During the period, the macroeconomic environment remained challenging with ongoing FX rate fluctuation and slow improvement in demand. While the Russian transportation market has demonstrated signs of a modest recovery in the past few months, it remains volatile.

In 9M16, the Far East transportation market exhibited mixed trends. Container handling in the Far Eastern ports declined by 6.8%, export-import container transportation volumes declined by 1.4%, and rail container transportation volumes on the East-West-East route fell by 2.9%. At the same time, general cargo and non-container throughput increased by 5.9%, all compared with 9M15.

In response to the current industry conditions, in 9M16 FESCO has been primarily focused on the development of its core business, operational efficiency and cost discipline:

As part of the strategy to extend its geographical reach and in response to market demand, the Group launched FESCO Minsk Shuttle, a regular container train from Vladivostok to Minsk that helps to expand the route network going through the Russian Far East via the Trans-SiberianRailway.

In September, at the Eastern Economic Forum the Group entered into agreements with the Russian Export Center and the Russian Singapore Business Council. Both are engaged in developing logistics solutions for Russian exporters seeking to gain access to overseas markets.

In 3Q16, FESCO and Rusagro Group signed an agreement of intent to install special-purposetechnology to handle the export of agricultural products at the Vladivostok Commercial Sea Port.

In addition, during this period the Group has entered into discussions with bondholders in furtherance of its ongoing restructuring process. During the course of these discussions, the Group presented the key terms of a proposal to restructure its indebtedness. While a consensual agreement has not yet been reached, the Group is continuing to work with the advisers to the bondholders with a view to agreeing mutually acceptable terms for the restructuring.

9M16 Financial Overview

Consolidated revenue decreased by 27.1% YoY to $396.4m due to a decline in bunkering activity, as a result of which the revenue of this particular business segment decreased by 84.9%.

Consolidated revenue, excluding its Bunkering division, reduced by 15.2%, mainly driven by a decline in general demand and cargo throughput volumes.

EBITDA decreased in line with revenue, by 27.8% YoY to $63.9m, primarily due to lower container throughput and a decrease in average freight rates.

EBITDA margin decreased slightly from 16.3% YoY to 16.1%. In 3Q16, the Group improved its EBITDA margin from 15.3% in 6M2016 to 16.1% in 9M2016, through the implementation of effective cost control and optimization measures.

CAPEX was $15.1m vs $14.7m in the prior period. CAPEX is being maintained at the level necessary to support day-to-day operations and maintain quality and safety standards.

Group Financial Results

	$ million		9M September 30		9M September 30		Change

			2016		2015
Revenue		396.4		543.5		-27.1%

	Revenue excluding Bunkering Division	392.5		463.0		-15.2%

Profit from operating activity		39.7		60.3		-34.2%

EBITDA		63.9		88.5		-27.8%

EBITDA margin		16.1%		16.3%			-0.2pp

CAPEX		15.1		14.7		+2.7%

Reconciliation of EBITDA to Profit from operating activity

			9M September		9M September
			9M September		9M September
	$ million		30 2016		30 2015
Profit from operating activity		39.7		60.3

	Depreciation and amortization	29.4		35.3

	Impairment (loss)/release on tangible fixed assets, net	–		–

	Other income and expenses, net in part of Loss on sale of fixed	-5.5		-9.5
	assets	-5.5		-9.5
	assets
	Non-recurring expenses	0.3		2.4

EBITDA		63.9		88.5

9M16 Divisional Performance

Port Division

Container throughput decreased by 9.5% YoY to 234.6 thousand TEU, which is in line with a negative market trend.

General cargo and non-container throughput surged by 17.6% YoY to 1,806 thousand tons. In 9M16, ferrous metals accounted for 47% of total general cargo handled and increased by more than 80%.

Revenue decreased by 12.6% YoY to $77.8m due to a decline in container handling volumes.

EBITDA declined by 20.1% YoY to $38.5m, affected by changes in the ratio of general to containerized cargoes. Historically, tariffs for general cargo transportation are significantly lower than those for containerized cargo. As a result, EBITDA margin decreased by 4.7 pp to 49.5%.

Rail Division

Rail container transportation increased by 4.3% YoY to 136.0 thousand TEU and in 3Q16 by 20.5% QoQ to 49.6 thousand TEU.

Rail shipments in box cars improved by 32.2% to 13,361 shipments and in 3Q16 by 25.6% QoQ, to 4,766 shipments.

The Rail Division’s revenue decreased by 18.7% YoY to $66.5m and EBITDA reduced by 9.5% YoY to $14.3m, while the EBITDA margin amounted to 21.5% and improved by 2.2 pp.

In 3Q16, the Division’s revenue remained approximately at the same level QoQ and accounted for $23.2m and EBITDA increased by 55.6% QoQ to $7.0m.

