1H2013 trading update

29 August 2013
FESCO Transportation Group (MICEX-RTS: FESH) provides a trading update with consolidated financial and operational results for the six months ended June 30, 2013.

Group Operational Results

Port Division

In 1H2013, import container cargo throughput grew to 97.6 thousand TEUs (up 8.8% y-o-y), export container cargo throughput grew to 78.5 thousand TEUs (up 1.8% y-o-y), and cabotage container cargo throughput decreased by 10.1% to 47.7 thousand TEUs on the back of the decrease in domestic sea service lines.

Automobiles and transportation vehicles throughput increased by 23.5% amounting to 47.9 thousand units.

Non-container cargo throughput (excluding vehicles) declined by 41.0% to 1.0 mln tons driven by the visible reduction in export volumes of ferrous metals and coke.

Rail Division

In 1H2013, rail container transportation volumes were up 5.3% y-o-y reaching 136.4 thousand TEUs. The growth was above the market average due to a growing number of block trains operated by the Group and an increased fleet of fitting platforms. The volume of containers delivered by block trains increased by 34% y-o-y.

Rail cargo load decreased by 19.0% to 10.2 million tons on the back of the continuing weakness of Russia’s rail transportation market and gondola market in particular, as well as the reduction of the average transportation speed within the RZhD network. Rail cargo turnover grew by 8.9% y-o-y due to growth in the average transportation distance.

Liner and Logistics and Shipping Divisions

In the reporting period, intermodal freight transportation1 volumes rose by 27.1% y-o-y to 125.1 thousand TEUs. The growth of intermodal freight transportation is driven by solid demand for the integrated logistical solutions provided by FESCO Group.

In 1H2013, bilateral sea container trade volumes reached 181.2 thousand TEUs, an increase of 8.9% y-o-y driven mostly by import. In June 2013, the Group extended its FESCO Black Sea Shuttle service (FBSS) by adding the call to the second largest Turkish port Izmir. The volume of domestic sea container transportation declined by 11.0% y-o-y to 28.9 thousand TEUs due increased competition, especially on the Vladivostok-Kamchatka and Vladivostok-Sakhalin lines. To strengthen its competitive positions, FESCO acquired two ice class general cargo vessels – Pevek in March 2013 and Posyet in April 2013, which started servicing its cabotage service lines in 3Q2013.

Ro-ro transportation grew by 7.9% and reached 28.8 thousand units.

As of June 30, 2013 the Group operated a fleet of 24 vessels deployed through the FESCO sea service lines and 4 ice-breakers leased-in under long-term contracts.

Group Financial Results

In 1H2013, the reported total revenue declined by 4.3% to $557.3m as result of mixed top line divisional performance.

EBITDA increased from $97.1m in 1H2012 to $99.4 in 1H2013. EBITDA margin increased by 1.1 pp to 17.8%.

  • Port Division
    • EBITDA increased by 15.5% from $38.8m to $44.8m due to the consolidation of VMTP. EBITDA margin decreased from 48.6% to 40.8% due to the increased share of low marginal cargo after consolidation of VMTP
  • Rail Division
    • EBITDA decreased by 43.2% from $93.5m to $53.1m. Although the container transportation performed well, the decrease in general cargo volumes negatively affected the divisional results along with a fall in market average income of railcars (particularly for gondolas). EBITDA margin decreased from 50.3% to 37.7%
  • Liner and Logistics Division
    • EBITDA rose by 33% to $17.6m following strong demand for intermodal logistical solutions offered by FESCO. EBITDA margin increased from 4.6% to 5.4%
  • In the Shipping Division EBITDA remains negative

Pro-forma consolidated debt slightly decreased to $1,150m with the balance sheet cash of $191m as of June 30, 2013:

  • Consolidated debt includes the placement of $550m 8.00% Senior Secured Notes due 2018 and $325m 8.75% Senior Secured Notes due 2020 in May 2013, as well as RUB 5 bln (app. $153m) bonds, placed to refinance the Group’s acquisition-related and pre-existing debt
  • Completed refinancing resulted in more efficient capital structure and currency mix
  • As of June 30, 2013, Pro-forma Net Debt / LTM adjusted EBITDA ratio was 4.0x.

