2019 & 1Q20 update
GR’s financial performance improved in 2019, with top line up 4.0% y/y to US$ 174.2mn. Main revenue category – freight transportation – increased for the first time in the last 6 years, up 14.9% y/y to US$ 109.4mn in 2019, supported by both liquid and dry cargo flows. GR also managed to increase freight handling, passenger and other revenue streams. Meanwhile, income reduced from logistic services (-37.6% y/y) and car rental (-3.4% y/y) in 2019. GR’s operating performance strengthened helped by increased revenues on the one hand and lower operating expenses on the other (operating expenses, excluding the PPE impairment, dropped 15.6% y/y to US$ 128.4mn in 2019). This resulted in improved EBITDA, which was up 16.4% y/y to US$ 79.2 in 2019. Net debt-to-EBITDA ratio also improved, down from 6.1x in 2018 to 5.2x in 2019, however this level is still above the Eurobond covenant of 3.5x. We forecast the ratio to start declining from 2020, but remain elevated in the medium term, which might pose difficulties to the company for its Eurobond placement due in 1Q22.
FY19 revenue stood at US$ 174.2mn in 2019, up 4.0% y/y from a low base of US$ 167.5mn in previous year. Freight transportation, largest revenue category, was the main growth driver in 2019. Freight handling followed the trend, recording a 13.8% y/y growth reaching US$ 23.2mn in 2019, while passenger and other revenue streams grew 2.2% y/y to US$ 11.0mn and 4.2% y/y to US$ 3.5mn, respectively. Meanwhile, income from logistic services reduced 37.6% y/y to US$ 17.3mn and car rental revenue was also down 3.4% y/y to US$ 9.7mn in 2019.
Operating expenses (excluding impairment loss on PPE) dropped 15.6% y/y to US$ 128.4mn in 2019. The improvement was mainly driven by 35.8% y/y reduction in depreciation and amortization expenses, related to PPE impairment in 2018. Savings were made in other major categories too, including taxes (other than income), remuneration and other operating expenditure. Increased revenues and reduced operating expenses pushed adjusted EBITDA up 23.9% y/y to US$ 76.7mn in 2019, resulting in 44.0% adjusted EBITDA margin in 2019 compared to 36.9% in 2018
Improved operating performance reduced net debt-to-EBITDA ratio from 6.1x in 2018 to 5.2x in 2019, albeit still far above the Eurobond covenant of 3.5x. The company’s net debt-to-EBITDA ratio has been above the covenant for the last three years, limiting the company’s ability to incur any financial indebtedness.
Despite COVID-19 related disruptions, cargo transportation by GR continued growth in 2020, up 8.4% y/y in 5M20. This data does not yet capture deteriorated economic conditions in Georgia and its partner countries, but eventually will likely weaken GR’s performance in the short-term. These risks and uncertainties about epidemiological situation in the upcoming months were reflected in Fitch Ratings’ latest outlook for GR, shifting from Stable to Negative on 14 May 2020, in line with that of Sovereign.
Please see the full report for detailed coverage of GR’s FY19 &1Q20 performance.
