Glencore Debt dropped on 24.6% in 2016 while EBITDA increased on 2.1%

23/02/2017 • About Glencore ($805) • By InTwits

Glencore reported 2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

• Glencore has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.0%. At the same time it's a lot of higher than industry average of 0.5%.
• CAPEX is quite volatile: 3,048 in 2016, 5,372 in 2015, 8,815 in 2014, 9,559 in 2013, 2,970 in 2012
• The company has potentially unprofitable business model: ROIC is at 2.4%
• It operates with medium-size leverage: Net Debt/EBITDA is 4.0x while industry average is 4.2x

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. $	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	214,436	232,694	221,073	147,351	152,948	3.8%
Gross Profit	4,001	5,549	6,729	2,818	3,185	13.0%
SG&A	980	1,185	1,279	1,073	1,082	0.8%
EBITDA	4,477	8,392	10,873	7,557	7,715	2.1%
Net Income	1,004	-8,046	2,308	-4,964	1,379
Balance Sheet
Cash	2,782	2,849	2,824	2,707	2,508	-7.4%
Short Term Debt	16,498	16,461	12,005	11,117	10,030	-9.8%
Long Term Debt	19,028	38,712	40,688	32,932	23,188	-29.6%
Cash flow
Capex	2,970	9,559	8,815	5,372	3,048	-43.3%
Ratios
Revenue growth	15.2%	8.5%	-5.0%	-33.3%	3.8%
EBITDA growth	1.2%	87.4%	29.6%	-30.5%	2.1%
Gross Margin	1.9%	2.4%	3.0%	1.9%	2.1%	0.2%
EBITDA Margin	2.1%	3.6%	4.9%	5.1%	5.0%	-0.1%
Net Income Margin	0.5%	-3.5%	1.0%	-3.4%	0.9%	4.3%
SG&A, % of revenue	0.5%	0.5%	0.6%	0.7%	0.7%	-0.0%
CAPEX, % of revenue	1.4%	4.1%	4.0%	3.6%	2.0%	-1.7%
ROIC	4.6%	4.7%	4.9%	1.7%	2.4%	0.7%
ROE	3.3%	-20.0%	4.7%	-11.1%	3.2%	14.3%
Net Debt/EBITDA	7.3x	6.2x	4.6x	5.5x	4.0x	-1.5x

Revenue and profitability

Glencore's Revenue increased on 3.8%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 0.77 pp from 9.8% to 10.5% in 2016.

Gross Margin showed almost no change in 2016. SG&A as a % of Revenue showed almost no change in 2016.

Net Income marign increased on 4.3 pp from -3.4% to 0.90% in 2016.

Capital expenditures (CAPEX) and working capital investments

In 2016 Glencore had CAPEX/Revenue of 2.0%. The company's CAPEX/Revenue decreased on 2.1 pp from 4.1% in 2013 to 2.0% in 2016. For the last three years the average CAPEX/Revenue was 3.2%.

Return on investment

The company operates at low ROIC (2.45%) and ROE (3.23%). ROIC increased slightly on 0.71 pp from 1.7% to 2.4% in 2016. ROE surged on 14.3 pp from -11.1% to 3.2% in 2016.

Leverage (Debt)

Debt level is 4.0x Net Debt / EBITDA and 4.3x Debt / EBITDA. Net Debt / EBITDA dropped on 1.5x from 5.5x to 4.0x in 2016. Debt dropped on 24.6% while cash decreased on 7.4%.

