.
Key observations
We undertook a specific assessment of the material components
impacting the Group’s transfer pricing arrangements, deferred
tax assets, and tax disputes and exposures, and performed the
following audit procedures:
• We considered the appropriateness of management's
assumptions and estimates to support the recognition of
deferred tax assets with reference to forecast taxable profits,
and the consistency of these forecasts with the Group's
budgets or underlying asset life of mine plans;
• We challenged management's application of the 2018 DRC
Mining Code, specifically focusing on the impact of the
legislation on impairment models and tax losses carried
forward, valuation of additional income tax accruals and
management's judgement on the SPT application, considering
any third party legal and tax opinions where relevant;
• We reviewed and challenged management's assessment
of uncertain tax positions and conclusions on complex tax
arrangements (such as transfer pricing) through discussions
with the Group taxation department, reviewing
correspondence with local tax authorities, reviewing third party
expert tax opinions and utilising Deloitte tax specialists, where
appropriate, to assess the adequacy of associated provisions
and disclosures; and
• We challenged management on the disclosures in the
financial statements in relation to taxation, specifically on the
requirement for adequate assessment of uncertainties and
contingent liabilities.
The results of our testing were satisfactory and we concurred that the recorded deferred tax assets and uncertain tax provisions and
related disclosures are appropriate.
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Credit and performance risk
Description of key audit matter
How the scope of our audit responded to the key audit matter
The Group is exposed to credit and performance risk arising
We assessed the design and implementation of internal controls
from the Group’s global production and marketing operations,
relevant to the Group’s centralised and local credit and
particularly in markets demonstrating significant price volatility
performance risk monitoring procedures.
with limited liquidity and terminal markets.
This risk is heightened in times of increased price volatility,
of aged and overdue receivables, loans and advance payments
where suppliers may be incentivised to default on delivery
with delayed or overdue deliveries, considering historical patterns
and customers may be unwilling to take the deliveries or
of trading and settlement as well as recent communications with
unable to pay.
the counterparties and other post balance sheet date evidence.
We challenged management’s assessment of the recoverability
At 31 December 2018, total advances and loans and accounts
In addition, we challenged the valuation of significant fixed price
receivable classified as financial assets amounted to $926 million
positions across the Group at year-end, with particular focus on
and $14,355 million respectively. During the period, $191 million
commodities demonstrating high price volatility during the year,
of impairments of non-current financial assets were recognised
where the risk of non-performance is higher.
on non-current advances and loans.
Refer to notes 11, 13 and 27 and the Audit Committee Report
on page 109.
Key observations
We concluded that the Group’s provisioning in relation to counterparty and performance risk was appropriately assessed.
Taxation: Uncertain tax positions and the recognition and recoverability of deferred taxes
Description of key audit matter
How the scope of our audit responded to the key audit matter
There is significant judgement around accounting for income
We undertook a specific assessment of the material components
taxes particularly in light of the number of jurisdictions in which
impacting the Group’s transfer pricing arrangements, deferred
the Group operates, including judgements concerning presence
tax assets, and tax disputes and exposures, and performed the
of key corporate operations and holding companies, provisioning
following audit procedures:
for tax exposures, application of transfer pricing rules, the
recognition of deferred income tax assets and the taxation
impacts of any corporate restructurings.
• We considered the appropriateness of management's
assumptions and estimates to support the recognition of
deferred tax assets with reference to forecast taxable profits,
As described in notes 6 and 7, and the Audit Committee
and the consistency of these forecasts with the Group's
Report on page 109 the enactment of the 2018 DRC Mining
budgets or underlying asset life of mine plans;
• We challenged management's application of the 2018 DRC
Mining Code, specifically focusing on the impact of the
legislation on impairment models and tax losses carried
forward, valuation of additional income tax accruals and
management's judgement on the SPT application, considering
any third party legal and tax opinions where relevant;
• We reviewed and challenged management's assessment
of uncertain tax positions and conclusions on complex tax
arrangements (such as transfer pricing) through discussions
with the Group taxation department, reviewing
correspondence with local tax authorities, reviewing third party
expert tax opinions and utilising Deloitte tax specialists, where
appropriate, to assess the adequacy of associated provisions
• We challenged management on the disclosures in the
financial statements in relation to taxation, specifically on the
requirement for adequate assessment of uncertainties and
contingent liabilities.
As at 31 December 2018, the Group has recorded net deferred
and disclosures; and
Code has introduced higher tax and royalty rates including a
new super profits tax (“SPT”) that overrides the existing tax
stability agreements with the DRC government. The calculation
of SPT is predicated on a base bankable feasibility study (“BFS”)
and the legality of the immediate application of the 2018 DRC
Mining Code is subject to legal challenge, therefore judgement
is required on how this legislation should be interpreted
and applied.
This gives rise to complexity and uncertainty in respect of
the calculation of income taxes and deferred tax assets and
consideration of contingent liabilities associated with tax years
open to audit and other exposures such as the implementation
of the 2018 DRC Mining Code.
tax liabilities of $6,839 million and net deferred tax assets of
$1,728 million. Additionally, the Group has $7,871 million of
available gross tax losses carried forward and deductible
temporary differences, for which no deferred tax assets have
been recognised. The assessment of tax-related contingent
liabilities has been disclosed in note 22.
Refer to “Key sources of estimation uncertainty” within note 1
and additional disclosures in notes 7 and 22, and the Audit
Committee Report on page 109.
Key observations
related disclosures are appropriate.
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Glencore Annual Report 2018
The results of our testing were satisfactory and we concurred that the recorded deferred tax assets and uncertain tax provisions and
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
$250 million (2017: $200 million)
The applied materiality is approximately 5% of normalised 3-year average pre-tax profit (2017: 7%),
and equates to less than 1% (2017: less than 1%) of equity.
Group
materiality
(US$ million)
250
200
Maximum allowed
component materiality
(US$ million)
Audit Committee
reporting threshold
(US$ million)
125
g
n
i
t
e
k
r
a
M
100 100 100
g
n
i
t
e
k
r
a
M
t
e
s
s
a
d
n
t
e
s
s
a
d
n
I
I
12
10
● 2018
● 2017
Basis for determining
materiality
Consistent with the methodology in the prior year, we have determined materiality by using a
percentage of a normalised 3-year average (2016 – 2018) of pre-tax profits. The selected materiality
is 3.5% of current year normalised pre-tax profit without the effect of averaging.
Rationale for the
benchmark applied
The normalising items are outlined in notes 4, 5 and 6 to the financial statements.
The pre-tax profits for the 2016-2018 years have been normalised in determining materiality to exclude
items which, due to their variable financial impact and/or expected infrequency of the underlying
events, are not considered indicative of continuing operations of the Group. These items do not form
part of the Group’s internally or externally monitored primary key performance indicators, and which
if included, would distort materiality year-on-year.
We consider this approach of using a 3-year average to be more appropriate than an assessment
based on current year results alone given the nature of the mining industry which is exposed to
cyclical commodity price fluctuations and to therefore provide a more appropriate base reflective
of the scale of the Group’s size and operations.
The maximum permitted component materiality for marketing operations has increased to
$125 million equating to 50% of materiality. Component materiality for industrial assets was limited
to $100 million owing to their lower contribution to pre-tax profits on an individual basis.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $12 million (2017:
$10 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on our continuing assessment, we focused our Group audit
scope primarily on the audit work at 42 components (2017: 47 components), representing the Group's most material marketing
operations and industrial assets, and utilised 24 component audit teams (2017: 23 component audit teams) in 20 countries
(2017: 20 countries)
• 27 components (2017: 27 components) were subject to a full scope audit; and
• 15 components (2017: 20 components) were subject to specified audit procedures where the extent of our testing was based
on our assessment of the risk of material misstatement and of the materiality of the Group's operations at those locations.
These 42 components account for 87% of the Group's net assets (2017: 93%), 96% of the Group's revenue (2017: 94%) and 98%
of the Group's adjusted EBITDA (2017: 89%).
Net assets (%)
Revenue (%)
Adjusted EBITDA (%)
13
15
72
4
96
2
98
Coverage
● Full scope audit
● Specified audit procedures
● Analytical procedures
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Components are scoped based on their contribution to financial metrics (revenue, EBIT and Adjusted EBITDA), production output
and qualitative criteria, such as being a significant development project or exhibiting particular risk factors.
Detailed audit instructions were sent to the auditors of these in-scope components. These detailed audit instructions specified
significant audit risks, areas of audit focus, identified the material account balances, classes of transactions, and disclosures and their
relevant risks of material misstatement as assessed by the Group audit team and set out the information to be reported back to the
Group audit team.
The Group audit team continued to follow a programme of regular on-site meetings with components designed to enable the Group
Audit Partner or another senior member of the Group audit team to periodically meet with local management and the component
audit team on a rotational basis. In 2018, the Group audit team held in-person meetings with 11 components (2017: 21 components).
Additionally for all in-scope components, the Group audit team was involved in the audit work performed by the component auditors
through a combination of our global planning conference call meetings, provision of referral instructions, review and challenge of
related component inter-office reporting and of findings from their work (which included the audit procedures performed to respond
to risks of material misstatement), attendance at component audit closing conference calls and regular interaction on any related
audit and accounting matters which arose.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion
that there was no reasonable possibility of a risk of material misstatement in the aggregated financial information of the remaining
components not subject to audit or audit of specified account balances.
We have nothing
to report in respect
of these matters.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
In this context, matters that we are specifically required to report as uncorrected material misstatements of
the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
• Directors' statement of compliance with the UK Corporate Governance Code – the parts of the directors'
statement required under the Listing Rules relating to the company's compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
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and qualitative criteria, such as being a significant development project or exhibiting particular risk factors.
Detailed audit instructions were sent to the auditors of these in-scope components. These detailed audit instructions specified
significant audit risks, areas of audit focus, identified the material account balances, classes of transactions, and disclosures and their
relevant risks of material misstatement as assessed by the Group audit team and set out the information to be reported back to the
Group audit team.
The Group audit team continued to follow a programme of regular on-site meetings with components designed to enable the Group
Audit Partner or another senior member of the Group audit team to periodically meet with local management and the component
audit team on a rotational basis. In 2018, the Group audit team held in-person meetings with 11 components (2017: 21 components).
Additionally for all in-scope components, the Group audit team was involved in the audit work performed by the component auditors
through a combination of our global planning conference call meetings, provision of referral instructions, review and challenge of
related component inter-office reporting and of findings from their work (which included the audit procedures performed to respond
to risks of material misstatement), attendance at component audit closing conference calls and regular interaction on any related
audit and accounting matters which arose.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion
that there was no reasonable possibility of a risk of material misstatement in the aggregated financial information of the remaining
components not subject to audit or audit of specified account balances.
Other information
to report in respect
of these matters.
included in the annual report, other than the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
In this context, matters that we are specifically required to report as uncorrected material misstatements of
the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's position and performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
• Directors' statement of compliance with the UK Corporate Governance Code – the parts of the directors'
statement required under the Listing Rules relating to the company's compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Components are scoped based on their contribution to financial metrics (revenue, EBIT and Adjusted EBITDA), production output
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud, are set out below.
The directors are responsible for the other information. The other information comprises the information
We have nothing
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
• enquiring of senior management, internal audit, members of the legal and compliance functions, and the audit committee,
including obtaining and reviewing supporting documentation, concerning the group's policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– reviewing internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team, including significant component audit teams, and involving relevant internal specialists,
including tax, valuations, and IT regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud. As part of these discussions, we identified potential for fraud in the following areas:
– bespoke transactions which may be outside the normal course of business or have an unclear business rationale, may contain
unusual or complex terms, or may involve counterparties that are high-risk and/or related parties;
– the complexity and magnitude of the group structure and the resulting risk that material transactions may be processed in
components that are not scoped in for the Group audit or the allocation of profit and/or costs between operating segments;
– management override of controls, in particular in relation to certain significant accounting judgements and key sources of
estimation uncertainty within management's testing of impairment of non-current assets within the scope of IAS 36; and
– revenue transactions in marketing operations that occur close to period end and have a significant gross margin impact which
contain complex terms and/or may be reversed subsequent to period end.
• obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the group.
The key laws and regulations we considered in this context included the Companies (Jersey) Law 1991, Primary and Secondary
Listing Rules, Disclosure and transparency rules on audit committees and corporate governance statements, the UK Corporate
Governance code and related guidance, the FRC ethical standards, the US Foreign Corrupt Practices Act, US Anti-Money
Laundering regulations and the UK Bribery Act 2010. In addition, compliance with the group's various operating licences,
environmental regulations, and tax legislation in the jurisdictions in which it operates are fundamental to the group's ability
to continue operating in those jurisdictions.
Audit response to risks identified
As a result of performing the above, Revenue Recognition and Impairments remain as key audit matters in relation to fraud risks.
The key audit matters section of our report explains these matters in more detail and also describes the specific procedures we
performed in response to these key audit matters.
In addition to the above and the procedures described in the relevant key audit matters section of our report, our procedures to
respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant
laws and regulations discussed above;
• enquiring of management, the audit committee, in-house legal counsel and external legal counsel (where applicable) concerning
actual and potential litigation and claims;
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• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• performing focused analytical procedures on key financial metrics of non-significant components to identify any unusual or
material transactions that may indicate a risk of material misstatement and evaluate the business rationale of such transactions;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with relevant regulatory and taxation authorities, where applicable;
• assessing the design and implementation of key controls within the compliance function at Group and at selected components
to further our understanding of management's processes around the Group's compliance obligations and monitoring; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments, with a particular focus on profit and cost allocations; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual
or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members,
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
Opinion on other matters prescribed by our engagement letter
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
provisions of the UK Companies Act 2006 as if that Act had applied to the company.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• proper accounting records have not been kept by the parent company or proper returns adequate for our
audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.
We have nothing
to report in respect
of these matters.
Other matters
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 22 August 2011 to audit
the financial statements of Glencore plc for the year ending 31 December 2011 and subsequent financial periods. The period of
total uninterrupted engagement including previous renewals and reappointments of the firm as auditors of Glencore plc is 8 years,
covering the years ending December 2011 to December 2018. During this period, the Engagement Partner has rotated after the
completion of the 2012 and 2017 audits.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Geoffrey Pinnock, CA (SA)
for and on behalf of Deloitte LLP
Recognised Auditor
London, UK
28 February 2019
134
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Independent Auditor’s Report to the members of Glencore plc continued
Consolidated statement of income
For the year ended 31 December 2018
US$ million
Revenue
Cost of goods sold
Selling and administrative expenses
Share of income from associates and joint ventures
(Loss)/gain on disposals and investments
Other (expense)/income – net
Impairments of non-current assets
Impairments of non-current financial assets
Dividend income
Interest income
Interest expense
Income before income taxes
Income tax expense
Income for the year
Attributable to:
Non-controlling interests
Equity holders of the Parent
Earnings per share:
Basic (US$)
Diluted (US$)
The accompanying notes are an integral part of the consolidated financial statements.
Notes
2/3
10
4
5
6
6
7
17
17
2018
219,754
(210,698)
(1,381)
1,043
(139)
(764)
(1,452)
(191)
21
228
(1,742)
4,679
(2,063)
2,616
(792)
3,408
0.24
0.24
2017
205,476
(197,695)
(1,310)
1,158
1,309
34
(479)
(149)
28
168
(1,619)
6,921
(1,759)
5,162
(615)
5,777
0.41
0.40
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• performing focused analytical procedures on key financial metrics of non-significant components to identify any unusual or
material transactions that may indicate a risk of material misstatement and evaluate the business rationale of such transactions;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence
with relevant regulatory and taxation authorities, where applicable;
• assessing the design and implementation of key controls within the compliance function at Group and at selected components
to further our understanding of management's processes around the Group's compliance obligations and monitoring; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments, with a particular focus on profit and cost allocations; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual
or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members,
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
Opinion on other matters prescribed by our engagement letter
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
provisions of the UK Companies Act 2006 as if that Act had applied to the company.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• proper accounting records have not been kept by the parent company or proper returns adequate for our
audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.
We have nothing
to report in respect
of these matters.
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 22 August 2011 to audit
the financial statements of Glencore plc for the year ending 31 December 2011 and subsequent financial periods. The period of
total uninterrupted engagement including previous renewals and reappointments of the firm as auditors of Glencore plc is 8 years,
covering the years ending December 2011 to December 2018. During this period, the Engagement Partner has rotated after the
completion of the 2012 and 2017 audits.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
This report is made solely to the company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we
Other matters
Auditor tenure
ISAs (UK).
Use of our report
have formed.
Geoffrey Pinnock, CA (SA)
for and on behalf of Deloitte LLP
Recognised Auditor
London, UK
28 February 2019
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135
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Strategic ReportFinancial statementsGovernanceAdditional information
Consolidated statement of comprehensive income
For the year ended 31 December 2018
US$ million
Income for the year
Notes
2018
2,616
2017
5,162
Other comprehensive income
Items not to be reclassified to the statement of income in subsequent periods:
Defined benefit plan actuarial (losses)/gains, net of tax of $10 million (2017: $32 million)
Loss on equity investments accounted for at fair value through other comprehensive income,
net of tax of $2 million (2017: $Nil)
Net items not to be reclassified to the statement of income in subsequent periods:
Items that have or may be reclassified to the statement of income in subsequent periods:
Exchange (loss)/gain on translation of foreign operations
Losses on cash flow hedges, net of tax of $1 million (2017: $5 million)
Share of other comprehensive (loss)/gain from associates and joint ventures
Unrealised gain on available for sale financial instruments
Items recycled to the statement of income upon disposal of subsidiaries
Net items that are or may be reclassified to the statement of income
in subsequent periods:
Other comprehensive (loss)/income
Total comprehensive income
Attributable to:
Non-controlling interests
Equity holders of the Parent
The accompanying notes are an integral part of the consolidated financial statements.
23
10
16
10
10
25
(35)
(848)
(883)
(711)
(18)
(124)
–
218
(635)
(1,518)
1,098
81
–
81
446
(165)
93
500
(143)
731
812
5,974
(841)
1,939
(672)
6,646
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136
Consolidated statement of comprehensive income
For the year ended 31 December 2018
Consolidated statement of financial position
As at 31 December 2018
US$ million
Income for the year
Other comprehensive income
Items not to be reclassified to the statement of income in subsequent periods:
Defined benefit plan actuarial (losses)/gains, net of tax of $10 million (2017: $32 million)
Loss on equity investments accounted for at fair value through other comprehensive income,
net of tax of $2 million (2017: $Nil)
Net items not to be reclassified to the statement of income in subsequent periods:
Items that have or may be reclassified to the statement of income in subsequent periods:
Exchange (loss)/gain on translation of foreign operations
Losses on cash flow hedges, net of tax of $1 million (2017: $5 million)
Share of other comprehensive (loss)/gain from associates and joint ventures
Unrealised gain on available for sale financial instruments
Items recycled to the statement of income upon disposal of subsidiaries
Net items that are or may be reclassified to the statement of income
23
10
16
10
10
25
in subsequent periods:
Other comprehensive (loss)/income
Total comprehensive income
Attributable to:
Non-controlling interests
Equity holders of the Parent
The accompanying notes are an integral part of the consolidated financial statements.
Notes
2018
2,616
2017
5,162
(35)
(848)
(883)
(711)
(18)
(124)
–
218
(635)
(1,518)
1,098
81
–
81
446
(165)
93
500
(143)
731
812
5,974
(841)
1,939
(672)
6,646
US$ million
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates and joint ventures
Other investments
Advances and loans
Other financial assets
Inventories
Deferred tax assets
Current assets
Inventories
Accounts receivable
Other financial assets
Prepaid expenses
Cash and cash equivalents
Assets held for sale
Total assets
Equity and liabilities
Capital and reserves – attributable to equity holders
Share capital
Reserves and retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Borrowings
Deferred income
Deferred tax liabilities
Other financial liabilities
Provisions including post-retirement benefits
Current liabilities
Borrowings
Accounts payable
Deferred income
Provisions
Other financial liabilities
Income tax payable
Liabilities held for sale
Total equity and liabilities
The accompanying notes are an integral part of the consolidated financial statements.
Notes
2018
2017
8
9
10
10
11
27
12
7
12
13
27
14
15
16
33
20
21
7
27
22
20
24
21
22
27
15
56,770
6,971
13,909
2,067
2,555
51
353
1,728
84,404
20,564
17,787
3,482
389
2,046
44,268
–
44,268
128,672
146
45,592
45,738
(355)
45,383
26,424
2,301
6,839
529
6,824
42,917
8,570
26,484
412
554
3,243
1,109
40,372
–
40,372
128,672
57,046
6,787
13,998
2,958
2,976
–
369
1,733
85,867
24,084
20,359
2,311
416
2,124
49,294
432
49,726
135,593
146
49,609
49,755
(300)
49,455
24,532
2,561
7,024
513
7,094
41,724
9,402
28,826
410
477
4,522
618
44,255
159
44,414
135,593
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137
Strategic ReportFinancial statementsGovernanceAdditional information
Consolidated statement of cash flows
For the year ended 31 December 2018
US$ million
Operating activities
Income before income taxes
Adjustments for:
Depreciation and amortisation
Share of income from associates and joint ventures
Streaming revenue and other non-current provisions
Loss/(gain) on disposals and investments
Unrealised mark-to-market movements on other investments
Impairments
Other non-cash items – net2
Interest expense – net
Cash generated by operating activities before working capital changes
Working capital changes
Decrease/(increase) in accounts receivable3
Decrease/(increase) in inventories
(Decrease)/increase in accounts payable4
Total working capital changes
Income taxes paid
Interest received
Interest paid
Net cash generated by operating activities
Investing activities
Net cash used in acquisition of subsidiaries
Net cash received from disposal of subsidiaries
Exchangeable loan provided for a conditional acquisition of an oil refinery/downstream
business
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Dividends received from associates and joint ventures
Net cash used by investing activities
1
2
3
4
Includes results from assets held for sale, see note 15.
Includes certain non-cash items as disclosed in note 5.
Includes movements in other financial assets, prepaid expenses and long-term advances and loans.
Includes movements in other financial liabilities, provisions and deferred income.
The accompanying notes are an integral part of the consolidated financial statements.
Notes
2018
4,679
6,325
(1,043)
(647)
139
(139)
1,643
739
1,514
13,210
2,734
3,539
(4,948)
1,325
(1,740)
183
(1,419)
11,559
(2,922)
88
(1,044)
(19)
16
(4,687)
136
1,139
(7,293)
10
4
5
6
25
25
13
8/9
10
20171
6,921
5,398
(1,158)
(187)
(1,321)
(290)
628
424
1,451
11,866
(1,165)
(5,614)
1,814
(4,965)
(921)
106
(1,269)
4,817
(674)
706
–
(378)
36
(3,586)
282
1,081
(2,533)
138
138
Glencore Annual Report 2018
Glencore Annual Report 2018
Consolidated statement of cash flows
As at 31 December 2018 continued
US$ million
Financing activities2
Proceeds from issuance of capital market notes3
Proceeds from issuance of non-dilutive convertible bonds3
Purchase of call options on non-dilutive convertible bonds
Repayment of capital market notes
Proceeds from revolving credit facility
Proceeds from other non-current borrowings
Repayment of finance lease obligations
Margin (calls)/receipts in respect of financing related hedging activities
(Repayment of)/proceeds from U.S. commercial papers
Proceeds from/(repayment of) current borrowings
Acquisition of non-controlling interests in subsidiaries
Return of capital/distributions to non-controlling interests
Purchase of own shares
Disposal of own shares
Distributions paid to equity holders of the Parent
Net cash used by financing activities
Decrease in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Includes results from assets held for sale, see note 15.
1
2 Refer to note 20 for reconciliation of movement in borrowings.
3 Net of issuance costs of $4 million (2017: $20 million).
Notes
2018
20171
185
576
(95)
(3,650)
4,624
15
(72)
(507)
(634)
439
(58)
(343)
(2,005)
27
(2,836)
(4,334)
(68)
(33)
2,147
2,046
2,026
–
–
(4,539)
501
19
(105)
1,255
1,180
(1,266)
(561)
(194)
–
17
(998)
(2,665)
(381)
21
2,508
2,148
16
18
Exchangeable loan provided for a conditional acquisition of an oil refinery/downstream
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2018
Notes
2018
US$ million
Operating activities
Income before income taxes
Adjustments for:
Depreciation and amortisation
Share of income from associates and joint ventures
Streaming revenue and other non-current provisions
Loss/(gain) on disposals and investments
Unrealised mark-to-market movements on other investments
Impairments
Other non-cash items – net2
Interest expense – net
Cash generated by operating activities before working capital changes
Working capital changes
Decrease/(increase) in accounts receivable3
Decrease/(increase) in inventories
(Decrease)/increase in accounts payable4
Total working capital changes
Income taxes paid
Interest received
Interest paid
Investing activities
Net cash generated by operating activities
Net cash used in acquisition of subsidiaries
Net cash received from disposal of subsidiaries
business
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Dividends received from associates and joint ventures
Net cash used by investing activities
1
2
3
4
Includes results from assets held for sale, see note 15.
Includes certain non-cash items as disclosed in note 5.
Includes movements in other financial assets, prepaid expenses and long-term advances and loans.
Includes movements in other financial liabilities, provisions and deferred income.
The accompanying notes are an integral part of the consolidated financial statements.
20171
6,921
5,398
(1,158)
(187)
(1,321)
(290)
628
424
1,451
11,866
(1,165)
(5,614)
1,814
(4,965)
(921)
106
(1,269)
4,817
(674)
706
–
(378)
36
(3,586)
282
1,081
(2,533)
4,679
6,325
(1,043)
(647)
139
(139)
1,643
739
1,514
13,210
2,734
3,539
(4,948)
1,325
(1,740)
183
(1,419)
11,559
(2,922)
88
(1,044)
(19)
16
(4,687)
136
1,139
(7,293)
10
4
5
6
25
25
13
8/9
10
138
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
139
139
Strategic ReportFinancial statementsGovernanceAdditional information
Consolidated statement of changes of equity
For the year ended 31 December 2018
(Deficit)/
retained
earnings
(3,739)
5,777
174
5,951
(60)
Share
premium
52,338
–
–
–
–
Other
reserves
(Note 16)
(2,802)
–
695
695
–
Own
shares
(Note 16)
(1,700)
–
–
–
125
Total
reserves
and
(deficit)/
retained
earnings
44,097
5,777
869
6,646
65
Total equity
attributable
to equity
holders
44,243
5,777
869
6,646
65
Non-
controlling
interests
(Note 33)
(462)
(615)
(57)
(672)
–
Share
capital
146
–
–
–
–
Total
equity
43,781
5,162
812
5,974
65
105
–
–
–
105
–
105
–
105
–
12
–
2,269
(25)
2,244
3,408
(159)
3,249
(153)
–
8
–
–
(5)
–
5,343
–
–
(998)
51,340
–
51,340
–
–
–
–
–
–
(318)
–
–
(2,425)
–
(2,425)
–
(1,310)
(1,310)
–
–
–
–
–
–
(1,575)
–
(1,575)
–
–
–
262
(318)
12
(998)
49,609
(25)
49,584
3,408
(1,469)
1,939
109
(2,005)
(2,005)
–
8
–
–
–
(2,836)
48,504
(1,207)
–
5
–
(4,937)
–
–
–
–
(3,318)
(1,207)
–
–
(2,836)
45,592
–
–
–
146
–
146
–
–
–
–
–
–
–
–
–
146
(318)
12
(998)
49,755
(25)
49,730
3,408
(1,469)
1,939
109
(2,005)
8
(1,207)
–
–
(2,836)
45,738
(676)
1,704
(194)
(300)
–
(300)
(792)
(49)
(841)
–
–
–
1,108
21
–
(343)
(355)
(997)
1,716
(1,192)
49,455
(25)
49,430
2,616
(1,518)
1,098
109
(2,005)
8
(99)
21
–
(3,179)
45,383
US$ million
1 January 2017
Income for the year
Other comprehensive income
Total comprehensive income
Own share disposal1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries
Acquisition/disposal of business3
Distributions paid4
At 31 December 2017
Impact from the adoption of IFRS 95
1 January 2018
Income for the year
Other comprehensive income
Total comprehensive income
Own share disposal1
Own share purchases1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries6
Acquisition/disposal of business3
Reclassifications
Distributions paid4
At 31 December 2018
1 See note 16.
2 See note 19.
3 See note 25.
4 See note 18.
5 See note 1.
6 See note 33.
The accompanying notes are an integral part of the consolidated financial statements.
140
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Glencore Annual Report 2018
Glencore Annual Report 2018
Consolidated statement of changes of equity
Notes to the financial statements
For the year ended 31 December 2018
(Deficit)/
retained
earnings
Share
premium
Other
reserves
(Note 16)
Own
shares
(Note 16)
Total equity
Non-
attributable
controlling
Share
capital
to equity
holders
interests
(Note 33)
Total
equity
(3,739)
52,338
(2,802)
(1,700)
44,097
146
44,243
(462)
43,781
Total
reserves
and
(deficit)/
retained
earnings
5,777
869
6,646
65
105
(318)
12
(998)
(25)
3,408
(1,469)
1,939
109
8
–
–
125
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
262
(2,005)
(2,005)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
695
695
(318)
–
–
–
–
–
–
–
–
–
–
5
–
(1,310)
(1,310)
5,777
869
6,646
65
105
(318)
12
(998)
(25)
3,408
(1,469)
1,939
109
(2,005)
8
–
–
(615)
(57)
(672)
–
–
(676)
1,704
(194)
(300)
–
(300)
(792)
(49)
(841)
–
–
–
21
–
5,162
812
5,974
65
105
(997)
1,716
(1,192)
49,455
(25)
49,430
2,616
(1,518)
1,098
109
(2,005)
8
(99)
21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,207)
(1,207)
(1,207)
1,108
(2,836)
(2,836)
(2,836)
5,343
48,504
(4,937)
(3,318)
45,592
146
45,738
(343)
(355)
(3,179)
45,383
(998)
2,269
51,340
(2,425)
(1,575)
49,609
146
49,755
51,340
(2,425)
(1,575)
49,584
146
49,730
Impact from the adoption of IFRS 95
US$ million
1 January 2017
Income for the year
Other comprehensive income
Total comprehensive income
Own share disposal1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries
Acquisition/disposal of business3
Distributions paid4
At 31 December 2017
1 January 2018
Income for the year
Other comprehensive income
Total comprehensive income
Own share disposal1
Own share purchases1
Equity-settled share-based
expenses2
Change in ownership interest
in subsidiaries6
Acquisition/disposal of business3
Reclassifications
Distributions paid4
At 31 December 2018
1 See note 16.
2 See note 19.
3 See note 25.
4 See note 18.
5 See note 1.
6 See note 33.
5,777
174
5,951
(60)
105
–
12
–
(25)
2,244
3,408
(159)
3,249
(153)
–
8
–
–
(5)
–
The accompanying notes are an integral part of the consolidated financial statements.
1. Accounting policies
Corporate information
Glencore plc (the “Company”, “Parent”, the “Group” or “Glencore”), is a leading integrated producer and marketer of natural resources,
with worldwide activities in the production, refinement, processing, storage, transport and marketing of metals and minerals, energy
products and agricultural products. Glencore operates on a global scale, marketing and distributing physical commodities sourced
from third party producers and own production to industrial consumers, such as those in the automotive, steel, power generation,
oil and food processing industries. Glencore also provides financing, logistics and other services to producers and consumers of
commodities. In this regard, Glencore seeks to capture value throughout the commodity supply chain. Glencore’s long experience
as a commodity producer and merchant has allowed it to develop and build upon its expertise in the commodities which it markets
and cultivate long-term relationships with a broad supplier and customer base across diverse industries and in multiple
geographic regions.
Glencore plc is a publicly traded limited company incorporated in Jersey and domiciled in Switzerland. Its ordinary shares are traded
on the London and Johannesburg stock exchanges. On 31 January 2018, the Company delisted its shares from the Hong Kong
stock exchange.
These consolidated financial statements were authorised for issue in accordance with a Directors’ resolution on 28 February 2019.
Statement of compliance
The consolidated financial statements have been prepared in accordance with:
• International Financial Reporting Standards (IFRS) and interpretations as adopted by the European Union (EU) effective for the
year ended 31 December 2018, and
• IFRS and interpretations as issued by the International Accounting Standards Board (IASB) effective for the year ended
31 December 2018.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions
are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable and relevant under the circumstances, independent estimates, quoted market prices and common,
industry standard modelling techniques. Actual outcomes could result in a material adjustment to the carrying amount of assets
or liabilities affected in future periods.
Glencore has identified the following areas as being critical to understanding Glencore’s financial position as they require management
to make complex and/or subjective judgements, estimates and assumptions about matters that are inherently uncertain:
Critical accounting judgements
In the process of applying Glencore’s accounting policies, management has made the following judgements based on the relevant
facts and circumstances including macro-economic circumstances and, where applicable, interpretation of underlying agreements,
which have the most significant effect on the amounts recognised in the consolidated financial statements.
(i) Determination of control of subsidiaries and joint arrangements (note 35)
Judgement is required to determine when Glencore has control of subsidiaries or joint control of joint or other unincorporated
arrangements. This requires an assessment of the relevant activities (those relating to the operating and capital decisions of
the arrangement, such as: the approval of the capital expenditure programme for each year, and appointing, remunerating
and terminating the key management personnel or service providers of the operations) and when the decisions in relation to
those activities are under the control of Glencore or require unanimous consent. See note 25 for a summary of the acquisitions
of subsidiaries completed during the year and the key judgements made in determining control thereof.
Judgement is also required in determining the classification of a joint arrangement between a joint venture or a joint operation
through an evaluation of the rights and obligations arising from the arrangement and in particular, if the joint arrangement
has been structured through a separate vehicle, further consideration is required of whether:
(1) the legal form of the separate vehicle gives the parties rights to the assets and obligations for the liabilities;
(2) the contractual terms and conditions give the parties rights to the assets and obligations for the liabilities; and
(3) other facts and circumstances give the parties rights to the assets and obligations for the liabilities.
Joint arrangements in which the primary activity is the provision of output to the shareholders, typically convey substantially
all the economic benefits of the assets to the parties and judgement is required in assessing whether the terms of the offtake
agreements and any other obligations for liabilities of the arrangement result in the parties being substantially the only source
of cash flows contributing to the continuity of the operations of the arrangement.
140
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Glencore Annual Report 2018
Glencore Annual Report 2018
141
141
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
1. Accounting policies continued
Certain joint arrangements that are structured through separate vehicles including Collahuasi and Glencore Agri are accounted
for as joint ventures. The Collahuasi arrangement is primarily designed for the provision of output to the shareholders sharing joint
control, the offtake terms of which are at prevailing market prices and the parties are not obligated to cover any potential funding
shortfalls. In management’s judgement, Glencore is not the only possible source of funding and does not have a direct or indirect
obligation to the liabilities of the arrangement, but rather shares in its net assets and, therefore, such arrangements have been
accounted for as joint ventures.
Differing conclusions around these judgements, may materially impact how these businesses are presented in the consolidated
financial statements – under the full consolidation method, equity method or recognition of Glencore’s share of assets, liabilities,
revenue and expenses, including any assets or liabilities held jointly. See note 10 for a summary of these joint arrangements and
the key judgements made in determining the applicable accounting treatment for the material joint arrangements entered during
the year.
(ii) Classification of transactions which contain a financing element (notes 20, 21 and 24)
Transactions for the purchase of commodities may contain a financing element such as extended payment terms. Under such an
arrangement, a financial institution may issue a letter of credit on behalf of Glencore and act as the paying party upon delivery of
product by the supplier and Glencore will subsequently settle the liability directly with the financial institution, generally from 30
up to 90 days after physical supply. Judgement is required to determine the most appropriate classification and presentation of these
transactions within the statements of cash flows and financial position. In determining the appropriate classification, management
considers the underlying economic substance of the transaction and the significance of the financing element to the transaction.
Typically, the economic substance of the transaction is determined to be operating in nature as the financing element is insignificant
and the time frame in which the original arrangement is extended by, is consistent and within supply terms commonly provided
in the market. As a result, the entire cash flow is presented as operating in the statement of cash flow with a corresponding trade
payable in the statement of financial position. As at 31 December 2018, trade payables include $5,152 million (2017: $6,673 million) of
such liabilities arising from supplier financing arrangements, the weighted average of which have extended the settlement of the
original payable to 59 days (2017: 80 days) after physical supply and are due for settlement 29 days (2017: 42 days) after year end.
(iii) Classification of trade receivables and liabilities at amortised cost or fair value through profit and loss (notes 13, 24 and 28)
Judgement is required to determine the appropriate IFRS 9 classification of trade receivables containing provisional pricing features
(i.e. the final selling price is subject to movements in market prices after the date of sale) to be measured at amortised cost or fair
value through profit and loss. This requires an assessment of the exposure of the underlying trade receivable to future movements in
market prices at the date of initial recognition of such receivable, which is typically the date of delivery of the goods. Those receivables
that are exposed to future movements in market prices have contractual cash flow characteristics that are not solely payments of
principal and interest and are therefore measured at fair value through profit or loss (see notes 13 and 28). For those receivables that
are not exposed to future movements in market prices, a further assessment of the business model for managing the receivables is
required to determine the appropriate classification and measurement. The business model pertaining to those receivables that do
not contain provisional pricing features is to hold the assets to collect the contractual cash flows and as such, these financial assets
are classified as at “amortised cost” (see note 13).
A similar assessment is undertaken for trade payables, and for those payables that contain provisional price features, the Group
elected to designate the entire payable as at fair value through profit and loss consistent with the accounting for provisionally priced
receivables. The balance of trade payables are classified as at “amortised cost” (see notes 24 and 28).
Differing conclusions around classification of these instruments, may impact the presentation of these financial assets or liabilities
within their respective note disclosures. However, as these types of financial assets and liabilities have short maturities, any estimation
uncertainty related to these judgements and/or a differing measurement criteria (i.e. an expected credit loss impairment model or fair
value methodology) is not anticipated to result in a material change to the carrying value of the financial asset or liability within the
next financial year.
142
142
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
Certain joint arrangements that are structured through separate vehicles including Collahuasi and Glencore Agri are accounted
for as joint ventures. The Collahuasi arrangement is primarily designed for the provision of output to the shareholders sharing joint
control, the offtake terms of which are at prevailing market prices and the parties are not obligated to cover any potential funding
shortfalls. In management’s judgement, Glencore is not the only possible source of funding and does not have a direct or indirect
obligation to the liabilities of the arrangement, but rather shares in its net assets and, therefore, such arrangements have been
accounted for as joint ventures.
Differing conclusions around these judgements, may materially impact how these businesses are presented in the consolidated
financial statements – under the full consolidation method, equity method or recognition of Glencore’s share of assets, liabilities,
revenue and expenses, including any assets or liabilities held jointly. See note 10 for a summary of these joint arrangements and
the key judgements made in determining the applicable accounting treatment for the material joint arrangements entered during
the year.
(ii) Classification of transactions which contain a financing element (notes 20, 21 and 24)
Transactions for the purchase of commodities may contain a financing element such as extended payment terms. Under such an
arrangement, a financial institution may issue a letter of credit on behalf of Glencore and act as the paying party upon delivery of
product by the supplier and Glencore will subsequently settle the liability directly with the financial institution, generally from 30
up to 90 days after physical supply. Judgement is required to determine the most appropriate classification and presentation of these
transactions within the statements of cash flows and financial position. In determining the appropriate classification, management
considers the underlying economic substance of the transaction and the significance of the financing element to the transaction.
Typically, the economic substance of the transaction is determined to be operating in nature as the financing element is insignificant
and the time frame in which the original arrangement is extended by, is consistent and within supply terms commonly provided
in the market. As a result, the entire cash flow is presented as operating in the statement of cash flow with a corresponding trade
payable in the statement of financial position. As at 31 December 2018, trade payables include $5,152 million (2017: $6,673 million) of
such liabilities arising from supplier financing arrangements, the weighted average of which have extended the settlement of the
original payable to 59 days (2017: 80 days) after physical supply and are due for settlement 29 days (2017: 42 days) after year end.
(iii) Classification of trade receivables and liabilities at amortised cost or fair value through profit and loss (notes 13, 24 and 28)
Judgement is required to determine the appropriate IFRS 9 classification of trade receivables containing provisional pricing features
(i.e. the final selling price is subject to movements in market prices after the date of sale) to be measured at amortised cost or fair
value through profit and loss. This requires an assessment of the exposure of the underlying trade receivable to future movements in
market prices at the date of initial recognition of such receivable, which is typically the date of delivery of the goods. Those receivables
that are exposed to future movements in market prices have contractual cash flow characteristics that are not solely payments of
principal and interest and are therefore measured at fair value through profit or loss (see notes 13 and 28). For those receivables that
are not exposed to future movements in market prices, a further assessment of the business model for managing the receivables is
required to determine the appropriate classification and measurement. The business model pertaining to those receivables that do
not contain provisional pricing features is to hold the assets to collect the contractual cash flows and as such, these financial assets
are classified as at “amortised cost” (see note 13).
A similar assessment is undertaken for trade payables, and for those payables that contain provisional price features, the Group
elected to designate the entire payable as at fair value through profit and loss consistent with the accounting for provisionally priced
receivables. The balance of trade payables are classified as at “amortised cost” (see notes 24 and 28).
Differing conclusions around classification of these instruments, may impact the presentation of these financial assets or liabilities
within their respective note disclosures. However, as these types of financial assets and liabilities have short maturities, any estimation
uncertainty related to these judgements and/or a differing measurement criteria (i.e. an expected credit loss impairment model or fair
value methodology) is not anticipated to result in a material change to the carrying value of the financial asset or liability within the
next financial year.
1. Accounting policies continued
1. Accounting policies continued
Key sources of estimation uncertainty
In the process of applying Glencore’s accounting policies, management has made key estimates and assumptions concerning
the future and other key sources of estimation uncertainty. The key assumptions and estimates at the reporting date that have
a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year,
are described below. Actual results may differ from these estimates under different assumptions and conditions and may materially
affect financial results or the financial position reported in future periods.
(i) Recognition of deferred tax assets (note 7)
Deferred tax assets are recognised only to the extent it is considered probable that those assets will be recoverable. This involves
an assessment of when those deferred tax assets are likely to reverse, and a judgement as to whether there will be sufficient taxable
income available to offset the tax assets when they do reverse. These judgements and estimates are subject to risk and uncertainty
and therefore, to the extent assumptions regarding future profitability change, there can be a material increase or decrease in the
amounts recognised in the consolidated statement of income in the period in which the change occurs. The recoverability of deferred
tax assets including the estimates and assumptions contained therein are reviewed regularly by management.
(ii) Impairments and impairment reversals (note 6)
Investments in associates and joint ventures, other investments, advances and loans, property, plant and equipment and intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully
recoverable or at least annually for goodwill and other indefinite life intangible assets. If an asset’s recoverable amount is less than
the asset’s carrying amount, an impairment loss is recognised in the consolidated statement of income. For those assets which
were impaired in prior periods, if their recoverable amount exceeds their carrying amount, an impairment reversal is recorded
in the consolidated statement of income. Future cash flow estimates which are used to calculate the asset’s fair value are discounted
using asset specific discount rates and are based on expectations about future operations, primarily comprising estimates about
production and sales volumes, commodity prices (considering current and future prices, price trends and related factors), reserves
and resources, operating costs and capital expenditures. Estimates are reviewed regularly by management. Changes in such
estimates and in particular, deterioration in the commodity pricing outlook, could impact the recoverable values of these assets,
whereby some or all of the carrying amount may be impaired or the impairment charge reversed (if pricing outlook improves
significantly) with the impact recorded in the statement of income.
(iii) Restoration, rehabilitation and decommissioning costs (note 22)
A provision for future restoration, rehabilitation and decommissioning costs requires estimates and assumptions to be made
around the relevant regulatory framework, the magnitude of the possible disturbance and the timing, extent and costs of the
required closure and rehabilitation activities. Most of these rehabilitation and decommissioning events are expected to take place
many years in the future and the currently estimated requirements and costs that will have to be met when the restoration event
occurs are inherently uncertain and could materially change over time.
In calculating the appropriate provision for the expected restoration, rehabilitation or decommissioning obligations, cost estimates
of the future potential cash outflows based on current studies of the expected rehabilitation activities and timing thereof, are
prepared. These forecasts are then discounted to their present value using a risk-free rate specific to the liability and the currency
in which they are denominated.
Any changes in the expected future costs or risk-free rate are initially reflected in both the provision and the asset and subsequently
in the consolidated statement of income over the remaining economic life of the asset. As the actual future costs can differ from the
estimates due to changes in laws, regulations, technology, costs and timing, the provisions including the estimates and assumptions
contained therein are reviewed regularly by management.
(iv) Fair value measurements (notes 10, 11, 12, 13, 24, 25, 27 and 28)
In addition to recognising derivative instruments at fair value, as discussed below, an assessment of the fair value of assets and
liabilities is also required in accounting for other transactions, most notably, business combinations and marketing inventories and
disclosures related to fair values of financial assets and liabilities. In such instances, fair value measurements are estimated based on
the amounts for which the assets and liabilities could be exchanged at the relevant transaction date or reporting period end, and are
therefore not necessarily reflective of the cash flow upon actual settlements. Where fair value measurements cannot be derived from
publicly available information, they are estimated using models and other valuation methods. To the extent possible, the assumptions
and inputs used take into account externally verifiable inputs. However, such information is by nature subject to uncertainty,
particularly where comparable market-based transactions often do not exist.
Derivative instruments are carried at fair value for which Glencore evaluates the quality and reliability of the assumptions and data
used to measure fair value in the three hierarchy levels, Level 1, 2 and 3, as prescribed by IFRS 13 Fair Value Measurement. Fair values
are determined in the following ways: externally verified via comparison to quoted market prices in active markets (Level 1); by using
models with externally verifiable inputs (Level 2); or by using alternative procedures such as comparison to comparable instruments
and/or using models with unobservable market inputs requiring Glencore to make market-based assumptions (Level 3). Level 3
inputs therefore include the highest level of estimation uncertainty.
Adoption of revised standards
In the current year, Glencore has adopted a number of new and revised IFRS standards that became effective as of 1 January 2018:
(i) Amendments to IFRS 2 – Classification and measurement of share-based payment transactions
The amendments to IFRS 2 Share-based payments clarify the classification and measurement of share-based payments transactions
with respect to accounting for cash-settled share-based payment transactions that include a performance obligation, the classification
of share-based payment transactions with net settlement features and the accounting for modifications of share-based payment
transactions from cash-settled to equity-settled. The adoption of this amendment has had no material impact on the Group.
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Notes to the financial statements continued
1. Accounting policies continued
(ii) IFRS 9 – Financial Instruments
IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement” and covers classification and measurement
of financial assets and financial liabilities, impairment of financial assets and hedge accounting. IFRS 9 modifies the classification
and measurement of certain classes of financial assets and liabilities and required the Group to reassess classification of financial
assets from four to three primary categories (amortised cost, fair value through profit and loss, fair value through other comprehensive
income), reflecting the business model in which assets are managed and their cash flow characteristics. Financial liabilities continue
to be measured at either fair value through profit and loss or amortised cost. In addition, IFRS 9 introduced an expected credit loss
(“ECL”) impairment model, which means that anticipated as opposed to incurred credit losses are recognised resulting in earlier
recognition of impairments.
Changes in accounting policies resulting from IFRS 9 have been applied as at 1 January 2018, with no restatement of comparative
information for prior year other than certain presentation changes. Consequently, any difference between the carrying amount of
financial instruments under IAS 39 and the carrying amount under IFRS 9 has been recognised in the opening retained earnings
as at date of initial application.
The following summarises the impact from the adoption of IFRS 9:
• Presentational changes primarily in the investments (note 10), advances and loans (note 11), accounts receivable (note 13) and
accounts payable (note 24) note disclosures to reflect the business model and cash flow characteristics of these assets and liabilities
and group them into their respective IFRS 9 category or other IFRS classification;
• Additional disclosure around classification and measurement of financial instruments (notes 27 and 28 and Table 1 below); and
• An additional net credit loss allowance and fair value adjustment of $25 million as at 1 January 2018, recognised against opening
retained earnings. Also see Table 2 below.
Table 1: Summary of the change in classification and measurement of financial assets and liabilities under IFRS 9 and IAS 39 at the
date of initial application, 1 January 2018:
Notes
Original measurement
category under IAS 39
New measurement category
under IFRS 9
Original
carrying
amounts
under IAS 39
Effect of
IFRS 9
adoption
New carrying
amount
under IFRS 9
US$ million
Financial assets
Investments in equity instruments
Other investments in equity
instruments1
Loans to associates
Other non-current receivables
and loans
Rehabilitation trust fund
Trade receivables and advances
Trade receivables containing
provisional pricing features 2
Margin calls paid
Receivables from associated
companies
Other receivables
10 Available-for-sale
investments
10 Fair value through profit
and loss
11 Loans and receivables
11 Loans and receivables
Fair value through other
comprehensive income
Fair value through other
comprehensive income
Amortised cost
Amortised cost
11 Loans and receivables
13 Loans and receivables
13 Loans and receivables
13 Loans and receivables
Amortised cost
Amortised cost
Fair value through profit
and loss
Amortised cost
13 Loans and receivables
Amortised cost
13 Loans and receivables
Amortised cost
Other financial assets
28 Fair value through profit
and loss
Cash and cash equivalents
14 Fair value through profit
Fair value through profit
and loss
Amortised cost
Financial liabilities
Borrowings
Trade payables
Trade payables containing provisional
pricing features2
Margin calls received
and loss
20 Amortised cost
24 Amortised cost
24 Amortised cost
24 Amortised cost
Amortised cost
Amortised cost
Fair value through profit
and loss
Amortised cost
Payables to associated companies
24 Amortised cost
Other payables and accrued liabilities
24 Amortised cost
Amortised cost
Amortised cost
Other financial liabilities
28 Fair value through profit
and loss
Fair value through profit
and loss
2,268
204
220
804
126
4,642
7,292
3,380
517
621
2,311
2,124
(33,934)
(8,642)
(16,022)
(443)
(1,052)
(2,015)
(5,035)
2,268
204
220
795
126
4,626
7,264
3,380
516
618
2,311
2,124
(33,934)
(8,642)
(15,989)
(443)
(1,052)
(2,015)
(5,035)
–
–
–
(10)
–
(16)
(28)
–
(1)
(3)
–
–
–
–
33
–
–
–
–
(25)
1 The Group designated all eligible equity investments as fair value through other comprehensive income and upon adoption of IFRS 9, $204 million of investments previously
classified as fair value through profit and loss were designated as fair value through other comprehensive income. As a result of the designation of these investments, a fair value loss
of $848 million was recognised in other comprehensive income during 2018. In 2017, fair value movements recognised on these investments in the consolidated statement of income
were $11 million.
2 Prior to the adoption of IFRS 9, the Group accounted for provisionally priced features (embedded derivatives) in certain of its trade receivables and payables at fair value and
movements in fair value were recognised in the consolidated statement of income. The accounting for trade receivables containing an embedded derivative under IFRS 9 is that
such provisionally priced trade receivables are now accounted for as one instrument measured at fair value through profit and loss until final settlement. Furthermore, upon adoption
of IFRS 9, the Group elected to designate trade payables containing embedded derivatives at fair value through profit and loss consistent with the accounting required for trade
receivables containing an embedded derivative to eliminate any accounting mismatches that would have arisen.
144
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Notes to the financial statements continued
1. Accounting policies continued
(ii) IFRS 9 – Financial Instruments
IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement” and covers classification and measurement
of financial assets and financial liabilities, impairment of financial assets and hedge accounting. IFRS 9 modifies the classification
and measurement of certain classes of financial assets and liabilities and required the Group to reassess classification of financial
assets from four to three primary categories (amortised cost, fair value through profit and loss, fair value through other comprehensive
income), reflecting the business model in which assets are managed and their cash flow characteristics. Financial liabilities continue
to be measured at either fair value through profit and loss or amortised cost. In addition, IFRS 9 introduced an expected credit loss
(“ECL”) impairment model, which means that anticipated as opposed to incurred credit losses are recognised resulting in earlier
recognition of impairments.
Changes in accounting policies resulting from IFRS 9 have been applied as at 1 January 2018, with no restatement of comparative
information for prior year other than certain presentation changes. Consequently, any difference between the carrying amount of
financial instruments under IAS 39 and the carrying amount under IFRS 9 has been recognised in the opening retained earnings
as at date of initial application.
The following summarises the impact from the adoption of IFRS 9:
• Presentational changes primarily in the investments (note 10), advances and loans (note 11), accounts receivable (note 13) and
accounts payable (note 24) note disclosures to reflect the business model and cash flow characteristics of these assets and liabilities
and group them into their respective IFRS 9 category or other IFRS classification;
• Additional disclosure around classification and measurement of financial instruments (notes 27 and 28 and Table 1 below); and
• An additional net credit loss allowance and fair value adjustment of $25 million as at 1 January 2018, recognised against opening
retained earnings. Also see Table 2 below.
date of initial application, 1 January 2018:
Table 1: Summary of the change in classification and measurement of financial assets and liabilities under IFRS 9 and IAS 39 at the
Original measurement
New measurement category
Notes
category under IAS 39
under IFRS 9
under IAS 39
adoption
under IFRS 9
Original
carrying
amounts
Effect of
New carrying
IFRS 9
amount
US$ million
Financial assets
instruments1
Loans to associates
and loans
Investments in equity instruments
10 Available-for-sale
investments
Fair value through other
comprehensive income
Other investments in equity
10 Fair value through profit
Fair value through other
and loss
comprehensive income
11 Loans and receivables
Amortised cost
Other non-current receivables
11 Loans and receivables
Amortised cost
Rehabilitation trust fund
11 Loans and receivables
Amortised cost
Trade receivables and advances
13 Loans and receivables
Amortised cost
Trade receivables containing
provisional pricing features 2
Margin calls paid
13 Loans and receivables
Fair value through profit
and loss
13 Loans and receivables
Amortised cost
Receivables from associated
13 Loans and receivables
Amortised cost
companies
Other receivables
Other financial assets
28 Fair value through profit
Fair value through profit
13 Loans and receivables
Amortised cost
Cash and cash equivalents
14 Fair value through profit
Amortised cost
and loss
and loss
20 Amortised cost
24 Amortised cost
24 Amortised cost
and loss
Amortised cost
Amortised cost
and loss
Amortised cost
Amortised cost
Amortised cost
Trade payables containing provisional
24 Amortised cost
Fair value through profit
Payables to associated companies
24 Amortised cost
Other payables and accrued liabilities
24 Amortised cost
Other financial liabilities
28 Fair value through profit
Fair value through profit
and loss
and loss
Financial liabilities
Borrowings
Trade payables
pricing features2
Margin calls received
2,268
204
220
804
126
4,642
7,292
3,380
517
621
2,311
2,124
(33,934)
(8,642)
(16,022)
(443)
(1,052)
(2,015)
(5,035)
2,268
204
220
795
126
4,626
7,264
3,380
516
618
2,311
2,124
(33,934)
(8,642)
(15,989)
(443)
(1,052)
(2,015)
(5,035)
–
–
–
(10)
–
(16)
(28)
–
(1)
(3)
–
–
–
–
–
–
–
–
33
(25)
1 The Group designated all eligible equity investments as fair value through other comprehensive income and upon adoption of IFRS 9, $204 million of investments previously
classified as fair value through profit and loss were designated as fair value through other comprehensive income. As a result of the designation of these investments, a fair value loss
of $848 million was recognised in other comprehensive income during 2018. In 2017, fair value movements recognised on these investments in the consolidated statement of income
were $11 million.
