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Edited Transcript of GLPR.L earnings conference call or presentation 6-Mar-20 10:00am GMT

Full Year 2019 Global Ports Investments PLC Earnings Call

LIMASSOL Apr 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Ports Investments PLC earnings conference call or presentation Friday, March 6, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Iodchin

Global Ports Investments Plc - GM & Secretary of the Board

* Alexander Roslavtsev

Global Ports Investments Plc - CFO of Global Ports Management LLC

* Brian Bitsch

Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC

* Mikhail Grigoriev

Global Ports Investments Plc - Head of IR

* Vladimir Bychkov

Global Ports Investments Plc - CEO

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Conference Call Participants

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* Denis Vorchik

URALSIB Capital LLC, Research Division - Analyst

* Ivan Postevoy

VTB Capital, Research Division - Equities Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Global Ports analyst and investor conference call. My name is Kevin and I'll be your coordinator for today's event.

(Operator Instructions) I would now like to hand over to your host, Mikhail Grigoriev, to begin the call. Thank you.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [2]

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Thank you, Kevin. Good morning, everyone. This is Mikhail Grigoriev, I'm the Head of Capital Markets and Investor Relations for Global Ports management. And thank you very much for joining the webcast today to review our full year results for 2019.

The call will be hosted by Vladimir Bychkov, our Chief Executive Officer.

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Vladimir Bychkov, Global Ports Investments Plc - CEO [3]

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Good morning.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [4]

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Brian Bitsch, Chief Commercial Officer.

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [5]

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Good morning.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [6]

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Alexander Roslavtsev, Chief Financial Officer.

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [7]

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Good morning.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [8]

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And Alexander Iodchin, General Manager for Global Ports Investments.

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Alexander Iodchin, Global Ports Investments Plc - GM & Secretary of the Board [9]

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Good morning.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [10]

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Before I begin, may I draw your attention to the disclaimer on our presentation and press release regarding the forward-looking statements.

Our management team will now take you through the key highlights of the last year, and we will then conclude with a Q&A session. I will now hand you over to our CEO, Vladimir Bychkov.

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Vladimir Bychkov, Global Ports Investments Plc - CEO [11]

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Thank you. Thank you for joining us today. Let's start on Slide 5 with an overview of our results.

2019 saw a year of market share gain in growing market, which, importantly, accelerated in the second half. Our focus on both client service and productivity yielded results, bringing growth in both container and non-container revenue of more than 2% and 9%, respectively.

In addition, our ongoing cost control discipline meant cash costs grew by less than 5% against higher throughput growth, generating 4.4% increase in adjusted EBITDA and an adjusted EBITDA margin of 63%.

I'm particularly pleased with the healthy cash flow generation of nearly 20%, which enables us to continue further deleveraging. Our leverage ratio is down to 3.3.

Now I'd like to hand you over to Brian to take you through market developments as well as some operational highlights.

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [12]

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Thank you, Vladimir. And if you all turn to Slide 7, please. The Russian container market continues to grow, landing at 4.5% increase in 2019 compared to 2018 and reaching now a total size of just above 5.1 million TEU, as shown here on the graph.

We continued to see certain patterns in the growth of the Russian container market where the highest nominal growth remains seen via Northwest with 90,000 TEU in 2019, but leading the growth measured in percentage is via Russian Far East with a 6% increase corresponding to 83,000 TEU.

The continuous container volume growth and growth of particularly the full export segment, which I will get back to you on the coming slides, means a further increase in capacity utilizations across container terminals in Russia. And so our best estimate now reaching 75% for 2019, being a percentage slightly higher than the average level of Global Ports terminals on a consolidated basis.

With a quick look at January of this year, then this growth trend has continued showing a 2% growth in Northwest and 6% growth in Far East and actually, overall, 4% for Russia. It should, however, be highlighted here that the mentioned Northwest growth of just 2% is, in fact, including a more than 20% decrease of empty export and a particularly weak January reefer import. So if measuring full dry containers in Northwest only, January increase year-on-year exceeded 10%.

