Loss-making Operail looks for ways to expand business to foreign markets

operail. Source: Tanel Meos

Although Operail, a state-owned rail operator, has decreased its operating expenses, it still incurred a loss in the third quarter. To make the company profitable, management is looking for ways to expand into foreign markets.

Operail, the state-owned group of railway companies, transported a total of 1.5 million tons of goods in the first nine months of the year. Compared to the same period last year, the volume of freight transport decreased by 68 percent. The operating revenue from freight traffic amounted to 16.9 million euros, 43 percent less than in the same period last year.

Operail Group's nine-month operating profit (EBITDA) was EUR 0.2 million and net loss EUR 3.3 million, which was in line with the forecast.

Raul Toomsalu, the chair of Operail's management board, said that there is reason to expect the revenue number to fall further over time.

"Many of our clients switched to roads because the price of rail transportation has stayed consistent, if not grown in some regions, while road transportation rates in Estonia have even fallen. Transporting goods by road is already cheaper than by rail," Toomsalu explained.

He went on to say that there is no escape from losses in the third quarter, as the volumes of goods being transported went down. The corporation has a large fixed cost share, and railways, as a capital-intensive means of transportation, needs bigger freight quantities than what is currently the case.

For the first nine months, operating profit has been only narrowly positive, but the financial condition is strong, as liabilities are being paid off, so there should be some assets remaining. Nevertheless, Toomsalu thinks the overall picture is not satisfactory.

"After all, one cannot be satisfied with the fact that the capital invested is reduced through losses. So it's still an issue of finding a means to cease incurring present losses and discovering new revenue streams to become profitable again. That means that the money we have will almost certainly be invested," he said.

The group is nearing completion of its new strategy, and it is planned to deliver a presentation of the revised vision to the owner's representative in November.
Further elaboration on the new course of action will be released to the public following to the approval. At this time, Toomsalu only said that the new strategy is directed out of Estonia.

"In Estonia, unfortunately, we're so constrained that we don't see any growth opportunities there and we don't see opportunities to generate income at a high enough rate to generate profits," he said.

Last year, Operail had more than 500 employees on its list, but now there are around 250 people left. Toomsalu said that the biggest wave of layoffs was before the third quarter, but some redundancies are still reflected in the last quarter.


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Editor: Kristina Kersa

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