DGAP-News: Far Eastern Shipping Company: Trading update for the three month and nine month periods ended September 30, 2014


EquityStory.RS, LLC-News: Far Eastern Shipping Company / Key word(s):
Miscellaneous
Far Eastern Shipping Company: Trading update for the three month and
nine month periods ended September 30, 2014

28.11.2014 / 19:37

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November 28, 2014

Trading update for the three month and nine month periods ended September
30, 2014

FESCO Transportation Group (MOEX: FESH) provides a trading update with the
operational and consolidated financial results as per IFRS for three months
and nine months periods ended September 30, 2014.

Highlights:

  - In 3Q 2014, FESCO continued to increase container transportation and
    handling volumes across all divisions strengthening its leading
    position in the Russian Far East

      - FESCO was #1 in the Far East by total container handling at sea
        port terminals with the market share of 31.9% and by import
        container handling with the market share of 40.5%

      - FESCO remained the leader by volume on all export-import sea
        container service lines where the Group operates with the market
        share of 41%

      - Container throughput at the Vladivostok port increased by 10.4% YoY
        in 3Q 2014 distinctly outperforming the Far East market, the
        fastest growing Russian sea basin

      - Container transportation by the Rail Division accelerated growth to
        21.4% YoY in 3Q 2014

  - In 3Q 2014, Rail division showed the first load volume growth and an
    improvement of the financial performance on QoQ basis compared to
    2Q2014 after a long decline since the beginning of 2013

  - In the environment of RUB depreciation, FESCO is leveraging a
    sustainable trend of growing bulk and containerized cargo export across
    all steps of the transportation value chain

  - Group results were positively impacted by growth of volumes across all
    division and negatively impacted by RUB devaluation, change of cargo
    mix in the port and continuous rail market weakness

  - In 3Q 2014, Group's consolidated revenue in USD increased by 13.3% YoY
    to $331m. In RUB, Group's consolidated revenue grew by 25.2% YoY to RUB
    11,961m

  - In 3Q 2014, Group's EBITDA in USD increased by 4.0% YoY and reached
    $55.1m. On QoQ basis Group's EBITDA increased by 55.7% driven by
    significant performance improvement across divisions. In RUB, Group's
    EBITDA was up by 15.1%YoY and reached RUB 1,994m.

  - EBITDA margin declined on YoY basis due to increasing share of less
    marginal export cargo and increased from 13.1% in 2Q 2014 to 16.6% in
    3Q 2014.

Group Financial Results  

<pre>

$ million           2Q     3Q     3Q     YoY        9M     9M     YoY
                    2014   2014   2013   Dynamics   2014   2013   Dynamics

Revenue             270.7  331.0  292.0  +13.3%     844.1  849.6  -0.6%

EBITDA              35.4   55.1   53.0   +4.0%      123.3  152.4  -19.1%

EBITDA margin       13.1%  16.6%  18.2%  -1.6 pt    14.6%  17.8%  -3.2 pt

Capital             17.9   23.6   14.9   +58.2%     59.9   40.1   +49.4%
Expenditures



</pre>

<pre>

RUB million       2Q     3Q     3Q     YoY         9M     9M     YoY
                  2014   2014   2013   Dynamics    2014   2013   Dynamics

Revenue           9 462  11 961 9 557  +25.2%      29 908 26 861 +11.3%

EBITDA            1 238  1 994  1 732  +15.1%      4 387  4 818  -8.9%

EBITDA margin     13.1%  16.7%  18.1%  -1.4 pt     14.7%  17.8%  -3.1 pt



</pre>

Divisional Performance Highlights

Port Division

  - Container throughput in 3Q 2014 was up by 10.4% YoY driven mostly by
    import-export volumes as a result of continued growth of international
    trade between Russia and Asian countries and increasing
    containerization level in Russia

  - Growth of general cargo volumes by 10.6% YoY driven primarily by an
    increase in throughput of ferrous metals and chemicals

  - As a result of positive operational performance, revenue in RUB
    increased by 5.2% YoY in 3Q 2014. Revenue in USD decreased by 6.2% YoY
    due to RUB devaluation