If we move to next slide, please, we'll look at some dynamics. The various container segments are continuing the trends from over the past 12 to 18 months. Example is full export segment that increased 6% and dominated by Northwest, as I just mentioned, and this continuous growth is a result of following points: the steady increase in containerization trend in Russia, a point we have spoken about on earlier web conferences; the stable Russian ruble against U.S. dollar and euro throughout 2019; improved costs and operational efficiencies within the Russian supply chains and where we, as Global Ports, play an active and important role; and last but not least, the continued solid foreign demand for Russian-produced goods. In terms of Russian export commodities, then they remain the same as here listed in the column to the left.

Import of empty containers showed quite different trends depending on the basin. Overall, the number is marginally up, but it continues to decline massively in Northwest, down 15% or 34,000 TEU, but increased 18,000 TEU or 7.5% in the Russian Far East and also up in Black Sea. So why this remarkable import growth of empties? Well, the shipping lines' appetite to import empty containers is here to stay. The figure for Northwest is up by 33,000 TEU last year, being an increase of more than 50%, and this is naturally to support the export growth as just explained. And with the quick plans on January this year, then we see the same trend continuing.

As also mentioned in our previous presentations and worthwhile repeating, though we left out the graph this time, that the containerization rates in Russia remain fundamentally low compared to most European and overseas models, though it is slowly but steadily improving. So this rate is potentially a facilitator for coming year's container growth in and out of Russia.

If we turn to Slide 9, please. Then as also mentioned -- sorry, I mean Slide 11, of course. As mentioned on previous calls, then Russian container market is going through a remarkable change and transition, swiftly moving towards a balanced import-export flow compared to Russian level, but with large regional differences where Northwest is now dry export-driven, as mentioned here to the left.

To put export growth figures into perspective. Then full export has grown a staggering 86% over the past years -- 5 years. Few markets in the world, if any, can actually demonstrate such growth rates.

For mentioning new participants in these Global Ports conference calls, let me just remind you all of the tangible impacts of such staggering full export growth meaning business impacts to the shipping lines, the rail providers and us as a portfolio-managed terminal operator in Russia.

Firstly, full export containers are much heavier than import containers and approximately 65% have arrived in Northwest terminals via rail. And with the cargo sold in large quantities, it also means significantly longer storage periods in our terminals compared to import containers and empty containers. And with temporary volume peaks within the Russian rail network, Global Ports, as this portfolio managed company, can offer its customers a variety of operationally efficient and competitive solutions, i.e., Northwest either via FCT or PLP as connected to several rail infrastructures. Ust-Luga takes to the west of Saint-Petersburg, possessing one of the leading rail infrastructures in Russia.

For VSC, more than 90% of containers arrived at the port by rail, so the large, effective and market-leading rail networks in and around VSC plays a vital role in our growth plans and recovery mode. Secondly, the growth in volumes, combined with high weight per container means need for injected export capacity on the vessels departing our terminals. And here, we work with all shipping line customers to meet their expectations and requirements to handle more containers per vessel [port] without obviously adding operational time to the schedule. In fact, we help our customers to reduce overall port stay hours, hence, allowing them to slow steam to and from next port of call, which saves them cost and leaves also a better environmental footprint.

Things are rapidly changing in our industry and the current coronavirus is a good example of this. It's important we remain agile, well equipped, customer-driven to meet tomorrow's demands of the marketplace and logistics partners. These graphs, which, in fact, are on Slide 9, sorry for that, are quite self-explanatory and reflecting the dynamics and trends I just explained.

So now let's move to Slide 11, please. We had, during previous presentations, highlighted our key priorities: being have relentless focus on operational efficiencies; being customer-focused and centric; the advantage of our presence in 2 main Russian basins, Northwest and Far East; and the scale and synergies from being portfolio operated. And these are really our priorities. And here, we can see some of the results of our good efforts and these priorities.

