Glencore revenue dropped on 33.3% in 2015 and EBITDA Margin showed almost no change

01/03/2016 • About Glencore ($805) • By InTwits

Glencore reported 2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Glencore doesn't have a profitable business model yet: 2015 ROIC is 1.7%
EBITDA Margin is quite volatile: 5.1% in 2015, 4.9% in 2014, 3.6% in 2013, 2.1% in 2012, 2.4% in 2011
Glencore has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.9%. At the same time it's a lot of higher than industry average of 0.9%.
CAPEX is quite volatile: 5,372 in 2015, 8,815 in 2014, 9,559 in 2013, 2,970 in 2012, 2,606 in 2011
The company has potentially unprofitable business model: ROIC is at 1.7%
It operates with high leverage: Net Debt/EBITDA is 5.5x while industry average is 1.4x

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Glencore ($805) key annual financial indicators

mln. $	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	186,152	214,436	232,694	221,073	147,351	-33.3%
Gross Profit	4,214	4,001	5,549	6,729	2,818	-58.1%
SG&A	844	980	1,185	1,279	1,073	-16.1%
EBITDA	4,423	4,477	8,392	10,873	7,557	-30.5%
Net Income	4,048	1,004	-8,046	2,308	-4,964	-315.1%
Balance Sheet
Cash	1,305	2,782	2,849	2,824	2,707	-4.1%
Short Term Debt	8,185	16,498	16,461	12,005	11,117	-7.4%
Long Term Debt	19,844	19,028	38,712	40,688	32,932	-19.1%
Cash flow
Capex	2,606	2,970	9,559	8,815	5,372	-39.1%
Ratios
Revenue growth	28.4%	15.2%	8.5%	-5.0%	-33.3%
EBITDA growth	-1.1%	1.2%	87.4%	29.6%	-30.5%
Gross Margin	2.3%	1.9%	2.4%	3.0%	1.9%	-1.1%
EBITDA Margin	2.4%	2.1%	3.6%	4.9%	5.1%	0.2%
Net Income Margin	2.2%	0.5%	-3.5%	1.0%	-3.4%	-4.4%
SG&A, % of revenue	0.5%	0.5%	0.5%	0.6%	0.7%	0.1%
CAPEX, % of revenue	1.4%	1.4%	4.1%	4.0%	3.6%	-0.3%
ROIC	5.9%	4.6%	4.7%	4.9%	1.7%	-3.2%
ROE	16.6%	3.3%	-20.0%	4.7%	-11.1%	-15.8%
Net Debt/EBITDA	6.0x	7.3x	6.2x	4.6x	5.5x	0.9x

Revenue and profitability

Glencore's Revenue dropped on 33.3% in 2015. EBITDA Margin showed almost no change in 2015.

Gross Margin decreased slightly on 1.1 pp from 3.0% to 1.9% in 2015. SG&A as a % of Revenue showed almost no change in 2015.

Net Income marign decreased on 4.4 pp from 1.0% to -3.4% in 2015.

Capital expenditures (CAPEX) and working capital investments

In 2015 the company had CAPEX/Revenue of 3.6%. The company's CAPEX/Revenue increased on 2.3 pp from 1.4% in 2012 to 3.6% in 2015. Average CAPEX/Revenue for the last three years was 3.9%.Battling declining revenue Glencore invested a large share of EBITDA (71.1%) to CAPEX but that didn't help at least in this year.

Return on investment

The company operates at low but positive ROIC (1.74%) and negative ROE (-11.06%). ROIC decreased on 3.2 pp from 4.9% to 1.7% in 2015. ROE dropped on 15.8 pp from 4.7% to -11.1% in 2015.

Leverage (Debt)

Debt level is 5.5x Net Debt / EBITDA and 5.8x Debt / EBITDA. Net Debt / EBITDA jumped on 0.9x from 4.6x to 5.5x in 2015. Debt dropped on 16.4% in 2015 while cash decreased on 4.1% in 2015.

Management team

The company's CEO Ivan Glasenberg has spent 16 years at the company. Glencore's CFO is Steven Kalmin "Steve". Steven Kalmin "Steve" has 13 years tenure at the company.

