About a year ago, the Fesco Group, one of the largest transport and logistics companies in Russia, acquired new shareholders. The GHP Group of Mark Garber (owned 23.8% of Fesco shares) and the American fund TPG Capital (17.4%) were replaced by Andrey Severilov and Mikhail Rabinovich, longtime partners in Loko-Bank. Severilov became the chairman of the board of directors of the company. The main shareholder of the company (32.5%) Ziyavudin Magomedov did not support the deal. A businessman arrested in 2018 on suspicion of creating a criminal community in a letter from the detention center announced a raider seizure. But the flared up shareholder conflict did not prevent the company from noticeably improving its financial position. In the first half of the year, net profit increased versus January – June 2020 from 5.3 billion to 11.6 billion rubles. and, moreover, it turned out to be almost 40% higher than the entire net profit for the last year (8.3 billion rubles).
Fesco’s main asset is the Vladivostok Commercial Sea Port (VMTP). In an interview with Vedomosti, Severilov explains the growth of financial indicators by the favorable situation on the container transportation market. Compared to last year, freight has risen in price several times due to the increased post-pandemic demand for goods and, as a result, the lack of containers. But this is temporary, and the company, forming a budget, prepares ahead of time to reduce freight rates.
In the next two to three years, the company will not pay dividends, says Severilov. The money will be needed for a large-scale modernization program, which became even more urgent after Fesco became a partner of Rosatom in the project for the development of the Northern Sea Route.
“In the horizon of two or three years, we will do without dividends”
– The company’s net profit in the first half of the year more than doubled year-on-year. How are these results?
– Firstly, it is, of course, the market situation. It so happened that we got into a period of historically high freight rates (for example, the World Container Index (WCI), published by the international analytical agency Drewry, as of September 9, amounted to $ 10,083.84 for the transportation of a standard 40-foot container (FEU), which is 309% higher than in the same week of September 2020 – Vedomosti). It was unexpected for us as well. We are absolutely satisfied with the results we have received, but we need to understand that such rates will not last forever. We assume that the current level will remain until the Chinese New Year in February 2022, and then their gradual cooling will begin. At least, when budgeting for the coming period, we proceed from a significant reduction in rates.
The second factor that influenced the good financial results was the well-coordinated work of the management and the work to eliminate the errors that we found after the audit of the enterprises included in Fesco.
– What are these mistakes?
– The most unpleasant thing we have encountered is the high degree of deterioration of the port infrastructure of the Commercial Sea Port. Much has not changed for a long time. Therefore, our first step was to revise the technological model of cargo movement in the port, which made it possible to increase the volume of transshipment. Then we will proceed to the reconstruction and modernization of the sea and railway fronts. We recently conducted an audit of the state of the railway infrastructure inside the port – it is depressing, but everything is working. Therefore, in order to maintain the current container handling times, it is necessary to actively work on infrastructure modernization. This means increasing capex. The shareholders decided to invest in the development of the asset, abandoning the distribution of dividends in the near future. We need to direct maximum energy and cash flow to modernize and service the current debt. Its level remains quite high, but comfortable for the company. At the end of 2020, the ratio of net debt to EBITDA was 2.8-2.9, today it is even lower.
– For how long did you decide to give up dividends?
– It all depends on how long the high stakes will last. This will affect the cash flow. And, as a consequence, for the period when we will not distribute profits. I believe that in the horizon of 2-3 years we will most likely do without dividends. We need to develop, this is much more important for the company in the long term.
– What will be the capex this year?
– We can make a conclusion based on the financial statements. We direct all net profit to modernization and capital expenditures. And, as I said, no dividends are planned for the next few years.
– What are the expectations for financial performance in 2021?
– I would be guided by the dynamics of the indicators of the first half of the year. I think that by year they will grow in proportion to the six months. Further, due to the fall in rates, financial indicators may decline. But we hope that our actions to reinvest the profits gained into modernization will allow us to get high financial results in the future when rates start to change.