Our Northwest market share accelerated, as Vladimir explained, during the second half compared to first half. And actually, in the half, we also showed market share gain and improvements. Our growth is noticeable, both in the full import and full export segments.

Our Achilles' heel is and was, as explained during last presentation, fulfilling or let's say, leading and delivering the priorities I just mentioned in our Russian Far East operation in VSC. And here, our ability to deliver were firmly [punished] by the market clearly seen from the market share drop. But we remain confident on our said priorities, ongoing work and plans and we do also see improvements in January and February '20 figures. So hopefully, we have some good news to bring you 6 months from now.

Let's turn to the next slide, please, to look at the non-containerized segment. As you can see from the text, then our performance for this segment remained strong, reflecting a 17% growth in 2019 and a staggering 400% growth in just 5 years. And also here mentioned -- it should be highlighted that despite this growth, we did face some technical challenges, particularly related to the metal scrap and coal market. The comments are quite self-explanatory, so no need to further elaborate on but also signaling that similar large double-digit growth percentages is unlikely in the years to come.

It should also be mentioned that we, during 2019, deliberately deselected some non-containerized business opportunities in PLP as we remain with a strategic focus and priority for the container segment and view our materialized container growth at PLP in 2019, then this exercise was necessary to constantly safeguard such container growth.

We have here in Russia as well as rest of Northern Europe felt an extraordinary winter or actually more like a prolonged fall, which directly impacted the already fragile European coal market. This naturally had tangible impacts on regional coal prices, thus also our handling prices.

Our 1-year-old facility, Ust-Luga, has been successful, meaning being nearly 100% utilized. But these circumstances have forced upon us a pricing alignment to the new market realities. And combined with imposed metal scrap costs during third quarter, this explains the non-containerized drop from first half to second half as for the columns to the right.

Moving to next slide, please. Then, as mentioned, tangibly lifting our perceived level of customer service has been focus areas for several quarters, and here I listed some of the features and efficiency drivers we have materialized during 2019. We regularly check, verify our efforts with the market and do receive positive remarks and feedback. So we remain developing ourselves along this line of thinking.

Rail infrastructure and transportation are actually integrated parts of driving value-added logistics solutions in a market like the Russian. And we have, during 2019, participated in and ourselves launched a regularly market block train solution to and from Northwest and across Russia from our VSC terminal.

We have launched a range of value-added investment programs during 2019 directly incented for our customers, so delivering tangible values to shipping lines and forwarders and BCOs. The market-leading temperature-controlled cross-dock facility we launched in PLP is one great example, but also a range of hardware upgrades and relocations are really driving and facilitating our operational performance targets.

On this note, I will pass on the floor to Alexander Iodchin.

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Alexander Iodchin, Global Ports Investments Plc - GM & Secretary of the Board [13]

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Thank you, Brian. Now let's take a look at Slide 14 and our environmental, social and governance performance over the last year. We continue to monitor our position and progress in this important area and more details can, of course, be found in our annual report, which is due to be published in April.

We continued to invest in the environmental protective measures and have been assigned a BBB rating by MSCI for our efforts.

We operate a policy of continued improvements in the area of safety and are pleased to see our LTIF on record, although, unfortunately, this achievement was undone by the fatality experienced by our PLP facility at the beginning of last year. We have learned from this and will to improve our processes so that we never see such events happening again.

Looking at our governance standards. They remained high, and in 2019, we took the step to reduce the number of directors on the Board, maintaining the number of independent nonexecutive directors.

We also merged Nominations and Remuneration Committees and formed a new Strategic Committee to ensure a faster strategic planning process and [monophyletic] execution. We can already see the benefits and contribution of this committee.

I will now hand over to Alexander Roslavtsev to guide you through the financial performance.

