United Wagon Co could start paying dividends after active capex phase ends in 2017 - CFO
MOSCOW. July 6 (Interfax) - United Wagon Company (UWC) might review its dividend policy when its active capex phase concludes in 2017, and start making payments to shareholders, CFO Alexei Tsyplakov told Interfax.
"We had no net profit last year as we were in a phase of growth. We had some for 2016, but not enough to distribute," he said, adding that shareholders voted at their annual shareholders meeting for the company to retain last year's earnings of 314 million rubles to Russian Accounting Standards (RAS).
"Depending on the 2017 results we'll think about adjusting our dividend policy. In our view the market is doing well, and we're hoping this tendency will persist. Also, when talking about dividends we bear in mind that in addition to net profit and operating results there is also an investment program, debt to service and current payments. We'll be basing our decision on the overall situation," Tsyplakov said.
He said capex had been declining since 2015 as UWC had rounded many of its projects off, achieving design capacity, localizing components manufacturing, improving operating efficiency and putting new railcar models into production. "We invested about 5 billion rubles in 2016 and plan to invest about as much again this year. After that, investments will decrease. We expect to be in maintenance capex mode from 2018, investing less than 1 billion rubles per year. We'll be maintaining our fixed assets, re-equipping, and making isolated investments in new products, but we aren't planning major projects," he said.
UWC currently has a range of 40 products and modifications, and plans in time to have 60. "We've made rapid progress, covering nearly all segments. We've designed a wide range of tankers and other specialized wagons, for example," Tsyplakov said. "Our services network is developing without major capex, through partnerships with various wagon repair companies and depots," he said.
Regarding leverage, Tsyplakov said the goal was still to achieve net debt/EBITDA of 3x to International Financial Reporting Standards (IFRS). "This was 7.3x at the end of 2016, far lower than in previous years. Earlier we were into double figures, because the company was in a phase of growth. Investments were made and we bore costs at a time when we had not yet reached our design capacity. Right now we've come down to below 7x, and in the medium term, in the next couple of years, we are aiming for 5x. A year or two after that we are looking at 3x. But it'll all depend on a lot of factors, including how the market behaves," Tsyplakov said. "We don't plan to go much below that as we think that if there is an opportunity to use financial leverage and invest with good returns, then this will earn a lot for our shareholders. We have no plans to lower our debt ratio to 0x," Tsyplakov said.
Structurally the UWC debt has two components. "We have two bond issues worth 15 billion rubles each, one maturing in 2019 and the other in 2021. As per our financial model, we'll be able to redeem them if the market develops as it is. But if the need arises to support our leverage, and if is at an acceptable level, then we'll be able to refinance these issues. We've already done this with the 2021 issue, which was originally due to mature in 2016, but we prolonged it, with the consent of all bond holders," Tsylakov said. "This concerns principal debt, the payments schedule for which is fairly stable at a few billion rubles a year and which will not be hard to service based on our current expectations for operating flows," he said.
As for the current market situation, Tsyplakov said state support was having a positive effect. "When awarding subsidies, the Industry Ministry takes very many factors into consideration. We expect selective subsidies to be maintained to support the highly specialized segments of the market. But some segments are developing fairly successfully, for example the buyers of gondola cars can already do without the considerable subsidies there were in years gone by," he said.
"In 2017, a total of 5 billion rubles in subsidies have been earmarked: 1.45 billion rubles of them for drop bottom gondolas, 1.45 billion rubles for solid-bottom and some other types of rolling stock and the rest for specialized wagons. We have the opportunity to switch between various types wagon, including specialized ones, and to regulate how many are produced, transferring personnel from one line to another. In our manufacturing program we work on the premise above all of what sort of wagons are sought after by the market," he said.