2 Prior to the adoption of IFRS 9, the Group accounted for provisionally priced features (embedded derivatives) in certain of its trade receivables and payables at fair value and
movements in fair value were recognised in the consolidated statement of income. The accounting for trade receivables containing an embedded derivative under IFRS 9 is that
such provisionally priced trade receivables are now accounted for as one instrument measured at fair value through profit and loss until final settlement. Furthermore, upon adoption
of IFRS 9, the Group elected to designate trade payables containing embedded derivatives at fair value through profit and loss consistent with the accounting required for trade
receivables containing an embedded derivative to eliminate any accounting mismatches that would have arisen.
1. Accounting policies continued
Table 2: Summary of net credit loss and fair value adjustments recognised on initial adoption of IFRS 9:
US$ million
Financial assets at amortised cost
Other non-current receivables and
loans
Trade receivables and advances
Receivables from associated
companies
Other receivables
Financial assets and liabilities at
fair value through profit and loss
Trade receivables, containing
provisional pricing features
Trade payables, containing
provisional pricing features
Notes
Measurement attributes
11 ECL is determined based on different scenarios of probability of
default and expected loss applicable to each specific loan
13 ECL is estimated using a provision matrix based on reference to past
default experience, adjusted as appropriate for current observable
data
13 ECL is estimated using a provision matrix based on historical average
default rates of similar credit quality counterparties
13 ECL is determined based on different scenarios of probability of
default and expected loss for each of the specific balances
13/28 Based on observable quoted commodity prices adjusted by a
discount rate, which captures the time value of money and
counterparty credit considerations.
24/28
Effect of IFRS 9 adoption
recognised as at
1 January 2018
(10)
(16)
(1)
(3)
(28)
33
(25)
(iii) IFRS 15 – Revenue from Contracts with Customers
IFRS 15 applies to revenue from contracts with customers and replaces all of the revenue standards and interpretations in IFRS.
The standard outlines the principles an entity must apply to measure and recognise revenue and the related cash flows. The Group
has undertaken a comprehensive analysis of the impact of the new standard based on a review of the contractual terms of its
principal revenue streams with the primary focus being to understand whether the timing and amount of revenue recognised
could differ under IFRS 15. Changes in accounting policies resulting from IFRS 15 have been applied using the full retrospective
method, with no restatement of comparative information for prior year in accordance with the practical expedient not to restate
contracts that begin and end within the same annual reporting period or have been completed as at 1 January 2017. As the majority
of the Group’s revenue is derived from commodity sales, for which the point of recognition is dependent upon contract sales terms
(Incoterms), the transfer of risks and rewards as defined by IAS 18 and the transfer of control as defined by IFRS 15 generally coincides
with the fulfilment of performance obligations under the Incoterms at a point in time. As such, the adoption of IFRS 15 has had no
material impact in respect of timing and amount of revenue recognised by the Group and accordingly prior period amounts were
not restated.
New and revised standards not yet effective
At the date of authorisation of these consolidated financial statements, the following new and revised IFRS standards, which are
applicable to Glencore, were issued but are not yet effective:
(i) IFRS 16 – Leases – effective for year ends beginning on or after 1 January 2019
IFRS 16 provides a comprehensive model for identification of lease arrangements and their treatment (on-balance sheet) in the
financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretative guidance. The Group
will apply the modified retrospective approach. Under this approach, the Group will not restate amounts previously reported and will
apply the practical expedient to retain the classification of existing contracts as leases under current accounting standards (i.e. IAS 17)
instead of reassessing whether existing contracts are/or contain a lease at the date of initial application provided these contracts are
ending within 12 months of the date of initial application.
Under the new standard, a lessee is required to recognise the present value of the unavoidable lease payments as a lease liability
on the statement of financial position (including those currently classified as operating leases) with a corresponding right of use
asset. The unwind of the financial charge on the lease liability and amortisation of the leased asset are recognised in the statement
of income based on the implied interest rate and contract term respectively. The Group’s recognised assets and liabilities will increase
and affect the presentation and timing of related depreciation and interest charges in the consolidated statement of income. Upon
adoption of IFRS 16, the most significant impact will be the present value of the operating lease commitments (see note 30) being
shown as a liability on the statement of financial position together with an asset representing the right of use, which are unwound
and amortised to the statement of income over time. A preliminary assessment of the impacts resulting from the change in 2019 are
as follows:
• Approximately $1,160 million of these arrangements relate to leases other than short-term leases and leases of low-value, and hence
the Group will recognise a right-of-use asset and corresponding lease liability of approximately $904 million. Further, the Group will
recognise a lease receivable of approximately $62 million relating to chartering relet arrangements, with a corresponding reduction
of the right-of-use assets
• Cost of goods sold will decrease by approximately $35 million and interest expense will increase by approximately $53 million, the
net result having an immaterial impact on basic and diluted earnings per share
• Operating cash flow will increase by approximately $232 million and cash from financing activities will decrease by approximately
$232 million, and
• Adjusted EBITDA (an APM measure, see Glossary for definition) will increase by approximately $285 million as the operating lease
cost is charged against Adjusted EBITDA under IAS 17, while under IFRS 16 the charge will be included in depreciation and interest
(as noted above) which are excluded from Adjusted EBITDA.
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
1. Accounting policies continued
Basis of preparation
The financial statements are prepared under the historical cost convention except for certain financial assets, liabilities, marketing
inventories and pension obligations that are measured at revalued amounts or fair values at the end of each reporting period as
explained in the accounting policies below. Historical cost is defined as the amount of cash or cash equivalents paid or the fair value of
the consideration given to acquire them at the time of their acquisition. The principal accounting policies adopted are set out below.
The Directors have assessed that they have, at the time of approving the financial statements, a reasonable expectation that
the Group has adequate resources to continue in operational existence for the 12 months from the date of approval of the 2018
Annual Report and Accounts. Therefore, they continue to adopt the going concern basis of accounting in preparing these financial
statements. Also see page 120. Further information on Glencore’s objectives, policies and processes for managing its capital and
financial risks are detailed in note 26.
All amounts are expressed in millions of United States Dollars, unless otherwise stated, consistent with the predominant functional
currency of Glencore’s operations.
Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
and its subsidiaries.
Control is achieved when Glencore is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Specifically, Glencore controls an investee if, and only if, Glencore
has all of the following:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee, and
• The ability to use its power over the investee to affect its returns
When Glencore has less than a majority of the voting rights of an investee or similar rights of an investee, it considers all relevant
facts and circumstances in assessing whether it has power over the investee including:
• The size of Glencore’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders
• Potential voting rights held by Glencore, other vote holders or other parties
• Rights arising from other contractual arrangements, and
• Any additional facts and circumstances that indicate that Glencore has, or does not have, the current ability to direct the relevant
activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above. Consolidation of a subsidiary begins when Glencore obtains control over the
subsidiary and ceases when Glencore loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated statement of income and other comprehensive income from the date
Glencore gains control until the date when Glencore ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the
non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the
non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
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Notes to the financial statements continued
1. Accounting policies continued
Basis of preparation
The financial statements are prepared under the historical cost convention except for certain financial assets, liabilities, marketing
inventories and pension obligations that are measured at revalued amounts or fair values at the end of each reporting period as
explained in the accounting policies below. Historical cost is defined as the amount of cash or cash equivalents paid or the fair value of
the consideration given to acquire them at the time of their acquisition. The principal accounting policies adopted are set out below.
The Directors have assessed that they have, at the time of approving the financial statements, a reasonable expectation that
the Group has adequate resources to continue in operational existence for the 12 months from the date of approval of the 2018
Annual Report and Accounts. Therefore, they continue to adopt the going concern basis of accounting in preparing these financial
statements. Also see page 120. Further information on Glencore’s objectives, policies and processes for managing its capital and
All amounts are expressed in millions of United States Dollars, unless otherwise stated, consistent with the predominant functional
financial risks are detailed in note 26.
currency of Glencore’s operations.
Principles of consolidation
and its subsidiaries.
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
Control is achieved when Glencore is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Specifically, Glencore controls an investee if, and only if, Glencore
has all of the following:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee, and
• The ability to use its power over the investee to affect its returns
When Glencore has less than a majority of the voting rights of an investee or similar rights of an investee, it considers all relevant
facts and circumstances in assessing whether it has power over the investee including:
• The size of Glencore’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders
• Potential voting rights held by Glencore, other vote holders or other parties
• Rights arising from other contractual arrangements, and
• Any additional facts and circumstances that indicate that Glencore has, or does not have, the current ability to direct the relevant
activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above. Consolidation of a subsidiary begins when Glencore obtains control over the
subsidiary and ceases when Glencore loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated statement of income and other comprehensive income from the date
Glencore gains control until the date when Glencore ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the
non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the
non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
1. Accounting policies continued
Changes in Glencore’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions with
any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration
paid or received being recognised directly in equity and attributed to equity holders of Glencore.
When Glencore loses control of a subsidiary, a gain or loss is recognised in the consolidated statement of income and is calculated as
the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and
(ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if Glencore had
directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of
equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9, when applicable, or the cost
on the initial recognition of an investment in an associate or a joint venture.
Investments in associates and joint ventures
Associates and joint ventures (together “Associates”) in which Glencore exercises significant influence or joint control are accounted
for using the equity method. Significant influence is the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies. Significant influence is presumed if Glencore holds between 20% and
50% of the voting rights, unless evidence exists to the contrary. A joint venture is a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed
sharing of control over an arrangement, which exists only when decisions about relevant strategic and/or key operating decisions
require unanimous consent of the parties sharing control.
Equity accounting involves Glencore recording its share of the Associate’s net income and equity. Glencore’s interest in an Associate
is initially recorded at cost and is subsequently adjusted for Glencore’s share of changes in net assets of the Associate, less any
impairment in the value of individual investments. Where Glencore transacts with an Associate, unrealised profits and losses are
eliminated to the extent of Glencore’s interest in that Associate.
Changes in Glencore’s interests in Associates are accounted for as a gain or loss on disposal with any difference between the amount
by which the carrying value of the Associate is adjusted and the fair value of the consideration received being recognised directly in
the consolidated statement of income.
Joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets,
and obligations for the liabilities, relating to the arrangement.
When Glencore undertakes its activities under joint operations, Glencore recognises in relation to its interest in a joint operation:
• Its assets, including its share of any assets held jointly
• Its liabilities, including its share of any liabilities incurred jointly
• Its revenue from the sale of its share of the output arising from the joint operation
• Its share of the revenue from the sale of the output by the joint operation, and
• Its expenses, including its share of any expenses incurred jointly
The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with
the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
Where Glencore transacts with a joint operation, unrealised profits and losses are eliminated to the extent of Glencore’s interest
in that joint operation.
Other unincorporated arrangements
In some cases, Glencore participates in unincorporated arrangements where it has the rights to its share of the assets and obligations
for its share of the liabilities of the arrangement, rather than a right to the net returns of the arrangement, but does not share joint
control. In such cases, Glencore accounts for its share of the assets, liabilities, revenues and expenses in accordance with the IFRSs
applicable to the particular assets, liabilities, revenues and expenses and obligations for the liabilities relating to the arrangement,
similar to a joint operation noted above.
Business combinations and goodwill
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method of accounting. The cost of the acquisition
is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred
to the former owners of the acquiree and the equity interests issued in exchange for control of the acquiree. The identifiable assets,
liabilities and contingent liabilities (“identifiable net assets”) are recognised at their fair value at the date of acquisition. Acquisition
related costs are recognised in the consolidated statement of income as incurred.
Where a business combination is achieved in stages, Glencore’s previously held interests in the acquired entity are remeasured
to fair value at the acquisition date (i.e. the date Glencore attains control) and the resulting gain or loss, if any, is recognised in the
consolidated statement of income.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed.
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Notes to the financial statements continued
1. Accounting policies continued
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-generating units (CGU) that
are expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less
than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata based on the carrying amount of each asset in the unit. Any impairment loss is recognised
directly in profit or loss. An impairment loss recognised for goodwill is not able to be reversed in subsequent periods.
On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
Glencore reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted
for additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised
at that date.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share
of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-
transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in
another IFRS.
Similar procedures are applied in accounting for the purchases of interests in Associates and joint operations. Any goodwill arising
from such purchases is included within the carrying amount of the investment in Associates, but not amortised thereafter. Any
excess of Glencore’s share of the net fair value of the Associate’s identifiable net assets over the cost of the investment is included
in the consolidated statement of income in the period of the purchase.
Non-current assets held for sale and disposal groups
Non-current assets and assets and liabilities included in disposal groups are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use, they are available for immediate disposal and
the sale is highly probable. Non-current assets held for sale are measured at the lower of their carrying amount or fair value less
costs to sell.
Revenue recognition
Revenue is derived principally from the sale of goods and in some instances the goods are sold on Cost and Freight (CFR) or Cost,
Insurance and Freight (CIF) Incoterms. When goods are sold on a CFR or CIF basis, the Group is responsible for providing these
services (shipping and insurance) to the customer, sometimes after the date at which Glencore has lost control of the goods.
Revenue is recognised when the performance obligations have been satisfied, which is once control of the goods and/or services
has transferred from Glencore to the buyer. Revenue is measured based on consideration specified in the contract with a customer
and excludes amounts collected on behalf of third parties. The same recognition and presentation principles apply to revenues
arising from physical settlement of forward sale contracts that do not meet the own use exemption.
Revenue related to the sale of goods is recognised when the product is delivered to the destination specified by the customer, which
is typically the vessel on which it is shipped, the destination port or the customer’s premises and the buyer has gained control through
their ability to direct the use of and obtain substantially all the benefits from the asset. Where the sale of goods is connected with an
agreement to repurchase goods at a later date, revenue is recognised when the repurchase terms are at prevailing market prices,
the goods repurchased are readily available in the market, and the buyer gained control of the goods originally sold to them. Should
it be determined that control has not transferred or the buyer does not have the ability to benefit substantially from ownership of the
asset, revenue is not recognised and any proceeds received are accounted for as a financing arrangement. For certain commodities,
the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market
prices up to the date of final pricing, normally ranging from 30 to 90 days after initial booking (provisionally priced sales). Revenue
on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue
adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative.
Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised
as an adjustment to revenue. In all cases, fair value is estimated by reference to forward market prices.
Revenue from the sale of material by-products are included within revenue. Where a by-product is not regarded as significant,
revenue may be credited against cost of goods sold.
Revenue related to the provision of shipping and insurance related activities is recognised over time as the service is rendered.
Payments received for future metal deliveries (prepayments) are accounted for as executory contracts whereby the prepayment
is initially recorded as deferred revenue in the consolidated statement of financial position. The initial deferred revenue amount is
unwound and revenue is recognised in the consolidated statement of income as and when Glencore physically delivers the metal
and loses control of it. Where these prepayments are in excess of one year and contain a significant financing component, the
amount of the deferred revenue is adjusted for the effects of the time value of money. Glencore applies the practical expedient
to not adjust the promised amount of consideration for the effects of time value of money if the period between delivery and the
respective payment is one year or less.
Royalty, interest and dividend income is recognised when the right to receive payment has been established, it is probable that the
economic benefits will flow to Glencore and the amount of income can be measured reliably. Royalty revenue is recognised on an
accrual basis in accordance with the substance of the relevant agreement. Interest income is accrued on a time basis, by reference
to the principal outstanding and the applicable effective interest rate.
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Notes to the financial statements continued
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-generating units (CGU) that
are expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less
than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata based on the carrying amount of each asset in the unit. Any impairment loss is recognised
directly in profit or loss. An impairment loss recognised for goodwill is not able to be reversed in subsequent periods.
On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
Glencore reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted
for additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised
at that date.
another IFRS.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net
assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share
of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-
transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in
Similar procedures are applied in accounting for the purchases of interests in Associates and joint operations. Any goodwill arising
from such purchases is included within the carrying amount of the investment in Associates, but not amortised thereafter. Any
excess of Glencore’s share of the net fair value of the Associate’s identifiable net assets over the cost of the investment is included
in the consolidated statement of income in the period of the purchase.
Non-current assets held for sale and disposal groups
Non-current assets and assets and liabilities included in disposal groups are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use, they are available for immediate disposal and
the sale is highly probable. Non-current assets held for sale are measured at the lower of their carrying amount or fair value less
costs to sell.
Revenue recognition
Revenue is derived principally from the sale of goods and in some instances the goods are sold on Cost and Freight (CFR) or Cost,
Insurance and Freight (CIF) Incoterms. When goods are sold on a CFR or CIF basis, the Group is responsible for providing these
services (shipping and insurance) to the customer, sometimes after the date at which Glencore has lost control of the goods.
Revenue is recognised when the performance obligations have been satisfied, which is once control of the goods and/or services
has transferred from Glencore to the buyer. Revenue is measured based on consideration specified in the contract with a customer
and excludes amounts collected on behalf of third parties. The same recognition and presentation principles apply to revenues
arising from physical settlement of forward sale contracts that do not meet the own use exemption.
Revenue related to the sale of goods is recognised when the product is delivered to the destination specified by the customer, which
is typically the vessel on which it is shipped, the destination port or the customer’s premises and the buyer has gained control through
their ability to direct the use of and obtain substantially all the benefits from the asset. Where the sale of goods is connected with an
agreement to repurchase goods at a later date, revenue is recognised when the repurchase terms are at prevailing market prices,
the goods repurchased are readily available in the market, and the buyer gained control of the goods originally sold to them. Should
it be determined that control has not transferred or the buyer does not have the ability to benefit substantially from ownership of the
asset, revenue is not recognised and any proceeds received are accounted for as a financing arrangement. For certain commodities,
the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market
prices up to the date of final pricing, normally ranging from 30 to 90 days after initial booking (provisionally priced sales). Revenue
on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue
adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative.
Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised
as an adjustment to revenue. In all cases, fair value is estimated by reference to forward market prices.
Revenue from the sale of material by-products are included within revenue. Where a by-product is not regarded as significant,
revenue may be credited against cost of goods sold.
Revenue related to the provision of shipping and insurance related activities is recognised over time as the service is rendered.
Payments received for future metal deliveries (prepayments) are accounted for as executory contracts whereby the prepayment
is initially recorded as deferred revenue in the consolidated statement of financial position. The initial deferred revenue amount is
unwound and revenue is recognised in the consolidated statement of income as and when Glencore physically delivers the metal
and loses control of it. Where these prepayments are in excess of one year and contain a significant financing component, the
amount of the deferred revenue is adjusted for the effects of the time value of money. Glencore applies the practical expedient
to not adjust the promised amount of consideration for the effects of time value of money if the period between delivery and the
respective payment is one year or less.
Royalty, interest and dividend income is recognised when the right to receive payment has been established, it is probable that the
economic benefits will flow to Glencore and the amount of income can be measured reliably. Royalty revenue is recognised on an
accrual basis in accordance with the substance of the relevant agreement. Interest income is accrued on a time basis, by reference
to the principal outstanding and the applicable effective interest rate.
1. Accounting policies continued
1. Accounting policies continued
Foreign currency translation
Glencore’s reporting currency and the functional currency of the majority of its operations is the U.S. dollar as this is assessed to be
the principal currency of the economic environment in which it operates.
(i) Foreign currency transactions
Transactions in foreign currencies are converted into the functional currency of each entity using the exchange rate prevailing at
the transaction date. Monetary assets and liabilities outstanding at year end are converted at year-end rates. The resulting exchange
differences are recorded in the consolidated statement of income.
(ii) Translation of financial statements
For the purposes of consolidation, assets and liabilities of group companies whose functional currency is in a currency other than
the U.S. dollar are translated into U.S. dollars using year-end exchange rates, while their statements of income are translated using
average rates of exchange for the year. Translation adjustments are included as a separate component of shareholders’ equity and
have no consolidated statement of income impact to the extent that no disposal of the foreign operation has occurred. Where an
intragroup balance is, in substance, part of the Group’s net investment in an entity, exchange gains and losses on that balance are
taken to the currency translation reserve. Cumulative translation differences are recycled from equity and recognised as income
or expense on disposal of the operation to which they relate.
Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and are translated at the closing rate.
Borrowing costs
Borrowing costs are expensed as incurred except where they relate to the financing of construction or development of qualifying
assets in which case they are capitalised up to the date when the qualifying asset is ready for its intended use.
Retirement benefits
Glencore operates various pension schemes in accordance with local requirements and practices of the respective countries.
The annual costs for defined contribution plans that are funded by payments to separate trustee administered funds or insurance
companies equal the contributions that are required under the plans and accounted for as an expense.
Glencore uses the Projected Unit Credit Actuarial method to determine the present value of its defined benefit obligations and the
related current service cost and, where applicable, past service cost. Net interest is calculated by applying the discount rate at the
beginning of the period to the net defined benefit liability or asset.
The cost of providing pensions is charged to the consolidated statement of income so as to recognise current and past service costs,
interest cost on defined benefit obligations, and the effect of any curtailments or settlements, net of expected returns on plan assets.
Actuarial gains and losses are recognised directly in other comprehensive income and will not be reclassified to the consolidated
statement of income. The retirement benefit obligation/asset recognised in the consolidated statement of financial position
represents the actual deficit or surplus in Glencore’s defined benefit plans. Any surplus resulting from this calculation is limited
to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions
to the plans.
Glencore also provides post-retirement healthcare benefits to certain employees in Canada, South Africa and the United States.
These are accounted for in a similar manner to the defined benefit pension plans, however are unfunded.
Share-based payments
(i) Equity-settled share-based payments
Equity-settled share-based payments are measured at the fair value of the awards based on the market value of the shares at
the grant date. Fair value excludes the effect of non-market-based vesting conditions. The fair value is charged to the consolidated
statement of income and credited to retained earnings on a straight-line basis over the period the estimated awards are expected
to vest.
At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of
the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the
consolidated statement of income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment
to retained earnings.
(ii) Cash-settled share-based payments
For cash-settled share-based payments, a liability is initially recognised at fair value based on the estimated number of awards that are
expected to vest, adjusting for market and non-market-based performance conditions. Subsequently, at each reporting period until
the liability is settled, it is remeasured to fair value with any changes in fair value recognised in the consolidated statement of income.
Income taxes
Income taxes consist of current and deferred income taxes. Current taxes represent income taxes expected to be payable based on
enacted or substantively enacted tax rates at the period end on expected current taxable income, and any adjustment to tax payable
in respect of previous years. Deferred taxes are recognised for temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income, using enacted
or substantively enacted income tax rates which are expected to be effective at the time of reversal of the underlying temporary
difference. Deferred tax assets and unused tax losses are only recognised to the extent that their recoverability is probable. Deferred
tax assets are reviewed at reporting period end and amended to the extent that it is no longer probable that the related benefit will
be realised. To the extent that a deferred tax asset not previously recognised subsequently fulfils the criteria for recognition, an asset
is then recognised.
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Notes to the financial statements continued
1. Accounting policies continued
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same authority and Glencore has both
the right and the intention to settle its current tax assets and liabilities on a net or simultaneous basis. The tax effect of certain
temporary differences is not recognised principally with respect to the initial recognition of an asset or liability (other than those
arising in a business combination or in a manner that initially impacted accounting or taxable profit) and temporary differences
relating to investments in subsidiaries and Associates to the extent that Glencore can control the timing of the reversal of the
temporary difference and it is probable the temporary difference will not reverse in the foreseeable future. Deferred tax is provided
in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as extraction rights that, in general,
are not eligible for income tax allowances.
Current and deferred tax are recognised as an expense or income in the consolidated statement of income, except when they relate
to items that are recognised outside the consolidated statement of income (whether in other comprehensive income or directly in
equity) or where they arise from the initial accounting for a business combination.
Royalties, extraction taxes and other levies/taxes are treated as taxation arrangements when they have the characteristics of an
income tax, including being imposed and determined in accordance with regulations established by the respective government’s
taxation authority and the amount payable is based on taxable income – rather than physical quantities produced or as a percentage
of revenues – after adjustment for temporary differences. For such arrangements, current and deferred tax is provided on the same
basis as described above for other forms of taxation. Obligations arising from royalty arrangements that do not satisfy these criteria
are recognised as current provisions and included in cost of goods sold.
Glencore assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. Inherent
uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax laws. For those matters
where it is probable that an adjustment will be made, the Group records its best estimate of these tax liabilities, including related
interest charges, taking into account the range of possible outcomes.
Property, plant and equipment
Property, plant and equipment are stated at cost, being the fair value of the consideration given to acquire or construct the asset,
including directly attributable costs required to bring the asset to the location or to a condition necessary for operation and the
direct cost of dismantling and removing the asset, less accumulated depreciation and any accumulated impairment losses.
Property, plant and equipment are depreciated to their estimated residual value over the estimated useful life of the specific asset
concerned, or the estimated remaining life of the associated mine (LOM), field or lease.
Depreciation commences when the asset is available for use. The major categories of property, plant and equipment are
depreciated/amortised on a units of production (UOP) and/or straight-line basis as follows:
Buildings
Freehold land
Plant and equipment
Mineral and petroleum rights
Deferred mining costs
10 – 45 years
not depreciated
3 – 30 years/UOP
UOP
UOP
Assets under finance leases, where substantially all the risks and rewards of ownership transfer to the Group as lessee, are capitalised
and amortised over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
All other leases are classified as operating leases, the expenditures for which are recognised in the statement of income on a straight-
line basis over the lease term.
(i) Mineral and petroleum rights
Mineral and petroleum reserves, resources and rights (together “Mineral and petroleum rights”) which can be reasonably valued,
are recognised in the assessment of fair values on acquisition. Mineral and petroleum rights for which values cannot be reasonably
determined are not recognised. Exploitable Mineral and petroleum rights are amortised using the UOP basis over the commercially
recoverable reserves and, in certain circumstances, other mineral resources. Mineral resources are included in amortisation
calculations where there is a high degree of confidence that they will be extracted in an economic manner.
(ii) Exploration and evaluation expenditure
Exploration and evaluation expenditure relates to costs incurred in the exploration and evaluation of potential mineral and petroleum
resources and includes costs such as exploration and production licences, researching and analysing historical exploration data,
exploratory drilling, trenching, sampling and the costs of pre-feasibility studies. Exploration and evaluation expenditure for each area
of interest, other than that acquired from another entity, is charged to the consolidated statement of income as incurred except when
the expenditure is expected to be recouped from future exploitation or sale of the area of interest and it is planned to continue with
active and significant operations in relation to the area, or at the reporting period end, the activity has not reached a stage which
permits a reasonable assessment of the existence of commercially recoverable reserves, in which case the expenditure is capitalised.
As the intangible component (i.e. licences) represents an insignificant and indistinguishable portion of the overall expected tangible
amount to be incurred and recouped from future exploitation, these costs along with other capitalised exploration and evaluation
expenditure are recorded as a component of property, plant and equipment. Purchased exploration and evaluation assets are
recognised at their fair value at acquisition.
As the capitalised exploration and evaluation expenditure asset is not available for use, it is not depreciated. All capitalised exploration
and evaluation expenditure is monitored for indications of impairment. Where a potential impairment is indicated, an assessment
is performed for each area of interest or at the CGU level. To the extent that capitalised expenditure is not expected to be recovered
it is charged to the consolidated statement of income.
Administration costs that are not directly attributable to a specific exploration area are charged to the consolidated statement of
income. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over
the term of the permit.
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Notes to the financial statements continued
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same authority and Glencore has both
the right and the intention to settle its current tax assets and liabilities on a net or simultaneous basis. The tax effect of certain
temporary differences is not recognised principally with respect to the initial recognition of an asset or liability (other than those
arising in a business combination or in a manner that initially impacted accounting or taxable profit) and temporary differences
relating to investments in subsidiaries and Associates to the extent that Glencore can control the timing of the reversal of the
temporary difference and it is probable the temporary difference will not reverse in the foreseeable future. Deferred tax is provided
in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as extraction rights that, in general,
are not eligible for income tax allowances.
Current and deferred tax are recognised as an expense or income in the consolidated statement of income, except when they relate
to items that are recognised outside the consolidated statement of income (whether in other comprehensive income or directly in
equity) or where they arise from the initial accounting for a business combination.
Royalties, extraction taxes and other levies/taxes are treated as taxation arrangements when they have the characteristics of an
income tax, including being imposed and determined in accordance with regulations established by the respective government’s
taxation authority and the amount payable is based on taxable income – rather than physical quantities produced or as a percentage
of revenues – after adjustment for temporary differences. For such arrangements, current and deferred tax is provided on the same
basis as described above for other forms of taxation. Obligations arising from royalty arrangements that do not satisfy these criteria
are recognised as current provisions and included in cost of goods sold.
Glencore assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. Inherent
uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax laws. For those matters
where it is probable that an adjustment will be made, the Group records its best estimate of these tax liabilities, including related
interest charges, taking into account the range of possible outcomes.
Property, plant and equipment
Property, plant and equipment are stated at cost, being the fair value of the consideration given to acquire or construct the asset,
including directly attributable costs required to bring the asset to the location or to a condition necessary for operation and the
direct cost of dismantling and removing the asset, less accumulated depreciation and any accumulated impairment losses.
Property, plant and equipment are depreciated to their estimated residual value over the estimated useful life of the specific asset
concerned, or the estimated remaining life of the associated mine (LOM), field or lease.
Depreciation commences when the asset is available for use. The major categories of property, plant and equipment are
depreciated/amortised on a units of production (UOP) and/or straight-line basis as follows:
10 – 45 years
not depreciated
3 – 30 years/UOP
UOP
UOP
Buildings
Freehold land
Plant and equipment
Mineral and petroleum rights
Deferred mining costs
line basis over the lease term.
(i) Mineral and petroleum rights
Assets under finance leases, where substantially all the risks and rewards of ownership transfer to the Group as lessee, are capitalised
and amortised over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
All other leases are classified as operating leases, the expenditures for which are recognised in the statement of income on a straight-
Mineral and petroleum reserves, resources and rights (together “Mineral and petroleum rights”) which can be reasonably valued,
are recognised in the assessment of fair values on acquisition. Mineral and petroleum rights for which values cannot be reasonably
determined are not recognised. Exploitable Mineral and petroleum rights are amortised using the UOP basis over the commercially
recoverable reserves and, in certain circumstances, other mineral resources. Mineral resources are included in amortisation
calculations where there is a high degree of confidence that they will be extracted in an economic manner.
(ii) Exploration and evaluation expenditure
Exploration and evaluation expenditure relates to costs incurred in the exploration and evaluation of potential mineral and petroleum
resources and includes costs such as exploration and production licences, researching and analysing historical exploration data,
exploratory drilling, trenching, sampling and the costs of pre-feasibility studies. Exploration and evaluation expenditure for each area
of interest, other than that acquired from another entity, is charged to the consolidated statement of income as incurred except when
the expenditure is expected to be recouped from future exploitation or sale of the area of interest and it is planned to continue with
active and significant operations in relation to the area, or at the reporting period end, the activity has not reached a stage which
permits a reasonable assessment of the existence of commercially recoverable reserves, in which case the expenditure is capitalised.
As the intangible component (i.e. licences) represents an insignificant and indistinguishable portion of the overall expected tangible
amount to be incurred and recouped from future exploitation, these costs along with other capitalised exploration and evaluation
expenditure are recorded as a component of property, plant and equipment. Purchased exploration and evaluation assets are
recognised at their fair value at acquisition.
As the capitalised exploration and evaluation expenditure asset is not available for use, it is not depreciated. All capitalised exploration
and evaluation expenditure is monitored for indications of impairment. Where a potential impairment is indicated, an assessment
is performed for each area of interest or at the CGU level. To the extent that capitalised expenditure is not expected to be recovered
it is charged to the consolidated statement of income.
Administration costs that are not directly attributable to a specific exploration area are charged to the consolidated statement of
income. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over
the term of the permit.
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1. Accounting policies continued
1. Accounting policies continued
Development expenditure
When commercially recoverable reserves are determined and such proposed development receives the appropriate approvals,
capitalised exploration and evaluation expenditure is transferred to construction in progress, a component within the plant and
equipment asset sub-category. All subsequent development expenditure is similarly capitalised, provided commercial viability
conditions continue to be satisfied. Proceeds from the sale of product extracted during the development phase are netted against
development expenditure. Upon completion of development and commencement of production, capitalised development costs
are further transferred, as required, to the appropriate plant and equipment asset category and depreciated using the unit of
production method (UOP) or straight-line basis.
(iii) Deferred mining costs
Mainly comprises certain capitalised costs related to underground mining as well as pre-production and in-production stripping
activities as outlined below. Deferred mining costs are amortised using the UOP basis over the life of the ore body to which those
costs relate.
Deferred stripping costs
Stripping costs incurred in the development of a mine (or pit) before production commences are capitalised as part of the cost
of constructing the mine (or pit) and subsequently amortised over the life of the mine (or pit) on a UOP basis.
In-production stripping costs related to accessing an identifiable component of the ore body to realise benefits in the form of
improved access to ore to be mined in the future (stripping activity asset), are capitalised within deferred mining costs provided
all the following conditions are met:
(a) it is probable that the future economic benefit associated with the stripping activity will be realised;
(b) the component of the ore body for which access has been improved can be identified; and
(c) the costs relating to the stripping activity associated with the improved access can be reliably measured.
If all of the criteria are not met, the production stripping costs are charged to the consolidated statement of income as they
are incurred.
The stripping activity asset is subsequently depreciated on a UOP basis over the life of the identified component of the ore body
that became more accessible as a result of the stripping activity and is then stated at cost less accumulated depreciation and any
accumulated impairment losses.
(iv) Biological assets
Biological assets are carried at their fair value less estimated selling costs. Any changes in fair value less estimated selling costs are
included in the consolidated statement of income in the period in which they arise.
Restoration, rehabilitation and decommissioning
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work,
discounted using a risk-free rate specific to the liability and the currency in which they are denominated to their net present value,
are provided for and capitalised at the time such an obligation arises. The costs are charged to the consolidated statement of income
over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision.
Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their
net present values and charged to the consolidated statement of income as extraction progresses.
Changes in the estimated timing of the rehabilitation or changes to the estimated future costs are accounted for prospectively by
recognising an adjustment to the rehabilitation liability and a corresponding adjustment to the asset to which it relates, provided
a reduction, if any, in the provision is not greater than the depreciated capitalised cost of the related asset, in which case the
capitalised cost is reduced to Nil and the remaining adjustment recognised in the consolidated statement of income. In the case
of closed sites, changes to estimated costs are recognised immediately in the consolidated statement of income.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation (calculated on a straight-line basis over their useful lives) and accumulated impairment losses, if any.
Internally generated intangibles are not capitalised. Instead, the related expenditure is recognised in the consolidated statement
of income and other comprehensive income in the period in which the expenditure is incurred.
Identifiable intangible assets with a finite life are amortised on a straight-line basis over their expected useful life. The amortisation
method and period are reviewed annually and impairment testing is undertaken when circumstances indicate the carrying amount
may not be recoverable. Other than goodwill which is not depreciated, Glencore has no identifiable intangible assets with an
indefinite life.
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Notes to the financial statements continued
1. Accounting policies continued
The major categories of intangibles are amortised on a straight-line basis as follows:
Port allocation rights
Licences, trademarks and software
Customer relationships
Acquired offtake arrangements
30 – 40 years
3 – 20 years
5 years
5 – 10 years
Goodwill impairment testing
For the purpose of impairment testing, goodwill has been allocated to the CGUs, or groups of CGUs, that are expected to benefit
from the synergies of the business combination and which represent the level at which management monitors and manages the
goodwill. In assessing whether an impairment is required, the carrying value of the CGU is compared with its recoverable amount.
The recoverable amount is the higher of its fair value less costs of disposal (FVLCD) and its value in use (VIU). If the recoverable amount
of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis of the carrying amount of each asset in the
unit. Any impairment loss for goodwill is recognised directly in the consolidated statement of income. An impairment loss recognised
for goodwill is not reversed in subsequent periods.
Other investments
Equity investments, other than investments in Associates, are recorded at fair value. Glencore designated these investments that
are not held for trading as at fair value through other comprehensive income. As a result, changes in fair value are recorded in the
consolidated statement of other comprehensive income. Dividends from these investments are recognised in the consolidated
statement of income, unless the dividend represents a recovery of part of the cost of the equity investment.
Impairment or impairment reversals
Glencore conducts, at least annually, an internal review of asset values which is used as a source of information to assess for any
indications of impairment or impairment reversal. Formal impairment tests are carried out, at least annually, for cash-generating
units containing goodwill and for all other non-current assets when events or changes in circumstances indicate the carrying
value may not be recoverable.
A formal impairment or reversal test involves determining whether the carrying amounts are in excess (or below, as the case may be)
of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs of disposal and its
value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent
of other assets, in which case the review is undertaken at the CGU level.
If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the consolidated statement
of income to reflect the asset at the lower amount.
For those assets which were impaired in prior periods, if their recoverable amount exceeds their carrying amount, an impairment
reversal is recorded in the consolidated statement of income to reflect the asset at the higher amount to the extent the increased
carrying amount does not exceed the carrying value of the asset that would have been determined had no impairment
been recognised. Goodwill impairments cannot be subsequently reversed.
Provisions
Provisions are recognised when Glencore has a present obligation (legal or constructive), as a result of past events, and it is probable
that an outflow of resources embodying economic benefits that can be reliably estimated will be required to settle the liability.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance
sheet date, taking into account the risks and uncertainties surrounding the obligation, including interpretation of specific laws and
likelihood of settlement. Where a provision is measured using the cash flow estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (when the effect of the time value of money is material).
Onerous contracts
An onerous contract is considered to exist where Glencore has a contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits expected to be received from the contract. Present obligations
arising under onerous contracts are recognised and measured as provisions.
Unfavourable contracts
An unfavourable contract is considered to exist when Glencore, in a business combination, acquires a contract under which
the terms of the contract require Glencore to sell or purchase products or services on terms which are economically unfavourable
compared to current market terms at the time of the business combination. Unfavourable contracts are recognised at the
present value of the economic loss and amortised into the statement of income over the term of the contract.
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Notes to the financial statements continued
The major categories of intangibles are amortised on a straight-line basis as follows:
Port allocation rights
Licences, trademarks and software
Customer relationships
Acquired offtake arrangements
Goodwill impairment testing
30 – 40 years
3 – 20 years
5 years
5 – 10 years
For the purpose of impairment testing, goodwill has been allocated to the CGUs, or groups of CGUs, that are expected to benefit
from the synergies of the business combination and which represent the level at which management monitors and manages the
goodwill. In assessing whether an impairment is required, the carrying value of the CGU is compared with its recoverable amount.
The recoverable amount is the higher of its fair value less costs of disposal (FVLCD) and its value in use (VIU). If the recoverable amount
of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis of the carrying amount of each asset in the
unit. Any impairment loss for goodwill is recognised directly in the consolidated statement of income. An impairment loss recognised
for goodwill is not reversed in subsequent periods.
Other investments
Equity investments, other than investments in Associates, are recorded at fair value. Glencore designated these investments that
are not held for trading as at fair value through other comprehensive income. As a result, changes in fair value are recorded in the
consolidated statement of other comprehensive income. Dividends from these investments are recognised in the consolidated
statement of income, unless the dividend represents a recovery of part of the cost of the equity investment.
Impairment or impairment reversals
Glencore conducts, at least annually, an internal review of asset values which is used as a source of information to assess for any
indications of impairment or impairment reversal. Formal impairment tests are carried out, at least annually, for cash-generating
units containing goodwill and for all other non-current assets when events or changes in circumstances indicate the carrying
value may not be recoverable.
A formal impairment or reversal test involves determining whether the carrying amounts are in excess (or below, as the case may be)
of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs of disposal and its
value in use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent
of other assets, in which case the review is undertaken at the CGU level.
If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the consolidated statement
of income to reflect the asset at the lower amount.
For those assets which were impaired in prior periods, if their recoverable amount exceeds their carrying amount, an impairment
reversal is recorded in the consolidated statement of income to reflect the asset at the higher amount to the extent the increased
carrying amount does not exceed the carrying value of the asset that would have been determined had no impairment
been recognised. Goodwill impairments cannot be subsequently reversed.
Provisions
Provisions are recognised when Glencore has a present obligation (legal or constructive), as a result of past events, and it is probable
that an outflow of resources embodying economic benefits that can be reliably estimated will be required to settle the liability.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance
sheet date, taking into account the risks and uncertainties surrounding the obligation, including interpretation of specific laws and
likelihood of settlement. Where a provision is measured using the cash flow estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (when the effect of the time value of money is material).
Onerous contracts
An onerous contract is considered to exist where Glencore has a contract under which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits expected to be received from the contract. Present obligations
arising under onerous contracts are recognised and measured as provisions.
Unfavourable contracts
An unfavourable contract is considered to exist when Glencore, in a business combination, acquires a contract under which
the terms of the contract require Glencore to sell or purchase products or services on terms which are economically unfavourable
compared to current market terms at the time of the business combination. Unfavourable contracts are recognised at the
present value of the economic loss and amortised into the statement of income over the term of the contract.
1. Accounting policies continued
1. Accounting policies continued
Inventories
The vast majority of inventories attributable to the marketing activities (“marketing inventories”) are valued at fair value less costs
of disposal with the remainder valued at the lower of cost or net realisable value. Unrealised gains and losses from changes in fair
value are reported in cost of goods sold.
Inventories held by the industrial activities (“production inventories”) are valued at the lower of cost or net realisable value. Cost
is determined using the first-in-first-out (FIFO) or the weighted average method and comprises material costs, labour costs and
allocated production related overhead costs. Where the production process results in more than one product being produced
(joint products), cost is allocated between the various products according to the ratio of contribution of these metals to gross sales
revenue. Financing and storage costs related to inventory are expensed as incurred.
Non-financial instruments (physical advances or prepayments)
The Group enters into physical advances and prepayment agreements with certain suppliers and customers. When such advances
and prepayments are primarily settled in cash or another financial asset, they are classified as financial instruments (see below).
When settlement is satisfied primarily through physical delivery or receipt of an underlying product they are classified as
non-financial instruments.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s consolidated statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets are classified as either financial assets at amortised cost, at fair value through other comprehensive income (FVTOCI)
or at fair value through profit or loss (FVTPL) depending upon the business model for managing the financial assets and the nature
of the contractual cash flow characteristics of the financial asset. Financial assets are initially recognised at fair value on the trade
date, including, in the case of instruments not recorded at fair value through profit or loss, directly attributable transaction costs.
Subsequently, other investments, provisionally priced trade receivables and derivatives are carried at fair value and trade receivables
that do not contain provisional price features, loans and other receivables are carried at amortised cost adjusted for any loss allowance.
Financial liabilities, other than derivatives and those containing provisional price features, are initially recognised at fair value of
consideration received net of transaction costs as appropriate and subsequently carried at amortised cost. Financial liabilities that
contain provisional pricing features and derivatives are carried at FVTPL.
(i) Impairment of financial assets
A loss allowance for expected credit losses is determined for all financial assets, other than those at FVTPL, at the end of each
reporting period. The expected credit loss recognised represents a probability-weighted estimate of credit losses over the expected
life of the financial instrument.
The Group applies the simplified approach to measure the loss allowance for trade receivables classified at amortised cost, using
the lifetime expected loss provision. The expected credit losses on these financial assets is estimated using a provision matrix by
reference to past default experience and an equivalent credit rating, adjusted as appropriate for current observable data and
forward-looking information.
For all other financial assets at amortised cost, the Group recognises lifetime expected credit losses when there has been a significant
increase in credit risk since initial recognition, which is determined by:
• A review of overdue amounts,
• Comparing the risk of default at the reporting date and at the date of initial recognition, and
• An assessment of relevant historical and forward-looking quantitative and qualitative information.
For those balances that are beyond 30 days overdue it is presumed to be an indicator of a significant increase in credit risk.
If the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss
allowance for that financial instrument at an amount equal to 12-months expected credit loss, which comprises the expected
lifetime loss from the instrument were a default to occur within 12 months of the reporting date.
The Group considers an event of default has materialised and the financial asset is credit impaired when information developed
internally or obtained from external sources indicates that the debtor is unlikely to pay the Group without taking into account any
collateral held by the Group or if the financial asset is more than 90 days past due unless the Group has reasonable and supportable
information to demonstrate that a more lagging default criterion is more appropriate. The Group writes off a financial asset when
there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery.
(ii) Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor
retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its
retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks
and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises
a collateralised borrowing for the proceeds received.
The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or have expired.
On derecognition of a financial asset/financial liability in its entirety, the difference between the carrying amount of the financial
asset/financial liability and the sum of the consideration received and receivable/paid and payable is recognised in profit and loss.
On derecognition of equity investments designated and measured at FVTOCI, the cumulative gain or loss recognised in other
comprehensive income is reclassified directly to retained earnings.
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Notes to the financial statements continued
1. Accounting policies continued
Own shares
The cost of purchases of own shares is deducted from equity. Where they are purchased, issued to employees or sold, no gain or
loss is recognised in the consolidated statement of income. Such gains and losses are recognised directly in equity. Any proceeds
received on disposal of the shares or transfers to employees are recognised in equity.
Derivatives and hedging activities
Derivative instruments, which include physical contracts to sell or purchase commodities that do not meet the own use exemption,
are initially recognised at fair value when Glencore becomes a party to the contractual provisions of the instrument and are
subsequently remeasured to fair value at the end of each reporting period. Fair values are determined using quoted market
prices, dealer price quotations or using models and other valuation techniques, the key inputs for which include current market
and contractual prices for the underlying instrument, time to expiry, yield curves, volatility of the underlying instrument and
counterparty risk.
Gains and losses on derivative instruments for which hedge accounting is not applied, other than the revenue adjustment
mechanism embedded within provisionally priced sales, are recognised in cost of goods sold.
Those derivatives qualifying and designated as hedges are either (i) a Fair Value Hedge of the change in fair value of a recognised
asset or liability or an unrecognised firm commitment, or (ii) a Cash Flow Hedge of the change in cash flows to be received or paid
relating to a recognised asset or liability or a highly probable transaction.
At the inception of the hedge and on an ongoing basis, Glencore documents whether the hedging instrument is effective in
offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging
relationship meets the qualifying hedge effectiveness requirements.
Glencore discontinues hedge accounting when the qualifying criteria for the hedged relationship is no longer met.
A change in the fair value of derivatives designated as a Fair Value Hedge is reflected together with the change in the fair value
of the hedged item in the consolidated statement of income.
A change in the fair value of derivatives designated as a Cash Flow Hedge is initially recognised as a cash flow hedge reserve in
shareholders’ equity. The deferred amount is then released to the consolidated statement of income in the same periods during
which the hedged transaction affects the consolidated statement of income. Hedge ineffectiveness is recorded in the consolidated
statement of income when it occurs.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in shareholders’ equity and is recognised in the consolidated statement of income
when the committed or forecast transaction is ultimately recognised in the consolidated statement of income. However, if a forecast
or committed transaction is no longer expected to occur, the cumulative gain or loss that was recognised in equity is immediately
transferred to the consolidated statement of income.
A derivative may be embedded in a non-derivative “host contract” such as provisionally priced sales and purchases. Such
combinations are known as hybrid instruments. If a hybrid contract contains a host that is a financial asset within the scope of IFRS 9,
then the relevant classification and measurement requirements are applied to the entire contract at the date of initial recognition.
Should the host contract not be a financial asset within the scope of IFRS 9, the embedded derivative is separated from the host
contract and accounted for as a standalone derivative. Where the embedded derivative is separated, the host contract is accounted
for in accordance with its relevant accounting policy, unless the entire instrument is designated at FVTPL in accordance with IFRS 9.
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Notes to the financial statements continued
1. Accounting policies continued
Own shares
The cost of purchases of own shares is deducted from equity. Where they are purchased, issued to employees or sold, no gain or
loss is recognised in the consolidated statement of income. Such gains and losses are recognised directly in equity. Any proceeds
received on disposal of the shares or transfers to employees are recognised in equity.
Derivatives and hedging activities
Derivative instruments, which include physical contracts to sell or purchase commodities that do not meet the own use exemption,
are initially recognised at fair value when Glencore becomes a party to the contractual provisions of the instrument and are
subsequently remeasured to fair value at the end of each reporting period. Fair values are determined using quoted market
prices, dealer price quotations or using models and other valuation techniques, the key inputs for which include current market
and contractual prices for the underlying instrument, time to expiry, yield curves, volatility of the underlying instrument and
counterparty risk.
Gains and losses on derivative instruments for which hedge accounting is not applied, other than the revenue adjustment
mechanism embedded within provisionally priced sales, are recognised in cost of goods sold.
Those derivatives qualifying and designated as hedges are either (i) a Fair Value Hedge of the change in fair value of a recognised
asset or liability or an unrecognised firm commitment, or (ii) a Cash Flow Hedge of the change in cash flows to be received or paid
relating to a recognised asset or liability or a highly probable transaction.
At the inception of the hedge and on an ongoing basis, Glencore documents whether the hedging instrument is effective in
offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging
relationship meets the qualifying hedge effectiveness requirements.
Glencore discontinues hedge accounting when the qualifying criteria for the hedged relationship is no longer met.
A change in the fair value of derivatives designated as a Fair Value Hedge is reflected together with the change in the fair value
of the hedged item in the consolidated statement of income.
A change in the fair value of derivatives designated as a Cash Flow Hedge is initially recognised as a cash flow hedge reserve in
shareholders’ equity. The deferred amount is then released to the consolidated statement of income in the same periods during
which the hedged transaction affects the consolidated statement of income. Hedge ineffectiveness is recorded in the consolidated
statement of income when it occurs.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in shareholders’ equity and is recognised in the consolidated statement of income
when the committed or forecast transaction is ultimately recognised in the consolidated statement of income. However, if a forecast
or committed transaction is no longer expected to occur, the cumulative gain or loss that was recognised in equity is immediately
transferred to the consolidated statement of income.
A derivative may be embedded in a non-derivative “host contract” such as provisionally priced sales and purchases. Such
combinations are known as hybrid instruments. If a hybrid contract contains a host that is a financial asset within the scope of IFRS 9,
then the relevant classification and measurement requirements are applied to the entire contract at the date of initial recognition.
Should the host contract not be a financial asset within the scope of IFRS 9, the embedded derivative is separated from the host
contract and accounted for as a standalone derivative. Where the embedded derivative is separated, the host contract is accounted
for in accordance with its relevant accounting policy, unless the entire instrument is designated at FVTPL in accordance with IFRS 9.
2. Segment information
Glencore is organised and operates on a worldwide basis in three core business segments – Metals and minerals, Energy products
and Agricultural products, with each business segment responsible for the marketing, sourcing, hedging, logistics and industrial
investment activities of their respective products and reflecting the structure used by Glencore’s management to assess the
performance of Glencore.
The business segments’ contributions to the Group are primarily derived from the net margin or premium earned from physical
Marketing activities (net sale and purchase of physical commodities), provision of marketing and related value-add services and
the margin earned from Industrial asset activities (net resulting from the sale of physical commodities over the cost of production
and/or cost of sales) and comprise the following underlying key commodities:
• Metals and minerals: Zinc, copper, lead, alumina, aluminium, ferroalloys, nickel, cobalt and iron ore, including smelting, refining,
mining, processing and storage related operations of the relevant commodities
• Energy products: Crude oil, oil products, steam coal and metallurgical coal, including investments in coal mining and oil production
operations, ports, vessels and storage facilities, and
• Agriculture products: Wheat, corn, canola, barley, rice, oil seeds, meals, edible oils, biofuels, cotton and sugar supported by
investments in storage, handling, processing and port facilities
Corporate and other: consolidated statement of income amount represents unallocated Group related expenses (including variable
pool bonus charges). Statement of financial position amounts represent Group related balances.
The financial performance of the Metals and minerals and Energy products segments is principally evaluated by management
with reference to Adjusted EBIT/EBITDA. Adjusted EBIT is the net result of segmental revenue (revenue including Proportionate
adjustments as defined in the Alternative performance measure section) less cost of goods sold and selling and administrative
expenses plus share of income from associates and joint ventures, dividend income and the attributable share of Adjusted EBIT of
relevant material associates and joint ventures, which are accounted for internally by means of proportionate consolidation, excluding
significant items. Adjusted EBITDA consists of Adjusted EBIT plus depreciation and amortisation, including the related Proportionate
adjustments. In addition, Volcan, while a subsidiary of the Group, is accounted for under the equity method for internal reporting
and analysis due to the relatively low economic ownership held by the Group.
During the year, the Glencore Agri joint venture continued its transition to a fully independent stand-alone group through bedding
down of its independent governance structure and the firm establishment of its own stand-alone capital structure and credit
profile, including the removal of all, but one (see note 10) of the Group’s legacy guarantee arrangements. As a result of its increasing
independence and Glencore’s management evaluating the segment’s financial performance on a net return basis as opposed to an
Adjusted EBITDA basis, the financial results of Glencore Agri are no longer adjusted and presented on a proportionate consolidation
basis, but rather are presented on a basis consistent with its underlying IFRS treatment (equity accounting). Applicable comparative
segment balances have been adjusted to reflect these changes.
The accounting policies of the operating segments are the same as those described in note 1 with the exception of relevant
material associates, the Collahuasi joint venture and Volcan. Under IFRS 11, Glencore’s investments in the Antamina copper/zinc
mine (34% owned) and the Cerrejón coal mine (33% owned) are considered to be associates as they are not subject to joint control
and the Collahuasi copper mine (44% owned) is considered to be a joint venture. Associates and joint ventures are required to be
accounted for in Glencore’s financial statements under the equity method. For internal reporting and analysis, Glencore evaluates
the performance of these investments under the proportionate consolidation method, reflecting Glencore’s proportionate share
of the revenues, expenses, assets and liabilities of the investments. For internal reporting and analysis, management evaluates
the performance of Volcan under the equity method, reflecting the Group’s relatively low 23.3% economic ownership in this fully
ring-fenced listed entity, with its stand-alone, independent and separate capital structure. The balances as presented for internal
reporting purposes are reconciled to Glencore’s statutory disclosures in the following tables and/or in the Alternative performance
measures section.
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
2. Segment information continued
Glencore accounts for intra-segment sales and transfers where applicable as if the sales or transfers were to third parties, i.e. at arm’s
length commercial terms.
