Business Review

2021 Results: Continued strong growth, deleveraging targets achieved

Financial Highlights

• Consolidated revenue increased by 30.8% to USD 502.8 million; excluding the impact of VSC transportation services, like-for-like revenue increased by 17.1% as 25.0% increase in Consolidated Container Revenue offset 5.2% decrease in Consolidated Non-container Revenue on the back of ceased coal handling at VSC.
• Like-for-like Revenue per TEU increased by 21.6% to USD 188.7 as a result of positive cargo, customer and basin mix changes, as well as customers’ appreciation of our quality services in high demand environment in the Far Eastern basin.
• Operating profit increased by 25.2% to USD 197.1 million.
• Like-for-like Total Operating Cash Costs increased by 16.4% to USD 131.8 million due to inflationary pressure, volumes growth and also the fact that operating in a high demand environment and capacity utilisation rate at VSC required controlled cost increases to drive Adjusted EBITDA growth.
• Adjusted EBITDA increased by 17.4% to USD 246.2 million as a result of volume growth and Revenue per TEU increase. Profitability improved with like-for-like Adjusted EBITDA Margin at 65.4%, an increase of 15 basis points.
• The Group achieved significant Free Cash Flow growth of 46.9% generating USD 129.1 million over the year.
• The Group reduced Net Debt by USD 120.7 million in 2021 allowing Net Debt to Adjusted EBITDA to decrease from 2.9x as of 31 December 2020 to 2.0x as at the end of the reporting period, achieving the Group’s long-term deleveraging target.

Business Performance

• Strong market growth in 2021 saw the Russian marine container market achieving all-time-high volumes in 2021 of 5.4 million TEU (+7.1% y-o-y ), driving growth in both containerised import of 11.1% and containerised export of 4.2%.
• As a result of the sharp rise in freight rates in most of the main global container shipping trades, very tight network capacity in the Asia-Europe trade and a deficit of empty containers globally, market players increasingly preferred faster container import and export supply chains via the shortest sea leg. As a result, market growth was concentrated in the Far Eastern basin (+14.0% y-o-y) and the Southern basin (+6.4% y-o-y) while the combined throughput of terminals located in Saint Petersburg and the surrounding area declined by 3.7% y-o-y in FY 2021.
• The Group successfully improved its market share position in both its basins of presence in 2021, with VSC throughput improving 14.8% y-o-y and throughput of its terminals in the Baltic Basin declining by 2.3% y-o-y (being less than market decline). In total, Consolidated Marine Container Throughput increased by 2.8% y-o-y in 2021 to 1,576 thousand TEU.
• As previously announced, VSC ceased coal handling activities in September 2021, enabling the terminal to concentrate on the Group’s core strategic container operations. As a result, the Group’s Consolidated Marine Bulk Throughput decreased in 2021 by 14.6% y-o-y to 4.3 million tonnes.
• High and Heavy Ro-Ro handling increased by 24.4% to 25.2 thousand units, while car handling increased by 27.8% to 104.9 thousand units.

Outlook

• The company’s outlook for 2022 is impacted by increased volatility and heightened global and regional geopolitical tensions, which has immediately lowered visibility on the prospects for 2022.

Operational Information

The table below sets out the container and bulk cargo throughput of the Group’s terminals for the periods indicated. Gross throughput is shown on a 100% basis for each terminal, including terminals held through joint ventures and accounted for using the equity method.

Annual container throughput capacity of terminals

As a result of previous investment, the ceasing of coal handling at VSC and based on current estimates of container dwell time, the Group believes that the following numbers reflect berth and yard capacity of the Group’s terminals as of the end of 2021.

Results of operations of Global Ports for the year period ended 31 December 2021 and 31 December 2020

The following table sets out the principal components of the Group’s consolidated income statement and certain additional non-IFRS data of the Group for the year ended 31 December 2021 and 31 December 2020.

Revenue

The following table sets forth the components of the consolidated revenue for 2021 and 2020.

In 2021, like-for-like consolidated revenue increased by 17.1% to USD 376.7 million from USD 321.7 million in 2020, driven by the increase in like-for-like Consolidated Container Revenue, which was partially offset by decline in other revenue.

Like-for-like Consolidated Container Revenue increased by 25.0%, or USD 59.5 million, to USD 297.3 million. This change was driven by an increase in Consolidated Marine Container Throughput of 2.3% and by a 21.6% increase in like-for-like Revenue per TEU. Like-for-like Revenue per TEU increased mainly as a result of positive cargo, customer and basin mix changes, as well as our customers’ appreciation of our quality services in the high demand environment in the Far Eastern basin.

