Ukrainian Railway EBITDA slid 11% in 1H18, non-audited report says

Net revenue at Ukrainian Railway (RAILUA) increased
13% yoy to UAH 39.97 bln in 1H18, according to its consolidated unaudited
report filing. Its workforce and social expenses surged 42% yoy to UAH 19.99
bln, accounting for 50% of revenue (up from 40% a year before). That surge,
amid flat other costs, resulted in an 11% decrease in the company’s EBITDA to
UAH 9.35 bln (its EBITDA margin fell to 23% from 30% a year before). At the
same time, declining non-operating and financial costs enabled the company to
boost its net profit 3.8x yoy to UAH 0.47 bln in 1H18.

The company’s cash flow from operations dropped 34%
yoy to UAH 4.53 bln, while it increased its spending for the purchase of
PP&E by 26% yoy to UAH 3.30 bln in 1H18. Ukrainian Railway continued to
deleverage by repaying net UAH 0.65 bln in debt in 1H18 (vs. repaying UAH 2.22
bln a year before).

Its net debt rose 2% YTD to UAH 33.86 bln as of
end-1H18, and its net debt-to-LTM EBITDA ratio climbed to 1.8x, up from 1.4x
half a year ago.

Alexander Paraschiy: Rising
workforce-related expenses is a trend that has become apparent in the company’s
1Q18 accounts and is a consequence of the need to raise salaries for some
categories, while simultaneously optimizing headcount. At the same time, the
company’s deepening EBITDA decline (compared to 1Q17)
is a worrying signal that indicates the freedom in some rate-setting gained by
the company did not enable it to improve profitability. Now it does not look
likely that the company will be able to improve its EBITDA this year. We retain
our neutral view on RAILUA bonds, keeping in mind the company’s low leverage
and mid-term prospects to improve its fundamentals.