2018 US$ million
Revenue – Marketing activities1
Revenue – Industrial activities
Revenue
Proportionate adjustment – revenue2
Revenue – reported measure
Marketing activities
Adjusted EBITDA
Depreciation and amortisation
Adjusted EBIT
Industrial activities
Adjusted EBITDA
Depreciation and amortisation
Proportionate adjustment – depreciation2
Adjusted EBIT
Total Adjusted EBITDA
Total depreciation and amortisation
Total depreciation proportionate adjustment
Total Adjusted EBIT
Metals and
minerals
51,980
31,385
83,365
(1,805)
81,560
Energy
products
126,348
12,660
139,008
(838)
138,170
Agricultural
products
–
–
–
–
–
Corporate
and other
–
24
24
–
24
1,767
(25)
1,742
8,478
(4,316)
(109)
4,053
10,245
(4,341)
(109)
5,795
795
(53)
742
5,312
(1,913)
(190)
3,209
6,107
(1,966)
(190)
3,951
21
–
21
–
–
–
–
21
–
–
21
(91)
–
(91)
(515)
(18)
–
(533)
(606)
(18)
–
(624)
Share of associates’ significant items2,3
Unrealised intergroup profit elimination adjustments4
Loss on disposals and investments
Other expense – net
Impairments
Interest expense – net
Income tax expense
Proportionate adjustment – net finance, income tax expense and non-controlling interest2
Income for the year
Total
178,328
44,069
222,397
(2,643)
219,754
2,492
(78)
2,414
13,275
(6,247)
(299)
6,729
15,767
(6,325)
(299)
9,143
(40)
237
(139)
(764)
(1,643)
(1,514)
(2,063)
(601)
2,616
1 Balance is net of intra-segment sales arising from transactions between the Industrial and Marketing activities. Metals and minerals segment: $20,291 million and Energy products
segment $3,285 million.
2 Refer to APMs section for definition.
3 Share of associates’ significant items comprise Glencore’s share of significant charges booked directly by various associates, primarily Century and Glencore Agri.
4 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions, i.e. before ultimate sale to a third party. For Glencore, such adjustments
arise on the sale of product, in the ordinary course of business, from its Industrial to Marketing operations. Management assesses segment performance prior to any such adjustments,
as if the sales were to third parties.
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Notes to the financial statements continued
2. Segment information continued
2. Segment information continued
Glencore accounts for intra-segment sales and transfers where applicable as if the sales or transfers were to third parties, i.e. at arm’s
2017 US$ million
Revenue – Marketing activities2
Revenue – Industrial activities
Revenue
Proportionate adjustment – revenue3
Revenue – reported measure
Marketing activities
Adjusted EBITDA
Depreciation and amortisation
Adjusted EBIT
Industrial activities
Adjusted EBITDA
Depreciation and amortisation
Proportionate adjustment – depreciation3
Adjusted EBIT
Total Adjusted EBITDA
Total depreciation and amortisation
Total depreciation proportionate adjustment
Total Adjusted EBIT
Share of associates’ significant items3,4
Unrealised intergroup profit elimination adjustments5
Mark-to-market valuation on certain coal hedging contracts6
Gain on disposals and investments
Other income – net
Impairments
Interest expense – net
Income tax expense
Proportionate adjustment – net finance and income tax expense3
Income for the year
Metals and
minerals
51,017
29,448
80,465
(2,502)
77,963
Energy
products
118,199
10,067
128,266
(790)
127,476
Agricultural
products
Restated1
–
–
–
–
–
Corporate
and other
–
37
37
–
37
Total
Restated1
169,216
39,552
208,768
(3,292)
205,476
2,029
(24)
2,005
8,281
(3,274)
(511)
4,496
10,310
(3,298)
(511)
6,501
1,054
(64)
990
3,599
(1,998)
(177)
1,424
4,653
(2,062)
(177)
2,414
99
–
99
–
–
–
–
99
–
–
99
(175)
–
(175)
(342)
(38)
–
(380)
(517)
(38)
–
(555)
3,007
(88)
2,919
11,538
(5,310)
(688)
5,540
14,545
(5,398)
(688)
8,459
(6)
(523)
225
1,309
34
(628)
(1,451)
(1,759)
(498)
5,162
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Balance is net of intra-segment sales arising from transactions between the Industrial and Marketing activities. Metals and minerals segment: $19,648 million and Energy products
segment $2,677 million.
3 Refer to APMs section for definition.
4 Share of associates’ significant items comprise Glencore’s share of significant charges booked directly by various associates, primarily Century.
5 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions, i.e. before ultimate sale to a third party. For Glencore, such adjustments
arise on the sale of product, in the ordinary course of business, from its Industrial to Marketing operations. Management assesses segment performance prior to any such adjustments,
as if the sales were to third parties.
6 Represents an accounting measurement mismatch between the fair value of coal derivative positions in respect of portfolio risk management/hedging activities initiated in Q2 2016
and the anticipated future revenue to be generated from the sale of future unsold coal production. These transactions were not able to be designated as hedging instruments under
IFRS, which would have allowed for the deferment of any income statement effect until performance of the underlying future sale transactions. The fair value movements in the
derivative portfolio was offset against future revenue in the segment information as the related sales (of production) were realised.
length commercial terms.
2018 US$ million
Revenue – Marketing activities1
Revenue – Industrial activities
Revenue
Proportionate adjustment – revenue2
Revenue – reported measure
Marketing activities
Adjusted EBITDA
Depreciation and amortisation
Adjusted EBIT
Industrial activities
Adjusted EBITDA
Depreciation and amortisation
Proportionate adjustment – depreciation2
Adjusted EBIT
Total Adjusted EBITDA
Total depreciation and amortisation
Total depreciation proportionate adjustment
Total Adjusted EBIT
Share of associates’ significant items2,3
Unrealised intergroup profit elimination adjustments4
Loss on disposals and investments
Other expense – net
Impairments
Interest expense – net
Income tax expense
Income for the year
segment $3,285 million.
2 Refer to APMs section for definition.
as if the sales were to third parties.
Metals and
minerals
Energy
products
Agricultural
products
Corporate
and other
51,980
31,385
83,365
(1,805)
81,560
1,767
(25)
1,742
8,478
(4,316)
(109)
4,053
10,245
(4,341)
(109)
5,795
126,348
12,660
139,008
(838)
138,170
795
(53)
742
5,312
(1,913)
(190)
3,209
6,107
(1,966)
(190)
3,951
–
–
–
–
–
21
–
21
–
–
–
–
21
–
–
21
–
24
24
–
24
(91)
–
(91)
(515)
(18)
–
(533)
(606)
(18)
–
(624)
Total
178,328
44,069
222,397
(2,643)
219,754
2,492
(78)
2,414
13,275
(6,247)
(299)
6,729
15,767
(6,325)
(299)
9,143
(40)
237
(139)
(764)
(1,643)
(1,514)
(2,063)
(601)
2,616
Proportionate adjustment – net finance, income tax expense and non-controlling interest2
1 Balance is net of intra-segment sales arising from transactions between the Industrial and Marketing activities. Metals and minerals segment: $20,291 million and Energy products
3 Share of associates’ significant items comprise Glencore’s share of significant charges booked directly by various associates, primarily Century and Glencore Agri.
4 Represents the required adjustment to eliminate unrealised profit or losses arising on intergroup transactions, i.e. before ultimate sale to a third party. For Glencore, such adjustments
arise on the sale of product, in the ordinary course of business, from its Industrial to Marketing operations. Management assesses segment performance prior to any such adjustments,
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Notes to the financial statements continued
2. Segment information continued
2018 US$ million
Current assets
Current liabilities
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
Inventories
Allocatable non-current capital employed
Other assets1
Other liabilities2
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment – capital expenditure3
Capital expenditure – reported measure
Metals and
minerals
28,178
(12,873)
15,305
34,864
3,633
8,125
1,045
353
48,020
Energy
products
14,640
(18,268)
(3,628)
21,503
3,322
4,667
1,510
–
31,002
Agricultural
products
–
–
–
–
–
3,184
–
–
3,184
63,325
27,374
3,184
34
3,996
4,030
(308)
3,722
55
1,043
1,098
(81)
1,017
–
–
–
–
–
1 Other assets include non-current financial assets, deferred tax assets and cash and cash equivalents.
2 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions and non-current financial liabilities.
3 Refer to APMs section for definition.
2017 US$ million
Current assets
Current liabilities
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
Inventory
Allocatable non-current capital employed
Other assets2
Other liabilities3
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment – capital expenditure4
Capital expenditure – reported measure
Metals and
minerals
32,642
(16,603)
16,039
37,030
3,643
8,767
1,128
369
50,937
Energy
products
15,464
(17,676)
(2,212)
19,607
3,127
4,868
1,773
–
29,375
Agricultural
products
Restated1
–
–
–
–
–
3,321
–
–
3,321
66,976
27,163
3,321
17
3,232
3,249
(439)
2,810
79
742
821
(54)
767
–
–
–
–
–
Corporate
and other
(596)
(661)
(1,257)
403
16
–
–
–
419
3,825
(51,487)
(48,500)
–
38
38
–
38
Corporate
and other
(936)
(574)
(1,510)
409
17
–
75
–
501
4,289
(51,285)
(48,005)
–
46
46
–
46
Total
42,222
(31,802)
10,420
56,770
6,971
15,976
2,555
353
82,625
3,825
(51,487)
45,383
89
5,077
5,166
(389)
4,777
Total
Restated1
47,170
(34,853)
12,317
57,046
6,787
16,956
2,976
369
84,134
4,289
(51,285)
49,455
96
4,020
4,116
(493)
3,623
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Other assets include deferred tax assets, cash and cash equivalents and assets held for sale.
3 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions, non-current financial liabilities and liabilities held for sale.
4 Refer to APMs section for definition.
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Notes to the financial statements continued
2. Segment information continued
2018 US$ million
Current assets
Current liabilities
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
Inventories
Allocatable non-current capital employed
Other assets1
Other liabilities2
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment – capital expenditure3
Capital expenditure – reported measure
Allocatable current capital employed
Property, plant and equipment
Intangible assets
Investments in associates and other investments
Non-current advances and loans
2017 US$ million
Current assets
Current liabilities
Inventory
Other assets2
Other liabilities3
Total net assets
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment – capital expenditure4
Capital expenditure – reported measure
Metals and
minerals
Energy
products
Agricultural
products
Corporate
and other
63,325
27,374
3,184
28,178
(12,873)
15,305
34,864
3,633
8,125
1,045
353
48,020
34
3,996
4,030
(308)
3,722
32,642
(16,603)
16,039
37,030
3,643
8,767
1,128
369
17
3,232
3,249
(439)
2,810
14,640
(18,268)
(3,628)
21,503
3,322
4,667
1,510
–
31,002
55
1,043
1,098
(81)
1,017
15,464
(17,676)
(2,212)
19,607
3,127
4,868
1,773
–
79
742
821
(54)
767
3,184
3,184
3,321
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(596)
(661)
(1,257)
403
16
–
–
–
419
3,825
(51,487)
(48,500)
–
38
38
–
38
(936)
(574)
(1,510)
409
17
–
75
–
501
4,289
(51,285)
(48,005)
–
46
46
–
46
Total
42,222
(31,802)
10,420
56,770
6,971
15,976
2,555
353
82,625
3,825
(51,487)
45,383
89
5,077
5,166
(389)
4,777
47,170
(34,853)
12,317
57,046
6,787
16,956
2,976
369
84,134
4,289
(51,285)
49,455
96
4,020
4,116
(493)
3,623
Allocatable non-current capital employed
50,937
29,375
3,321
66,976
27,163
3,321
2. Segment information continued
Geographical information
US$ million
Revenue from third parties1
The Americas
Europe
Asia
Africa
Oceania
Non-current assets2
The Americas
Europe
Asia
Africa
Oceania
2018
2017
36,939
75,991
94,643
5,240
6,941
219,754
23,491
10,824
4,453
16,921
22,314
78,003
33,930
72,459
82,694
4,800
11,593
205,476
23,121
10,917
4,605
19,604
19,953
78,200
1 Other assets include non-current financial assets, deferred tax assets and cash and cash equivalents.
2 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions and non-current financial liabilities.
3 Refer to APMs section for definition.
Metals and
minerals
Energy
products
Agricultural
products
Restated1
Corporate
and other
Total
Restated1
3. Revenue
US$ million
Sale of commodities
Freight, storage and other services
Total
2018
217,119
2,635
219,754
2017
202,639
2,837
205,476
1 Revenue by geographical destination is based on the country of incorporation of the sales counterparty, however this may not necessarily be the country of the counterparty’s
ultimate parent and/or final destination of product.
2 Non-current assets are non-current assets excluding other investments, advances and loans, other financial assets and deferred tax assets. Non-current assets comprise assets
in Australia of $20,500 million (2017: $18,353 million), in Peru of $10,596 million (2017: $10,721 million) and the DRC of $7,272 million (2017: $8,166 million).
Revenue is derived principally from the sale of commodities, recognised once the control of the goods has transferred from Glencore
to the buyer. Revenue derived from freight, storage and other services is recognised over time as the service is rendered. Revenue
is measured based on consideration specified in the contract with the customer and excludes amounts collected on behalf of third
parties. This is consistent with the revenue information disclosed for each reportable segment (see note 2).
4. (Loss)/gain on disposals and investments
US$ million
Loss on sale of Mototolo
Gain on sale of HG Storage
Gain on sale of Zinc Africa
Gain on sale of other operations
(Loss)/gain on disposal of property, plant and equipment and intangible assets1
Total
1 2017 primarily comprises the gain on sale of a royalty portfolio, see below.
2018
(137)
–
–
15
(17)
(139)
2017
–
674
232
173
230
1,309
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Other assets include deferred tax assets, cash and cash equivalents and assets held for sale.
3 Other liabilities include borrowings, non-current deferred income, deferred tax liabilities, non-current provisions, non-current financial liabilities and liabilities held for sale.
4 Refer to APMs section for definition.
Mototolo
In November 2018, Glencore disposed of its 40% interest in the Mototolo joint venture, a Platinum mine in South Africa, resulting in
a loss of $137 million, mainly on account of recycling foreign currency translation reserves to the statement of income (see note 25).
HG Storage
In December 2017, Glencore disposed of a 51% interest in HG Storage, its petroleum products and logistics business, resulting in a gain
of $674 million, including remeasurement of the retained investment to its fair value (see note 25).
Zinc Africa
In August 2017, Glencore disposed of its African zinc operations (Perkoa and Rosh Pinah), resulting in a gain of $232 million (see note 25).
Other
The gain on sale of other operations in 2017 arose primarily from the disposal of Eland Platinum, which resulted in a gain of
$147 million, mainly on account of recycling foreign currency translation reserves to the statement of income (see note 25).
Gain on disposal of property, plant and equipment – Royalty portfolio
In December 2017, Glencore disposed of a portfolio of selected base metals’ royalty assets for a combination of cash ($150 million)
and a 50% interest in a new base metals streaming and royalties joint venture (BaseCore Metals), resulting in a gain on disposal of
$210 million (see note 10).
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
5. Other (expense)/income – net
US$ million
Net changes in mark-to-market valuations on investments
Net foreign exchange losses
Legal related costs
Closed site rehabilitation costs
Disposal of Rosneft stake related costs
KCC debt restructuring
Katanga OSC settlement and restatement
Acquisition related costs
Other expenses – net
Total
Notes
33
25
2018
139
(58)
(86)
(8)
(325)
(248)
(22)
(142)
(14)
(764)
2017
290
(80)
(75)
–
–
–
(78)
–
(23)
34
Together with foreign exchange movements and mark-to-market movements on investments, other expense includes certain items
that, due to the variable financial impact or expected infrequency of the events giving rise to these items, are reported separately from
operating segment results. Other expenses – net includes, but is not limited to, restructuring and closure costs.
Net changes in mark-to-market valuations on investments
Primarily relates to movements on interests in investments (see note 10) and the ARM Coal non-discretionary dividend obligation
(see note 28) carried at fair value.
Legal related costs
2018
Regulatory investigation related costs of $24 million (2017: $Nil) relate to legal and other third party costs incurred with respect to the
open U.S. Department of Justice (DOJ) investigation (see note 31).
During the year, the Strategic Fuel Fund Association of South Africa (SFF) brought various claims against Glencore Energy UK
(GENUK), a subsidiary of the Group, asserting that certain purchases of oil from SFF were invalid on the basis that SFF did not comply
with its necessary approval and procurement processes and that GENUK is therefore not entitled to remove the inventory until
the dispute is resolved. Over the period, holding and related costs incurred in relation to this inventory amounted to $62 million.
2017
Glencore Ltd (GLtd), the U.S. branch of Glencore AG, is a defendant in a case relating to an alumina refinery located in St. Croix,
U.S. Virgin Islands which was acquired by Virgin Islands Alumina Corporation (Vialco), a former affiliate of GLtd in 1989, and was
subsequently disposed of by Vialco in 2005. GLtd guaranteed the obligations of Vialco under the 1989 agreement which included
certain environmental and other indemnities. The complaint alleges that GLtd is contractually obligated to indemnify the previous
owners for two environmental lawsuits arising out of ownership and operation of the refinery. GLtd intends to vigorously defend
the contention, but has nevertheless reserved $75 million for the possibility the plaintiff might prevail in the whole of its claims.
Closed site rehabilitation costs
Relates to movements on restoration, rehabilitation and decommissioning estimates related to sites that are no longer operational
and are thus classified as “closed sites” (see note 22).
Disposal of Rosneft stake related costs
On 3 January 2017, Glencore and Qatar Investment Authority (QIA) entered into various agreements establishing a 50:50 consortium
(QHG) to acquire 19.5% of OSJC Rosneft Oil (Rosneft) and enter into a 5 year offtake agreement with Rosneft. In September 2018, the
consortium arrangements were terminated with each member taking a direct ownership in Rosneft shares – QIA received an 18.93%
stake and Glencore retained a 0.57% equity stake commensurate with its original equity swap investment in 2017 (see note 10). Upon
completion of the transaction, QHG had incurred funding and other costs and liabilities totalling $325 million for which Glencore has
assumed liability pursuant to the termination arrangements with QIA. QHG has a contractual right to recover these liabilities. A claim
has been made but it is being disputed by the counterparty.
Katanga OSC settlement and restatement
In December 2018, Katanga Mining Limited (Katanga), an 86.3% controlled subsidiary of the Group listed on the Toronto Stock
Exchange, entered into a settlement agreement with the Ontario Securities Commission (OSC) including a payment of $22 million.
The settlement agreement resolves an investigation by the OSC into certain of Katanga’s historic accounting practices, corporate
governance and disclosure practices.
In 2017, an initial phase of the OSC investigation identified certain accounting matters affecting Katanga’s results reported in
prior years, the impact of which was considered material for Katanga but not for the Group. Consequently, for the years ended
31 December 2016 and earlier, Katanga restated its financial statements, however the cumulative impact was only corrected in
the Group financial statements for the year ended 31 December 2017. Had the Group’s 2017 results been restated, income before
taxes for the 2016 year would have been lower by $10 million.
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Notes to the financial statements continued
5. Other (expense)/income – net
US$ million
Net changes in mark-to-market valuations on investments
Net foreign exchange losses
Legal related costs
Closed site rehabilitation costs
Disposal of Rosneft stake related costs
KCC debt restructuring
Katanga OSC settlement and restatement
Acquisition related costs
Other expenses – net
Total
Notes
33
25
2018
139
(58)
(86)
(8)
(325)
(248)
(22)
(142)
(14)
(764)
2017
290
(80)
(75)
–
–
–
–
(78)
(23)
34
Together with foreign exchange movements and mark-to-market movements on investments, other expense includes certain items
that, due to the variable financial impact or expected infrequency of the events giving rise to these items, are reported separately from
operating segment results. Other expenses – net includes, but is not limited to, restructuring and closure costs.
Net changes in mark-to-market valuations on investments
Primarily relates to movements on interests in investments (see note 10) and the ARM Coal non-discretionary dividend obligation
(see note 28) carried at fair value.
Legal related costs
2018
Regulatory investigation related costs of $24 million (2017: $Nil) relate to legal and other third party costs incurred with respect to the
open U.S. Department of Justice (DOJ) investigation (see note 31).
During the year, the Strategic Fuel Fund Association of South Africa (SFF) brought various claims against Glencore Energy UK
(GENUK), a subsidiary of the Group, asserting that certain purchases of oil from SFF were invalid on the basis that SFF did not comply
with its necessary approval and procurement processes and that GENUK is therefore not entitled to remove the inventory until
the dispute is resolved. Over the period, holding and related costs incurred in relation to this inventory amounted to $62 million.
2017
Glencore Ltd (GLtd), the U.S. branch of Glencore AG, is a defendant in a case relating to an alumina refinery located in St. Croix,
U.S. Virgin Islands which was acquired by Virgin Islands Alumina Corporation (Vialco), a former affiliate of GLtd in 1989, and was
subsequently disposed of by Vialco in 2005. GLtd guaranteed the obligations of Vialco under the 1989 agreement which included
certain environmental and other indemnities. The complaint alleges that GLtd is contractually obligated to indemnify the previous
owners for two environmental lawsuits arising out of ownership and operation of the refinery. GLtd intends to vigorously defend
the contention, but has nevertheless reserved $75 million for the possibility the plaintiff might prevail in the whole of its claims.
Relates to movements on restoration, rehabilitation and decommissioning estimates related to sites that are no longer operational
Closed site rehabilitation costs
and are thus classified as “closed sites” (see note 22).
Disposal of Rosneft stake related costs
On 3 January 2017, Glencore and Qatar Investment Authority (QIA) entered into various agreements establishing a 50:50 consortium
(QHG) to acquire 19.5% of OSJC Rosneft Oil (Rosneft) and enter into a 5 year offtake agreement with Rosneft. In September 2018, the
consortium arrangements were terminated with each member taking a direct ownership in Rosneft shares – QIA received an 18.93%
stake and Glencore retained a 0.57% equity stake commensurate with its original equity swap investment in 2017 (see note 10). Upon
completion of the transaction, QHG had incurred funding and other costs and liabilities totalling $325 million for which Glencore has
assumed liability pursuant to the termination arrangements with QIA. QHG has a contractual right to recover these liabilities. A claim
has been made but it is being disputed by the counterparty.
Katanga OSC settlement and restatement
In December 2018, Katanga Mining Limited (Katanga), an 86.3% controlled subsidiary of the Group listed on the Toronto Stock
Exchange, entered into a settlement agreement with the Ontario Securities Commission (OSC) including a payment of $22 million.
The settlement agreement resolves an investigation by the OSC into certain of Katanga’s historic accounting practices, corporate
governance and disclosure practices.
In 2017, an initial phase of the OSC investigation identified certain accounting matters affecting Katanga’s results reported in
prior years, the impact of which was considered material for Katanga but not for the Group. Consequently, for the years ended
31 December 2016 and earlier, Katanga restated its financial statements, however the cumulative impact was only corrected in
the Group financial statements for the year ended 31 December 2017. Had the Group’s 2017 results been restated, income before
taxes for the 2016 year would have been lower by $10 million.
6. Impairments
US$ million
Property, plant and equipment and intangible assets1 – net
Investments
Advances and loans – non-current
Total impairments2
Notes
8/9
10
11
2018
(1,452)
–
(191)
(1,643)
2017
(378)
(101)
(149)
(628)
1 2017 includes impairment reversals of $243 million relating to Energy products as detailed below.
2
Impairments recognised during the year are allocated to Glencore’s operating segments as follows: Metals and minerals $1,551 million (2017: $318 million) and Energy products
$92 million (2017: $310million).
As part of a regular portfolio review, Glencore carries out an assessment of whether there is an indication of asset impairment
or whether a previously recorded impairment may no longer be required.
The recoverable amounts of the property, plant and equipment and intangible assets were measured based on fair value less costs
of disposal (FVLCD), determined by discounted cash flow techniques based on the most recent approved financial budgets and
three-year business plans, which are underpinned and supported by life of mine plans of the respective operations. The valuation
models use the most recent reserve and resource estimates, relevant cost assumptions generally based on past experience and
where possible, market forecasts of commodity price and foreign exchange rate assumptions discounted using operation specific
discount rates ranging from 7% – 13.5% (2017: 7% – 12%). The valuations remain sensitive to price and a deterioration/improvement
in the pricing outlook may result in additional impairments/reversals. The determination of FVLCD uses Level 3 valuation techniques
for both years.
As a result of the regular impairment assessment, the following significant impairment charges resulted:
2018
Property, plant and equipment
• As a result of delays in various expansion programs, cost increases owing to inflation, tax and other regulatory pressures and, in
particular, a materially lower acid price assumption (by-product from smelting), the Mopani copper operations in Zambia (Metals
and minerals segment) were impaired by $803 million, to its estimated recoverable amount of $1,427 million. The valuation remains
sensitive to price and a further deterioration in the pricing outlook may result in additional impairment. The operation specific
discount rate used in the valuation was 11.1%. The short to long-term copper and cobalt price assumptions were $6,500/mt and
$27.22/lb, respectively, and acid price assumptions were $220/mt for 2019 and 2020 and $50/mt over the remaining life of mine.
Should the copper, cobalt and acid price assumptions fall by 10%, a further $390 million of impairment would be recognised. In
addition, should operating costs rise by 5% as a result of further operational challenges and delays, a further $165 million of
impairment would be recognised.
• In Q4 2018, a significant downward revision in the amount and timing of copper oxide reserves at our Mutanda copper operations
in the DRC (Metals and minerals segment) was highlighted, which lowers near term forecast annual copper production. In addition,
the significant increased costs and elevated political risk stemming from the introduction of the 2018 Mining Code, has reduced
the value of the base business, as well as reduced the value and probability of approving the development of new facilities to
treat the sulphide reserves. As a result of these changes, the Mutanda operations were impaired by $600 million, to its estimated
recoverable amount of $3,006 million. The valuation remains sensitive to price and adverse applications of the 2018 Mining Code.
A further deterioration in these assumptions may result in additional impairment. The operation specific discount rate used in
the valuation was 13.5%. The short to long-term copper and cobalt price assumptions were $6,500/mt and $27.22/lb, respectively,
and it was assumed that no super profits tax would be incurred. Should the copper and cobalt price assumptions fall by 10%
and it be determined that super profits tax is due, a further impairment ranging between $479 million and $1,008 million would
be recognised.
• The balance of the impairment charges on property, plant and equipment (none of which were individually material) relate
to specific assets where utilisation is no longer required or to projects no longer progressed due to changes in production and
development plans. As a result, the full carrying amount of these assets/projects was impaired, with $49 million recognised in
our Metals and minerals segment.
Advances and loans – non-current
Certain loans and physical advances were restructured over the period due to various non-performance factors, resulting in the
following impairments being recognised:
• $92 million impairment of a loan provided under an Energy related financing arrangement (Energy segment). The estimated
recoverable amount of the advance is $23 million.
• $99 million impairment of a financial loan arrangement (Metals and minerals segment). The estimated recoverable amount
of the loan is $155 million, see note 11.
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161
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Notes to the financial statements continued
6. Impairments continued
2017
Property, plant and equipment
• Following a modest downward revision, compared to prior year, of the long-term oil price assumption used to determine the
remaining recoverable value of the E&P assets, offset by a combination of improved pricing differentials for the Chad crude oil blend
(Doba) and further cost savings, an overall impairment charge of $278 million was recognised in the Chad oil operations (Energy
products segment). The remaining recoverable value of the Chad oil operations was $1,221 million. The valuation remains sensitive
to price and further deterioration or improvement in the pricing outlook may result in additional or reversal of impairment. The
short- to long-term Brent crude oil price assumptions used in the valuation were $65 – $70 per barrel and should these decrease
or increase by 10%, a further $535 million of impairment or reversal would be recognised.
• In January 2018, a farm-down agreement to divest a 50% interest in the Bolongo licence in Cameroon was signed. As a result,
the remaining recoverable value of the retained 37.5% working interest was impaired by $81 million, to its recoverable value of
$142 million. The valuation remains sensitive to price and further deterioration or improvement in the pricing outlook may result
in additional or reversal of impairment. The short- to long-term Brent crude oil price assumptions used in the valuation were
$65 – $70 per barrel and should these decrease or increase by 10%, a further $13 million of impairment or reversal would
be recognised.
• The Alen field gas production in Equatorial Guinea is currently reinjected back into the field. A project to commercialise gas
production has now progressed sufficiently, resulting in a partial reversal of impairments of $243 million in the Equatorial Guinea
oil operations (Energy products segment) and an increase in the recoverable value to $394 million. The valuation remains sensitive
to price and further deterioration or improvement in the pricing outlook may result in additional or reversal of impairment.
The short- to long-term Brent crude oil price assumptions and the Henry Hub price assumption used in the valuation were
$65 – $70 per barrel and $3 per million Btu respectively. Should these decrease or increase by 10%, a further $75 million of
impairment or reversal would be recognised.
• As a result of certain life of mine optimisation and design updates, alongside the finalisation phase of Katanga’s whole ore leach
project and its successful commissioning in late 2017, it was determined that certain processing equipment and non-current
inventories were no longer required and therefore the full carrying value of these assets were impaired by $76 million.
• The balance of property, plant and equipment related impairment charges (none of which were individually material) relates
to specific assets where utilisation is no longer required or projects progressed due to changes in production and development
plans. As a result, the full carrying value of these assets/projects was impaired, with $186 million recognised in our Metals and
minerals segment.
Investments
• Following strategic reviews of a copper and gold exploration investment and a coal investment it was determined, for the time
being, to cease further development and, as a result, the full carrying value of each investment, $56 million and $45 million
respectively, was impaired.
Advances and loans – non-current
Glencore has reviewed the carrying value of its interest in subordinated debt and preference shares of a coal port following the
insolvencies of certain third party shippers which impact the expected return on these investments and as a result, such loans
were impaired by $149 million, to their estimated recoverable amount of $139 million.
162
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Notes to the financial statements continued
6. Impairments continued
2017
Property, plant and equipment
• Following a modest downward revision, compared to prior year, of the long-term oil price assumption used to determine the
remaining recoverable value of the E&P assets, offset by a combination of improved pricing differentials for the Chad crude oil blend
(Doba) and further cost savings, an overall impairment charge of $278 million was recognised in the Chad oil operations (Energy
products segment). The remaining recoverable value of the Chad oil operations was $1,221 million. The valuation remains sensitive
to price and further deterioration or improvement in the pricing outlook may result in additional or reversal of impairment. The
short- to long-term Brent crude oil price assumptions used in the valuation were $65 – $70 per barrel and should these decrease
or increase by 10%, a further $535 million of impairment or reversal would be recognised.
• In January 2018, a farm-down agreement to divest a 50% interest in the Bolongo licence in Cameroon was signed. As a result,
the remaining recoverable value of the retained 37.5% working interest was impaired by $81 million, to its recoverable value of
$142 million. The valuation remains sensitive to price and further deterioration or improvement in the pricing outlook may result
in additional or reversal of impairment. The short- to long-term Brent crude oil price assumptions used in the valuation were
$65 – $70 per barrel and should these decrease or increase by 10%, a further $13 million of impairment or reversal would
be recognised.
• The Alen field gas production in Equatorial Guinea is currently reinjected back into the field. A project to commercialise gas
production has now progressed sufficiently, resulting in a partial reversal of impairments of $243 million in the Equatorial Guinea
oil operations (Energy products segment) and an increase in the recoverable value to $394 million. The valuation remains sensitive
to price and further deterioration or improvement in the pricing outlook may result in additional or reversal of impairment.
The short- to long-term Brent crude oil price assumptions and the Henry Hub price assumption used in the valuation were
$65 – $70 per barrel and $3 per million Btu respectively. Should these decrease or increase by 10%, a further $75 million of
impairment or reversal would be recognised.
• As a result of certain life of mine optimisation and design updates, alongside the finalisation phase of Katanga’s whole ore leach
project and its successful commissioning in late 2017, it was determined that certain processing equipment and non-current
inventories were no longer required and therefore the full carrying value of these assets were impaired by $76 million.
• The balance of property, plant and equipment related impairment charges (none of which were individually material) relates
to specific assets where utilisation is no longer required or projects progressed due to changes in production and development
plans. As a result, the full carrying value of these assets/projects was impaired, with $186 million recognised in our Metals and
minerals segment.
Investments
respectively, was impaired.
Advances and loans – non-current
• Following strategic reviews of a copper and gold exploration investment and a coal investment it was determined, for the time
being, to cease further development and, as a result, the full carrying value of each investment, $56 million and $45 million
Glencore has reviewed the carrying value of its interest in subordinated debt and preference shares of a coal port following the
insolvencies of certain third party shippers which impact the expected return on these investments and as a result, such loans
were impaired by $149 million, to their estimated recoverable amount of $139 million.
7. Income taxes
Income taxes consist of the following:
US$ million
Current income tax expense
Adjustments in respect of prior year income tax
Deferred income tax credit/(expense)
Adjustments in respect of prior year deferred income tax
Total tax expense reported in the statement of income
Current income tax (expense)/credit recognised directly in other comprehensive income
Deferred income tax credit/(expense) recognised directly in other comprehensive income
Total tax credit/(expense) recognised directly in other comprehensive income
2018
(2,290)
21
264
(58)
(2,063)
–
8
8
2017
(1,367)
(18)
(370)
(4)
(1,759)
–
(37)
(37)
The effective Group tax rate is different from the statutory Swiss income tax rate applicable to the Company for the following reasons:
US$ million
Income before income taxes and attribution
Less: Share of income from associates and joint ventures
Parent Company’s and subsidiaries’ income before income tax and attribution
Income tax expense calculated at the Swiss income tax rate of 15% (2017: 15%)
Tax effects of:
Different tax rates from the standard Swiss income tax rate
Tax exempt income of $275 million (2017: $125 million) from recurring items
and $77 million (2017: $248 million) from non-recurring items
Items not tax deductible of $585 million (2017: $316 million) from recurring items
and $187 million (2017: $279 million) from non-recurring items
Foreign exchange fluctuations
Changes in tax rates $Nil (2017: $5 million) from recurring items and $1 million (2017: $188 million)
from non-recurring items
Utilisation and changes in recognition of tax losses and temporary differences
Tax losses not recognised
Adjustments in respect of prior years
Other
Income tax expense
2018
4,679
(1,043)
3,636
(545)
(227)
352
(772)
(130)
1
(357)
(340)
(37)
(8)
(2,063)
2017
6,921
(1,158)
5,763
(864)
(333)
373
(595)
(30)
(193)
290
(412)
(22)
27
(1,759)
The non-tax deductible items of $772 million (2017: $595 million) primarily relate to non-deductible exploration charges, financing
costs, impairments and various other expenses. The impact of tax exempt income of $352 million (2017: $373 million) primarily relates
to non-taxable intra-group dividends, income that is not effectively connected to the taxable jurisdiction, and various other items.
The tax impact of foreign exchange fluctuations relates to the foreign currency movements on deferred tax balances where the
underlying tax balances are denominated in a currency different to the functional currency determined for accounting purposes.
The impact of change in tax rates of $193 million in 2017 arose primarily from significant corporate tax rate changes in the U.S.,
following the announced U.S. tax reform.
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163
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
7. Income taxes continued
Deferred taxes
Deferred taxes as at 31 December 2018 and 2017 are attributable to the items in the table below:
US$ million
Deferred tax assets1
Tax losses carried forward
Other
Total
Deferred tax liabilities1
Depreciation and
amortisation
Mark-to-market valuations
Other
Total
Total Deferred tax – net
US$ million
Deferred tax assets1
Tax losses carried forward
Other
Total
Deferred tax liabilities1
Depreciation and
amortisation
Mark-to-market valuations
Other
Total
Total Deferred tax – net
Recognised in
the statement
of income
Recognised
in other
comprehensive
income
Business
combination
and disposal
of subsidiaries
Foreign
currency
exchange
movements
Other
2017
(58)
38
(20)
487
(5)
(256)
226
206
–
(2)
(2)
2
(1)
9
10
8
–
–
–
(157)
–
(105)
(262)
(262)
(1)
(32)
(33)
224
(2)
8
230
197
50
–
50
(19)
–
–
(19)
31
1,523
210
1,733
(6,855)
(65)
(104)
(7,024)
(5,291)
Recognised in
the statement
of income
Recognised
in other
comprehensive
income
Business
combination
and disposal
of subsidiaries
Foreign
currency
exchange
movements
Other
2016
(131)
50
(81)
(265)
20
(48)
(293)
(374)
–
(14)
(14)
(5)
(5)
(13)
(23)
(37)
–
2
2
(914)
–
–
(914)
(912)
1
18
19
(142)
(4)
(5)
(151)
(132)
–
47
47
17
–
4
21
68
1,653
107
1,760
(5,546)
(76)
(42)
(5,664)
(3,904)
2018
1,514
214
1,728
(6,318)
(73)
(448)
(6,839)
(5,111)
2017
1,523
210
1,733
(6,855)
(65)
(104)
(7,024)
(5,291)
1 Asset and liability positions in the same category reflect the impact of tax assets and liabilities arising in local tax jurisdictions that cannot be offset against tax assets and liabilities
arising in other tax jurisdictions.
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.
As at 31 December 2018, $2,140 million (2017: $2,404 million) of deferred tax assets related to available loss carry forwards have been
brought to account, of which $1,514 million (2017: $1,523 million) are disclosed as deferred tax assets with the remaining balance being
offset against deferred tax liabilities arising in the same tax entity. This balance is primarily comprised of:
• $520 million (2017: $470 million) in entities domiciled in the DRC (Katanga Mining Group),
• $452 million (2017: $478 million) in entities domiciled in Switzerland, and
• $403 million (2017: $425 million) in entities domiciled in the U.S.
In evaluating whether it is probable that taxable profits will be earned in future accounting periods prior to any tax loss expiry as may
be the case, all available evidence was considered, including approved budgets, forecasts and business plans and, in certain cases,
analysis of historical operating results. These forecasts are consistent with those prepared and used internally for business planning
and impairment testing purposes. Following this evaluation, it was determined there would be sufficient taxable income generated
to realise the benefit of the deferred tax assets and that no reasonably possible change in any of the key assumptions would result
in a material reduction in forecast headroom of tax profits so that the recognised deferred tax asset would not be realised, other
than the potential developments in the DRC discussed below.
164
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Notes to the financial statements continued
7. Income taxes continued
Deferred taxes
Deferred taxes as at 31 December 2018 and 2017 are attributable to the items in the table below:
Recognised in
the statement
comprehensive
Recognised
in other
Business
combination
and disposal
Foreign
currency
exchange
2018
of income
income
of subsidiaries
movements
Other
Other
Total
Other
Total
Other
Total
Other
Total
US$ million
Deferred tax assets1
Tax losses carried forward
Deferred tax liabilities1
Depreciation and
amortisation
Mark-to-market valuations
Total Deferred tax – net
US$ million
Deferred tax assets1
Tax losses carried forward
Deferred tax liabilities1
Depreciation and
amortisation
Mark-to-market valuations
Total Deferred tax – net
arising in other tax jurisdictions.
1,514
214
1,728
(6,318)
(73)
(448)
(6,839)
(5,111)
1,523
210
1,733
(6,855)
(65)
(104)
(7,024)
(5,291)
(58)
38
(20)
487
(5)
(256)
226
206
(131)
50
(81)
(265)
20
(48)
(293)
(374)
–
(2)
(2)
2
(1)
9
10
8
–
(14)
(14)
(5)
(5)
(13)
(23)
(37)
(157)
–
(105)
(262)
(262)
–
–
–
–
2
2
(914)
–
–
(914)
(912)
(1)
(32)
(33)
224
(2)
8
230
197
1
18
19
(142)
(4)
(5)
(151)
(132)
2017
1,523
210
1,733
(6,855)
(65)
(104)
(7,024)
(5,291)
1,653
107
1,760
(5,546)
(76)
(42)
(5,664)
(3,904)
50
–
50
(19)
–
–
(19)
31
–
47
47
17
–
4
21
68
Recognised in
the statement
comprehensive
Recognised
in other
Business
combination
and disposal
Foreign
currency
exchange
2017
of income
income
of subsidiaries
movements
Other
2016
1 Asset and liability positions in the same category reflect the impact of tax assets and liabilities arising in local tax jurisdictions that cannot be offset against tax assets and liabilities
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.
As at 31 December 2018, $2,140 million (2017: $2,404 million) of deferred tax assets related to available loss carry forwards have been
brought to account, of which $1,514 million (2017: $1,523 million) are disclosed as deferred tax assets with the remaining balance being
offset against deferred tax liabilities arising in the same tax entity. This balance is primarily comprised of:
• $520 million (2017: $470 million) in entities domiciled in the DRC (Katanga Mining Group),
• $452 million (2017: $478 million) in entities domiciled in Switzerland, and
• $403 million (2017: $425 million) in entities domiciled in the U.S.
In evaluating whether it is probable that taxable profits will be earned in future accounting periods prior to any tax loss expiry as may
be the case, all available evidence was considered, including approved budgets, forecasts and business plans and, in certain cases,
analysis of historical operating results. These forecasts are consistent with those prepared and used internally for business planning
and impairment testing purposes. Following this evaluation, it was determined there would be sufficient taxable income generated
to realise the benefit of the deferred tax assets and that no reasonably possible change in any of the key assumptions would result
in a material reduction in forecast headroom of tax profits so that the recognised deferred tax asset would not be realised, other
than the potential developments in the DRC discussed below.
7. Income taxes continued
The recognised losses carried forward in Switzerland primarily relate to non-recurring events in 2012. Based on the core business
activities conducted in Switzerland and taxable income forecasts going forward, sufficient taxable profits are expected to fully utilise
the recognised tax losses prior to expiration.
The recognised losses carried forward in the U.S. primarily relate to non-recurring events in 2011 and have a carry forward period
of 20 years. The U.S. entities comprise our core U.S. marketing activities and based on taxable income forecasts going forward,
sufficient taxable profits are expected to fully utilise the recognised tax losses prior to expiration.
DRC related income tax judgements
The losses carried forward in the DRC have an unlimited carry forward period, but are subject to an annual utilisation limitation.
Katanga Mining resumed processing operations in December 2017 and is expected to generate taxable profits in the future. Should
this potential fully materialise, up to $705 million (2017: $633 million) of unrecognised tax effected losses are available to be recognised.
During the year, the DRC parliament adopted a new mining code (“2018 Mining Code”) introducing wide ranging reforms including the
introduction of higher royalties, a new Super Profits Tax regime and further regulatory controls. This triggered a re-assessment of our tax
positions in the DRC. Based on the potential challenge of historical tax positions and uncertainties of the 2018 Mining Code, specifically,
the application and interpretation of the Super Profits Tax, which cannot be offset by carry forward income tax losses, consideration
was given to the range of possible outcomes, including to what extent previously incurred tax losses would be available to offset future
taxable profits. Any adverse challenge by the DRC tax authorities could significantly impact the currently recognised tax losses.
Available gross tax losses
Available gross tax losses carried forward and deductible temporary differences, for which no deferred tax assets have been
recognised in the consolidated financial statements, are detailed below and will expire as follows:
US$ million
1 year
2 years
3 years
Thereafter
Unlimited
Total
2018
1,418
36
35
2,791
3,591
7,871
2017
110
955
66
2,140
3,303
6,574
As at 31 December 2018, unremitted earnings of $55,029 million (2017: $60,014 million) have been retained by subsidiaries for
reinvestment. No provision is made for income taxes.
8. Property, plant and equipment
US$ million
Gross carrying amount:
1 January 2018 (restated)1
Restatement2
1 January 2018 (restated)
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency
exchange movements
Reclassification from held for sale
Other movements
31 December 2018
Accumulated depreciation and
impairment:
1 January 2018 (restated)1
Disposal of subsidiaries
Depreciation
Disposals
Impairments
Effect of foreign currency
exchange movements
Reclassification from held for sale
Other movements
31 December 2018
Net book value 31 December 2018
Notes
Freehold land
and buildings
Plant and
equipment
Mineral and
petroleum
rights
Exploration
and
evaluation
Deferred
mining costs
25
25
25
15
25
6
15
5,566
145
5,711
130
(74)
72
(24)
(27)
3
269
6,060
1,363
(45)
354
(10)
3
(3)
3
(10)
1,655
4,405
41,318
(8)
41,310
555
(467)
3,611
(1,066)
(452)
237
(99)
43,629
18,731
(377)
3,059
(968)
415
(134)
54
962
21,742
21,887
28,975
(356)
28,619
1,534
(248)
195
(90)
(419)
16
80
29,687
6,778
(180)
1,539
(184)
861
(91)
11
24
8,758
20,929
2,170
–
2,170
–
–
–
–
–
–
13
2,183
1,584
–
4
–
–
–
–
–
1,588
595
14,221
453
14,674
938
(105)
860
(200)
(49)
25
923
17,066
6,748
(98)
1,287
(66)
173
(8)
72
4
8,112
8,954
Total
92,250
234
92,484
3,157
(894)
4,738
(1,380)
(947)
281
1,186
98,625
35,204
(700)
6,243
(1,228)
1,452
(236)
140
980
41,855
56,770
1 Certain balances in the prior year have been restated to reflect their appropriate classification. Other than the restatement within the property, plant and equipment headings, there
are no depreciation and amortisation changes.
2 Adjustment to previously reported purchase price allocation in relation to Volcan.
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165
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
8. Property, plant and equipment continued
Plant and equipment includes expenditure for construction in progress of $3,268 million (2017: $4,454 million) and a net book value of
$523 million (2017: $527 million) of lease assets under finance lease agreements. Mineral and petroleum rights include biological assets
of $18 million (2017: $21 million). Depreciation expenses included in cost of goods sold are $6,224 million (2017: $5,272 million) and in
selling and administrative expenses $19 million (2017: $19 million).
During 2018, $49 million (2017: $42 million) of interest was capitalised. With the exception of project specific borrowings, the rate used
to determine the amount of borrowing costs eligible for capitalisation was 4% (2017: 3%).
As at 31 December 2018, except for the purposes of finance leases, no property, plant or equipment was pledged as security for
borrowings (2017: $Nil).
Notes
Freehold land
and buildings
Plant and
equipment
(restated) 1
Mineral and
petroleum
rights
(restated)1
Exploration
and
evaluation
Deferred
mining costs
(restated)1
US$ million
Gross carrying amount:
1 January 2017
Reclassification1
1 January 2017 (restated)
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency
exchange movements
Reclassification to held for sale
Other movements2
31 December 2017 (restated)
Accumulated depreciation
and impairment:
1 January 2017
Reclassification1
1 January 2017 (Restated)
Disposal of subsidiaries
Depreciation
Disposals
Impairments
Effect of foreign currency
exchange movements
Reclassification to held for sale
Other movements2
31 December 2017 (restated)
Net book value 31 December 2017 (restated)
15
25
25
15
25
6
4,808
–
4,808
523
(88)
76
(31)
26
(43)
295
5,566
1,061
–
1,061
(44)
266
(6)
23
5
(6)
64
1,363
4,203
54,622
(14,040)
40,582
204
(572)
2,602
(384)
334
(633)
(815)
41,318
22,392
(6,178)
16,214
(289)
2,955
(237)
261
97
(448)
178
18,731
22,587
20,332
3,958
24,290
3,972
(118)
346
(10)
281
(126)
340
28,975
5,219
831
6,050
(34)
991
(9)
(8)
56
(73)
(195)
6,778
22,197
2,343
–
2,343
–
–
–
–
–
–
(173)
2,170
1,138
–
1,138
–
–
–
477
–
–
(31)
1,584
586
2,362
10,082
12,444
–
(282)
576
(24)
34
(11)
1,484
14,221
831
5,347
6,178
(201)
1,079
(9)
(375)
6
(65)
135
6,748
7,473
Total
84,467
–
84,467
4,699
(1,060)
3,600
(449)
675
(813)
1,131
92,250
30,641
–
30,641
(568)
5,291
(261)
378
164
(592)
151
35,204
57,046
1 Certain balances in the prior year have been restated to reflect their appropriate classification. Other than the restatement within the property, plant and equipment headings, there
are no depreciation and amortisation changes.
Includes additions to restoration and rehabilitation of $786 million, see note 22.
2
166
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Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
8. Property, plant and equipment continued
9. Intangible assets
Plant and equipment includes expenditure for construction in progress of $3,268 million (2017: $4,454 million) and a net book value of
$523 million (2017: $527 million) of lease assets under finance lease agreements. Mineral and petroleum rights include biological assets
of $18 million (2017: $21 million). Depreciation expenses included in cost of goods sold are $6,224 million (2017: $5,272 million) and in
selling and administrative expenses $19 million (2017: $19 million).
During 2018, $49 million (2017: $42 million) of interest was capitalised. With the exception of project specific borrowings, the rate used
to determine the amount of borrowing costs eligible for capitalisation was 4% (2017: 3%).
As at 31 December 2018, except for the purposes of finance leases, no property, plant or equipment was pledged as security for
Reclassification to held for sale
15
borrowings (2017: $Nil).
US$ million
Gross carrying amount:
1 January 2017
Reclassification1
1 January 2017 (restated)
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency
exchange movements
Other movements2
31 December 2017 (restated)
Accumulated depreciation
and impairment:
1 January 2017
Reclassification1
1 January 2017 (Restated)
Disposal of subsidiaries
Depreciation
Disposals
Impairments
Effect of foreign currency
exchange movements
Reclassification to held for sale
Other movements2
31 December 2017 (restated)
Freehold land
Notes
and buildings
Plant and
equipment
(restated) 1
Mineral and
petroleum
rights
Exploration
Deferred
and
mining costs
(restated)1
evaluation
(restated)1
Total
25
25
25
6
15
4,808
–
4,808
523
(88)
76
(31)
26
(43)
295
5,566
1,061
–
1,061
(44)
266
(6)
23
5
(6)
64
1,363
4,203
54,622
(14,040)
40,582
204
(572)
2,602
(384)
334
(633)
(815)
22,392
(6,178)
16,214
(289)
2,955
(237)
261
97
(448)
178
18,731
22,587
20,332
3,958
24,290
3,972
(118)
346
(10)
281
(126)
340
5,219
831
6,050
(34)
991
(9)
(8)
56
(73)
(195)
6,778
22,197
2,343
2,343
–
–
–
–
–
–
–
–
–
–
–
–
–
(173)
2,170
1,138
1,138
477
(31)
1,584
586
2,362
10,082
12,444
–
(282)
576
(24)
34
(11)
1,484
14,221
831
5,347
6,178
(201)
1,079
(9)
(375)
6
(65)
135
6,748
7,473
84,467
–
84,467
4,699
(1,060)
3,600
(449)
675
(813)
1,131
92,250
30,641
–
30,641
(568)
5,291
(261)
378
164
(592)
151
35,204
57,046
Net book value 31 December 2017 (restated)
are no depreciation and amortisation changes.
2
Includes additions to restoration and rehabilitation of $786 million, see note 22.
1 Certain balances in the prior year have been restated to reflect their appropriate classification. Other than the restatement within the property, plant and equipment headings, there
US$ million
Cost:
1 January 2018
Restatement1
1 January 2018 (restated)
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency exchange movements
Reclassification from held for sale
Other movements
31 December 2018
Accumulated amortisation and impairment:
1 January 2018
Disposal of subsidiaries
Amortisation expense2
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2018
Net carrying amount 31 December 2018
Notes
Goodwill
Port allocation
rights
Licences,
trademarks
and software
Customer
relationships
and other
25
25
25
15
25
13,293
–
13,293
–
–
–
–
–
–
–
13,293
8,243
–
–
–
–
–
8,243
5,050
1,555
–
1,555
–
–
1
(1)
(219)
–
–
1,336
149
–
37
–
(27)
–
159
1,177
468
(76)
392
2
–
25
(8)
(2)
1
24
434
237
–
35
(8)
(2)
6
268
166
183
29
212
425
(4)
13
–
(7)
–
25
664
83
(4)
10
–
(1)
(2)
86
578
41,318
28,975
1 Adjustment to previously reported purchase price allocation in relation to Volcan.
2 Recognised in cost of goods sold.
US$ million
Cost:
1 January 2017
Business combination
Disposal of subsidiaries
Additions
Disposals
Effect of foreign currency exchange movements
Reclassification to held for sale
Other movements
31 December 2017
Accumulated amortisation and impairment:
1 January 2017
Disposal of subsidiaries
Amortisation expense1
Disposals
Effect of foreign currency exchange movements
Other movements
31 December 2017
Net carrying amount 31 December 2017
1 Recognised in cost of goods sold.
Notes
Goodwill
Port
allocation
rights
Licences,
trademarks
and software
Customer
relationships
and other
25
25
15
25
13,293
–
–
–
–
–
–
–
13,293
8,243
–
–
–
–
–
8,243
5,050
1,408
–
–
–
–
147
–
–
1,555
100
–
36
–
13
–
149
1,406
385
76
(2)
6
(39)
1
(1)
42
468
163
(1)
53
(19)
1
40
237
231
258
–
(2)
17
(105)
1
–
14
183
122
–
18
(51)
–
(6)
83
100
Total
15,499
(47)
15,452
427
(4)
39
(9)
(228)
1
49
15,727
8,712
(4)
82
(8)
(30)
4
8,756
6,971
Total
15,344
76
(4)
23
(144)
149
(1)
56
15,499
8,628
(1)
107
(70)
14
34
8,712
6,787
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
9. Intangible assets continued
Goodwill
The carrying amount of goodwill has been allocated to cash-generating units (CGUs), or groups of CGUs as follows:
US$ million
Metals and minerals marketing businesses
Coal marketing business
Metals warehousing business
Total
2018
3,326
1,674
50
5,050
2017
3,326
1,674
50
5,050
Metals and minerals and coal marketing businesses
Goodwill of $3,326 million and $1,674 million was recognised in connection with previous business combinations and was allocated
to the metals and minerals marketing and coal marketing CGUs respectively, based on the annual synergies expected to accrue to
the respective marketing departments as a result of increased volumes, blending opportunities and freight and logistics arbitrage
opportunities.
Metals warehousing business
Goodwill of $50 million (2017: $50 million) relates to the Access World logistics business CGU.
Port allocation rights
Port allocation rights represent contractual entitlements to export certain amounts of coal on an annual basis from Richard Bay Coal
Terminal in South Africa recognised as part of previous business combinations. The rights are amortised on a straight-line basis over
the estimated economic life of the port of 40 years.
Licences, trademarks and software
Intangibles related to internally developed technology and patents were recognised in previous business combinations and are
amortised over the estimated economic life of the technology which ranges between 10 – 15 years.
Customer relationships
During the year, Glencore acquired a Brazilian fuel distribution business (see note 25) and as part of this acquisition, recognised
intangible assets related to long-standing customer relationships. These intangible assets are being amortised on a straight-line
basis over their estimated economic life of 5 years.
In December 2017, a royalty pertaining to the Antamina copper mine was disposed of, see note 4.
Goodwill impairment testing
Given the nature of each CGU’s activities, information on its fair value is usually difficult to obtain unless negotiations with potential
purchasers or similar transactions are taking place. Consequently,
• The recoverable amount for each of the marketing CGUs is determined by reference to the FVLCD which utilises a price to earnings
multiple approach based on the 2019 approved financial budget which includes factors such as marketing volumes handled
and operating, interest and income tax charges, generally based on past experience. The price to earnings multiple of 15 times
(2017: 15 times) is derived from observable market data for broadly comparable businesses; and
• Glencore believes that no reasonably possible change in any of the above key assumptions would cause the recoverable amount
to fall below the carrying value of the CGU. The determination of FVLCD for each of the marketing CGUs used Level 3 valuation
techniques in both years.