Consolidated Non-Container Revenue decreased by 5.2%, or USD 4.4 million, to USD 79.5 million, as decline of throughput of coal at VSC mentioned above was partially offset by growth in revenue from handling of cars and High and Heavy Ro-Ro on the back of the growing volumes described above.

As a result of new terms agreed on certain sales agreements, in 2020 and 2021 VSC acted as a principal versus a role as an agent at the beginning of 2019: previously the net result of revenue from transportation services and associated cost was included in consolidated revenue. Since the middle of the first half of 2019 full revenue and associated cost have been gradually recognised in consolidated revenue and transportation expenses accordingly. This Adjusted EBITDA neutral change resulted in an additional USD 126.0 million attributed to consolidated revenue (USD 62.8 million in 2020) and USD 126.0 million attributed to the cost of sales in 2021 (USD 62.8 million in 2020). The Group discloses like-for-like data to provide historical consistency with the data before this accounting change in 2019. In 2021, the growth of VSC revenue from transportation services was caused by organic growth of this part of business.

Cost of sales

The following table sets out a breakdown by expenses of the cost of sales for 2021 and 2020.

The cost of sales increased by USD 76.4 million, or 38.2%, from USD 200.3 million in 2020 to USD 276.8 million in 2021 primarily due to growth in transportation expenses at VSC. The growth in transportation expenses from USD 62.8 million to USD 126 million in 2021 was driven by new terms of certain agreements that changed the recognition of revenue and costs generated by VSC from railway services for clients as described above.

Like-for-like Cash Cost of Sales increased by USD 15.7 million, or 17.4%, from USD 90.2 million in 2020 to USD 105.9 million in of 2021 in order to drive Adjusted EBITDA growth while improving Adjusted EBITDA margin. The key drivers for like-for-like Cash Cost of Sales were: staff costs growth at VSC driven by 14.8% increase in container throughput on the back of high market demand while the terminal operated in the environment of the high utilisation rate; consolidated volume growth; inflationary pressure; and growth in purchased services at PLP to support non-containerised cargo throughput increase.

Gross profit

Gross profit increased by USD 41.9 million, or 22.8%, from USD 184.1 million in 2020 to USD 226 million in 2021. This increase was due to the factors described above under “Revenue” and “Cost of sales”.

Administrative, selling and marketing expenses

Administrative, selling and marketing expenses increased by USD 2.3 million, or 9.5%, from USD 24.7 million in 2020 to USD 27 million in 2021 and broadly in line with inflation in Russia over the same period (8.4%).

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA in 2021 increased by 17.4%, or USD 36.5 million to USD 246.2 million. Like-for-like Adjusted EBITDA Margin was 64.4%, 15 basis points higher than in 2020 (65.2%).

Share of profit/(loss) of joint ventures accounted for using the equity method

The Group’s share of loss from joint ventures decreased from a loss of USD 3.0 million in 2020 to a loss of USD 2.8 million in 2021.

The loss from MLT Group increased from USD 2.0 million in 2020 to a loss of USD 2.9 million. This result was primarily driven mainly by a decreased volume at MLT.

The change in the share of results from CD Holding Group, from a loss of USD 1.0 million in 2020 to a profit of USD 0.05 million in 2021, was mainly driven by the depreciation of the Russian Rouble against the US Dollar in 2021 that resulted in a gain from the revaluation of the RUB nominated borrowings of YLP.

Other gains/(losses)—net

Other gains/(losses) changed from a net loss of USD 339 thousand in 2020 to a net loss of USD 374 thousand in 2021.

Operating profit/(loss)

The Group’s operating profit increased from USD 157.4 million in 2020 to USD 197.1 million in 2021 due to the factors described above under “Gross profit”, “Share of profit/(loss) of joint ventures accounted for using the equity method” and “Other gains/(losses)-net”.

Finance income/(costs)—net

Net finance income/(costs) decreased from a cost of USD 92.8 million in 2020 to a cost of USD 55.1 million 2021. This move was primarily due to a decrease of interest expenses on bonds from USD 61.1 million in 2020 to USD 43.0 million in 2021 as the result of own Eurobond buyback in 2020 and successful refinancing of FTC rouble bond with a lower coupon rate. In addition, Net foreign exchange loss from financing activities changed from a loss of USD 41.8 million in 2020 to a profit of USD 0.6 million in 2021. This was partially offset by a change in the fair value of derivative instruments to a loss of USD 5.9 million in 2021 from a profit of USD 18.4 million in 2020.

