2018 turned out to be another challenging year for GR. The decline in freight transportation, particularly in liquid cargo, persisted in 2018, with the top line down 3.3% y/y to US$ 167.5mn. Freight transportation revenue (56.8% of total) was down 9.1% y/y to US$ 95.2mn, driven by significant drop in oil products transportation, while dry cargos going through Georgia increased for the first time in the last 4 years (up 7.5% y/y). Logistic service revenue was also down 5.7% y/y to US$ 27.7mn. Other revenue streams increased in 2018, namely freight car rental was up 49.6% y/y to US$ 10.0mn and passenger traffic was up 18.7% y/y to US$ 10.8mn. Due to significant drop in its main revenue line (freight) over the last 5 years, the company carried out impairment testing of its PPE. The recoverable value was based on its value in use and resulted in a recognition of GEL 691.4mn or US$ 272.8mn impairment loss in 2018. Significant drop in EBITDA caused the net debt-to-EBITDA ratio to reach 6.2x in 2018, far above the Eurobond incurrence covenant of 3.5x.
FY18 revenue was down 3.3% y/y to US$ 167.5mn, from last year’s low base of US$ 173.2mn. Freight transportation revenue, largest revenue category, was the main reason behind the decline in 2018. Oil products transportation (39.9% of total freight transportation) was also down 11.4% y/y to US$ 38.0mn, while crude oil transported was negligible. On the positive note, dry cargo transportation increased for the first time in the last 4 years, up 7.5% y/y to 6.9 tons, however reduced tariffs and changed product mix caused revenues to fall 5.0% y/y to US$ 55.7mn. Logistic service revenue was also down 5.7% y/y to US$ 27.7mn. Other revenue sources posted growth in 2018, particularly freight car rental revenue up 49.6% y/y to US$ 10.0mn. In addition, GR managed to increase passenger traffic revenues.
Operating expenses (excluding impairment loss on PPE) were up 2.8% y/y to US$ 152.1mn in 2018. This growth was mostly due to increased employee, fuel and other expenses. Reduced revenues and increased operating expenses caused the 14.4% y/y decrease in adjusted EBITDA to US$ 61.9mn in 2018, which translated into an adjusted EBITDA margin of 36.9% compared to 41.8% in 2017.
US$ 272.8mn impairment loss was recognized in 2018. Due to continued decline in freight transportation volumes, the company carried out impairment testing of its assets in 2018. The recoverable value was calculated by discounting forecasted revenues for 2019-37. Therefore, US$ 272.8mn impairment loss was applied to the PPE categories on pro-rata basis. As a result, the PPE balance reduced 25.3% y/y to US$ 682.4mn in 2018. Significant non-cash impairment loss resulted in negative bottom line of US$ 282.7mn.
Deteriorated operating performance worsened net debt-to-EBITDA ratio, which came in at 6.2x far above the Eurobond covenant of 3.5x. The company’s net debt-to-EBITDA ratio has been above the covenant for the last two years, limiting the company’s ability to incur any financial indebtedness in the medium-term.
Main Line Modernization Project is the only ongoing capital project by GR. As the company has renegotiated the payment structure with the construction company, the operating cash generated will be enough to cover the Capex requirements in the coming years.
