Ukrainian Railway revenue increases 13% yoy in 1Q18

Net revenue at Ukrainian Railway (RAILUA) increased 13%
yoy to UAH 20.19 bln in 1Q18, according to its non-consolidated unaudited
report filing. In its freight segment, revenue rose 13% on 0.2% yoy growth in
freight turnover to 58.1 bln t/km. Revenue in its passenger segment improved
14% yoy on the back of 2.2% turnover growth.

The company’s operating profit was flat yoy at 1.10
bln, implying an EBITDA decline by 6% yoy to UAH 4.69 bln and EBITDA margin
drop to 23% in 1Q18, from 28% a year before. The key EBITDA declining factor
was a surge in workforce and social expenses by 53% yoy to UAH 9.85 bln, or 49%
of total revenue (up from 36% of revenue in 1Q17). At the same time, a 14% yoy
decline in financial expenses (to UAH 0.79 bln) allowed the company to boost
its bottom line by 7x yoy to UAH 0.34 bln.

The company’s total debt decreased 4% YTD to UAH 3.68
bln, solely due to appreciation of the local currency.

Alexander Paraschiy: A surge in
workforce-related costs was most likely driven by two events: a surge in
salaries for some categories of specialists to retain qualified staff, as well
as costs related to severance payments due to staff optimization (which will
lead to some decline in staff costs in the following quarters).

At the same time, Ukrainian Railway’s costs not
related to workforce plunged yoy in 1Q18, which indicates the company’s
efficiency in cost optimization efforts. We keep expecting that the company’s
EBITDA will improve yoy in 2018, and we are keeping our neutral view on RAILUA
Eurobonds.