GR released disappointing FY16 audited results. On the back of a steep decline in freight traffic volumes, the top line decreased 26.6% y/y, from an already low base, to US$ 185.9mn. Operating expenses, which are mostly GEL-denominated, declined 9.9% y/y to US$ 153.7mn, as GEL depreciated by 4.1% against the US$. Factoring in the US$ 61.0mn credit line and US$ 34.0mn one-off, non-cash income from transfer of land to the government, per the Eurobond prospectus, FY16 net debt-to-adjusted EBITDA came in at 3.1x, below the Eurobond covenant of 3.5x. Excluding the one-off income, adjusted EBITDA decreased 40.1% y/y to US$ 85.2mn. The modernization project is due to be finished in 2019, while the bypass project remains under review.
In FY16, freight traffic and logistic service revenues declined 29.8% y/y to US$ 146.0mn and 10.1% y/y to US$ 22.2mn, respectively. GR reclassified the revenue generated by its freight forwarding subsidiaries under logistic service, a new revenue line. Freight car rental revenue decreased 44.9% y/y to US$ 5.9mn, while passenger traffic revenue was up 11.5% y/y to US$ 7.6mn.
FY16 operating expenses declined 9.9% y/y to 153.7mn, with electricity, consumables and maintenance expense decreasing the most (down 25.6% y/y to US$ 20.0mn).
FY16 adjusted EBITDA was propped up at US$ 119.0mn (down 16.3% y/y) by the US$ 34.0mn one-off, non-cash income from transfer of land to the government. Excluding the one-off income, adjusted EBITDA dropped 40.1% y/y to US$ 85.2mn, which would imply a contraction of the adjusted EBITDA margin to 45.8% (56.2% in FY15). The weakening of GEL against US$ in FY16 triggered a large, albeit non-cash, FX loss of US$ 47.4mn, accounted for as a finance cost and weighing on the bottom line. In line with the newly enacted corporate income tax law, effective January 1, 2017, GR converted its deferred tax liability into a one-time gain of US$ 18.8mn, which led to the recognition of a significant income tax benefit (US$ 16.4mn) in FY16. As a result, FY16 net income came in at US$ 27.5mn.
FY16 operating cash decreased 40.0% y/y to US$ 79.2mn, while capital spending accelerated 22.4% y/y to US$ 84.6mn, largely due to modernization project expenditures. In FY16, dividends have not been declared, while the dividend payable of US$ 1.6mn from FY15, per the government’s decision, was set off with the US$ 0.7mn investment in the construction of the Batumi Passenger Station and the remaining part with the acquisition of long-term assets for a state-controlled entity.
FY16 debt was at US$ 536.0mn, while the cash balance was at US$ 105.0mn. Per the Eurobond prospectus, a US$ 61.0mn credit line has been added to cash and cash equivalents and one-off income (US$ 34.0mn) from transfer of land to the government was included in adjusted EBITDA when calculating the net debt-to-adjusted EBITDA ratio, which came in at 3.1x, below the Eurobond covenant of 3.5x.
In Jan-17, Fitch downgraded GR from BB- to B+ (Outlook Stable) after placing it on Rating Watch Negative in Sep-16.
GALT&TAGGART