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [14]

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Okay. Thank you, Alexander. Let's move to Slide #16. And to continue on improved governance, as you noticed, we are reporting this year the financial statements 1 month earlier than in previous year.

So over the year, we saw robust financial performance and strong cash flow. Now let's look specifically at our revenue performance. On a reported basis, revenue increased by 5.3% to the level of $362 million. However, after adjusting for the sale of logistical terminal and new accounting for VSC, like-for-like revenues grew by 4%.

An increase in non-container revenues of 9.5% was driven by coal handling at ULCT and bulk cargoes as PLP, although the second half saw a 14% deterioration due to lower handling volumes and the reduction of coal handling price. 6.5% growth in container was partially offset by a 4% decline in revenue total, driven mainly by a change in mix of services and throughput by terminals.

Okay. Let's now look at Slide #17. Strong cost control continues. We continue to be pleased by our cash controls and saw cash administrative, selling and marketing expenses decrease by $3.8 million or 10.3% over the year. What's more, like-for-like cash costs increased by less than 5% on the back of 6.5% growth in container throughput and 17% bulk throughput. This is a great achievement.

Moving on to Slide #18. This strong cash cost controls performance and the rise in revenue drove a 4.4% increase in EBITDA. Our EBITDA margin is 62.7%. Free cash flow has remained strong, growing by nearly 19% to $159 million, supported by a reduction in cash CapEx due to completion of ULCT coal handling project.

Now move on to Slide #19. Our ongoing strategy to strengthen our debt position continues. And after another $33.3 million net debt reduction in 2019, we're at a record low since NCC acquisition at the end of 2013. This has had a positive knock-on effect on the company's credit profile as all rating agencies have upgraded credit ratings over the course of 2019 by 1 notch: Fitch rating to BB+, Moody's to Ba2 and local agency Expert to RuA+.

Now let's move to Slide #20. Our strong cash generation has enabled us to continue to deleverage, and our net debt-to-EBITDA fell to 3.3x despite the impact of IFRS 16 and foreign exchange movements.

Deleveraging remains our priority. And in the second half, we continued a bond buyback of 2022 notes for the total face value of $122 million. This was in order to decrease FX exposure, increase the yield on cash balances and smooth our 2022 and 2023 maturities.

Okay. Let's move to Slide #21. At the end of the year, through our actions, we find ourselves in a strong liquidity position with cash balance at $124.4 million that exceeds scheduled debt maturity for the next year. Our steps taken to mitigate our FX risk saw the company's share of U.S. dollar debt reduced at almost half to 36% from 74% in 2018.

With that, I would like to pass the floor back to Vladimir to conclude the presentation.

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Vladimir Bychkov, Global Ports Investments Plc - CEO [15]

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Thanks, Alexander. Let's start on Slide 22, industry outlook and group strategic focus.

To conclude, I am pleased to report to you that Global Ports has delivered a solid set of financial results in the period with 4.4% growth in adjusted EBITDA and a 19% increase in free cash flow.

Our operational outperformance of the market continues, and we are particularly pleased with the expansion of our leadership position in the Baltic region. We will continue to prioritize our performance in the Far East to replicate 2019 Baltic success at this region to gain outstanding performance results for the group.

Our strategy is serving us well. We have achieved much by focusing on providing service standards and productivity, but this is formerly discussed. We will continue to deliver improvements for our customers while also minding strict cost control to drive profitability and cash flow generation.

I should emphasize that we believe the long-term potential of our chosen market is Russia remains fundamentally under-containerized. The containerization effect will continue to be an important driver of the market. We're very excited to see this trend as it reduces volatility in the market, improve capacity utilization and opens up additional opportunities for well-equipped, specialized terminals with good railway infrastructure just like Global Ports.

I would now like to hand over to you for questions. Thank you.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [16]

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Thank you very much. Kevin, we are ready to open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Denis Vorchik.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [2]

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Denis Vorchik from URALSIB. My first question is regarding your container, to know your visibility going forward. So given the propagation of coronavirus, so what's your expectations for turnover this year. And probably you could give us some details on container dynamics in February.

