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By John Helmer, Moscow

Far Eastern Shipping Co (FESCO), the troubled Russian dry-cargo fleet and ports group owned by Sergei Generalov, broke even on its operations last year, according to international-standard accounts for 2010, just released in Moscow. But Generalov was unable to stop the rot in his fleet arm, and only by radical amputation has he managed to turn a profit on the bottom line.

Group wide revenues were reported at $801 million, up 31% on the 2009 level; earnings (Ebitda) climbed 96% to $165 million; and net income was positive at $456 million, compared with a loss of $71 million a year ago. The revenue result was generally worse than most industry analysts in Moscow have been forecasting. Also, revenues from Fesco’s shipping lines fell year on year by 15% to $157 million. Earnings from shipping fell 64% to just $14 million. Had it not been for the one-off item in the accounts, “impairment reversal on tangible fixed assets,” the fleet division would have continued to be loss-making last year.

In the consolidated accounting of all lines of Fesco’s business, the bottom line would barely have registered in the black if Generalov not sold off his stake in the National Container Company (NCC) for $900 million, thereby earning a profit over the purchase price of $420 million. Operating income for the group reveals a better basis for comparison than net income. The former was $68 million. Interest charges, tax and other charges came to $49 million.

The two biggest business divisions in the group now are liner and logistics, making 51% of consolidated revenues last year, up 34% on 2009; and railway transportation inside Russia, comprising 25% of group revenues, up 49% year on year.

In this sense, the shipping company has come ashore to become a landlubber, and substantially slimmer in asset value than it was two years ago. Total non-current asset value is now $1.4 billion, a slice of 39% off the 2008 figure. Non-current asset value for fleet is now reported to be $411.6 million, down 43% in the past two years. Rail rolling-stock, on which the future of the company depends, is down 26% in asset value.

In the most recent presentation of the company’s new land-based business strategy, “container business [is the] core focal point.” Fesco, the February 28, 2011, report says, “is ideally positioned to benefit from these growth prospects [in the container transportation market]”. From Generalov’s point of view, Fesco must now “[take] the leadership position through the acquisition of controlling stake of TransContainer.”

But that in turn requires Kremlin approval of Generalov’s bid to take over Transcontainer, the state-owned rail container transport company in which Fesco currently holds a minority stake of just 12.5%. Generalov has personally acknowledged the risk he will not get the nod. But the risk this will happen is not acknowledged in the company’s presentations.

According to Fesco’s chief financial officer, Yury Gilts, the nose is still firmly planted on the face:
 

“We’re very pleased with our performance in 2010 and we are especially proud that strong year results were achieved not only by profitable sale of our stake in National Container Company but also by successful operational results of all our business units. The last two years have been challenging for many companies, and we think our results show the strength of our integrated business model, as well as the dedication and professionalism of FESCO team.”

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