Download - Brunswick Railbrunswickrail.com/downloads/Bringing_Railcar... · Brunswick Rail founding shareholders Source: Company information Source: Company IFRS financial statements Shareholder

Brunswick Rail Bringing Railcar Operating Leasing to Russia March 2014 Moscow

We are the #1 operating leasing company in Russia

#1 freight railcar operating lessor in Russia(1) with 24,229 railcars(2) and USD 1.2 bln asset value(3)

(1) Based on INFOLine data for Dec’2012 (by number of railcars) (2) As of 30 September 2013 (3) As of 30 September 2013 NAV based on asset Fair Market Value

2

One of the best performing companies in the industry with strong financial and operational track record, high profitability and cash flow generation

Track record of consistent growth and profitability

Recognised international leasing business model successfully imported into Russia

Martin Andersson

15,8%

Gerard De Geer

8,6%

MRIF 15,1%

IFC 13,2%Sumitomo 9,1%

VTB Capital

7,0%

UGF 5,6%

Andre

Hoffmann 5,2%

Other Investors

(30) 20,4%

Brunswick Rail founding

shareholders

Source: Company information

Source: Company IFRS financial statements

Shareholder structure as of 30 September 2013

Diversified and high-quality international shareholder base and high corporate governance standards

16 27 42

81 85 92

184

306

197

8 16 27 61 67 71

140

241

150

49.9%

59.7% 63.3%

75.5% 79.0% 77.3% 75.9% 78.7% 75.9%

0%

30%

60%

90%

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009 2010 2011 2012 9m 2013

Gross revenue (USD mln) Adjusted EBITDA (USD mln)Adjusted EBITDA margin, %

Bringing Railcar Operating Leasing to Russia

2004 2005 2006 2007 2008 2009 2010 2011 2012

3.1 3.7 7.4

10.4 10.7 12.6

21.8 24.2

2005 2006 2007 2008 2009 2010 2011 2012

Leveraging first mover advantage: from pioneer to market leader

3

Source: Company IFRS financial statements (1) End of period data (2) Repaid in full

Implant the concept Build scale Demonstrate resilience Deliver sustainable growth

New Shareholder

New Shareholder

$200m Syndicated Loan(2)

$385m Syndicated Loan(2)

$50m Rights Issue

MRIF

$172.5m Private Placement

$300m A/B Loan(2) (upsized to $420m in 2011)

$250m IFC A/B Loan(2)

$600m inaugural Eurobond, rated BB- by S&P and Ba3 by

Moody’s

$156m Acquisition Facility(2)

4 M&A Deals Completed Founded

Equity Financing Debt Financing M&A

Fleet size (ths railcars)(1)

Adjusted EBITDA

$8m $16m $27m $61m $67m $71m $140m $241m


1 283

1 209

664

229

184

73

USA

Russia

China

India

Ukraine

Canada

1 775

1 364

914

735

646

521

Russia

USA

Canada

China

India

Ukraine

(3)

2 900

2 525

2 196

626

254

244

China

USA

Russia

India

Canada

UkraineMoscow

Yekaterinburg

Omsk Novosibirsk Krasnoyarsk Omsk Novosibirsk

Moscow

Krasnoyarsk

Murmansk

Kaliningrad St. Petersburg

Vorkuta

Khabarovsk

Vladivostok

Volgograd

Yekaterinburg

Rail industry is the backbone of the growing Russian economy

• Nature of freight

• Geography

• Climate

The Russian economy is heavily dependent on rail transportation

(1) Management estimates based on current railcar prices (2) Excluding pipeline transportation (3) 2013 data (4) Management estimates based on 11 months 2013 actuals (5) 2012 data

4

Source: Rosstat, U.S. Department of Transportation, National Bureau of Statistics of China, Eurostat

Source: INFOLine, Rosstat, U.S. Department of Transportation, National Bureau of Statistics of China, Indian Railways, Statistics Canada, State statistic service of Ukraine

One of the largest railcar markets worldwide

Freight turnover (bln t*km, 2011)

Freight rolling stock (ths railcars, 2011)

Average transportation distance (km, 2011)

Share of rail in total freight turnover(2)

(3)

(3)

The main drivers of demand for new railcars

• Over the next 10 years ca. 350 ths new railcars will be required with up to USD 25 bln estimated investment(1)