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [3]

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Okay. Thank you for the question, Denis. Let me provide you all with a bit of an update on specific situation around corona, which is obviously on everyone's lips on these days. It's clear that we are seeing some short-term impacts from it. But we have to say that the visibility is not very clear in terms of what really to expect from this because how long is it going to take and how big is this going to be?

It's clear that logistics change around the world and particularly in Asia and China have been disrupted because of the situation of extended holiday period after the Chinese New Year in February. And clear that it's not just caused or, let's say, ed an effect on the factories in China, but the entire supply chain around mother vessels, deep-sea vessels coming in to and from Europe and also into Saint-Petersburg and our terminal in VSC.

That being said, we also see different approaches from the shipping lines. So there's not one clear answer to the situation. Some -- different shipping lines have different tactics in this respect. So we will see how the situation evolves from here.

In terms of your second question on what we see for February. February is a similar good month, more or less, to what we saw in January, as mentioned in the presentation here. We have to keep in mind here that the export growth from Russia, as mentioned -- what I mentioned that more than 10% in Northwest is somehow a trend we continuously see. So February is our plan looking also quite positive from a market perspective in comparison to the performance and view in 2019. Does that answer your question?

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [4]

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Yes. That's clear. And if I may, one more question from my side regarding your asset portfolio actually. At some terminals, you're almost full in terms of capacity utilization, I mean, PLP terminal in the Baltic. So given this -- and as for First Container Terminals, also capacity utilization keeps growing. Now it's above 71%. So given this, what's your CapEx guidance for this year? Would you increase CapEx in order to manage capacity -- additional capacity?

And in particular, also regarding your Ust-Luga terminal. Its capacity utilization, on the other hand, pretty low. So what do you expect the growth -- point of growth will be at Ust-Luga or what's the [status on this]?

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [5]

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Okay. Let me answer your first and third question, and then I will leave the second one around CapEx to Alexander Roslavtsev.

In terms of utilization degree, then it is true that because of these, let's say, disruptive feeder schedules and network schedules that we are seeing in the current times is, let's say, temporarily giving some -- giving -- or providing us with some overutilizations in our terminals. I would rather turn it around and say, rather than seeing it negatively, we actually should see it positively because of our, again, portfolio setup actually allow us to somehow work with the customers to swap the containers and the business around to various facilities. Let's not also forget Yanino in this respect. So what offhand looks like, let's say, maybe a costly, inefficient procedure is actually for us, you can argue and say quite positively because it demonstrates the value of us being, again, portfolio driven with different options to actually continuously and unhindered serve our customers despite all this situation that we all face right now.

In terms of your last question around Ust-Luga. Again, it's obviously no -- well, no secret that it was, let's say, the situation we see, particularly now around the import situation from Asia, which, obviously, is down not just because of the corona, but partly also related to the Chinese New Year period, which is a standard -- let's say, standard tradition every year. Then we do see still some opportunities for continuously developing our business via Ust-Luga.

Again, this particular situation we have right now with the, let's say, high utilizations in the terminals, it also means that the forwarders are looking for alternatives compared to, let's say, the standard solutions via our terminals in Saint-Pete. So again, why not start to develop new segments of business via Ust-Luga and this is something we particularly are working on.

And on that note, I will pass on to Alexander to reply on the comments regarding the CapEx situation.

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [6]

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On CapEx, we will use the same disciplined approach for investments as before and focus on level of service and productivity.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [7]

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Okay. So do you expect, shortly speaking, the CapEx level at the same amount as the previous year?

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [8]

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Yes. Mikhail said at the beginning of the call we don't really give forward-looking statements, but as I said, we will have the same approach to CapEx as in all previous years.

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Operator [9]

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(Operator Instructions) Our next question comes from the line of Ivan Postevoy from VTB Capital.