Profit/(loss) before income tax

Profit before income tax increased to USD 142.0 million in 2021 from USD 64.6 million in 2020. This change is due to the factors described above under “Operating profit/(loss)” and “Finance income/(costs)—net”.

Income tax expense

In 2021, income tax credit was USD 1.8 million compared to USD 14.6 million of tax expense in 2020. The current tax remained broadly unchanged (USD 12.3 million of expense in 2020 compared to USD 11.1 million in 2021), while Deferred tax reversal amounted to USD 13.0 million compared to USD 0.9 million in 2020.

Profit/(loss) for the period

The Group reported a profit of USD 143.9 million in 2021, an increase of USD 93.9 million and almost triple the profit of USD 50.0 million in 2020 due to the factors described above.

Liquidity and capital resources

General

As of 31 December 2021, the Group had USD 296.7 million in cash and cash equivalents.

The Group’s liquidity requirements arise primarily in connection with repayments of principal and interest payments, capital investment programmes and ongoing costs of its operations. In 2021, the Group’s liquidity needs were met primarily by cash flows generated from its operational activities as well as borrowings. The Group expects to fund its liquidity requirements in both the short and medium term with cash generated from operational activities and borrowings.

As a result of the shareholding and joint venture agreements of Moby Dik, the Finnish Ports and Yanino, the cash generated from the operational activities of each of the entities in those businesses is not freely available to fund the other operations and capital expenditures of the Group or any other businesses within the Group and can only be lent to an entity or distributed as a dividend with the consent of the other shareholders to those arrangements.

As of 31 December 2021, the Group had USD 788.1 million of total borrowings (including lease liabilities), of which USD 215.3 million comprised current borrowings and USD 572.8 million comprised noncurrent borrowings. See also “Capital resources”.

Cash flow

The following table sets out the principal components of the Group’s consolidated cash flow statement for 2021 and for 2020.

Net cash from operating activities

Net cash from operating activities increased by USD 35.1 million, or 18.4%, from USD 190.9 million in 2020 to USD 226 million in 2021. Growth in net cash from operating activities was primarily due to a 21.2% increase in cash generated from operations from USD 196.6 million in 2020 to USD 238.3 in 2021 due to the financial result from operations as described above.

Net cash used in investing activities

Net cash used in investing activities increased from USD 32.5 million in 2020 to USD 39.5 million in 2021. This change was primarily due to an increase in purchases of property, plant and equipment from USD 33.9 million in 2020 to USD 43.4 in 2021 as strong market growth and growing utilisation of terminals required a CAPEX increase to drive profitable growth.

Net cash used in financing activities

Net cash used in financing activities increased by USD 19.6 million or 26.4% from USD 74.3 million in 2020 to USD 93.9 million. This was due to an increase in the repayment of borrowings of USD 60.4 million because of scheduled FCT rouble bonds repayments in the reporting period in line with the Group’s deleveraging strategy. These were partially offset by an increase in proceeds from borrowings by USD 29.7 million or 41.2% from USD 72.1 in 2020 to USD 101.8 million in 2021 as the Group placed 5-year RUB 7.5 billion bonds to partially refinance Eurobonds due in January 2022. In January 2022 Eurobonds for the total amount of USD 199 million were successfully fully repaid.

Free Cash Flow

Free Cash Flow increased by USD 41.2 million or 46.9% from USD 87.9 million in 2020 to USD 129.1 million in 2021. This change is driven by the reasons described above.

Capital resources

The Group’s financial indebtedness consists of bank borrowings, bonds and lease liabilities and was USD 788.1 million as of 31 December 2021. As of that date, all of the Group’s borrowings were secured by guarantees and suretyships granted by certain Group companies. Certain of these borrowings contain covenants requiring the Group and the borrower to maintain specific indebtedness to Adjusted EBITDA and other ratios, as well as covenants having the effect of restricting the ability of the borrower to transfer assets, make loans and pay dividends to other members of the Group. The Group is in full compliance with covenants in the reporting period.

The Weighted Average Effective Interest Rate of the Group’s debt portfolio is 6.66% for USD nominated borrowings and 9.04% for Russian Rouble nominated borrowings.

As of 31 December 2021, the Group had a leverage of Net Debt to Adjusted EBITDA ratio of 2.0x (compared to a ratio of 2.9x as of 31 December 2020).

The following table sets out the maturity profile of the Group’s total borrowings (including lease liabilities) as of 31 December 2021.

As of 31 December 2021, the carrying amounts of the Group’s borrowings (including lease liabilities) were denominated in the following currencies:

Reconciliation of additional data (non-IFRS) to the consolidated financial information for the year ended 31 December 2021