Appendix 1: Peers in Mining

Below you can find Glencore benchmarking vs. other companies in Mining industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Xinjiang Xinxin Mining Industry Co Ltd ($3833)	24.0%	4.8%	-44.7%	303.0%
Huili Resources Group Ltd ($1303)	-47.8%	-33.6%	-91.6%	219.4%
North Mining Shares Co Ltd ($433)	1.7%	-5.5%	-57.1%	187.0%
China Kingstone Mining Holdings Ltd ($1380)	4,275.3%	-94.5%	-55.6%	155.2%
Ding He Mining Holdings Ltd ($705)	31.6%	29.9%	43.8%	89.8%
Median (47 companies)	32.3%	5.0%	0.6%	-6.5%	-3.3%
Glencore ($805)		15.2%	8.5%	-5.0%	-33.3%

Top companies by Gross margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
China Billion Resources Ltd ($274)	20.3%	71.4%	47.2%	73.4%
Sun International Resources Ltd ($8029)	77.6%	83.2%	73.1%	64.8%	69.4%
China Polymetallic Mining Ltd ($2133)	76.9%	81.8%	74.2%	51.8%	38.9%
China Precious Metal Resources Holdings Co Ltd ($1194)	64.7%	63.9%	54.9%	51.2%
Hengshi Mining Investments Ltd ($1370)	54.6%	32.4%	55.3%	50.1%
Median (47 companies)	19.2%	14.4%	14.7%	15.6%	32.5%
Glencore ($805)	2.3%	1.9%	2.4%	3.0%	1.9%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
China Precious Metal Resources Holdings Co Ltd ($1194)	73.1%	70.0%	64.6%	59.6%
China Polymetallic Mining Ltd ($2133)	-322.0%	62.8%	58.5%	54.1%	2.8%
G-Resources Group Ltd ($1051)			54.5%	53.4%
China Gold International Resources Corp Ltd ($2099)		41.7%	38.3%	47.3%	33.7%
Hengshi Mining Investments Ltd ($1370)	45.7%	22.8%	52.0%	45.4%
Median (47 companies)	7.0%	4.9%	8.3%	4.4%	5.7%
Glencore ($805)	2.4%	2.1%	3.6%	4.9%	5.1%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Mongolia Energy Corp Ltd ($276)		8,006.5%	1,061.7%	30,555.4%	1,973.0%
Huili Resources Group Ltd ($1303)	3.9%	181.0%	1,508.6%	279.5%
Kaz Minerals ($847)	19.8%	36.6%	136.5%	168.8%	168.7%
China Gold International Resources Corp Ltd ($2099)		64.7%	156.1%	95.6%	81.4%
IRC Ltd ($1029)	129.7%	102.1%	70.6%	82.5%
Median (47 companies)	16.3%	17.4%	16.0%	15.8%	17.1%
Glencore ($805)	1.4%	1.4%	4.1%	4.0%	3.6%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
China Silver Group Ltd ($815)	48.0%	57.6%	31.6%	35.8%
Hengshi Mining Investments Ltd ($1370)	153.0%	50.1%	60.1%	20.7%
China Hongqiao Group Ltd ($1378)	44.6%	24.8%	17.0%	14.1%
China Nonferrous Mining Corp Ltd ($1258)	10.9%	14.7%	10.8%	11.8%
Xingfa Aluminium Holdings Ltd ($98)	3.8%	7.6%	8.8%	11.7%
Median (48 companies)	2.9%	1.5%	3.0%	0.7%	-1.0%
Glencore ($805)	5.9%	4.6%	4.7%	4.9%	1.7%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Xinjiang Xinxin Mining Industry Co Ltd ($3833)	0.9x	8.4x	39.4x	10.3x
MMG Ltd ($1208)	-0.0x	2.1x	2.0x	10.2x
China Daye Non-Ferrous Metals Mining Ltd ($661)	5.8x	9.2x	9.7x	9.2x
Midas Holdings Ltd ($1021)	1.4x	4.3x	6.5x	8.7x	8.0x
Lingbao Gold Co Ltd ($3330)	3.5x	5.3x		8.3x
Median (26 companies)	0.9x	1.5x	1.9x	3.8x	0.7x
Glencore ($805)	6.0x	7.3x	6.2x	4.6x	5.5x

Glencore stock price chart

Glencore financials

mln.	FY2010	FY2011	FY2012

Revenue	144,978	186,152	214,436
EBITDA	4,474	4,423	4,477
Net income	3,751	4,048	1,004
CAPEX	1,657	2,606	2,970
Debt	30,132	28,029	35,526
Cash	1,463	1,305	2,782

About Glencore

Glencore plc engages in the production, sourcing, processing, refining, transporting, storage, financing, and supply of commodities worldwide. It operates in three segments: Metals and Minerals, Energy Products, and Agricultural Products. The Metals and Minerals segment is involved in mining, processing, smelting, refining, and warehousing copper, nickel, zinc/lead, ferroalloys, alumina/aluminum, and iron ore products. The Energy Products segment activities include coal mining and oil production operations; and investments in handling, storage, and freight equipment and facilities. The Agricultural Products segment engages in the farming, processing, handling, and storage of wheat, corn, canola, barley, rice, oil seeds, meals, edible oils, biofuels, cotton, and sugar. The company was formerly known as Glencore Xstrata plc and changed its name to Glencore plc in May 2014. Glencore plc is headquartered in Baar, Switzerland.