Results for the three months ended 31 March 2015

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RNS Number : 6068O

PJSC "TransContainer" ("TransContainer" or the "Company" together with its consolidated subsidiaries) today publishes its management report together with the unaudited interim condensed financial statements for the three months ended 31 March 2015. The financial statements presented in this announcement have been prepared in accordance with the International Financial Reporting Standards ("IFRS").

Operating and financial review

Summary

TransContainer is the leading intermodal container transportation company in Russia. As at 31 March 2015, the Company accounted for approximately 47.8% of Russia's rail container transportation market. It owns and operates 27,029 flatcars and 64,692 ISO containers. TransContainer also owns a network of rail-side container terminals, located at 46 railway stations across Russia and operates one terminal in Slovakia under a long-term lease agreement. The Company's joint venture JSC KedenTransService ("KedenTransService", or "KDTS") also operates 19 inland rail-side terminals in Kazakhstan. The Company's sales network comprises about 130 sales outlets in Russia, along with additional outlets across the CIS, Europe and Asia.

In the first quarter of 2015, Russia's rail container transportation market decreased by 4.7% year-on-year amid deteriorating macroeconomic conditions. The market was supported by a 3.4% year-on-year increase in domestic rail container transportation. International transportation, however, was down by 10.9% year-on-year, mainly driven by a 16.6% year-on-year slump in import transportation.

The Company's rail container transportation volumes in Russia increased by 0.7% year-on-year to 351 thousand twenty-foot equivalent units ("TEU") for the three months ended 31 March 2015, compared to 342 thousand TEU for the first quarter of 2014. However, revenue-generating transportation[1] volumes decreased by 3.0% year-on-year to 264 thousand TEU. Terminal handling volumes in Russia decreased by 3.7% year-on-year to 285 thousand TEU in the reporting period.

The Company's financial results reflect the challenging pricing and operating environment in the Russian rail container transportation market, as well as the relatively high base of the first quarter of 2014. In the first quarter of 2015, due to rouble depreciation and other factors, considerable misbalances between the import and export segments of the Russian container market evolved. This caused growing empty container flows. Weak market dynamics, combined with higher RZD tariffs and accelerated cost inflation, drove the Company's business marginality down.

During the three months ended 31 March 2015, the Company's total revenue grew by 19.3% year-on-year to RUB 10,095 million. Adjusted revenue increased by 3.3% year-on-year to RUB 5,044 million in the first quarter of 2015, compared to RUB 4,884 million in the first quarter of 2014. EBITDA fell by 28.4% year-on-year to RUB 1,622 million from RUB 2,264 million in the corresponding period of 2014. Profit for the period was down 42.2% year-on-year to RUB 756 million from RUB 1,309 million in the corresponding period last year.

In terms of profitability, the adjusted EBITDA margin in the first quarter of 2015 decreased to 32.2% from 46.4% in the respective period of 2014, while the adjusted net income margin decreased to 15.0% from 26.8%.

As at 31 March 2015, the Company's total debt was RUB 6,684 million with net debt of only RUB 3,658 million. As a result, the Net Debt/LTM EBITDA ratio remained at the comfortable level of 51%.

Capital expenditure for the three months ended 31 March 2015 decreased by 52.1% year-on-year to RUB 137 million on the back of increased economic uncertainty. In accordance with the Company's policy, all capital expenditure during the reporting period was financed by the Company's own cash flow.

Recent developments and outlook

In the first quarter of 2015, the decline of the Russian rail container market is approaching 10% year-on-year amid weaker industrial output and contracting domestic consumption. Given these dynamics, the Company's management reiterates its view that the market will shrink at a rate in the upper single-digits in 2015, subject to any external economic and political effects.

The challenging operating environment and increasing competition in the container segment limits operators' ability to raise tariffs in line with cost inflation. With that in mind, the Company's management will focus on business optimisation, as well as further improving management efficiency and the quality of customer service.

Despite the current challenges, the Company believes that the Russian container transportation market is fundamentally attractive and retains significant long-term growth potential, driven by industrial production, consumer demand and scope for further growth in cargo containerisation.

Key operating results

Rail container transportation volumes in Russia

In the first quarter of 2015, the Company's rail container transportation volumes in Russia increased by 0.7% year-on-year to 352 thousand twenty-foot equivalent units ("TEU"), compared to 349 thousand TEU in the same period of 2014. This was mainly due to a 9.2% year-on-year increase in domestic transportation volumes, which offset a 7.0% year-on-year decline in international transportation. The increase in TransContainer's domestic transportation volumes was driven by the growth in clients' demand for transportation via the Company's own containers amid a lack of shipping lines' containers in the market, which, in turn, resulted from a drop in container import. Overall, growth in the Russian domestic transportation segment was another supporting factor.

The drop in container transportation imports was caused by a decrease in containerised import volumes, which resulted from the devaluation of the rouble and a slump in consumer demand. This drop was partially offset by an increase in the Company's market share in this segment. A reduction in container transportation export volumes was mainly due to a decline in export transportation of empty containers, reflecting a drop in loaded imports. The decline in transit volumes mainly resulted from lower transit transportation volumes between the Far East and Central Asia.

