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Edited Transcript of GLTR.L earnings conference call or presentation 2-Sep-19 11:00am GMT

Half Year 2019 Globaltrans Investment PLC Earnings Call

Limassol Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Globaltrans Investment PLC earnings conference call or presentation Monday, September 2, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Alexandrovich Shenets

Globaltrans Investment Plc - CFO

* Mikhail Perestyuk

Globaltrans Investment Plc - Head of IR

* Valery Shpakov

Globaltrans Investment Plc - CEO

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Conference Call Participants

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* Aleksey Ryabushko

Sberbank CIB Investment Research - Junior Analyst

* Denis Vorchik

URALSIB Capital LLC, Research Division - Analyst

* Fedor Kornachev

Sberbank CIB Investment Research - Research Analyst

* Matvey Tayts

Sova Capital Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Globaltrans conference call. (Operator Instructions) I am now handing you over to the team at Globaltrans. Thank you.

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Mikhail Perestyuk, Globaltrans Investment Plc - Head of IR [2]

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Hello, dear colleagues. We're all happy to welcome you today to the conference call devoted to the publication of our semi-annual results, the results of Globaltrans. So today's conference call today is participated by Valery Shpakov, the CEO of the company; and Alexander Shenets, the CFO of the company. So we will start by making a brief presentation and then we'll be happy to take your questions.

Now I give back the floor to Valery Shpakov.

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Valery Shpakov, Globaltrans Investment Plc - CEO [3]

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[Interpreted] Dear colleagues, hello. Thank you for your interest to our semi-annual results. Traditionally, we will start by making the presentation together with my colleague, Alexander Shenets. And then we'll be happy to take your questions.

So let us start on Slide 4 where you can see our key achievements for the first half of 2019. I'm really happy to inform all you that the first half of 2019 was successful for Globaltrans. Our operating efficiency remained very high. All our cars -- the sum of our fleet was fully deployed in the transportation services. Volumes of Globaltrans were better than the market overall. Our volumes increased by 3.6%, whereas the overall market volumes went 1.6% down. The high quality of our services and the solid demand in the market also enabled strong pricing, so the average price per trip increased by 10%. Our strong operating platform enabled the group to successfully adapt to changes in our client logistics, while improving our profitability.

Now in terms of finance. We have once again demonstrated growth across all of our key metrics. So our adjusted revenue improved by 14% to RUB 34 billion. As usual, we efficiently managed our costs, and the total operating cash costs only increased by 5% despite the remaining inflationary pressure and the growth of empty runs.

Our adjusted EBITDA margin increased to 59%. Adjusted year ago, it was 55%. Our adjusted EBITDA increased by 22% and exceeded RUB 20 billion. Cash generated from operations increased by 18% and exceeded RUB 19 billion. Our free cash flow remained high and it amounted to RUB 7.9 billion. And at this point, I want to say that most of our planned expansion CapEx this year fell in the first half of the year. Now with that, our total CapEx for the first half of 2019 amounted to RUB 3.9 billion. Our leverage remains low, so our net debt-to-adjusted EBITDA ratio even went further down, and today, it is 0.53x.

I'm also happy to let you know that we have met our dividend target for the first half of 2019. Our Board of Directors have approved the payout of the interim and special dividend to the total amount of RUB 8.3 billion, which equals RUB 46.55 per share or depository receipts. So we continue somewhat increasing the amount of dividend payouts every reporting period as you can see. Our target for the second half of the year is to be at least RUB 8.3 billion. So total payout to our shareholders for 2019 may amount to about RUB 16.6 billion, and this is higher than total dividend payouts last year.

Now so let us go to Slide 6. So I suggest that we start with market overview which is on this slide. So in the first half of 2019, the overall Russia freight rail turnover increased by 2%, whereas the volumes, as I've already noted, went 1.6% down. There were some major infrastructure projects being implemented, and as a result, the average speeds in the rail network remained under pressure. The amount for bulk cargo transportation services remained high throughout virtually the whole of the first half of the year. Still, some softening in the demand was observed in June, primarily due to weaker coal volumes, but in July, the situation started to recover, and that was also supported by discounts offered by Russian railroads. This discount was applied to the transportation of these type of cargoes. Pricing in the gondola segment generally remained favorable and -- however, in July and August, the rates in the spot market remained under some pressure. The net increase in the overall gondola capacity amounted to about 3% or 17,900 units of rolling stock.