168
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Notes to the financial statements continued
9. Intangible assets continued
Goodwill
US$ million
Metals and minerals marketing businesses
Coal marketing business
Metals warehousing business
Total
The carrying amount of goodwill has been allocated to cash-generating units (CGUs), or groups of CGUs as follows:
2018
3,326
1,674
50
5,050
2017
3,326
1,674
50
5,050
Metals and minerals and coal marketing businesses
Goodwill of $3,326 million and $1,674 million was recognised in connection with previous business combinations and was allocated
to the metals and minerals marketing and coal marketing CGUs respectively, based on the annual synergies expected to accrue to
the respective marketing departments as a result of increased volumes, blending opportunities and freight and logistics arbitrage
Goodwill of $50 million (2017: $50 million) relates to the Access World logistics business CGU.
Port allocation rights represent contractual entitlements to export certain amounts of coal on an annual basis from Richard Bay Coal
Terminal in South Africa recognised as part of previous business combinations. The rights are amortised on a straight-line basis over
opportunities.
Metals warehousing business
Port allocation rights
the estimated economic life of the port of 40 years.
Licences, trademarks and software
Intangibles related to internally developed technology and patents were recognised in previous business combinations and are
amortised over the estimated economic life of the technology which ranges between 10 – 15 years.
Customer relationships
During the year, Glencore acquired a Brazilian fuel distribution business (see note 25) and as part of this acquisition, recognised
intangible assets related to long-standing customer relationships. These intangible assets are being amortised on a straight-line
basis over their estimated economic life of 5 years.
In December 2017, a royalty pertaining to the Antamina copper mine was disposed of, see note 4.
Goodwill impairment testing
Given the nature of each CGU’s activities, information on its fair value is usually difficult to obtain unless negotiations with potential
purchasers or similar transactions are taking place. Consequently,
• The recoverable amount for each of the marketing CGUs is determined by reference to the FVLCD which utilises a price to earnings
multiple approach based on the 2019 approved financial budget which includes factors such as marketing volumes handled
and operating, interest and income tax charges, generally based on past experience. The price to earnings multiple of 15 times
(2017: 15 times) is derived from observable market data for broadly comparable businesses; and
• Glencore believes that no reasonably possible change in any of the above key assumptions would cause the recoverable amount
to fall below the carrying value of the CGU. The determination of FVLCD for each of the marketing CGUs used Level 3 valuation
techniques in both years.
10. Investments in associates, joint ventures and other investments
Investments in associates and joint ventures
US$ million
1 January
Additions
Disposals
Share of income from associates and joint ventures
Share of other comprehensive income from associates and joint ventures
Fair value of retained interest in HG Storage and other
Disposal of equity accounted investments
Acquisition of equity accounted investments
Investment in Trevali
Investment in BaseCore Metals
Impairments
Dividends received
Reclassification from held for sale
Other movements
31 December
Of which:
Investments in associates
Investments in joint ventures
Notes
25
25
25
5
6
15
2018
13,998
19
(1)
1,043
(124)
–
–
109
–
–
–
(1,139)
8
(4)
13,909
7,707
6,202
2017
13,086
8
(12)
1,158
93
563
(170)
–
242
150
(101)
(1,081)
–
62
13,998
7,643
6,355
As at 31 December 2018, the carrying value of our listed associates is $772 million (2017: $808 million), mainly comprising Century
Aluminum and Trevali, which have a carrying value of $441 million (2017: $478 million) and $244 million (2017: $239 million) respectively.
The fair value of our listed associates and joint ventures, using published price quotations (a Level 1 fair value measurement) is
$463 million (2017: $1,340 million). As at 31 December 2018, $101 million (2017: $270 million) of the carrying value of Century Aluminum
was secured under a loan facility, with proceeds received and recognised in current borrowings of $90 million (2017: $170 million).
HG Storage
In December 2017, Glencore disposed of a 51% interest in HG Storage, its petroleum products and logistics business, for $530 million
(see note 25), subsequently accounting for its remaining share using the equity method.
Trevali
In August 2017, Glencore disposed of its African zinc operations (Perkoa and Rosh Pinah) for a combination of cash and a 25%
($222 million) interest in Trevali (see note 25).
BaseCore Metals
In December 2017, Glencore disposed of a portfolio of selected base metals’ royalty assets for a combination of cash and a 50%
($150 million) interest in BaseCore Metals LP (see note 4), subsequently accounting for its share using the equity method.
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
10. Investments in associates, joint ventures and other investments continued
Details of material associates and joint ventures
Summarised financial information in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’
and joint ventures’ relevant figures, is set out below.
US$ million
2018
Non-current assets
Current assets
Non-current liabilities
Current liabilities
The above assets and liabilities include the following:
Cash and cash equivalents
Current financial liabilities1
Non-current financial liabilities1
Net assets 31 December 2018
Glencore’s ownership interest
Acquisition fair value and other adjustments
Carrying value
1 Financial liabilities exclude trade, other payables and provisions.
Cerrejón
Antamina
Total
material
associates
Collahuasi
Glencore
Agri
2,554
876
(652)
(409)
307
(2)
–
2,369
33.3%
900
1,689
4,428
1,120
(1,132)
(534)
77
(34)
(144)
3,882
33.8%
1,925
3,237
6,982
1,996
(1,784)
(943)
384
(36)
(144)
6,251
2,825
4,926
4,751
1,170
(1,161)
(483)
161
(12)
(96)
4,277
44.0%
1,136
3,018
4,549
6,917
(2,968)
(4,739)
180
(1,995)
(2,669)
3,759
49.9%
1,309
3,184
Total
material
associates
and
joint
ventures
Total
material
joint
ventures
9,300
8,087
(4,129)
(5,222)
341
(2,007)
(2,765)
8,036
2,445
6,202
16,282
10,083
(5,913)
(6,165)
725
(2,043)
(2,909)
14,287
5,270
11,128
Summarised profit and loss in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’
and joint ventures’ relevant figures for the year ended 31 December 2018, including group adjustments relating to alignment
of accounting policies or fair value adjustments, is set out below.
Cerrejón
Antamina
Total
material
associates
Collahuasi
Glencore
Agri
Total
material
associates
and
joint
ventures
Total
material
joint
ventures
2,516
359
–
359
194
(571)
–
–
(231)
3,489
1,224
–
1,224
405
(789)
–
(6)
(711)
6,005
1,583
–
1,583
599
(1,360)
–
(6)
(942)
3,241
963
(20)
943
440
(611)
46
(25)
(496)
26,304
(15)
29,545
948
2
(13)
–
(261)
59
(171)
(123)
(18)
930
440
(872)
105
(196)
(619)
35,550
2,531
(18)
2,513
1,039
(2,232)
105
(202)
(1,561)
US$ million
2018
Revenue
Income for the year
Other comprehensive loss
Total comprehensive income
Glencore’s share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest income1
Interest expense2
Income tax expense
1
2
Includes foreign exchange gains and other income of $73 million.
Includes foreign exchange losses of $24 million.
170
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Glencore Annual Report 2018
Notes to the financial statements continued
Summarised financial information in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’
Details of material associates and joint ventures
and joint ventures’ relevant figures, is set out below.
US$ million
2018
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Cash and cash equivalents
Current financial liabilities1
Non-current financial liabilities1
Net assets 31 December 2018
Glencore’s ownership interest
The above assets and liabilities include the following:
Acquisition fair value and other adjustments
Carrying value
1 Financial liabilities exclude trade, other payables and provisions.
Cerrejón
Antamina
associates
Collahuasi
Agri
ventures
ventures
Total
material
Glencore
Total
material
Total
associates
material
joint
and
joint
2,554
876
(652)
(409)
307
(2)
–
2,369
33.3%
900
1,689
4,428
1,120
(1,132)
(534)
77
(34)
(144)
3,882
33.8%
1,925
3,237
6,982
1,996
(1,784)
(943)
384
(36)
(144)
6,251
2,825
4,926
4,751
1,170
(1,161)
(483)
161
(12)
(96)
4,277
44.0%
1,136
3,018
4,549
6,917
(2,968)
(4,739)
180
(1,995)
(2,669)
3,759
49.9%
1,309
3,184
9,300
8,087
(4,129)
(5,222)
341
(2,007)
(2,765)
8,036
2,445
6,202
16,282
10,083
(5,913)
(6,165)
725
(2,043)
(2,909)
14,287
5,270
11,128
Summarised profit and loss in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’
and joint ventures’ relevant figures for the year ended 31 December 2018, including group adjustments relating to alignment
of accounting policies or fair value adjustments, is set out below.
Cerrejón
Antamina
associates
Collahuasi
Agri
ventures
ventures
Total
material
Glencore
Total
material
Total
associates
material
joint
and
joint
2,516
359
–
359
194
(571)
–
–
(231)
3,489
1,224
–
1,224
405
(789)
–
(6)
(711)
6,005
1,583
–
1,583
599
(1,360)
–
(6)
(942)
3,241
963
(20)
943
440
(611)
46
(25)
(496)
26,304
29,545
(15)
(13)
2
–
(261)
59
(171)
(123)
948
(18)
930
440
(872)
105
(196)
(619)
35,550
2,531
(18)
2,513
1,039
(2,232)
105
(202)
(1,561)
US$ million
2018
Revenue
Income for the year
Other comprehensive loss
Total comprehensive income
Glencore’s share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest income1
Interest expense2
Income tax expense
1
2
Includes foreign exchange gains and other income of $73 million.
Includes foreign exchange losses of $24 million.
10. Investments in associates, joint ventures and other investments continued
10. Investments in associates, joint ventures and other investments continued
US$ million
2017
Non-current assets
Current assets
Non-current liabilities
Current liabilities
The above assets and liabilities include the following:
Cash and cash equivalents
Current financial liabilities1
Non-current financial liabilities1
Net assets 31 December 2017
Glencore’s ownership interest
Acquisition fair value and other adjustments
Carrying value
1 Financial liabilities exclude trade, other payables and provisions.
Cerrejón
Antamina
Total
material
associates
Collahuasi
Glencore
Agri
2,646
880
(612)
(522)
148
(2)
–
2,392
33.3%
967
1,764
4,383
1,174
(1,098)
(747)
56
(39)
(120)
3,712
33.8%
1,973
3,228
7,029
2,054
(1,710)
(1,269)
204
(41)
(120)
6,104
2,940
4,992
4,629
1,363
(1,084)
(636)
166
(2)
(77)
4,272
44.0%
1,154
3,034
4,732
5,839
(855)
(5,687)
146
(3,273)
(564)
4,029
50.0%
1,307
3,321
Total
material
associates
and
joint
ventures
Total
material
joint
ventures
9,361
7,202
(1,939)
(6,323)
312
(3,275)
(641)
8,301
2,461
6,355
16,390
9,256
(3,649)
(7,592)
516
(3,316)
(761)
14,405
5,401
11,347
Summarised profit and loss in respect of Glencore’s associates and joint ventures, reflecting 100% of the underlying associates’
and joint ventures’ relevant figures for the year ended 31 December 2017, including group adjustments relating to alignment
of accounting policies or fair value adjustments, is set out below.
US$ million
2017
Revenue
Income for the year
Other comprehensive loss
Total comprehensive income
Glencore’s share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest income1
Interest expense2
Income tax expense
1
2
Includes foreign exchange gains and other income of $62 million.
Includes foreign exchange losses of $81 million.
Cerrejón
Antamina
Total
material
associates
Collahuasi
Glencore
Agri
2,371
388
–
388
147
(533)
–
(3)
(240)
3,550
1,300
–
1,300
493
(766)
23
(7)
(712)
5,921
1,688
–
1,688
640
(1,299)
23
(10)
(952)
2,960
841
(11)
830
356
(574)
2
(25)
(389)
25,222
198
(3)
195
–
(248)
59
(195)
(50)
Aggregate information of associates that are not individually material:
US$ million
The Group’s share of income
The Group’s share of other comprehensive (loss)/income
The Group’s share of total comprehensive (loss)/income
Aggregate carrying value of the Group’s interests
Total
material
associates
and
joint
ventures
Total
material
joint
ventures
28,182
1,039
(14)
1,025
356
(822)
61
(220)
(439)
34,103
2,727
(14)
2,713
996
(2,121)
84
(230)
(1,391)
2018
93
(116)
(23)
2,781
2017
121
99
220
2,651
The amount of corporate guarantees (excluding Glencore Agri) in favour of associates and joint ventures as at 31 December 2018
was $419 million (2017: $476 million). Issued guarantees in favour of Glencore Agri amounted to $506 million as at 31 December 2018
(2017: $518 million), mainly relating to a $400 million Viterra bond maturing in 2020. No amounts have been claimed or provided
as at 31 December 2018. Glencore’s share of joint ventures’ capital commitments amounts to $19 million (2017: $72 million).
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
10. Investments in associates, joint ventures and other investments continued
Other investments
US$ million
Fair value through other comprehensive income1
United Company Rusal plc
OAO NK Russneft
Yancoal
OSJC Rosneft Oil (see below)
Other2
Available for sale
United Company Rusal plc
OAO NK Russneft
Yancoal
Fair value through profit and loss
OSJC Rosneft Oil cash-settled equity swaps (see below)
Century Aluminum Company cash-settled equity swaps
Other
Total
2018
2017
440
744
233
376
207
2,000
–
–
–
–
–
67
–
67
2,067
–
–
–
–
–
–
933
1,042
293
2,268
307
179
204
690
2,958
1 Fair value through other comprehensive income includes net disposals of $17 million for the period.
2 Prior to adoption of IFRS 9, other investments in equity instruments were classified as fair value through profit and loss in accordance with IAS 39. On adoption of IFRS 9, the Group
designated these investments that are not held for trading as at fair value through other comprehensive income. The balance comprises a number of investments, none of which
are individually material.
Fair value through other comprehensive income
Following the adoption of IFRS 9, Glencore has designated all of its investments, other than investments in Associates, as at fair
value with mark-to-market movements recognised in other comprehensive income. Although Glencore holds a 25% interest in
OAO Russneft, it does not exercise significant influence over its financial and operating policy decisions.
Rosneft
In September 2018, the EUR300 million total return swap over 0.57% of Rosneft shares, accounted for at fair value through profit
and loss, was converted into a 0.57% direct equity stake which, from the date of conversion, is accounted for at fair value through
other comprehensive income (see note 5). From 1 January 2018 through to the date of conversion, an $84 million positive fair value
adjustment was recognised in the consolidated statement of income and from the date of conversion to year-end, a $15 million
negative fair value adjustment was recognised in other comprehensive income.
172
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Glencore Annual Report 2018
Notes to the financial statements continued
Fair value through other comprehensive income1
Other investments
US$ million
United Company Rusal plc
OAO NK Russneft
Yancoal
Other2
OSJC Rosneft Oil (see below)
Available for sale
United Company Rusal plc
OAO NK Russneft
Yancoal
Fair value through profit and loss
OSJC Rosneft Oil cash-settled equity swaps (see below)
Century Aluminum Company cash-settled equity swaps
Other
Total
Rosneft
1 Fair value through other comprehensive income includes net disposals of $17 million for the period.
2 Prior to adoption of IFRS 9, other investments in equity instruments were classified as fair value through profit and loss in accordance with IAS 39. On adoption of IFRS 9, the Group
designated these investments that are not held for trading as at fair value through other comprehensive income. The balance comprises a number of investments, none of which
are individually material.
Fair value through other comprehensive income
Following the adoption of IFRS 9, Glencore has designated all of its investments, other than investments in Associates, as at fair
value with mark-to-market movements recognised in other comprehensive income. Although Glencore holds a 25% interest in
OAO Russneft, it does not exercise significant influence over its financial and operating policy decisions.
In September 2018, the EUR300 million total return swap over 0.57% of Rosneft shares, accounted for at fair value through profit
and loss, was converted into a 0.57% direct equity stake which, from the date of conversion, is accounted for at fair value through
other comprehensive income (see note 5). From 1 January 2018 through to the date of conversion, an $84 million positive fair value
adjustment was recognised in the consolidated statement of income and from the date of conversion to year-end, a $15 million
negative fair value adjustment was recognised in other comprehensive income.
10. Investments in associates, joint ventures and other investments continued
11. Advances and loans
2018
2017
440
744
233
376
207
2,000
–
–
–
–
–
67
–
67
–
–
–
–
–
–
933
1,042
293
2,268
307
179
204
690
US$ million
Financial assets at amortised cost
Loans to associates
Other non-current receivables and loans
Rehabilitation trust fund
Financial assets at fair value through profit and loss
Other non-current receivables and loans
Non-financial instruments
Pension surpluses
Advances repayable with product1
Other non-current receivables
Total
Notes
2018
275
376
120
155
41
1,387
201
2,555
23
2017
220
804
126
–
68
1,542
216
2,976
1 Net of $1,142 million (2017 $1,654 million) provided by various banks, the repayment terms of which are contingent upon and connected to the future delivery of contractual production.
Financial assets at amortised cost
Loans to associates
Loans to associates generally bear interest at applicable floating market rates plus a premium. In December 2017, loans extended
to associates were impaired by $149 million, see note 6.
2,067
2,958
Other non-current receivables and loans
Other non-current receivables and loans comprise the following:
US$ million
Secured financing arrangements
Other
Total
2018
360
16
376
2017
786
18
804
Various financing facilities, generally marketing related and secured against certain assets and/or payable from the future sale of
production of the counterparty. The non-current receivables and loans are interest-bearing and on average are to be repaid over
a three-year period.
Rehabilitation trust fund
Glencore makes contributions to controlled funds that were established to meet the costs of its restoration and rehabilitation
liabilities, primarily in South Africa. These funds are not available for the general purposes of the Group, and there is no present
obligation to make any further contributions.
Loss allowances of financial assets at amortised cost
The Group determines the expected credit loss of loans to associates and other non-current receivables and loans based on different
scenarios of probability of default and expected loss applicable to each of the material underlying balances. The movement in loss
allowance for non-current financial assets classified at amortised cost is detailed below:
US$ million
Gross carrying value
De-recognition of financial asset at amortised cost (see below)
Gross carrying value 31 December 2018
Loss allowances
31 December 2017
Additional loss allowance under IFRS 91
1 January 2018
Released during the period
Charged during the period (see note 6)
De-recognition of financial asset at amortised cost (see below)
Reclassifications
31 December 2018
Net carrying value 31 December 2018
1 See note 1.
Financial assets at fair value through profit and loss
Other non-
current
receivables and
loans
954
(255)
699
Loans to
associates
302
–
302
28
–
28
(1)
–
–
–
27
275
210
10
220
(9)
191
(100)
21
323
376
Total
1,256
(255)
1,001
238
10
248
(10)
191
(100)
21
350
651
Other non-current receivables and loans
During the year, the terms of a loan arrangement were substantially restructured and modified. Under the new terms, repayment
of the loan is dependent upon the underlying performance of the operations and as such, the contractual cash flows no longer
represent “solely payments of principal and interest” and therefore the loan is accounted for at fair value through profit and loss
(FVTPL). Following the substantial modification, the loan was de-recognised as a financial asset at amortised cost and the new
loan was recognised at a fair value of $155 million.
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Glencore Annual Report 2018
173
173
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
11. Advances and loans continued
Fair value was determined using a Level 3 discounted cash flow model technique, with the key unobservable inputs being a discount
rate specific to the operation of 13% and a repayment profile dependent upon the underlying business plans and forecasts over the
next 7 years. The valuation is sensitive to timing of the underlying cash flows and could result in a $44 million reduction of fair value
if the repayment schedule is extended by an additional 7 years.
Non-financial instruments
Advances repayable with product
US$ million
Counterparty
Société Nationale d’Electricité (SNEL) power advances
Chad State National Oil Company
Société Nationale des Pétroles du Congo
Other
Total
2018
2017
340
393
65
589
1,387
307
339
123
773
1,542
SNEL power advances
In early 2012, a joint agreement with Société Nationale d’Électricité (SNEL), the Democratic Republic of the Congo’s (DRC) national
electricity utility, was signed whereby Glencore’s operations would contribute $375 million to a major electricity infrastructure
refurbishment programme, including transmission and distribution systems. This is expected to facilitate a progressive increase
in power availability to 450 megawatts by the end of 2019. Funding commenced in the second quarter of 2012 and will continue
until Q1 2020. The loans are being repaid via discounts on electricity purchases, which will accelerate upon completion of the
refurbishment programme.
Chad State National Oil Company
Glencore has provided a net $393 million (2017: $398 million) to the Chad State National Oil Company (SHT) to be repaid through
future oil deliveries over seven years. As at 31 December 2018 the advance is net of $805 million (2017: $872 million) provided by a
syndicate of banks, the repayment terms of which are contingent upon and connected to the receipt of oil due from SHT under
the prepayment. Of the net amount advanced, $393 million (2017: $339 million) is receivable after 12 months and is presented within
Other non-current receivables and loans and $Nil (2017: $59 million) is due within 12 months and included within Accounts receivable.
Société Nationale des Pétroles du Congo (SNPC)
Glencore has provided a net $183 million (2017: $212 million) to SNPC repayable through future oil deliveries over five years. As at
31 December 2018, the advance is net of $530 million (2017: $549 million) provided by the bank market, the repayment terms of
which are contingent upon and connected to the future receipt of oil contractually due from SNPC. Of the net amount advanced,
$65 million (2017: $123 million) is due after 12 months and is presented within Other long-term receivables and loans and $118 million
(2017: $89 million) is due within 12 months and included within Accounts receivable.
12. Inventories
Current inventory
Inventories of $20,564 million (2017: $24,084 million) comprise $11,449 million (2017: $15,344 million) of inventories carried at fair
value less costs of disposal and $9,115 million (2017: $8,740 million) valued at the lower of cost or net realisable value. The amount
of inventories and related ancillary costs recognised as an expense during the year was $196,509 million (2017: $185,371 million).
Fair value of inventories is a Level 2 fair value measurement (see note 28) using observable market prices obtained from exchanges,
traded reference indices or market survey services adjusted for relevant location and quality differentials. There are no significant
unobservable inputs in the fair value measurement of such inventories.
Glencore has a number of dedicated financing facilities, which finance a portion of its inventories. In each case, the inventory has
not been derecognised as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised
as current borrowings (see note 20). As at 31 December 2018, the total amount of inventory secured under such facilities was
$562 million (2017: $435 million). The proceeds received and recognised as current borrowings were $366 million (2017: $221 million)
and $139 million (2017: $80 million) as non-current borrowings.
Non-current inventory
$353 million (2017: $369 million) of inventories valued at the lower of cost or net realisable value are not expected to be utilised
or sold within 12 months and are therefore classified as non-current inventory.
174
174
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
11. Advances and loans continued
Fair value was determined using a Level 3 discounted cash flow model technique, with the key unobservable inputs being a discount
rate specific to the operation of 13% and a repayment profile dependent upon the underlying business plans and forecasts over the
next 7 years. The valuation is sensitive to timing of the underlying cash flows and could result in a $44 million reduction of fair value
if the repayment schedule is extended by an additional 7 years.
Non-financial instruments
Advances repayable with product
US$ million
Counterparty
Société Nationale d’Electricité (SNEL) power advances
Chad State National Oil Company
Société Nationale des Pétroles du Congo
Other
Total
SNEL power advances
In early 2012, a joint agreement with Société Nationale d’Électricité (SNEL), the Democratic Republic of the Congo’s (DRC) national
electricity utility, was signed whereby Glencore’s operations would contribute $375 million to a major electricity infrastructure
refurbishment programme, including transmission and distribution systems. This is expected to facilitate a progressive increase
in power availability to 450 megawatts by the end of 2019. Funding commenced in the second quarter of 2012 and will continue
until Q1 2020. The loans are being repaid via discounts on electricity purchases, which will accelerate upon completion of the
refurbishment programme.
Chad State National Oil Company
Glencore has provided a net $393 million (2017: $398 million) to the Chad State National Oil Company (SHT) to be repaid through
future oil deliveries over seven years. As at 31 December 2018 the advance is net of $805 million (2017: $872 million) provided by a
syndicate of banks, the repayment terms of which are contingent upon and connected to the receipt of oil due from SHT under
the prepayment. Of the net amount advanced, $393 million (2017: $339 million) is receivable after 12 months and is presented within
Other non-current receivables and loans and $Nil (2017: $59 million) is due within 12 months and included within Accounts receivable.
Société Nationale des Pétroles du Congo (SNPC)
Glencore has provided a net $183 million (2017: $212 million) to SNPC repayable through future oil deliveries over five years. As at
31 December 2018, the advance is net of $530 million (2017: $549 million) provided by the bank market, the repayment terms of
which are contingent upon and connected to the future receipt of oil contractually due from SNPC. Of the net amount advanced,
$65 million (2017: $123 million) is due after 12 months and is presented within Other long-term receivables and loans and $118 million
(2017: $89 million) is due within 12 months and included within Accounts receivable.
12. Inventories
Current inventory
Inventories of $20,564 million (2017: $24,084 million) comprise $11,449 million (2017: $15,344 million) of inventories carried at fair
value less costs of disposal and $9,115 million (2017: $8,740 million) valued at the lower of cost or net realisable value. The amount
of inventories and related ancillary costs recognised as an expense during the year was $196,509 million (2017: $185,371 million).
Fair value of inventories is a Level 2 fair value measurement (see note 28) using observable market prices obtained from exchanges,
traded reference indices or market survey services adjusted for relevant location and quality differentials. There are no significant
unobservable inputs in the fair value measurement of such inventories.
Glencore has a number of dedicated financing facilities, which finance a portion of its inventories. In each case, the inventory has
not been derecognised as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised
as current borrowings (see note 20). As at 31 December 2018, the total amount of inventory secured under such facilities was
$562 million (2017: $435 million). The proceeds received and recognised as current borrowings were $366 million (2017: $221 million)
and $139 million (2017: $80 million) as non-current borrowings.
Non-current inventory
$353 million (2017: $369 million) of inventories valued at the lower of cost or net realisable value are not expected to be utilised
or sold within 12 months and are therefore classified as non-current inventory.
13. Accounts receivable
US$ million
Financial assets at amortised cost
Trade receivables
Trade advances
Margin calls paid1
Associated companies
Other receivables2
Trade receivables containing provisional pricing features
Financial assets at fair value through profit and loss
Trade receivables containing provisional pricing features
Exchangeable loan (see below)
Non-financial instruments
Advances repayable with product3
Income tax receivable
Other tax and related receivables
Total
2018
2017
340
393
65
589
1,387
307
339
123
773
1,542
Notes
28
2018
4,163
321
1,388
546
422
–
6,471
1,044
1,535
203
1,694
17,787
2017
4,623
19
3,380
517
621
7,292
–
–
2,091
178
1,638
20,359
1
2
3
Includes $1,041 million (2017: $717 million) of cash collateral payments under margin arrangements related to cross currency swaps held to hedge non-U.S. dollar denominated bonds.
Includes current portion of non-current loans receivable in amount of $104 million (2017: $260 million).
Includes advances, net of $1,136 million (2017: $876 million) provided by banks, the repayment terms of which are contingent upon and connected to the future delivery of contractual
production over the next 12 months.
The average credit period on sales of goods is 19 days (2017: 20 days). The carrying value of trade receivables approximates fair value.
The Group applies a simplified approach to measure the loss allowance for trade receivables classified at amortised cost, using the
lifetime expected loss provision. The expected credit loss on trade receivables is estimated using a provision matrix by reference to
past default experience and credit rating, adjusted as appropriate for current observable data. The following table details the risk
profile of trade receivables based on the Group’s provision matrix.
US$ million
As at 31 December 2018
Gross carrying amount
Expected credit loss rate
Lifetime expected credit loss
Total
Not past due
3,618
0.26%
(10)
3,608
Trade receivables – days past due
<30
329
0.52%
(2)
327
31 – 60
115
0.77%
(1)
114
61 – 90
33
1.03%
–
33
The movement in allowance for doubtful accounts is detailed below:
US$ million
31 December 2017
Additional loss allowance under IFRS 91
1 January 2018
Released during the year
Charged during the year
Utilised during the year
Reclassifications
31 December
1 See note 1.
>90
83
2.19%
(2)
81
2018
284
20
304
(54)
99
(11)
(21)
317
Total
4,178
(15)
4,163
2017
295
–
295
(143)
153
(21)
–
284
Impairment losses recognised on trade receivables are recorded within cost of goods sold.
Glencore has a number of dedicated financing facilities, which finance a portion of its receivables. The receivables have not been
derecognised, as the Group retains the principal risks and rewards of ownership. The proceeds received are recognised as current
borrowings (see note 20). As at 31 December 2018, the total amount of trade receivables secured was $1,943 million (2017: $748 million)
and proceeds received and classified as current borrowings amounted to $1,539 million (2017: $669 million) and $126 million (2017: $Nil)
as non-current borrowings.
Exchangeable loan
On 6 October 2017, Glencore entered into an agreement with Off the Shelf Investments Fifty Six (RF) Proprietary Limited (“OTS”) to
acquire from OTS (i) a 75% stake in Chevron South Africa Proprietary Limited (Chevron SA) and certain related interests and (ii) the
entire issued share capital of Chevron Botswana Proprietary Limited (Chevron Botswana) (together the “Operations”) following closing
of OTS’s exercise of its pre-emptive right to acquire these Operations from the Chevron group. OTS’s acquisition from Chevron closed
on 1 October 2018, at which time Glencore advanced $1,044 million to OTS under an exchangeable loan arrangement. The loan is
exchangeable into the 75% stake in Chevron SA and the 100% stake in Chevron Botswana acquired by OTS following receipt of the
necessary regulatory approvals which are expected in H1 2019.
The current expectation is that this loan will be settled through exchanging the shares in the underlying businesses. Notwithstanding
this expectation, until the conditions precedent for this transaction have been satisfied, Glencore’s contractual right is to be repaid
in cash and as such, this meets the definition of a financial asset under IFRS 9. As the contractual cash flows do not represent “solely
payments of principal and interest” under IFRS 9, the funds advanced have been accounted for as an exchangeable loan carried at
fair value through profit and loss.
174
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Glencore Annual Report 2018
Glencore Annual Report 2018
175
175
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
13. Accounts receivable continued
The exchangeable loan is a Level 2 fair value measurement based on the observable transaction price with reference to the underlying
value of the respective stakes in Chevron SA and Chevron Botswana. Given the necessary regulatory approvals for the completion of
the transaction are expected during H1 2019, the fair value is not expected to change materially in the next financial year.
14. Cash and cash equivalents
US$ million
Bank and cash on hand
Deposits and treasury bills
Total
2018
1,860
186
2,046
2017
1,751
373
2,124
Cash and cash equivalents comprise cash held at bank, cash in hand and short-term bank deposits with an original maturity of three
months or less. The carrying amount of these assets approximates their fair value.
As at 31 December 2018, $63 million (2017: $35 million), including $18 million (2017: $Nil) held in “on-shore” accounts in our DRC
operations, was restricted. In 2018, the DRC made various changes to its mining code, including various restrictions on a company’s
ability to repatriate excess funds earned above its initial investment amounts. The “on-shore” cash in our DRC operations can only
be used to fund DRC related expenditures and any excess currently cannot be repatriated out of the DRC to the Group.
15. Assets and liabilities held for sale
On 29 December 2017, Glencore completed the sale of a 51% interest in HG Storage International Ltd (HG Storage), an entity
comprising the majority of Glencore’s petroleum products storage and logistics businesses to HNA Innovation Finance Group Co Ltd
(HNA) (see note 25). Glencore and HNA also entered into a second agreement pursuant to which three of the original transaction
assets located in the USA (HG Storage U.S.) were to be sold to HG Storage in H2 2018 for proceeds of $196 million, subject to receipt
of customary regulatory approvals. The long stop date related to the HG Storage US proposed sale lapsed and in September 2018,
both parties agreed to terminate the sale. As a result, the net assets (assets of $208 million and liabilities of $50 million) previously
classified as held for sale in 2017 were reclassified to the respective line items in the statement of financial position at depreciated
cost and a one-time depreciation charge of $24 million was recognised to reflect the additional depreciation that would have been
charged if the related assets had not previously been classified as held for sale.
In 2017, Glencore entered into an agreement to sell Tahmoor, a coal mining operation in New South Wales, as well as its manganese
plants located in France and Norway. Both transactions completed in H1 2018, see note 25.
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Deferred tax assets
Current assets
Inventories
Accounts receivable
Other financial assets
Prepaid expenses
Cash and cash equivalents
Total assets held for sale
Non-current liabilities
Deferred tax liabilities
Provisions
Current liabilities
Accounts payable
Income tax payable
Total liabilities held for sale
Total net assets held for sale
176
176
Glencore Annual Report 2018
Glencore Annual Report 2018
HG Storage U.S.
Other
As at
31.12.2017
141
1
8
–
150
4
39
–
3
12
58
208
(41)
–
(41)
(8)
(1)
(9)
(50)
158
96
–
–
33
129
49
27
7
–
12
95
224
(5)
(38)
(43)
(62)
(4)
(66)
(109)
115
237
1
8
33
279
53
66
7
3
24
153
432
(46)
(38)
(84)
(70)
(5)
(75)
(159)
273
Notes to the financial statements continued
The exchangeable loan is a Level 2 fair value measurement based on the observable transaction price with reference to the underlying
value of the respective stakes in Chevron SA and Chevron Botswana. Given the necessary regulatory approvals for the completion of
the transaction are expected during H1 2019, the fair value is not expected to change materially in the next financial year.
14. Cash and cash equivalents
US$ million
Bank and cash on hand
Deposits and treasury bills
Total
2018
1,860
186
2,046
2017
1,751
373
2,124
Cash and cash equivalents comprise cash held at bank, cash in hand and short-term bank deposits with an original maturity of three
months or less. The carrying amount of these assets approximates their fair value.
As at 31 December 2018, $63 million (2017: $35 million), including $18 million (2017: $Nil) held in “on-shore” accounts in our DRC
operations, was restricted. In 2018, the DRC made various changes to its mining code, including various restrictions on a company’s
ability to repatriate excess funds earned above its initial investment amounts. The “on-shore” cash in our DRC operations can only
be used to fund DRC related expenditures and any excess currently cannot be repatriated out of the DRC to the Group.
15. Assets and liabilities held for sale
On 29 December 2017, Glencore completed the sale of a 51% interest in HG Storage International Ltd (HG Storage), an entity
comprising the majority of Glencore’s petroleum products storage and logistics businesses to HNA Innovation Finance Group Co Ltd
(HNA) (see note 25). Glencore and HNA also entered into a second agreement pursuant to which three of the original transaction
assets located in the USA (HG Storage U.S.) were to be sold to HG Storage in H2 2018 for proceeds of $196 million, subject to receipt
of customary regulatory approvals. The long stop date related to the HG Storage US proposed sale lapsed and in September 2018,
both parties agreed to terminate the sale. As a result, the net assets (assets of $208 million and liabilities of $50 million) previously
classified as held for sale in 2017 were reclassified to the respective line items in the statement of financial position at depreciated
cost and a one-time depreciation charge of $24 million was recognised to reflect the additional depreciation that would have been
charged if the related assets had not previously been classified as held for sale.
In 2017, Glencore entered into an agreement to sell Tahmoor, a coal mining operation in New South Wales, as well as its manganese
plants located in France and Norway. Both transactions completed in H1 2018, see note 25.
HG Storage U.S.
Other
31.12.2017
As at
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Deferred tax assets
Current assets
Inventories
Accounts receivable
Other financial assets
Prepaid expenses
Cash and cash equivalents
Total assets held for sale
Non-current liabilities
Deferred tax liabilities
Provisions
Current liabilities
Accounts payable
Income tax payable
Total liabilities held for sale
Total net assets held for sale
141
1
8
–
150
4
39
–
3
12
58
(41)
–
(41)
(8)
(1)
(9)
(50)
158
96
–
–
33
129
49
27
7
–
12
95
(5)
(38)
(43)
(62)
(4)
(66)
(109)
115
208
224
237
1
8
33
279
53
66
7
3
24
153
432
(46)
(38)
(84)
(70)
(5)
(75)
(159)
273
13. Accounts receivable continued
16. Share capital and reserves
Authorised:
31 December 2018 and 2017 Ordinary shares with a par value of $0.01 each
Issued and fully paid up:
1 January 2017 and 31 December 2017 – Ordinary shares
Distributions paid (see note 18)
31 December 2018 – Ordinary shares
Number
of shares
(thousand)
Share capital
(US$ million)
Share
premium
(US$ million)
50,000,000
14,586,200
–
14,586,200
146
–
146
51,340
(2,836)
48,504
Own shares:
1 January 2017
Own shares disposed during the year
31 December 2017
1 January 2018
Own shares purchased during the period
Own shares disposed during the year
Own shares transferred to satisfy employee
share awards
31 December 2018
Treasury Shares
Trust Shares
Total
Number
of shares
(thousand)
Share
premium
(US$ million)
Number
of shares
(thousand)
Share
premium
(US$ million)
Number
of shares
(thousand)
Share
premium
(US$ million)
191,459
–
191,459
191,459
422,113
–
(948)
–
(948)
(948)
(1,684)
–
(30,000)
583,572
149
(2,483)
166,930
(37,080)
129,850
129,850
63,420
(53,140)
30,000
170,130
(752)
125
(627)
(627)
(321)
262
(149)
(835)
358,389
(37,080)
321,309
321,309
485,533
(53,140)
–
753,702
(1,700)
125
(1,575)
(1,575)
(2,005)
262
–
(3,318)
Own shares
Own shares comprise shares acquired under the Company’s share buy-back programme and shares of Glencore plc held by
Group employee benefit trusts (“the Trusts”) to satisfy the potential future settlement of the Group’s employee stock plans, primarily
assumed as part of previous business combinations.
The Trusts also coordinate the funding and manage the delivery of ordinary shares and free share awards under certain of Glencore’s
share plans. The shares have been acquired by either stock market purchases or share issues from the Company. The Trusts are
permitted to sell the shares and may hold up to 5% of the issued share capital of the Company at any one time. The Trusts have
waived the right to receive distributions from the shares that they hold. Costs relating to the administration of the Trust are expensed
in the period in which they are incurred.
In 2018, Glencore announced a $2 billion share buy-back programme, effected in accordance with the term of the authority granted
by shareholders at the 2018 Annual General Meeting. As at 31 December 2018, $1,684 million of treasury shares and $321 million of trust
shares have been purchased and, in aggregate, 753,702,088 shares (2017: 321,309,725 shares), equivalent to 5.17% (2017: 2.2%) of the
issued share capital were held at a cost of $3,318 million (2017: $1,575 million) and market value of $2,798 million (2017: $1,694 million).
Other reserves
US$ million
1 January 2018
Exchange loss on translation of foreign
operations
Loss on cash flow hedges, net of tax
Loss on equity investments accounted for at fair value
through other comprehensive income
Change in ownership interest in subsidiaries (see note 33)
Reclassifications
Items recycled to the statement of income
upon disposal of subsidiaries (see note 25)
31 December 2018
1 January 2017
Exchange gain on translation of foreign
operations
Loss on cash flow hedges, net of tax
Gain on available for sale financial instruments
Change in ownership interest in subsidiaries
Items recycled to the statement of income
upon disposal of subsidiaries (see note 25)
31 December 2017
Translation
adjustment
Cash flow
hedge reserve
(2,321)
(662)
–
–
–
(14)
218
(2,779)
(2,553)
503
–
–
–
(271)
(2,321)
(39)
–
(18)
–
–
10
–
(47)
126
–
(165)
–
–
–
(39)
Net
unrealised
gain/(loss)
Net ownership
changes in
subsidiaries
877
(942)
–
–
(848)
–
9
–
38
377
–
–
500
–
–
877
–
–
–
(1,207)
–
–
(2,149)
(752)
–
–
–
(318)
128
(942)
Total
(2,425)
(662)
(18)
(848)
(1,207)
5
218
(4,937)
(2,802)
503
(165)
500
(318)
(143)
(2,425)
176
Glencore Annual Report 2018
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Glencore Annual Report 2018
177
177
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
17. Earnings per share
US$ million
Income attributable to equity holders of the Parent
Weighted average number of shares for the purposes of basic earnings per share (thousand)
Effect of dilution:
Equity-settled share-based payments (thousand)
Weighted average number of shares for the purposes of diluted earnings per share (thousand)
Basic earnings per share (US$)
Diluted earnings per share (US$)
2018
3,408
14,151,826
2017
5,777
14,256,020
101,701
14,253,527
167,024
14,423,044
0.24
0.24
0.41
0.40
Headline earnings:
Headline earnings is a Johannesburg Stock Exchange (JSE) defined performance measure. The calculation of basic and diluted
earnings per share, based on headline earnings as determined by the requirements of the Circular 4/2018 as issued by the
South African Institute of Chartered Accountants (SAICA), is reconciled using the following data:
US$ million
Profit attributable to equity holders of the Parent for basic earnings per share
Net loss/(gain) on disposals1
Net loss/(gain) on disposal – non-controlling interest
Net loss/(gain) on disposals – tax
Impairments2
Impairments – non-controlling interest
Impairments – tax
Headline and diluted earnings for the year
Headline earnings per share (US$)
Diluted headline earnings per share (US$)
1 See note 4.
2 Comprises impairments of property, plant and equipment, intangible assets and investments (see note 6).
18. Distributions
US$ million
Paid during the year:
First tranche distribution – $0.10 per ordinary share (2017: $0.035)
Second tranche distribution – $0.10 per ordinary share (2017: $0.035)
Total
2018
3,408
139
–
(38)
1,452
(218)
(181)
4,562
0.32
0.32
2018
1,427
1,409
2,836
2017
5,777
(1,309)
7
107
479
(42)
(104)
4,915
0.34
0.34
2017
499
499
998
The proposed distribution in respect of the year ended 31 December 2018 of $0.20 per ordinary share amounting to $2.8 billion
is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial
statements. These distributions declared are expected to be paid equally ($0.10 each) in May 2019 and September 2019.
178
178
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
17. Earnings per share
US$ million
Income attributable to equity holders of the Parent
Weighted average number of shares for the purposes of basic earnings per share (thousand)
14,151,826
14,256,020
Effect of dilution:
Equity-settled share-based payments (thousand)
Weighted average number of shares for the purposes of diluted earnings per share (thousand)
Headline earnings is a Johannesburg Stock Exchange (JSE) defined performance measure. The calculation of basic and diluted
earnings per share, based on headline earnings as determined by the requirements of the Circular 4/2018 as issued by the
South African Institute of Chartered Accountants (SAICA), is reconciled using the following data:
US$ million
Profit attributable to equity holders of the Parent for basic earnings per share
Basic earnings per share (US$)
Diluted earnings per share (US$)
Headline earnings:
Net loss/(gain) on disposals1
Net loss/(gain) on disposal – non-controlling interest
Net loss/(gain) on disposals – tax
Impairments2
Impairments – non-controlling interest
Impairments – tax
Headline and diluted earnings for the year
Headline earnings per share (US$)
Diluted headline earnings per share (US$)
1 See note 4.
2 Comprises impairments of property, plant and equipment, intangible assets and investments (see note 6).
18. Distributions
US$ million
Paid during the year:
Total
First tranche distribution – $0.10 per ordinary share (2017: $0.035)
Second tranche distribution – $0.10 per ordinary share (2017: $0.035)
The proposed distribution in respect of the year ended 31 December 2018 of $0.20 per ordinary share amounting to $2.8 billion
is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial
statements. These distributions declared are expected to be paid equally ($0.10 each) in May 2019 and September 2019.
2018
3,408
2017
5,777
101,701
167,024
14,253,527
14,423,044
0.24
0.24
0.41
0.40
2018
3,408
139
–
(38)
1,452
(218)
(181)
4,562
0.32
0.32
2018
1,427
1,409
2,836
2017
5,777
(1,309)
7
107
479
(42)
(104)
4,915
0.34
0.34
2017
499
499
998
19. Share-based payments
US$ million
Deferred Bonus Plan – Bonus share award
2015 Series
2016 Series
2017 Series
2018 Series
Performance Share Plan
2014 Series
2015 Series
2016 Series
2017 Series
2018 Series
Total
Number of
awards
granted
(thousand)
Fair value at
grant date
(US$ million)
Number
of awards
outstanding
2018
(thousand)
Number
of awards
outstanding
2017
(thousand)
Expense
recognised
2018
(US$ million)
Expense
recognised
2017
(US$ million)
14,315
14,851
16,506
12,891
58,563
20,908
77,816
24,156
19,421
7,758
150,059
208,622
36
35
64
65
115
107
84
93
28
–
–
9,088
12,891
21,979
826
33,026
15,190
18,904
7,758
75,704
97,683
3,909
14,023
16,506
–
34,438
5,302
54,250
23,439
6,280
–
89,271
123,709
–
–
–
65
65
1
11
27
52
2
93
158
7
–
64
–
71
9
30
47
–
–
86
157
Deferred Bonus Plan
Under the Glencore Deferred Bonus Plan (DBP), the payment of a portion of a participant’s annual bonus is deferred for a period of
one to two years as an award of either ordinary shares (a ‘‘Bonus Share Award’’) or cash (a “Bonus Cash Award”). The awards are vested
at grant date with no further service conditions, however they are subject to forfeiture for malus events. The Bonus Share Awards may
be satisfied, at Glencore’s option, in shares by the issue of new ordinary shares, by the transfer of ordinary shares held in treasury or by
the transfer of ordinary shares purchased in the market or in cash, with a value equal to the market value of the award at settlement,
including distributions paid between award and settling. Glencore currently intends to settle these awards in shares. The associated
expense is recorded in the statement of income/loss as part of the expense for performance bonuses.
Performance Share Plan
Under the Glencore Performance Share Plan (PSP), participants are awarded PSP awards which vest in annual tranches over
a specified period, subject to continued employment and forfeiture for malus events. At grant date, each PSP award is equivalent
to one ordinary share of Glencore. The awards vest in three or five equal tranches on 30 June, 31 December or 31 January of the
years following the year of grant, as may be the case. The fair value of the awards is determined by reference to the market price of
Glencore’s ordinary shares at grant date. The PSP awards may be satisfied, at Glencore’s option, in shares by the issue of new ordinary
shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market or in cash, with
a value equal to the market value of the award at vesting, including distributions paid between award and vesting. Glencore currently
intends to settle these awards in shares.
Share-based awards assumed in previous business combinations
1 January 2018
Lapsed
Exercised¹
31 December 2018
1 January 2017
Lapsed
Exercised¹
31 December 2017
Total options
outstanding
(thousands)
124,603
(9,626)
(8,339)
106,638
141,272
(8,756)
(7,913)
124,603
Weighted
average
exercise
price (GBP)
4.00
6.58
2.62
3.89
4.45
1.60
1 The weighted average share price at date of exercise of the share based awards was GBP3.91 (2017: GBP3.45).
As at 31 December 2018, a total of 106,637,103 options (2017: 124,602,481 options) were outstanding and exercisable, having a range of
exercise prices from GBP1.095 to GBP4.80 (2017: GBP1.1 to GBP6.87) and a weighted average exercise price of GBP3.91 (2017: GBP4.00).
These outstanding awards have expiry dates ranging from March 2019 to February 2022 (2017: March 2018 to February 2022) and
a weighted average contractual life of 2.19 years (2017: 2.97 years). The awards may be satisfied at Glencore’s option, by the issue of
new ordinary shares, by the transfer of ordinary shares held in treasury or by the transfer of ordinary shares purchased in the market.
Glencore currently intends to settle these awards, when exercised, by the transfer of ordinary shares held in treasury.
178
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Glencore Annual Report 2018
179
179
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
20. Borrowings
US$ million
Non-current borrowings
Capital market notes
Committed syndicated revolving credit facilities
Finance lease obligations
Other bank loans
Total non-current borrowings
Current borrowings
Secured inventory/receivables/other facilities
U.S. commercial paper
Capital market notes
Finance lease obligations
Other bank loans1
Total current borrowings
Total borrowings
1 Comprises various uncommitted bilateral bank credit facilities and other financings.
Reconciliation of cash flow to movement in borrowings
US$ million
Cash related movements in borrowings1
Proceeds from issuance of capital market notes
Proceeds from issuance of non-dilutive convertible bond
Repayment of capital market notes
Proceeds from revolving credit facilities
Proceeds from other non-current borrowings
Repayment of finance lease obligations
(Repayment of)/proceeds from U.S. commercial papers
Proceeds from/(repayment of) current borrowings
Non-cash related movements in borrowings
Borrowings acquired/(disposed) in business combinations
Reclassification of the derivative component of the non-dilutive convertible bond
Foreign exchange movements
Fair value hedge movements
Change in finance lease obligations
Other non-cash movements
Increase in borrowings for the year
Total borrowings – opening
Total borrowings – closing
1 See consolidated statement of cash flows.
Notes
2018
2017
30
10/12/13
30
19,804
5,623
277
720
26,424
1,995
596
2,775
110
3,094
8,570
34,994
22,628
994
328
582
24,532
1,060
1,230
3,550
64
3,498
9,402
33,934
2018
2017
185
576
(3,650)
4,624
15
(72)
(634)
439
1,483
263
(95)
(557)
(143)
90
19
(423)
1,060
33,934
34,994
2,026
–
(4,539)
501
19
(105)
1,180
(1,266)
(2,184)
761
–
1,840
192
73
34
2,900
716
33,218
33,934
180
180
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
20. Borrowings
US$ million
Non-current borrowings
Capital market notes
Committed syndicated revolving credit facilities
Finance lease obligations
Other bank loans
Total non-current borrowings
Current borrowings
Secured inventory/receivables/other facilities
U.S. commercial paper
Capital market notes
Finance lease obligations
Other bank loans1
Total current borrowings
Total borrowings
1 Comprises various uncommitted bilateral bank credit facilities and other financings.
Reconciliation of cash flow to movement in borrowings
US$ million
Cash related movements in borrowings1
Proceeds from issuance of capital market notes
Proceeds from issuance of non-dilutive convertible bond
Repayment of capital market notes
Proceeds from revolving credit facilities
Proceeds from other non-current borrowings
Repayment of finance lease obligations
(Repayment of)/proceeds from U.S. commercial papers
Proceeds from/(repayment of) current borrowings
Non-cash related movements in borrowings
Borrowings acquired/(disposed) in business combinations
Reclassification of the derivative component of the non-dilutive convertible bond
Foreign exchange movements
Fair value hedge movements
Change in finance lease obligations
Other non-cash movements
Increase in borrowings for the year
Total borrowings – opening
Total borrowings – closing
1 See consolidated statement of cash flows.
26,424
24,532
30
30
10/12/13
2018
2017
19,804
5,623
277
720
1,995
596
2,775
110
3,094
8,570
34,994
185
576
(3,650)
4,624
15
(72)
(634)
439
1,483
263
(95)
(557)
(143)
90
19
(423)
1,060
33,934
34,994
22,628
994
328
582
1,060
1,230
3,550
64
3,498
9,402
33,934
2,026
–
(4,539)
501
19
(105)
1,180
(1,266)
(2,184)
1,840
761
–
192
73
34
2,900
716
33,218
33,934
Notes
2018
2017
Capital Market Notes
20. Borrowings continued
US$ million
AUD 500 million 4.50% coupon bonds
Euro 750 million 3.375% coupon bonds
Euro 1,250 million 1.25% coupon bonds
Euro 600 million 2.75% coupon bonds
Euro 700 million 1.625% coupon bonds
Euro 1,000 million 1.875% coupon bonds
Euro 400 million 3.70% coupon bonds
Euro 750 million 1.75% coupon bonds
Euro 500 million 3.75% coupon bonds
Eurobonds
JPY 10 billion 1.075% coupon bonds
GBP 650 million 6.50% coupon bonds
GBP 500 million 7.375% coupon bonds
GBP 500 million 6.00% coupon bonds
Sterling bonds
CHF 175 million 2.125% coupon bonds
CHF 500 million 1.25% coupon bonds
CHF 250 million 2.25% coupon bonds
CHF 175 million 1.25% coupon bonds
Swiss Franc bonds
US$ 500 million LIBOR plus 1.36% coupon bonds
US$ 1,500 million 2.50% coupon bonds
US$ 1,000 million 3.125% coupon bonds
US$ 1,000 million 2.875% coupon bonds
US$ 1,000 million 4.95% coupon bonds
US$ 600 million 5.375% coupon bonds¹
US$ 250 million LIBOR plus 1.65% coupon bonds
US$ 1,000 million 4.25% coupon bonds
US$ 500 million 3.00% coupon bonds
US$ 1,500 million 4.125% coupon bonds
US$ 1,000 million 4.625% coupon bonds
US$ 625 million non-dilutive convertible bonds
US$ 500 million 4.00% coupon bonds
US$ 1,000 million 4.00% coupon bonds
US$ 50 million 4.00% coupon bonds
US$ 500 million 3.875% coupon bonds
US$ 250 million 6.20% coupon bonds
US$ 500 million 6.90% coupon bonds
US$ 500 million 6.00% coupon bonds
US$ 500 million 5.55% coupon bonds
US$ bonds
Total non-current bonds
1 Assumed in the Volcan acquisition, see note 25.
Maturity
Sep 2019
Sep 2020
Mar 2021
Apr 2021
Jan 2022
Sep 2023
Oct 2023
Mar 2025
Apr 2026
May 2022
Feb 2019
May 2020
Apr 2022
Dec 2019
Dec 2020
May 2021
Oct 2024
Jan 2019
Jan 2019
Apr 2019
Apr 2020
Nov 2021
Feb 2022
May 2022
Oct 2022
Oct 2022
May 2023
Apr 2024
Mar 2025
Apr 2025
Mar 2027
Mar 2027
Oct 2027
Jun 2035
Nov 2037
Nov 2041
Oct 2042
2018
–
865
1,413
688
814
1,140
492
858
618
6,888
91
–
669
640
1,309
–
513
249
182
944
–
–
–
412
1,034
535
250
1,008
497
1,495
1,004
494
475
964
50
479
272
591
539
473
10,572
19,804
2017
398
931
1,491
730
857
1,195
525
906
662
7,297
89
876
731
679
2,286
184
522
251
–
957
279
690
447
414
1,045
535
250
1,011
496
1,520
1,024
–
483
986
50
491
273
594
540
473
11,601
22,628
180
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
181
181
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
20. Borrowings continued
Capital Market Notes
US$ million
AUD 500 million 4.50% coupon bonds
GBP 650 million 6.50% coupon bonds
Euro 1,250 million 4.625% coupon bonds
Euro 1,000 million 2.625% coupon bonds
CHF 175 million 2.125% coupon bonds
CHF 450 million 2.625% coupon bonds
US$ 500 million LIBOR plus 1.36% coupon bonds
US$ 1,500 million 2.50% coupon bonds
US$ 1,000 million 3.125% coupon bonds
US$ 250 million LIBOR plus 1.06% coupon bonds
US$ 500 million 2.125% coupon bonds
US$ 200 million LIBOR plus 1.20% coupon bonds
Total current bonds
Maturity
Sep 2019
Feb 2019
Apr 2018
Nov 2018
Dec 2019
Dec 2018
Jan 2019
Jan 2019
Apr 2019
Apr 2018
Apr 2018
May 2018
2018
355
829
–
–
179
–
279
688
445
–
–
–
2,775
2017
–
–
1,480
1,202
–
461
–
–
–
48
159
200
3,550
2018 Bond activities
• In March 2018, Glencore issued a $500 million non-dilutive cash settled guaranteed convertible bond due 2025. In September 2018,
a further $125 million was issued on similar terms. On the date of issuance, the Bonds were bifurcated into a debt and derivative
component with the debt component carried at amortised cost accreting to par value ($625 million) at an effective interest rate
of 3.7% per annum and the option component carried at fair value with mark-to-market movements recognised through the
statement of income. See note 28.
