Ukrainian Railways EBITDA rises 6% in 2019

Net revenue at Ukrainian Railways (RAILUA) rose 8.3% yoy
to UAH 90.35 bln, and EBITDA gained 6.3% to UAH 17.33 bln in 2019, according to
its annual report and presentation published on Apr. 29. In its freight
segment, revenue improved 3.9% yoy to UAH 73.29 bln, which is the result of
higher charges as freight turnover decreased 2.2% yoy to 182 bln t/km. The
segment’s EBITDA climbed 9.0% yoy to UAH 28.00 bln, fueled mostly by a
reduction in fuel costs (-10.7% yoy to UAH 5.66 bln). Passenger revenue
advanced 16.9% to UAH 9.93 bln, again being the result of price increases
(traffic remained flat yoy), while LBITDA in the segment widened 3.3% yoy to
UAH 10.48 bln. Among other important cost changes, the company suffered from a land tax hike by 3.6x yoy
to UAH 4.02 bln. Despite this, the company’s bottom line skyrocketed 14.6x yoy
to UAH 2.99 bln.

Ukrainian Railways generated UAH 18.37 bln in cash
flow from operations before working capital changes in 2019 (up 14.5% yoy),
while its net cash flow from operations (before dividend payments) decreased
2.2% yoy to UAH 12.38 bln. It reduced its CapEx 38% yoy to UAH 9.29 bln and
raised net UAH 4.90 bln of borrowings in 2019. As a result, its cash balance
surged 5.5x yoy to UAH 6.98 bln as of end-2019.

The company’s net debt dropped 12.9% yoy to UAH 28.03
bln, which is mostly the result of the appreciation of the Ukrainian currency
(most of the company’s debt is denominated in USD and EUR). Its net
debt-to-EBITDA ratio improved to 1.62x as of end-2019, from 1.98x a year
before.

As its response to Covid-19 related issues, which
resulted in discontinued passenger operations since Mar. 18 and a decline in
freight traffic, the company implemented a series of cost-cutting measures,
including labor cost optimization (shifting to a four-day work week), as well
as limiting its procurement to critical components and limiting its CapEx to
capital repairs.

Ukrainian Railway is scheduled to repay USD 330 mln of
its debt in 2Q20-4Q20, with the highest burden scheduled for 3Q. This includes
USD 50 mln in 2021 Eurobond amortization (due on Sept. 15) and USD 215 mln in
loans (which we identify as loans from Ukraine’s Sberbank, due on July 31). It
secured two credit lines from state banks for a total of UAH 3.7 bln (about USD
130 mln) and a USD 20 mln line from private Alfa Bank. The company is also in
“constructive discussions” with the government on possible support mechanisms.

Alexander Paraschiy: The company remains solvent, though the tough repayment schedule of
the next five months promps liquidity concerns. From what we can see now, the
company is able to secure some portion of its new loans for refinancing, so it
looks like it will be able to resolve its liquidity issues by itself. In case
of any troubles, Ukrainian Railways can always count on the support of the
government or state banks, as was the case in March 2019, when it secured financial support for the
smooth payment of Eurobond amortization. All in all, we see little risks that the company won’t be able to
repay its maturing debts, including Eurobond amortization in September. We
remain neutral on RAILUA bonds.