FESCO announces H1 results and full year 2016 EBITDA expectation

As part of its ongoing commitment to facilitate the debt restructuring process, FESCO Transportation Group (the “Group” or “FESCO”) reports the Group’s preliminary key operating metrics and financial performance indicators for the six months ending June 30 2016. Additionally, given the extraordinary operating environment and special circumstances of the Group, in particular the fact that the Group is in a debt restructuring process, FESCO has resolved to deviate from its past practice and provide, on a one-off basis, an indication of its EBITDA expectations for the 2016 fiscal year, the Group said in a press release.

MACROECONOMIC OVERVIEW
The Russian economy continues to experience headwinds. According to the Russian Ministry of Economic Development, Russia’s GDP declined by 0.9% in 1H16 compared to 1H15 and by 0.6% in 2Q16 compared to 2Q15. Despite the slowing pace of the economic recession, negative trends persist in private consumption (4.3% of decline in 1Q16 compared to 1Q15 [1] ) and the construction (1.6% [2] of decline in 1Q16 compared to 1Q15) sector, key segments of the economy that influence the Group’s financial performance. On balance, current macroeconomic trends provide a basis for cautious optimism that the transportation sector, and the container market in particular, may finally begin to stabilize and undergo a modest and gradual recovery.

MARKET OVERVIEW
• Overall, the Russian transportation market has shown signs of slight improvement in the past few months, but the market remains volatile. The Far East region market continues to exhibit negative trends, driven by reduced import levels and the relative attractiveness of alternatives to the Far East ports, in particular impacted by historically low Deep Sea freight rates that divert import flows to other destinations.

• In 1H16, container throughput volumes in the Far East ports (loaded and empty containers combined) decreased by 14% [3] compared to 1H15, mainly due to declining import and transit volumes

• In 2H16, the Company expects container throughput volume in the Far East to contract by 9%, a significant improvement compared to the 28% decline experienced in 2H15

• In 1H16, general and non-container cargo throughput in the Far East ports increased by 10% [4] compared to 1H15, driven primarily by the increase in bulk export cargoes

• In 1H16, export-import sea container transportation volumes in the Far East decreased by 6% compared to 1H15, with import sea transportation suffering the biggest decline of 11% and export sea transportation experiencing a slight increase of 2%

• In 1H16, rail container transportation volumes on the East-West-East route fell by 6% compared to 1H15, with import rail transportation suffering a decline of 11%, consistent with the decline in import container handling volumes by 14%, offset by a modest 3% recovery in overall internal rail container transportation

• In 1H16, the global shipping market remained under pressure due to a systemic supply-demand imbalance, with deep and short sea freight rates continuing to show negative trends and with no anticipated recovery in the near term.

SIX MONTHS 2016 TRADING UPDATE FOR PERIOD ENDING JUNE 30 2016
The information in this Six Months YTD 2016 Trading Update has been prepared based on preliminary operating and financial results. This Six Months YTD 2016 Trading Update does not contain sufficient information to constitute a full set of financial statements. The numbers in this Six Months YTD Trading Update have not been audited. FESCO publishes consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) on a quarterly basis.

The following preliminary results may differ from financial statements prepared in accordance with IFRS. This Six Months YTD 2016 Trading Update includes measures of financial performance that are not a measure of financial performance under IFRS, such as “EBITDA” and “EBITDA margin”. “EBITDA” should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net profit or indicators of the Company’s operating performance or any other measure of performance derived in accordance with IFRS. Because these are not IFRS measures, “EBITDA” and “EBITDA margin” may not be comparable to similarly titled measures presented by other companies.