Now oil segment. In the oil segment, supply and the demand were balanced. Volumes went 2% down, mostly due to some scheduled large-scale repair and maintenance works at some of the refineries that took place from May until June. But in July, we saw recovery on the volumes. Now pricing in the rail tank segment remains strong as fleet scrappage continues. For instance, net decrease in overall rail tank capacity amounted to about 1% or 2,000 units.

Now let's go to Slide 7. Here, I would like to say a couple of words about the competitive environment and the current large-scale infrastructural projects. As you can see, the operator market in the gondola segment remains -- becomes more mature. Our top 10 largest players here operate about 80% of total gondola fleet. I want to note that a significant part of major operators work with their clients either under long-term contracts or are basically captive companies. And one of the key elements to long-term attractiveness of the railway industry is the current project, the expanding throughput capacity in the East of the country. This project should support the growth of export volumes going to more favorable Asian markets.

So in this respect, what is the current status? This infrastructure project is going to have 2 stages. Stage 1, the project is already 80% complete, and as a result, the throughput capacity, it has already grown by 50 million tonnes. And that means that the capacity have virtually doubled as compared to the level of 2012. We expect that by the end of the year 2020, the throughput capacity is going to grow by about 10 million tonnes more. This is about 3% of current annual volumes of closed shipments. Stage 2 of the project is to be over in the year 2024. By that time, the throughput capacity is to grow by another 60 million tonnes. So the overall growth, the overall addition will be over 50% as compared to the level achieved in 2020. So that means that there are some serious intentions to increase volumes and to increase the throughput capacity over the mentioned period.

I will go to Slide 9 and talk about our operational performance. A few words about price dynamics. In the first half of 2019, the average price per trip increased by 10%.

In the gondola segment, we could see some positive price dynamics, which was supported by the high quality of our services and superior logistics capabilities. As for the rail tank segment, in that segment, pricing was stable, reflecting solid demand as well as good customer relations and also unique locomotive capabilities. We also have to note that the group net revenue from operation of rolling stock increased by 14%. That was also supported by our successful partnerships.

As of today, we had a strong portfolio of long-term contracts with high-quality clients whose cargo load perfectly complement one another and the group's logistics solutions. As expected, we are expanding the volume of our business under new long-term 5-year contracts signed last year. For instance, net revenue from TMK and the ChelPipe Group has virtually doubled. Long-term contracts with Rosneft, Metalloinvest, MMK, TMK and ChelPipe contributed about 70% (sic) [60]% of our total net revenue from the operation of rolling stock. One year ago, it was 55% in the first half of 2018.

Let's move on to Slide 10. As compared to 2018 when we increased our investment program and acquired 4,700 units of rolling stock, our acquisitions, our purchases in the first half of 2019 were moderate. So we purchased slightly more than 1,000 units of rolling stock. And as a result, the group's owned fleet currently exceeds 66,000 units and total fleet is over 70,000 units of rolling stock. All the purchased cars were fully utilized in our operations.

Today, our Leased-in Fleet has increased by 6% as compared to the end of 2018 and it is now 3,800 units. Those are mostly rail tank cars. Average rolling stock operated in our company has grown by 8%. Volumes, growing faster than the market overall, plus 3.6%. Our volumes grew both in the bulk cargo segment, plus 3% year-on-year, and in railcar products and crude oil segment, plus 4% year-on-year. The group's rail freight turnover went 5% down, and first of all, due to the 8% reduction of the average distance of loaded trips caused by changes in our client logistics. The average number of loaded trips per car went 4% down, which was also caused by changes in our client logistics and a reduction of the average speeds in Russian Railroad's network. So the speeds were going down because of those major infrastructural projects that I mentioned.

Now Slide 18 -- Slide 11, sorry, Slide 11. Here, I would like to note that thanks to the powerful operating platform, Globaltrans has successfully adapted to changes in our customer logistics while improving its profitability. The significant changes in our clients' cargo traffic resulted in quite expected increase of the empty run rates for gondola cars. As we mentioned before, the growth of empty run costs was reflected in our commercial arrangements with those customers.

