Ukrainian Railway revenue rises 11%, EBITDA flat yoy in 2017

Net revenue at railway monopoly Ukrainian Railway
(RAILUA) rose 11.0% yoy to UAH 73.9 bln, according to its consolidated audited
results released on Apr. 16. Its operating profit nearly tripled yoy to UAH 5.3
bln, implying its EBITDA was UAH 20.1 bln, or nearly flat yoy. The company’s
net income amounted to UAH 0.12 bln in 2017, after a net loss of UAH 7.32 bln a
year before.

As usual, its only profit-generating segment was
freight transportation, whose revenue increased 10.4% yoy to UAH 60.1 bln and
EBITDA grew by about 2% yoy to UAH 29.5 bln.

Ukrainian Railway generated cash flow from operations
of UAH 14.0 bln (down 4.1% yoy) and boosted spending for the purchase of
PP&E by 60% yoy to UAH 10.9 bln. Its also spent UAH 4.8 bln for the
repayment of loans and borrowings, taking no new loans in 2017.

The company’s end-2017 total debt stood at UAH 32.2
bln, which is less than in 2016 by UAH 8.0 bln, or 19%. The decline was due to
deleveraging, as well as the explicit separation of its obligations related to
the occupied territory of Ukraine (thereby reducing its financial debt by UAH
4.3 bln). The company’s net debt (net of occupied territory debt) stood at UAH
29.0 bln (down 19% yoy), implying a net-debt-to-EBITDA ratio of 1.5x.

Alexander Paraschiy: The
company’s audited result was slightly better than management’s previous
estimates presented in its business plan for 2018, which might be mostly a
result of an accounting difference. Looking into the future, we continue to
believe the company will be able to outperform its UAH 20.1 bln EBITDA guidance
for 2018.

Explicit separation of part of the company’s debt
related to the occupied territories – which the company won’t service before it
regains control over its assets in occupied Donbas – was a logical step that
may enhance the company’s ability to raise more debt to finance its core
operations. All in all, we remain positive about the company’s fundamentals
further improving in the mid-term, and we remain neutral on its Eurobond.