UPDATE 2-Russia's Globaltrans extends spending freeze in weak economy

Mon Mar 31, 2014 8:47am EDT

Related Topics

* Rail freight market faces challenges as economy slows

* Total 2013 net profit fell 19 pct to $251.6 mln

* Bottom line hit by acquisition-related depreciation costs (Releads with CFO comments on investments, adds details)

By Gleb Stolyarov

MOSCOW, March 31 (Reuters) - Russian rail freight operator Globaltrans Investment has extended a freeze on capital spending as an economic slowdown sours prospects for transporters of commodities such as metal and coal.

Russia is at risk of recession as investors pull money out of the economy following Moscow's annexation of Crimea from Ukraine and the resulting Western sanctions.

The World Bank last week forecast the economy could contract 1.8 percent this year if the Ukraine-related crisis deepens.

Globaltrans said business conditions and pricing in the rail freight industry, which handles around 85 percent of total Russian freight turnover excluding pipelines, were difficult and would depend on economic and political developments.

"As of now, our capex programme is frozen and we will probably not grow organically in the first half, and will wait for the market conditions to become more favourable," Alexander Shenets, Globaltrans Chief Financial Officer, said on Monday.

Globaltrans, which owns more than 61,000 rail cars and tankers, did not disclose its capital expenditure plans for this year.

In 2013, the capex fell to $35.5 million from $809.7 million in the previous year and was mainly spent on maintenance.

The company beefed up its fleet by a record 50 percent in 2012 when it acquired several rival operators and more rail cars. But it has not bought new rail cars since mid-2013 and its fleet increased by just 4 percent in 2013 as a whole.

"We think that now is not exactly the right time to buy rail cars. I admit that we may see a major improvement of the macroeconomic situation in the spring and then we could of course consider buying, but so far we are not seeing any significant improvements in the economy and the rail freight sector," Shenets said.

MORE EXPORTS

However, the company hopes that a weaker rouble will prompt Russian producers to export more, which could help rail freight operators.

The rouble was trading at around 8 percent lower to the dollar on Monday than at the beginning of the year.

Globaltrans is fresh from an aggressive acquisition spree, in which it bought the Ferrotrans business from iron ore company Metalloinvest in 2012 in a $540 million deal and rail freight operator MMK-Trans for around $250 million.

Depreciation costs related to the consolidation of the new assets dragged its 2013 earnings lower with profit for the year falling 19 percent to $252 million. Net profit attributable to the company's owners slid 30 percent to $182 million.

However, the acquisitions helped Globaltrans outperform the market as it showed a 13 percent rise in freight rail turnover while the market slipped 1 percent due to a slowdown in Russia's economic growth.

Its total revenues grew 10 percent last year to $2.3 billion. When adjusted for payments to state railway monopoly for using its infrastructure, revenue was up 6 percent at $1.4 billion, driven by an increase in its fleet size and a strong performance in the rail tank car segment.

The company also recommended paying 61 percent of net profit in dividends, up from 48 percent in the previous year. The dividend for the year would amount to $110.8 million in total or 62 U.S. cents per ordinary share and global depositary receipt. (Additional reporting and writing by Maria Kiselyova; Editing by Timothy Heritage and Erica Billingham)

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