Financial Results for the Six-Month Period Ended June 30, 2016

  • As part of its strategy to extend its geographical reach, FESCO launched several new routes, including additional services from Vladivostok to Central Asia, transit service for Chinese cargo through the Russian Far East via Corridor “Primoriye-1”, an all-land service from China to Russia, as well as the development of export shipments via Corridor “North – South”

  • FESCO optimized its sea line routes and attracted additional partners to vessel sharing agreements in order to enhance operational efficiency and reduce costs

  • The Group rented out the fleet of gondola cars, which were considered as non-core assets, and focused on fitting platforms and box cars

  • In line with its key goals, the Group enhanced its management team in container business and human resources development and appointed Vladimir Chisnakov as First Vice President, Liner and Logistics, and Olga Litvinova as Vice President, HR

In addition, the Group is engaged in a debt restructuring process and has entered into discussions with holders of issued bonds and other lenders under its bilateral facilities. For this purpose, FESCO appointed Mr. Steven Hellman as Chief Restructuring Officer; he is responsible for leading the restructuring process.

Financial Overview

  • In 1H2016, Group’s consolidated revenue and EBITDA decreased by 33% YoY to $257.9m and by 37% YoY to $39.4m respectively. The decline was mainly driven by lower container throughput and decrease in average freight rates, as well as a drop in bunkering business

  • The Group managed to maintain EBITDA margin at 15.3%, mainly due to effective cost control and optimization

  • CAPEX is being maintained at the level required to provide the necessary support for day-to-day operations without any reduction in quality and safety and amounted to $7.4m in 1H2016 (down by 19% YoY)

Group Financial Results  

Reconciliation of EBITDA to Profit from operating activity

Divisional Performance

Port Division

  • The Group’s container throughput in 1H16 decreased by 15% YoY to 148.3 thousand TEU, which is in line with negative market trends

  • General cargo and non-container throughput increased by 24% YoY to 1,312 thousand tons

  • Port Division’s revenue decreased by 11.9% YoY to $52m due to decline in container handling volumes. EBITDA declined by 16.4% YoY to $26.5m. EBITDA margin decreased by 2.8 pp to 51.0% due to changed proportion of general and container cargoes

Rail Division

  • Rail container transportation decreased by 3% YoY to 86.4 thousand TEU in 1H16

  • Rail Division’s revenue in 1H2016 decreased by 25.9% YoY to $43m, EBITDA reduced by 34.5% YoY to $7.4m and EBITDA margin amounted to 17.2%, down by 2.3 pp

  • The financial results declined mainly due to lower transportation volumes; decrease in fitting platform revenues as a result of market pressure on container transportation and general decline in freight rates; gondola cars relocation expenses in connection with concluded rental agreement; write-off of old rolling stock; maintenance and repair costs

Liner and Logistics Division

  • The Group’s export-import sea container trade volumes declined by 25% YoY to 126.5 thousand TEU in 1H16, mainly due to a decline in market volumes. The average import freight rate decreased by 12% YoY in 1H16 on the core routes in Southeast Asia

  • Intermodal freight transportation declined by 17% YoY to 71 thousand TEU in 1H16 resulting mainly from the overall decrease in import volumes. The average intermodal freight rate on key import routes declined by 10-15% from the beginning of the year.

  • Domestic sea container transportation decreased by 7% YoY in 1H16 to 24.9 thousand TEU

  • The decrease of import-export and intermodal volumes and negative dynamics of global freight rates resulted in the Liner and Logistics Division’s revenue and EBITDA decrease. In 1H16, revenue decreased by 18.7% YoY to $161m, while EBITDA decreased by 72.8% YoY to $2.2m

Shipping Division

  • In 1H16, Shipping Division’s revenue went down by 31.3% YoY to $33m, EBITDA decreased by 23.9% to $12.1m, while EBITDA margin increased by 3.5pp to 36.7%. The Shipping Division’s financial results were significantly affected by lower time-charter rates and general lack of demand for container fleet

Bunkering

   • Due to the Group’s decision to review its bunkering business segment, the Bunkering Division significantly reduced its operations, which also allowed the Company to reduce working capital significantly. As a result, bunkering revenue decreased by 86.4% YoY in 1H2016 to $11m

Divisional Financial Results[1]

FESCO Consolidated Financial Position

  • Pro-forma total debt [2] amounted to $845 million as of June 30, 2016, compared to $873 million as of June 30, 2015

  • Pro-forma net debt amounted to $821 million as of June 30,2016 compared to $833 million as of June 30, 2015

  • As of June 30, 2016, Pro-forma Net Debt / LTM EBITDA [3] ratio was 9.6х

[1] EBITDA is calculated as Profit from operating activity adding back depreciation and amortization, Impairment on tangible fixed assets and one-off expenses

[2] Total borrowings exclude the REPO loan in the amount of $65 million as of June 30, 2016 and $69 million as of June 30, 2015 secured by shares of TransContainer PJSC

[3] LTM EBITA accounted for $85.4m