• Concurrent with the placing of the Bonds, Glencore purchased cash-settled call options over the same number of Glencore shares
underlying the convertible bonds to economically hedge the exposure to the potential exercise of conversion rights embedded
in the Bonds. These purchased call options are carried at fair value with mark-to-market movements recognised through the
statement of income. See note 28.
• In October 2018, Glencore issued a 6-year CHF 175 million, 1.25% coupon bond
2017 Bond activities
• In March, issued a 10-year $1,000 million, 4% coupon bond
• In August, issued a 10-year $50 million, 4% coupon bond as a private placement
• In October, issued a 5-year $500 million, 3% coupon bond
• In October, issued a 10-year $500 million, 3.875% coupon bond
Committed syndicated revolving credit facilities
In March 2018 (effective May 2018), Glencore signed new one-year revolving credit facilities of $9,085 million, refinancing the
$7,335 million one-year revolving facilities signed in May 2017. Funds drawn under the facilities bear interest at US$LIBOR plus a
margin of 40 basis points. Glencore also voluntarily reduced the medium term facility size from $5,425 million to $5,115 million.
As at 31 December 2018, the active facilities comprise:
• A $9,085 million one-year revolving credit facility with a 12-month borrower’s term-out option (to May 2020) and a 12 month
extension option; and
• A $5,115 million medium-term revolving credit facility (to May 2022).
Secured facilities
US$ million
Syndicated committed metals
inventory/receivables facilities1
Syndicated uncommitted metals
inventory/receivables facilities
Syndicated uncommitted oil
receivables facilities
Other secured facilities
Total
Current
Non-current
Maturity Borrowing base
Interest
Feb 2021
331
5%
Jan2/Jul/Aug 2019
1,724 US$ LIBOR + 0.95%
Oct 2019
Dec 2019
525 US$ LIBOR + 65 bps
170 US$ LIBOR+ 65 bps
2,750
2,483
267
2018
328
1,317
525
90
2,260
1,995
265
2017
80
590
300
170
1,140
1,060
80
1 Comprises various facilities. The maturity and interest detail represent the weighted average of the various debt balances outstanding at year end.
2 Since year-end, in the ordinary course of business, these maturities have been rolled/extended as required.
182
182
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
20. Borrowings continued
Capital Market Notes
US$ million
AUD 500 million 4.50% coupon bonds
GBP 650 million 6.50% coupon bonds
Euro 1,250 million 4.625% coupon bonds
Euro 1,000 million 2.625% coupon bonds
CHF 175 million 2.125% coupon bonds
CHF 450 million 2.625% coupon bonds
US$ 500 million LIBOR plus 1.36% coupon bonds
US$ 1,500 million 2.50% coupon bonds
US$ 1,000 million 3.125% coupon bonds
US$ 250 million LIBOR plus 1.06% coupon bonds
US$ 500 million 2.125% coupon bonds
US$ 200 million LIBOR plus 1.20% coupon bonds
Total current bonds
2018 Bond activities
Maturity
Sep 2019
Feb 2019
Apr 2018
Nov 2018
Dec 2019
Dec 2018
Jan 2019
Jan 2019
Apr 2019
Apr 2018
Apr 2018
May 2018
2018
355
829
179
279
688
445
–
–
–
–
–
–
2,775
2017
1,480
1,202
461
–
–
–
–
–
–
48
159
200
3,550
• In March 2018, Glencore issued a $500 million non-dilutive cash settled guaranteed convertible bond due 2025. In September 2018,
a further $125 million was issued on similar terms. On the date of issuance, the Bonds were bifurcated into a debt and derivative
component with the debt component carried at amortised cost accreting to par value ($625 million) at an effective interest rate
of 3.7% per annum and the option component carried at fair value with mark-to-market movements recognised through the
statement of income. See note 28.
• Concurrent with the placing of the Bonds, Glencore purchased cash-settled call options over the same number of Glencore shares
underlying the convertible bonds to economically hedge the exposure to the potential exercise of conversion rights embedded
in the Bonds. These purchased call options are carried at fair value with mark-to-market movements recognised through the
statement of income. See note 28.
• In October 2018, Glencore issued a 6-year CHF 175 million, 1.25% coupon bond
2017 Bond activities
• In March, issued a 10-year $1,000 million, 4% coupon bond
• In August, issued a 10-year $50 million, 4% coupon bond as a private placement
• In October, issued a 5-year $500 million, 3% coupon bond
• In October, issued a 10-year $500 million, 3.875% coupon bond
Committed syndicated revolving credit facilities
In March 2018 (effective May 2018), Glencore signed new one-year revolving credit facilities of $9,085 million, refinancing the
$7,335 million one-year revolving facilities signed in May 2017. Funds drawn under the facilities bear interest at US$LIBOR plus a
margin of 40 basis points. Glencore also voluntarily reduced the medium term facility size from $5,425 million to $5,115 million.
• A $9,085 million one-year revolving credit facility with a 12-month borrower’s term-out option (to May 2020) and a 12 month
As at 31 December 2018, the active facilities comprise:
extension option; and
• A $5,115 million medium-term revolving credit facility (to May 2022).
Secured facilities
US$ million
Syndicated committed metals
inventory/receivables facilities1
Syndicated uncommitted metals
inventory/receivables facilities
Syndicated uncommitted oil
receivables facilities
Other secured facilities
Total
Current
Non-current
Maturity Borrowing base
Interest
Feb 2021
331
5%
Jan2/Jul/Aug 2019
1,724 US$ LIBOR + 0.95%
Oct 2019
Dec 2019
525 US$ LIBOR + 65 bps
170 US$ LIBOR+ 65 bps
2,750
2,483
267
2018
328
1,317
525
90
2,260
1,995
265
2017
80
590
300
170
1,140
1,060
80
1 Comprises various facilities. The maturity and interest detail represent the weighted average of the various debt balances outstanding at year end.
2 Since year-end, in the ordinary course of business, these maturities have been rolled/extended as required.
21. Deferred income
US$ million
1 January 2018
Additions
Accretion in the year
Utilised in the year
Acquired in business combinations
Effect of foreign currency exchange difference
31 December 2018
Current
Non-current
1 January 2017
Additions
Accretion in the year
Utilised in the year
Effect of foreign currency exchange difference
31 December 2017
Current
Non-current
Notes
25
Unfavourable
contracts
585
–
–
(77)
220
(44)
684
80
604
Prepayments
2,386
40
140
(537)
–
–
2,029
332
1,697
617
–
–
(64)
32
585
59
526
1,787
675
164
(240)
–
2,386
351
2,035
Total
2,971
40
140
(614)
220
(44)
2,713
412
2,301
2,404
675
164
(304)
32
2,971
410
2,561
Unfavourable contracts
In several business combinations, Glencore recognised liabilities related to various assumed contractual agreements to deliver
tonnes of coal over periods ending between 2019 and 2034 at fixed prices lower than the prevailing market prices on the respective
acquisition dates.
These amounts are released to revenue as the underlying commodities are delivered to the buyers over the life of the contracts
at rates consistent with the implied forward price curves at the time of the acquisitions.
Prepayments
In November 2017, Glencore entered into a silver supply arrangement in exchange for an upfront advance payment of $675 million.
Under the terms of the arrangement, Glencore is required to deliver an average of 19 million ounces of silver per annum, over a
three-year period. The arrangement has been accounted for as an executory contract whereby the advance payment has been
recorded as deferred revenue. The revenue from the advance payment is being recognised as the silver is delivered consistent with
the implied forward price curve at the time of the transaction. An accretion expense, representing the time value of the upfront
deposit on the deferred revenue balance, is also being recognised.
In 2015 and 2016, Glencore entered into various long-term streaming agreements for the future delivery of gold and/or silver produced
over the life of mine from our Antamina, Antapaccay and Ernest Henry operations in exchange for an upfront prepayment and, for
Antamina and Antapaccay, an ongoing amount equal to 20% of the spot silver and gold price. Once certain delivery thresholds have
been met at Antapaccay, the ongoing cash payment increases to 30% of the spot gold and silver prices. The arrangements have been
accounted for as executory contracts whereby the advance payments have been recorded as deferred revenue. The revenue from the
advance payments is being recognised as the gold and/or silver is delivered at an amount consistent with the implied forward price
curve at the time of the transaction along with ongoing cash payments, if any. An accretion expense, representing the time value of
the upfront deposit on the deferred revenue balance, is also being recognised.
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183
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
22. Provisions
US$ million
1 January 2018
Utilised
Released
Accretion
Assumed in business combination1
Disposals of subsidiaries1
Additions
Effect of foreign currency exchange
difference
31 December 2018
Current
Non-current
1 January 2017
Utilised
Released
Accretion
Assumed in business combination1
Disposals of subsidiaries1
Reclassification to held for sale2
Additions
Effect of foreign currency exchange
difference
31 December 2017
Current
Non-current
1 See note 25.
2 See note 15.
Post-retirement
employee
benefits
847
(92)
–
Other
employee
entitlements
294
(71)
(36)
Rehabilitation
costs
4,180
(211)
–
Onerous
contracts
1,092
–
(476)
–
–
–
95
(52)
798
–
798
860
(96)
–
–
–
–
–
35
48
847
–
847
–
26
(1)
31
–
243
16
227
218
(39)
(1)
–
–
(2)
(1)
118
1
294
56
238
135
82
(41)
391
(79)
4,457
116
4,341
3,194
(191)
–
260
162
(45)
(37)
786
51
4,180
90
4,090
–
31
–
75
–
722
227
495
1,305
–
(325)
1
–
–
–
111
–
1,092
176
916
Other
1,158
(136)
(43)
–
134
(31)
92
(16)
1,158
195
963
812
(79)
(27)
–
38
(10)
–
424
–
1,158
155
1,003
Total
7,571
(510)
(555)
135
273
(73)
684
(147)
7,378
554
6,824
6,389
(405)
(353)
261
200
(57)
(38)
1,474
100
7,571
477
7,094
Post-retirement employee benefits
The provision for post-retirement employee benefits includes pension plan liabilities of $393 million (2017: $392 million) and
post-retirement medical plan liabilities of $405 million (2017: $455 million), see note 23.
Other employee entitlements
The employee entitlement provision represents the value of governed employee entitlements due to employees upon their
termination of employment. The associated expenditure will occur in a pattern consistent with when employees choose to exercise
their entitlements.
Rehabilitation costs
Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilitation upon the completion
of production activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of a project’s life, which
ranges from two to in excess of 50 years with an average for all sites, weighted by closure provision, of some 24 years (2017: 21 years).
As at 31 December 2018, the discount rate applied in calculating the restoration and rehabilitation provision is a pre-tax risk free
rate specific to the liability and the currency in which they are denominated as follows: US dollar (2.0%) (2017: 2.0%), South African rand
(4.0%) (2017: 4.0%), Australian dollar (2.8%) (2017: 3.0%), Canadian dollar (2.3%) (2017: 2.5%), and Chilean peso (3.0%) (2017: 3.0%). The effect
of decreasing the discount rates used by 0.5% would result in an increase in the overall rehabilitation provision by $368 million, with a
resulting equal movement in property, plant and equipment. In the following year, the depreciation expense would increase by some
$15 million, with an opposite direction interest expense adjustment of $6 million. The resulting net impact in the statement of income
would be a decrease of $9 million, eventually netting to $Nil over the weighted average settlement date of the provision.
184
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Notes to the financial statements continued
22. Provisions
US$ million
1 January 2018
Utilised
Released
Accretion
Additions
difference
31 December 2018
Current
Non-current
1 January 2017
Utilised
Released
Accretion
31 December 2017
Additions
difference
Current
Non-current
1 See note 25.
2 See note 15.
Assumed in business combination1
Disposals of subsidiaries1
Effect of foreign currency exchange
Assumed in business combination1
Disposals of subsidiaries1
Reclassification to held for sale2
Effect of foreign currency exchange
Other employee entitlements
their entitlements.
Rehabilitation costs
Post-retirement
Other
employee
employee
Rehabilitation
benefits
entitlements
costs
4,180
(211)
–
135
82
(41)
391
(79)
4,457
116
4,341
3,194
(191)
–
260
162
(45)
(37)
786
51
4,180
90
4,090
Onerous
contracts
1,092
–
(476)
–
31
–
75
–
722
227
495
1,305
(325)
–
1
–
–
–
–
111
1,092
176
916
294
(71)
(36)
–
26
(1)
31
–
243
16
227
218
(39)
(1)
–
–
(2)
(1)
118
1
294
56
238
Other
1,158
(136)
(43)
–
134
(31)
92
(16)
1,158
195
963
812
(79)
(27)
–
38
(10)
–
424
–
1,158
155
1,003
Total
7,571
(510)
(555)
135
273
(73)
684
(147)
7,378
554
6,824
6,389
(405)
(353)
261
200
(57)
(38)
1,474
100
7,571
477
7,094
847
(92)
–
–
–
–
95
(52)
798
–
798
860
(96)
–
–
–
–
–
35
48
847
–
847
Post-retirement employee benefits
The provision for post-retirement employee benefits includes pension plan liabilities of $393 million (2017: $392 million) and
post-retirement medical plan liabilities of $405 million (2017: $455 million), see note 23.
Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilitation upon the completion
of production activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of a project’s life, which
ranges from two to in excess of 50 years with an average for all sites, weighted by closure provision, of some 24 years (2017: 21 years).
As at 31 December 2018, the discount rate applied in calculating the restoration and rehabilitation provision is a pre-tax risk free
rate specific to the liability and the currency in which they are denominated as follows: US dollar (2.0%) (2017: 2.0%), South African rand
(4.0%) (2017: 4.0%), Australian dollar (2.8%) (2017: 3.0%), Canadian dollar (2.3%) (2017: 2.5%), and Chilean peso (3.0%) (2017: 3.0%). The effect
of decreasing the discount rates used by 0.5% would result in an increase in the overall rehabilitation provision by $368 million, with a
resulting equal movement in property, plant and equipment. In the following year, the depreciation expense would increase by some
$15 million, with an opposite direction interest expense adjustment of $6 million. The resulting net impact in the statement of income
would be a decrease of $9 million, eventually netting to $Nil over the weighted average settlement date of the provision.
22. Provisions continued
Onerous contracts
Onerous contracts represent liabilities related to contractual take or pay commitments for securing coal logistics capacity at fixed
prices and quantities higher than the acquisition date forecasted usage and prevailing market price. The provision is released to
costs of goods sold as the underlying commitments are incurred.
Other
Other comprises provisions for possible demurrage, mine concession, tax and construction related claims.
Tax disputes
Glencore assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. Inherent
uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax laws. For those matters
where it is probable that an adjustment will be made, the Group records its reasoned estimate of these tax liabilities, including related
interest charges. These current open tax matters are spread across numerous jurisdictions and consist primarily of legacy transfer
pricing matters that have been open for a number of years and may take several more years to resolve, none of which are individually
material. Management does not anticipate a significant risk of material change in estimates within the next financial year.
DRC 2018 Mining Code
Owing to the lack of guidance and clarification on the practical application of the “Super Profits Tax” legislation under the 2018 Mining
Code (see also note 7), the Group has taken the view that no Super Profits Tax is due in the current year and that any potential amount
payable will not result in a material adjustment to the tax provision in the current year and within the next financial year.
UK Tax Audit
In December 2018, HMRC issued formal transfer pricing, permanent establishment and diverted profits tax assessments for the
2008 –2017 tax years, amounting to $680 million. The Group intends to appeal and vigorously contest these assessments, following,
over the years, various legal opinions received and detailed analysis conducted, supporting its positions and policies applied, and
therefore the Group has not provided for the amount assessed. Management does not anticipate a significant risk of material
changes in estimates in this matter in the next financial year.
23. Personnel costs and employee benefits
Total personnel costs, which include salaries, wages, social security, other personnel costs and share-based payments, incurred
for the years ended 31 December 2018 and 2017, were $5,063 million and $4,656 million, respectively. Personnel costs related to
consolidated industrial subsidiaries of $3,887 million (2017: $3,593 million) are included in cost of goods sold. Other personnel
costs, including the deferred bonus and performance share plans, are included in selling and administrative expenses.
The Company and certain subsidiaries sponsor various pension schemes in accordance with local regulations and practices.
Eligibility for participation in the various plans is either based on completion of a specified period of continuous service, or date
of hire. Among these schemes are defined contribution plans as well as defined benefit plans.
The employee entitlement provision represents the value of governed employee entitlements due to employees upon their
termination of employment. The associated expenditure will occur in a pattern consistent with when employees choose to exercise
Defined contribution plans
Glencore’s contributions under these plans amounted to $140 million in 2018 (2017: $133 million).
Post-retirement medical plans
The Company participates in a number of post-retirement medical plans, principally in Canada, which provide coverage for
prescription drugs, medical, dental, hospital and life insurance to eligible retirees. Almost all of the post-retirement medical plans
in the Group are unfunded.
Defined benefit pension plans
The Company operates defined benefit plans in various countries, the main locations being Canada, Switzerland, UK and the U.S..
Approximately 69% of the present value of obligations accrued to date relates to the defined benefit plans in Canada, which are
pension plans that provide benefits to members in the form of a guaranteed level of pension payable for life. Contributions to the
Canadian plans are made to meet or exceed minimum funding requirements based on provincial statutory requirements and
associated federal taxation rules.
The majority of benefit payments are from trustee-administered funds; however, there are also a number of unfunded plans where
Glencore meets the benefit payments as they fall due. Plan assets held in trusts are governed by local regulations and practices in
each country. Responsibility for governance of the plans – overseeing all aspects of the plans including investment decisions and
contribution schedules – lies with Glencore. Glencore has set up committees to assist in the management of the plans and has also
appointed experienced, independent professional experts such as investment managers, actuaries, custodians, and trustees.
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185
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
23. Personnel costs and employee benefits continued
The movement in the defined benefit pension and post-retirement medical plans over the year is as follows:
US$ million
1 January 2018
Current service cost
Past service cost – plan amendments
Settlement of pension plan disposal
Interest expense/(income)
Total expense recognised in consolidated statement
of income
Loss on plan assets, excluding amounts included
in interest expense – net
Loss from change in demographic assumptions
Gain from change in financial assumptions
Loss/(gain) from actuarial experience
Actuarial (gains)/losses recognised in consolidated
statement of comprehensive income
Employer contributions
Employee contributions
Benefits paid directly by the Company
Benefits paid from plan assets
Net cash (outflow)/inflow
Exchange differences
31 December 2018
Of which:
Pension surpluses
Pension deficits
Notes
Post-retirement
medical plans
455
7
–
–
16
Defined benefit pension plans
Present value
of defined
benefit
obligation
3,090
52
2
(155)
89
Fair value
of plan
assets
(2,766)
–
–
153
(87)
Net liability
for defined
benefit
pension plans
324
52
2
(2)
2
(12)
–
6
(95)
24
(65)
–
1
(8)
(159)
(166)
(196)
2,651
66
127
–
–
–
127
(74)
(1)
8
159
92
182
(2,299)
23
–
–
(16)
(1)
(17)
–
–
(18)
–
(18)
(38)
405
–
405
54
127
6
(95)
24
62
(74)
–
–
–
(74)
(14)
352
(41)
393
11
22
The actual return on plan assets in respect of defined benefit pension plans amounted to a loss of $222 million (2017: gain of
$426 million), comprising interest income and the re-measurement of plan assets.
During the next financial year, the Group expects to make a contribution of $83 million to the defined benefit pension and post-
retirement medical plans across all countries, including current service costs and contributions required by pension legislation.
Contributions over the next five years for the Canadian plans only, based on the most recently filed actuarial reports, approximate
$138 million. Future funding requirements and contributions are reviewed and adjusted on an annual basis.
186
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Glencore Annual Report 2018
Notes to the financial statements continued
23. Personnel costs and employee benefits continued
23. Personnel costs and employee benefits continued
The movement in the defined benefit pension and post-retirement medical plans over the year is as follows:
US$ million
1 January 2017
Current service cost
Past service cost – plan amendments
Settlement relating to mine closure
Interest expense/(income)
Total expense recognised in consolidated statement
of income
Gain on plan assets, excluding amounts included
in interest expense – net
Gain from change in demographic assumptions
(Gain)/loss from change in financial assumptions
Loss/(gain) from actuarial experience
Actuarial (gains)/losses recognised in consolidated
statement of comprehensive income
Employer contributions
Employee contributions
Benefits paid directly by the Company
Benefits paid from plan assets
Net cash (outflow)/inflow
Exchange differences
31 December 2017
Of which:
Pension surpluses
Pension deficits
Notes
Post-retirement
medical plans
432
8
–
–
17
Defined benefit pension plans
Present value
of defined
benefit
obligation
2,946
55
(8)
(79)
98
Fair value
of plan
assets
(2,518)
–
–
75
(86)
Net liability
for defined
benefit
pension plans
428
55
(8)
(4)
12
66
–
(11)
87
(8)
68
–
1
(9)
(171)
(179)
189
3,090
(11)
(169)
–
–
–
(169)
(76)
(1)
9
171
103
(171)
(2,766)
25
–
–
(15)
3
(12)
–
–
(20)
–
(20)
30
455
–
455
55
(169)
(11)
87
(8)
(101)
(76)
–
–
–
(76)
18
324
(68)
392
11
22
The defined benefit obligation accrued in Canada represents the majority for the Company. The breakdown below provides
details of the Canadian plans for both the statement of financial position and the weighted average duration of the defined benefit
obligation as at 31 December 2018 and 2017. The defined benefit obligation of any of the Group’s defined benefit plans outside of
Canada as at 31 December 2018 does not exceed $206 million (2017: $230 million).
US$ million
1 January 2018
Current service cost
Past service cost – plan amendments
Settlement of pension plan disposal
Interest expense/(income)
Total expense recognised in consolidated statement
of income
Loss on plan assets, excluding amounts included
in interest expense – net
Loss from change in demographic assumptions
Gain from change in financial assumptions
Loss/(gain) from actuarial experience
Actuarial (gains)/losses recognised in consolidated
statement of comprehensive income
Employer contributions
Employee contributions
Benefits paid directly by the Company
Benefits paid from plan assets
Net cash (outflow)/inflow
Exchange differences
31 December 2018
Of which:
Pension surpluses
Pension deficits
Post-retirement
Notes
medical plans
Defined benefit pension plans
Present value
of defined
benefit
obligation
Fair value
of plan
Net liability
for defined
benefit
assets
pension plans
455
3,090
(2,766)
52
2
(155)
89
(12)
–
6
(95)
24
(65)
–
1
(8)
(159)
(166)
(196)
2,651
–
–
153
(87)
66
127
–
–
–
127
(74)
(1)
8
159
92
182
(2,299)
7
–
–
16
23
–
–
(16)
(1)
(17)
–
–
–
(18)
(18)
(38)
405
–
405
324
52
2
(2)
2
54
127
6
(95)
24
62
(74)
–
–
–
(74)
(14)
352
(41)
393
11
22
The actual return on plan assets in respect of defined benefit pension plans amounted to a loss of $222 million (2017: gain of
$426 million), comprising interest income and the re-measurement of plan assets.
During the next financial year, the Group expects to make a contribution of $83 million to the defined benefit pension and post-
retirement medical plans across all countries, including current service costs and contributions required by pension legislation.
Contributions over the next five years for the Canadian plans only, based on the most recently filed actuarial reports, approximate
$138 million. Future funding requirements and contributions are reviewed and adjusted on an annual basis.
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187
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
23. Personnel costs and employee benefits continued
2018 US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2018
Of which:
Pension surpluses
Pension deficits
Weighted average duration of defined benefit obligation – years
2017 US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2017
Of which:
Pension surpluses
Pension deficits
Weighted average duration of defined benefit obligation – years
Canada
Other
Total
378
118
260
1,829
488
19
1,322
(1,745)
84
(40)
124
12
27
2
25
822
378
164
280
(554)
268
(1)
269
17
405
120
285
2,651
866
183
1,602
(2,299)
352
(41)
393
14
Canada
Other
Total
425
132
293
2,217
586
40
1,591
(2,167)
50
(68)
118
12
30
4
26
873
389
214
270
(599)
274
–
274
17
455
136
319
3,090
975
254
1,861
(2,766)
324
(68)
392
13
Estimated future benefit payments of the Canadian plans, which reflect expected future service but exclude plan expenses, up until
2028 are as follows:
US$ million
2019
2020
2021
2022
2023
2024-2028
Total
The plan assets consist of the following:
US$ million
Cash and short-term investments
Fixed income
Equities
Other
Total
Post-retirement
medical plans
18
19
19
20
20
105
201
Defined benefit
pension plans
105
168
120
102
101
504
1,100
2018
38
1,060
839
362
2,299
Total
123
187
139
122
121
609
1,301
2017
31
1,343
1,189
203
2,766
All investments have been fair valued based on quoted market prices with the exception of securities of $2 million (2017: $23 million)
included in “Other”.
188
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Glencore Annual Report 2018
Glencore Annual Report 2018
23. Personnel costs and employee benefits continued
23. Personnel costs and employee benefits continued
The fair value of plan assets includes none of Glencore’s own financial instruments and no property occupied by or other assets
used by Glencore. For many of the plans, representing a large portion of the global plan assets, asset-liability matching strategies
are in place, where the fixed-income assets are invested broadly in alignment with the duration of the plan liabilities, and the
proportion allocated to fixed-income assets is raised when the plan funding level increases. The asset mix for each plan reflects the
nature, expected changes in, and size of the liabilities and the assessment of long-term economic conditions, market risk, expected
investment returns as considered during a formal asset mix study, including sensitivity analysis and/or scenario analysis, conducted
periodically for the plans.
Through its defined benefit plans, Glencore is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility: The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets
underperform this yield, this will create a deficit. The funded plans hold a significant proportion of equities, which are expected
to outperform bonds in the long term while contributing volatility and risk in the short term. Glencore believes that due to the
long-term nature of the plan liabilities, a level of continuing equity investment is an appropriate element of Glencore’s long-term
strategy to manage the plans efficiently.
Change in bond yields: A decrease in bond yields will increase plan liabilities, although this will be partially offset by an increase
in the value of the plans’ bond holdings.
Inflation risk: Some of the plans’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities,
although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation.
Life expectancy: The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the plans’ liability.
Salary increases: Some of the plans’ benefit obligations related to active members are linked to their salaries. Higher salary increases
will therefore tend to lead to higher plan liabilities.
The principal weighted-average actuarial assumptions used were as follows:
Discount rate
Future salary increases
Future pension increases
Ultimate medical cost trend rate
Post-retirement medical plans
Defined benefit pension plans
2018
4.0%
–
–
4.2%
2017
3.8%
–
–
4.3%
2018
3.5%
2.6%
0.3%
–
2017
3.2%
2.7%
0.3%
–
Weighted average duration of defined benefit obligation – years
Estimated future benefit payments of the Canadian plans, which reflect expected future service but exclude plan expenses, up until
Mortality assumptions are based on the latest available standard mortality tables for the individual countries concerned. As at
31 December 2018, these tables imply expected future life expectancy, for employees aged 65, 16 to 24 years for males (2017: 16 to 24)
and 20 to 25 years for females (2017: 20 to 25). The assumptions for each country are reviewed regularly and are adjusted where
necessary to reflect changes in fund experience and actuarial recommendations.
Notes to the financial statements continued
2018 US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2018
Of which:
Pension surpluses
Pension deficits
2017 US$ million
Post-retirement medical plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to pensioners
Defined benefit pension plans
Present value of defined benefit obligation
of which: amounts owing to active members
of which: amounts owing to non-active members
of which: amounts owing to pensioners
Fair value of plan assets
Net defined benefit liability at 31 December 2017
Weighted average duration of defined benefit obligation – years
Of which:
Pension surpluses
Pension deficits
2028 are as follows:
US$ million
2019
2020
2021
2022
2023
2024-2028
Total
US$ million
Fixed income
Equities
Other
Total
The plan assets consist of the following:
Cash and short-term investments
Canada
Other
Total
Canada
Other
Total
378
118
260
1,829
488
19
1,322
(1,745)
84
(40)
124
12
425
132
293
2,217
586
40
1,591
(2,167)
50
(68)
118
12
18
19
19
20
20
105
201
27
2
25
822
378
164
280
(554)
268
(1)
269
17
30
4
26
873
389
214
270
(599)
274
–
274
17
105
168
120
102
101
504
1,100
2018
38
1,060
839
362
2,299
405
120
285
2,651
866
183
1,602
(2,299)
352
(41)
393
14
455
136
319
3,090
975
254
1,861
(2,766)
324
(68)
392
13
Total
123
187
139
122
121
609
1,301
2017
31
1,343
1,189
203
2,766
Post-retirement
Defined benefit
medical plans
pension plans
All investments have been fair valued based on quoted market prices with the exception of securities of $2 million (2017: $23 million)
included in “Other”.
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189
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
23. Personnel costs and employee benefits continued
The sensitivity of the defined benefit obligation to changes in principal assumptions as at 31 December 2018 is set out below,
assuming that all other assumptions are held constant and the effect of interrelationships is excluded.
Increase/(decrease) in pension obligation
US$ million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of future salary increase
Increase by 100 basis points
Decrease by 100 basis points
Rate of future pension benefit increase
Increase by 100 basis points
Decrease by 100 basis points
Medical cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one year
24. Accounts payable
US$ million
Financial liabilities at amortised cost
Trade payables
Margin calls received1
Associated companies
Other payables and accrued liabilities
Trade payables containing provisional pricing features
Financial liabilities at fair value through profit and loss
Trade payables containing provisional pricing features
Non-financial instruments
Advances settled in product
Other tax and related payables
Total
Post-retirement
medical plans
Defined benefit
pension plans
(28)
32
–
–
–
–
59
(47)
15
(151)
180
34
(32)
34
(26)
–
–
59
Total
(179)
212
34
(32)
34
(26)
59
(47)
74
Notes
2018
2017
7,569
753
824
1,710
–
8,642
443
1,052
2,015
16,022
28
15,073
–
251
304
26,484
451
201
28,826
1
Includes $139 million (2017: $325 million) of cash collateral receipts under margin arrangements related to cross currency swaps held to hedge non-U.S. dollar denominated bonds.
Trade payables are obligations to pay for goods and services. Trade payables typically have maturities up to 90 days depending on the
type of material and the geographic area in which the purchase transaction occurs and the agreed terms. The carrying value of trade
payables approximates fair value.
190
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Notes to the financial statements continued
The sensitivity of the defined benefit obligation to changes in principal assumptions as at 31 December 2018 is set out below,
assuming that all other assumptions are held constant and the effect of interrelationships is excluded.
US$ million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of future salary increase
Increase by 100 basis points
Decrease by 100 basis points
Increase by 100 basis points
Decrease by 100 basis points
Medical cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one year
Rate of future pension benefit increase
24. Accounts payable
US$ million
Financial liabilities at amortised cost
Trade payables
Margin calls received1
Associated companies
Other payables and accrued liabilities
Trade payables containing provisional pricing features
Financial liabilities at fair value through profit and loss
Trade payables containing provisional pricing features
Non-financial instruments
Advances settled in product
Other tax and related payables
Total
Increase/(decrease) in pension obligation
Post-retirement
Defined benefit
medical plans
pension plans
(28)
32
–
–
–
–
59
(47)
15
Total
(179)
212
34
(32)
34
(26)
59
(47)
74
8,642
443
1,052
2,015
16,022
–
451
201
(151)
180
34
(32)
34
(26)
–
–
59
7,569
753
824
1,710
–
251
304
28
15,073
26,484
28,826
Notes
2018
2017
1
Includes $139 million (2017: $325 million) of cash collateral receipts under margin arrangements related to cross currency swaps held to hedge non-U.S. dollar denominated bonds.
Trade payables are obligations to pay for goods and services. Trade payables typically have maturities up to 90 days depending on the
type of material and the geographic area in which the purchase transaction occurs and the agreed terms. The carrying value of trade
payables approximates fair value.
23. Personnel costs and employee benefits continued
25. Acquisition and disposal of subsidiaries
2018 Acquisitions
In 2018, Glencore acquired a 49% interest in Hunter Valley operations coal mine in New South Wales (“HVO”), an 82% interest in Hail Creek coal
mine as well as a 71% interest in the Valeria coal resource in Queensland (“Hail Creek”), a 78% interest in ALE Combustiveis (“Ale”), a Brazilian
fuel distributor and other businesses, none of which are individually material. Due to the proximity of the transaction to the reporting
date, the fair values are provisional and expected to be finalised within 12 months of the acquisition. It is expected that adjustments
could be made to the allocation of value between acquired mineral rights, plant and equipment, deferred taxes and provisions.
The net cash used in the acquisition of subsidiaries and the provisional fair value of assets acquired and liabilities assumed on the
acquisition date are detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates and joint ventures
Advances and loans1
Current assets
Inventories
Accounts receivable1
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowing
Deferred income
Deferred tax liabilities
Provisions
Current liabilities
Borrowing
Accounts payable
Deferred income
Provisions
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
Less: deferred consideration
Net cash used in acquisition of subsidiaries
Acquisition related costs
HVO
Hail Creek
1,402
–
32
14
1,448
50
69
11
130
–
–
(200)
–
(66)
(266)
–
(52)
(20)
(9)
(81)
1,231
(11)
(82)
1,138
59
1,701
–
77
5
1,783
68
114
23
205
–
–
–
–
(69)
(69)
–
(166)
–
(2)
(168)
1,751
(23)
–
1,728
83
Ale
46
426
–
54
526
90
100
90
280
(41)
(189)
–
(140)
(41)
(370)
(74)
(98)
–
–
(172)
223
(90)
(82)
51
–
Other
Total
8
1
–
–
9
–
2
1
3
–
–
–
(2)
–
(2)
–
–
–
–
–
10
(1)
(4)
5
–
3,157
427
109
73
3,766
208
285
125
618
(41)
(189)
(200)
(142)
(176)
(707)
(74)
(316)
(20)
(11)
(421)
3,215
(125)
(168)
2,922
142
1 There is no material difference between the gross contractual amounts for advances and loans and accounts receivable and their fair value.
Hunter Valley operations
On 4 May 2018, Glencore completed the acquisition of a 49% interest in the HVO coal mine in New South Wales for a consideration
of $1,231 million, comprising $1,149 million cash and $82 million of deferred consideration payable over 5 years, $61 million of which
is contingent on future coal prices. Under the coal price contingent royalty arrangement, a production based royalty amount is due
should actual prevailing prices be in excess of a royalty trigger price of $75/mt, commencing in September 2020 and lasting for a
period of 10 years. The contingent portion of the deferred consideration is a level 3 fair value measurement, and was determined using
forecasted production estimates and assumed actual coal prices higher than the royalty trigger price over the royalty period. Should
production volumes increase/decrease by 10%, the contingent consideration due would increase/decrease by $6 million and for any
given quarter should prevailing coal prices be lower than $75/mt (escalating by CPI), no amounts would be due under the price
contingent royalty arrangement. HVO lies adjacent to numerous existing Glencore mines in the Hunter Valley and is expected to
unlock significant mining and operating synergies. The investment is structured through an unincorporated joint venture with each
party’s exposure equating to its rights to the assets and obligations for the liabilities of HVO. As a joint operation, the 49% interest is
accounted for by recognising the Group’s share of HVO’s assets, liabilities, revenue and expenses as prescribed by IFRS 11. In
conjunction with the acquisition, $59 million of stamp duty and related costs were incurred.
If the acquisition had taken place effective 1 January 2018, the operation would have contributed additional revenue of $192 million
and additional attributable income of $29 million. From the date of acquisition, the operation contributed $611 million of revenue
and $118 million of attributable income.
Hail Creek coal mine
On 1 August 2018, Glencore completed the acquisition of an 82% interest in the Hail Creek coal mine and adjacent coal resources, as
well as a 71% interest in the Valeria coal resource in central Queensland for a total cash consideration of $1,751 million. Hail Creek is a
large-scale, long-life and low-cost mine producing two-thirds premium quality hard coking coal and one-third thermal coal for export.
The investment is structured as an unincorporated joint venture with each party’s exposure equating to its rights to the assets and
obligations for the liabilities of Hail Creek. However, the key decision making powers do not require unanimous consent of the
participants. As there is neither control nor joint control over the entire arrangement, Hail Creek is considered a deemed separate
entity under IFRS 10 and is accounted for by recognising the Group’s share of Hail Creek’s assets, liabilities, revenue and expenses
as prescribed by IFRS 10. In conjunction with the acquisition, $83 million of stamp duty and related costs were incurred.
190
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191
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Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
25. Acquisition and disposal of subsidiaries continued
If the acquisition had taken place effective 1 January 2018, the operation would have contributed additional revenue of $639 million
and additional attributable income of $149 million. From the date of acquisition, the operation contributed $345 million of revenue
and $95 million of attributable income.
ALE Combustiveis
On 31 August 2018, Glencore completed the acquisition of a 78% interest in ALE Combusitveis, a Brazilian fuel distributor, for a cash
consideration of $141 million on closing and $82 million due over six years. The investment provides Glencore with a strong platform
to participate in the expected significant domestic growth opportunities across the fuels sector in Brazil with the majority of the
demand increase expected to be met by imports. As Glencore holds the majority of the voting shares, providing it the ability to
appoint a controlling number of directors to the board, Glencore is required to account for ALE using the full consolidation method
in accordance with IFRS 10.
If the acquisition had taken place effective 1 January 2018, the operation would have contributed additional revenue of $2,439 million
and additional attributable loss of $15 million. From the date of acquisition, the operation contributed $969 million of revenue and
$2 million of attributable loss.
2017 Acquisitions
In 2017, Glencore acquired controlling interests in Volcan Compania Minera S.A.A. (“Volcan”) and other businesses, none of which are
individually material. The net cash used in the acquisition of subsidiaries and the provisional fair value of assets acquired and liabilities
assumed on the acquisition date are detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Other investments
Deferred tax assets
Advances and loans1
Current assets
Inventories
Accounts receivable1
Other financial assets
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Other financial liabilities
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
Less: amounts previously recognised as other investments2
Net cash used in acquisition of subsidiaries
Volcan
provisional fair
values as
reported at
31 December
2017
Fair value
adjustments to
the provisional
allocation
in 2018
Total Volcan
fair values
Other
Total
4,656
76
52
–
32
4,816
80
206
30
81
397
(1,733)
(629)
(986)
(174)
(1,789)
(175)
(386)
(37)
(598)
1,093
(81)
(359)
653
234
(47)
–
–
(27)
160
3
58
–
–
61
–
–
(123)
(86)
(209)
–
(12)
–
(12)
–
–
–
–
4,890
29
52
–
5
4,976
83
264
30
81
458
(1,733)
(629)
(1,109)
(260)
(1,998)
(175)
(398)
(37)
(610)
1,093
(81)
(359)
653
43
–
–
2
1
46
2
5
–
3
10
–
–
–
(26)
(26)
–
(6)
–
(6)
24
(3)
–
21
4,933
29
52
2
6
5,022
85
269
30
84
468
(1,733)
(629)
(1,109)
(286)
(2,024)
(175)
(404)
(37)
(616)
1,117
(84)
(359)
674
1 There is no material difference between the gross contractual amounts for loans and advances and accounts receivable and their fair value.
2 See note 10.
Volcan
On 9 November 2017, Glencore completed a tender offer, acquiring an additional 42.3% of the Class A common (voting) shares in
Volcan, a Peruvian zinc mining business listed on the Lima stock exchange, for a consideration of $734 million, thereby increasing its
voting shares interest from 20.7% to 63.0%. Glencore’s total economic interest (including the class B common (non-voting) shares and
excluding treasury shares) increased from 7.7% to 23.3%. As Glencore holds the majority of the voting shares, providing it the ability
to appoint a controlling number of directors to the board, Glencore is required to account for Volcan using the full consolidation
method in accordance with IFRS 10.
The above fair value adjustments to the provisionally reported values primarily relate to the allocation of value between fixed asset
classes, deferred taxes, rehabilitation and other provisions. The acquisition accounting for Volcan has now been finalised.
192
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Glencore Annual Report 2018
25. Acquisition and disposal of subsidiaries continued
25. Acquisition and disposal of subsidiaries continued
If the acquisition had taken place effective 1 January 2017, the operation would have contributed additional revenue of $696 million
and additional attributable income of $93 million for the year ended 31 December 2017. From the date of acquisition, the operation
contributed $160 million of revenue and $Nil of attributable income for the year ended 31 December 2017.
2018 Disposals
In 2018, Glencore disposed of its controlling interest in Glencore Manganese France SAS, Glencore Manganese Norway AS and
Tahmoor Coal Pty Ltd, operations that were classified as held for sale as at 31 December 2017 (together “Operations held for sale
as at 31.12.2017”).
Mototolo
On 1 November 2018, Glencore disposed of its 40% interest of the Mototolo joint venture, a Platinum mine in South Africa, for a
cash consideration of $68 million.
The carrying value of the assets and liabilities over which control was lost and the net cash received from these disposals are
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Current assets
Inventories
Accounts receivable
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Deferred tax liabilities
Provisions
Current liabilities
Accounts payable
Provisions
Carrying value of net assets disposed
Cash and cash equivalents received
Intangible assets (offtake agreement)
Items recycled to the statement of income
Future consideration
Transaction costs
Net loss/(gain) on disposal
Cash and cash equivalents received
Less: cash and cash equivalents disposed
Net cash received from disposal
Operations
held for sale as
at 31.12.2017
Mototolo
Others
Total
68
68
3
34
7
44
(19)
–
(4)
(4)
(20)
(4)
(24)
65
(68)
–
197
(57)
–
137
68
(7)
61
87
87
27
39
32
98
–
–
(37)
(37)
(85)
–
(85)
63
(48)
(36)
14
–
3
(4)
48
(32)
16
39
39
4
6
3
13
(1)
(3)
(28)
(31)
(24)
–
(24)
(4)
(14)
–
7
–
–
(11)
14
(3)
11
194
194
34
79
42
155
(20)
(3)
(69)
(72)
(129)
(4)
(133)
124
(130)
(36)
218
(57)
3
122
130
(42)
88
Notes to the financial statements continued
If the acquisition had taken place effective 1 January 2018, the operation would have contributed additional revenue of $639 million
and additional attributable income of $149 million. From the date of acquisition, the operation contributed $345 million of revenue
and $95 million of attributable income.
ALE Combustiveis
On 31 August 2018, Glencore completed the acquisition of a 78% interest in ALE Combusitveis, a Brazilian fuel distributor, for a cash
consideration of $141 million on closing and $82 million due over six years. The investment provides Glencore with a strong platform
to participate in the expected significant domestic growth opportunities across the fuels sector in Brazil with the majority of the
demand increase expected to be met by imports. As Glencore holds the majority of the voting shares, providing it the ability to
appoint a controlling number of directors to the board, Glencore is required to account for ALE using the full consolidation method
If the acquisition had taken place effective 1 January 2018, the operation would have contributed additional revenue of $2,439 million
and additional attributable loss of $15 million. From the date of acquisition, the operation contributed $969 million of revenue and
in accordance with IFRS 10.
$2 million of attributable loss.
2017 Acquisitions
In 2017, Glencore acquired controlling interests in Volcan Compania Minera S.A.A. (“Volcan”) and other businesses, none of which are
individually material. The net cash used in the acquisition of subsidiaries and the provisional fair value of assets acquired and liabilities
assumed on the acquisition date are detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Other investments
Deferred tax assets
Advances and loans1
Current assets
Inventories
Accounts receivable1
Other financial assets
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Other financial liabilities
Volcan
provisional fair
Fair value
values as
reported at
adjustments to
the provisional
31 December
2017
allocation
in 2018
Total Volcan
fair values
Other
Total
4,890
43
4,933
4,976
46
5,022
4,656
76
52
–
32
4,816
80
206
30
81
397
(1,733)
(629)
(986)
(174)
(1,789)
(175)
(386)
(37)
(598)
1,093
(81)
(359)
653
234
(47)
–
–
(27)
160
3
58
–
–
61
–
–
(123)
(86)
(209)
(12)
(12)
–
–
–
–
–
–
29
52
–
5
83
264
30
81
458
(1,733)
(629)
(1,109)
(260)
(1,998)
(175)
(398)
(37)
(610)
1,093
(81)
(359)
653
–
–
2
1
2
5
–
3
10
–
–
–
(26)
(26)
–
(6)
–
(6)
24
(3)
–
21
29
52
2
6
85
269
30
84
468
(1,733)
(629)
(1,109)
(286)
(2,024)
(175)
(404)
(37)
(616)
1,117
(84)
(359)
674
Total fair value of net assets acquired
Less: cash and cash equivalents acquired
Less: amounts previously recognised as other investments2
Net cash used in acquisition of subsidiaries
2 See note 10.
Volcan
1 There is no material difference between the gross contractual amounts for loans and advances and accounts receivable and their fair value.
On 9 November 2017, Glencore completed a tender offer, acquiring an additional 42.3% of the Class A common (voting) shares in
Volcan, a Peruvian zinc mining business listed on the Lima stock exchange, for a consideration of $734 million, thereby increasing its
voting shares interest from 20.7% to 63.0%. Glencore’s total economic interest (including the class B common (non-voting) shares and
excluding treasury shares) increased from 7.7% to 23.3%. As Glencore holds the majority of the voting shares, providing it the ability
to appoint a controlling number of directors to the board, Glencore is required to account for Volcan using the full consolidation
method in accordance with IFRS 10.
The above fair value adjustments to the provisionally reported values primarily relate to the allocation of value between fixed asset
classes, deferred taxes, rehabilitation and other provisions. The acquisition accounting for Volcan has now been finalised.
192
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Glencore Annual Report 2018
193
193
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
25. Acquisition and disposal of subsidiaries continued
2017 Disposals
In 2017, Glencore disposed of its controlling interest in the Rosh Pinah mine in Namibia (“Rosh Pinah”) and Perkoa mine in Burkina
Faso (“Perkoa”), together referred to as “Zinc Africa” and 51% of the large majority of its petroleum storage and logistics businesses
(“HG Storage”).
The carrying value of the assets and liabilities over which control was lost and the net cash received from these disposals are
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Advances and loans
Current assets
Inventories
Accounts receivable
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Income tax payable
Carrying value of net assets disposed
Cash and cash equivalents received
Shares received
Future consideration
Items recycled to the statement of income
Reclassified to investment in joint venture1
Provision for guarantees
Transaction fees
Net gain on disposal1
Cash and cash equivalents received
Less: Cash and cash equivalents disposed
Net cash received from disposal
Zinc Africa
HG Storage
Others
Total
266
3
–
–
269
58
43
23
124
(4)
–
(50)
(24)
(74)
(2)
(56)
–
(58)
257
(245)
(222)
–
(22)
–
–
–
(232)
245
(23)
222
169
–
170
11
350
4
68
28
100
–
(31)
(17)
–
(48)
–
(67)
(2)
(69)
333
(530)
–
–
–
(509)
20
12
(674)
530
(28)
502
57
–
–
–
57
7
15
18
40
(25)
(10)
(5)
(33)
(48)
–
(9)
–
(9)
15
–
–
(13)
(121)
(54)
–
–
(173)
–
(18)
(18)
492
3
170
11
676
69
126
69
264
(29)
(41)
(72)
(57)
(170)
(2)
(132)
(2)
(136)
605
(775)
(222)
(13)
(143)
(563)
20
12
(1,079)
775
(69)
706
1
Includes a gain of $383 million attributable to the re-measurement of the retained investment to its fair value upon change in control in HG Storage ($363 million) and Other
($20 million).
Zinc Africa
On 31 August 2017, Glencore completed the transaction with Trevali Mining Corporation (“Trevali”) a TSX listed zinc company, to sell
its 80.1% equity interest in Rosh Pinah and its 90.0% equity interest in Perkoa. The aggregate consideration received was $467 million,
of which $245 million was cash and the remaining balance ($222 million) was 193.4 million shares in Trevali. As a result of the
transaction, Glencore’s direct ownership in Trevali increased from 4% to 25.6%.
Glencore is no longer able to unilaterally direct the key strategic, operating and capital decisions of Rosh Pinah and Perkoa and was
deemed to have disposed of its controlling interest at fair value. The difference to the net carrying value was recognised through the
statement of income, with Glencore subsequently accounting for its share in Trevali using the equity method in accordance with
IAS 28 (see note 10).
HG Storage
On 29 December 2017, Glencore completed the sale of a 51% interest in HG Storage International Ltd (“HG Storage”), a group
comprising the majority of Glencore’s petroleum products storage and logistics businesses (excluding the U.S., see note 15) to HNA
Innovation Finance Group Co Ltd (HNA) for cash consideration of $530 million, including the assumption of certain debt. Glencore
is no longer able to unilaterally direct the key strategic, operating and capital decisions of HG Storage and was deemed to have
disposed of its controlling interest at fair value. The difference to the net carrying value was recognised through the statement of
income, with Glencore subsequently accounting for its remaining remeasured share in HG Storage using the equity method in
accordance with IAS 28.
194
194
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
25. Acquisition and disposal of subsidiaries continued
26. Financial and capital risk management
In 2017, Glencore disposed of its controlling interest in the Rosh Pinah mine in Namibia (“Rosh Pinah”) and Perkoa mine in Burkina
Faso (“Perkoa”), together referred to as “Zinc Africa” and 51% of the large majority of its petroleum storage and logistics businesses
The carrying value of the assets and liabilities over which control was lost and the net cash received from these disposals are
Zinc Africa
HG Storage
Others
Total
Financial risks arising in the normal course of business from Glencore’s operations comprise market risk (including commodity price
risk, interest rate risk and currency risk), credit risk (including performance risk) and liquidity risk. It is Glencore’s policy and practice
to identify and, where appropriate and practical, actively manage such risks (for management of “margin” risk within Glencore’s
extensive and diversified industrial portfolio, refer net present value at risk below) to support its objectives in managing its capital
and future financial security and flexibility. Glencore’s overall risk management programme focuses on the unpredictability of
financial markets and seeks to protect its financial security and flexibility by using derivative financial instruments where possible
to substantially hedge these financial risks. Glencore’s finance and risk professionals, working in coordination with the commodity
departments, monitor, manage and report regularly to senior management and the Board of Directors on the approach and
effectiveness in managing financial risks along with the financial exposures facing the Group.
Glencore’s objectives in managing its “capital attributable to equity holders” include preserving its overall financial health and
strength for the benefit of all stakeholders, maintaining an optimal capital structure in order to provide a high degree of financial
flexibility at an attractive cost of capital and safeguarding its ability to continue as a going concern, while generating sustainable
long-term profitability. Central to meeting these objectives is maintaining an investment grade credit rating status. Glencore’s
current credit ratings are Baa2 (positive outlook) from Moody’s and BBB+ (stable) from S&P.
Distribution policy and other capital management initiatives
Glencore’s cash distribution policy comprises two components: (1) a fixed $1 billion component and (2) a variable element representing
a minimum 25% of free cash flow generated by our industrial assets during the year. The actual variable distribution component
(minimum 25% pay-out guidance) will reflect prevailing balance sheet position, market conditions and outlook and be confirmed
annually in respect of prior period’s cash flows. Distributions are expected to be formally declared by the Board annually (with the
preliminary full-year results). Distributions, when declared, will be settled equally in May and September of the year they are declared
in. In addition and acknowledging the cyclical nature of the industry, in periods of strong earnings and cash generation the Board,
considering all relevant factors, could formally declare an additional distribution to be included with the distribution confirmed with
respect to the prior year and/or initiate or continue share buy-back programmes. Notwithstanding that the distribution is declared
and paid in U.S. dollars, shareholders will be able to elect to receive their distribution payments in Pounds Sterling, Euros or Swiss
Francs based on the exchange rates in effect around the date of payment. Shareholders on the JSE will receive their distributions
in South African Rand.
Commodity price risk
Glencore is exposed to price movements for the inventory it holds and the products it produces which are not held to meet priced
forward contract obligations and forward priced purchase or sale contracts. Glencore manages a significant portion of this exposure
through futures and options transactions on worldwide commodity exchanges or in over the counter (OTC) markets, to the extent
available. Commodity price risk management activities are considered an integral part of Glencore’s physical commodity marketing
activities and the related assets and liabilities are included in other financial assets from and other financial liabilities to derivative
counterparties, including clearing brokers and exchanges. Whilst it is Glencore’s policy to substantially hedge its commodity price
risks, there remains the possibility that the hedging instruments chosen may not always provide effective mitigation of the underlying
price risk. The hedging instruments available to the marketing businesses may differ in specific characteristics to the risk exposure to
be hedged, resulting in an ongoing and unavoidable basis risk exposure. Residual basis risk exposures represent a key focus point for
Glencore’s commodity department teams who actively engage in the management of such.
266
3
–
–
269
58
43
23
124
(4)
–
(50)
(24)
(74)
(2)
(56)
–
(58)
257
(245)
(222)
(22)
–
–
–
–
(232)
245
(23)
222
169
–
170
11
350
4
68
28
100
–
(31)
(17)
–
(48)
–
(67)
(2)
(69)
333
(530)
–
–
–
(509)
20
12
(674)
530
(28)
502
57
–
–
–
57
7
15
18
40
(25)
(10)
(5)
(33)
(48)
–
(9)
–
(9)
15
–
–
(13)
(121)
(54)
–
–
(173)
–
(18)
(18)
492
3
170
11
676
69
126
69
264
(29)
(41)
(72)
(57)
(170)
(2)
(132)
(2)
(136)
605
(775)
(222)
(13)
(143)
(563)
20
12
775
(69)
706
(1,079)
2017 Disposals
(“HG Storage”).
detailed below:
US$ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Advances and loans
Current assets
Inventories
Accounts receivable
Cash and cash equivalents
Non-controlling interest
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Current liabilities
Borrowings
Accounts payable
Income tax payable
Carrying value of net assets disposed
Cash and cash equivalents received
Shares received
Future consideration
Items recycled to the statement of income
Reclassified to investment in joint venture1
Provision for guarantees
Transaction fees
Net gain on disposal1
Cash and cash equivalents received
Less: Cash and cash equivalents disposed
Net cash received from disposal
($20 million).
