Menu
Menu
.
News and events

FESCO Announces Six Months Year-to-Date Trading Update and Full Year 2016 EBITDA Expectation

9 August 2016
As part of its ongoing commitment to facilitate the debt restructuring process, FESCO Transportation Group (the “Group” or “FESCO”) reports the Group’s preliminary key operating metrics and financial performance indicators for the six months ending June 30 2016. Additionally, given the extraordinary operating environment and special circumstances of the Group, in particular the fact that the Group is in a debt restructuring process, FESCO has resolved to deviate from its past practice and provide, on a one-off basis, an indication of its EBITDA expectations for the 2016 fiscal year.

Macroeconomic overview

The Russian economy continues to experience headwinds. According to the Russian Ministry of Economic Development, Russia’s GDP declined by 0.9% in 1H16 compared to 1H15 and by 0.6% in 2Q16 compared to 2Q15. Despite the slowing pace of the economic recession, negative trends persist in private consumption (4.3% of decline in 1Q16 compared to 1Q15 [1] ) and the construction (1.6% [2] of decline in 1Q16 compared to 1Q15) sector, key segments of the economy that influence the Group’s financial performance. On balance, current macroeconomic trends provide a basis for cautious optimism that the transportation sector, and the container market in particular, may finally begin to stabilize and undergo a modest and gradual recovery.

Market Overview

• Overall, the Russian transportation market has shown signs of slight improvement in the past few months, but the market remains volatile. The Far East region market continues to exhibit negative trends, driven by reduced import levels and the relative attractiveness of alternatives to the Far East ports, in particular impacted by historically low Deep Sea freight rates that divert import flows to other destinations.

• In 1H16, container throughput volumes in the Far East ports (loaded and empty containers combined) decreased by 14% [3] compared to 1H15, mainly due to declining import and transit volumes

• In 2H16, the Company expects container throughput volume in the Far East to contract by 9%, a significant improvement compared to the 28% decline experienced in 2H15

• In 1H16, general and non-container cargo throughput in the Far East ports increased by 10% [4] compared to 1H15, driven primarily by the increase in bulk export cargoes

• In 1H16, export-import sea container transportation volumes in the Far East decreased by 6% compared to 1H15, with import sea transportation suffering the biggest decline of 11% and export sea transportation experiencing a slight increase of 2%

• In 1H16, rail container transportation volumes on the East-West-East route fell by 6% compared to 1H15, with import rail transportation suffering a decline of 11%, consistent with the decline in import container handling volumes by 14%, offset by a modest 3% recovery in overall internal rail container transportation

• In 1H16, the global shipping market remained under pressure due to a systemic supply-demand imbalance, with deep and short sea freight rates continuing to show negative trends and with no anticipated recovery in the near term.

Six Months 2016 Trading Update for Period ending June 30 2016

The information in this Six Months YTD 2016 Trading Update has been prepared based on preliminary operating and financial results. This Six Months YTD 2016 Trading Update does not contain sufficient information to constitute a full set of financial statements. The numbers in this Six Months YTD Trading Update have not been audited. FESCO publishes consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) on a quarterly basis.

The following preliminary results may differ from financial statements prepared in accordance with IFRS. This Six Months YTD 2016 Trading Update includes measures of financial performance that are not a measure of financial performance under IFRS, such as “EBITDA” and “EBITDA margin”. “EBITDA” should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net profit or indicators of the Company’s operating performance or any other measure of performance derived in accordance with IFRS. Because these are not IFRS measures, “EBITDA” and “EBITDA margin” may not be comparable to similarly titled measures presented by other companies.

