March 30, 2015

Results for the three-month and twelve-month periods ended December 31, 2014

FESCO Transportation Group (MOEX: FESH) today announces its operational and consolidated financial results as per IFRS for three-month and twelve-month periods ended December 31, 2014.

2014 Highlights:

- Container throughput at Port increased by 7.7% YoY to 513 thousand TEU

- Export-import sea container trade increased by 16.6% YoY to 428 thousand TEU

- Continuous weakness in the rail market and RUB devaluation affected negatively the financial results of the group resulting in consolidated revenue decrease by 1.9% YoY to $1,118m and consolidated EBITDA decrease by 8.5% YoY to $177m

- Group's EBITDA margin decreased by 1.2pp to 15.8%

- To address the market headwinds the Group has developed a cost optimization programme which started and already delivered the first results in 4Q2014

Operational overview

- In 2014, FESCO leveraged a sustainable trend of growing bulk and containerized cargo export across all steps of the transportation value chain and increased trade activity in the Russian Far East

- The Group continued to increase container transportation and handling volumes across all divisions strengthening its leading position in the Russian Far East

- FESCO remained #1 in the Russian Far East region by total container handling at sea port terminals with the market share of 32% and the leader by volume on export-import sea container service lines where the Group operates with the market share of 43%

- Export-import sea container transportation was up by 16.6% YoY to 428,137 TEU due to growing trade flows between Russia and Asian countries

- Container throughput at Vladivostok port increased by 7.7% YoY to 513,481 TEU in 2014 distinctly outperforming the Far East container market, the fastest growing Russian sea basin which was up by 2.3% YoY in 2014

- Container transportation by the Rail Division increased by 13.8% YoY to 325.4 thousand TEU in 2014

Financial overview

Group financial results were positively affected by solid growth of container volumes across all divisions; however RUB devaluation and continuous rail market weakness were major contributors to negative dynamics of USD denominated financial results.

- Group's consolidated revenue decreased by 1.9% YoY to $1,118m. Group's EBITDA decreased by 8.5% YoY and reached $177m.

- In RUB terms Group's consolidated revenue and EBITDA were up by 17.8% YoY to RUB 42,787m and up by 10.6% YoY to RUB 6,820m, respectively

- In Port, Bunkering, Liner and Logistics and Shipping Divisions revenue and EBITDA in RUB were up in 2014 vs. 2013. In the Rail Division, the decrease of revenue and EBITDA in RUB was smaller than in USD

- Group's EBITDA margin decreased by 1.2pp YoY to 15.8%. Excluding low-margin bunkering business, Group's EBITDA margin was up YoY

- The Group demonstrated strong performance in 4Q 2014 with Port, LLD and Shipping divisional EBITDA growth

- CAPEX spending increased due to expansion CAPEX component, which includes acquisition of two new fuel efficient vessels, acquisition of a dry container terminal in Novosibirsk, investments the Port Division and in Usady project as well as acquisition of trucks and investment in the corporate IT system. To address the macroeconomic challenges in 2015 the Group plans to cutback the expansion CAPEX, and keep the CAPEX at maintenance level in the range of $20-25m

Group had developed the cost optimization program which started to be implemented in Q4 2014 and will continue in 2015. The program is focused on maximization of cash flow by reduction of CAPEX, reduction of administrative expenses across all divisions, decrease in operating costs at port, optimization of fleet usage in rail and shipping, and the labour productivity growth.

In 4Q 2014, the Group started transferring stevedoring and terminal handling tariffs at Port for export-import cargo from RUB into USD to improve the revenue currency structure. The Group targets to increase the share of USD-denominated revenue for 2015 at Port division to 80%.

Group Financial Results

$ million	3Q 2014	4Q 2014	4Q 2013	YoY Dynamics	2014	2013	YoY Dynamics
Revenue	331.0	274.2	290.1	-5.5%	1 118.3	1 139.7	-1.9%
EBITDA*	59.1	45.5	35.0	+30.0%	177.0	193.5	-8.5%
EBITDA margin	17.9%	16.6%	12.1%	+4.5 pp	15.8%	17.0%	-1.2 pp
CAPEX	23.6	12.8	7.4	+73.0%	72.6	47.5	+52.8%

 

RUB million	3Q 2014	4Q 2014	4Q 2013	YoY Dynamics	2014	2013	YoY Dynamics
Revenue	11 961	12 879	9 460	+36.1%	42 787	36 321	+17.8%
EBITDA*	2 139	2 147	1 155	+85.9%	6 820	6 166	+10.6%
EBITDA margin	17.9%	16.6%	12.1%	+4.5 pp	15.8%	17.0%	-1.2 pp

 

*) EBITDA is calculated as profit from operating activity adding back depreciation and amortization, impairment on tangible fixed assets and one-off expenses. In 2013, Group's EBITDA was adjusted for one-off marketing expenses of $3.9m and one-off legal & consulting expenses of $4.2m. In 2014, Group's EBITDA was adjusted for one-off marketing expenses of $9.6m and one-off legal & consulting expenses of $1.6m.