Management team

Glencore's CEO is Ivan Glasenberg. Ivan Glasenberg has 16 years tenure at the company. The company's CFO Steven Kalmin "Steve" has spent 13 years 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	FY2012	FY2013	FY2014	FY2015	FY2016
Mongolia Energy Corp Ltd ($276)		89.7%	-95.8%	2,361.6%	1,178.3%
Real Gold Mining Ltd ($246)	-44.0%	-68.0%	-26.2%	106.2%
REX Global Entertainment Holdings Ltd ($164)		81.6%	-15.5%	96.4%	30.4%
Hengxing Gold Holding Co Ltd ($2303)			3,467.3%	78.0%
Zijin Mining Group Co Ltd ($2899)	21.6%	2.5%	18.1%	26.9%
Median (47 companies)	6.7%	-1.7%	-5.9%	-14.0%	6.2%
Glencore ($805)		8.5%	-5.0%	-33.3%	3.8%

Top companies by Gross margin, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Sino Prosper Group Holdings Ltd ($766)	2.5%	5.1%	39.6%	93.0%	87.4%
REX Global Entertainment Holdings Ltd ($164)	-15.8%	-7.8%	-0.8%	88.6%	87.3%
China Billion Resources Ltd ($274)	71.4%	47.2%	73.4%	79.7%
Sun International Resources Ltd ($8029)	83.2%	73.1%	64.8%	69.4%	58.8%
Grand T G Gold Holdings Ltd ($8299)				57.3%	59.0%
Median (49 companies)	15.8%	14.4%	15.5%	16.7%	39.9%
Glencore ($805)	1.9%	2.4%	3.0%	1.9%	2.1%

Top companies by EBITDA margin, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
G-Resources Group Ltd ($1051)		54.5%	53.4%	58.3%
Grand T G Gold Holdings Ltd ($8299)				53.7%	58.9%
China Precious Metal Resources Holdings Co Ltd ($1194)	70.0%	64.6%	59.6%	51.3%
Timeless Software Ltd ($8028)	-113.1%	24.7%	-13.7%	46.1%	28.0%
Hengxing Gold Holding Co Ltd ($2303)		-766.2%	24.5%	43.9%
Median (49 companies)	5.3%	8.5%	6.3%	5.1%	-27.3%
Glencore ($805)	2.1%	3.6%	4.9%	5.1%	5.0%

Top companies by CAPEX/Revenue, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mongolia Energy Corp Ltd ($276)	8,006.5%	1,061.7%	30,555.4%	1,973.0%	20.9%
Kaz Minerals ($847)	36.6%	136.5%	168.8%	168.7%	41.9%
Chinalco Mining Corp International ($3668)				115.6%
China Dynamics Holdings Ltd ($476)	1.8%	0.0%	1.0%	113.8%	5.7%
MMG Ltd ($1208)	25.7%	22.6%	41.9%	100.4%
Median (48 companies)	17.7%	17.9%	16.5%	12.5%	5.7%
Glencore ($805)	1.4%	4.1%	4.0%	3.6%	2.0%

Top companies by ROIC, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
CGN Mining Co Ltd ($1164)	2.6%	3.3%	7.9%	16.7%
United Co RUSAL PLC ($486)	0.3%	-9.0%	6.3%	12.3%
Xingfa Aluminium Holdings Ltd ($98)	7.6%	8.8%	11.7%	11.8%
Timeless Software Ltd ($8028)	-29.1%	7.3%	-4.6%	11.6%	3.9%
China Hongqiao Group Ltd ($1378)	24.8%	17.0%	14.1%	10.6%
Median (50 companies)	0.9%	2.3%	-0.1%	-1.1%	-2.8%
Glencore ($805)	4.6%	4.7%	4.9%	1.7%	2.4%

Top companies by Net Debt / EBITDA

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
China Daye Non-Ferrous Metals Mining Ltd ($661)	9.2x	9.7x	9.2x	31.5x
Chinalco Mining Corp International ($3668)				25.0x
MMG Ltd ($1208)	2.1x	2.0x	10.2x	20.2x
Kaz Minerals ($847)	2.4x	2.9x	5.5x	18.7x	8.8x
China Precious Metal Resources Holdings Co Ltd ($1194)	1.5x	4.1x	6.4x	13.5x
Median (29 companies)	1.7x	1.8x	4.4x	3.4x	2.2x
Glencore ($805)	7.3x	6.2x	4.6x	5.5x	4.0x

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