Zinc Africa
1
Includes a gain of $383 million attributable to the re-measurement of the retained investment to its fair value upon change in control in HG Storage ($363 million) and Other
On 31 August 2017, Glencore completed the transaction with Trevali Mining Corporation (“Trevali”) a TSX listed zinc company, to sell
its 80.1% equity interest in Rosh Pinah and its 90.0% equity interest in Perkoa. The aggregate consideration received was $467 million,
of which $245 million was cash and the remaining balance ($222 million) was 193.4 million shares in Trevali. As a result of the
transaction, Glencore’s direct ownership in Trevali increased from 4% to 25.6%.
Glencore is no longer able to unilaterally direct the key strategic, operating and capital decisions of Rosh Pinah and Perkoa and was
deemed to have disposed of its controlling interest at fair value. The difference to the net carrying value was recognised through the
statement of income, with Glencore subsequently accounting for its share in Trevali using the equity method in accordance with
IAS 28 (see note 10).
HG Storage
On 29 December 2017, Glencore completed the sale of a 51% interest in HG Storage International Ltd (“HG Storage”), a group
comprising the majority of Glencore’s petroleum products storage and logistics businesses (excluding the U.S., see note 15) to HNA
Innovation Finance Group Co Ltd (HNA) for cash consideration of $530 million, including the assumption of certain debt. Glencore
is no longer able to unilaterally direct the key strategic, operating and capital decisions of HG Storage and was deemed to have
disposed of its controlling interest at fair value. The difference to the net carrying value was recognised through the statement of
income, with Glencore subsequently accounting for its remaining remeasured share in HG Storage using the equity method in
accordance with IAS 28.
194
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
195
195
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
26. Financial and capital risk management continued
Value at risk
One of the tools used by Glencore to monitor and limit its primary market risk exposure, principally commodity price risk related to its
physical marketing activities, is of a value at risk (VaR) computation. VaR is a risk measurement technique which estimates a threshold
for potential loss that could occur on risk positions as a result of movements in risk factors over a specified time horizon, given a
specific level of confidence and based on a specific price history. The VaR methodology is a statistically defined, probability-based
approach that takes into account market volatilities, as well as risk diversification by recognising offsetting positions and correlations
between commodities and markets. In this way, risks can be measured consistently across markets and commodities and risk
measures can be aggregated to derive a single risk value.
Glencore uses a VaR approach based on Monte Carlo simulations computed at a 95% confidence level and utilising a weighted data
history for a one-day time horizon. Glencore’s Board has set an unchanged consolidated VaR limit (one day 95% confidence level) of
$100 million representing less than 0.2% of total equity, which the Board reviews annually. There were no breaches of this limit during
the year.
Position sheets are regularly distributed and monitored and daily Monte Carlo simulations are applied to the various business groups’
net marketing positions to determine potential losses.
Market risk VaR (one-day 95% confidence level) ranges and year-end positions were as follows:
US$ million
Year-end position
Average during the year
High during the year
Low during the year
2018
33
34
76
16
2017
18
25
41
13
VaR does not purport to represent actual gains or losses in fair value in earnings to be incurred by Glencore, nor does Glencore claim
that these VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR
should always be viewed in the context of its limitations; notably, the use of historical data as a proxy for estimating future events,
market illiquidity risks and tail risks. Glencore recognises these limitations, and thus complements and continuously refines its VaR
analysis by analysing forward looking stress scenarios, benchmarking against an alternative VaR computation based on historical
simulations and back testing calculated VaR against the hypothetical portfolio returns arising in the next business day.
Glencore’s VaR computation currently covers its business in the key base metals (including aluminium, nickel, zinc, copper and lead),
coal, iron ore and oil/natural gas and assesses the open priced positions which are subject to price risk, including inventories of these
commodities. Due to the lack of a liquid terminal market, Glencore does not include a VaR calculation for products such as alumina,
molybdenum, cobalt, freight and some risk associated with metals’ concentrates as it does not consider the nature of these markets
to be suited to this type of analysis. Alternative measures are used to monitor exposures related to these products.
Net present value at risk
Glencore’s future cash flows related to its forecast energy and metals and minerals’ production activities are also exposed to
commodity price movements. Glencore manages this exposure through a combination of portfolio diversification, occasional
shorter-term hedging via futures and options transactions, insurance products and continuous internal monitoring, reporting
and quantification of the underlying operations’ estimated cash flows and valuations.
Interest rate risk
Glencore is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its
assets and liabilities and cash flows. Matching of assets and liabilities is utilised as the dominant method to hedge interest rate risks;
other methods include the use of interest rate swaps and similar derivative instruments. Floating rate debt which is predominantly
used to fund fast turning working capital (interest is internally charged on the funding of this working capital) is primarily based on
US$ LIBOR plus an appropriate premium. Accordingly, prevailing market interest rates are continuously factored into transactional
pricing and terms.
Assuming the amount of floating rate liabilities at the reporting period end were outstanding for the whole year, interest rates were
50 basis points higher/lower and all other variables held constant, Glencore’s income and equity for the year ended 31 December 2018
would decrease/increase by $135 million (2017: $110 million).
Currency risk
The U.S. dollar is the predominant functional currency of the Group. Currency risk is the risk of loss from movements in exchange
rates related to transactions and balances in currencies other than the U.S. dollar. Such transactions include operating expenditure,
capital expenditure and to a lesser extent purchases and sales in currencies other than the functional currency. Purchases or sales
of commodities concluded in currencies other than the functional currency, apart from certain limited domestic sales at industrial
operations which act as a hedge against local operating costs, are ordinarily economically hedged through forward exchange
contracts. Consequently, foreign exchange movements against the U.S. dollar on recognised transactions would have an immaterial
financial impact. Glencore enters into currency hedging transactions with leading financial institutions.
Glencore’s debt related payments (both principal and interest) are primarily denominated in or swapped using hedging instruments
into U.S. dollars. Glencore’s operating expenses, being a small portion of its revenue base, are incurred in a mix of currencies of which
the U.S. dollar, Swiss Franc, Pound Sterling, Canadian dollar, Australian dollar, Euro, Kazakhstan Tenge, Colombian Peso and South
African Rand are the predominant currencies.
196
196
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
Value at risk
One of the tools used by Glencore to monitor and limit its primary market risk exposure, principally commodity price risk related to its
physical marketing activities, is of a value at risk (VaR) computation. VaR is a risk measurement technique which estimates a threshold
for potential loss that could occur on risk positions as a result of movements in risk factors over a specified time horizon, given a
specific level of confidence and based on a specific price history. The VaR methodology is a statistically defined, probability-based
approach that takes into account market volatilities, as well as risk diversification by recognising offsetting positions and correlations
between commodities and markets. In this way, risks can be measured consistently across markets and commodities and risk
measures can be aggregated to derive a single risk value.
Glencore uses a VaR approach based on Monte Carlo simulations computed at a 95% confidence level and utilising a weighted data
history for a one-day time horizon. Glencore’s Board has set an unchanged consolidated VaR limit (one day 95% confidence level) of
$100 million representing less than 0.2% of total equity, which the Board reviews annually. There were no breaches of this limit during
Position sheets are regularly distributed and monitored and daily Monte Carlo simulations are applied to the various business groups’
net marketing positions to determine potential losses.
Market risk VaR (one-day 95% confidence level) ranges and year-end positions were as follows:
the year.
US$ million
Year-end position
Average during the year
High during the year
Low during the year
2018
2017
33
34
76
16
18
25
41
13
VaR does not purport to represent actual gains or losses in fair value in earnings to be incurred by Glencore, nor does Glencore claim
that these VaR results are indicative of future market movements or representative of any actual impact on its future results. VaR
should always be viewed in the context of its limitations; notably, the use of historical data as a proxy for estimating future events,
market illiquidity risks and tail risks. Glencore recognises these limitations, and thus complements and continuously refines its VaR
analysis by analysing forward looking stress scenarios, benchmarking against an alternative VaR computation based on historical
simulations and back testing calculated VaR against the hypothetical portfolio returns arising in the next business day.
Glencore’s VaR computation currently covers its business in the key base metals (including aluminium, nickel, zinc, copper and lead),
coal, iron ore and oil/natural gas and assesses the open priced positions which are subject to price risk, including inventories of these
commodities. Due to the lack of a liquid terminal market, Glencore does not include a VaR calculation for products such as alumina,
molybdenum, cobalt, freight and some risk associated with metals’ concentrates as it does not consider the nature of these markets
to be suited to this type of analysis. Alternative measures are used to monitor exposures related to these products.
Net present value at risk
Glencore’s future cash flows related to its forecast energy and metals and minerals’ production activities are also exposed to
commodity price movements. Glencore manages this exposure through a combination of portfolio diversification, occasional
shorter-term hedging via futures and options transactions, insurance products and continuous internal monitoring, reporting
and quantification of the underlying operations’ estimated cash flows and valuations.
Glencore is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its
assets and liabilities and cash flows. Matching of assets and liabilities is utilised as the dominant method to hedge interest rate risks;
other methods include the use of interest rate swaps and similar derivative instruments. Floating rate debt which is predominantly
used to fund fast turning working capital (interest is internally charged on the funding of this working capital) is primarily based on
US$ LIBOR plus an appropriate premium. Accordingly, prevailing market interest rates are continuously factored into transactional
Interest rate risk
pricing and terms.
Assuming the amount of floating rate liabilities at the reporting period end were outstanding for the whole year, interest rates were
50 basis points higher/lower and all other variables held constant, Glencore’s income and equity for the year ended 31 December 2018
would decrease/increase by $135 million (2017: $110 million).
Currency risk
The U.S. dollar is the predominant functional currency of the Group. Currency risk is the risk of loss from movements in exchange
rates related to transactions and balances in currencies other than the U.S. dollar. Such transactions include operating expenditure,
capital expenditure and to a lesser extent purchases and sales in currencies other than the functional currency. Purchases or sales
of commodities concluded in currencies other than the functional currency, apart from certain limited domestic sales at industrial
operations which act as a hedge against local operating costs, are ordinarily economically hedged through forward exchange
contracts. Consequently, foreign exchange movements against the U.S. dollar on recognised transactions would have an immaterial
financial impact. Glencore enters into currency hedging transactions with leading financial institutions.
Glencore’s debt related payments (both principal and interest) are primarily denominated in or swapped using hedging instruments
into U.S. dollars. Glencore’s operating expenses, being a small portion of its revenue base, are incurred in a mix of currencies of which
the U.S. dollar, Swiss Franc, Pound Sterling, Canadian dollar, Australian dollar, Euro, Kazakhstan Tenge, Colombian Peso and South
African Rand are the predominant currencies.
26. Financial and capital risk management continued
26. Financial and capital risk management continued
Glencore has issued Euro, Swiss Franc, Sterling, Yen and Australian dollar denominated bonds (see note 20). Cross currency swaps
were concluded to hedge the currency risk on the principal and related interest payments of these bonds. These contracts were
designated as fair value or cash flow hedges of the associated foreign currency risks. The critical terms of these swap contracts
and their corresponding hedged items are matched and the Group expects a highly effective hedging relationship with the swap
contracts and the value of the corresponding hedged items to change systematically in opposite direction in response to movements
in the underlying exchange rates. The corresponding fair value and notional amounts of these derivatives is as follows:
US$ million
Cross currency swap agreements
Cash flow hedges – currency risk
Eurobonds
Sterling bonds
Australian dollar bonds
Swiss franc bonds
Fair value hedges – currency and interest
rate risk
Eurobonds
Yen bonds
Swiss franc bonds
Interest rate swap agreements
Fair value hedges – currency and interest
rate risk
US$ bonds
1 Refer to note 20 for details.
Notional amounts
Average FX
rates
Carrying amount
Assets
(Note 28)
Carrying amount
Liabilities
(Note 28)
Average
maturity¹
2018
2017
2018
2017
2018
2017
2018
2017
1,117
2,906
453
–
6,100
81
1,148
11,805
4,038
1,921
453
473
6,100
81
966
15,017
1.12
1.77
0.91
–
1.26
0.01
1.04
1.26
1.77
0.91
1.05
1.26
0.01
1.04
53
–
3
–
153
10
–
219
98
15
9
–
285
8
6
421
–
785
101
–
435
–
28
1,349
227
636
62
7
192
–
13
1,137
2023
2020
2019
2018
2022
2022
2020
5,584
5,743
17,389 20,760
–
–
11
230
70
491
62
1,411
20
1,157
2023
The carrying amounts of the fair value hedged items are as follows:
US$ million
Foreign exchange and interest rate risk
Eurobonds
Yen bonds
Swiss franc bonds
US$ bonds
Carrying amount of the
hedged item
(Note 20)
Of which,
accumulated
amount of fair value
hedge adjustments
2018
2017
2018
2017
5,748
91
1,122
5,492
12,453
6,102
89
957
5,742
12,890
(143)
–
(2)
60
(85)
(229)
(1)
(8)
(33)
(271)
Credit risk
Credit risk arises from the possibility that counterparties may not be able to settle obligations due to Glencore within their agreed
payment terms. Financial assets which potentially expose Glencore to credit risk consist principally of cash and cash equivalents,
receivables and advances, derivative instruments and non-current advances and loans. Glencore’s credit management process
includes the assessment, monitoring and reporting of counterparty exposure on a regular basis. Glencore’s cash and cash equivalents
are placed overnight with a diverse group of highly credit rated financial institutions. Margin calls paid are similarly held with credit
rated financial institutions. Glencore determines these instruments to have low credit risk at the reporting date. Credit risk with
respect to receivables and advances is mitigated by the large number of customers comprising Glencore’s customer base, their
diversity across various industries and geographical areas, as well as Glencore’s policy to mitigate these risks through letters of credit,
netting, collateral and insurance arrangements where appropriate. Additionally, it is Glencore’s policy that transactions and activities
in trade related financial instruments be concluded under master netting agreements or long form confirmations to enable offsetting
of balances due to/from a common counterparty in the event of default by the counterparty. Glencore actively and continuously
monitors the credit quality of its counterparties through internal reviews and a credit scoring process, which includes, where available,
public credit ratings. Balances with counterparties not having a public investment grade or equivalent internal rating are typically
enhanced to investment grade through the extensive use of credit enhancement products, such as letters of credit or insurance
products. Glencore has a diverse customer base, with no customer representing more than 3.9% (2017: 3.3%) of its trade receivables
(on a gross basis taking into account credit enhancements) or accounting for more than 2.6% of its revenues over the year ended
31 December 2018 (2017: 3.5%).
The maximum exposure to credit risk (including performance risk – see below), without considering netting agreements or without
taking account of any collateral held or other credit enhancements, is equal to the carrying amount of Glencore’s financial assets
(see note 27) and physically-settled advances (see notes 11 and 13).
196
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
197
197
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
26. Financial and capital risk management continued
Performance risk
Performance risk (part of the broader credit risk subject matter, discussed above) is inherent in contracts, with agreements in the
future, to physically purchase or sell commodities with fixed price attributes, and arises from the possibility that counterparties may
not be willing or able to meet their future contractual physical sale or purchase obligations to/from Glencore. Glencore undertakes
the assessment, monitoring and reporting of performance risk within its overall credit management process. Glencore’s market
breadth, diversified supplier and customer base as well as the standard pricing mechanism in the vast majority of Glencore’s
commodity portfolio which does not fix prices beyond three months, with the main exception being coal, where longer-term fixed
price contracts are common, ensure that performance risk is adequately mitigated. The commodity industry has trended towards
shorter term fixed price contract periods, in part to mitigate against such potential performance risk, but also due to the continuous
development of transparent and liquid spot commodity markets, with their associated derivative products and indexes.
Liquidity risk
Liquidity risk is the risk that Glencore is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis,
to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments.
Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and availability of adequate committed
funding facilities. Glencore has set itself an internal minimum liquidity target to maintain at all times, including via available
committed undrawn credit facilities of $3 billion (2017: $3 billion), which has purposely been substantially exceeded in recent years,
accounting for the more volatile market backdrop. Glencore’s credit profile, diversified funding sources and committed credit facilities,
ensure that sufficient liquid funds are maintained to meet its liquidity requirements. As part of its liquidity management, Glencore
closely monitors and plans for its future capital expenditure, working capital needs and proposed investments, as well as credit facility
refinancing/extension requirements, well ahead of time (see notes 1, 11, 13, 20, 21 and 24).
As at 31 December 2018, Glencore had available committed undrawn credit facilities and cash amounting to $10,163 million
(2017: $12,801 million), refer to Other reconciliations section. The maturity profile of Glencore’s financial liabilities based on the
contractual terms is as follows:
After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 – 1 year
8,570
8,408
3,630
7,229
7,157
2,700
–
529
10,458
862
–
–
8,019
635
–
–
4,265
796
–
–
9,204
852
26,484
3,243
39,149
44,268
After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 – 1 year
9,402
10,071
7,637
2,710
4,114
3,256
–
513
13,840
1,116
–
–
8,753
728
–
–
3,438
913
–
–
5,027
964
28,826
4,522
43,714
49,726
Total
34,994
5,845
26,484
3,772
71,095
44,268
Total
33,934
6,977
28,826
5,035
74,772
49,726
2018 US$ million
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
2017 US$ million
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
198
198
Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
26. Financial and capital risk management continued
27. Financial instruments
Performance risk
Performance risk (part of the broader credit risk subject matter, discussed above) is inherent in contracts, with agreements in the
future, to physically purchase or sell commodities with fixed price attributes, and arises from the possibility that counterparties may
not be willing or able to meet their future contractual physical sale or purchase obligations to/from Glencore. Glencore undertakes
the assessment, monitoring and reporting of performance risk within its overall credit management process. Glencore’s market
breadth, diversified supplier and customer base as well as the standard pricing mechanism in the vast majority of Glencore’s
commodity portfolio which does not fix prices beyond three months, with the main exception being coal, where longer-term fixed
price contracts are common, ensure that performance risk is adequately mitigated. The commodity industry has trended towards
shorter term fixed price contract periods, in part to mitigate against such potential performance risk, but also due to the continuous
development of transparent and liquid spot commodity markets, with their associated derivative products and indexes.
Liquidity risk
Liquidity risk is the risk that Glencore is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis,
to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments.
Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and availability of adequate committed
funding facilities. Glencore has set itself an internal minimum liquidity target to maintain at all times, including via available
committed undrawn credit facilities of $3 billion (2017: $3 billion), which has purposely been substantially exceeded in recent years,
accounting for the more volatile market backdrop. Glencore’s credit profile, diversified funding sources and committed credit facilities,
ensure that sufficient liquid funds are maintained to meet its liquidity requirements. As part of its liquidity management, Glencore
closely monitors and plans for its future capital expenditure, working capital needs and proposed investments, as well as credit facility
refinancing/extension requirements, well ahead of time (see notes 1, 11, 13, 20, 21 and 24).
As at 31 December 2018, Glencore had available committed undrawn credit facilities and cash amounting to $10,163 million
(2017: $12,801 million), refer to Other reconciliations section. The maturity profile of Glencore’s financial liabilities based on the
contractual terms is as follows:
2018 US$ million
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
2017 US$ million
Borrowings
Expected future interest payments
Accounts payable
Other financial liabilities
Total
Current assets
After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 – 1 year
7,229
2,700
–
529
10,458
10,071
3,256
–
513
13,840
8,019
4,265
9,204
7,157
862
–
–
7,637
1,116
–
–
3,630
635
–
–
2,710
728
–
–
8,408
796
–
–
4,114
913
–
–
8,753
3,438
5,027
After 5 years Due 3 – 5 years Due 2 – 3 years Due 1 – 2 years Due 0 – 1 year
8,570
852
26,484
3,243
39,149
44,268
9,402
964
28,826
4,522
43,714
49,726
Total
34,994
5,845
26,484
3,772
71,095
44,268
Total
33,934
6,977
28,826
5,035
74,772
49,726
The following tables present the carrying values and fair values of Glencore’s financial instruments. Fair value is the price that would
be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (most advantageous)
market at the measurement date under current market conditions. Where available, market values have been used to determine
fair values. When market values are not available, fair values have been calculated by discounting expected cash flows at prevailing
market interest and exchange rates. The estimated fair values have been determined using market information and appropriate
valuation methodologies, but are not necessarily indicative of the amounts that Glencore could realise in the normal course
of business.
The financial assets and liabilities are presented by class in the tables below at their carrying values, which generally approximate
the fair values with the exception of $34,994 million (2017: $33,934 million) of borrowings, the fair value of which at 31 December 2018
was $34,863 million (2017: $34,776 million) based on observable market prices applied to the borrowing portfolio (a Level 2 fair value
measurement).
2018 US$ million
Assets
Other investments3
Non-current other financial assets
Advances and loans
Accounts receivable
Other financial assets
Cash and cash equivalents
Total financial assets
Liabilities
Borrowings
Non-current other financial liabilities
Accounts payable
Other financial liabilities
Total financial liabilities
Amortised
cost
FVTPL1
FVTOCI2
Total
–
–
771
6,840
–
2,046
9,657
34,994
189
10,856
–
46,039
67
51
155
7,515
3,482
–
11,270
–
340
15,073
3,243
18,656
2,000
–
–
–
–
–
2,000
–
–
–
–
–
2,067
51
926
14,355
3,482
2,046
22,927
34,994
529
25,929
3,243
64,695
1 FVTPL – Fair value through profit and loss, see note 28.
2 FVTOCI – Fair value through other comprehensive income.
3 Other investments of $1,979 million are classified as Level 1 measured using quoted market prices with the remaining balance of $88 million being investments in private companies,
classified as Level 2 measured using discounted cash flow models.
2017 US$ million
Assets3
Other investments4
Advances and loans
Accounts receivable
Other financial assets (see note 28)
Cash and cash equivalents
Total financial assets
Liabilities3
Borrowings
Non-current other financial liabilities (see note 28)
Accounts payable
Other financial liabilities (see note 28)
Total financial liabilities
Amortised
cost
FVTPL1
FVTOCI2
Total
–
1,150
16,452
–
2,124
19,726
33,934
–
28,174
–
62,108
2,268
–
–
2,311
–
4,579
–
513
–
4,522
5,035
690
1,826
–
–
–
2,516
–
–
–
–
–
2,958
2,976
16,452
2,311
2,124
26,821
33,934
513
28,174
4,522
67,143
1 FVTPL – Fair value through profit and loss, see note 28.
2 FVTOCI – Fair value through other comprehensive income.
3 Restated to exclude $3,907 million of receivables and $652 million of payables that were non-financial instruments.
4 Other investments of $2,871 million are classified as Level 1 measured using quoted market prices with the remaining balance of $87 million being investments in private companies
whose fair value cannot be reliably measured and therefore carried at cost.
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Notes to the financial statements continued
27. Financial instruments continued
Offsetting of financial assets and liabilities
In accordance with IAS 32 the Group reports financial assets and liabilities on a net basis in the consolidated statement of financial
position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or
to realise the asset and settle the liability simultaneously. The financial assets and liabilities subject to offsetting, enforceable master
netting and similar agreements as at 31 December 2018 and 2017 were as follows:
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
2018 US$ million
Derivative assets1
Derivative liabilities1
Gross
amount
17,135
(16,577)
Amounts
offset
(14,823)
14,823
Net
amount
2,312
(1,754)
Financial
instruments
(341)
341
Financial
collateral
(719)
914
Net
amount
1,253
(499)
1 Presented within current other financial assets and current other financial liabilities.
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
2017 US$ million
Derivative assets1
Derivative liabilities1
Gross
amount
13,220
(15,162)
Amounts
offset
(11,907)
11,907
Net
amount
1,313
(3,255)
Financial
instruments
(347)
347
Financial
collateral
(426)
2,430
Net
amount
540
(478)
1 Presented within current other financial assets and current other financial liabilities.
Total as
presented
in the
consolidated
statement
of financial
position
3,482
(3,243)
Total as
presented
in the
consolidated
statement
of financial
position
2,311
(4,522)
Amounts
not subject
to netting
agreements
1,170
(1,489)
Amounts
not subject
to netting
agreements
998
(1,267)
For the financial assets and liabilities subject to enforceable master netting or similar arrangements above, each agreement between
the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on
a net basis. In the absence of such an election, financial assets and liabilities may be settled on a gross basis, however, each party to
the master netting or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the
other party. Per the terms of each agreement, an event of default includes failure by a party to make payment when due, failure by
a party to perform any obligation required by the agreement (other than payment) if such failure is not remedied within periods
of 30 to 60 days after notice of such failure is given to the party or bankruptcy.
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2018 US$ million
Derivative assets1
Derivative liabilities1
Gross
Amounts
Net
Financial
amount
offset
amount
instruments
Financial
collateral
17,135
(16,577)
(14,823)
14,823
2,312
(1,754)
(341)
341
(719)
914
Net
1,253
(499)
not subject
to netting
amount
agreements
1,170
(1,489)
1 Presented within current other financial assets and current other financial liabilities.
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
Amounts
consolidated
2017 US$ million
Derivative assets1
Derivative liabilities1
Gross
Amounts
amount
13,220
(15,162)
offset
(11,907)
11,907
Net
Financial
amount
instruments
Financial
collateral
1,313
(3,255)
(347)
347
(426)
2,430
Net
540
(478)
not subject
to netting
amount
agreements
998
(1,267)
1 Presented within current other financial assets and current other financial liabilities.
For the financial assets and liabilities subject to enforceable master netting or similar arrangements above, each agreement between
the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on
a net basis. In the absence of such an election, financial assets and liabilities may be settled on a gross basis, however, each party to
the master netting or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the
other party. Per the terms of each agreement, an event of default includes failure by a party to make payment when due, failure by
a party to perform any obligation required by the agreement (other than payment) if such failure is not remedied within periods
of 30 to 60 days after notice of such failure is given to the party or bankruptcy.
Total as
presented
in the
statement
of financial
position
3,482
(3,243)
Total as
presented
in the
statement
of financial
position
2,311
(4,522)
Notes to the financial statements continued
27. Financial instruments continued
Offsetting of financial assets and liabilities
In accordance with IAS 32 the Group reports financial assets and liabilities on a net basis in the consolidated statement of financial
position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or
to realise the asset and settle the liability simultaneously. The financial assets and liabilities subject to offsetting, enforceable master
netting and similar agreements as at 31 December 2018 and 2017 were as follows:
28. Fair value measurements
Fair values are primarily determined using quoted market prices or standard pricing models using observable market inputs where
available and are presented to reflect the expected gross future cash in/outflows. Glencore classifies the fair values of its financial
instruments into a three level hierarchy based on the degree of the source and observability of the inputs that are used to derive
the fair value of the financial asset or liability as follows:
Level 1
Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that Glencore can assess at the
measurement date, or
Amounts eligible for set off
under netting agreements
Related amounts not set off
under netting agreements
Amounts
consolidated
Level 2
Inputs other than quoted inputs included in Level 1 that are observable for the assets or liabilities, either directly or indirectly,
or
Level 3 Unobservable inputs for the assets or liabilities, requiring Glencore to make market-based assumptions
Level 1 classifications primarily include futures with a tenor of less than one year and options that are exchange traded, whereas
Level 2 classifications primarily include futures with a tenor greater than one year, over the counter options, swaps and physical
forward transactions which derive their fair value primarily from exchange quotes and readily observable broker quotes. Level 3
classifications primarily include physical forward transactions which derive their fair value predominantly from models that use broker
quotes and applicable market-based estimates surrounding location, quality and credit differentials and financial liabilities linked
to the fair value of certain mining operations. In circumstances where Glencore cannot verify fair value with observable market
inputs (Level 3 fair values), it is possible that a different valuation model could produce a materially different estimate of fair value.
It is Glencore’s policy that transactions and activities in trade related financial instruments be concluded under master netting
agreements or long form confirmations to enable balances due to/from a common counterparty to be offset in the event of default,
insolvency or bankruptcy by the counterparty.
The following tables show the fair values of the derivative financial instruments including trade related financial and physical forward
purchase and sale commitments by type of contract and non-current other financial liabilities as at 31 December 2018 and 2017.
Other assets and liabilities which are measured at fair value on a recurring basis are marketing inventories, other investments and
cash and cash equivalents. Refer to notes 12 and 27 for disclosures in connection with these fair value measurements. There are no
non-recurring fair value measurements.
Other financial assets
2018 US$ million
Accounts receivable
Other financial assets
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial assets
Non-current other financial assets
Purchased call options over Glencore shares1
Non-current other financial assets
Total
Level 1
–
Level 2
6,471
Level 3
–
1,353
15
149
–
–
–
1,517
–
–
1,517
79
–
483
598
219
34
1,413
51
51
7,935
–
–
–
552
–
–
552
–
–
552
Total
6,471
1,432
15
632
1,150
219
34
3,482
51
51
10,004
1 Call options over the Company’s shares in relation to conversion rights of the $625 million non-dilutive convertible bond, due in 2025. See note 20.
2017 US$ million
Other financial assets
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Total
Level 1
Level 2
Level 3
Total
227
93
131
–
–
–
451
42
37
339
582
421
83
1,504
–
–
–
356
–
–
356
269
130
470
938
421
83
2,311
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Notes to the financial statements continued
28. Fair value measurements continued
Other financial liabilities
2018 US$ million
Accounts payable
Other financial liabilities
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Option over non-controlling interest in Ale
Deferred consideration2
Embedded call options over Glencore shares3
Non-current other financial liabilities
Total
2017 US$ million
Other financial liabilities
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Non-current other financial liabilities
Total
Level 1
–
Level 2
15,073
Level 3
–
Total
15,073
318
93
45
–
–
–
456
–
–
–
–
–
456
72
–
432
615
1,349
69
2,537
–
–
–
51
51
17,661
–
3
–
247
–
–
250
188
40
61
–
289
539
390
96
477
862
1,349
69
3,243
188
40
61
51
340
18,656
Level 1
Level 2
Level 3
Total
2,029
37
121
–
–
–
2,187
–
–
2,187
84
29
372
468
1,137
53
2,143
–
–
2,143
–
8
–
184
–
–
192
513
513
705
2,113
74
493
652
1,137
53
4,522
513
513
5,035
1 A ZAR denominated derivative liability payable to ARM Coal, a participant in one of the Group’s principal coal joint operations based in South Africa. The liability arises from ARM
Coal’s rights as an investor to a share of agreed free cash flows from certain coal operations in South Africa and is valued based on those cash flows using a risk adjusted discount rate.
The derivative liability is settled over the life of those operations (modelled mine life of 25 years as at 31 December 2018) and has no fixed repayment date and is not cancellable within
12 months.
2 See note 25.
3 Embedded call option bifurcated from the 2025 convertible bond. See note 20.
The following table shows the net changes in fair value of Level 3 other financial assets and other financial liabilities:
US$ million
1 January 2018
Total gain/(loss) recognised in cost of goods sold
Non-discretionary dividend obligation
Option over non-controlling interest
Deferred consideration
Realised
31 December 2018
1 January 2017
Total gain/(loss) recognised in cost of goods sold
Non-discretionary dividend obligation
Realised
31 December 2017
Physical
forwards
172
207
–
–
–
(74)
305
355
58
–
(241)
172
Options
(8)
(3)
–
–
–
8
(3)
(6)
(8)
–
6
(8)
Other
(513)
–
325
(40)
(61)
–
(289)
(403)
–
(110)
–
(513)
Total
Level 3
(349)
204
325
(40)
(61)
(66)
13
(54)
50
(110)
(235)
(349)
During the year no amounts were transferred between Level 1 and Level 2 of the fair value hierarchy and no amounts were transferred
into or out of Level 3 of the fair value hierarchy for either other financial assets or other financial liabilities.
202
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Notes to the financial statements continued
28. Fair value measurements continued
28. Fair value measurements continued
Other financial liabilities
2018 US$ million
Accounts payable
Other financial liabilities
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Option over non-controlling interest in Ale
Deferred consideration2
Embedded call options over Glencore shares3
Non-current other financial liabilities
Total
2017 US$ million
Other financial liabilities
Commodity related contracts
Futures
Options
Swaps
Physical forwards
Financial contracts
Cross currency swaps
Foreign currency and interest rate contracts
Current other financial liabilities
Non-current other financial liabilities
Non-discretionary dividend obligation1
Non-current other financial liabilities
Total
12 months.
2 See note 25.
US$ million
1 January 2018
Total gain/(loss) recognised in cost of goods sold
Non-discretionary dividend obligation
Option over non-controlling interest
Deferred consideration
Realised
31 December 2018
1 January 2017
Total gain/(loss) recognised in cost of goods sold
Non-discretionary dividend obligation
Realised
31 December 2017
Level 1
–
Level 2
15,073
Level 3
456
17,661
Level 1
Level 2
Level 3
Total
–
–
3
–
–
–
247
250
188
40
61
–
289
539
184
–
8
–
–
–
192
513
513
705
(513)
–
325
(40)
(61)
–
(289)
(403)
(110)
–
–
(513)
Total
15,073
390
96
477
862
1,349
69
3,243
188
40
61
51
340
18,656
2,113
74
493
652
1,137
53
4,522
513
513
5,035
(349)
204
325
(40)
(61)
(66)
13
(54)
50
(110)
(235)
(349)
318
93
45
–
456
–
–
–
–
–
–
–
–
–
–
–
–
2,029
37
121
2,187
172
207
–
–
–
(74)
305
355
58
–
(241)
172
72
–
432
615
1,349
69
2,537
–
–
–
51
51
84
29
372
468
1,137
53
2,143
–
–
(8)
(3)
–
–
–
8
(3)
(6)
(8)
–
6
(8)
1 A ZAR denominated derivative liability payable to ARM Coal, a participant in one of the Group’s principal coal joint operations based in South Africa. The liability arises from ARM
Coal’s rights as an investor to a share of agreed free cash flows from certain coal operations in South Africa and is valued based on those cash flows using a risk adjusted discount rate.
The derivative liability is settled over the life of those operations (modelled mine life of 25 years as at 31 December 2018) and has no fixed repayment date and is not cancellable within
2,187
2,143
3 Embedded call option bifurcated from the 2025 convertible bond. See note 20.
The following table shows the net changes in fair value of Level 3 other financial assets and other financial liabilities:
Physical
forwards
Options
Other
Total
Level 3
During the year no amounts were transferred between Level 1 and Level 2 of the fair value hierarchy and no amounts were transferred
into or out of Level 3 of the fair value hierarchy for either other financial assets or other financial liabilities.
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period.
The following table provides information about how the fair values of these financial assets and financial liabilities are determined,
in particular, the valuation techniques and inputs used.
Fair value of financial assets/financial liabilities
US$ million
Futures – Level 1
Valuation techniques and key inputs:
Significant unobservable inputs:
Futures – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Options – Level 1
Valuation techniques and key inputs:
Significant unobservable inputs:
Options – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Options – Level 3
Valuation techniques and key inputs:
Significant unobservable inputs:
Swaps – Level 1
Valuation techniques and key inputs:
Significant unobservable inputs:
Swaps – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Physical Forwards – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Quoted bid prices in an active market
None
Assets
Liabilities
Assets
Liabilities
2018
1,353
(318)
79
(72)
2017
227
(2,029)
42
(84)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices in
active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
None
Quoted bid prices in an active market
None
Assets
Liabilities
Assets
Liabilities
15
(93)
–
–
93
(37)
37
(29)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices in
active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
None
Standard option pricing model
Prices are adjusted by volatility differentials. This significant unobservable input generally
represents 2% – 20% of the overall value of the instruments. A change to a reasonably possible
alternative assumption would not result in a material change in the underlying value.
Assets
Liabilities
–
(3)
–
(8)
Quoted bid prices in an active market
None
Assets
Liabilities
Assets
Liabilities
149
(45)
483
(432)
131
(121)
339
(372)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices in
active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
None
Assets
Liabilities
598
(615)
582
(468)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices
in active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, such as history of
non-performance, collateral held and current market developments, as required.
None
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Notes to the financial statements continued
28. Fair value measurements continued
US$ million
Physical Forwards – Level 3
Valuation techniques and key inputs:
Significant unobservable inputs:
Cross currency swaps – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Foreign currency and interest rate contracts – Level 2
Valuation techniques and key inputs:
Significant unobservable inputs:
Call options over Glencore shares – Level 2
Valuation techniques and key inputs:
Assets
Liabilities
2018
552
(247)
2017
356
(184)
Discounted cash flow model
Valuation of the Group’s commodity physical forward contracts categorised within this level
is based on observable market prices that are adjusted by unobservable differentials, as required,
including:
– Quality;
– Geographic location;
– Local supply & demand;
– Customer requirements; and
– Counterparty credit considerations.
These significant unobservable inputs generally represent 2%–30% of the overall value of
the instruments. The valuation prices are applied consistently to value physical forward sale
and purchase contracts, and changing a particular input to reasonably possible alternative
assumptions does not result in a material change in the underlying value of the portfolio.
Assets
Liabilities
219
(1,349)
421
(1,137)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices
in active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
None
Assets
Liabilities
34
(69)
83
(53)
Discounted cash flow model
Inputs include observable quoted prices sourced from exchanges or traded reference indices
in active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
None
Assets
Liabilities
51
(51)
– Option pricing model;
– Current price of Glencore shares;
– Strike price;
– Maturity date of the underlying convertible debt security;
– Risk-free rate; and
– Volatility.
None
–
–
–
–
Significant unobservable inputs:
Accounts receivable and payable – Level 2
Assets
Liabilities
6,471
(15,073)
Comprised of trade receivables/payables containing an embedded commodity derivative,
which are designated and measured at fair value through profit and loss until final settlement
Valuation techniques and key inputs:
Discounted cash flow model
Inputs include observable quoted commodity prices sourced from exchanges or traded reference
indices in active markets for identical assets or liabilities. Prices are adjusted by a discount rate
which captures the time value of money and counterparty credit considerations, as required.
None
Significant unobservable inputs:
Non-discretionary dividend obligation – Level 3
Assets
Liabilities
–
(188)
–
(513)
Valuation techniques:
Significant unobservable inputs:
Discounted cash flow model
– Forecast commodity prices;
– Discount rates using weighted average cost of
capital methodology;
– Production models;
– Operating costs; and
– Capital expenditures.
The resultant liability is essentially a discounted cash flow valuation of the underlying mining
operation. Increases/decreases in forecast commodity prices will result in an increase/decrease to
the value of the liability though this will be partially offset by associated increases/decreases in the
assumed production levels, operating costs and capital expenditures which are inherently linked to
forecast commodity prices. The valuation remains sensitive to price and a 10% increase/decrease in
commodity price assumptions would result in a $111 million adjustment to the current carrying
value.
Option over non-controlling interest in Ale – Level 3
Assets
Liabilities
–
(40)
–
–
Valuation techniques and key inputs:
Significant unobservable inputs:
Discounted cash flow model
The resultant liability is the value of the remaining minority stake in the subsidiary, measured as
the higher of the acquisition date valuation of the shares, and a discounted future earnings based
valuation. The valuation is additionally sensitive to movement in the spot exchange rates between
the Brazilian Real and US Dollar.
204
204
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Notes to the financial statements continued
28. Fair value measurements continued
US$ million
Physical Forwards – Level 3
Valuation techniques and key inputs:
Discounted cash flow model
Significant unobservable inputs:
Valuation of the Group’s commodity physical forward contracts categorised within this level
is based on observable market prices that are adjusted by unobservable differentials, as required,
Assets
Liabilities
2018
552
(247)
2017
356
(184)
including:
– Quality;
– Geographic location;
– Local supply & demand;
– Customer requirements; and
– Counterparty credit considerations.
These significant unobservable inputs generally represent 2%–30% of the overall value of
the instruments. The valuation prices are applied consistently to value physical forward sale
and purchase contracts, and changing a particular input to reasonably possible alternative
assumptions does not result in a material change in the underlying value of the portfolio.
Cross currency swaps – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
219
(1,349)
421
(1,137)
Inputs include observable quoted prices sourced from exchanges or traded reference indices
in active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Foreign currency and interest rate contracts – Level 2
Valuation techniques and key inputs:
Discounted cash flow model
Assets
Liabilities
34
(69)
83
(53)
Inputs include observable quoted prices sourced from exchanges or traded reference indices
in active markets for identical assets or liabilities. Prices are adjusted by a discount rate which
captures the time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Call options over Glencore shares – Level 2
Valuation techniques and key inputs:
– Option pricing model;
Assets
Liabilities
51
(51)
– Current price of Glencore shares;
– Strike price;
– Maturity date of the underlying convertible debt security;
Significant unobservable inputs:
Accounts receivable and payable – Level 2
– Risk-free rate; and
– Volatility.
None
Assets
Liabilities
6,471
(15,073)
Comprised of trade receivables/payables containing an embedded commodity derivative,
which are designated and measured at fair value through profit and loss until final settlement
Valuation techniques and key inputs:
Discounted cash flow model
Inputs include observable quoted commodity prices sourced from exchanges or traded reference
indices in active markets for identical assets or liabilities. Prices are adjusted by a discount rate
which captures the time value of money and counterparty credit considerations, as required.
Significant unobservable inputs:
None
Non-discretionary dividend obligation – Level 3
Valuation techniques:
Significant unobservable inputs:
Discounted cash flow model
– Forecast commodity prices;
– Discount rates using weighted average cost of
Assets
Liabilities
–
(188)
–
(513)
–
–
–
–
capital methodology;
– Production models;
– Operating costs; and
– Capital expenditures.
Option over non-controlling interest in Ale – Level 3
value.
The resultant liability is essentially a discounted cash flow valuation of the underlying mining
operation. Increases/decreases in forecast commodity prices will result in an increase/decrease to
the value of the liability though this will be partially offset by associated increases/decreases in the
assumed production levels, operating costs and capital expenditures which are inherently linked to
forecast commodity prices. The valuation remains sensitive to price and a 10% increase/decrease in
commodity price assumptions would result in a $111 million adjustment to the current carrying
Assets
Liabilities
–
(40)
–
–
Valuation techniques and key inputs:
Discounted cash flow model
Significant unobservable inputs:
The resultant liability is the value of the remaining minority stake in the subsidiary, measured as
the higher of the acquisition date valuation of the shares, and a discounted future earnings based
valuation. The valuation is additionally sensitive to movement in the spot exchange rates between
the Brazilian Real and US Dollar.
29. Auditor’s remuneration
US$ million
Remuneration in respect of the audit of Glencore’s consolidated financial statements
Other audit fees, primarily in respect of audits of accounts of subsidiaries
Audit-related assurance services1
Total audit and related assurance fees
Transaction services
Taxation compliance services
Other taxation advisory services
Other assurance services
Total non-audit fees
Total professional fees
2018
3
18
3
24
–
2
2
2
6
30
2017
3
18
2
23
4
2
2
1
9
32
1 Audit-related assurance services primarily related to interim reviews of the Group’s half-year accounts and quarterly accounts of the Group’s publicly listed subsidiaries.
30. Future commitments
Capital expenditure for the acquisition of property, plant and equipment is generally funded through the cash flow generated
by the respective industrial entities. As at 31 December 2018, $1,321 million (2017: $987 million), of which 88% (2017: 93%) relates to
expenditure to be incurred over the next year, was contractually committed for the acquisition of property, plant and equipment.
Certain of Glencore’s exploration tenements and licences require it to spend a minimum amount per year on development activities,
a significant portion of which would have been incurred in the ordinary course of operations. As at 31 December 2018, $86 million
(2017: $139 million) of such development expenditures are to be incurred, of which 20% (2017: 36%) are for commitments to be settled
over the next year.
Glencore procures seagoing vessels/chartering services to meet its overall marketing objectives and commitments. As at
31 December 2018, Glencore has committed to future hire costs to meet future physical delivery and sale obligations and expectations
of $335 million (2017: $247 million), of which $56 million (2017: $76 million) are with associated companies. 70% (2017: 72%) of the total
charters are for services to be received over the next two years.
As part of Glencore’s ordinary sourcing and procurement of physical commodities and other ordinary marketing obligations, the
selling party may request that a financial institution act as either a) the paying party upon the delivery of product and qualifying
documents through the issuance of a letter of credit or b) the guarantor by way of issuing a bank guarantee accepting responsibility
for Glencore’s contractual obligations. Similarly, Glencore is required to post rehabilitation and pension guarantees in respect
of some of these future, primarily industrial, long-term obligations. As at 31 December 2018, $10,842 million (2017: $10,995 million)
of procurement and $3,692 million (2017: $3,615 million) of rehabilitation and pension commitments have been issued on behalf
of Glencore, which will generally be settled simultaneously with the payment for such commodity and rehabilitation and
pension obligations.
Glencore has entered into various operating leases mainly as lessee for office and warehouse/storage facilities. Rental expenses for
these leases totalled respectively $179 million and $173 million for the years ended 31 December 2018 and 2017. Future net minimum
lease payments under non-cancellable operating leases are as follows:
US$ million
Within 1 year
Between 2 – 5 years
After 5 years
Total
2018
235
482
335
1,052
2017
203
401
189
793
Glencore has entered into finance leases for various plant and equipment items, primarily vessels and machinery. Future net
minimum lease payments under finance leases together with the future finance charges are as follows:
US$ million
Within 1 year
Between 1 and 5 years
After 5 years
Total minimum lease payments
Less: amounts representing finance lease charges
Present value of minimum lease payments
Undiscounted minimum
lease payments
Present value of minimum
lease payments
2018
134
203
174
511
124
387
2017
92
255
209
556
164
392
2018
110
151
126
387
–
387
2017
64
182
146
392
–
392
Future development and related commitments
Ulan Coal Mines Limited
On 17 December 2018, Glencore entered into an agreement to acquire the remaining 10% of Ulan Coal Mines Limited it does not
currently own for a total cash consideration of approximately $124 million. The transaction closed at the end of February 2019.
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Notes to the financial statements continued
31. Contingent liabilities
The amount of corporate guarantees in favour of third parties as at 31 December 2018 was $Nil (2017: $Nil). Also see note 10.
The Group is subject to various legal and regulatory proceedings as detailed below. These contingent liabilities are reviewed on a
regular basis and where feasible an estimate is made of the potential financial impact on the Group. As at 31 December 2018 and 2017
it was not feasible to make such an assessment.
Legal and regulatory proceedings
On 3 July 2018 Glencore announced that one of its subsidiaries had received a subpoena from the US Department of Justice (“DOJ”)
to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States
money laundering statutes, in relation to Glencore Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela,
from 2007 to present.
Additionally, various securities class actions suits have been filed against Glencore plc in connection with the announcement of the
DOJ subpoena. Glencore plc has not been served with any of these complaints.
The existence, timing and amount of any future financial obligations (such as fines, penalties or damages, which could be material)
or other consequences arising from the DOJ investigation or the class actions suits are unable to be determined at this time and no
liability has been recognised in relation to these matters in the consolidated statement of financial position at the end of the reporting
period.
Other legal and regulatory proceedings, claims and unresolved disputes are pending against Glencore in respect of which the timing
of resolution and potential outcome (including any future financial obligations) are uncertain and no liabilities have been recognised
in relation to these matters.
Environmental contingencies
Glencore’s operations are subject to various environmental laws and regulations. Glencore is not aware of any material non-
compliance with those laws and regulations. Glencore accrues for environmental contingencies when such contingencies are
probable and reasonably estimable. Such accruals are adjusted as new information develops or circumstances change. Recoveries
of environmental remediation costs from insurance companies and other parties are recorded as assets when the recoveries are
virtually certain. At this time, Glencore is unaware of any material environmental incidents at its locations. Any potential liability arising
from environmental incidents in the ordinary course of the Group’s business would not usually be expected to have a material adverse
effect on its consolidated income, financial position or cash flows.
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Notes to the financial statements continued
The amount of corporate guarantees in favour of third parties as at 31 December 2018 was $Nil (2017: $Nil). Also see note 10.
The Group is subject to various legal and regulatory proceedings as detailed below. These contingent liabilities are reviewed on a
regular basis and where feasible an estimate is made of the potential financial impact on the Group. As at 31 December 2018 and 2017
it was not feasible to make such an assessment.
Legal and regulatory proceedings
On 3 July 2018 Glencore announced that one of its subsidiaries had received a subpoena from the US Department of Justice (“DOJ”)
to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and United States
money laundering statutes, in relation to Glencore Group’s business in Nigeria, the Democratic Republic of Congo and Venezuela,
from 2007 to present.
Additionally, various securities class actions suits have been filed against Glencore plc in connection with the announcement of the
DOJ subpoena. Glencore plc has not been served with any of these complaints.
The existence, timing and amount of any future financial obligations (such as fines, penalties or damages, which could be material)
or other consequences arising from the DOJ investigation or the class actions suits are unable to be determined at this time and no
liability has been recognised in relation to these matters in the consolidated statement of financial position at the end of the reporting
Other legal and regulatory proceedings, claims and unresolved disputes are pending against Glencore in respect of which the timing
of resolution and potential outcome (including any future financial obligations) are uncertain and no liabilities have been recognised
period.
in relation to these matters.
Environmental contingencies
Glencore’s operations are subject to various environmental laws and regulations. Glencore is not aware of any material non-
compliance with those laws and regulations. Glencore accrues for environmental contingencies when such contingencies are
probable and reasonably estimable. Such accruals are adjusted as new information develops or circumstances change. Recoveries
of environmental remediation costs from insurance companies and other parties are recorded as assets when the recoveries are
virtually certain. At this time, Glencore is unaware of any material environmental incidents at its locations. Any potential liability arising
from environmental incidents in the ordinary course of the Group’s business would not usually be expected to have a material adverse
effect on its consolidated income, financial position or cash flows.
31. Contingent liabilities
32. Related party transactions
In the normal course of business, Glencore enters into various arm’s length transactions with related parties, including fixed price
commitments to sell and to purchase commodities, forward sale and purchase contracts, agency agreements and management
service agreements. Outstanding balances at period end are unsecured and settlement occurs in cash (see notes 11, 13 and 24).
There have been no guarantees provided or received for any related party receivables or payables.
All transactions between Glencore and its subsidiaries are eliminated on consolidation along with any unrealised profits and losses
between its subsidiaries, associates and joint ventures. In 2018, sales and purchases with associates and joint ventures amounted
to $1,690 million (2017: $1,859 million) and $5,744 million (2017: $7,485 million) respectively.
Remuneration of key management personnel
Glencore’s key management personnel are the members of the Board of Directors, CEO, CFO and the heads of the operating
segments. The remuneration of Directors and other members of key management personnel recognised in the consolidated
statement of income including salaries and other current employee benefits amounted to $22 million (2017: $22 million). There were
no other long-term benefits or share-based payments to key management personnel (2017: $Nil). Further details on remuneration
of Directors are set out in the Directors’ remuneration report on page 113.
33. Principal subsidiaries with material non-controlling interests
Non-controlling interest is comprised of the following:
US$ million
Volcan
Kazzinc
Koniambo
Katanga (see KCC debt restructuring note below)
Other1
Total
2018
1,608
1,356
(3,177)
11
(153)
(355)
2017
1,733
1,438
(2,905)
(965)
399
(300)
1 Other comprises various subsidiaries in which no individual balance attributable to non-controlling interests is material.
KCC Debt Restructuring
Kamoto Copper Company (“KCC”), the 75% owned Katanga (in turn 86% held by Glencore) group entity carrying out mining activities
in the DRC, had a significant net deficit balance sheet position that was required to be recapitalised under DRC law by 31 December
2017. Notwithstanding the various discussions with KCC’s state-owned minority partner, La Générale des Carrières et des Mines
(“Gécamines”) over the past year, in April 2018, Gécamines commenced legal proceedings in the DRC to dissolve KCC, following
KCC’s failure to address its capital deficiency.
In June 2018, an agreement was reached with Gécamines to regularise the capital deficiency by converting $5.6 billion of existing
intercompany debt owed by KCC to Katanga Mining Limited (“KML”) Group (eliminated on consolidation) into equity. To ensure
Gécamines’ 25% interest was not diluted (contractually required), $1.4 billion (25%) of the total debt converted to equity was effectively
“gifted” by KML to Gécamines.
Under IFRS 10, changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary
are equity transactions (i.e. transactions with owners in their capacity as owners) whereby the carrying amounts of the controlling
and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between
the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised
directly in equity and attributed to the owners of the parent. As a result of the debt for equity conversion/transaction, the “gifted”
portion of the converted debt resulted in a $1,207 million loss being recognised directly in “other equity reserves”, offset by a gain
of an equal amount recognised in the “non-controlling interests” equity reserve account.
In addition, it was agreed to:
• Pay Gécamines $150 million to settle various historical commercial disputes;
• Fund, on behalf of Gécamines, $41 million of outstanding unpaid invoices for contractors in charge of an earlier replacement
reserves program; and
• Waive KCC’s right to $57 million of exploration and drilling expenditures incurred on behalf of Gécamines.
These amounts, totalling $248 million, have been expensed in the consolidated financial statements.
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Notes to the financial statements continued
33. Principal subsidiaries with material non-controlling interests continued
Summarised financial information in respect of Glencore’s subsidiaries that have material non-controlling interest as at
31 December 2018, reflecting 100% of the underlying subsidiary’s relevant figures, is set out below.
US$ million
31 December 2018
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Non-controlling interests
Non-controlling interests in %
2018
Revenue
Expenses
Net profit/(loss) for the year
Profit attributable to owners of the Company
Profit attributable to non-controlling interests
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to non-controlling interests
Total comprehensive income/(loss) for the year
Dividends paid to non-controlling interests
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Total net cash outflow
Kazzinc
Koniambo
Katanga
Volcan
4,623
972
5,595
855
260
1,115
4,480
3,124
1,356
30.3%
3,169
(2,737)
432
301
131
–
–
432
(211)
979
(319)
(854)
(194)
1,718
338
2,056
11,044
115
11,159
(9,102)
(5,925)
(3,177)
51.0%
–
(533)
(533)
(261)
(272)
–
–
(533)
–
–
(215)
205
(10)
4,488
899
5,387
6,354
984
7,338
(1,951)
(1,962)
111
13.7%
1,269
(2,033)
(764)
(587)
(177)1
–
–
(764)
–
48
(377)
296
(33)
4,738
387
5,125
1,910
553
2,463
2,662
1,054
1,608
76.7%
800
(950)
(150)
(35)
(115)
–
–
(150)
(13)
259
(217)
(81)
(39)
1 Glencore has an 86.3% interest in Katanga Mining Limited, which in turn has a 75% interest in Kamoto Copper Company (KCC), the entity engaged in copper mining activities. The
“non-controlling interests” balance includes $321 million and the “profit attributable to non-controlling interests” balance includes negative $84 million related to non-controlling
interests arising at the KCC level.