  - In 3Q 2014, EBITDA decreased by 4.5% YoY in RUB and by 14.4% YoY in USD
    due to RUB devaluation, certain one-offs and increase in operational
    expenses. EBITDA in RUB adjusted for one-offs increased by 4.8% YoY
    from RUB 905.6m in 3Q 2013 to RUB 949.3m in 3Q2014. EBITDA in USD 
    adjusted for one-offs decreased by 5.9% YoY from $27.9m to $26.2m

  - EBITDA margin decreased by 5.1pt from 58.6% in 3Q 2013 to 53.5% in 3Q
    2014. EBITDA margin decreased due to one-offs and growing share of less
    marginal export of both bulk cargo and containers

Rail Division

  - Rail container transportation was up by 21.4% YoY in 3Q 2014 due to
    increased demand for FESCO block train services and fitting platforms
    fleet size

  - Rail cargo load was up by 2.0% YoY in 3Q 2014 outperforming the Russian
    rail market

  - In Q3 2014, revenue grew by 4% QoQ in RUB and by 1% QoQ in USD driven
    by volume growth in rail container transportation. Revenue in USD
    decreased by 29.1% YoY to $40.7m over the same period due to continued
    decrease in gondola rates and ruble devaluation.

  - In Q3 2014, EBITDA in RUB increased by 11% QoQ and EBITDA in USD
    increased by 8% QoQ to $12.1m. In 3Q 2014, EBITDA in USD decreased by
    40.7% YoY (35.6% YoY decrease in RUB) due to  declined gondola rates

Liner and Logistics Division

  - Strong growth of export-import sea lines and intermodal transportation
    volumes driven mainly by the increase in export-import flows on the
    back of growing trade with Asia, and specifically with China

  - In 3Q 2014, revenue in RUB was up by 12.9% YoY. Revenue in USD was up
    by 1.3% YoY due to negative effect of RUB devaluation on cabotage rates
    (denominated in RUB) and RUB-denominated component of intermodal rate.

  - Division's EBITDA for 3Q 2014 increased two folds in USD from $8.8m in
    3Q 2013 to $17.5m in 3Q 2014. EBITDA in RUB increased by 121% and
    EBITDA margin was up by 5.0pt.

Shipping Division

  - Shipping Division demonstrated strong results due to replacement of old
    vessels with new more efficient ones, as well as positive results of
    icebreakers operations, profitable contracts with third parties and
    decreased administrative costs

  - In 3Q 2014, revenue in USD increased by 68.6% YoY to $24.6m 

  - EBITDA turned from loss of $1.5m to profit of $5.1m and EBITDA margin
    reached 20.8%

Bunkering

  - Bunkering business contributed $84.1m to the Group's revenue and $3.3m
    to the Group's EBITDA in 3Q 2014

<pre>

$ millions        2Q 2014 3Q 2014 3Q 2013 Dynamics 9M 2014 9M 2013 Dynamics

Port

Revenue           45.5    50.6    54.0    -6.2%    141.0   152.0   -7.2%

EBITDA(1)         20.6    27.1    31.6    -14.4%   67.7    75.6    -10.4%

EBITDA margin     45.2%   53.5%   58.6%   -5.1 pt  48.0%   49.7%   -1.7 pt

Rail

Revenue           40.4    40.7    57.4    -29.1%   125.7   198.4   -36.6%

EBITDA            11.2    12.1    20.4    -40.7%   36.6    73.5    -50.2%

EBITDA margin     27.7%   29.7%   35.5%   -5.8 pt  29.1%   37.0%   -7.9 pt

Liner & Logistics

Revenue           167.5   172.2   170.    +1.3%    477.0   497.    -4.0%

EBITDA            9.4     17.5    8.8     +100.1%  26.9    26.3    +2.5%

EBITDA margin     5.6%    10.2%   5.2%    +5.0 pt  5.6%    5.3%    +0.3 pt

Shipping

Revenue           13.5    24.6    14.6    +68.6%   57.8    43.3    +33.6%

EBITDA            -1.5    5.1     -1.5    -        8.0     -5.3    -

EBITDA margin     -       20.8%   -       -        13.9%   -       -

Bunkering

Revenue           41.5    84.1    34.5    +143.6%  155.1   46.6    +233%

EBITDA            2.4     3.3     1.6     +101.4%  9.5     2.5     +280%

EBITDA margin     5.8%    3.9%    4.8%    -0.8 pt  6.1%    5.3%    +0.8 pt



</pre>

(1) EBITDA of Port division was retrospectively adjusted for
reclassification of non-operating marketing expenses from Port division to
Corporate division starting from 30 September 2014 for $2.0m in Q3 and 9M
2013 and $1.3m in Q2 2014