Divisional Performance

Port Division

- Container throughput in 2014 was up by 7.7% YoY to 513,481 TEU driven mostly by export volumes growth of 11.8% YoY and import growth of 8.3% YoY as a result of continued growth of international trade between Russia and Asia. In 4Q2014, container throughput was up by 3.8% driven by export with import being approximately flat

- Growth of general cargo volumes by 16.7% YoY to 2,297 thousand tons driven primarily by an increase in export volumes due to RUB devaluation. The ferrous metals, non-ferrous metals and chemicals were the major growth cargoes. In 4Q2014, general cargo throughput was up by 14.7% YoY to 511 thousand tons

- Revenue decreased by 7.4% YoY to $185m in 2014 (up by 11.1% YoY in RUB terms) due to RUB devaluation. In 4Q2014 revenue decreased by 6.3% YoY to $44.6m

- EBITDA decreased by 1.3% YoY to $93.2m in 2014 and increased by 35.5% YoY to $25.6m in 4Q2014. The increase in 4Q2014 was driven by historical record growth of high marginal container volumes and reduction of costs

- As a result, EBITDA margin increased in 2014 by 3.1pp YoY to 50.3% and increased by 17.7pp YoY to 57.3% in 4Q2014

Rail Division

- Rail container transportation by Transgarant and Russkaya Troyka was up by 13.8% YoY to 325.4 thousand TEU in 2014 due to increased demand for FESCO block train services and fitting platforms fleet size. In 4Q2014, the growth amounted to 16.7% YoY to 88.9 thousand TEU

- Average fitting platforms fleet of Transgarant increased by 25.2%, while average fleet of Russkaya Troyka grew by 2.2% in 2014

- Rail cargo load down by 1.5% YoY in 2014 to 20 million tons and down by 2% YoY to 4.9 million tons in 4Q2014

- The average rail rates continued to gradually decrease during the year reaching the bottom in 2H2014. In 2H2014, the RUB devaluation kept the RUB-denominated rail rates dynamics' in negative territory.

- Revenue decreased by 34.2% YoY to $165m in 2014 and decreased by 25.0% YoY to $39.2m in 4Q2014 over the same period

- EBITDA decreased by 49.7%YoY to $45.4m in 2014 due to declined railcar rates and FX effect. In 4Q2014, EBITDA decreased by 47.9% to $8.8m

- EBITDA margin decreased by 8.5 pp YoY to 27.5% in 2014 and decreased by 9.9 pp YoY to 22.4% in 4Q2014

Liner and Logistics Division

- Strong volumes growth was driven by export-import sea lines and intermodal transportation on the back of growing trade with Asia, and specifically with China.

- In 2014, export-import sea container transportation was up by 16.6% to 428,137 TEU, intermodal transportation was up by 6.2% to 258,621 TEU

- The intermodal rates were negatively affected by strengthening of competition on international routes. Also the negative effect of RUB devaluation put additional pressure on RUB-denominated cabotage rates. As a result, LLD revenue in 2014 decreased by 7.1% YoY to $623m and in 4Q2014 decreased by 16.2% YoY to $146m

- EBITDA increased by 11.3% YoY to $39.9m in 2014 and increased by 35.9% YoY to $12.9m in 4Q2014 mostly due to operational and administrative costs cutback resulted from productivity growth and partially from RUB devaluation

- EBITDA margin was up by 1.1pt to 6.4% in 2014 and was up by 3.4pp to 8.9% in 4Q2014

Shipping Division

- Shipping Division demonstrated strong results benefitting from the replacement of old vessels with new more fuel efficient ones, as well as positive results of icebreakers operations, profitable contracts with third parties and decreased administrative costs

- In 2014, revenue increased by 24.6% YoY to $81.3m. In 4Q2014, revenue was up by 6.8% YoY to $23.5m

- EBITDA turned from loss of $5.6m in 2013 to profit of $12.9m in 2014 and from loss of $0.2m in 4Q2013 to profit of $4.9m in 4Q2014

- EBITDA margin reached 15.9% in 2014 and 20.9% in 4Q2014

Bunkering

- Bunkering business contributed $218.4m to the Group's revenue and $10.0m to the Group's EBITDA in 2014