(3)


85%

16% 49%

21%

15%

84% 51%

79%

Russia (2013) China (2013) USA (2011) Germany (2011)

(3)

(4)

(5)

Railcar market overview

5

Rail transportation volumes have started to recover in the end of 2013

• In Dec’13 rail transportation volumes are above 2012 levels for the first time in this year: +1.8% vs Dec’12

• According to RZD, this positive trend will continue in Jan’14: transportation volumes are estimated to be +1.0% vs Jan’13

Source: Industrial Cargoes

Rail transportation volume in Russia, m tons

Source: Rosstat, RZD

90

95

100

105

110

115

J F M A M J J A S O N D

2011 2012 2013

-6.3%

Railcar production is still above sustainable level of demand

• Average monthly railcar production in CIS in Q4’13 is stable at 7.1 ths railcars, which results in annual production of ca. 85 ths railcars

• According to our estimates, sustainable level of demand is ca. 50-60 ths new railcars per year

• Excessive production is absorbed by decreased efficiency of the system and increased competition (in particular from leasing companies affiliated with railcar producers - UVZ-Logistics and Rail1520)

• The final decision on limitation of railcar lifetime extension is postponed to 2014

2,5 3,0 3,3

3,2

2,9

2,8

3,0

3,0

2,9 3,2 3,7 4,

6

4,0 4,

6

4,3

4,2

3,4

4,3

4,6

5,9

6,0

6,7

7,4

6,3

6,7

7,7

7,1

4,6

3,1

2,9

3,1

2,8

5,9

7,3

7,9

9,1

9,0

9,5

10,4

9,3

9,6

10,9

10

,8

9,2

7,1

7,4

7,4

7,1

0

2

4

6

8

10

12

I-10

II-1

0

III-1

0

IV-1

0

I-11

II-1

1

III-1

1

IV-1

1

I-12

II-1

2

III-1

2

IV-1

2

I-13

II-1

3

III-1

3

IV-1

3

Specialized railcars Gondola

Average monthly railcar production in CIS, ths units


+1.8%

Forecast for 2014: stabilization of the transportation volumes

• In 2013 transportation volumes have reached 1 237 mln tons (-2.8% vs FY’12), cargo turnover is 2 196 bln t*km (-1.2% vs FY’12)

• RZD forecast for FY’14 is +1,1% vs FY’13:

— Main growth drivers are oil (+3.1%) and grain (+16.3%)

— Gondola cargos are expected to decrease in 2014 by 0.5-1.0%

1 242 1 272 1 237 1 250

3,0% 2,4%

-2,8%

1,1%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

1 210

1 220

1 230

1 240

1 250

1 260

1 270

1 280

2011 2012 2013 2014

Transportation volume YoY, %

Source: Rosstat, RZD

Annual railcar production in CIS, ths units

115 122 85 50

26%

6,1%

-30% -41%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

0

20

40

60

80

100

120

140

2011 2012 2013 2014

Railcar production YoY, %


45 53 58 64 72 80 79 74 73 72 67 59 55 52 50 51 50 50

29 31 34

43 44 48

52 50 50 43

36

27 18 21 20 20 18 17

0

25

50

75

0

25

50

75

100

125

150

I-1

0

II-1

0

III-1

0

IV-1

0

I-1

1

II-1

1

III-1

1

IV-1

1

I-1

2

II-1

2

III-1

2

IV-1

2

I-1

3

II-1

3

III-1

3

Oct

'13

No

v'1

3

Dec

'13

Gondola price, ths USD Gondola spot rental rate, USD / day

Leasing market overview

6

Gondola spot market daily rate and average new gondola price

Oil tank spot market daily rate and average new oil tank price

Source: Industrial Cargoes, INFOLine


Gondola rental rates have seasonally declined, but expected to level-off by mid-2014

• As expected by the Management, gondola spot market daily rates have started to decline in Nov-Dec’13 from RUR 600-650 (USD 18-20) per day to RUR 550-600 (USD 17-18) per day driven by seasonal factors

• Further decline of gondola rates in Q1’14 is expected due to:

