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Operational and Financial Results for the 1Q Ended March 31, 2016

30 May 2016

FESCO Transportation Group (MOEX: FESH) announces its operational and consolidated IFRS results for three-month period ended March 31, 2016.

Highlights

• Russia’s ongoing economic downturn, the current global geopolitical challenges and increasing competition in the freight market continued to negatively affect FESCO’s operational results in 1Q 2016

• In general, the transportation market in the Russian Far East demonstrated negative trends in 1Q 2016. Container transportation volumes decreased while general cargo transportation volumes slightly improved

• In 1Q 2016, the Group continued to implement cost optimization measurers, including further production and administrative cost savings as well as sale and renting out of non-core assets

• In March 2016, Transgarant signed an agreement with NefteTransService group for the long-term operating lease of 6,085 gondola cars. The agreement is intended to help the Group optimize costs and provide an additional source of revenue

• In April 2016, the Group announced that in light of the current macroeconomic environment the Group’s debt restructuring is necessary. FESCO is in the process of negotiating with holders of its Eurobonds and Rouble bonds, and other lenders   

Operational Overview

• FESCO port and liner container volumes declined due to unfavorable market conditions, as well as decreased trade turnover with foreign partners in Russia:   
     • Container handling volumes at VMTP decreased by 21.6% YoY to 70.6 thousand TEU
     • Export-import liner volumes decreased by 26.6% YoY to 62.2 thousand TEU
     • Intermodal transportation volumes decreased by 28.4% YoY to 33.1 thousand TEU

• General cargo volumes at VMTP increased by 7.0% YoY to 596.8 thousand tons

• Rail container transportation volumes declined by 16.7% YoY to 63.4 thousand TEU. Rail cargo load declined by 6.4% YoY to 4.4 million tons  

Group Operational Results

1Q 2015

1Q 2016

YoY Dynamics

Intermodal freight transportation (TEU)

46,225

33,119

(28.4%)

Export-import sea container trade (TEU)

84,797

62,236

(26.6%)

Domestic sea container trade (TEU)

13,092

10,816

(17.4%)

VMTP container throughput (TEU)

90,117

70,630

(21.6%)

VMTP general cargo throughput (thousand tons)

557.7

596.8

7.0%

Rail container transportation  («RusskayaTroyka» and «Transgarant») (TEU)

76,182

63,441

(16.7%)

Rail cargo load (million tons)

4.7

4.4

(6.4%)

Rail cargo turnover (billion ton-kilometers)

9.6

7.0

(27.1%)

Financial Overview

The Group’s financial results were affected by the negative economic growth rate in Russia, decline in Russian transportation volumes, in particular in the Far East basin, and purchasing power and RUB depreciation. As a result, the Group’s consolidated revenue decreased by 38.2% compared to 1Q15 to $126 m. Operating expenses were reduced by 42.5% to $84 m. Administration expenses amounted to $17 m, which was19.0% less than the comparable quarter in the prior year.

FESCO Consolidated Financial Position

As of 31 March 2016, Group total debt amounted to $912 m, of which $130 m is repayable within the next twelve months.

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