We have also managed to maintain our operational efficiency high. So as anticipated, the empty run rate for gondolas increased to 43%, yet it remains one of the lowest in the Russian market. Total empty run ratio for all types of cars increased to 51%. I want to note that the share of empty kilometers -- empty run kilometers paid by Globaltrans remains stable and amounts to 90%.

And now I would like to pass the floor to Alexander who is going to give you more detail on the group's financial performance.

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Alexander Alexandrovich Shenets, Globaltrans Investment Plc - CFO [4]

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[Interpreted] Hello.

On Slide 13, you can see our financial results for the first 6 months of 2019. We believe that those results are very strong. Our adjusted revenue went 14% up. At the same time, our total operating cash costs only grew by 5%. So in the right hand of the graph, you can see that our EBITDA went 22% up over 6 months and now it exceeds RUB 20 billion. The EBITDA margin increased to 59%.

As for cash flows. I think I can say that cash generated from operations increased by 18% because in the first half of the year our CapEx increased significantly as compared to the first half of the year last year. Well, that was mostly a result of the variations in the schedules of those CapEx. Last year, most of the CapEx fell in the second half of the year, but this year, most of it falls in the first half of the year. So as a result, our free cash flow went somewhat down, but it remains very healthy at around RUB 8 billion. In the bottom right-hand graph, you can see that our debt has increased slightly. Our net debt increased slightly by 5%. However, the debt-to-EBITDA ratio remains very low, just 0.53x.

Next slide explains our performance in terms of revenue. Adjusted revenue went 14% up, as I've already said. So the key component for that revenue is still net revenue from operational rolling stock, which also increased by 14%, thanks to good results in both segments, in both gondolas and rail tank cars. The growth of revenue was still caused by the growth of average price per trip by 10%, whereas the average number of loaded trips per railcar went 4% down. And this growth was also influenced by the 8% growth of average rolling stock operated. Our revenue from operating leasing of rolling stock went 27% up. And this is actually a direct influence of the recovery of the leasing business and recovery of rates of pricing in this segment. Net revenue from engaged fleet, well, it's currently less than 1%. It's quite tiny, but this is not the matter of interest. Other revenue, which is a matter of interest, went 32% up. This growth was associated with the development of our niche projects of transporting petrochemicals and tank containers and also transportation of some dry cargoes in specialized containers.

Now Page 15, Slide 15. Here, you can see information on our debt and our liabilities. Let me point some matters out. So first of all, I'd like to note that total operating cash costs only went 5% up. This growth was driven by quite significant growth of empty run costs and also repairs and maintenance costs, so we'll talk about that in more detail on the next slide. And as for this slide, I would also like to point out that the growth related to these cost items was offset with savings in terms of some other cost items. And besides, I think up to now, it's still quite a significant reduction of other operating cash costs. So that was, to a great degree, related with cancellation of the movable property tax in Russia.

As for total operating noncash costs, they went 14% up. But here, you can see that the key driver of that growth was the growth of depreciation and amortization. So that's related to the increase of our rolling stock resulting from major investments we made last year. And partially, that's also the type of investment we've done this year so far. I think also, to note that this year, we are starting to apply a new standard, a new accounting standard, IFRS 16. And in connection with this, we have a new cost item, depreciation of rights of use assets. Well, this cost item produce some influence on this cost, so -- although the influence was quite insignificant.

Now Slide 16. Here, you can see major operating cash cost items. So those are primarily empty run costs, that went 12% up, so that's the growth we see in terms of this cost item. Here, things are quite simple. There was quite significant growth in the regulated Russian railroad tariff. In particular, the growth was almost 10% for gondolas. And as Ms. Shpakov has already said, as anticipated, our total empty run ratio went up due to changes in logistics in terms of our -- some of our key clients, but that was all reflected in our commercial terms with those clients.

Now repairs and maintenance costs. They increased quite substantially by 14%. So as expected, there was quite a lot of pressure in terms of this cost item. So this growth was primarily driven by 2 key factors. First, the increase in the cost of repairs, quite significant growth in terms of some types of -- I mean the price of certain types of spare parts. Besides, the number of depot repairs of our rolling stock also increased significantly. That is just associated with the requirements with the need to perform such repairs according to a certain schedule. So in the second half of the year, unfortunately, we expect further pressure in terms of this cost item because the cost of some spare parts such as wheel pairs continues to grow even this year, in the first half of the year. So most likely, we're going to see growth in terms of this cost item in the second half of the year as well.

