Ukrzaliznitsya delivers 1% less goods in 1H16, prepares action plan
27 July 2016
State railways enterprise Ukrzaliznytsia (UZ, ticker: RAILUA) transported 162.6 kt of goods in 1H16, which is a 1% decline yoy, the company reported on July 26. In its key activity, domestic transport, the company boosted its volumes 15% yoy to 81.2 kt. The overall decline was caused by Russia’s discriminatory restrictions and bans on imports and transit of Ukrainian goods, the company said. As a result, UZ reduced its deliveries exported goods by 13% yoy to 54.7 kt, and reduced its volumes of transited goods by 39% yoy to 8.4 kt.
In other news, UZ CEO Wojciech Balczun reported in his blog that the company’s board presented a detailed action plan to the government on July 25. The plan will be made public after its finalization, Ukraine’s infrastructure minster also commented that day. Among Ukrzaliznytsia’s key priorities for the short term, as highlighted by Balczun, is a fight against corruption in the procurement process. Among its other plans are improved service and the modernization of its assets, with planned investments of about USD 1 bln in the next 2-3 years. On top of that, UZ is planning to compete in the global transportation markets under its own brand.
Alexander Paraschiy: Transport rates that were hiked in May 2015 will enable UZ to boost revenue from cargo by about 5% yoy in 1H16. At the same time, the company’s profit is likely to slightly deteriorate in 1H16 as costs seem to have increased faster than revenue. In 2H16, we expect a significant turnaround in UZ’s profit, as the effect of the recent rate hikes will be fully in effect and because we expect the new management’s attempts to fight corruption will lead to a visible decrease in the company’s costs.
Thus far, we confirm our positive view on UZ’s mid-term sustainability, and confirm our neutral view on RAILUA bonds. We also note that in three weeks, the holders of RAILUA Eurobonds might grant the right to accelerate bond repayment if the company doesn’t settle all its debt issues with local banks.