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Notes to the financial statements continued
Summarised financial information in respect of Glencore’s subsidiaries that have material non-controlling interest as at
31 December 2018, reflecting 100% of the underlying subsidiary’s relevant figures, is set out below.
Kazzinc
Koniambo
Katanga
Volcan
US$ million
31 December 2018
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
2018
Revenue
Expenses
Equity attributable to owners of the Company
Non-controlling interests
Non-controlling interests in %
Net profit/(loss) for the year
Profit attributable to owners of the Company
Profit attributable to non-controlling interests
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to non-controlling interests
Total comprehensive income/(loss) for the year
Dividends paid to non-controlling interests
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Total net cash outflow
4,623
972
5,595
855
260
1,115
4,480
3,124
1,356
30.3%
3,169
(2,737)
432
301
131
–
–
432
(211)
979
(319)
(854)
(194)
1,718
338
2,056
11,044
115
11,159
(9,102)
(5,925)
(3,177)
51.0%
–
(533)
(533)
(261)
(272)
–
–
–
–
(215)
205
(10)
4,488
899
5,387
6,354
984
7,338
(1,951)
(1,962)
111
13.7%
1,269
(2,033)
(764)
(587)
(177)1
–
–
–
48
(377)
296
(33)
(533)
(764)
4,738
387
5,125
1,910
553
2,463
2,662
1,054
1,608
76.7%
800
(950)
(150)
(35)
(115)
–
–
(150)
(13)
259
(217)
(81)
(39)
33. Principal subsidiaries with material non-controlling interests continued
33. Principal subsidiaries with material non-controlling interests continued
US$ million
31 December 2017
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Non-controlling interests
Non-controlling interests in %
2017
Revenue
Expenses
Net profit/(loss) for the year
Profit attributable to owners of the Company
Profit attributable to non-controlling interests
Other comprehensive income attributable to owners of the Company
Other comprehensive income attributable to non-controlling interests
Total comprehensive income/(loss) for the year
Dividends paid to non-controlling interests
Net cash inflow/(outflow) from operating activities
Net cash outflow from investing activities
Net cash (outflow)/inflow from financing activities
Total net cash inflow
Kazzinc
Koniambo
Katanga
Volcan
4,659
1,234
5,893
763
378
1,141
4,752
3,314
1,438
30.3%
3,078
(2,517)
561
395
166
–
–
561
(124)
764
(196)
(511)
57
1,502
314
1,816
10,273
112
10,385
(8,569)
(5,664)
(2,905)
51.0%
–
(494)
(494)
(242)
(252)
–
–
(494)
–
–
(241)
256
15
4,333
889
5,222
3,760
2,593
6,353
(1,131)
(166)
(965)1
13.7%
25
(1,004)
(979)
(575)
(404)1
–
–
(979)
–
(177)
(369)
583
37
4,754
423
5,177
1,789
562
2,351
2,826
1,093
1,733
76.7%
160
(160)
–
–
–
–
–
–
–
–
–
–
–
1 Glencore has an 86.3% interest in Katanga Mining Limited, which in turn has a 75% interest in Kamoto Copper Company (KCC), the entity engaged in copper mining activities.
The “non-controlling interests” balance includes negative $939 million and the “profit attributable to non-controlling interests” balance includes negative $310 million related to
non-controlling interests arising at the KCC level.
1 Glencore has an 86.3% interest in Katanga Mining Limited, which in turn has a 75% interest in Kamoto Copper Company (KCC), the entity engaged in copper mining activities. The
“non-controlling interests” balance includes $321 million and the “profit attributable to non-controlling interests” balance includes negative $84 million related to non-controlling
interests arising at the KCC level.
34. Subsequent events
• In January 2019, the Group completed an acquisition of an additional 2.7% of Hail Creek for net consideration of $39 million.
• In January 2019, following the lifting of sanctions by the United States Government over United Company Rusal plc (Rusal) and
EN+ Group plc (EN+), Glencore agreed to exchange its 8.8% interest in Rusal for a 10.55% interest in EN+. The investment in EN+
will be classified and accounted on a basis similar to how the Rusal investment was accounted for – “at fair value through other
comprehensive income”, see note 10.
• In February 2019, Glencore announced a new $2 billion share buy-back programme that will run until 31 December 2019.
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Notes to the financial statements continued
35. Principal operating, finance and industrial subsidiaries and investments
Country
of incorporation
% interest
2018
% interest
2017
Main activity
Principal subsidiaries
Metals and minerals
Minera Alumbrera Limited1
Cobar Group
Compania Minera Lomas Bayas
Complejo Metalurgico Altonorte S.A.
Minera Altos de Punitaqui Limitada
Compania Minera Antapaccay S.A.
Pasar Group
Glencore Recycling Inc.
Mopani Copper Mines plc
Sable Zinc Kabwe Limited
Katanga Mining Limited2
Mutanda Group
Mount Isa Mines Limited
Kazzinc Ltd.
Zhairemsky GOK JSC
Vasilkovskoye Gold
African Carbon Producers (Pty) Ltd
African Fine Carbon (Pty) Ltd
Char Technology (Pty) Ltd
Sphere Minerals Limited
Britannia Refined Metals Limited
Glencore Manganese Group
Access World Group
Murrin Murrin Group
Koniambo Nickel S.A.S.3
Glencore Nikkelverk AS
McArthur River Mining Pty Ltd
Nordenhammer Zinkhütte GmbH
Asturiana de Zinc S.A.
Volcan Compania Minera S.A.A.4
AR Zinc Group
Portovesme S.r.L.
Empresa Minera Los Quenuales S.A.
Sinchi Wayra Group
Antigua
Australia
Chile
Chile
Chile
Peru
Philippines
USA
Zambia
Zambia
Canada
DRC
Australia
Kazakhstan
Kazakhstan
Kazakhstan
South Africa
South Africa
South Africa
Australia
UK
France/Norway
Switzerland
Australia
New Caledonia
Norway
Australia
Germany
Spain
Peru
Argentina
Italy
Peru
Bolivia
50.0
100.0
100.0
100.0
–
100.0
78.2
100.0
73.1
100.0
86.3
100.0
100.0
69.7
69.7
69.7
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
49.0
100.0
100.0
100.0
100.0
23.3
100.0
100.0
97.6
100.0
Copper production
50.0
Copper production
100.0
Copper production
100.0
Copper production
100.0
Copper production
100.0
Copper production
100.0
Copper production
78.2
Copper production
100.0
Copper production
73.1
Copper production
100.0
Copper/Cobalt production
86.3
100.0
Copper/Cobalt production
100.0 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
Gold production
69.7
Char production
100.0
Char production
100.0
Char production
100.0
Iron Ore exploration
100.0
Lead production
100.0
Manganese furnace
100.0
Logistics services
100.0
Nickel production
100.0
Nickel production
49.0
Nickel production
100.0
Zinc production
100.0
Zinc production
100.0
Zinc production
100.0
Zinc production
23.3
Zinc/Lead production
100.0
Zinc/Lead production
100.0
Zinc/Lead production
97.6
Zinc/Tin production
100.0
1 This investment is treated as a subsidiary as the Group is entitled to elect the chairman of the Board who has the casting vote where any vote is split equally between the four board
positions. Minera Alumbrera Limited’s principal place of business is Argentina.
2 Publicly traded on the Toronto Stock Exchange under the symbol KAT.TO and principal place of business is DRC. Glencore owns 1,435,848,228 shares.
3 The Group has control of Koniambo Nickel S.A.S. as a result of the ability to direct the key activities of the operation and to appoint key management personnel provided by the terms
of the financing arrangements underlying the Koniambo project.
4 The Group has control of Volcan Compania Minera S.A.A. as a result of the ability to control the entity through the voting of its 63.0% of the voting shares (Class A); the economic interest
is diluted by the outstanding non-voting shares (Class B).
210
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Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
Principal subsidiaries
Metals and minerals
Minera Alumbrera Limited1
Cobar Group
Compania Minera Lomas Bayas
Complejo Metalurgico Altonorte S.A.
Minera Altos de Punitaqui Limitada
Compania Minera Antapaccay S.A.
Pasar Group
Glencore Recycling Inc.
Mopani Copper Mines plc
Sable Zinc Kabwe Limited
Katanga Mining Limited2
Mutanda Group
Mount Isa Mines Limited
Kazzinc Ltd.
Zhairemsky GOK JSC
Vasilkovskoye Gold
African Carbon Producers (Pty) Ltd
African Fine Carbon (Pty) Ltd
Char Technology (Pty) Ltd
Sphere Minerals Limited
Britannia Refined Metals Limited
Glencore Manganese Group
Access World Group
Murrin Murrin Group
Koniambo Nickel S.A.S.3
Glencore Nikkelverk AS
McArthur River Mining Pty Ltd
Nordenhammer Zinkhütte GmbH
Asturiana de Zinc S.A.
Volcan Compania Minera S.A.A.4
AR Zinc Group
Portovesme S.r.L.
Empresa Minera Los Quenuales S.A.
Sinchi Wayra Group
Antigua
Australia
Chile
Chile
Chile
Peru
USA
Zambia
Zambia
Canada
DRC
Philippines
Australia
Kazakhstan
Kazakhstan
Kazakhstan
South Africa
South Africa
South Africa
Australia
UK
France/Norway
Switzerland
Australia
New Caledonia
Norway
Australia
Germany
Spain
Peru
Argentina
Italy
Peru
Bolivia
50.0
100.0
100.0
100.0
–
100.0
78.2
100.0
73.1
100.0
86.3
100.0
100.0
69.7
69.7
69.7
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
49.0
100.0
100.0
100.0
100.0
23.3
100.0
100.0
97.6
100.0
Copper/Cobalt production
Copper/Cobalt production
100.0 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
69.7 Copper/Zinc/Lead production
50.0
100.0
100.0
100.0
100.0
100.0
78.2
100.0
73.1
100.0
86.3
100.0
69.7
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
49.0
100.0
100.0
100.0
100.0
23.3
100.0
100.0
97.6
100.0
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Copper production
Gold production
Char production
Char production
Char production
Iron Ore exploration
Lead production
Manganese furnace
Logistics services
Nickel production
Nickel production
Nickel production
Zinc production
Zinc production
Zinc production
Zinc production
Zinc/Lead production
Zinc/Lead production
Zinc/Lead production
Zinc/Tin production
1 This investment is treated as a subsidiary as the Group is entitled to elect the chairman of the Board who has the casting vote where any vote is split equally between the four board
positions. Minera Alumbrera Limited’s principal place of business is Argentina.
2 Publicly traded on the Toronto Stock Exchange under the symbol KAT.TO and principal place of business is DRC. Glencore owns 1,435,848,228 shares.
3 The Group has control of Koniambo Nickel S.A.S. as a result of the ability to direct the key activities of the operation and to appoint key management personnel provided by the terms
4 The Group has control of Volcan Compania Minera S.A.A. as a result of the ability to control the entity through the voting of its 63.0% of the voting shares (Class A); the economic interest
of the financing arrangements underlying the Koniambo project.
is diluted by the outstanding non-voting shares (Class B).
35. Principal operating, finance and industrial subsidiaries and investments
35. Principal operating, finance and industrial subsidiaries and investments continued
Country
% interest
% interest
of incorporation
2018
2017
Main activity
Country
of incorporation
% interest
2018
% interest
2017
Main activity
Energy products
Oakbridge Pty Ltd
Glencore Coal Queensland Pty Limited
Mangoola Coal Operations Pty Limited
Mt Owen Pty Limited
NC Coal Company Pty Limited
Ravensworth Operations Pty Ltd
Prodeco Group
Izimbiwa Coal (Pty) Ltd5
Umcebo Mining (Pty) Ltd6
Tavistock Collieries (Pty) Limited
Topley Corporation
Glencore Exploration Cameroon Ltd.
Glencore Exploration (EG) Ltd.
Petrochad (Mangara) Limited
ALE Combustiveis
Chemoil Energy Limited
Other operating and finance
Xstrata Limited
Glencore Australia Investment Holdings Pty Ltd
Glencore Operations Australia Pty Limited
Glencore Queensland Limited
Glencore Investment Pty Ltd
Glencore Australia Holdings Pty Ltd
Glencore Finance (Bermuda) Ltd
Glencore Canada Financial Corp
Glencore Finance (Europe) Limited
Finges Investment B.V.
Glencore (Schweiz) AG
Glencore Group Funding Limited
Glencore Funding LLC
Glencore Australia Oil Pty Limited
Glencore Canada Corporation
Glencore Singapore Pte Ltd
ST Shipping & Transport Pte Ltd
Glencore AG
Glencore International AG
Glencore Commodities Ltd
Glencore Energy UK Ltd
Glencore UK Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Colombia
South Africa
South Africa
South Africa
B.V.I.
Bermuda
Bermuda
Bermuda
Brazil
Hong Kong
UK
Australia
Australia
Australia
Australia
Australia
Bermuda
Canada
Jersey
Netherlands
Switzerland
UAE
USA
Australia
Canada
Singapore
Singapore
Switzerland
Switzerland
UK
UK
UK
78.0
100.0
100.0
100.0
100.0
100.0
100.0
49.9
48.7
100.0
100.0
100.0
100.0
100.0
78.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
78.0
100.0
100.0
100.0
100.0
100.0
100.0
49.9
48.7
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Ship owner
Oil production
Oil production
Oil exploration/production
Oil distribution
Oil storage and bunkering
Holding
Holding
Holding
Holding
Holding
Finance
Finance
Finance
Finance
Finance
Finance
Finance
Finance
Operating
Operating
Operating
Operating
Operating
Operating
Operating
Operating
Operating
5 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Izimbiwa through the ability to direct the key activities of the operation and to
appoint key management personnel provided by the terms of the shareholder’s agreement.
6 Although Glencore holds less than 50% of the voting rights, it has the ability to exercise control over Umcebo as a result of shareholder agreements which provide Glencore the ability
to control the Board of Directors.
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Glencore Annual Report 2018
Glencore Annual Report 2018
211
211
Strategic ReportFinancial statementsGovernanceAdditional information
Notes to the financial statements continued
35. Principal operating, finance and industrial subsidiaries and investments continued
Country
of incorporation
% interest
2018
% interest
2017
Principal joint ventures7
Glencore Agriculture Limited
Clermont Coal Group8
BaseCore Metals LP
Compania Minera Dona Ines de Collahuasi
El Aouj Joint Venture
Principal joint operations and other
unincorporated arrangements9
United Joint Venture
Wandoan Joint Venture
Bulga Joint Venture
Cumnock Joint Venture
Foybrook Joint Venture
Hail Creek Joint Venture
Hunter Valley Operations Joint Venture
Liddell Joint Venture
Oaky Creek Coal Joint Venture
Rolleston Joint Venture
Ulan Coal Mines Joint Venture
ARM Coal (Pty) Ltd.
Goedgevonden Joint Venture
Ernest Henry Mining Pty Ltd.
Merafe Pooling and Sharing Joint Venture
Kabanga Joint Venture
Mototolo Joint Venture
Rhovan Pooling and Sharing Joint Venture
Principal associates
Carbones del Cerrejon LLC
Port Kembla Coal Terminal Limited
Port Waratah Coal Services Ltd
Wiggins Island Coal Export Terminal
Richards Bay Coal Terminal Company Limited
Polymet Mining Corp.
Century Aluminum Company10
HG Storage International Limited
Noranda Income Fund
Trevali Mining Company
Compania Minera Antamina S.A.
Recylex S.A.
Other investments
United Company Rusal plc11
OAO NK Russneft12
Jersey
Australia
Canada
Chile
Mauritania
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
South Africa
South Africa
Australia
South Africa
Tanzania
South Africa
South Africa
Colombia
Australia
Australia
Australia
South Africa
Canada
USA
Jersey
Canada
Canada
Peru
France
Jersey
Russia
49.9
25.1
50.0
44.0
50.0
95.0
75.0
68.3
90.0
67.5
82.0
49.0
67.5
55.0
75.0
90.0
49.0
74.0
70.0
79.5
50.0
–
74.0
33.3
13.0
15.5
20.0
20.2
29.0
47.2
49.0
25.0
25.6
33.8
29.9
8.8
25.0
49.9
25.1
50.0
44.0
50.0
95.0
75.0
68.3
90.0
67.5
–
–
67.5
55.0
75.0
90.0
49.0
74.0
70.0
79.5
50.0
38.0
74.0
33.3
29.7
15.5
20.0
20.2
29.1
47.4
49.0
25.0
25.6
33.8
30.2
8.8
25.0
Main activity
Agriculture business
Coal production
Copper production
Copper production
Iron Ore production
Coal exploration
Coal exploration
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Copper production
Ferroalloys production
Nickel production
Platinum production
Vanadium production
Coal production
Coal terminal
Coal terminal
Coal terminal
Coal terminal
Copper production
Aluminium production
Oil storage
Zinc production
Zinc production
Zinc/Copper production
Zinc/Lead production
Aluminium production
Oil production
7 The principal joint arrangements are accounted for as joint ventures as the shareholder agreements do not provide the Group the ability to solely control the entities.
8 The Group’s effective 25.05% economic interest in Clermont Coal is held through GS Coal Pty Ltd, a 50:50 joint venture with Sumitomo Corporation. In 2019, it is expected that the
Group’s effective economic interest will increase to 37.1%, via GC Coal’s announced purchase of an additional interest.
9 Classified as joint operations under IFRS 11, as these joint arrangements are not structured through separate vehicles. The Hail Creek interest is an ‘other unincorporated arrangement’
accounted for similar to a joint operation.
10 Represents the Group’s economic interest in Century, comprising 42.9% (2017: 42.9%) voting interest and 4.3% non-voting interest (2017: 4.5%). Century is publicly traded on NASDAQ
under the symbol CENX.
11 In January 2019, the Group has agreed to swap its Rusal stake for a 10.55% interest in EN+.
12 Although the Group holds more than 20% of the voting rights in Russneft, it is unable to exercise significant influence over the financial and operating policy decisions of Russneft.
212
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Glencore Annual Report 2018
Glencore Annual Report 2018
Notes to the financial statements continued
35. Principal operating, finance and industrial subsidiaries and investments continued
Country
% interest
% interest
of incorporation
Principal joint ventures7
Glencore Agriculture Limited
Clermont Coal Group8
BaseCore Metals LP
Compania Minera Dona Ines de Collahuasi
El Aouj Joint Venture
Principal joint operations and other
unincorporated arrangements9
United Joint Venture
Wandoan Joint Venture
Bulga Joint Venture
Cumnock Joint Venture
Foybrook Joint Venture
Hail Creek Joint Venture
Hunter Valley Operations Joint Venture
Liddell Joint Venture
Oaky Creek Coal Joint Venture
Rolleston Joint Venture
Ulan Coal Mines Joint Venture
ARM Coal (Pty) Ltd.
Goedgevonden Joint Venture
Ernest Henry Mining Pty Ltd.
Merafe Pooling and Sharing Joint Venture
Kabanga Joint Venture
Mototolo Joint Venture
Rhovan Pooling and Sharing Joint Venture
Principal associates
Carbones del Cerrejon LLC
Port Kembla Coal Terminal Limited
Port Waratah Coal Services Ltd
Wiggins Island Coal Export Terminal
Richards Bay Coal Terminal Company Limited
Polymet Mining Corp.
Century Aluminum Company10
HG Storage International Limited
Noranda Income Fund
Trevali Mining Company
Compania Minera Antamina S.A.
Recylex S.A.
Other investments
United Company Rusal plc11
OAO NK Russneft12
Jersey
Australia
Canada
Chile
Mauritania
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
South Africa
South Africa
Australia
South Africa
Tanzania
South Africa
South Africa
Colombia
Australia
Australia
Australia
South Africa
Canada
USA
Jersey
Canada
Canada
Peru
France
Jersey
Russia
2018
49.9
25.1
50.0
44.0
50.0
95.0
75.0
68.3
90.0
67.5
82.0
49.0
67.5
55.0
75.0
90.0
49.0
74.0
70.0
79.5
50.0
–
74.0
33.3
13.0
15.5
20.0
20.2
29.0
47.2
49.0
25.0
25.6
33.8
29.9
8.8
25.0
2017
49.9
25.1
50.0
44.0
50.0
95.0
75.0
68.3
90.0
67.5
–
–
67.5
55.0
75.0
90.0
49.0
74.0
70.0
79.5
50.0
38.0
74.0
33.3
29.7
15.5
20.0
20.2
29.1
47.4
49.0
25.0
25.6
33.8
30.2
8.8
25.0
Main activity
Agriculture business
Coal production
Copper production
Copper production
Iron Ore production
Coal exploration
Coal exploration
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Coal production
Copper production
Ferroalloys production
Nickel production
Platinum production
Vanadium production
Coal production
Coal terminal
Coal terminal
Coal terminal
Coal terminal
Copper production
Aluminium production
Oil storage
Zinc production
Zinc production
Zinc/Copper production
Zinc/Lead production
Aluminium production
Oil production
Additional
information
7 The principal joint arrangements are accounted for as joint ventures as the shareholder agreements do not provide the Group the ability to solely control the entities.
8 The Group’s effective 25.05% economic interest in Clermont Coal is held through GS Coal Pty Ltd, a 50:50 joint venture with Sumitomo Corporation. In 2019, it is expected that the
Group’s effective economic interest will increase to 37.1%, via GC Coal’s announced purchase of an additional interest.
9 Classified as joint operations under IFRS 11, as these joint arrangements are not structured through separate vehicles. The Hail Creek interest is an ‘other unincorporated arrangement’
10 Represents the Group’s economic interest in Century, comprising 42.9% (2017: 42.9%) voting interest and 4.3% non-voting interest (2017: 4.5%). Century is publicly traded on NASDAQ
accounted for similar to a joint operation.
under the symbol CENX.
11 In January 2019, the Group has agreed to swap its Rusal stake for a 10.55% interest in EN+.
12 Although the Group holds more than 20% of the voting rights in Russneft, it is unable to exercise significant influence over the financial and operating policy decisions of Russneft.
Alternative performance measures
Other reconciliations
Production by quarter – Q4 2017 to Q4 2018
Resources and reserves
Shareholder information
214
219
221
228
236
212
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
213
213
Strategic ReportFinancial statementsGovernanceAdditional information
Alternative performance measures
Alternative performance measures are denoted by the symbol ◊
When assessing and discussing the Group’s reported financial performance, financial position and cash flows, Glencore makes
reference to Alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS, but
are derived from the financial statements prepared in accordance with IFRS. The APMs are consistent with how the business
performance is measured and reported within the internal management reporting to the Board and management and assist
in providing meaningful analysis of the Group’s results both internally and externally in discussions with the financial analyst and
investment community.
The Group uses APMs to improve the comparability of information between reporting periods and segments and to aid the
understanding of the activity taking place across the Group by adjusting for items that are of an infrequent nature and by
aggregating or disaggregating (notably in the case of relevant material associates and joint ventures accounted for on an equity
basis) certain IFRS measures. APMs are also used to approximate the underlying operating cash flow generation of the operations
(Adjusted EBITDA).
Investments in the extractive industry are typically significant and the initial spend generally occurs over several years, “upfront”,
prior to the operations generating cash. As a result, the investments are sometimes made with partners and an assessment to
approximate the operating cash flow generation/pay-back of the investment (Adjusted EBITDA) is required. Against this backdrop,
the key APMs used by Glencore are Adjusted EBITDA, Net funding/Net debt and the disaggregation of the equivalent key APMs
of our relevant material associates and joint ventures (“Proportionate adjustment”) to enable a consistent evaluation of the financial
performance and returns attributable to the Group.
Adjusted EBITDA is a useful approximation of the operating cash flow generation by eliminating depreciation and amortisation
adjustments. Adjusted EBITDA is not a direct measure of our liquidity, which is shown by our cash flow statement and needs to be
considered in the context of our financial commitments.
Proportionate adjustments are useful to enable a consistent evaluation of the financial performance and returns available to the
Group, irrespective of the differing accounting treatments required to account for our minority/joint ownership interests of our
relevant material investments.
Net funding is an aggregation of IFRS measures (Borrowings less cash and cash equivalents) and Net debt is Net funding less Readily
marketable inventories and provides a measure of our financial leverage and, through Net debt to Adjusted EBITDA relationships,
provides an indication of relative financial strength and flexibility.
APMs used by Glencore may not be comparable with similarly titled measures and disclosures by other companies. APMs have
limitations as an analytical tool, and a user of the financial statements should not consider these measures in isolation from,
or as a substitute for, analysis of the Group’s results of operations; and they may not be indicative of the Group’s historical operating
results, nor are they meant to be a projection or forecast of its future results.
Listed below are the definitions and reconciliations to the underlying IFRS measures of the various APMs used by the Group.
Proportionate adjustment
For internal reporting and analysis, management evaluates the performance of Antamina copper/zinc mine (34% owned), Cerrejón
coal mine (33% owned) and Collahuasi copper mine (44% owned) under the proportionate consolidation method reflecting
Glencore’s proportionate share of the revenues, expenses, assets and liabilities of these investments.
During the year, the Glencore Agri joint venture continued its transition to a fully independent stand-alone group through bedding
down of its independent governance structure and the firm establishment of its own stand-alone capital structure and credit
profile, including the removal of all, but one (see note 10) of the Group’s legacy guarantee arrangements. As a result of its increasing
independence and Glencore’s management evaluating the segment’s financial performance on a net return basis as opposed to an
Adjusted EBITDA basis, the financial results of Glencore Agri are no longer adjusted and presented on a proportionate consolidation
basis, but rather are presented on a basis consistent with its underlying IFRS treatment (equity accounting). Applicable comparative
balances have been adjusted to reflect these changes.
In November 2017, Glencore completed the acquisition of additional shares in Volcan, thereby increasing its total economic interest
from 7.7% to 23.3% (compared to its 63% voting interest). For internal reporting and analysis, management evaluates the performance
of Volcan under the equity method, reflecting the Group’s relatively low 23.3% economic ownership in this fully ring-fenced listed
entity, with its stand-alone, independent and separate capital structure. The impact is that we reflect 23.3% of Volcan’s net income
in the Group’s Adjusted EBIT/EBITDA and its results are excluded from all other APM’s including production data.
See reconciliation of revenue and relevant material associates’ and joint ventures’ Adjusted EBIT to “Share of net income from
associates and joint ventures” below.
APMs derived from the statement of income
Revenue
Revenue represents revenue by segment (see note 2 of the financial statements), as reported on the face of the statement
of income plus the relevant Proportionate adjustments. See reconciliation table below.
US$ million
Revenue – Marketing activities
Revenue – Industrial activities
Revenue
Proportionate adjustment material associates and joint ventures– revenue
Proportionate adjustment Volcan – revenue
Revenue – reported measure
2018
178,328
44,069
222,397
(3,443)
800
219,754
2017
Restated1 Glencore Agri1
(12,611)
–
(12,611)
12,611
–
–
169,216
39,552
208,768
(3,292)
–
205,476
2017
Previously
reported
181,827
39,552
221,379
(15,903)
–
205,476
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
214
Glencore Annual Report 2018
Glencore Preliminary Results 2018
214
Alternative performance measures are denoted by the symbol ◊
Share of income from material associates and joint ventures
US$ million
Associates’ and joint ventures’ Adjusted EBITDA
Depreciation and amortisation
Associates’ and joint ventures’ Adjusted EBIT
Net finance costs
Income tax expense
Share of income from relevant material associates and joint ventures
Share of income from other associates
Share of income from associates and joint ventures2
2018
2,212
(726)
1,486
7
(536)
(529)
957
86
1,043
2017
Restated1 Glencore Agri1
(316)
124
(192)
2,124
(688)
1,436
(6)
(492)
(498)
938
220
1,158
68
25
93
(99)
99
–
2017
Previously
reported
2,440
(812)
1,628
(74)
(517)
(591)
1,037
121
1,158
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Comprises share in earnings of $14 million (2017: $164 million) from Marketing activities and $1,029 million (2017: $994million) from Industrial activities.
Adjusted EBIT/EBITDA
Adjusted EBIT/EBITDA provide insight into our overall business performance (a combination of cost management, seizing market
opportunities and growth), and are the corresponding flow drivers towards our objective of achieving industry-leading returns.
Adjusted EBIT is the net result of revenue less cost of goods sold and selling and administrative expenses, plus share of income
from associates and joint ventures, dividend income and the attributable share of Adjusted EBIT of relevant material associates
and joint ventures, which are accounted for internally by means of proportionate consolidation, excluding Significant items, see
definition below.
Adjusted EBITDA consists of Adjusted EBIT plus depreciation and amortisation, including the related Proportionate adjustments.
See reconciliation table below.
US$ million
Reported measures
Revenue
Cost of goods sold
Selling and administrative expenses
Share of income from associates and joint ventures
Dividend income
Adjustments to reported measures
Share of associates’ significant items
Unrealised intergroup profit elimination
Mark-to-market valuation on certain coal hedging contracts
Proportionate adjustment material associates and joint ventures – net
finance and income tax expense
Proportionate adjustment Volcan – net finance, income tax expense and
non-controlling interests
Adjusted EBIT
Depreciation and amortisation
Proportionate adjustment material associates and joint ventures –
depreciation
Proportionate adjustment Volcan – depreciation
Adjusted EBITDA
2018
Restated1 Glencore Agri1
2017
219,754
(210,698)
(1,381)
1,043
21
8,739
40
(237)
–
529
72
9,143
6,325
726
(427)
15,767
205,476
(197,695)
(1,310)
1,158
28
7,657
6
523
(225)
498
–
8,459
5,398
688
–
14,545
–
–
–
–
–
–
–
–
–
(93)
–
(93)
–
(124)
–
(217)
2017
Previously
reported
205,476
(197,695)
(1,310)
1,158
28
7,657
6
523
(225)
591
–
8,552
5,398
812
–
14,762
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
Alternative performance measures
When assessing and discussing the Group’s reported financial performance, financial position and cash flows, Glencore makes
reference to Alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS, but
are derived from the financial statements prepared in accordance with IFRS. The APMs are consistent with how the business
performance is measured and reported within the internal management reporting to the Board and management and assist
in providing meaningful analysis of the Group’s results both internally and externally in discussions with the financial analyst and
investment community.
The Group uses APMs to improve the comparability of information between reporting periods and segments and to aid the
understanding of the activity taking place across the Group by adjusting for items that are of an infrequent nature and by
aggregating or disaggregating (notably in the case of relevant material associates and joint ventures accounted for on an equity
basis) certain IFRS measures. APMs are also used to approximate the underlying operating cash flow generation of the operations
(Adjusted EBITDA).
Investments in the extractive industry are typically significant and the initial spend generally occurs over several years, “upfront”,
prior to the operations generating cash. As a result, the investments are sometimes made with partners and an assessment to
approximate the operating cash flow generation/pay-back of the investment (Adjusted EBITDA) is required. Against this backdrop,
the key APMs used by Glencore are Adjusted EBITDA, Net funding/Net debt and the disaggregation of the equivalent key APMs
of our relevant material associates and joint ventures (“Proportionate adjustment”) to enable a consistent evaluation of the financial
performance and returns attributable to the Group.
Adjusted EBITDA is a useful approximation of the operating cash flow generation by eliminating depreciation and amortisation
adjustments. Adjusted EBITDA is not a direct measure of our liquidity, which is shown by our cash flow statement and needs to be
considered in the context of our financial commitments.
Proportionate adjustments are useful to enable a consistent evaluation of the financial performance and returns available to the
Group, irrespective of the differing accounting treatments required to account for our minority/joint ownership interests of our
relevant material investments.
Net funding is an aggregation of IFRS measures (Borrowings less cash and cash equivalents) and Net debt is Net funding less Readily
marketable inventories and provides a measure of our financial leverage and, through Net debt to Adjusted EBITDA relationships,
provides an indication of relative financial strength and flexibility.
APMs used by Glencore may not be comparable with similarly titled measures and disclosures by other companies. APMs have
limitations as an analytical tool, and a user of the financial statements should not consider these measures in isolation from,
or as a substitute for, analysis of the Group’s results of operations; and they may not be indicative of the Group’s historical operating
results, nor are they meant to be a projection or forecast of its future results.
Listed below are the definitions and reconciliations to the underlying IFRS measures of the various APMs used by the Group.
Proportionate adjustment
For internal reporting and analysis, management evaluates the performance of Antamina copper/zinc mine (34% owned), Cerrejón
coal mine (33% owned) and Collahuasi copper mine (44% owned) under the proportionate consolidation method reflecting
Glencore’s proportionate share of the revenues, expenses, assets and liabilities of these investments.
During the year, the Glencore Agri joint venture continued its transition to a fully independent stand-alone group through bedding
down of its independent governance structure and the firm establishment of its own stand-alone capital structure and credit
profile, including the removal of all, but one (see note 10) of the Group’s legacy guarantee arrangements. As a result of its increasing
independence and Glencore’s management evaluating the segment’s financial performance on a net return basis as opposed to an
Adjusted EBITDA basis, the financial results of Glencore Agri are no longer adjusted and presented on a proportionate consolidation
basis, but rather are presented on a basis consistent with its underlying IFRS treatment (equity accounting). Applicable comparative
balances have been adjusted to reflect these changes.
In November 2017, Glencore completed the acquisition of additional shares in Volcan, thereby increasing its total economic interest
from 7.7% to 23.3% (compared to its 63% voting interest). For internal reporting and analysis, management evaluates the performance
of Volcan under the equity method, reflecting the Group’s relatively low 23.3% economic ownership in this fully ring-fenced listed
entity, with its stand-alone, independent and separate capital structure. The impact is that we reflect 23.3% of Volcan’s net income
in the Group’s Adjusted EBIT/EBITDA and its results are excluded from all other APM’s including production data.
See reconciliation of revenue and relevant material associates’ and joint ventures’ Adjusted EBIT to “Share of net income from
associates and joint ventures” below.
APMs derived from the statement of income
Revenue
Revenue represents revenue by segment (see note 2 of the financial statements), as reported on the face of the statement
of income plus the relevant Proportionate adjustments. See reconciliation table below.
US$ million
Revenue – Marketing activities
Revenue – Industrial activities
Revenue
Proportionate adjustment material associates and joint ventures– revenue
Proportionate adjustment Volcan – revenue
Revenue – reported measure
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2018
Restated1 Glencore Agri1
2017
169,216
39,552
208,768
(3,292)
–
178,328
44,069
222,397
(3,443)
800
219,754
205,476
2017
Previously
reported
181,827
39,552
221,379
(15,903)
–
205,476
(12,611)
(12,611)
12,611
–
–
–
Glencore Preliminary Results 2018
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Strategic ReportFinancial statementsGovernanceAdditional information
Alternative performance measures continued
Significant items
Significant items of income and expense which, due to their variable financial impact or the expected infrequency of the events giving
rise to them, are separated for internal reporting and analysis of Glencore’s results to provide a better understanding and comparative
basis of the underlying financial performance. Refer to reconciliation below.
Reconciliation of net significant items 2018
US$ million
Share of Associates’ significant items1
Unrealised intergroup profit elimination1
Loss on disposals and investments2
Other expense – net3
Impairments4
Income tax impact from significant items and significant tax items themselves
Total significant items
1 See note 2 of the financial statements.
2 See note 4 of the financial statements.
3 See note 5 of the financial statements.
4 See note 6 of the financial statements.
Reconciliation of net significant items 2017
US$ million
Share of Associates’ significant items1
Mark-to-market valuation on certain coal hedging contracts1
Unrealised intergroup profit elimination1
Gain on disposals and investments2
Other expense – net3
Impairments4
Income tax impact from significant items and significant tax items themselves
Total significant items
1 See note 2 of the financial statements.
2 See note 4 of the financial statements.
3 See note 5 of the financial statements.
4 See note 6 of the financial statements.
Gross significant
charges
(40)
237
(139)
(764)
(1,643)
(302)
(2,651)
Non-controlling
interests’ share
–
–
–
58
236
–
294
Equity holders’
share
(40)
237
(139)
(706)
(1,407)
(302)
(2,357)
Gross
significant
charges
(6)
225
(523)
1,309
34
(628)
(187)
224
Non-controlling
interests’ share
–
–
–
–
–
45
–
45
Equity holders’
share
(6)
225
(523)
1,309
34
(583)
(187)
269
Net income attributable to equity shareholder pre-significant items
Net income attributable to equity shareholders pre-significant items is a measure of our ability to generate shareholder returns.
The calculation of tax items to be excluded from Net income, includes the tax effect of significant items and significant tax items
themselves. Refer to earnings summary in the Financial and Operational Review section and reconciliation of tax expense below.
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Alternative performance measures continued
Significant items
Significant items of income and expense which, due to their variable financial impact or the expected infrequency of the events giving
rise to them, are separated for internal reporting and analysis of Glencore’s results to provide a better understanding and comparative
basis of the underlying financial performance. Refer to reconciliation below.
Reconciliation of net significant items 2018
US$ million
Share of Associates’ significant items1
Unrealised intergroup profit elimination1
Loss on disposals and investments2
Other expense – net3
Impairments4
Total significant items
1 See note 2 of the financial statements.
2 See note 4 of the financial statements.
3 See note 5 of the financial statements.
4 See note 6 of the financial statements.
Reconciliation of net significant items 2017
Income tax impact from significant items and significant tax items themselves
US$ million
Share of Associates’ significant items1
Mark-to-market valuation on certain coal hedging contracts1
Unrealised intergroup profit elimination1
Gain on disposals and investments2
Other expense – net3
Impairments4
Total significant items
1 See note 2 of the financial statements.
2 See note 4 of the financial statements.
3 See note 5 of the financial statements.
4 See note 6 of the financial statements.
Income tax impact from significant items and significant tax items themselves
Gross significant
Non-controlling
Equity holders’
charges
interests’ share
share
(40)
237
(139)
(764)
(1,643)
(302)
(2,651)
Gross
(6)
225
(523)
1,309
34
(628)
(187)
224
–
–
–
58
236
–
294
–
–
–
–
–
45
–
45
(40)
237
(139)
(706)
(1,407)
(302)
(2,357)
(6)
225
(523)
1,309
34
(583)
(187)
269
significant
Non-controlling
Equity holders’
charges
interests’ share
share
Net income attributable to equity shareholder pre-significant items
Net income attributable to equity shareholders pre-significant items is a measure of our ability to generate shareholder returns.
The calculation of tax items to be excluded from Net income, includes the tax effect of significant items and significant tax items
themselves. Refer to earnings summary in the Financial and Operational Review section and reconciliation of tax expense below.
APMs derived from the statement of financial position
Net funding/Net debt and Net debt to Adjusted EBITDA
Net funding/debt demonstrates how our debt is being managed and is an important factor in ensuring we maintain investment
grade credit rating status and a competitive cost of capital. Net debt is defined as total current and non-current borrowings less cash
and cash equivalents, readily marketable inventories and related Proportionate adjustments. Consistent with the general approach
in relation to our internal reporting and evaluation of Volcan, its consolidated net debt has also been adjusted to reflect the Group’s
relatively low 23.3% economic ownership (compared to its 63.0% voting interest) in this still fully ring-fenced listed entity, with its
standalone, independent and separate capital structure. Furthermore, the relationship of Net debt to Adjusted EBITDA provides
an indication of financial flexibility. See reconciliation table below.
Readily marketable inventories (RMI)
RMI comprising the core inventories which underpin and facilitate Glencore’s marketing activities, represent inventories, that
in Glencore’s assessment, are readily convertible into cash in the short term due to their liquid nature, widely available markets
and the fact that price risk is primarily covered either by a forward physical sale or hedge transaction. Glencore regularly assesses
the composition of these inventories and their applicability, relevance and availability to the marketing activities. As at 31 December
2018, $17,428 million (2017: $20,837 million) of inventories were considered readily marketable. This comprises $11,449 million
(2017: $15,261 million) of inventories carried at fair value less costs of disposal and $5,979 million (2017: $5,576 million) carried at
the lower of cost or net realisable value. Total readily marketable inventories includes $171 million related to the relevant material
associates and joint ventures (see note 2) presented under the proportionate consolidation method, comprising inventories carried
at lower of cost or net realisable value. Given the highly liquid nature of these inventories, which represent a significant share of
current assets, the Group believes it is appropriate to consider them together with cash equivalents in analysing Group net debt
levels and computing certain debt coverage ratios and credit trends.
Net funding/net debt at 31 December 2018
US$ million
Non-current borrowings
Current borrowings
Total borrowings
Less: cash and cash equivalents
Net funding
Less: Readily marketable inventories
Net debt
Adjusted EBITDA
Net debt to Adjusted EBITDA
Net funding/net debt at 31 December 2017
US$ million
Non-current borrowings
Current borrowings
Total borrowings
Less: cash and cash equivalents
Net funding
Less: Readily marketable inventories
Net debt
Adjusted EBITDA
Net debt to Adjusted EBITDA
Reported
measure
26,424
8,570
34,994
(2,046)
32,948
(17,257)
15,691
Proportionate
adjustment
91
16
107
(199)
(92)
(171)
(263)
Volcan
(588)
(193)
(781)
63
(718)
–
(718)
Reported
measure
24,532
9,402
33,934
(2,124)
31,810
(20,666)
11,144
Proportionate
adjustment
356
1,650
2,006
(214)
1,792
(1,559)
233
Volcan
(629)
(177)
(806)
102
(704)
–
(704)
Adjusted
measure
Previously
reported Glencore Agri1
(282)
(1,636)
(1,918)
73
(1,845)
1,388
(457)
24,259
10,875
35,134
(2,236)
32,898
(22,225)
10,673
14,762
0.72x
(217)
Adjusted
measure
25,927
8,393
34,320
(2,182)
32,138
(17,428)
14,710
15,767
0.93x
Adjusted
measure
Restated1
23,977
9,239
33,216
(2,163)
31,053
(20,837)
10,216
14,545
0.70x
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
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Alternative performance measures continued
APMs derived from the statement of cash flows
Capital expenditure (“Capex”)
Capital expenditure is expenditure on property, plant and equipment. For internal reporting and analysis, Capex includes
related Proportionate adjustments. See reconciliation table below.
US$ million
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment material associates and joint ventures – capital
expenditure
Proportionate adjustment Volcan – capital expenditure
Capital expenditure – reported measure
2018
89
5,077
5,166
(577)
188
4,777
2017
Restated1 Glencore Agri1
(118)
–
(118)
96
4,020
4,116
(493)
–
3,623
118
–
–
2017
Previously
reported
214
4,020
4,234
(611)
–
3,623
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
Funds from operations (FFO) and FFO to Net debt
FFO is a measure that reflects our ability to generate cash for investment, debt servicing and distributions to shareholders.
It comprises cash provided by operating activities before working capital changes, less tax and net interest payments plus dividends
received, related Proportionate adjustments and Significant items, as appropriate. Furthermore, the relationship of FFO to net debt
is an indication of our financial flexibility and strength. See reconciliation table below.
2018 US$ million
Cash generated by operating activities before working capital changes
Addback EBITDA of relevant material associates and joint ventures
Share in earnings from associates included in EBITDA
Adjusted cash generated by operating activities before working capital
changes
Income taxes paid
Interest received
Interest paid
Dividends received from associates and joint ventures
Funds from operations (FFO)
Net debt
FFO to Net debt
Proportionate
adjustment
material
associates and
joint ventures
–
2,212
(6)
Proportionate
adjustment
Volcan
–
(319)
–
2,206
(725)
4
(6)
(1,039)
440
(319)
59
–
38
4
(218)
Reported
measure
13,210
–
–
13,210
(1,740)
183
(1,419)
1,139
11,373
2017 US$ million
Cash generated by operating activities before working capital
changes
Addback EBITDA of relevant material associates and joint
ventures
Share in earnings from associates included in EBITDA
Adjusted cash generated by operating activities before
working capital changes
Coal related hedging included above (via statement of
income – refer to note 2)
Income taxes paid
Interest received
Interest paid
Dividends received from associates and joint ventures
Funds from operations (FFO)
Net debt
FFO to Net debt
Reported
measure
Proportionate
adjustment
Adjusted
measure
Previously
reported Glencore Agri1
11,866
–
11,866
–
11,866
–
–
2,440
(39)
2,440
(39)
11,866
2,401
14,267
(225)
(921)
106
(1,269)
1,081
10,638
–
(451)
8
(44)
(996)
918
(225)
(1,372)
114
(1,313)
85
11,556
10,673
108.3%
(316)
38
(278)
–
35
(6)
43
–
(206)
(457)
2,124
(1)
13,989
(225)
(1,337)
108
(1,270)
85
11,350
10,216
111.1%
Adjusted
measure
13,210
1,893
(6)
15,097
(2,406)
187
(1,387)
104
11,595
14,710
78.8%
Adjusted
measure
Restated1
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
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Alternative performance measures continued
APMs derived from the statement of cash flows
Capital expenditure (“Capex”)
Capital expenditure is expenditure on property, plant and equipment. For internal reporting and analysis, Capex includes
related Proportionate adjustments. See reconciliation table below.
US$ million
Capital expenditure – Marketing activities
Capital expenditure – Industrial activities
Capital expenditure
Proportionate adjustment material associates and joint ventures – capital
expenditure
Proportionate adjustment Volcan – capital expenditure
Capital expenditure – reported measure
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
Restated1 Glencore Agri1
2017
Previously
reported
214
4,020
4,234
(611)
–
3,623
(118)
–
(118)
118
–
–
Funds from operations (FFO) and FFO to Net debt
FFO is a measure that reflects our ability to generate cash for investment, debt servicing and distributions to shareholders.
It comprises cash provided by operating activities before working capital changes, less tax and net interest payments plus dividends
received, related Proportionate adjustments and Significant items, as appropriate. Furthermore, the relationship of FFO to net debt
is an indication of our financial flexibility and strength. See reconciliation table below.
Proportionate
adjustment
material
Proportionate
Reported
associates and
adjustment
measure
joint ventures
Volcan
Adjusted
measure
2018
89
5,077
5,166
(577)
188
4,777
13,210
–
–
13,210
(1,740)
183
(1,419)
1,139
11,373
2017
96
4,020
4,116
(493)
–
3,623
–
2,212
(6)
2,206
(725)
4
(6)
(1,039)
440
2018 US$ million
Cash generated by operating activities before working capital changes
Addback EBITDA of relevant material associates and joint ventures
Share in earnings from associates included in EBITDA
Adjusted cash generated by operating activities before working capital
changes
Income taxes paid
Interest received
Interest paid
Net debt
FFO to Net debt
Dividends received from associates and joint ventures
Funds from operations (FFO)
2017 US$ million
changes
ventures
Cash generated by operating activities before working capital
Addback EBITDA of relevant material associates and joint
Share in earnings from associates included in EBITDA
Adjusted cash generated by operating activities before
working capital changes
Coal related hedging included above (via statement of
income – refer to note 2)
Income taxes paid
Interest received
Interest paid
Net debt
FFO to Net debt
Dividends received from associates and joint ventures
Funds from operations (FFO)
Reported
Proportionate
Previously
measure
adjustment
reported Glencore Agri1
Adjusted
measure
Restated1
Adjusted
measure
11,866
–
11,866
–
11,866
–
–
2,440
(39)
2,440
(39)
11,866
2,401
14,267
(278)
13,989
(225)
(921)
106
(1,269)
1,081
10,638
(451)
–
8
(44)
(996)
918
(225)
(1,372)
114
(1,313)
85
11,556
10,673
108.3%
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
(319)
–
–
(319)
59
–
38
4
(218)
(316)
38
–
35
(6)
43
–
(206)
(457)
13,210
1,893
(6)
15,097
(2,406)
187
(1,387)
104
11,595
14,710
78.8%
2,124
(1)
(225)
(1,337)
108
(1,270)
85
11,350
10,216
111.1%
Other reconciliations
Other reconciliations
Available committed liquidity1
US$ million
Cash and cash equivalents – reported
Proportionate adjustment – cash and cash equivalents
Headline committed syndicated revolving credit facilities
Amount drawn under syndicated revolving credit facilities
Amounts drawn under U.S. commercial paper programme
Total
1 Presented on an adjusted measured basis.
2 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
Cash flow related adjustments 2018
US$ million
Funds from operations (FFO)
Working capital changes
Net cash used in acquisitions of subsidiaries
Net cash received from disposal of subsidiaries
Exchangeable loan provided for a conditional acquisition of an oil refinery/downstream
business
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Margin payments in respect of financing related hedging activities
Acquisition of non-controlling interests in subsidiaries
Return of capital/distributions to non-controlling interests
Purchase of own shares
Disposal of own shares
Distributions paid to equity holders of the Parent
Cash movement in net funding
Cash flow related adjustments 2017
2018
2,046
135
14,200
(5,623)
(596)
10,163
Reported
measure
11,373
1,325
(2,922)
88
Proportionate
adjustment
222
201
–
–
–
(1,044)
(19)
16
(4,687)
136
(507)
(58)
(343)
(2,005)
27
(2,836)
(1,456)
–
–
(351)
3
–
–
13
–
–
–
88
US$ million
Funds from operations (FFO)
Working capital changes
Net cash used in acquisitions of subsidiaries
Net cash received from disposal of subsidiaries
Purchase of investments
Proceeds from sale of investments
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Margin receipts in respect of financing related hedging
activities
Acquisition of non-controlling interests in subsidiaries
Return of capital/distributions to non-controlling interests
Disposal of own shares
Distributions paid to equity holders of the Parent
Coal related hedging
Cash movement in net funding
Reported
measure
10,638
(4,965)
(674)
706
(378)
36
(3,586)
282
Proportionate
adjustment
918
(108)
(57)
33
(8)
–
(605)
11
Adjusted
measure
Previously
reported Glencore Agri1
(206)
(79)
57
(33)
8
–
118
(9)
11,556
(5,073)
(731)
739
(386)
36
(4,191)
293
1,255
(561)
(194)
17
(998)
225
1,803
–
–
–
–
–
–
184
1,255
(561)
(194)
17
(998)
225
1,987
–
–
–
–
–
–
(144)
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2017
Restated2
2,124
141
12,760
(994)
(1,230)
12,801
Adjusted
measure
11,595
1,526
(2,922)
88
(1,044)
(19)
16
(5,038)
139
(507)
(58)
(330)
(2,005)
27
(2,836)
(1,368)
Adjusted
measure
Restated1
11,350
(5,152)
(674)
706
(378)
36
(4,073)
284
1,255
(561)
(194)
17
(998)
225
1,843
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219
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Strategic ReportFinancial statementsGovernanceAdditional information
Other reconciliations continued
Reconciliation of tax expense 2018
US$ million
Adjusted EBIT, pre-significant items
Net finance costs
Adjustments for:
Net finance costs from material associates and joint ventures
Net finance costs and non-controlling interests Volcan
Share of income from other associates pre-significant items
Profit on a proportionate consolidation basis before tax and pre-significant items
Income tax expense, pre-significant items
Adjustments for:
Tax expense from material associates and joint ventures
Tax credit from Volcan
Tax expense on a proportionate consolidation basis
Applicable tax rate
Total
9,143
(1,514)
7
(67)
(125)
7,444
(1,761)
(536)
(5)
(2,302)
30.9%
US$ million
Tax expense on a proportionate consolidation basis
Adjustment in respect of material associates and joint ventures – tax
Adjustment in respect of Volcan – tax
Tax expense on the basis of the income statement
Pre-significant
tax expense
2,302
(536)
(5)
Significant
items tax1
302
–
–
Total
tax expense
2,604
(536)
(5)
1,761
302
2,063
1 Represents the tax impact on current period significant items and tax significant items in their own right, such as foreign exchange fluctuations ($130 million) and tax losses not
recognised ($340 million) (see note 7).
Reconciliation of tax expense 2017
US$ million
Adjusted EBIT, pre-significant items
Net finance costs
Adjustments for:
Net finance costs from material associates and joint ventures
Share of income from other associates pre-significant items
Profit on a proportionate consolidation basis before tax and pre-significant items
Income tax expense, pre-significant items
Adjustments for:
Tax expense from material associates and joint ventures
Tax expense on a proportionate consolidation basis
Applicable tax rate
Total
Restated1
8,459
(1,451)
(6)
(226)
6,776
(1,572)
(492)
(2,064)
30.5%
US$ million
Tax expense on a proportionate consolidation basis
Adjustment in respect of material associates and joint ventures tax
Tax expense on the basis of the income statement
Pre-significant
tax expense
Restated1
2,064
(492)
Significant
items tax2
187
–
Total
tax expense
Restated1
2,251
(492)
1,572
187
1,759
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Represents the tax impact on current period significant items and tax significant items in their own right, such as foreign exchange fluctuations ($30million tax benefit) and change
in tax rates ($157 million) (see note 7).
220
220
Glencore Annual Report 2018
Glencore Annual Report 2018
Other reconciliations continued
Reconciliation of tax expense 2018
US$ million
Adjusted EBIT, pre-significant items
Net finance costs
Adjustments for:
Net finance costs from material associates and joint ventures
Net finance costs and non-controlling interests Volcan
Share of income from other associates pre-significant items
Profit on a proportionate consolidation basis before tax and pre-significant items
Income tax expense, pre-significant items
Adjustments for:
Tax expense from material associates and joint ventures
Tax expense on a proportionate consolidation basis
Tax credit from Volcan
Applicable tax rate
recognised ($340 million) (see note 7).
Reconciliation of tax expense 2017
Adjusted EBIT, pre-significant items
US$ million
Net finance costs
Adjustments for:
Net finance costs from material associates and joint ventures
Share of income from other associates pre-significant items
Profit on a proportionate consolidation basis before tax and pre-significant items
Income tax expense, pre-significant items
Adjustments for:
Tax expense from material associates and joint ventures
Tax expense on a proportionate consolidation basis
Applicable tax rate
US$ million
Tax expense on a proportionate consolidation basis
Adjustment in respect of material associates and joint ventures – tax
Adjustment in respect of Volcan – tax
Tax expense on the basis of the income statement
Pre-significant
tax expense
Significant
items tax1
Total
tax expense
2,302
(536)
(5)
1,761
302
–
–
302
1 Represents the tax impact on current period significant items and tax significant items in their own right, such as foreign exchange fluctuations ($130 million) and tax losses not
US$ million
Tax expense on a proportionate consolidation basis
Adjustment in respect of material associates and joint ventures tax
Tax expense on the basis of the income statement
Pre-significant
tax expense
Restated1
2,064
(492)
1,572
Significant
items tax2
tax expense
Restated1
187
–
187
1 Adjusted for presenting Glencore Agri on a basis consistent with its underlying IFRS treatment (equity accounting).
2 Represents the tax impact on current period significant items and tax significant items in their own right, such as foreign exchange fluctuations ($30million tax benefit) and change
in tax rates ($157 million) (see note 7).
Total
9,143
(1,514)
7
(67)
(125)
7,444
(1,761)
(536)
(5)
(2,302)
30.9%
2,604
(536)
(5)
2,063
8,459
(1,451)
(6)
(226)
6,776
(1,572)
(492)
(2,064)
30.5%
Total
2,251
(492)
1,759
Total
Restated1
Production by quarter – Q4 2017 to Q4 2018
Metals and minerals
Production from own sources – Total1
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Copper
Cobalt
Zinc
Lead
Nickel
Gold
Silver
Ferrochrome
kt
kt
kt
kt
koz
koz
kt
kt
363.2
7.6
262.8
61.8
28.4
262
8,935
424
345.4
7.0
242.7
57.4
30.1
231
8,296
409
350.8
9.7
255.5
58.3
32.1
256
8,408
409
366.9
11.8
287.8
80.8
28.7
287
9,635
327
390.6
13.7
282.1
76.8
32.9
229
1,453.7
42.2
1,068.1
273.3
123.8
1,003
8,541 34,880
1,580
435
1,309.7
27.4
1,090.2
272.5
109.1
1,033
37,743
1,531
Production from own sources – Copper assets1
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
2018 vs
2017
%
11
54
(2)
–
13
(3)
(8)
3
Change
Q4 18 vs
Q4 17
%
8
80
7
24
16
(13)
(4)
3
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
African Copper (Katanga, Mutanda, Mopani)
Katanga
Copper metal
Copper in concentrates
Cobalt2
Copper metal
Cobalt2
Copper metal
Mutanda
Mopani
kt
kt
kt
kt
kt
2.2
2.7
51.5
6.7
15.0
27.7
–
0.5
50.8
5.6
14.4
35.6
–
2.5
51.1
6.2
15.0
39.3
–
3.5
50.2
7.4
13.8
49.8
–
4.6
46.9
8.1
16.1
152.4
–
11.1
199.0
27.3
59.3
2.2
2.7
–
192.1
23.9
41.7
n.m.
