Georgian Railway reported 9M14 results. The company performance was solid overall. However, the strengthening of US$ vs. GEL during this period (9M14 average USD/GEL rate 5.8% higher y/y) affected the results in US$ terms. EBIT margin reached 30.0% showing an increase of two percentage points. Net profit margin decreased from 22.0% to 20.9%. We expect FY14 net debt to EBITDA to improve and reach 2.8x compared to 3.4x in FY13. It is well below the 3.5x ceiling set by Eurobond covenants, leaving a plenty of breathing space.
Top line remains stable
GR’s top line reached US$ 212mn (up only by 0.4% y/y) or GEL 372mn (up by 6.2% y/y) in 9M14. Revenues grew on the back of 4.7% y/y growth in freight traffic, the highest revenue contributor (87.2% of total revenues in 9M14). Freight car rental segment, corresponding to 7.8% of GR’s total revenues, added 4.5mn GEL to top line, corresponding to a 18.4% growth y/y in GEL and 11.8% in US$ terms. Passenger traffic accounted for 4.1% of total revenues and improved the top line by more than GEL 1mn, translating into a healthy 8.4% growth y/y. Other revenues increased to US$ 2mn (up by 76.7% y/y), while still representing a subtle 0.9% share in the revenues.
Costs increased modestly
Employee benefits increased by 1.8% y/y in US$ terms and 7.8% y/y in GEL terms and accounted for 61mn and 107mn in US$ and GEL terms, respectively. Depreciation and amortization expense was flat at 44mn in US$ terms, while it increased by 5.8% y/y in GEL terms and reached GEL 78mn. Electricity usage and fuel consumption decreased by 9.4% y/y and 10.0% y/y in US$ terms, respectively (down 4.2% and 4.8% in GEL terms). However, it was more than offset by a surge in materials usage, showing a 17.1% y/y increase in US$ terms (24.0% y/y increase in GEL terms). Other expenses accounted for US$ 32mn or GEL 55mn representing a decrease of 7.5% and 2.2% in US$ and GEL terms, respectively. Total costs reached 157mn (up 1.0%) and 276mn (down 4.8%) in US$ and GEL terms, respectively, mainly driven by employee benefits.
Bottom line is solid despite higher finance costs
GR’s 9M14 EBIT reached US$ 64mn (GEL 111mn) showing an increase of 9.4% y/y in US$ terms (15.7% y/y in GEL terms). However, net profit saw a decline of 4.7% y/y in US$ terms and was flat in GEL terms (up only by 0.8% y/y) to reach US$ 44mn or GEL 78mn. Bottom line decreased due to finance costs being 77.0% y/y higher in US$ terms (87.2% y/y higher in GEL terms) than previous year. The increase in finance costs was mainly driven by a net FX loss of US$ 6.5mn in 9M14 compared to US$ 1.7mn in 9M 2013 mainly due to US$ denominated Eurobond obligations.