Transportation of containers by TransContainer's fleet in 1Q 2015 (ISO Loaded + Empty), 000' TEU

TransContainer's revenue-generating container transportation volumes in Russia were down 3.0% year-on-year in the first quarter of 2015 and amounted to 264 thousand TEU.

In the first quarter of 2015, the Company's total estimated share in Russia's rail container transportation market increased to 47.8% from 45.3% in the first quarter of 2014. TransContainer's share in the domestic market strengthened to 52.7% in the reporting period compared to 49.9% in the corresponding period of 2014, while its share in the international transportation market grew to 43.5% from 41.7%.

Terminal handling

In the first quarter of 2015, throughput of the Company's rail container terminal network in Russia decreased by 3.7% year-on-year to approximately 285 thousand TEU. The Company's terminal handling volumes were mainly in line with the Russian rail container transportation market, which were down 4.7% year-on-year.

Asset utilisation

In the first quarter of 2015, flatcar empty runs were affected by a decrease in transportation volumes and changes in container flows across the international transportation segment. Container empty runs remained broadly flat year-on-year as a result of improved management of the container fleet both in Russia and abroad.

The container turnover improved, reflecting growing customer demand for the Company's containers in the domestic and export transportation segments. This largely resulted from a lack of supply of empty containers by shipping lines amid falling import volumes. A moderate increase in flatcar turnover mainly reflects greater average distances travelled by the Company's fleet.

Operational efficiency indicators

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1 Since 2015, the calculation of flatcar and container turnover changed to reflect thewider range of railway statistics available. It now takes into account not only public rail infrastructure, but alsoprivate sidings.Respective data for 2014 are re-calculated on a comparable basis

2 The empty run ratio is calculated as an average empty run in kilometres divided by an average total run in kilometres.

Description of Key Consolidated Statement of Comprehensive Income Items

The following table sets out the key Company's results for the three months ended 31 March 2015 and 2014.

Summary of key Company's results for the three months ended 31 March 2015 and 2014

The Company's financial results for the three months ended 31 March 2015 reflect the challenging pricing and operating environment in the Russian rail container market amid the deteriorating economic conditions.

In the first quarter of 2015, the Company's total revenue was up 19.3% year-on-year to RUB 10,095 million and adjusted revenue grew by 3.3% year-on-year to RUB 5,044 million. However, EBITDA contracted by 28.4% year-on-year to RUB 1,622 million, from RUB 2,264 million in the corresponding period of 2014. Profit for the period fell by 42.2% year-on-year to RUB 756 million.

Adjustments and additional financial information

Since 1 January 2015, the Company has started to provide a wider range of services that involve third-party services and share certain characteristics with agency services. Third-party charges related to such services are presented within revenues from rail-based container shipping services, terminal services, truck deliveries, bonded warehousing services, other freight forwarding services and other revenue. Correspondingly, all such charges are presented within expenses as third-party charges related to principal activities. Such third-party charges include the value of rail infrastructure tariffs and the charges of the Company's other subcontractors and contracted partners involved in the process of providing the Company's services. The above approach was previously used only for revenue from integrated logistics services.

In order to enhance analysis, we apply adjustments to the components of the Company's revenues and expenses to derive the values that are net of the charges of third parties involved in Company's services.

The total fees of subcontractors involved in TransContainer's services are detailed below.

Summary of 3rd-party charges in relation to TransContainer's revenues

Based on the above, we adjust the Company's revenues as follows.

Revenue adjustments

Accordingly, the Company's operating expenses are adjusted as follows.

Operating expenses adjustment

Adjusted Revenue, Adjusted Operating Expenses, EBITDA, Adjusted EBITDA Margin and Adjusted Operating Margin are not recognised under IFRS as measures of financial performance, but are calculated on the basis of IFRS figures and are presented as supplementary indicators of the Company's operating performance. These supplementary measures have limitations as analytical tools, and investors should not consider any of them in isolation, or any combination of them, as a substitute for analysis of our IFRS results.

Summary of non-IFRS indicators

¹ Adjusted Revenue is calculated as total revenue less the cost of third-party charges related to principal activities.

² Adjusted Operating Expenses are calculated as operating expenses less the cost of third-party charges related to principal activities.

³ EBITDA is defined as profit for the period before income tax, interest expense and depreciation and amortisation.

⁴ Adjusted EBITDA Margin is defined as EBITDA divided by Adjusted Revenue.

⁵ Net Debt is calculated as long-term debt, finance lease obligations, short-term debt and the current portion of long-term debt less cash and cash equivalents and short-term investments.

Adjusted revenue analysis

Adjusted revenue (as defined above) increased by 3.3% year-on-year to RUB 5,044 million for the three months ended 31 March 2015, from RUB 4,884 million for the three months ended 31 March 2014. This was primarily due to strong demand for the Company's containers, which made it possible to increase prices for some operator services and terminal services. However, general downward market volume dynamics were experienced during the reporting quarter, along with a challenging pricing environment in the import segment of the Russian rail container transportation market.

The following table sets out the components of adjusted revenue for the three months ended 31 March 2015 and 2014, respectively, and outlines their relative contribution.

Adjusted Revenue structure