(100)
n.m.
4
14
42
n.m.
(100)
n.m.
(9)
21
7
African Copper – total production including third party feed
Mopani
Copper metal
kt 40.8
33.0
28.2
27.2
31.1
119.5
98.9
21
(24)
Total Copper metal
Total Copper in concentrates
Total Cobalt2
Collahuasi3 Copper in concentrates
Silver in concentrates
Antamina4 Copper in concentrates
Zinc in concentrates
Silver in concentrates
kt
kt
kt
kt
koz
kt
kt
koz
68.7
2.7
6.7
63.5
815
35.1
34.6
1,480
92.9
–
6.1
60.6
812
36.5
30.3
1,321
101.7
–
8.7
54.7
755
103.3
–
10.9
112.8
–
12.7
410.7
–
38.4
236.0
2.7
23.9
74
(100)
61
64
(100)
90
61.5
784
69.2
893
246.0
3,244
230.5
3,103
35.9
42.7
1,468
38.3
36.3
1,452
39.9
28.8
1,309
150.6
138.1
5,550
142.6
128.1
6,579
7
5
6
8
(16)
9
10
14
(17)
(12)
220
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
221
221
Strategic ReportFinancial statementsGovernanceAdditional information
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Copper assets1 continued
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Other South America (Alumbrera, Lomas Bayas, Antapaccay, Punitaqui)
Alumbrera
Copper in concentrates
kt
Gold in concentrates and in doré koz
Silver in concentrates and in
doré
koz
kt
kt
koz
koz
kt
koz
koz
5.5
38
44
6.5
39
55
17.2
62.7
50
446
1.3
6
11
17.2
69.5
94
17.1
48.9
33
348
1.1
1
14
17.1
56.5
73
7.5
51
71
16.7
53.2
38
387
0.8
2
15
16.7
61.5
91
3.4
30
30
19.2
51.0
34
382
0.9
1
10
19.2
55.3
65
–
–
–
19.8
52.3
27
406
0.3
–
4
19.8
52.6
27
17.4
120
156
72.8
205.4
132
1,523
3.1
4
43
72.8
225.9
256
33.3
188
306
78.1
206.5
139
1,455
5.5
21
60
78.1
245.3
348
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
(48)
(36)
(49)
(7)
(1)
(5)
5
(44)
(81)
(28)
(7)
(8)
(26)
(100)
(100)
(100)
15
(17)
(46)
(9)
(77)
(100)
(64)
15
(24)
(71)
Gold
Silver
Silver in concentrates
koz
koz
koz
20
252
23
17
235
2
7
118
23
28
264
4
Mount Isa, Ernest Henry, Townsville – total production including third party feed
501
417
473
422
410
1,722
1,821
(5)
(18)
46.6
32.7
29.3
45.5
44.0
151.5
164.6
(8)
(6)
5.1
1.9
4.7
–
4.3
10.9
12.5
(13)
(16)
22
237
21
57.5
4.3
43
329
21
12.2
123
44.0
16.5
22
381
74
854
50
67
1,096
61
206.6
10.9
135
1,140
50
48.0
495
151.5
58.9
74
1,399
227.4
12.5
161
1,481
61
53.4
564
164.6
65.9
67
1,721
60.6
5.1
39
253
23
15.7
146
46.6
20.8
20
421
45.1
1.9
29
267
2
13.2
133
32.7
15.1
17
370
37.3
4.7
16
150
23
9.7
105
29.3
14.4
7
246
66.7
–
47
394
4
12.9
134
45.5
12.9
28
402
324.1
6.7
34.6
114
3,217
311.4
6.1
30.3
90
2,920
314.2
8.7
42.7
98
2,942
336.0
10.9
36.3
93
3,060
354.8
12.7
28.8
49
2,993
1,316.4
38.4
138.1
330
11,915
1,165.7
23.9
128.1
415
13,224
10
(22)
(18)
(9)
(13)
(16)
(23)
(18)
(10)
(12)
(8)
(11)
10
(19)
13
61
8
(20)
(10)
10
(6)
(9)
(5)
(16)
10
30
(9)
(22)
(16)
(6)
(21)
10
(10)
9
90
(17)
(57)
(7)
Lomas Bayas Copper metal
Antapaccay
Copper in concentrates
Gold in concentrates
Silver in concentrates
Copper in concentrates
Gold in concentrates
Silver in concentrates
Punitaqui
Total Copper metal
Total Copper in concentrates
Total Gold in concentrates
and in doré
Total Silver in concentrates
and in doré
kt
kt
koz
koz
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Mount Isa,
Ernest
Henry,
Townsville
Copper in concentrates
Copper metal
kt
kt
Copper metal
Copper in concentrates
Gold
Silver
Silver in concentrates
Cobar
Copper in concentrates
Silver in concentrates
Total Copper
Total Copper in concentrates
Total Gold
Total Silver
Total Copper department
Copper
Cobalt
Zinc
Gold
Silver
kt
kt
koz
koz
koz
kt
koz
kt
kt
koz
koz
kt
kt
kt
koz
koz
222
222
Glencore Annual Report 2018
Glencore Annual Report 2018
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Copper assets1 continued
Metals and minerals
Production from own sources – Zinc assets1
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
Change
2018 vs
Q4 18 vs
2017
%
Q4 17
%
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
Other South America (Alumbrera, Lomas Bayas, Antapaccay, Punitaqui)
Alumbrera
Copper in concentrates
kt
Gold in concentrates and in doré koz
Silver in concentrates and in
doré
Lomas Bayas Copper metal
Antapaccay
Copper in concentrates
Punitaqui
Copper in concentrates
Gold in concentrates
Silver in concentrates
Gold in concentrates
Silver in concentrates
Total Copper metal
Total Copper in concentrates
Total Gold in concentrates
and in doré
and in doré
5.5
38
44
17.2
62.7
50
446
1.3
6
11
17.2
69.5
94
6.5
39
55
17.1
48.9
33
348
1.1
1
14
17.1
56.5
73
7.5
51
71
16.7
53.2
38
387
0.8
2
15
16.7
61.5
91
3.4
30
30
19.2
51.0
34
382
0.9
1
10
19.2
55.3
65
–
–
–
19.8
52.3
27
406
0.3
–
4
19.8
52.6
27
17.4
120
156
33.3
188
306
72.8
78.1
205.4
206.5
132
1,523
3.1
4
43
139
1,455
5.5
21
60
72.8
78.1
225.9
245.3
256
348
Total Silver in concentrates
501
417
473
422
410
1,722
1,821
(5)
(18)
Australia (Mount Isa, Ernest Henry, Townsville, Cobar)
Mount Isa,
Copper metal
46.6
32.7
29.3
45.5
44.0
151.5
164.6
(8)
(6)
Copper in concentrates
5.1
1.9
4.7
–
4.3
10.9
12.5
(13)
(16)
Ernest
Henry,
Townsville
Gold
Silver
Silver in concentrates
20
252
23
17
235
2
7
118
23
28
264
4
22
237
21
74
854
50
67
1,096
61
Mount Isa, Ernest Henry, Townsville – total production including third party feed
Copper metal
Copper in concentrates
Gold
Silver
Silver in concentrates
Cobar
Copper in concentrates
Silver in concentrates
Total Copper
Total Copper in concentrates
Total Gold
Total Silver
Total Copper department
Copper
Cobalt
Zinc
Gold
Silver
60.6
45.1
37.3
66.7
57.5
206.6
227.4
5.1
39
253
23
15.7
146
46.6
20.8
20
421
1.9
29
267
2
13.2
133
32.7
15.1
17
370
4.7
16
150
23
9.7
105
29.3
14.4
7
246
–
47
394
4
12.9
134
45.5
12.9
28
402
4.3
43
329
21
12.2
123
44.0
16.5
22
381
10.9
135
1,140
50
48.0
495
151.5
58.9
74
1,399
12.5
161
1,481
61
53.4
564
164.6
65.9
67
1,721
324.1
311.4
314.2
336.0
354.8
1,316.4
1,165.7
6.7
34.6
114
6.1
30.3
90
8.7
42.7
98
10.9
36.3
93
12.7
28.8
49
38.4
138.1
330
23.9
128.1
415
3,217
2,920
2,942
3,060
2,993
11,915
13,224
(48)
(36)
(49)
(7)
(1)
(5)
5
(44)
(81)
(28)
(7)
(8)
(26)
10
(22)
(18)
(9)
(13)
(16)
(23)
(18)
(10)
(12)
(8)
(11)
10
(19)
13
61
8
(20)
(10)
(100)
(100)
(100)
15
(17)
(46)
(9)
(77)
(100)
(64)
15
(24)
(71)
10
(6)
(9)
(5)
(16)
10
30
(9)
(22)
(16)
(6)
(21)
10
(10)
9
90
(17)
(57)
(7)
koz
kt
kt
koz
koz
kt
koz
koz
kt
kt
koz
koz
kt
kt
koz
koz
koz
kt
kt
koz
koz
koz
kt
koz
kt
kt
koz
koz
kt
kt
kt
koz
koz
Kazzinc
Zinc metal
Lead metal
Lead in concentrates
Copper metal5
Gold
Silver
Silver in concentrates
kt
kt
kt
kt
koz
koz
koz
53.4
11.7
–
15.5
141
1,335
7
49.8
14.0
–
12.0
133
1,388
–
Kazzinc – total production including third party feed
Zinc metal
Lead metal
Lead in concentrates
Copper metal
Gold
Silver
Silver in concentrates
Australia (Mount Isa, McArthur River)
Mount Isa
Zinc in concentrates
Lead in concentrates
Silver in concentrates
McArthur River Zinc in concentrates
Lead in concentrates
Silver in concentrates
Total Zinc in concentrates
Total Lead in concentrates
Total Silver in concentrates
North America (Matagami, Kidd)
Matagami
Zinc in concentrates
Copper in concentrates
Zinc in concentrates
Copper in concentrates
Silver in concentrates
Kidd
Total Zinc in concentrates
Total Copper in
concentrates
Total Silver in concentrates
kt
kt
kt
kt
koz
koz
koz
kt
kt
koz
kt
kt
koz
kt
kt
koz
kt
kt
kt
kt
koz
kt
kt
koz
55.9
13.2
2.1
13.3
151
1,548
77
76.6
37.3
2.1
18.3
226
5,730
77
53.6
10.1
3.8
13.0
186
1,917
128
76.1
37.6
3.8
17.1
275
4,639
205
41.9
9.6
2.8
14.1
173
1,357
98
201.2
46.9
8.7
52.4
643
6,210
303
210.5
52.9
4.7
49.7
585
5,780
132
76.9
35.8
2.8
19.3
254
5,195
98
309.7
149.5
8.7
70.
934
20,571
303
316.8
146.3
4.7
62.7
712
22,652
132
82.4
34.5
–
20.8
184
5,483
7
80.1
38.8
–
15.3
179
5,007
–
42.0
22.5
1,046
79.3
17.0
674
121.3
39.5
1,720
13.1
2.0
14.8
11.3
387
50.1
21.1
829
60.1
11.5
411
52.1
21.4
759
52.3
10.3
342
86.5
44.2
1,686
63.3
11.6
378
110.2
32.6
1,240
104.4
31.7
1,101
149.8
55.8
2,064
8.9
1.5
17.2
8.9
601
9.1
1.3
19.0
9.3
555
28.1
10.6
8.5
1.2
17.1
7.3
380
25.6
8.5
27.9
13.3
26.1
10.4
89.5
39.2
1,369
78.6
16.5
588
168.1
55.7
1,957
8.7
1.4
12.6
8.1
357
21.3
9.5
278.2
125.9
4,643
254.3
49.9
1,719
532.5
175.8
6,362
35.2
5.4
65.9
33.6
1,893
226.0
111.6
5,494
210.0
44.8
1,620
436.0
156.4
7,114
51.3
7.4
72.4
39.9
2,271
101.7
39.0
123.7
47.3
(4)
(11)
85
5
10
7
130
(2)
2
85
12
31
(9)
130
23
13
(15)
21
11
6
22
12
(11)
(31)
(27)
(9)
(16)
(17)
(18)
(18)
(22)
(18)
n.m.
(9)
23
2
n.m.
(7)
4
n.m.
(7)
38
(5)
n.m.
113
74
31
(1)
(3)
(13)
39
41
14
(34)
(30)
(15)
(28)
(8)
(24)
(29)
387
601
555
380
357
1,893
2,271
(17)
(8)
222
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
223
223
Strategic ReportFinancial statementsGovernanceAdditional information
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Zinc assets1 continued
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
Other Zinc: South America (Argentina, Bolivia, Peru)6
kt
kt
kt
kt
koz
koz
Zinc in concentrates
Lead metal
Lead in concentrates
Copper in concentrates
Silver metal
Silver in concentrates
25.6
3.9
6.7
1.3
192
1,919
26.3
2.6
8.2
1.1
158
1,879
24.4
4.0
7.3
1.3
217
1,844
22.5
3.8
7.3
1.1
179
1,793
22.0
3.5
5.2
1.0
190
1,473
95.2
13.9
28.0
4.5
744
6,989
99.8
13.6
41.2
3.4
637
7,775
(5)
2
(32)
32
17
(10)
Other Zinc: Africa (Rosh Pinah, Perkoa)
Zinc in concentrates
Lead in concentrates
Silver in concentrates
Total Zinc department
Zinc
Lead
Copper
Gold
Silver
kt
kt
koz
kt
kt
kt
koz
koz
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
92.1
3.7
157
(100)
(100)
(100)
228.2
61.8
30.1
141
5,560
212.4
57.4
23.5
133
5,266
212.8
58.3
25.2
151
5,342
251.5
80.8
22.6
186
6,461
253.3
76.8
24.6
173
5,432
930.0
273.3
95.9
643
962.1
272.5
100.4
585
22,501 23,866
(3)
–
(4)
10
(6)
(14)
(10)
(22)
(23)
(1)
(23)
–
–
–
11
24
(18)
23
(2)
224
224
Glencore Annual Report 2018
Glencore Annual Report 2018
Silver in concentrates
1,919
1,879
1,844
1,793
1,473
6,989
7,775
Zinc in concentrates
Lead metal
Lead in concentrates
Copper in concentrates
Silver metal
Other Zinc: Africa (Rosh Pinah, Perkoa)
Zinc in concentrates
Lead in concentrates
Silver in concentrates
Total Zinc department
kt
kt
kt
kt
koz
koz
kt
kt
koz
kt
kt
kt
koz
koz
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
Change
2018 vs
Q4 18 vs
2017
%
Q4 17
%
25.6
26.3
24.4
22.5
22.0
3.9
6.7
1.3
192
–
–
–
2.6
8.2
1.1
158
–
–
–
4.0
7.3
1.3
217
–
–
–
3.8
7.3
1.1
179
–
–
–
3.5
5.2
1.0
190
–
–
–
95.2
13.9
28.0
4.5
744
99.8
13.6
41.2
3.4
637
(5)
2
(32)
32
17
(10)
–
–
–
92.1
3.7
157
(100)
(100)
(100)
(14)
(10)
(22)
(23)
(1)
(23)
–
–
–
11
24
(18)
23
(2)
Zinc
Lead
Copper
Gold
Silver
228.2
212.4
212.8
61.8
30.1
141
57.4
23.5
133
58.3
25.2
151
251.5
80.8
22.6
186
253.3
76.8
24.6
173
930.0
273.3
95.9
643
962.1
272.5
100.4
585
5,560
5,266
5,342
6,461
5,432
22,501 23,866
(3)
–
(4)
10
(6)
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Zinc assets1 continued
Metals and minerals
Production from own sources – Nickel assets1
Other Zinc: South America (Argentina, Bolivia, Peru)6
Integrated Nickel Operations (Sudbury, Raglan, Nikkelverk)
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
13.6
0.1
3.6
5.4
0.2
7
158
19
34
2
15.0
0.1
3.6
6.9
0.2
8
110
19
39
1
Integrated Nickel Operations – total production including third party feed
21.4
0.1
5.1
7.7
1.0
10
157
24
67
2
Nickel metal
Nickel in concentrates
Copper metal
Copper in concentrates
Cobalt metal
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
kt
kt
koz
koz
koz
koz
koz
21.3
0.2
5.0
6.7
0.9
10
232
25
58
2
16.1
0.2
3.6
7.8
0.3
7
124
13
27
1
22.8
0.2
4.8
9.5
0.9
11
193
20
47
1
12.2
0.1
3.4
4.9
0.2
7
114
12
24
1
23.4
0.1
5.2
5.3
1.0
10
170
17
47
1
16.2
0.1
3.8
7.4
0.2
7
116
14
29
1
23.2
0.2
5.5
9.2
1.3
11
176
21
59
1
59.5
0.5
14.4
27.0
0.9
29
464
58
119
4
90.8
0.6
20.6
31.7
4.2
42
696
82
220
5
57.0
0.5
15.6
28.0
0.8
32
653
75
136
6
86.5
0.6
22.7
33.0
3.5
43
976
103
211
7
Murrin Murrin
Total Nickel metal
Total Cobalt metal
kt
kt
9.5
0.7
8.4
0.7
8.7
0.7
8.6
0.7
9.8
0.8
35.5
2.9
34.1
2.7
Murrin Murrin – total production including third party feed
Total Nickel metal
Total Cobalt metal
kt
kt
11.3
0.8
9.0
0.7
10.3
0.8
9.5
0.9
10.9
0.8
39.7
3.2
42.0
3.0
4
–
(8)
(4)
13
(9)
(29)
(23)
(13)
(33)
5
–
(9)
(4)
20
(2)
(29)
(20)
4
(29)
4
7
(5)
7
19
–
6
37
–
–
(27)
(26)
(15)
(50)
9
–
10
37
44
10
(24)
(16)
2
(50)
3
14
(4)
–
Koniambo
Nickel in ferronickel
kt
5.2
6.6
7.1
7.8
6.8
28.3
17.5
62
31
Total Nickel department
Nickel
Copper
Cobalt
Gold
Silver
Platinum
Palladium
Rhodium
kt
kt
kt
koz
koz
koz
koz
koz
28.4
9.0
0.9
7
158
19
34
2
30.1
10.5
0.9
8
110
19
39
1
32.1
11.4
1.0
7
124
13
27
1
28.7
8.3
0.9
7
114
12
24
1
32.9
11.2
1.0
7
116
14
29
1
123.8
41.4
3.8
29
464
58
119
4
109.1
43.6
3.5
32
653
75
136
6
13
(5)
9
(9)
(29)
(23)
(13)
(33)
16
24
11
–
(27)
(26)
(15)
(50)
224
Glencore Annual Report 2018
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Glencore Annual Report 2018
225
225
Strategic ReportFinancial statementsGovernanceAdditional information
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Ferroalloys assets1
Ferrochrome7
Vanadium Pentoxide
kt
mlb
Total production – Custom metallurgical assets1
Q4
2017
424
5.3
Q1
2018
409
5.3
Q2
2018
409
4.5
Q3
2018
327
4.9
Q4
2018
435
5.5
2018
2017
1,580
20.2
1,531
20.9
Q4
2017
Q1
2018
Q2
20178
Q3
2018
Q4
2018
2018
2017
Change
2018 vs
2017
%
3
(3)
Change
Q4 18 vs
Q4 17
%
3
4
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
Copper (Altonorte, Pasar, Horne, CCR)
Copper metal
Copper anode
kt
kt
135.2
131.9
117.0
126.5
109.9
124.3
108.7
124.8
103.2
103.7
438.8
479.3
526.8
535.7
(17)
(11)
(24)
(21)
Zinc (Portovesme, San Juan de Nieva, Nordenham, Northfleet)
196.2
49.9
3,301
Zinc metal
Lead metal
Silver
kt
kt
koz
190.0
52.7
2,907
197.9
36.6
2,409
206.2
45.5
2,385
205.5
51.5
2,386
799.6
186.3
10,087
788.0
193.8
13,656
1
(4)
(26)
5
3
(28)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis, except as stated.
2 Cobalt contained in concentrates and hydroxides.
3 The Group’s pro-rata share of Collahuasi production (44%).
4 The Group’s pro-rata share of Antamina production (33.75%).
5 Copper metal includes copper contained in copper concentrates and blister.
6 South American production excludes Volcan Compania Minera.
7 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
226
226
Glencore Annual Report 2018
Glencore Annual Report 2018
Production by quarter – Q4 2017 to Q4 2018 continued
Metals and minerals
Production from own sources – Ferroalloys assets1
Ferrochrome7
Vanadium Pentoxide
kt
mlb
Total production – Custom metallurgical assets1
Q4
2017
424
5.3
Q1
2018
409
5.3
Q2
2018
409
4.5
Q3
2018
327
4.9
Q4
2018
435
5.5
Change
Change
2018 vs
Q4 18 vs
2018
2017
2017
Q4 17
1,580
20.2
1,531
20.9
%
3
(3)
%
3
4
Q4
2017
Q1
2018
Q2
20178
Q3
2018
Q4
2018
2018
2017
Change
Change
2018 vs
Q4 18 vs
2017
%
Q4 17
%
Copper (Altonorte, Pasar, Horne, CCR)
Copper metal
Copper anode
kt
kt
135.2
131.9
117.0
126.5
109.9
124.3
108.7
124.8
103.2
103.7
438.8
479.3
526.8
535.7
(17)
(11)
(24)
(21)
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis, except as stated.
2 Cobalt contained in concentrates and hydroxides.
3 The Group’s pro-rata share of Collahuasi production (44%).
4 The Group’s pro-rata share of Antamina production (33.75%).
5 Copper metal includes copper contained in copper concentrates and blister.
6 South American production excludes Volcan Compania Minera.
7 The Group’s attributable 79.5% share of the Glencore-Merafe Chrome Venture.
Energy products
Production from own sources – Coal assets1
Australian coking coal
Australian semi-soft coal
Australian thermal coal (export)
Australian thermal coal (domestic)
South African thermal coal (export)
South African thermal coal (domestic)
Prodeco
Cerrejón2
Total Coal department
Q4
2017
1.6
0.8
11.7
2.6
4.6
2.5
2.9
2.9
29.6
Q1
2018
1.6
0.6
14.2
2.4
4.0
2.5
3.0
2.4
30.7
Q2
2018
1.8
1.0
15.2
2.2
4.0
1.8
2.5
2.8
31.3
Q3
2018
2.0
0.9
15.6
2.4
5.2
2.7
3.2
2.7
34.7
mt
mt
mt
mt
mt
mt
mt
mt
mt
Q4
2018
2.1
1.4
14.4
2.4
4.1
3.0
3.0
2.3
32.7
2018
2017
7.5
3.9
59.4
9.4
17.3
10.0
11.7
10.2
129.4
6.1
4.0
49.1
7.5
18.7
10.0
14.6
10.6
120.6
Change
2018 vs
2017
%
23
(3)
21
25
(7)
–
(20)
(4)
7
Change
Q4 18 vs
Q4 17
%
31
75
23
(8)
(11)
20
3
(21)
10
1 Controlled industrial assets and joint ventures only. Production is on a 100% basis except for joint ventures, where the Group’s attributable share of production is included.
2 The Group’s pro-rata share of Cerrejón production (33.3%).
Zinc (Portovesme, San Juan de Nieva, Nordenham, Northfleet)
Zinc metal
Lead metal
Silver
kt
kt
koz
196.2
49.9
3,301
190.0
52.7
2,907
197.9
36.6
2,409
206.2
45.5
2,385
205.5
51.5
799.6
186.3
788.0
193.8
2,386
10,087
13,656
1
(4)
(26)
5
3
(28)
Oil assets
Glencore entitlement interest basis
Equatorial Guinea
Chad
Total Oil department
Gross basis
Equatorial Guinea
Chad
Total Oil department
kbbl
kbbl
kbbl
kbbl
kbbl
kbbl
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
2018
2017
574
593
1,167
517
639
1,156
446
687
1,133
413
654
1,067
451
819
1,270
1,827
2,799
4,626
2,529
2,524
5,053
2,721
810
3,531
2,395
873
3,268
2,190
939
3,129
2,065
896
2,961
2,168
1,119
3,287
8,818
3,827
12,645
11,914
3,450
15,364
Change
2018 vs
2017
%
Change
Q4 18 vs
Q4 17
%
(28)
11
(8)
(26)
11
(18)
(21)
38
9
(20)
38
(7)
226
Glencore Annual Report 2018
Glencore Annual Report 2018
Glencore Annual Report 2018
227
227
Strategic ReportFinancial statementsGovernanceAdditional information
Resources and reserves
The resource and reserve data in the following tables comprise summary extracts of the Glencore Resources and Reserves report
as at 31 December 2018, as published on the Glencore website on 1 February 2019. The Glencore Resources and Reserves report
was publicly reported, as appropriate for individual components, in accordance with the 2012 edition of the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), the 2016 edition of the South African Code for
Reporting of Mineral Resources and Mineral Reserves (SAMREC), the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)
Standards on Mineral Resources and Reserves (2014 edition) and the Petroleum Resources Management System (PRMS) for reporting
of oil and natural gas reserves and resources.
Data is reported as at 31 December 2018, unless otherwise noted. For comparison purposes, data for 2017 has been included.
Metric units are used throughout, and all data is presented on a 100% asset basis with the exception of Oil assets which are shown
on a working interest basis. All tonnage information has been rounded to reflect the relative uncertainty in the estimates; there may
therefore be small differences in the totals.
Metals and minerals: Copper
Copper mineral resources
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
Commodity
2018
2017
2018
2017
2018
2017
2018
2017
Name of operation
African copper
Katanga
Mutanda
Mopani
Collahuasi
Antamina
Other South
America
Australia
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Molybdenum (%)
(Mt)
Copper (%)
Zinc (%)
Silver (g/t)
Molybdenum (%)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
Other projects
(El Pachon, West Wall)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
Molybdenum (%)
16
3.58
0.57
404
1.36
0.47
208
2.08
0.08
870
0.84
0.02
347
0.87
0.65
10
0.02
677
0.44
0.11
0.7
116
1.77
0.09
0.6
534
0.67
–
2.4
0.01
16
3.58
0.57
256
1.36
0.51
211
2.09
0.08
934
0.85
0.02
254
0.89
0.76
11
0.02
647
0.43
0.10
0.6
116
1.82
0.09
0.6
534
0.67
–
2.4
0.01
259
3.64
0.54
263
0.79
0.25
76
1.99
0.08
4,458
0.81
0.03
707
0.86
0.77
11
0.02
2,063
0.42
0.04
0.8
168
1.37
0.23
0.4
1,915
0.50
0.02
1.1
0.01
267
3.60
0.53
200
1.11
0.41
74
2.01
0.08
4,471
0.81
0.02
816
0.89
0.76
11
0.02
2,129
0.38
0.03
0.6
177
1.37
0.23
0.4
1,551
0.51
0.02
1.4
0.01
276
3.64
0.54
667
1.14
0.38
285
2.06
0.08
5,328
0.82
0.02
1,054
0.87
0.73
11
0.02
2,741
0.42
0.05
0.7
284
1.53
0.17
0.5
2,449
0.54
0.02
1.4
0.01
284
3.60
0.54
456
1.24
0.46
285
2.07
0.08
5,405
0.82
0.02
1,070
0.89
0.76
11
0.02
2,776
0.39
0.05
0.6
293
1.54
0.18
0.5
2,085
0.55
0.01
1.7
0.01
165
3.78
0.44
119
0.65
0.15
76
2.06
0.08
5,052
0.74
0.02
1,236
0.99
0.60
12
0.02
797
0.30
0.03
0.2
161
1.1
0.06
0.7
2,596
0.41
0.02
1.1
0.01
168
3.79
0.44
202
0.71
0.31
78
2.07
0.09
4,444
0.75
0.01
1,372
0.91
0.55
10
0.02
838
0.34
0.03
0.4
165
1.1
0.06
0.7
2,498
0.44
0.02
1.1
0.01
228
Glencore Annual Report 2018
Glencore Annual Report 2018
104
Resources and reserves
The resource and reserve data in the following tables comprise summary extracts of the Glencore Resources and Reserves report
as at 31 December 2018, as published on the Glencore website on 1 February 2019. The Glencore Resources and Reserves report
was publicly reported, as appropriate for individual components, in accordance with the 2012 edition of the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code), the 2016 edition of the South African Code for
Reporting of Mineral Resources and Mineral Reserves (SAMREC), the Canadian Institute of Mining, Metallurgy and Petroleum (CIM)
Standards on Mineral Resources and Reserves (2014 edition) and the Petroleum Resources Management System (PRMS) for reporting
of oil and natural gas reserves and resources.
Data is reported as at 31 December 2018, unless otherwise noted. For comparison purposes, data for 2017 has been included.
Metric units are used throughout, and all data is presented on a 100% asset basis with the exception of Oil assets which are shown
on a working interest basis. All tonnage information has been rounded to reflect the relative uncertainty in the estimates; there may
therefore be small differences in the totals.
Metals and minerals: Copper
Copper mineral resources
Name of operation
African copper
Katanga
Mutanda
Mopani
Collahuasi
Antamina
Other South
America
Australia
Measured Mineral
Indicated Mineral
Measured and
Inferred
Resources
Resources
Indicated Resources
Mineral Resources
Commodity
2018
2017
2018
2017
2018
2017
2018
2017
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Molybdenum (%)
(Mt)
Copper (%)
Zinc (%)
Silver (g/t)
Molybdenum (%)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
Molybdenum (%)
16
3.58
0.57
404
1.36
0.47
208
2.08
0.08
870
0.84
0.02
347
0.87
0.65
10
0.02
677
0.44
0.11
0.7
116
1.77
0.09
0.6
534
0.67
–
2.4
0.01
16
3.58
0.57
256
1.36
0.51
211
2.09
0.08
934
0.85
0.02
254
0.89
0.76
11
0.02
647
0.43
0.10
0.6
116
1.82
0.09
0.6
534
0.67
–
2.4
0.01
259
3.64
0.54
263
0.79
0.25
76
1.99
0.08
4,458
0.81
0.03
707
0.86
0.77
11
0.02
2,063
0.42
0.04
0.8
168
1.37
0.23
0.4
1,915
0.50
0.02
1.1
0.01
267
3.60
0.53
200
1.11
0.41
74
2.01
0.08
4,471
0.81
0.02
816
0.89
0.76
11
0.02
2,129
0.38
0.03
0.6
177
1.37
0.23
0.4
1,551
0.51
0.02
1.4
0.01
276
3.64
0.54
667
1.14
0.38
285
2.06
0.08
5,328
0.82
0.02
1,054
0.87
0.73
11
0.02
2,741
0.42
0.05
0.7
284
1.53
0.17
0.5
0.54
0.02
1.4
0.01
284
3.60
0.54
456
1.24
0.46
285
2.07
0.08
5,405
0.82
0.02
1,070
0.89
0.76
11
0.02
2,776
0.39
0.05
0.6
293
1.54
0.18
0.5
0.55
0.01
1.7
0.01
165
3.78
0.44
119
0.65
0.15
76
2.06
0.08
5,052
0.74
0.02
1,236
0.99
0.60
12
0.02
797
0.30
0.03
0.2
161
1.1
0.06
0.7
0.41
0.02
1.1
0.01
168
3.79
0.44
202
0.71
0.31
78
2.07
0.09
4,444
0.75
0.01
1,372
0.91
0.55
10
0.02
838
0.34
0.03
0.4
165
1.1
0.06
0.7
0.44
0.02
1.1
0.01
Other projects
(El Pachon, West Wall)
2,449
2,085
2,596
2,498
Copper ore reserves
Name of operation
African copper
Katanga
Mutanda
Mopani
Collahuasi
Antamina
Other South America
Australia
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
2018
2017
2018
2017
2018
2017
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
Cobalt (%)
(Mt)
Copper (%)
(Mt)
Copper (%)
Molybdenum (%)
(Mt)
Copper (%)
Zinc (%)
Silver (g/t)
Molybdenum (%)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
(Mt)
Copper (%)
Gold (g/t)
Silver (g/t)
9
3.56
0.55
80
1.69
0.70
111
1.90
448
1.10
0.023
235
0.96
0.78
10
0.027
504
0.45
0.10
0.8
32
2.11
0.26
2.0
9
3.55
0.55
93
1.80
0.69
114
1.91
479
1.14
0.023
180
0.97
0.89
11
0.027
518
0.42
0.10
0.7
26
2.16
0.31
2.3
124
3.15
0.51
52
1.79
0.59
33
1.90
2,683
0.90
0.026
254
0.87
1.09
11
0.021
739
0.47
0.05
1.3
53
1.43
0.28
0.7
129
3.13
0.51
34
1.73
0.59
30
1.97
2,740
0.89
0.024
358
0.89
1.00
10
0.022
809
0.46
0.05
1.1
69
1.48
0.29
0.4
133
3.18
0.52
132
1.73
0.66
144
1.90
3,131
0.93
0.026
489
0.91
0.94
11
0.024
1,243
0.46
0.07
1.1
85
1.68
0.27
1.2
138
3.15
0.51
126
1.78
0.66
144
1.92
3,220
0.93
0.024
538
0.92
0.96
11
0.024
1,327
0.45
0.07
0.9
95
1.66
0.29
0.9
Glencore Annual Report 2018
104
Glencore Annual Report 2018
Glencore Annual Report 2018
105
229
Strategic ReportFinancial statementsGovernanceAdditional information
Resources and reserves continued
Metals and minerals: Zinc
Zinc mineral resources
Name of operation
Kazzinc
Kazzinc Polymetallic
Kazzinc Gold (Vasilkovskoye)
Australia
Mount Isa
McArthur River
North America
Zinc North America
Copper North America
Volcan
Lead/zinc/silver deposits
Copper deposits
Other Zinc
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
Commodity
2018
2017
2018
2017
2018
2017
2018
2017
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Copper (%)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Gold (g/t)
Copper (%)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
92
4.0
1.4
0.3
20
0.5
78
2.1
110
7.4
4.4
85
108
9.7
4.2
42
21.7
4.2
0.5
1.5
46
0.4
75
0.4
0.2
37
6.3
1.2
109
18.4
–
0.5
15.9
6.0
1.7
0.3
134
90
4.1
1.5
0.3
20
0.5
84
2.1
123
6.9
4.2
81
121
9.9
4.6
47
22.1
4.3
0.5
1.5
47
0.4
75
0.4
0.2
–
–
–
–
–
–
–
16.3
5.8
2.0
0.4
165
92
1.5
0.4
0.2
15
0.8
46
1.7
308
7.0
3.4
62
64
10.1
5.1
55
34
4.8
0.5
0.7
112
0.4
255
0.4
0.2
55
5.2
1.2
79
34.3
–
0.5
22
4.8
1.4
0.4
138
97
1.7
0.5
0.3
16
0.8
48
1.7
358
6.0
3.2
60
65
8.8
4.0
42
36
4.7
0.5
0.7
106
0.4
255
0.4
0.2
–
–
–
–
–
–
–
20
5.2
1.8
0.4
177
185
2.7
0.9
0.3
17
0.7
124
1.9
419
7.0
3.7
67
172
9.8
4.6
47
55
4.5
0.7
1.0
87
0.4
330
0.4
0.2
92
5.6
1.2
93
53
–
0.5
38
5.3
1.5
0.4
137
187
2.8
1.0
0.3
18
0.7
132
2.0
480
6.2
3.4
66
188
9.6
4.5
46
58
4.6
0.5
1.0
84
0.4
330
0.4
0.2
–
–
–
–
–
–
–
36
5.5
1.9
0.4
172
157
2
1
0.1
22
1
–
–
220
6
3
65
–
–
–
–
70
4
1
1
133
0.2
120
0.4
0.1
212
2.7
0.9
76
148
0.4
0.2
73
7
1
0.1
89
156
3
1
0.3
23
1
0.1
0.9
190
5
3
55
–
–
–
–
64
4
1
1
145
0.2
120
0.4
0.1
–
–
–
–
–
–
–
64
7
1
0.1
62
230
Glencore Annual Report 2018
Glencore Annual Report 2018
106
Resources and reserves continued
Metals and minerals: Zinc
Zinc mineral resources
Kazzinc
Kazzinc Polymetallic
Kazzinc Gold (Vasilkovskoye)
(Mt)
Name of operation
Commodity
2018
2017
2018
2017
2018
2017
2018
2017
Measured Mineral
Indicated Mineral
Measured and
Inferred
Resources
Resources
Indicated Resources
Mineral Resources
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Copper (%)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Gold (g/t)
Copper (%)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
92
4.0
1.4
0.3
20
0.5
78
2.1
110
7.4
4.4
85
108
9.7
4.2
42
21.7
4.2
0.5
1.5
46
0.4
75
0.4
0.2
37
6.3
1.2
109
18.4
–
0.5
15.9
6.0
1.7
0.3
134
90
4.1
1.5
0.3
20
0.5
84
2.1
123
6.9
4.2
81
121
9.9
4.6
47
22.1
4.3
0.5
1.5
47
0.4
75
0.4
0.2
–
–
–
–
–
–
–
16.3
5.8
2.0
0.4
165
92
1.5
0.4
0.2
15
0.8
46
1.7
308
7.0
3.4
62
64
10.1
5.1
55
34
4.8
0.5
0.7
112
0.4
255
0.4
0.2
55
5.2
1.2
79
34.3
–
0.5
22
4.8
1.4
0.4
138
97
1.7
0.5
0.3
16
0.8
48
1.7
358
6.0
3.2
60
65
8.8
4.0
42
36
4.7
0.5
0.7
106
0.4
255
0.4
0.2
–
–
–
–
–
–
–
20
5.2
1.8
0.4
177
185
2.7
0.9
0.3
17
0.7
124
1.9
419
7.0
3.7
67
172
9.8
4.6
47
55
4.5
0.7
1.0
87
0.4
330
0.4
0.2
92
5.6
1.2
93
53
–
0.5
38
5.3
1.5
0.4
137
187
2.8
1.0
0.3
18
0.7
132
2.0
480
6.2
3.4
66
188
9.6
4.5
46
58
4.6
0.5
1.0
84
0.4
330
0.4
0.2
–
–
–
–
–
–
–
36
5.5
1.9
0.4
172
157
2
1
0.1
22
1
–
–
220
6
3
65
–
–
–
–
70
4
1
1
133
0.2
120
0.4
0.1
212
2.7
0.9
76
148
0.4
0.2
73
7
1
0.1
89
156
3
1
0.3
23
1
0.1
0.9
190
5
3
55
–
–
–
–
64
4
1
1
145
0.2
120
0.4
0.1
–
–
–
–
–
–
–
64
7
1
0.1
62
Australia
Mount Isa
McArthur River
North America
Zinc North America
Copper North America
Volcan
Lead/zinc/silver deposits
Copper deposits
Other Zinc
Zinc ore reserves
Name of operation
Kazzinc
Kazzinc Polymetallic
Kazzinc Gold (Vasilkovskoye)
Australia
Mount Isa
McArthur River
North America
Volcan
Other Zinc
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
2018
2017
2018
2017
2018
2017
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Copper (%)
Silver (g/t)
Gold (g/t)
(Mt)
Zinc (%)
Lead (%)
Silver (g/t)
(Mt)
Zinc (%)
Lead (%)
Copper (%)
Silver (g/t)
76
3.9
1.4
0.1
18
0.3
51
2.1
22
8.1
4.1
75
73
9.4
4.3
43
5.8
3.9
1.8
42
0.09
15.8
4.1
0.8
74
5.6
5.2
1.7
0.2
124
78
3.9
1.5
0.2
16
0.3
70
2.2
26
8.7
4.3
79
70
10.6
5.0
50
6.3
4.1
1.8
46
0.04
–
–
–
–
5.5
5.2
2.0
0.2
126
16.8
4.4
0.7
0.6
27
0.7
47
1.8
75
7.0
3.3
60
35
8.1
4.3
46
3.0
6.1
1.3
32
0.4
18.5
4.0
1.0
76
11.2
3.9
1.0
0.3
103
20.2
4.3
0.8
0.6
26
0.7
38
1.8
58
7.0
3.2
63
44
7.4
3.6
37
4.1
6.4
1.3
34
0.5
–
–
–
–
10.6
4.3
1.4
0.3
120
93
4.0
1.3
0.2
19
0.4
98
1.8
97
7.2
3.5
62
108
9.0
4.3
44
9
4.7
1.6
39
0.2
34.3
4.0
0.9
73
16.8
4.4
1.2
0.2
110
99
4.0
1.4
0.3
18
0.3
108
2.1
84
7.8
3.8
68
114
9.3
4.4
45
10
5.0
1.6
41
0.2
–
–
–
–
16.5
5.5
1.9
0.2
122
Glencore Annual Report 2018
106
Glencore Annual Report 2018
Glencore Annual Report 2018
107
231
Strategic ReportFinancial statementsGovernanceAdditional information
Resources and reserves continued
Metals and minerals: Nickel
Nickel mineral resources
Name of operation
INO
Murrin Murrin
Koniambo
Other Nickel
(Kabanga)
Nickel ore reserves
Name of operation
INO
Murrin Murrin
Koniambo
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
Commodity
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
2018
12.2
2.74
1.19
0.06
0.94
1.67
138.4
1.01
0.075
12.8
2.48
13.8
2.49
0.34
0.21
0.16
0.19
2017
14.6
2.65
1.28
0.06
0.91
1.55
2018
37.5
2.50
1.92
0.06
0.92
1.56
2017
34.6
2.61
1.81
0.06
0.92
1.55
140.9
1.00
0.074
75.5
0.99
0.084
77.4
0.99
0.084
13.8
2.49
13.8
2.49
0.34
0.21
0.16
0.19
43.6
2.40
23.4
2.72
0.36
0.19
0.42
0.28
43.2
2.40
23.4
2.72
0.36
0.19
0.42
0.28
2018
49.6
2.56
1.74
0.06
0.93
1.58
214.0
1.01
0.078
56.4
2.42
37.2
2.63
0.35
0.20
0.32
0.25
2017
49.3
2.62
1.66
0.06
0.91
1.55
218.3
1.00
0.078
57.0
2.42
37.2
2.63
0.35
0.20
0.32
0.25
2018
39
1.7
2.0
0.04
1.0
1.6
17
0.9
0.07
83
2.5
21
2.6
0.3
0.2
0.3
0.3
2017
34
1.8
1.8
0.1
1.0
1.6
18
0.9
0.07
83
2.5
21
2.6
0.3
0.2
0.3
0.3
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
2018
10.3
1.96
0.96
0.04
0.70
1.16
83.1
1.05
0.082
11.7
2.27
2017
11.1
2.03
1.15
0.04
0.78
1.24
85.5
1.04
0.080
11.2
2.30
2018
21.7
2.28
0.92
0.05
0.52
0.95
18.5
1.05
0.078
30.1
2.20
2017
21.9
2.39
0.92
0.05
0.54
1.00
18.9
1.06
0.077
25.9
2.22
2018
32.0
2.17
0.94
0.05
0.58
1.02
101.7
1.05
0.081
41.8
2.22
2017
33.0
2.27
1.00
0.05
0.62
1.08
104.3
1.05
0.079
37.1
2.25
108
232
Glencore Annual Report 2018
Glencore Annual Report 2018
Name of operation
Western Chrome Mines
Western Chrome Mines
107.6
42
2.6
17
115.6
42
1.0
17
Metals and minerals: Ferroalloys
Ferroalloys mineral resources
(Mt)
Cr2O3 (%)
51.951
42.10
54.248
42.09
57.00
41.4
56.38
41.4
108.95
41.7
110.63
41.7
Tailings
(Mt)
Cr2O3 (%)
–
–
–
–
–
–
–
–
–
–
–
–
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
Commodity
2018
2017
2018
2017
2018
2017
2018
2017
Resources and reserves continued
Metals and minerals: Nickel
Nickel mineral resources
Name of operation
Commodity
INO
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
Measured Mineral
Indicated Mineral
Measured and
Inferred
Resources
Resources
Indicated Resources
Mineral Resources
2018
2017
0.084
0.084
2018
12.2
2.74
1.19
0.06
0.94
1.67
138.4
1.01
0.075
12.8
2.48
13.8
2.49
0.34
0.21
0.16
0.19
2017
14.6
2.65
1.28
0.06
0.91
1.55
140.9
1.00
0.074
13.8
2.49
13.8
2.49
0.34
0.21
0.16
0.19
Commodity
(Mt)
Nickel (%)
Copper (%)
Cobalt (%)
Platinum (g/t)
Palladium (g/t)
(Mt)
Nickel (%)
Cobalt (%)
(Mt)
Nickel (%)
2018
37.5
2.50
1.92
0.06
0.92
1.56
75.5
0.99
43.6
2.40
23.4
2.72
0.36
0.19
0.42
0.28
2018
10.3
1.96
0.96
0.04
0.70
1.16
83.1
1.05
11.7
2.27
2017
34.6
2.61
1.81
0.06
0.92
1.55
77.4
0.99
43.2
2.40
23.4
2.72
0.36
0.19
0.42
0.28
2017
11.1
2.03
1.15
0.04
0.78
1.24
85.5
1.04
11.2
2.30
2018
49.6
2.56
1.74
0.06
0.93
1.58
214.0
1.01
0.078
56.4
2.42
37.2
2.63
0.35
0.20
0.32
0.25
2018
21.7
2.28
0.92
0.05
0.52
0.95
18.5
1.05
30.1
2.20
2017
49.3
2.62
1.66
0.06
0.91
1.55
218.3
1.00
0.078
57.0
2.42
37.2
2.63
0.35
0.20
0.32
0.25
2017
21.9
2.39
0.92
0.05
0.54
1.00
18.9
1.06
25.9
2.22
39
1.7
2.0
0.04
1.0
1.6
17
0.9
0.07
83
2.5
21
2.6
0.3
0.2
0.3
0.3
2018
32.0
2.17
0.94
0.05
0.58
1.02
101.7
1.05
0.081
41.8
2.22
34
1.8
1.8
0.1
1.0
1.6
18
0.9
0.07
83
2.5
21
2.6
0.3
0.2
0.3
0.3
2017
33.0
2.27
1.00
0.05
0.62
1.08
104.3
1.05
0.079
37.1
2.25
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
0.082
0.080
0.078
0.077
Murrin Murrin
Koniambo
Other Nickel
(Kabanga)
Nickel ore reserves
Name of operation
INO
Murrin Murrin
Koniambo
Eastern Chrome Mines
Eastern Chrome Mines
Tailings
Vanadium
Ferroalloys ore reserves
Name of operation
Western Chrome Mines
Eastern Chrome Mines
Vanadium
(Mt)
Cr2O3 (%)
61.743
40.18
61.364
40.32
45.67
40.2
45.78
40.4
107.41
40.2
107.14
40.3
156.5
38
157.7
38
(Mt)
Cr2O3 (%)
–
–
–
–
–
–
–
–
–
–
–
–
(Mt)
V2O5 (%)
48.36
0.48
49.68
0.48
37.67
0.5
38.12
0.5
86.04
0.5
87.81
0.5
4.2
19
93
0.5
–
–
94
0.5
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
(Mt)
Cr2O3 (%)
2018
17.418
30.84
2017
18.477
31.00
(Mt)
Cr2O3 (%)
22.961
33.20
27.050
35.00
(Mt)
V2O5 (%)
23.94
0.47
25.30
0.47
2018
7.94
28.2
10.03
34.2
11.5
0.5
2017
7.37
28.4
9.09
35.9
12.1
0.5
2018
25.36
30.0
32.99
33.5
35.4
0.5
2017
25.84
30.4
36.14
35.2
37.4
0.5
Metals and minerals: Aluminium/Alumina
Alumina mineral resources
Name of operation
Aurukun
Commodity
(Mt)
Al2O3 (%)
2018
94
53.4
2017
–
–
2018
322
50.0
2017
–
–
2018
416
50.7
2017
–
–
2018
3
49.5
2017
–
–
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
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233
Strategic ReportFinancial statementsGovernanceAdditional information
Resources and reserves continued
Metals and minerals: Iron Ore
Iron ore mineral resources
Measured Mineral
Resources
Indicated Mineral
Resources
Measured and
Indicated Resources
Inferred
Mineral Resources
Commodity
(Mt)
Iron (%)
(Mt)
Iron (%)
(Mt)
Iron (%)
2018
470
36
215
36
–
–
2017
470
36
215
36
–
–
(Mt)
Iron (%)
2,300
34
2,300
34
2018
1,435
36
190
35
2,180
32
2,500
30
2017
1,435
36
190
35
2,180
32
2,500
30
2018
1,905
36
405
36
2,180
32
2017
1,905
36
405
36
2,180
32
2018
2,520
35
251
35
560
32
2017
2,520
35
251
35
560
32
4,800
32
4,800
32
2,100
31
2,100
31
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Commodity
(Mt)
Iron (%)
(Mt)
Iron (%)
2018
380
35
770
37
2017
380
35
770
37
2018
551
35
1,290
32
2017
551
35
2018
931
35
2017
931
35
1,290
32
2,070
34
2,070
34
Name of operation
El Aouj Mining Company S.A.
Sphere Mauritania S.A.
(Askaf)
Sphere Lebtheinia S.A.
Jumelles Limited
(Zanaga)
Iron ore reserves
Name of operation
El Aouj Mining Company S.A.
Jumelles Limited
(Zanaga)
Energy products: Coal
Measured
Coal Resources
Indicated
Coal Resources
Inferred
Coal Resources
Commodity
2018
2017
2018
2017
2018
2017
Coking/Thermal Coal (Mt)
Coking/Thermal Coal (Mt)
3,608
3,157
2,942
3,008
South Africa
Thermal Coal (Mt)
2,409
2,475
Thermal Coal (Mt)
205
220
Thermal Coal (Mt)
3,100
3,150
1,200
1,050
3,974
5,401
844
148
2,739
3,851
844
160
7,615
8,595
350
70
700
5,761
8,370
355
70
700
Coal resources
Name of operation
Australia
New South Wales
Queensland
Prodeco
Cerrejón
Canada projects
(Suska, Sukunka)
Coking/Thermal Coal (Mt)
45
45
113
113
130
130
110
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Measured Mineral
Indicated Mineral
Measured and
Inferred
Resources
Resources
Indicated Resources
Mineral Resources
(Mt)
Iron (%)
(Mt)
Iron (%)
(Mt)
Iron (%)
2018
470
36
215
36
–
–
2017
470
36
215
36
–
–
Commodity
(Mt)
Iron (%)
(Mt)
Iron (%)
2018
1,435
36
190
35
2,180
32
2,500
30
2018
380
35
770
37
2017
1,435
36
190
35
2,180
32
2,500
30
2017
380
35
770
37
2018
1,905
36
405
36
2,180
32
2018
551
35
1,290
32
2017
1,905
36
405
36
2,180
32
2018
2,520
35
251
35
560
32
2017
2,520
35
251
35
560
32
2017
551
35
2018
931
35
2017
931
35
1,290
32
2,070
34
2,070
34
(Mt)
2,300
2,300
Iron (%)
34
34
4,800
4,800
32
32
2,100
31
2,100
31
Resources and reserves continued
Metals and minerals: Iron Ore
Iron ore mineral resources
Name of operation
Commodity
El Aouj Mining Company S.A.
Sphere Mauritania S.A.
(Askaf)
Sphere Lebtheinia S.A.
Jumelles Limited
(Zanaga)
Iron ore reserves
Name of operation
El Aouj Mining Company S.A.
Jumelles Limited
(Zanaga)
Energy products: Coal
Coal resources
Name of operation
Australia
Prodeco
Cerrejón
Canada projects
(Suska, Sukunka)
Coal reserves
Name of operation
Australia
New South Wales
Queensland
Coal Reserves
Marketable
Coal Reserves
Proved
Probable
Proved
Probable
Total Marketable
Coal Reserves
Commodity
2018
2018
2018
2018
2018
2017
Thermal Coal (Mt)
Coking Coal (Mt)
Thermal Coal (Mt)
Coking Coal (Mt)
1,069
4
894
107
698
7
428
121
771
3
791
72
490
5
363
78
1,261
8
1,149
150
581
150
711
3
1,134
73
595
175
375
460
Proved Ore Reserves
Probable Ore Reserves
Total Ore Reserves
Energy products: Oil
South Africa
Thermal Coal (Mt)
683
250
434
143
Prodeco
Cerrejón
Thermal Coal (Mt)
110
Thermal Coal (Mt)
330
40
60
110
315
40
60
Net reserves (Proven and Probable)1
Equatorial Guinea
Chad
Cameroon
Total
Working Interest Basis
31 December 2017
Revisions
Production
31 December 2018
Oil mmbbl
17
–
(2)
15
Gas bcf Oil mmbbl
96
9
(3)
102
146
8
–
154
Gas bcf Oil mmbbl
3
–
–
3
–
–
–
–
Gas bcf Oil mmbbl
116
9
(5)
120
–
–
–
–
Gas bcf
146
8
–
154
Combined
mmboe
141
10
(5)
147
Measured
Coal Resources
Indicated
Coal Resources
Inferred
Coal Resources
Commodity
2018
2017
2018
2017
2018
2017
Net contingent resources (2C)1
Equatorial Guinea
Chad
Cameroon
Total
Working Interest Basis
31 December 2017
31 December 2018
Oil mmbbl
23
23
Gas bcf Oil mmbbl
61
61
454
454
Gas bcf Oil mmbbl
4
4
–
–
Gas bcf Oil mmbbl
88
88
–
–
Gas bcf
454
454
Combined
mmboe
166
166
1
“Net” reserves or resources are equivalent to Glencore’s working interest in the asset/property.
New South Wales
Coking/Thermal Coal (Mt)
Queensland
Coking/Thermal Coal (Mt)
3,608
3,157
2,942
3,008
South Africa
Thermal Coal (Mt)
2,409
2,475
Thermal Coal (Mt)
205
220
Thermal Coal (Mt)
3,100
3,150
1,200
1,050
3,974
5,401
844
148
2,739
3,851
844
160
7,615
8,595
350
70
700
5,761
8,370
355
70
700
Coking/Thermal Coal (Mt)
45
45
113
113
130
130
110
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111
235
Strategic ReportFinancial statementsGovernanceAdditional information
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Email: info@glencore.com
Shareholder information
Glencore plc is registered in Jersey, with headquarters
in Switzerland and operations around the world.
Headquarters
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The Company has a primary listing on the
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Tel.: +27 (0) 11 370 5000
236
Glencore Annual Report 2018
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Important notice concerning this document including
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