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Year: Month: All releases Economy Sectors Companies
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Georgian Railway - 9M18 update

12 Dec, 2018

GR released 9M18 unaudited results together with Management Discussion and Analysis. Revenue increased 3.3% y/y to US$ 126.3mn, mostly due to increased logistics and freight car rental revenues, up 65.4% y/y to US$ 28.8mn. Passenger traffic also posted a 19.2% y/y growth to US$ 9.0mn in 9M18, enhanced by main line passengers. Meanwhile, operating expenses posted slight growth of 3.7% y/y to US$ 114.2mn. Adjusted EBITDA increased 3.6% y/y to US$ 49.3mn. GEL’s depreciation-related non-cash FX loss of US$ 4.2mn in 9M18 compared to US$ 31.6mn gain in the same period last year caused the bottom line to plunge to US$ 7.3mn. Fitch Ratings revised Georgian Railway's outlook to positive from stable and affirmed the rating at “B+”, in November 2018.

Freight transportation, the largest revenue category, declined 9.9% y/y to US$ 71.0mn in 9M18 from last year’s low base of US$ 78.8mn. This decline was fully offset by logistic service revenue growth of 59.1% y/y to US$ 21.3mn. Freight car rental and passenger traffic revenues, together accounting for 13.0% of total revenue, posted significant growth of 86.4% y/y to US$ 7.4mn and 19.2% y/y to US$ 9.0mn, respectively. Other revenue was down 24.9% to US$ 2.3mn.

9M18 operating expenses increased 3.7% y/y to US$ 114.2mn. Employee benefits expense, largest expense category, remained flat at US$ 44.3mn. Depreciation and amortization expense rose 7.4% y/y to US$ 35.6mn. Other categories, accounting for just 30.0% of total expenses increased 4.1% y/y; Namely electricity, consumables, and maintenance expenses were up 3.6% to US$ 13.2mn, increased logistical service and freight car rental revenue-related costs were also up 39.1% to US$ 5.0mn and 54.6% y/y to US$ 1.8mn, respectively. Taxes (exc. Income tax) were down 9.1% y/y to US$ 7.6mn, the only category that posted a decrease both in GEL and USD terms.

The decline in freight transportation revenue was mainly attributable to decrease in liquid cargo transportation. Oil products transportation revenue, which makes up 96.3% of liquid cargo, was down 10.9% y/y to US$ 28.8mn, while crude oil transportation more than halved (-56.9% y/y) to US$ 1.1mn in 9M18. The drop in oil products transportation (635,000 tons lower) was driven by the reduced transportation volumes from Kazakhstan, while 61.2% y/y drop in crude oil transportation volumes by rail is explained by re-direction of crude oil from Azerbaijan into the pipelines going through Georgia. 

Dry cargo transportation, accounting for 57.9% of total revenue, decreased 6.4% y/y to US$ 41.1mn in 9M18 explained by reduced transportation of sugar and ferrous metals. Sugar transportation fell 35.6% y/y to US$ 2.8mn and accounted for more than half of the total decline in dry cargo revenue. Reduced transportation volumes from Brazil, coupled with decreased share of cane sugar (relatively more profitable product) in product mix are to be blamed for the decline. Ferrous metals and scrap revenue shrank 16.7% y/y 9M18 to US$ 2.8mn due to decrease in transportation to profitable routes. Construction freight and grain transportation were also down 11.6% y/y to US$ 1.9mn and 5.9% y/y to US$ 2.2mn, respectively. Other dry cargo categories rose, with chemicals and fertilizers category posting the largest positive contribution to the revenue, increasing 15.7% y/y to US$ 4.2mn, while ores transportation, which contributed 20.1% of total dry cargo transportation, posted a low single-digit growth of 3.8% y/y to US$ 8.3mn.

9M18 adjusted EBITDA increased 3.6% y/y to US$ 49.3mn. As a result, the adjusted EBITDA margin rose from 38.9% in 9M17 to 39.0% in 9M18. The growth in other income to US$ 5.8mn (+74.5% y/y) was stemming from the sale of fixed assets in the reporting period. GEL’s 5.6% depreciation against US$ in Sep-18 vs Sep-17 led to a non-cash FX loss of US$ 4.2mn compared to US$ 31.6mn gain in the same period last year. This caused net income to drop to US$ 7.3mn in 9M18 from US$ 37.8mn in 9M17.

Operating cash increased 22.8% y/y to US$ 64.6mn in 9M18. Cash flow for investing activities came in at US$ 27.0 compared to US$ 56.8 last year, while cash flow from financing activities stood at US$ 42.0mn vs US$ 22.9mn in 9M17. This is explained by acquisition of two new Stadler trains from the proceeds of the new loan by GR in 2017.

Fitch Ratings revised Georgian Railway's outlook to positive from stable and affirmed the rating at “B+”, in November 2018. The upgrade in outlook reflected the change in the Georgian Sovereign rating (BB-/Positive) in March 2018.