Preliminary Operational Results

6M June 30
2016

6M June 30
2015

Change,
%

Intermodal freight transportation (TEU)

70,950

85,699

-17%

Export-import sea container trade (TEU)

126,537

168,436

-25%

Domestic sea container trade (TEU)

24,914

26,930

-7%

VMTP container throughput (TEU)

148,335

174,570

-15%

VMTP general cargo throughput (‘000 tons)

1,312

1,055

24%

Rail container transportation («Transgarant» only) (TEU)

86,380

89,234

-3%

Rail shipments in box cars (units)

8,595

6,308

+36%

Bunkering volumes (‘000 tons)

58.4

287.8

-80%

Preliminary Financial Results

$ million

6M June 30
2016

6M June 30
2015

Change,
%

Revenue

257.9

383.1

-33%

Revenue excluding Bunkering Division

254.8

316.9

-20%

Profit from operating activity

17.8

37.1

-52%

EBITDA

39.4

62.7

-37%

EBITDA margin

15.3%

16.4%

CAPEX

7.4

9.1

-18%

Reconciliation of EBITDA to Profit from operating activity

$ million

6M June 30
2016

6M June 30
2015

Profit from operating activity

17.8

37.1

Depreciation and amortization

19.6

24.7

Impairment (loss)/release on tangible fixed assets, net

0.1

Other income and expenses, net in part of  Loss on sale of fixed assets

1.8

-0.9

Non-recurring expenses

0.2

1.6

EBITDA

39.4

62.7

The majority of FESCO’s operations are located in the Russian Far East. FESCO offers comprehensive services along the East-West-East transport corridor, including handling in port, marine lines and rail/ intermodal container services. In all of its segments, the Company operates in highly competitive and fragmented markets.

Port Division:

Container Handling

• The Group’s container throughput decreased by 15% in 1H16 compared to 1H15, which is in line with overall market dynamics in the Far East region. In 2H16, FESCO expects container throughput in the Port to decline by 8% compared to 2H15 with decreasing average income per TEU due to improved turnaround of containers and resulting reduced storage income

• In light of the continuing projected decline in the Far East container handling volumes, the Group is pursuing operating efficiencies, customer oriented terminal services improvements as well as other initiatives to increase market share.

General Cargo & Non-Container Handling

• Given the negative dynamics in the container handling market, the Group also increased its focus on general cargo transportation at Commercial Port of Vladivostok. As a result, FESCO increased general cargo and non-container throughput by 24% in 1H16 compared to 1H15. For example, volumes of handling operations in metals, the most profitable segment, increased by more than 60% in 1H16 compared to 1H15. In 2H16, FESCO expects general cargo and non-container cargo throughput to increase by 36% compared to 2H15.

Liner and Logistics Division:

• The Group’s export-import sea container trade volumes declined by 25% in 1H16 compared to 1H15, mainly due to a decline in market volumes compared to a high base in 1H15. The average import freight rate decreased by 12% in 1H16 compared to 1H15 on the core routes in Southeast Asia (SEA). In 2H16, FESCO expects volumes to increase by 10% compared to 2H15 due to sales network expansion in Asia and increased intermodal transportation volumes.

• The decline in intermodal freight transportation by 17% in 1H16 was caused mainly by the overall decline in import volumes. The average intermodal freight rate on core import routes declined by 10-15% from the beginning of the year.

• In 2H16, FESCO expects a 5% increase in intermodal transportation volumes due to improvement of market share on core routes and the development of new regions and services.

Rail Division:

• FESCO rail container transportation volumes are driven mainly by import volumes, which currently exhibit negative trends, as opposed to the overall domestic rail container market.

• The Group’s rail container transportation volumes declined by 3% in 1H16 compared to 1H15, driven by the decline in import volumes.

• In 2H16, FESCO expects rail container transportation volumes to increase by 30% compared to 1H16 due to the increase of own intermodal shipments in block trains.

• In contrast to container transportation volumes the Group increased box car shipments by 36% in 1H16 compared to 1H15 achieving better yield than the market average.

• As part of the Group strategy to focus on its core rolling stock operations in the Rail segment, the Group leased out 6,085 gondola cars to NefteTransService in 1H16, resulting in increased income and cost optimization.

Shipping Division:

• Time-charter rates for all types of vessels remain under pressure and are expected to continue to decrease during 2016 due to the excess global supply in both the container vessels segment and bulk and general cargo segments.

• Typically, the Shipping Division delivers stronger performance in the first half of the year driven by high utilization of the icebreaker fleet and ice-class vessels in the winter season. Repair and scheduled maintenance costs for the fleet will be incurred in 2H16.

