Ukrzaliznytsia revenue drops 3%, EBITDA falls 6% in 2013

The state railway monopoly Ukrzaliznytsia (RAILUA) released an abstract from its combined IFRS-based financials on May 29. According to the release, the monopoly’s revenue dropped 3.2% yoy to UAH 51.1 bln and its revenue in its profitable cargo segment fell 5.3% yoy to UAH 38.8 bln. Its passenger segment demonstrated a 8.3% yoy increase in revenue, mainly due to hiked ticket prices. Decreased cargo revenue affected the entity’s EBITDA, which fell 6.3% yoy to UAH 10.9 bln in 2013. At the same time, Ukrzaliznytsia’s cash flow from operating activities improved 14% yoy to UAH 8.1 bln, mainly since it paid less taxes. The monopoly’s combined bottom line fell 33% yoy to UAH 558 mln.

Ukrzaliznytsia’s total debt remained flat over 2013 at UAH 20.3 bln, despite placing USD 500 mln in Eurobonds over the year. Its net debt also remained flat yoy at UAH 19.6 bln. The resulting end-year Net Debt/EBITDA ratio amounted to 1.8x, far from the Eurobond covenant of 3.0x. Ukrzaliznytsia economized on its capital expenditures, which fell 31% yoy to UAH 7.2 bln.

Alexander Paraschiy: Given that Ukraine’s steel, coal and construction industries have shown a negative performance in 2014 so far, we expect that Ukrzaliznytsia’s cargo traffic, which heavily depends on these industries, will continue to fall this year as well. We also expect the monopoly will continue to show declining EBITDA, mainly on higher fuel costs in 2014.

According to Ukrzaliznytsia’s investment plans highlighted in its Eurobond prospectus, the company may boost spending to purchase new locomotives and hike its CapEx into infrastructure this year, which (if implemented) will make its net debt/EBITDA ratio grow fast in 2014. However, given the tough market and very risky political environment, we expect that Ukrzaliznytsia will significantly reduce its investment appetites this year.

The core risk for the Ukrzaliznytsia’s business for the current period is the war in Donbas. UZ’s subsidiary that operates in the two easternmost regions generated 17% of the entity’s combined revenue and 14% of EBITDA in 2013, we estimate. Moreover, more than 50% of Ukrzaliznytsia’s freight turnover is derived from shipping coal, coke, iron ore and steel, which either originate in Donbas or go to Donbas for processing.