FESCO Consolidated Group Financial Position

Pro-forma net debt decreased from $1,016m as of 30-Jun-2014 to $955.6m as
of 30-Sep-2014:

  - Consolidated debt includes $550m of 8.00% Senior Secured Notes due 2018
    and $325m of 8.75% Senior Secured Notes due 2020, as well as RUB 5bn of
    bonds, the proceeds from which were used to refinance the Group's
    acquisition-related and pre-existing debt

  - As of September 30, 2014, Pro-forma Net Debt / LTM adjusted EBITDA
    ratio was 5.8x

<pre>

$ millions                                            At 30 September, 2014

Pro-forma total Debt(2)                               1,115.6

Cash                                                  160.0

Pro-forma net Debt                                    955.6

Pro-forma net Debt/ LTM Adj. EBITDA                   5.8x



</pre>

(2)Total borrowings include USD 550m 8.00% Senior Secured Notes due 2018
and USD 325m 8.75% Senior Secured Notes due 2020; RUB 5bn ruble bonds and
exclude the $150m REPO loan secured by shares of TransContainer

FESCO operational results for 3Q and 9M 2014

<pre>

                                   2Q2-  3Q2-  3Q2-  Dyn-  9M2-  9M2-  Dyn-
                                   014   014   013   amics 014   013  
amics

Intermodal freight transportation* 61,4  70,2  62,3  +12.  187,  179, 
+4.5%
(TEU)                                79    42    99    6%   716   586

Export-import sea container trade  108,  118,  93,3  +27.  321,  274,  +17.
(TEU)                               067   999    27    5%   541   530    1%

Domestic sea container trade (TEU) 15,3  18,3  17,3  +5.5% 46,5  46,2 
+0.5%
                                     26    57    93          11    64

VMTP container throughput(TEU)     132,  138,  125,  +10.  381,  349, 
+9.1%
                                    784   615   507    4%   227   309
Import                                                                 +11.
Export                             58,9  60,9  54,9  +10.  169,  152,    1%
Cabotage                             24    57    95    8%   446   558  +12.
                                   47,4  48,1  39,9  +20.  133,  118,    8%
                                     37    33    85    4%   601   483 
-0.1%
                                   26,4  29,5  30,5  -3.3% 78,1  78,2
                                     43    25    27          80    68
VMTP non-container cargo            448   511   462  +10.  1,786 1,523 +17.
throughput (excluding vehicles)                        6%                3%
(thousand tons)

VMTP automobiles and               21,4  18,4  22,3     -  55,2  70,2     -
transportation vehicles throughput   87    62    47  17.4%   78    69 
21.3%
(units)

Rail container transportation      77.1  89.2  73.4  +21.  236.5 209.8 +12.
(«RusskayaTroyka» and                                  4%                7%
«Transgarant») ('000 TEU)

Rail cargo load (million tons)      5.0   5.2   5.1  +2.0% 15.1  15.3 
-1.3%

Rail cargo turnover (billion ton-   7.8   7.9   8.4  -6.0% 23.3  24.5 
-4.9%
kilometers)



</pre>

* - excluding transportation of empty carrier owned containers (COC)

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 business. 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 and the Group benefits from
growing trade volumes between Russia and Asian countries.

FESCO is the leader 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 the leading port
container operator 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 600,000 TEU of containers. In 2013, total container
throughput at the Commercial Port of Vladivostok reached 477,000 TEU,
including 204,000 TEU of imported cargo.

FESCO is among the 10 largest Russian private rail operators, providing
services under "Transgarant" (100% subsidiary of FESCO) and "Russian
Troika" (50% joint venture with JSC Russian Railways) brands. "Transgarant"
operates a fleet of 16.6 thousand units of rolling stock, while "Russian
Troika" operates a fleet of 1.7 thousand container platforms. FESCO has a
fleet of 22 vessels, mostly deployed through own sea service lines, and 4
icebreakers leased under long-term contracts.

IR contacts:

Galina Shilina
IR Director
+7 (495) 926 80 00 ext.11007
gshilina@fesco.com

Ekaterina Semenova
IR manager
+7 (495) 926 80 00 ext.11058
esemenova@fesco.com



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