Bunkering Division:

• Bunkering volumes sharply reduced due to the Group’s decision to complete risky and capital intensive bunkering operations by large tankers and concentrate on railway delivery of fuel and on bunkering exclusively via its own terminal in the port.

Full Year 2016 EBITDA Expectation

On 12 July 2016, the Group presented its view on the macroeconomic and industry factors impacting the Group’s current and future operating and financial performance.

In general the macro environment may show signs of improvement, and a market segment specific assessment of individual drivers for each of FESCO’s business divisions indicates that 2H16 performance at the combined EBITDA level will be better.

To provide additional transparency, based on the abovementioned trends and forecasts, FESCO anticipates that EBITDA for 2H16 will be between $45m and $50m. Combined with cash on hand of approximately $24m at the end of June, this would be sufficient to support normal ongoing operating needs in 2H16, including taxes, working capital and other non-operating expenses, restructuring costs and CAPEX. This estimate is consistent with the business update and outlook as presented on 12 July, 2016. A copy of this business update and outlook was made available on:

• FESCO’s web site: http://www.fesco.ru/upload/iblock/48d/fenix_bondholder_presentation_public_20160712_short.pdf

• Far East Capital Limited S.A.’s (the Issuer) web site: http://feclsa.com/wp-content/uploads/2016/07/Fenix-Bondholder-Presentation-PUBLIC-20160712_short.pdf

The actual full year 2016 EBITDA may be different and may or may not fall within the indicated range as actual underlying factors may vary from the assumptions in the forecast. The factors contributing to such differences may include, among others, changes in the general economic and market conditions; Far East Region market share in the Russian Federation; FESCO’s market share in the Far East Region; cargo volumes; transportation rates; competitive environment; competitors’ and vendors’ actions; creditors’ actions; GDP and its individual component dynamics; oil price and exchange rate fluctuations; and changes in Russian and other applicable laws, government regulations and rules.

Furthermore, FESCO notes the consensus Russian economy and industry forecasts for a slow turnaround of the Russian economy and transportation industry (the possible return to 2014 levels of volumes by 2021-2022), leading to a very gradual and modest anticipated recovery of the Group’s operating and financial performance by 2023.

Related materials:

Audio record of the conference call related to 1H16 trading update and FY16 EBITDA guidance (MP3 file, 14.8 Mb)

Q&A on conference call on 12-08-2016 (file PDF, 92 kb) 

IMPORTANT NOTICE:

These materials may contain forward-looking statements regarding future events or the future financial performance of Far-Eastern Shipping Company PLC (the “Company”). You can identify forward looking statements by terms such as “expect”, “believe”, “estimate”, “anticipate”, “intend”, “will”, “could”, “may”, or “might”, the negative of such terms or other similar expressions. These forward-looking statements include matters that are not historical facts and statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance or outcomes and that the Company’s actual results of operations, financial condition, liquidity, prospects, growth, strategies and the development of the industry in which the Company operates may differ materially from those described in or suggested by the forward-looking statements contained in these materials. In addition, even if the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in these materials, those results or developments may not be indicative of results or developments in future periods. Any forward-looking statements that are made in these materials speak only as at the date of this announcement. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in forward-looking statements of the Company, including, among others, general economic and market conditions, competitive environment, risks associated with operating in the relevant jurisdictions, as well as many other risks specifically related to the Company and its operations, including those discussed in these materials.

These materials are not intended to and do not constitute investment advice. These materials do not constitute or form any part of and should not be constructed as an offer or commitment to sell or issue, a solicitation, recommendation, commitment or invitation to subscribe for, underwrite or otherwise acquire, and should not be construed as an advertisement for, any securities of the Company or any member of the Group in any jurisdiction or an inducement to enter into investment activity in any jurisdiction.



[1] Source: Rosstat (www.gks.ru) data available for 1Q16 only


[2] Source: Rosstat (www.gks.ru) data available for 1Q16 only


[3] Source: Morcentr -TEK – calculation is based on key Far East ports only


[4] Source: Morcenter –TEK – calculated for Far East basin excluding cargo in containers, RO-RO cargo, liquid cargo, float board cargo, coal and coke


all publications