Employee benefit expenses only went 6% up, which is a quite moderate growth, so close to the inflation rate. And it is actually related to the indexation of wages and salaries, the annual one, and related social insurance costs. Fuel and spare parts cost related to locomotives went 7% down. And here, the decline was mostly related to change in our clients' logistics. So the distances were somewhat short-term in the distances that we cover with our locomotives. And that's the key driver here.

Now Slide 17. Here, I would like to get back to the matter of free cash flow. So in the upper graph, you can see that cash generated from operations went quite substantially up, so the increase was 18%. At the same time, total CapEx went substantially up as well. But as I've already said, one of the priority drivers in terms of CapEx is the different schedules. So sometimes, we have CapEx in the first half of the year, sometimes, in the second. So this year, most of the CapEx has already been spent. However, these numbers affect free cash flow in the first half of the year, so it went 8% down. Still, it remains quite healthy, around RUB 8 billion. And in the lower graph, you can see the contribution of different sectors into the change of our free cash flow.

Next slide shows information in our debt. As I've already said, so we have quite substantial CapEx, and thus, the level of debt increased. However, the level of debt -- the ratio of net debt-to-EBITDA remained quite low and it even went somewhat down as compared to the first half of last year, so it's now 0.53x. As be seen, our debt is almost 100% rubles-denominated. The average weighted interest rate remains quite low, 8.2%. Besides, I think I ought to note that because of the application of the IFRS 16 standard, we are going to see -- what you can see, some liabilities. You can see a new line called lease liabilities in our balance sheet. So this line means long-term operating leasing of RUB 1.2 billion. So these numbers are related to long-term leases of offices where we sit. Now the bottom graph of this slide suggests that our debt is still perfectly structured in terms of its maturity, so they don't have any particular peaks in the coming few years.

Now Slide 20, dividends. So dividends, that's one of our key important priorities. In the upper graph in the slide, you can see that our dividend policy and our approaches to the distribution of dividends remain quite attractive. Historically, you can observe gradual growth of dividend payouts. In the first half of the year, for the first half of the year, we plan to pay out RUB 8.3 billion of dividend, so this has been approved by the Board of Directors. In terms of final dividend for the year 2019, our target is to pay another RUB 8.3 billion. So total payouts for the year 2019 may amount to RUB 16.6 billion, which is going to exceed the level of payout in 2018. So what else I would like to note in terms of this slide. So one ought to understand that our expansion CapEx is fully discretionary, fully voluntary. So we do not need relatively large to replace any significant amount of any scrap fleets. On the other hand, our maintenance CapEx is at a relatively insignificant level. So in the bottom graph, you can see that our free cash flow before CapEx, before investment into the rolling stock and before dividend payout in the first half of the year amounted to RUB 12.3 billion, which is significantly higher than the dividends we pay.

I now would like to pass the floor back to Valery.

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Valery Shpakov, Globaltrans Investment Plc - CEO [5]

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[Interpreted] So once again, hello, let me continue. Let's go to Slide 22 now where I'm going to briefly outline the management plan for the second half of the year and explain what's going to produce influence in our business in the near term. We can see some volatility in the bulk cargo transportation market. Still, we are quite confident of the resilience of our business model, so which is based on our long-term partnerships, high-quality of service and efficient fleet management. I think also to note that the gondola market where we operate now is more mature. A significant part of operators now work on the long-term contracts or our captive players. It's also important to note that as of now, about 70% of our net revenue from operation of rolling stock is secured with long-term contracts in the gondola segment and in the oil cargo transportation business. So all of that supports our pricing expectations in the second half of 2019. Our priorities, once again, are strict cost discipline, keeping our operational excellence high and payout of attractive dividends, as Alexander has already mentioned.

We are entering the second half of the year in a good shape. The situation is developing in line with our expectations. Our investment plans remain moderate. As we've already mentioned, most of our annual expansion CapEx program has already been completed. Our 2019 maintenance CapEx is expected to be around RUB 6 billion.

