Ukrzaliznytsia doubles its consolidated EBITDA in 1H15

Обзоры по компаниям и отраслям 09.12.2015 Ukraine’s railway monopoly Ukrzaliznytsia (RAILUA, UZ) posted its consolidated IFRS-based financials for 1H15 on its website, according to which its revenue increased 23% yoy to UAH 28.92 bln. As its total operating costs only increased 3% yoy, its EBITDA surged 2.2x to UAH 9.08 bln in 1H15. UZ’s core cost item, personnel expenses, decreased 12% yoy to UAH 10.45 bln. Its EBITDA number was close to operating cash flow before working capital changes, which increased 2.1x yoy to UAH 9.28 bln. The monopoly’s consolidated bottom line remained negative at UAH 4.71 bln in 1H15 (-42% yoy), mainly due to increased financial costs (UAH 2.63 bln, +49% yoy) and high foreign currency translation losses (UAH 8.74 bln, +21% yoy). Ukrzaliznytsia’s interest-bearing debt increased 23% yoy to UAH 38.33 bln in 1H15, mostly due to devaluation of the local currency (most of debt is denominated in dollars). During the period, UZ repaid net UAH 1.26 bln in debt. Out of total debt, UAH 0.81 bln was due to Ukraine’s state banks and UAH 4.96 bln was state-guaranteed debt. The entity’s net debt stood at UAH 34.72 bln, and its net debt-to-LTM EBITDA ratio was 2.5x as of end-1H15. As the monopoly earlier reported, it defaulted on some of its borrowings and initiated a broad debt restructuring process. As of the reporting date, UZ was in the final stage of restructuring negotiations with domestic lenders. Alexander Paraschiy: UZ’s consolidated EBITDA for 1H15 was surprisingly high, or twice as high as the combined EBITDA of its six subsidiaries for 1H15 (UAH 4.40 bln). In previous periods, the combined EBITDA of the six subsidiaries coincided with the consolidated IFRS-based EBITDA of UZ. At minimum, this means that the individual results of UZ’s subsidiaries are no more indicative of the holding’s total consolidated result. With the monopoly’s relatively sound net debt-to-EBITDA ratio, it does not look to be in critical need to restructure its debt. Given that Ukrzaliznytsia has been lobbying for a 15% increase in freight transportation rates since 2016, its operating profitability should remain strong next year as well. The improved profitability and better outlook, however, do not change our cautious view on RAILUA bonds. We still believe the monopoly needs to spend much more for the rehabilitation of its assets than it can earn, so it’s unlikely that it will become a safe borrower in the near future.