GR released 9M15 unaudited results. Revenue decreased 8.3% y/y due to weak performance in freight traffic and freight car rental in 3Q15. Operating expenses, which are mostly GEL-denominated, shrank 18.8% y/y and resulted in a 4.4% y/y increase in adjusted EBITDA to US$ 111.7mn. Substantial weakening of GEL against US$ in 9M15 led to a significant, albeit non-cash, FX loss and pushed the bottom line into negative territory. We expect end-FY15 net debt-to-adjusted EBITDA at 2.5x, leaving comfortable headroom up to the Eurobond covenant of 3.5x.
9M15 revenue decreased 8.3% y/y to US$ 194.5mn, mainly due to a 3.2% y/y decrease in freight traffic revenue to US$ 178.9mn and a 53.2% y/y drop in freight car rental revenue to US$ 7.8mn. 9M15 cargo breakdown will be provided in the Management Discussion & Analysis due in December, at which time we will provide a detailed analysis. 9M15 passenger traffic revenue dropped 35.0% y/y to US$ 5.7mn, but its share in total revenue is immaterial.
9M15 operating expenses, mostly GEL-denominated, decreased 18.8% y/y to US$ 127.6mn (US$ 157.2mn in 9M14). Electricity and materials expense posted the largest drop (26.8% y/y), thanks to operational improvements and a lower utilization rate of rail fleet.
9M15 adjusted EBITDA increased 4.4% y/y and accounted for US$ 111.7mn (US$ 106.9mn in 9M14). EBIT grew 18.9% y/y to US$ 75.6mn (US$ 63.6mn in 9M14). Significant GEL depreciation in 9M15 led to a considerable FX loss (due to the revaluation of the Eurobond). The FX loss (accounted for as a finance cost) pushed net income into negative territory. However, the FX loss is an unrealized non-cash charge and not a cause for concern.