Now in the end, let's go to Slide 23 where we're going to sum up the results. So I don't need to (inaudible) in this respect. Globaltrans once again demonstrates strong financial results. This is the continuation of growth we achieved in the previous year. We can observe growth of all key metrics, so all key metrics, and the level of leverage at the same time remains low.

Today, we have a resilient business model. We have long-term contracts with high-quality clients. And we have the oil segment. Together, these 2 segments contribute 70% of our net revenue from operation of rolling stock. Our operating platform is one of the most efficient in the industry and this has been recognized with our customers. Dividends remain our priority. The high cash flow and our flexibility in terms of investment in our fleet expansion, this all creates a strong foundation which enables Globaltrans to continue paying out significant dividends. We have approved a material dividend for the first half of the year and so we have outlined our target for the second half of the year.

Thank you. Thank you for your attention. Now we're ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Okay. So we have 2 questions coming through. The first one being from the line of Matvey Tayts from Sova Capital.

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Matvey Tayts, Sova Capital Limited, Research Division - Research Analyst [2]

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[Interpreted] And let me congratulate you on the good results in the first half of the year. I would like to check 2 matters. First of all, the average number of loaded trips went 4% down in the first half of the year. Could you please explain what your forecasts are for the second half of the year and why? And the second question is that your average price per trip and the [recession] indicates average price per trip. These rates are apparently under pressure as we know. So your rates went 10% up in the first half of the year. So can you please explain what are your expectations for the second half of the year? So any additional information will be welcome.

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Valery Shpakov, Globaltrans Investment Plc - CEO [3]

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[Interpreted] So let me try to answer your questions. First, the changes in the first half of the year in terms of the average number of loaded trips per car. The speed in the network of Russian railroads went down, thus the turnaround time per car increased. That was due to some factors like, for instance, the modernization of infrastructure project. And these projects are intended to increase capacity -- throughput capacity in the future.

As for your second question in terms of the average price per loaded trip, yes. Our indicator went down. Indeed, the market has been stable and the customer volumes went up. This is true for our major clients, including Metalloinvest, for example. But as you can see, in the second half of the year, the situation has started to soften a little bit in terms of spot rates for gondola cars. For instance, the market lease rates are currently at the level of RUB 1,750 versus RUB 1,900 in the first half of the year. But in the second half of the year, we do not expect any major volatility in terms of our rates on the long-term contracts. As already said, for example, in the first half of the year, 70% of our net revenue from operation of rolling stock was attributable to our long-term contracts and the oil segment. So I think this answers the question.

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Operator [4]

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Okay. So the next question comes from the line of Denis Vorchik from URALSIB Bank.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [5]

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[Interpreted] This is a question from URALSIB. The question is about the volume of oil cargoes. So the volumes went up year-on-year, so did the rail freight turnover in the segment. And the presentation mentioned that some of the Russian refineries were shut down for repairs. The question is whether those repairs are really an important factor influencing your indicators. And could you please also share your expectations for the second half of the year in this respect?

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Valery Shpakov, Globaltrans Investment Plc - CEO [6]

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[Interpreted] So as for oil cargoes, we believe that the volumes have stabilized in this respect, they're quite stable, and supply and demand are balanced. The fleet is reducing slowly because of scrappage. The rentals are growing. So for instance, spot lease rates in the first half of the year were up to RUB 1,000 per day. Just a year ago, the number was RUB 600.

What we expect? We expect quite stable situation to continue. We expect some potential increase in rentals supported by demand. And for the segment, overall, it's quite concentrated. Operators are now working under long-term contracts. And we expect the pricing situation to continue to be favorable. The market is generally mature.

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

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[Interpreted] Now the second question is about iron ore. So we can see that the volumes in terms of iron ore went up. However, the freight rail turnover in this segment went down. If we look at your revenues, in terms of iron ore, your net revenue from operation of rolling stock went 51% up year-on-year. That's been the most fastest-growing sector. So could you please explain the dynamics here? So what's the key factors supporting these dynamics, pricing or something else? And could you also please share your expectations for the second half of the year?

