Brunswick Rail Announces 2014 Results
Financial Highlights
· Revenue before hedging with non-derivatives ("Gross Revenue") declined by 20.0% from US\\$ 255.3m in 2013 to US\\$ 204.2m in 2014
· Adjusted EBITDA declined by 21.2% from US\\$ 194.7m in 2013 to US\\$ 153.4m in 2014
· Adjusted EBITDA margin decreased to 75.1% in 2014 from 76.3% in 2013
· Net loss in 2014 was US\\$ 275.5m as against net profit of US\\$ 28.0m in 2013, largely driven by net foreign exchange losses
· Net cash from operating activities in 2014 was US\\$ 166.8m compared to US\\$ 182.6m in 2013
· Capital expenditures in 2014 were US\\$ 94.5m, of which US\\$ 89.3m was directed toward discretionary growth
Operational Highlights
· The total fleet stood at 25,562 railcars as of 31 December 2014, including 208 railcars on financial lease
· The Group continued to diversify its fleet and took delivery of 1,903 new railcars, while selling 165 old gondolas and 200 old mineral hoppers as part of its fleet management programme to reduce the age of the fleet and diversify the fleet into specialized cars
· The combined effects of these measures reduced the share of gondolas in the Group's portfolio from 60% as of 31 December 2013 to 58% as of 31 December 2014
· The fleet utilization rate remained at 100%
· Average remaining lease tenor is around 3.0 years (31 December 2013: 3.4 years), and average fleet age is 5.4 years (31 December 2013: 4.9 years), one of the youngest fleets in the market
Commenting on the 2014 results, Brunswick Rail CEO Alex Genin said:
"Throughout 2014 and into 2015, we have seen a continued deterioration in the market environment. Transportation volumes have declined steadily, and an oversupply of railcars in the market has maintained strong downward pressure on rates, with spot rates in US dollar terms falling by more than 50% over the course of the year.
"In addition, the sharp decline in the rouble against the dollar led to us having to re-negotiate a number of contracts from dollars into roubles, leaving our rouble revenue at a disproportionately high level relative to our liabilities.
"We expect that our adjusted EBITDA (for the purposes of our syndicated loan facility) for Q1 2015 (which we preliminarily estimate to be in the range of US\\$ 19m to US\\$ 23m, while we plan to report our full Q1 2015 numbers in May) will be at levels that would lead to non-compliance with our maintenance covenants. Accordingly, we have initiated the process of negotiating amendments to our syndicated loan facility, including to modify its financial covenants to more sustainable levels and/or to obtain a waiver of potential covenant violations before such violations occur. There can be no assurance that these discussions will result in amendments that would allow us to comply with the financial covenants. Further, while these discussions are ongoing, they have enabled us to prepare our financial statements on a going-concern basis, although the audit opinion has been issued with an emphasis of matter. In light of this we may be required to use our own cash reserves to prepay or repay our syndicated loan facility. Although we currently have sufficient own cash to do so, it is important to stress that the use of our own cash in this manner would, without additional long-term financing, severely strain our liquidity.
"Our current capital structure also appears increasingly ill-suited to the new environment, and we believe vulnerable to further macroeconomic, geopolitical and industry-specific shocks. The Eurobonds issued in November 2012, which comprise approximately 87% of our borrowings and require a bullet repayment at their 2017 maturity, as well as our other US\\$ denominated debt, give rise to particular concerns in the present environment (in which the timeline for recovery in revenues, cash flow and profitability is uncertain, revenues have become increasingly RUR-denominated and in which access to Western finance and international capital markets for Russian corporate groups has been reduced). We are considering multiple options to optimize our capital structure, but have not yet made any decisions in this regard.
"Despite this extremely challenging market situation, our operational performance in 2014 was strong. We were once again able to maintain fleet utilization of 100% and our portfolio rates were still well above the market average. The impact of remarketing and/or renegotiating existing contracts in 2014 amidst sharply reduced spot rates was, however, only partially felt in 2014. The effect of those historic actions (many of which, in the case of renegotiations, took place in Q4 2014), will be much more pronounced in 2015. We also further optimized our rail fleet in 2014, including by selling off some of our older cars, meaning that Brunswick Rail still has one of the youngest fleets in our industry.
"Going forward, we will continue to focus on cash management and client retention until market visibility improves, while at the same time seeking to optimize our client portfolio to focus on large companies with good credit ratings and strong payment discipline.
"We are confident that this is the right strategy to pursue in this difficult environment."
Nicolas Pascault, Managing Director and Deputy CEO of Brunswick Rail, added:
"Our financial results for 2014 are a clear reflection of the state of the market. As a result of the deteriorating environment, our gross revenue was down by 20%, from US\\$ 255m in 2013 to US\\$ 204m in 2014. While the Adjusted EBITDA margin remained high at 75%, Adjusted EBITDA for the year declined by 21% to US\\$ 153m, and we posted a net loss of US\\$ 276m for the year, which was primarily a result of net foreign exchange losses.
"The sector has been substantially affected by the depreciation of the rouble which fell by more than 70% during 2014. The dollar-denominated leasing market contracted sharply towards the end of the year, as clients demanded a shift to rouble-denominated rates. As a result, we effectively lost our natural hedge against FX-denominated debt and after a significant decrease in expected dollar revenue, IFRS required us to de-designate the hedge. In total, during 2014, we recognized a loss of US\\$ 129m in our income statement due to hedge ineffectiveness.
"We reduced our capital expenditure from US\\$ 106m in 2013 to US\\$ 95m for 2014, with the majority of this having been invested in the first quarter of the year. This was in line with our strategy to defer our ambitious growth plans and instead to focus on cash preservation, cost cutting and maximizing operational efficiency.
"We will continue to analyze closely and seek to respond to the rapidly changing market environment with a view to effectively mitigating risks as we navigate through what will undoubtedly be another challenging year for our sector."
About Brunswick Rail:
Brunswick Rail is a private railcar operating lessor providing freight railcars to large corporate clients in Russia. Established in 2004, Brunswick Rail currently owns a fleet of ca. 25.6 thousand railcars (as of 31 December 2014), which represents approximately 2% of the total Russian railcar fleet. For the year ended 31 December 2014, the Group generated gross revenue of US\\$ 204.2m and Adjusted EBITDA of US\\$ 153.4m.
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