$ millions	3Q 2014	4Q 2014	4Q 2013	Dynamics	2014	2013	Dynamics
Port
Revenue	50.6	44.6	47.6	-6.3%	185	200	-7.4%
EBITDA	27.1	25.6	18.9	+35.5%	93.2	94.5	-1.3%
EBITDA margin	53.5%	57.3%	39.6%	+17.7 pp	50.3%	47.2%	+3.1 pp
Rail
Revenue	40.7	39.2	52.4	-25.0%	165.0	250.7	-34.2%
EBITDA	12.1	8.8	16.9	-47.9%	45.4	90.3	-49.7%
EBITDA margin	29.7%	22.4%	32.3%	-9.9 pp	27.5%	36.0%	-8.5 pp
Liner & Logistics
Revenue	172.2	146.0	174.2	-16.2%	623.0	671.0	-7.1%
EBITDA	17.5	12.9	9.5	+35.9%	39.9	35.8	+11.3%
EBITDA margin	10.2%	8.9%	5.5%	+3.4 pp	6.4%	5.3%	+1.1 pp
Shipping
Revenue	24.6	23.5	22.0	+6.8%	81.3	65.3	+24.6%
EBITDA	5.1	4.9	-0.2	-	12.9	-5.6	-
EBITDA margin	20.8%	20.9%	-	-	15.9%	-	-
Bunkering
Revenue	84.1	63.4	37.0	+71.4%	218.4	83.6	+161.3%
EBITDA	3.3	0.5	0.7	-28.6%	10.0	3.2	+210.1%
EBITDA margin	3.9%	0.7%	1.9%	-1.2 pp	4.6%	3.8%	+0.7 pp

 

EBITDA is calculated as Profit from operating activity adding back depreciation and amortization, Impairment on tangible fixed assets and one-off expenses

FESCO Consolidated Group Financial Position

Pro-forma net debt amounted to $961m as of 31-Dec-2014. Pro-forma total debt decreased from $1,118m as of 31-Dec-2013 to $1,027m as of 31-Dec-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 December 31, 2014, Pro-forma Net Debt / LTM adjusted EBITDA ratio was 5.4х

$ millions	At 31 December, 2014
Pro-forma total Debt(2)	1 027
Cash	66
Pro-forma net Debt	961
Pro-forma net Debt/ LTM Adj. EBITDA	5.4x

 

(2)Total borrowings exclude the $89m REPO loan secured by shares of TransContainer

FESCO operational results for 4Q 2014 and 2014

	3Q2014	4Q2014	4Q2013	Dynamics	2014	2013	Dynamics
Intermodal freight transportation* (TEU)	70,242	72,187	63,978	+12.8%	258,621	243,564	+6.2%
Export-import sea container trade (TEU)	118,999	106,596	92,721	+15.0%	428,137	367,251	+16.6%
Domestic sea container trade (TEU)	18,357	18,676	17,689	+5.6%	65,187	63,953	+1.9%
VMTP container throughput(TEU) Import Export Cabotage	138,615   60,957 48,133 29,525	132,254   51,897 48,566 31,791	127,449   51,839 44,521 31,089	+3.8%   +0.1% +9.1% +2.3%	513,481   221,343 182,167 109,971	476,758   204,397 163,004 109,357	+7.7%   +8.3% +11.8% +0.6%
VMTP non-container cargo throughput (excluding vehicles) (thousand tons)	511	511	446	+14.7%	2,297	1,968	+16.7%
VMTP automobiles and transportation vehicles throughput (units)	18,462	15,046	22,669	-33.6%	70,324	92,938	-24.3%
Rail container transportation («RusskayaTroyka» and «Transgarant») ('000 TEU)	89.2	88.9	76.2	+16.8%	325.4	286	+13.8%
Rail cargo load (million tons)	5.2	4.9	5.0	-2.0%	20.0	20.3	-1.5%
Rail cargo turnover (billion ton-kilometers)	7.9	9.6	7.8	+23.1%	32.9	32.3	+1.9%

 

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

About FESCO

FESCO is one of the leading privately-owned transportation and logistics companies in Russia with operations in ports, rail, integrated logistics and shipping business. Diversified but integrated asset portfolio enables FESCO to provide door-to-door logistics solutions and control almost all steps of the intermodal transportation value chain. The majority of FESCO's operations are located in the Russian Far East and the Group benefits from growing trade volumes between Russia and Asian countries.

FESCO is the leader of container transportation through the Russian Far East via international sea container lines to/from Asian countries, domestic sea container lines and by rail. FESCO is the leading port container operator in the Far East region.

FESCO controls the Commercial Port of Vladivostok which has throughput capacity of 3.9 million tons of general cargo and oil products, 150,000 vehicles and over 600,000 TEU of containers. In 2014, total container throughput at the Commercial Port of Vladivostok reached 513,481 TEU FESCO is among the 10 largest Russian private rail operators, providing services under "Transgarant" (100% subsidiary of FESCO) and "Russian Troika" (50% joint venture with JSC Russian Railways) brands. "Transgarant" operates a fleet of 16.5 thousand units of rolling stock, while "Russian Troika" operates a fleet of 1.7 thousand container platforms. FESCO has a fleet of 22 vessels, mostly deployed through own sea service lines, and 4 icebreakers leased under long-term contracts.

IR contacts:

Galina Shilina
IR Director
+7 (495) 926 80 00 ext.11007
gshilina@fesco.com

Ekaterina Semenova
IR manager
+7 (495) 926 80 00 ext.11058
esemenova@fesco.com