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Valery Shpakov, Globaltrans Investment Plc - CEO [8]

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[Interpreted] So as for iron ore, yes, you outlined it absolutely correctly. The volumes went up. Revenue went up. Freight rail turnover went down. Turnover effect is standing behind the growth of revenue. First of all, yes, the volume increased. And our logistics changed, I mean the -- mostly logistics of our customers, of which resulted in the introduction of some new pricing, some new rates. And the growth of our empty run costs was offset with these changes with certain cargoes. Let me give you an example. For instance, Metalloinvest. We gave them certain preferences in terms of metal services pricing which was offset by iron ore. And as you know, iron ore had quite good volumes and revenues.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [9]

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[Interpreted] And my congratulations on the perfect results again.

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Operator [10]

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Okay. So the next question comes from the line of Aleksey Ryabushko from Sberbank CIB.

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Aleksey Ryabushko, Sberbank CIB Investment Research - Junior Analyst [11]

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[Interpreted] This was a question from (inaudible) from Sberbank CIB. I would like to check it once again. So you give a very good expectation -- explanations of the supply and demand balance and dynamics in the rail tank segment. But could you please explain if you expect any further reduction of rail freight turnover in the segment in terms of cars in operation? For instance, with several tanks seeing 5% decline period-on-period in this year, should we expect further decline?

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Valery Shpakov, Globaltrans Investment Plc - CEO [12]

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[Interpreted] While answering this question, we should take into account the overall situation. What actually caused this reduction in the rail freight turnover in the segment? So in terms of rail tank cars, there's been some changes in logistics. So the logistics leg has become shorter then, the #1 factor here. Besides, the -- as average speeds in the network of Russian railroads went down. This also produces influence on the matter. And the reduction of speed was due to the repairs and major infrastructure projects in the network of Russian railroad which is expected to last till 2024. So today, we do not expect any improvement in this area in the coming years. However, factors like logistical legs, and routes and logistics patterns, these all depends on the sales of our clients. Of course, this might change, but this is all quite controllable.

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Operator [13]

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(Operator Instructions) Okay. So we have a couple of questions coming through. The next one being from the line of Denis Vorchik from URALSIB Bank.

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Denis Vorchik, URALSIB Capital LLC, Research Division - Analyst [14]

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[Interpreted] I have another question about CapEx. So could you please give some guidance about your expected CapEx for the second half of 2019 and probably for 2020 as well? And what is your general strategy in terms of your expansion CapEx?

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Alexander Alexandrovich Shenets, Globaltrans Investment Plc - CFO [15]

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[Interpreted] So as I said before, in the first half of 2019, we already did most of expansion CapEx planned for this year. So in the first half of the year, we spent RUB 7.3 billion in that CapEx. And then our expected total CapEx for the full year is going to be RUB 12 billion or maybe a little bit more. This includes expansion and maintenance CapEx. As for the year 2020, it's a bit premature to discuss this yet because our investment program has not been developed so far and budgeting will take place in the autumn. And it's important to note that when considering our CapEx, we will proceed from the market environment certainly. Our expansion CapEx is fully discretionary, so we do not have any material needs to replace all the rolling stock or scrap rolling stock.

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Operator [16]

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The next question comes from the line of [Igor Gontra] from Gazprombank.

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Unidentified Analyst, [17]

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[Interpreted] So most of my questions have already been asked, but I would like to ask one very high-level question. So you have shown your dynamics in terms of volumes and rail freight turnover, so you've compared that versus the market. And your volumes in the first half of 2019 were better than the market. However, the turnover was worse than the market. Could you please give some high-level explanation of why this happens and why we can see such different trends in terms of volumes and rail freight turnover?

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Valery Shpakov, Globaltrans Investment Plc - CEO [18]

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[Interpreted] Yes. Indeed, if we look at our indicators, we will see volumes going up and our turnover going down. That was caused by the market situation and the changes in the cargo load and the cargo traffic. Since we have some major clients, especially clients on the -- that we service under service contract, who -- which [shares] have significant shifts and changes in their cargo close. That was true for the gondola segment in terms of Metalloinvest major clients. And we could see similar trends in the rail tank segment where we have contract with Rosneft. So the logistics legs, the businesses have become shorter. That's the key reason. And of course, the slower turnaround of cars also affects the reduction of rail freight turnover.

I would also like to add that it's not quite correct to compare the trends in terms of freight rail turnover for Globaltrans and the market overall because, for instance, Globaltrans uses gondolas and rail tanks, but we do not use containers, well, apart from some specialized projects.

