Trading update for the three month period ended March 31, 2014

30 May 2014
FESCO Transportation Group (MOEX: FESH) provides a trading update with the operational and consolidated financial results as per IFRS for the three month period ended March 31, 2014.

Highlights:

  • In the short term, the slowdown of economy growth and overall volatile macroeconomic environment caused weakness in the sectors where the Group operates
  • The Group’s revenue declined by 11.9% YoY mostly due to ruble devaluation, which contributed to more than half of the decrease, and continued rail market weakness
  • Significant increase in export volumes in 1Q2014 is seen as a sustained trend for the year
  • The Group’s EBITDA was impacted by mixed divisional profitability and increase in export volumes. EBITDA growth in Port, Bunkering and Shipping Divisions was offset by the results of Rail Division and LLD
  • 1Q2014 Group’s consolidated EBITDA excluding one-offs amounted to $34.5m
  • Despite the market volatility the Group continued to make selective capital investments, mostly in Ports Division, in line with its long term strategy

Group Financial Results

Group performance

$ millions 1Q 2013 1Q 2014 Dynamics
Revenue 275.3 242.5 -11.9%
EBITDA 48.1 32.8 -31.7%
   EBITDA Margin 17.5% 13.5% -4.0 pt
Capital Expenditures 10.0 18.4 +84.0%

Divisional Performance Highlights

Port Division

  • Growth of import container handling (+8% YoY) is above the market (+2% YoY)
  • Strong increase in general cargo throughput volumes (up 35% YoY)
  • Revenue declined by 5% YoY due to ruble devaluation. Excluding the impact of FX rate fluctuation, there was a single-digit revenue growth in 1Q2014
  • Ongoing focus on optimization of the cost structure in addition to a natural FX hedge on the cost side led to an improvement in EBITDA margin by 5 pt

Rail Division

  • Rail container transportation up 9.5% YoY to 70 thousand TEU due to the increased fleet of fitting platforms
  • Number of container block trains increased by 10% from 248 to 274
  • Single-digit decrease in non-container cargo load due to decline in coal transportation volumes
  • Revenue decreased by 40%, EBITDA decreased by 53% due to continued decrease in rates and ruble devaluation

Liner and Logistics Division

  • Strong growth of export-import sea lines container transportation volumes (up 11% YoY) and improving performance in domestic sea lines container transportation volumes (flat YoY)
  • Zero EBITDA is comparable to 1Q2012 result (historically low results in 1Q due to seasonality factors). The decrease of EBITDA in 1Q2014 vs. 1Q2013 was mainly driven by the reduction of freight rates

Shipping Division

  • Revenue and EBITDA growth due to acquisition of new fuel-efficient vessels earlier in 2013, positive result from icebreakers and profitable contract with the third party

Bunkering

  • Successful ramp up of the bunkering business launched in 2Q2013 resulted in $29m contribution to the Group’s revenue and $4m contribution to the Group’s EBITDA with attractive further growth potential
$ millions 1Q 2013 1Q 2014 Dynamics
Port
   Revenue 46.8 44.4 -5.2%
   EBITDA 17.8 19.3 +7.8%
   EBITDA margin 38.2% 43.5% +5.3 pt
Rail
   Revenue 74.6 44.6 -40.3%
   EBITDA 28.4 13.3 -53.2%
   EBITDA margin 38.1% 29.8% -8.3 pt
Liner & Logistics
   Revenue 158.3 137.3 -13.2%
   EBITDA 8.8 0.0 -99.9%
   EBITDA margin 5.6% 0.0% -5.6 pt
Shipping
   Revenue 17.7 19.8 +11.8%
   EBITDA 0.2 4.4
   EBITDA margin 1.1% 22.2% +21.1 pt
Bunkering
   Revenue 29.4
   EBITDA 3.8
   EBITDA margin 12.9%

FESCO Consolidated Group Financial Position

Pro-forma net debt decreased from $927m as of 31-Dec-2013 to $889m as of 31-Mar-2014:

  • Consolidated debt includes $550m of 8.00% Senior Secured Notes due 2018 and $325m of 8.75% Senior Secured Notes due 2020, as well as RUB 5bn of bonds, the proceeds from which were used to refinance the Group’s acquisition-related and pre-existing debt
  • As of March 31, 2014, Pro-forma Net Debt / LTM adjusted EBITDA ratio was 5.0x
$ millions At 31 March, 2014
Pro-Forma Total Debt(1) 1,236.4
Cash 347.8
Pro-forma net Debt 888.6
Pro-forma net Debt/ LTM Adj. EBITDA 5.0

(1)Total borrowings include USD 550m 8.00% Senior Secured Notes due 2018 and USD 325m 8.75% Senior Secured Notes due 2020; RUB 5bln ruble bonds and exclude the $150m REPO loan secured by shares of TransContainer

FESCO operational results for 1Q2014

1Q 2013 1Q 2014 Dynamics
Intermodal freight transportation* (TEU) 57,195 55,995 -2.1%
Export-import sea container trade (TEU) 85,318 94,475 +10.7%
Domestic sea container trade (TEU) 12,861 12,828 -0.3%
VMTP container throughput (TEU)
— Import
— Export
— Cabotage
106,745
45,987
39,367
21,391
109.828
49,565 
38,031 
22,232
+2.9%
+7.8%
-3.4%
+3.9%
VMTP non-container cargo throughput (excluding vehicles) (thousand tons) 611 827 +35.3%
Automobiles and transportation vehicles throughput (units) 21,543 15,329 -28.8%
Rail container transportation («Russkaya Troyka» and «Transgarant») (TEU) 64,129 70,219 +9.5%
Rail cargo load (million tons) 5.1 4.9 -3.9%
Rail cargo turnover (billion ton-kilometers) 7.7 7.6 -1.3%

- excluding transportation of empty carrier owned containers (COC)

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