In 3Q16, the improved financial performance was driven by the positive effect from renting out gondola cars, which took place in the end of 1H16, and effective cost control measures.

Liner and Logistics Division

Export-import sea container trade volumes declined by 18.9% YoY to 192.5 thousand TEU and by 6.6% QoQ to 66.0 thousand TEU in 3Q16, mainly due to a decline in market volumes.

Intermodal freight transportation volumes declined by 8.3% YoY to 114.6 thousand TEU in 9M16 resulting mainly from the overall decrease in import volumes. In 3Q16, intermodal freight transportation increased by 11.1% QoQ to 43.6 thousand TEU.

Domestic sea container transportation volumes decreased by 4.0% YoY to 41.6 thousand TEU but in 3Q16 increased by 1.7% QoQ to 16.6 thousand TEU, in line with general market trends.

The decrease in import-export and intermodal volumes and negative global freight rate dynamics resulted in a decline in revenue and EBITDA at the Liner and Logistics Division. Revenue decreased by 13% YoY to $256.1m, and EBITDA decreased by 40.7% YoY to $8.3m.

 In 3Q16, revenue decreased by 0.8% QoQ to $95.2m, while EBITDA increased by 3.4% QoQ to $6.1m. Improved profitability in 3Q16 resulted from a slight recovery in the transportation market.

Shipping Division

In line with its strategy to improve operational efficiency, the Group disposed of three vessels including two Ro-Ro ships.

The Division’s financial results were significantly affected by lower time-charter rates and a general lack of demand for container fleet. Revenue declined by 32.0% YoY to $45.3m.

EBITDA decreased by 25.7% to $15.6m, while EBITDA margin increased by 2.9pp to 34.4%.

In 3Q16, revenue YoY was impacted due to a special project in 3Q15 for delivering goods to the Arctic Region in which FESCO participated, but did not participate again in 3Q16, and declined by 31% QoQ.

Bunkering

Due to the Group’s decision to review its bunkering business segment, the Bunkering Division significantly reduced its operations, which also allowed working capital to be substantially reduced. As a result, bunkering revenue decreased by 84.9% YoY to $15.3m.

Divisional Financial Results1

	$ million		9M September 30 2016		9M September 30 2015		Change

Port Division

	Revenue	77.8		89.0		-12.6%

	EBITDA	38.5		48.2		-20.1%

	EBITDA margin	49.5%		54.2%			-4.7 pp

Rail Division

Revenue		66.5		81.8		-18.7%

EBITDA		14.3		15.8		-9.5%

EBITDA margin		21.5%		19.3%			+2.2 pp

Liner and Logistics
division
Revenue		256.1		294.4		-13.0%

EBITDA		8.3		14.0		-40.7%

EBITDA margin		3.2%		4.8%			-1.6 pp

1 EBITDA is calculated as Profit from operating activity adding back depreciation and amortization, Impairment on tangible fixed assets and one-off expenses

$ million	9M September 30 2016	9M September 30 2015	Change
Shipping Division

Revenue	45.3	66.6	-32.0%

EBITDA	15.6	21.0	-25.7%

EBITDA margin	34.4%	31.5%	+2.9 pp

Bunkering

Revenue	15.3	101.4	-84.9%

EBITDA	-0.3	3.2	n/a

EBITDA margin	n/a	3.2%	n/a

FESCO Consolidated Financial Position

Pro-forma total debt2 amounted to $844 million as at September 30, 2016, compared to $852 million as at September 30, 2015.

Pro-forma net debt amounted to $801 million as at September 30, 2016 compared to $784 million as at September 30, 2015.

As at September 30, 2016, the Pro-forma Net Debt / LTM EBITDA3 ratio was 9.5х.

About FESCO

FESCO is one of the leading privately-owned transportation and logistics companies in Russia with operations in ports, rail, integrated logistics and shipping. A diversified but integrated asset portfolio enables FESCO to provide door-to-door logistics solutions and control almost all steps of the intermodal transportation value chain.

The majority of FESCO’s operations are located in the Russian Far East.

FESCO is one of the leaders of container transportation through the Russian Far East via international sea container lines to/from Asian countries, domestic sea container lines and by rail. FESCO is one the leading port container operators in the Far East region.

FESCO controls the Commercial Port of Vladivostok, which has throughput capacity of 3.9 million tons of general cargo and oil products, 150,000 vehicles and over 600 thousand TEU of containers. In 2015, total container throughput at the Commercial Port of Vladivostok amounted to 345 thousand TEU. FESCO is one of the major Russian private rail operators with a fleet of 3.5 thousand container platforms. FESCO has a fleet of 19 vessels, mostly deployed through its own sea service lines.

In addition, the Group has a 50% interest in JSC Russkaya Troyka and a 24.1% interest in PJSC TransContainer.

Source: fesco

FESCO2016-11-30

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