And as for the container market, we know that it's growing really rapidly, and there are some trends in shipments and containers that are delivered across the country, and rail freight turnover there is growing immensely. So that's just one example. And also, the fact that there might be significant differences between the market parameters overall and the parameters applicable to Globaltrans.

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Operator [19]

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The next question comes from the line of Matvey Tayts from Sova Capital.

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Matvey Tayts, Sova Capital Limited, Research Division - Research Analyst [20]

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[Interpreted] I have a question about -- additional question about repairs. In the presentation, you said that this indicator, cost of repair and maintenance, continued growing. My question is about the trends for the second half of the year. So what are the expectations in terms of year-on-year development? Do you expect the growth at the same rate? Do you expect it to accelerate? So what is the expectations about that?

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Valery Shpakov, Globaltrans Investment Plc - CEO [21]

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[Interpreted] So that's quite a complex matter. So we do not expect any significant number of growth of the number of repairs, maintenance cases in the second half of the year. And I'm talking about maintenance CapEx, the one reflected in cash flow. However, we do expect some growth of the cost of spare parts just because the growth -- the cost of spare parts was growing in the first half of the year. In particular, there is such a spare part, wheel pair. And the price of those wheel pairs continued growing throughout the first half of the year because of the deficit of such spare parts in the market. And although we are expecting some improvement in this respect because manufacturers are growing volumes, at least they have some plans, and Chinese manufacturers have been admitted to the market, still, this situation is probably going to improve next year, not this year. Hopefully, this answered the question.

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Operator [22]

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Okay. So the next question comes from the line of Fedor Kornachev from Sberbank.

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Fedor Kornachev, Sberbank CIB Investment Research - Research Analyst [23]

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[Interpreted] So my question is about revenue, your revenue from the operation of rolling stock. So if we look at your revenue in the gondola segment, we can see quite significant improvement. And I have a feeling that's not only because you kind of shifted new costs to the client, but also your growth here has been faster than, for instance, the growth of spot rental rates. What does this mean? So is that because of some new routes, some changes in the logistics of your customers? And for instance, if you have some new routes with your long-term clients, do you negotiate terms and conditions for those new routes from scratch? Or are such new routes still covered by existing long-term contracts?

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Valery Shpakov, Globaltrans Investment Plc - CEO [24]

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[Interpreted] Yes. Thank you for the question. You noted absolutely rightly. So we have growth in revenues from the gondola segment. This was caused by a number of factors, including the ones you were talking about. That was related to changes in the flows of cars, of cargoes for our clients. So some new routes appeared because of changes in the demand, because of new contracts of our shippers, and the cargoes went in different directions when followed other routes, new routes.

And as for pricing, so pricing for such new routes are normally set from scratch. They are not covered by long-term contracts, and they are still dependent on our negotiations and the market situation. Besides, for many customers, we've seen some changes in cargo flows and the growth of empty runs. And for such clients, we made our best to offset these changes in costs. And so in every year, these different client factors contributed to the growth of such revenue. I think this answers it.

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Fedor Kornachev, Sberbank CIB Investment Research - Research Analyst [25]

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[Interpreted] Let me check something. As far as I understand, for instance, in the iron ore market, yes, here, we could see some influence about the situation -- from the situation of the global market, growth of export, and so on and so forth. But what are your views for the second half of the year? There has been some price adjustments already. So how is this going to affect the logistics? For instance, in the first half of the year, you said new rates for new routes for the customers. And what is the returns of the old routes? Will this mean that your revenue per car will go down?

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Valery Shpakov, Globaltrans Investment Plc - CEO [26]

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[Interpreted] Well, so basically, you might be right. But in fact, what we do, we just negotiate with our clients and take decisions based on the opportunities and costs, the additional opportunities and additional costs. So that generally a creative process, and everyone start -- tries to protect his or her own interest. But the general principle underlying that is supply and demand or the market, in other words.

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Operator [27]

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There are no further questions. I'll turn the call back to your host.

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Mikhail Perestyuk, Globaltrans Investment Plc - Head of IR [28]

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Thank you very much for your time and interest. All the disclosure materials are available on Globaltrans' corporate website. If you have any questions after the call, you are more than welcome. Thank you.

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Operator [29]

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Thank you for attending today's call. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]