— on-going gondola overproduction

— decrease in transportation of gondola cargos

• Gondola daily rates are expected to stabilize at about USD 20 by 2H’14

Rates for specialized cars have stabilized

• Oil tank spot market daily rates have stabilized at RUR 850-900 (USD 26-27) during the last 2 months

• Oil tank prices have reached a level close to the cost of production and are stable over the last 3 months at USD 55 ths

• No significant changes are expected in the oil tank segment in 2014

• Rental rates on other specialized railcars have also stabilized

USD/day ths USD

51 61 66 69 74 80 80 75 74 74 72 68 68 60 56 55 55 55

26 32 33 36 38

42 43 41 42 42 41 40 40 35

29 27 26 26

0

25

50

75

0

25

50

75

100

125

150

I-10

II-1

0

III-1

0

IV-1

0

I-11

II-1

1

III-1

1

IV-1

1

I-12

II-1

2

III-1

2

IV-1

2

I-13

II-1

3

III-1

3

Oct

'13

No

v'13

Dec

'13

Oil tank price, ths USD Oil tank spot rental rate, USD / day

USD/day ths USD


Brunswick Rail: straightforward and robust pure play operating leasing business model…

• Organic growth

• Disciplined acquisitions

• Operating lease contracts

– Tenor up to 7 years

– Take-or-pay

– Full service or triple net

• Blue chip customers

7

Raise capital with efficient capital structure

Build up high quality fleet

Sign long-term contracts with quality customers

Reinvest / distribute profit

• Efficient capital structure

• Low cost of capital

• Prudent leverage


Operating lessors Railcar operators

Examples

Operations leasing out railcars contracting volumes with freight owners

Railcar ownership owned fleet owned / leased-in fleet

Customers railcar operators / freight owners freight owners

Tenure of contracts multi-year short-term / multi-year

Overheads lower higher

Cash flow stability higher lower

Financial leverage higher lower

… proven in international markets

8

Source: Company analysis based on publicly available information


Railcar operating leasing: fundamentally attractive with significant growth in Russia

9

Railcar operating leasing penetration(1) in Russia and the USA

7% 17%

57%

93% 83%

43%

Russia 2009 Russia 2012 NorthAmerica 2012

992 1,152 1,283

Railroads, freight owners and transportation companies

Operating lessors

Source: Company analysis, GATX (for the USA), Industrial Cargoes

• Allows to focus on core business

• Allows to outsource maintenance and fleet management

• Provides for greater operational flexibility

• Allows to maximize returns where WACC is higher than the lessor’s IRR

• Supports asset-light business models focused on higher return on capital

Operational drivers Financial drivers

Growth drivers Decreasing railcar price volatility will make financial drivers more relevant (gondola market price dynamics, ths USD)

• Up to 2012 operational drivers played a greater role in driving demand for operating leasing services

• As railcar price volatility decreases, financial drivers will play an increasingly important role in client decision making

Attractive customer proposition

Strong growth and potential in the Russian market

97

38

80

50

0

20

40

60

80

100

120

I-0

8

II-0

8

III-

08

IV-0

8

I-0

9

II-0

9

III-

09

IV-0

9

I-1

0

II-1

0

III-

10

IV-1

0

I-1

1

II-1

1

III-

11

IV-1

1

I-1

2

II-1

2

III-

12

IV-1

2

I-1

3

II-1

3

III-

13


(1) As % of total fleet

22,3

12,7

10,3 9,8

7,6 7,5 7,3

4,9

Bru

nsw

ick

Rai

l

OTE

KO

GLT

R

Rai

l 15

20

Frei

ght

On

e

TFC

Eu

rotr

ans

Ru

stra

nsc

om

UV

Z-Lo

gist

ic

Source: INFOLine as of Dec’13, Globaltrans as of Jun’13, Company analysis

Russia’s leading dedicated freight railcar operating lessor

• Well positioned to capture opportunities in the unfolding Russian railcar operating leasing market

#1 dedicated freight railcar operating lessor and one of the leading fleet owners in Russia

10

#1 dedicated freight railcar operating lessor in Russia (by fleet leased-out)

Operator Operating lessor % of total fleet leased out

89%

Strong position vis-à-vis competition

89%

17%

97%

76% 22%

25%

• Benefits of scale and fleet quality

• Non-core business for operators: limited number of cars leased out and only short- term lease

