Glencore has released its FY15 result. While the results are materially down on 2014, due to the significant falls in commodity prices, we believe this was already priced in when we launched coverage. Importantly, the company has improved its debt reduction target by a further USD1bn
The Glencore full year 2015 results beat expectations, with the company delivering a net income of USD1.3bn versus the market’s consensus expectation of USD1.17bn. A link to the company’s full 2015 report is available here.
While the financial result is significantly down on 2014 performance, our credit analysis has been focused on the debt reduction measures the company has employed and how they are progressing with their targets. The 2015 results and guidance released, show that the company has improved its debt reduction target by a further USD1bn and now plans reduce net debt to USD17-18bn by the end of the 2016. The company has forecast 2016 annualised free cashflow of greater than USD3bn and EBITDA of USD8.1bn at spot commodity prices (26 February 2016) and believes cashflow “will remain comfortably positive at materially lower price levels”. The company also has ‘record committed available liquidity’ of USD15.2bn.
Glencore has also reiterated its commitment to an investment grade credit rating, and is targeting a rating upgrade to “strong BBB/Baa” rating in the medium term. New net funding and net debt targets by end 2016 and 2017 have been set to ensure a high probability that net debt / adjusted EBITDA remains comfortably below 3x, and closer to 2x.
2015 key points
- EBITDA of USD8.7bn, down 32%; EBIT of USD2.2bn, down 68%; net income down 69% to USD1.3bn. Results are weaker due to substantially weaker commodity prices, partially offset by cost efficiencies and favourable producer country currencies
- Marketing EBIT of USD2.5bn, down 12%. Strong 2H15 performance of USD1.4bn (as we outlined in the research, providing a level of earnings buffer to commodity price exposure)
- Solid cashflow generation with funds from operations (FFO) of USD6.6bn and liquidity of USD15.2bn at year end
- Liquidity ‘comfortably covers’ next three years of bond maturities
- Healthy cashflow coverage ratios (FFO / Net debt of 25.6%, Net debt / adjusted EBITDA of 2.98x)
- 2015 refinancing program completed early at attractive levels; issued USD4.9bn bonds to refinance existing maturities; repurchased USD564m of bonds and redeemed USD350m of perpetual bonds
- Early refinancing already in 2016 of the short term USD8.45bn tranche of the revolving cash facility
- No financial covenants and modest near term debt maturity profile
Net debt declined from USD29.6bn to USD25.9bn, and the company’s net debt target for the end of 2016 is improved by USD1bn to USD17-18bn. The company is targeting net debt of USD15bn by the end of 2017
- 2016 forecast for annualised free cashflow greater than USD3bn and EBITDA of USD8.1bn at spot commodity prices (26 February 2016)
- Cashflow “will remain comfortably positive at materially lower price levels”
- 2016E marketing adjusted EBIT guidance range unchanged at USD2.4bn-USD2.7bn
- 2016E industrial capex cut a further USD300m to USD3.5bn; 5.7bn in 2015
- Targeting to capture a further USD400m of savings during 2016
Debt reduction program
The company refers to the “rapid delivery” of its capital preservation/debt reduction measures, including:
- Asset sales of USD1.6bn to date, including USD1.4bn from precious metals’ streaming transactions
- Opex, capex and working capital reduction targets, which have been met
- Remaining asset sales processes are proceeding well:
- Expect to reach agreement on the sale of a minority stake in the Agricultural Products business in Q2 2016
- Bids for the potential disposals of Cobar and/or Lomas Bayas are also expected to be finalised during Q2 2016
- Consideration of further monetisation of remaining precious metals’ production base and certain infrastructure/logistics assets
- Glencore is confident of achieving USD4-5bn of asset disposals during the remainder of 2016
Glencore bonds available and current pricing
The following Glencore bonds are available as DirectBonds. The bonds have rallied since they were launched as DirectBonds but we believe still represent good value given the a) stable, investment grade credit rating b) the company’s announcement of targeting an upgrade to a ‘strong BBB/Baa’ credit rating and c) the improved debt reduction target announced in its 2015 result.
*Prices indicative as at 7 March 2016, click on the bond for the factsheet.
Please contact your FIIG representative for further information and current pricing levels on the Glencore bonds. Available to wholesale investors only.