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [10]

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Yes. My first question is to what extent do you expect your revenue per TEU to decline in 2020? In your press release, you stated that it will be a single-digit decline. But my question is, will it be low single-digit or high single-digit decline?

So the second question is about [VSC] port. Should we expect revenue per TEU decline here sharper than the average in 2020?

And the third question is about your outperformance in Saint-Petersburg port. Do you expect this trend to continue this year and why?

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [11]

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Okay. Let me start with the first 2 questions. I'm not sure I caught the third one. So maybe you can repeat it after I answer the first 2 ones.

In terms of revenue per TEU for 2020, well, the situation is that we expect still a single-digit drop or decrease in terms of revenue per TEU for this year. There are many factors behind this, let's not forget around the segments, the swap, as mentioned, with more empties being imported, which is paying less. We see more export. We see also a swap around the terminals and the basins. So there are many factors actually somehow overall producing the aggregated revenue per TEU figure that we see for 2020.

In terms of '19, it's a similar situation. Again, we've seen a massive increase on the empty imports, which, again, is lower paying than the full containers. So overall, fundamentally, things are, let's say, unchanged. We see the benefits and the opportunities from utilizations overall increasing and very stabilizing around [2 quarters] of percentage of the market. So those are really, let's say, the fundamental explanations for why we are seeing these single-digit drops in terms of revenue per TEU.

And if I can then ask you please to repeat the third question because I didn't really pick it up.

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [12]

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So the second question is about revenue per TEU in [VSC] port. Should it be sharper than average?

And the third question is about your outperformance in Saint-Petersburg port. Should we expect it to continue in 2020?

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Brian Bitsch, Global Ports Investments Plc - Chief Commercial Officer of Global Parts Management LLC [13]

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Well, in terms of our market share gain in Northwest, well, I would actually prefer not to focus on the market share itself, but more focus on the efforts and our priorities around servicing the customers very well, delivering the values they expect and that has, so to say, happen to deliver -- to result in a market share increase. That's more, let's say, the outcome of the measures we have taken internally around our strategic priorities of improving the service levels across-the-board.

For VSC -- situation in VSC, we have, obviously, over the last 4, 5, 6 months been scrutinizing in details what we need to improve on. We took some measures as reported also in the last -- in the, let's say, in the last web conference we had 6 months ago. And what we are seeing is actually that some of our actions around improving the value proposition for our forwarders and -- particularly our forwarders but also the shipping line customers are starting to carry some fruit because we can see results in January, February have actually improved. So we, on that basis, expect to see somehow stabilizing or recovering of some of the lost business.

In terms of the revenue per TEU, then there is, again, it goes back to the situation on certain cargo mix that somehow makes up for the, particularly, the drop. We have seen also a decrease, we have seen of a single-digit number.

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [14]

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Okay. And one more question, please. What is your maintenance CapEx at this moment?

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [15]

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So at the moment, for 2020, you mean?

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Ivan Postevoy, VTB Capital, Research Division - Equities Analyst [16]

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You said that you can't have any forward-looking statements. So I think that question is now, what is your maintenance CapEx now? And maybe next year, if you can say it.

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Alexander Roslavtsev, Global Ports Investments Plc - CFO of Global Ports Management LLC [17]

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So for 2020, as I said, we don't give a forward-looking statement. And for 2019, the level of CapEx was at around $24.6 million.

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Operator [18]

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(Operator Instructions) Thank you for your patience. All questions have now been answered. So I will hand back to our host, Mikhail Grigoriev. Thank you.

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Mikhail Grigoriev, Global Ports Investments Plc - Head of IR [19]

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All right. So thank you all very much for participating in our conference call. And you all know contact details of our Investor Relations, so please do not hesitate to contact us should you have any questions in the future. Thank you very much, and goodbye.

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Operator [20]

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Thank you very much for joining today's Global Ports call. You may now disconnect your lines. Speakers, please stay connected.