Another year of record performance, further business diversification and a growing customer base
Trafigura’s performance in 2021 again set new records in terms of volumes handled and overall profitability. We also made excellent progress over the course of the year in further diversifying our business to play a meaningful role in the ongoing energy transition.
It was a year that saw the global economy recovering from the shock of COVID-19, albeit unevenly in different regions, and one in which underlying fragilities in global supply chains were laid bare as demand rebounded whilst logistics and supply struggled to keep pace. This environment once again demanded exceptional levels of customer service, risk and supply chain management from our teams, to provide security of supply to our customers despite ongoing disruptions and supply-demand imbalances.
Profit, turnover and volumes handled across our trading divisions for the year were the highest in our history, consolidating the strong performance in FY2020 and demonstrating a structural rebasing of the quality and consistency of the company’s financial performance and service to suppliers and customers.
Our core Oil and Petroleum Products and Metals and Minerals business divisions continued to fire on all cylinders, while our recently established Power and Renewables division recorded a strong inaugural result. A number of factors contributed to our trading success, but above all, the scale and resilience of our business benefitted from a flight to quality, both in terms of customer relationships and financial liquidity.
Trafigura’s service-oriented approach, global logistical strength and reliability as a supplier helped to forge relationships with many counterparts and customers during the first phases of the pandemic. These relationships have continued to strengthen in recent months as demand ramps up and presents additional complexities.
The Group's trading desks once again capably managed extreme market volatility across a broad spectrum of commodities and performed exceptionally well regardless of market conditions. Fundamental to this performance were our strong risk controls, including conservative value at risk of less than one percent of Group equity, and the depth of our market knowledge and expertise, incorporating the increased use of data analytics.
For our operational assets, however, this was another challenging year as staff levels, supply chains for critical inputs and logistics all continued to experience high levels of disruption due to COVID-19 related operational issues. Safety performance was also negatively impacted and I am saddened to report that three employees and three contractors lost their lives at work during the year, including four fatal incidents at mining operations. This simply is not good enough and safety improvement plans are being implemented across our operations to align performance with the very high safety standards to which we aspire.
The Nyrstar smelting business continued to make progress with a restorative capital investment programme, but faced COVID-19 related operational issues and was squeezed by high energy prices towards the end of the year. Our portfolio of fixed assets underwent significant change during the year. We are proud to have created a world-class copper mining complex through our investments over more than 15 years at the MATSA mining venture in Spain. In September, we announced the successful sale of the operation to Sandfire Resources. We also recapitalised and consolidated Puma Energy into the Group. Together with new management and a revised strategic focus, Puma Energy is now on a firmer financial footing from which to build its business in key markets.
Higher metals prices contributed to an improved financial performance from our mining assets. However, raising sufficient liquidity to operate with commodity prices at elevated levels is clearly a challenge for the sector. Our commitment to transparency, responsibility and robust governance and the strength of our global network and customer relationships again enabled Trafigura to secure the capital to support revenues of over USD230 billion, working with over 140 banks. Our strong profit has also further strengthened our balance sheet, with retained earnings taking Group equity above USD10 billion for the first time.
We progressed with a number of new ventures. The Nala Renewables joint venture with IFM Investors appointed a CEO, built out its management team and launched its first projects, including an investment in Swift Current Energy – a developer of solar and wind power energy projects in North America. We made a major investment in H2 Energy, a pioneer in creating green hydrogen ecosystems for fuel-cell trucks, establishing a joint venture that is developing plans to expand into other European countries in the near future. We continued to invest in new technologies, including mobility, energy storage and carbon abatement. These investments are strategically important as they help us understand the changing dynamics and new opportunities that will reshape the industries we supply over the coming years.
We also invested to facilitate new sources of supply of the critical metals that are required for many aspects of the energy transition. In nickel, a key component of lithium-ion batteries for electric vehicles, we supported the construction of a nickel sulphate plant at the Terrafame mine in Finland. Our investment in the Prony Resources nickel and cobalt mine in New Caledonia helped to secure the sustainable future of the operation, by acquiring a minority stake and helping to secure long-term financing, technical and customer support, in collaboration with local stakeholders and the French government. In addition, we stepped up our pioneering efforts to develop responsible sourcing of cobalt in the Democratic Republic of the Congo, through our agreements with the state-owned entity established for this purpose, Enterprise Générale du Cobalt, and international NGO Pact.
We recognised the need for continued investment in lowcost and relatively low-carbon intensity sources of oil and gas. This is in line with our expectation that these sources of energy will continue to be required for some years to come, to bridge the world's growing energy needs while the energy transition to low- and zero-carbon fuels takes place. This included acquiring a 10 percent minority interest in Vostok Oil. Vostok Oil is developing oil and gas resources using methods that are expected to reduce the carbon intensity of its production to approximately 25 percent of the global average for new oil projects, based on current estimates.
Finally, we are continuing to strengthen our approach to environmental, social and governance (ESG) risks and opportunities across our operations and value chains. During 2021, we enhanced our governance structure by establishing a dedicated ESG Committee of the Board, which I chair. The committee provides direction for the Group's ESG policy, strategy and performance and will ensure a consistent approach to risk management across the organisation.
Our commitments to reduce Scope 1 and 2 greenhouse gas emissions by 30 percent by 20231, independently verify the alignment of our leading responsible sourcing programme with international sustainable procurement standard ISO20400, and invest in a pipeline of renewable power generation projects enabled us to secure our first sustainability-linked financing. Announced in March 2021, 34 financial institutions participated in a USD5.5 billion European revolving credit facility which rewards the Group with discounted financing costs if sustainability targets are achieved. Progress in setting a Scope 3 emissions reduction target by 2023 has moved ahead of schedule, enabling us to set a new target to reduce total shipping emissions intensity by 25 percent by 2030, compared to the adjusted 2019 IMO industry baseline2. This new target encompasses over 70 percent of Trafigura’s reported Scope 3 emissions in 2020 and will see the emissions intensity profile of our owned and third-party leased shipping fleet decline by 48 percent compared to the 2008 IMO industry baseline. This compares favourably to the IMO industry target of a 40 percent emissions intensity reduction over the same timeframe.
As one of the world’s largest charterers of tankers, gas and bulk carrier vessels, we continued our high level of engagement in the global debate and efforts to decarbonise shipping, including as a leading member of the “Getting to Zero” coalition and key proponent of its Call to Action, signed by over 200 companies. As a founding member of the First Movers Coalition, an initiative announced by President Biden at COP26 and led by Presidential Special Envoy for Climate John Kerry and the World Economic Forum, Trafigura has also committed to convert six vessels, 18 percent of our current owned fleet, to use zero-emissions fuels by 2030.
These activities form a broad and solid platform not only for strong profitability today but also for responsible future growth aligned with the needs of a rapidly changing world. I would like to thank all of our customers and suppliers for their ongoing co-operation, our financial stakeholders for enabling our continued growth and our employees for their hard work and commitment. We expect 2022 to be at least as challenging as 2021, and I believe our company is well positioned to deliver vital commodities and exceptional customer services to an even larger customer base in the months ahead.
Jeremy Weir
Executive Chairman and Chief Executive Officer
1 GHG reduction target set against our 2020 baseline.
2 The IMO 2019 normalised benchmark is an indication of the global fleet carbon intensity based on the 2019 IMO DCS data and is used as a benchmark to assess the progress of the industry towards meeting the 2030 IMO decarbonisation goals.
