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Trading update for the three month and six month periods ended June 30, 2014

29 August 2014
FESCO Transportation Group (MOEX: FESH) provides a trading update with the operational and consolidated financial results as per IFRS for the three month and six month periods ended June 30, 2014.

Highlights:

  • In 1H2014, the Group continued to increase its container transportation and handling volumes securing the leadership position in Russian Far East by container shipping via sea lines and import container throughput at Port
  • Container throughput at Port increased by 8.4% YoY in 1H2014 strongly outperforming the Far East market, with the Port of Vladivostok market share in import container handling reaching 41%
  • Continued growth in export in 1H2014 seen as a sustainable trend across all steps of transportation chain
  • Despite the container volumes growth the Group’s financial results experienced downward pressure from RUB devaluation and decreased rates and tariffs. In 1H2014, Group’s consolidated revenue in USD declined by 8.0% YoY to $513.1m. Consolidated revenue in RUB grew by 3.5% YoY to RUB 17,947m. 1H2014 EBITDA reached $68.3m, down 31.3% YoY
  • 1H2014 Group’s consolidated EBITDA excluding one-offs amounted to $74.3m
  • The Group continued the optimization of its vessels and railcars fleet
  • The Group announced acquisition of an inland container terminal in Novosibirsk for total consideration of $8m
  • Total cash spend for CAPEX in 1H2014 (including $2.4m paid as advance for terminal in Novosibirsk) remains at relatively low level amounting to $36.3m in 1H2014. Net cash CAPEX after proceeds from disposal of fixed assets equals to $27.3m

Group Financial Results

$ million 1Q 2014 2Q 2014 1H2014 1H2013 Dynamics
Revenue 242.5 270.7 513.1 557.6 -8.0%
EBITDA 32.8 35.4 68.3 99.4 -31.3%
   EBITDA margin 13.5% 13.1% 13.3% 17.8% -4.5 pt
Capital Expenditures 18.4 17.936.325.2 +44.0%


RUB million 1Q 2014 2Q 2014 1H2014 1H2013 Dynamix
Revenue 8 484.9 8 462.117 947.0 17 340.9+3.5%
EBITDA 1 154.4 1 238.5 2 392.83 086.9-22.5%
   EBITDA margin 13.6% 13.1% 13.3% 17.8% -4.5 пп

Divisional Performance Highlights

Port Division

  • Container throughput in 1H2014 up by 8.4% YoY with import container throughput growth of 11.2% YoY
  • Significant growth of 20.4% YoY in general cargo throughput volumes with ferrous metals growth of 50% YoY in 1H2014
  • In 1H2014, revenue in RUB increased by 2.6% YoY with EBITDA in RUB decreased by 2.3% YoY. Revenue and EBITDA in USD decreased by 8.5% YoY and 12.3% YoY respectively due to RUB devaluation
  • The liberalization of customs procedures in 2Q2014 resulted in decrease in average container tariffs by 16.5%YoY in USD (driven by lower revenue from storage and auxiliary services) and contributed to relative weakening of Port performance in the short term

Rail Division

  • Rail container transportation volumes in 1H2014 up by 8.1% YoY to 147,338 TEU driven by expansion of Transgarant fleet by 562 fitting platforms YoY
  • The number of container block trains increased by 7% YoY (from 523 to 558) driven by growing demand for the service
  • Low single-digit decrease in non-container cargo load due to decline in coal transportation volumes and reduction in number of gondola cars
  • Revenue decreased by 39.7% YoY to $85.0m due to continued decline in gondola rates in 1H2013 and RUB devaluation. EBITDA decreased by 53.9% YoY to $24.5m

Liner and Logistics Division

  • Strong growth of export-import sea container transportation in 1H2014 (up by 11.8% YoY)
  • In 1H2014, revenue in RUB was up by 4.4% YoY and in USD decreased by 6.9% YoY down to $304.8m driven by RUB devaluation and growing share of export in intermodal transportation
  • EBITDA in 1H2014 declined by 46.3% YoY due to zero EBITDA in 1Q2014. In 2Q2014, EBITDA was up by 8.0% YoY

Shipping Division

  • Shipping Division demonstrated 16.0% YoY growth of revenue and positive EBITDA of $2.9m in 1H2014 due to positive result from icebreakers and profitable contracts with the third party

Bunkering

  • Bunkering business contributed $70.9m to the Group’s revenue and $6.2m to the Group’s EBITDA in 1H2014
$ millions1Q 2014 2Q 2014 1H2014 1H2013 Dynamics
Port
   Rvenue 44.4 45.5 90.198.4 -8.5%
   EBITDA 19.3 19.3 38.644.0 -12.3%
   EBITDA margin 43.55% 42.4% 42.9%44.7% -1.8 pt
Rail
   Revenue 44.6 40.4 85.0140.9 -39.7%
   EBITDA 0.0 9.49.417.5 -46.3%
   EBITDA margin 0.0% 5.6% 3.1%5.3% -2.2 pt
Liner & Logistics
Revenue 137.3 167.5304.8327.5 -6.9%
   EBITDA 0.0 9.49.417.5 -46.3%
   EBITDA margin 0.0% 5.6% 3.1%5.3% -2.2 pt
Shipping
   Revenue 19.8 13.533.328.7 +16.0%
   EBITDA 4.4 -1.52.9-3.9 -
   EBITDA margin 22.2% -8.7%- -
Bunkering
   Revenue 29.4 41.570.912.1 +486%
   EBITDA 3,8 2,46,20,8 +675%
   EBITDA margin 12.9% 5.8% 8.7%6.6% +2.1 pt

FESCO Consolidated Group Financial Position

Pro-forma net debt amounted to $1,016m as of 30-Jun-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 June 30, 2014, Pro-forma Net Debt / LTM adjusted EBITDA ratio was 6.2x
$ millions At 30 June, 2014
Pro-forma total Debt(1) 1,155
Cash 139
Pro-forma net Debt 1,016
Pro-forma net Debt/ LTM Adj. EBITDA 6.2x

(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 1H2014

1Q 2014 2Q 2014 1H2014 1H2013 Dynamics
Intermodal freight transportation (TEU)* 55,995 61,479117,474 117,187 +0.2%
Export-import sea sontainer trade (TEU) 94,475108,067 202,542 181,203 +11.8%
Domestic sea container trade (TEU) 12,82815,32628,154 28,871 -2.5%
VMTP container throughput (TEU)
—Import 
—Export 
—Cabotage
109,828
49,565
38,031
22,
132,784
58,924
47,437
26,443
242,612
108,489
85,468
48,655
223,802
97,563
78,498
47,741
+8.4%
+11.2%
+8.9%
+1.9%
VMTP non-container cargo throughput (excluding vehicles) (thousand tons) 827 448 1,275 1,059 +20.4%
Automobiles and transportation vehicles throughput (units) 15,329 21,48736,816 47,922 -23.2%
Rail container transportation («RusskayaTroyka» and «Transgarant») (TEU) 70,21977,119147,338 136,353 +8.1%
Rail cargo load (million tons) 4.9 5.0 9.9 10.2 -2.9%
Rail cargo turnover (billion ton-kilometers) 7.6 7.8 15.4 16.1 -4.3%

* - excluding transportation of empty carrier owned containers (COC)

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