Ruslan Alikhanov, FESCO President and CEO commented:

“Although the continuing weakness in the rail market negatively affected our results, our strategy remains unchanged. We continue to successfully grow container business in both rail and port. In the next quarters we will be focusing on costs competitiveness and improvement of our operational performance”.

FESCO Consolidated Group Financial Performance

$ millions 1H 2013 1H 2012 Change
Revenue(1) 557.3 582.5 -4.3%
EBITDA(1) 99.4 97.1 +2.4%
   EBITDA margin(1) 17.8% 16.7% +1.1 pp
Capital Expenditures 25.2 46.5 -45.8%

(1) On adjusted basis for consolidation of port in 1Q2012, disposal of vessels and non-recurring expenses the 1H2013 adj. revenue decreased by 5% and adj.EBITDA decreased by 26% y-o-y.

FESCO Consolidated Group Financial Position

$ millions At 30 June, 2013
Pro-forma total Debt(2) 1,150
Cash 191
Pro-forma net Debt 959
Pro-forma net Debt/ LTM Adj. EBITDA 4.0x

(2)Total borrowings include the placement USD 550m 8.00% Senior Secured Notes due 2018 and USD 325m 8.75% Senior Secured Notes due 2020 in May 2013; RUB 5bln rubl bonds in June 2013 and exclude the $140m REPO loan against the shares of TransContainer

Divisional Financial Performance

$ millions 1H 2013 1H 2012 Dynamics
   Revenue(3) 109.9 79.9 +37.5%
   EBITDA(3) 44.8 38.8 +15.5%
   EBITDA margin(3) 40.8% 48.6% -7.8 pp

   Revenue 140.9 185.9 -24.2%
   EBITDA 53.1 93.5 -43.2%
    EBITDA margin 37.7% 50.3% -12.6 pp
Liner & Logistics

   Revenue 327.6 284.6 +15.1%
   EBITDA 17.6 13.2 +33.3%
   EBITDA margin 5.4% 4.6% +0.8 pp

   Revenue(4) 28.7 74.9 -61.7%
   EBITDA(4) -3.9 -2.7 -
   EBITDA margin(4) negative negative -

(3) On adjusted basis for consolidation of port in 1Q2012 and non-recurring expenses 1H2013 port adj.EBITDA decreased by 12% y-o-y with adj.EBITDA margin decreased to 42%

(4) On adjusted basis for disposal of vessels and non-recurring expenses the 1H2013 shipping adj.EBITDA slightly decreased

FESCO operational results for 1H2013

1H2012 1H2013 Dynamics
Intermodal freight transportation (TEU)

98 399

125 054 +27.1%
Bilateral sea container trade (TEU) 166 461 181 203 +8.9%
Domestic sea container trade (TEU) 32 430 28 871 -11.0%
Reefer transportation (TEU) 23 152 22 206 -4.1%
Ro-Ro transportation (TEU) 26 653 28 760 +7.9%
VMTP container throughput (TEU)
— Import
— Export
— Cabotage
219 919
89 706
77 114
53 099
223 802
97 563
78 498
47 741
VMTP non-container cargo throughput (excluding vehicles) (thousand tons) 1 797 1 061 -41.0%
Automobiles and transportation vehicles throughput (units) 38 814 47 922 +23.5%
Rail container transportation («Russkaya Troyka» and «Transgarant») (TEU) 129 470 136 369 +5.3%
Rail cargo load (million tons) 12,6 10,2 -19,0%
Rail cargo turnover (billion ton-kilometers) 14,8 16,1 +8,9%

1 The figure includes both intermodal freight transportation and freight forwarding

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