• More efficient capital and cost structure

• Long standing client and supplier relationships

• Sticky customers due to high switching costs


4,3%

5,3

14,8

28,1

15,1

Brunswick Rail Private companies Russian Railways Total Russian fleet

Modern and high quality asset base

Fleet size of 24,229(1) railcars

11

Fleet age in context (average fleet age as of 30 September 2013)

Average technical life: 26 years

Source: Company information as of 30/09/2013, INFOLine and RZD as of 30/06/2013

One of the youngest fleets in the market — average age of 5.3 years vs. market average of 15 years

Shift from gondolas to semi-specialized railcars to adapt to new market demand

• New purchases focus on tank cars and specialized railcars which provide better returns

• Reasonable maintenance costs and minimal number of days out of service

• Long remaining useful life for BR’s existing fleet. Russia’s average mandatory retirement age for railcars is 26 years

• Strong and sustainable demand for semi-specialized railcars

• Higher yield compared to other railcar types

(1) As of 30 September 2013

BR’s fleet structure by railcar type, as of 30 September 2013 (% of the fleet, based on number of cars)

Platform 3% wood, vehicles, containers and metal products

Gondola 63% coal, ore, crushed stone, woodchips and other bulk freight

Mineral Hopper 14% fertilizers, concentrate, grain, cement, pellets, agglomerate and other bulk freight

Tank car 18% oil, oil products, liquefied gas

Boxcar 2% food, finished goods, packaged freight


BR fleet: options for development

12

BR fleet dynamic, ths units Targeted fleet size – 40 ths railcars


Source: Company analysis

(1)

4 6 6

8

16 15 15

63%

17 43%

42%

1 3

3 13%

8 20%

20%

1

1 1 | 5%

2 | 4% 3%

3 | 8% 7%

3

3 3

4

3

3 3

14%

3 | 8% 3%

1 | 1%

3%

1 | 3%

3%

2 | 5% 6%

3 | 8%

6%

1 | 3% 7%

7

10 11

13

22

24 24

27

31

34

37

40

2007 2008 2009 2010 2011 2012 1H 2013 2014 2015 2016 2017 2018 RU 2018

Other

Containerplatforms

Open platforms

Hoppers grain

Hoppers cement

Hoppers mineral

Boxcars

Tanks gas

Tanks oil

Gondolas

Organic vs M&A

Fleet diversification

• Growing the fleet to 40 ths cars will create sufficient size demanded by:

— rating agencies for potential improvement of BR ratings

— investors to increase BR attractiveness and increase profitability through economies of scale, wider access to capital and reduced client concentration

• In the current market, M&A appears to offer superior returns, particularly if additional fleets come to market in the future at distressed levels

• Specialized cars and NGRs are prioritized for organic purchases

• Management targets 2018 BR fleet structure close to total Russian fleet structure in 2018 with possible deviation less than 20%

• Management proposes further diversification into specialized fleet

Targeted BR fleet structure in 2018

Estimated Russian fleet structure in

2018

Chemicals & mineral fertilizer:10%

Coal & coke: 14%

Ferrous metals: 5%

Oil, gas and petrochemicals:5%

Timber, pulp & paper:3%

Construction material:1%

Rail transportation operators: 62%

Diversified portfolio of blue chip clients

Solid, diversified client base

• A diversified portfolio of 28 leasing clients represented by leading Russian freight owners and transportation companies

• Very low historical default rate

Strong relations with core clients

• Average remaining lease tenor is 3.3 years

• Weighted average retention rate was 83.5% as of 30 September 2013

Long-term contracted revenue base

• 47% of the fleet contracted for 3 years or more

• Total contracted revenues of USD 698 mln

Ample room for development of relationships and further growth

• Existing demand from current and potential customers for additional fleet

13

Source: Company information

Main clients

UKAS-Holding

BR operating lease maturity profile by revenue (mln USD)

BR operating lease maturity profile by number of railcars

3 364

8 046

4 622 5 354

<1 1-3 4-5 >5

BR’s fleet structure by industry as of 30 September 2013 (% of fleet, based on number of leased railcars)


206

465

27

<1 year 1-5 years >5 years

http://www.eurosib.biz/eng/

91%

76%

7 20 31

79 77 88

166

242

136

2005 2006 2007 2008 2009 2010 2011 2012 9m 2013

Cash flow from operating activities (USD mln)

