Brunswick Rail Announces 9M 2014 Interim Results
OREANDA-NEWS. Brunswick Rail Limited ("Brunswick Rail" or the "Group"), Russia's leading privately owned freight railcar operating lessor, announces its IFRS financial and operating results for the nine months ended 30 September 2014.
Revenue before hedging with non-derivatives ("Gross Revenue") declined by 18.4% from USD 196.9m for the nine months ended 30 September 2013 ("9m 2013") to USD 160.6m for the nine months ended 30 September 2014 ("9m 2014")
Adjusted EBITDA declined by 14.4% from USD 149.5m in 9m 2013 to USD 128.0m in 9m 2014
Adjusted EBITDA margin increased to 79.7% in 9m 2014 from 75.9% in 9m 2013
Net loss in 9m 2014 was USD 44.7m largely driven by accumulated net FX exchange differences of USD 70.8m which were reclassified to the income statement upon de-designation of hedge accounting and declining lease rates
Net cash from operating activities in 9m 2014 was USD 131.0m
Capital expenditures in 9m 2014 were USD 94.3m, of which USD 89.3m was directed toward discretionary growth
The total fleet stood at 25,474 railcars as of 30 September 2014, including 208 railcars on financial lease. We expect an additional 46 railcars, which have been prepaid, to be delivered pursuant to existing contracts.
The Group continued to diversify its fleet and took delivery of 1,813 new railcars, while selling 165 old gondolas and 200 old mineral hoppers as part of the Group's fleet management programme to reduce the age of the fleet and diversify the fleet into specialized cars
The combined effects of the above decreased the share of gondolas in the Group's portfolio from 60% as at 31 December 2013 to 58% as at 30 September 2014
The fleet utilization rate remained at 100%
Average remaining lease tenor is around 3.0 years; average fleet age is 5.1 years (one of the youngest fleets in the market)
Current Trading and Prospects
The macroeconomic conditions in Russia, including depreciation of the RUR, appear to us to be very difficult. These conditions have begun to adversely affect our business and will likely continue to adversely impact our business volumes, lease rates, including our ability to finalize leases in dollar rates. The effect is likely to be significant for the business in the short to medium term.
Given the state of the market in Russia, we believe many borrowers will be looking at the potential impact of the market on their credit facilities and are likely to look for greater flexibility. For the same reasons, Brunswick Rail intends to consult with its banks to explore potential changes to the financial covenants under its credit facility.
Commenting on Q3 2014 interim results, Brunswick Rail CEO Alex Genin said:
"We maintained our strong focus on cash preservation and client retention in the nine months of 2014, as it was difficult to foresee market conditions. The operating environment underwent further deterioration as rail freight volumes continued to track at lower levels, while railcar prices and gondola spot lease rates remained weak. In addition, we saw increased competition from captive leasing companies of railcar producers, which continued to supply new cars into the market.
"We were again successful in maintaining 100% fleet utilization, while at the same time growing our client portfolio with three new clients in the first nine months of 2014. We further optimized our fleet in accordance with market demand, selling 365 gondolas and mineral hoppers. This also allowed us to reduce the age of our fleet and to further diversify into specialized cars.
"Looking ahead, we expect the business environment for the remainder of 2014 and into 2015 to remain extremely difficult. We expect that regional geopolitical tensions and the economic backdrop will continue to put pressure on all players in our sector. We are confident that Brunswick Rail's proven and resilient business model will help us to weather the storm."
Nicolas Pascault, CFO of Brunswick Rail, added:
"Despite the current market environment, Brunswick Rail managed to increase its margins in the first nine months of 2014. Adjusted EBITDA amounted to USD 128.0 million for the period, down 14.4% year-on-year. The Company's results were mainly impacted by accumulated net foreign exchange differences reclassified to the income statement under IFRS because of the fall in our USD -denominated revenue forecast. In addition, financial results were negatively affected by declining lease rates. These key factors led to the net loss of USD 44.7 million for the period. Net cash generated by operating activities was only slightly down year-on-year, coming in at USD 131.0 million in the first nine months of 2014.
"Through cost cutting, efficiency programmes and lower repair expenses combined, with a reduction in bad debt provisions, we successfully reduced operating expenses across a number of key categories, which contributed to our increased operating profit margin during the period. Additionally, depot repair costs per railcar declined by 15% in the first nine months of 2014, as we were able to achieve higher purchasing efficiency.
"In accordance with IFRS, since a substantial proportion of our revenues were denominated in USD dollars, in November 2012 the Company began using a hedge accounting policy which allowed it to defer recognition of foreign exchange losses or gains as a result of movements in RUR/USD exchange rates. The recent ongoing fall in the value of the RUR, and management expectations on the proportion of our future dollar denominated revenues led to an adjustment on the income statement since a smaller amount of our dollar denominated obligations is expected to be covered by future dollar denominated revenues. We recognized USD 70.8m loss as a result.
"We have a significant exposure to dollar denominated obligations. The falling proportion of future dollar denominated revenues has led us to consider available hedging instruments to mitigate FX risks. Due to increased FX volatility, the cost of these instruments has risen substantially. The Company is considering entering into hedging instruments once volatility has settled and the price of such instruments has fallen to an appropriate level.
"Looking forward, due to significant deterioration of economic and competitive landscapes we expect continued further pressure on volumes and prices, while continued foreign exchange volatility will also affect our profitability".