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Regional Fixed Income Market Watch | October 2018

16 Nov, 2018

Highlights

  • Real GDP growth in the US was an annualized 3.5% y/y (advance estimate) in 3Q18, after an annualized 4.2% y/y growth in 2Q18. Unemployment rate was unchanged at 3.7% in October 2018.
  • Real GDP growth in EU19 came in at 1.7% y/y in 3Q18, after 2.1% y/y in 2Q18. Unemployment rate in EU19 was unchanged at 8.1% in September 2018.
  • China’s economy grew by 6.5% y/y in 3Q18, 0.2ppts lower than in 2Q18.
  • Economic growth accelerated and came in at 6.5% y/y in Kazakhstan and 5.6% y/y in Georgia, while it slowed to 0.6% y/y in Russia and was negative 0.1% y/y in Armenia in September 2018, based on rapid estimates. In 9M18, real GDP growth was 3.7% y/y in Belarus and 0.8% y/y in Azerbaijan.
  • Annual inflation in the US was 2.5% in October 2018, up from 2.3% in previous month. Based on the Eurostat flash estimate, annual inflation in EU19 was 2.2% in October 2018, up from 2.1% in September 2018.
  • In October 2018, annual inflation was below the target level in Georgia (2.3%), Armenia (2.8%), Russia (3.5%) and Belarus (4.9%); inflation was within the target range in Kazakhstan (5.3%), and above the target in Ukraine (9.5%) and Turkey (25.2%).
  • Monetary policy rate was cut to 9.75% (from 10.0%) in Azerbaijan and it increased to 9.25% (from 9.0%) in Kazakhstan in October 2018. The policy rate has remained unchanged in other countries.

 

Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, and Ukraine.


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Regional Fixed Income Market Watch | September 2018

18 Oct, 2018

Highlights

  • Real GDP growth in the US was an annualized 4.2% y/y (3rd estimate) in 2Q18, unchanged from the 2nd estimate. In September 2018, unemployment rate declined by 0.2ppts to 3.7%.
  • Based on rapid estimates, in August 2018, economic growth slowed in all regional economies and came in at 2.1% y/y in Kazakhstan, 2.0% y/y in Georgia, 1.1% y/y in Russia, and 0.6% y/y in Armenia. In 8M18, real GDP growth was 3.7% y/y in Belarus and 0.7% y/y in Azerbaijan.
  • In September 2018, annual inflation in the US was 2.3%, down from 2.7% in previous month. Based on the Eurostat flash estimate, annual inflation in EU19 was 2.1% in September 2018, up from 2.0% in August 2018.
  • In September 2018, annual inflation was below the target level in Georgia (2.7%), Russia (3.4%), Armenia (3.5%) and Belarus (5.6%); inflation was within the target range in Kazakhstan (6.1%), and above the target in Ukraine (8.9%) and Turkey (24.5%).
  • Monetary policy rate was increased to 9.25% (from 9.0%) in Kazakhstan as of October 17, 2018. The policy rate has remained unchanged in other countries.

 

Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, and Ukraine.


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Georgian Railway - The Worst is Behind

3 Oct, 2018

GR released poor FY17 audited results. On the back of the continued decline in freight traffic volumes, the top line decreased 6.8% y/y to US$ 173.2mn, from an already low base. On the positive note, logistic service and freight car rental revenue, together accounting for 20.8% of total, were up 32.4% y/y to US$ 29.4mn and 13.5% y/y to US$ 6.7mn, respectively. Following the addition of four new passenger trains, passenger traffic revenue boosted, up 19.7% y/y to US$ 9.1mn. Ambiguity on Tbilisi Bypass Project translated into a US$ 152.2 impairment loss in 2017. As a result, FY17 net income was negative at US$ 141.2mn. Significant drop in EBITDA caused the net debt-to-EBITDA ratio to reach 4.9x, exceeding the Eurobond covenant of 3.5x. The outlook for GR’s performance slightly improved in 2018, with 1H18 revenues increasing 3.9% y/y to US$ 80.4mn.

FY17 revenue was down 6.8% y/y to US$ 173.2mn, from the low base of US$ 185.9mn in 2016. Decrease in freight transportation revenue, down 15.3% y/y, was the main reason behind the decline. Freight handling and other revenue categories declined 10.6% y/y to US$ 20.0mn and 21.3% y/y to US$ 3.3mn, respectively. On the positive note, logistic service and freight car rental revenue, which account for 20.8% of total, were up 32.4% y/y to US$ 29.4mn and 13.5% y/y to US$ 6.7mn, respectively. Passenger traffic category increased for the second consecutive year with FY17 revenue up 19.7% y/y to US$ 9.1mn. In 1H18, the downward trend reversed with revenues increasing 3.9% y/y to US$ 80.4mn helped by the increased freight car rental and logistic service revenue categories.

Operating expenses (excluding impairment loss on PPE), which are mostly GEL-denominated, declined 3.7% y/y to US$ 148.0mn in 2017. The decrease is mostly attributed to GEL’s 6.0% depreciation against US$ in 2017 vs 2016 (in GEL terms operating expenses increased 2.1% y/y). Reduction of the revenue, coupled with reduction in other income from continuing operations were the main reasons behind the 12.3% y/y decrease in adjusted EBITDA to US$ 72.3mn in 2017.

US$ 152.5mn impairment loss was recognized on Tbilisi Bypass Project reflecting ambiguity on the project. Considering the significant uncertainties related to the future of the project and the associated potential economic benefits, the carrying value of the project (GEL 397.3mn) was written down to its recoverable amount (GEL 14.7mn). This resulted in GEL 382.6mn or US$ 152.5mn impairment loss recognition, hitting the bottom line, which came in at US$ -141.2mn.

Main Line Modernization Project is the only ongoing capital project by Georgian Railway. A US$ 95.0mn is expected to be spent over 2018-21, while the project finalization is anticipated for end-2019. The company plans to finance the capital expenditures with its internal sources.

FY17 net debt-to-EBITDA ratio came in at 4.9x, exceeding the Eurobond covenant of 3.5x. According to the terms and conditions of the 2012 Eurobond prospectus, GR and any of its subsidiaries are not allowed to incur, directly or indirectly, any financial indebtedness if net debt-to-EBITDA ratio exceeds 3.5x. We expect the ratio to remain above the Eurobond covenant in the medium term which will limit GR’s borrowing capacity under Eurobond covenants.


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