93 40

165 217

38 91

510

160

79

2005 2006 2007 2008 2009 2010 2011 2012 9m 2013

Cash used for Capital Expenditure (USD mln)

8 16 27

61 67 71

140

241

150

2005 2006 2007 2008 2009 2010 2011 2012 9m 2013

Adjusted EBITDA (USD mln)

16 27 42 81 85 92

184

306

3 4 7

10 11 13

22 24

2005 2006 2007 2008 2009 2010 2011 2012

Gross revenue (USD mln) Fleet size (ths railcars)

Strong track record of profitable growth

14

Track record of sustainable growth Strong EBITDA growth and consistently high EBITDA margin

Expansion driven, mostly discretionary capital expenditure(2) Operating cash conversion > 85%

Source: Company’s IFRS financial statements

(1) End of period data

(2) Including M&A

(3) The total amount of capital expenditure and M&A for 2011 equals US$683m, which includes US$510m as cash consideration and the remainder represented by (i) the VTB finance lease agreements in relation to the acquisition of Brunswick Trans and (ii) the non-cash consideration paid in the form of the Company’s shares and finance lease obligations in relation to ZAO Proftrans acquisition. For the period from 2005 to 2010 BR incurred only cash capital expenditure

(4) Defined as Cash flow from operating activities/ Adjusted EBITDA

Average utilisation ratio

Railcars purchased

100% 100% 100% 100% 100% 99.5% 100% 100%

2,461 640 3,686 3,018 300 1,899 9,958

50% 60% 63% 76% 79% 77% 76% 79%

Adjusted EBITDA Margin

3,295

(3)

(1)

88% 125% 115% 130% 115% 124% 119% 100%

Cash conversion (4)


2,082

9m 2013

197

24

100%

Capital structure profile

15

Highlights of post-Eurobond capital structure

• Existing debt is non-amortising, long-dated and unsecured, except for finance lease financing

• 84% of debt is USD-denominated with the remainder in RUR

• Free cash flows are available for reinvestment into the business

• Bulk of debt maturities has been moved out to 3-5 years

• Greatly reduced risks through the absence of maintenance covenants and reduced reliance on bank financing

Capital structure evolution (USD mln)

Source: Company’s IFRS financial statements

Debt maturity profile as of 30 September 2013 (USD mln)

• In October 2013 rating agencies reaffirmed Brunswick Rail corporate rating. Moody’s changed outlook to negative due to weakened market environment

Agency Rating Outlook

S&P BB- Stable

Moody’s Ba3 Negative

Brunswick Rail credit ratings

Stable credit ratings

* Book Equity restated based on historical cost

300 388 347

694

137 123

607 618

31.12.2011 31.12.2012 30.06.2013

Unsecured Debt

Secured Debt

Book Equity*


27

121

590

3

<1 year 1-3 years 3-5 years >5 years

30.09.2013

Strategy: positioned for sustainable long-term growth

16 16

• Maintain leadership in a fast growing Russian market

• Grow to a strategic fleet size of over 40,000 railcars to further benefit from economies of scale

• Continue delivering relevant solutions to customers in a changing environment

• Pioneer introduction of new generation railcars in the Russian market

• Maintain optimal capital structure to finance growth and maximise returns

• Continue to benefit from access to attractively priced capital

• Additional growth through accretive M&A and leaseback transactions

• Take advantage of Russian rail sector restructuring and consolidation

• Enter locomotive segment once it is liberalised

• Enter new attractive geographies (Kazakhstan, Ukraine)

• Acquisitions in maintenance and repair to control cost base

Maintain efficient capital structure

Deliver profitable growth

Pursue prudent M&A

Consider other expansion opportunities


Brunswick Rail: key company highlights

17

Fundamentally attractive market with strong growth

opportunities

Strong track record of profitable growth through the cycles

Leading market position supported by high quality asset and customer base

Strong organisational platform with proven

management execution track record and high corporate

governance standards

Differentiated and proven business model

Efficient capital structure supporting further

growth and attractive returns to shareholders


Download - Brunswick Railbrunswickrail.com/downloads/Bringing_Railcar... · Brunswick Rail founding shareholders Source: Company information Source: Company IFRS financial statements Shareholder

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